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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2021
Or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From
    
        
    
    
to
    
    
        
    
Commission File Number
0-7406
 
 
PrimeEnergy Resources Corporation
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
84-0637348
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
Identification No.)
9821 Katy Freeway, Houston, Texas 77024
(Address of principal executive offices)
(713)
735-0000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
            
 
            
 
            
 
 
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 filings required for the past 90 days.    
Yes
  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, 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.
 
Large Accelerated Filer      Accelerated Filer  
       
Non-Accelerated
Filer
 
   Smaller Reporting Company  
       
         Emerging growth company  
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  ☐    No  
The number of shares outstanding of each class of the Registrant’s Common Stock as of November 8, 202
1
was: Common Stock, $0.10 par value 1,994,177 shares.
 
 
 

Table of Contents
PrimeEnergy Resources Corporation
Index to Form
10-Q
September 30, 2021
 
 
  
Page
 
  
     
  
     
  
 
3
 
  
 
4
 
  
 
5
 
  
 
6
 
  
 
7-13
 
  
 
14
 
  
 
22
 
  
 
22
 
  
     
  
 
23
 
  
 
23
 
  
 
23
 
  
 
23
 
  
 
23
 
  
 
23
 
  
 
24
 
  
 
26
 
 
2

Table of Contents
 
PART I—FINANCIAL INFORMATION
 
Item 1.
FINANCIAL STATEMENTS
PRIMEENERGY RESOURCES CORPORATION
C
ONDENSED
C
ONSOLIDATED
B
ALANCE
S
HEETS
– Unaudited
(Thousands of dollars)
 
    
September 30,
2021
   
December 31,
2020
 
ASSETS
                
Current Assets
                
Cash and cash equivalents
   $ 3,624     $ 996  
Accounts receivable, net
     14,341       7,221  
Prepaid obligations
     781       590  
Other current assets
     568       104  
    
 
 
   
 
 
 
Total Current Assets
     19,314       8,911  
Property and Equipment, at cost
                
Oil and gas properties (successful efforts method), net
     176,497       185,098  
Field and office equipment, net
     5,774       5,955  
    
 
 
   
 
 
 
Total Property and Equipment, Net
     182,271       191,053  
    
 
 
   
 
 
 
Other assets
     593       520  
    
 
 
   
 
 
 
Total Assets
   $ 202,178     $ 200,484  
    
 
 
   
 
 
 
LIABILITIES AND EQUITY
                
Current Liabilities
                
Accounts payable
   $ 11,387     $ 5,217  
Accrued liabilities
     6,896       6,787  
Due to Related Parties
    
34
      38  
Current portion of long-term debt
     1,365       487  
Current portion of asset retirement and other long-term obligations
     816       867  
Derivative liability short-term
     6,177       724  
    
 
 
   
 
 
 
Total Current Liabilities
     26,675       14,120  
Long-Term Bank Debt
     32,164       38,267  
Asset Retirement Obligations
     13,281       12,891  
Derivative Liability Long-Term
     1,657       44  
Deferred Income Taxes
     34,667       36,367  
Other Long-Term Obligations
     759       797  
    
 
 
   
 
 
 
Total Liabilities
     109,203       102,486  
Commitments and Contingencies
            
Equity
                
Common stock, $.10 par value; Authorized: 2,810,000 shares; Outstanding: 1,994,177 shares
     281       281  
Paid-in
capital
     7,560       7,541  
Retained earnings
     121,783       126,804  
Treasury stock, at cost; 815,823 shares
     (37,502     (37,502
    
 
 
   
 
 
 
Total Stockholders’ Equity – PrimeEnergy Resources
     92,122       97,124  
Non-controlling
interest
     853       874  
    
 
 
   
 
 
 
Total Equity
     92,975       97,998  
    
 
 
   
 
 
 
Total Liabilities and Equity
   $ 202,178     $ 200,484  
    
 
 
   
 
 
 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements
 
3

Table of Contents
PRIMEENERGY RESOURCES CORPORATION
C
ONDENSED
C
ONSOLIDATED
S
TATEMENTS
OF
O
PERATIONS
– Unaudited
Three and nine months ended September 30, 2021 and 2020
(Thousands of dollars, except per share amounts)
 
    
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
    
2021
   
2020
   
2021
   
2020
 
Revenues
                                
Oil sales
   $ 10,442     $ 6,339     $ 30,376     $ 20,663  
Natural gas sales
     3,998       1,052       7,948       3,212  
Natural gas liquids sales
     3,632       1,474       7,781       2,441  
Realized (loss) gain on derivative instruments, net
     (1,983 )     222       (2,896 )     6,176  
Field service income
     2,975       2,567       8,138       9,248  
Administrative overhead fees
     1,164       1,066       3,455       3,260  
Unrealized (loss) on derivative instruments, net
     (1,194 )       (1,003     (7,162 )     (62
Other income
    
1
      75       30         240  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total Revenues
     19,035       11,792       47,670       45,178  
Costs and Expenses
                                
Lease operating expense
     7,248       3,804       17,820       16,378  
Field service expense
     3,413       1,974       7,744       7,448  
Depreciation, depletion, amortization and accretion on discounted liabilities
     6,883       9,431       19,990       24,524  
General and administrative expense
     2,368       2,571       7,475       12,877  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total Costs and Expenses
     19,912       17,780       53,029       61,227  
Gain on Sale and Exchange of Assets
     5       14,773       111       14,967  
    
 
 
   
 
 
   
 
 
   
 
 
 
(Loss) Income from Operations
     (872 )       8,785       (5,248 )     (1,082
Other Income (Expense)
                                
Interest Income
     —         1       —         1  
Interest Expense
     (462 )     (470    
(1,469)
      (1,629
    
 
 
   
 
 
   
 
 
   
 
 
 
(Loss) Income Before Income Taxes
     (1,334 )       8,316       (6,717 )     (2,710
Income Taxes Expense (Benefit)
     (186 )       1,372       (1,700 )     (2,664
    
 
 
   
 
 
   
 
 
   
 
 
 
Net (Loss) Income
     (1,148 )       6,944       (5,017 )     (46
Less: Net Income (Loss) Attributable to Non-Controlling Interests
     15       443       4       (111
    
 
 
   
 
 
   
 
 
   
 
 
 
Net (Loss) Income Attributable to PrimeEnergy
   $ (1,163 )     $ 6,501     $ (5,021 )   $ 65  
    
 
 
   
 
 
   
 
 
   
 
 
 
Basic (Loss) Income Per Common Share
   $ (0.58 )     $ 3.26     $ (2.52 )   $ 0.03  
    
 
 
   
 
 
   
 
 
   
 
 
 
Diluted (Loss) Income Per Common Share
   $ (0.58 )     $ 2.36     $ (2.52 )   $ 0.02  
    
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements
 
4

Table of Contents
PRIMEENERGY RESOURCES CORPORATION
C
ONDENSED
C
ONSOLIDATED
S
TATEMENT
OF
E
QUITY
– Unaudited
Nine months Ended September 30, 2021 and 2020
(Thousands of dollars)
 
 
  
Common Stock
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Shares
 
 
Amount
 
  
Additional
Paid-In

Capital
 
  
Retained
Earnings
 
 
Treasury
Stock
 
 
Total
Stockholders’
Equity –
PrimeEnergy
 
 
Non-
Controlling
Interest
 
 
Total
Equity
 
Balance at December 31, 2020
     1,994,177     $ 281      $ 7,541      $ 126,804     $ (37,502   $ 97,124     $ 874     $ 97,998  
Net Income (Loss)
                               (5,021 )             (5,021 )     4       (5,017 )
Purchase of non- controlling interest
 
 
 
 
 
 
 
 
19
 
 
 
 
 
 
 
 
 
19
 
 
 
(25
)
 
 
 
(6
)
 
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 30, 2021
     1,994,177     $ 281      $ 7,560      $ 121,783     $ (37,502 )   $ 92,122     $ 853     $ 92,975  
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at December 31, 2019
     1,998,978     $ 281      $ 7,505      $ 129,120     $ (36,792   $ 100,114     $ 3,249     $ 103,363  
Purchase 4,801 shares of common stock
     (4,801     —          —          —         (709     (709     —         (709
Net Income (Loss)
     —         —          —          65       —         65       (111     (46
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 30, 2020
     1,994,177     $ 281      $ 7,505      $ 129,185     $ (37,501   $ 99,470     $ 3,138     $ 102,608  
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements
 
5

Table of Contents
PRIMEENERGY RESOURCES CORPORATION
C
ONDENSED
C
ONSOLIDATED
S
TATEMENTS
OF
C
ASH
F
LOWS
Unaudited
Nine months ended September 30, 2021 and 2020
(Thousands of dollars)
 
 
  
2021
 
 
2020
 
Cash Flows from Operating Activities:
  
 
Net (Loss) 
   $ (5,017 )   $ (46
Adjustments to reconcile net loss to net cash provided by operating activities:
                
Depreciation, depletion, amortization and accretion on discounted liabilities
     19,990       24,524  
Gain on sale of properties
     (111     (14,967
Unrealized loss (gain) on derivative instruments, net
     7,162       (62
Provision for deferred income taxes
     (1,700 )     676  
Changes in operating assets and liabilities:
                
Accounts receivable
     (7,120 )     9,073  
Due to related parties
     (4 )     —    
Other assets
     (655 )     422  
Accounts payable
     6,170       (438
Accrued liabilities
     109       (1,293
    
 
 
   
 
 
 
Net Cash Provided by Operating Activities
     18,824       17,889  
    
 
 
   
 
 
 
Cash Flows from Investing Activities:
                
Capital expenditures
     (11,301 )     (13,142
Proceeds from sale of properties and equipment
     111       10,777  
    
 
 
   
 
 
 
Net Cash (Used in) Investing Activities
     (11,190 )     (2,365
    
 
 
   
 
 
 
Cash Flows from Financing Activities:
                
Purchase of stock for treasury
     —         (709
Purchase of
non-controlling
interests
     (6   )           
Proceeds from long-term bank debt and other long-term obligations
     3,000       6,756  
Repayment of long-term bank debt and other long-term obligations
     (8,000 )     (18,500
    
 
 
   
 
 
 
Net Cash (Used in) Financing Activities
     (5,006 )     (12,453
    
 
 
   
 
 
 
Net Increase in Cash and Cash Equivalents
     2,628       3,071  
Cash and Cash Equivalents at the Beginning of the Period
     996       1,015  
    
 
 
   
 
 
 
Cash and Cash Equivalents at the End of the Period
   $ 3,624     $ 4,086  
    
 
 
   
 
 
 
Supplemental Disclosures:
                
Income taxes paid
   $ —       $ 1  
Interest paid
   $ 1,384     $ 1,653  
    
 
 
   
 
 
 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements
 
6

Table of Contents
PRIMEENERGY RESOURCES CORPORATION
N
OTES
TO
C
ONDENSED
C
ONSOLIDATED
F
INANCIAL
S
TATEMENTS
September 30, 2021
(1) Basis of Presentation:
The accompanying condensed consolidated financial statements of PrimeEnergy Resources Corporation (“PrimeEnergy” or the “Company”) have not been audited by independent public accountants. Pursuant to applicable Securities and Exchange Commission (“SEC”) rules and regulations, the accompanying interim financial statements do not include all disclosures presented in annual financial statements and the reader should refer to the Company’s Form
10-K
for the year ended December 31, 2020. In the opinion of management, the accompanying interim condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, the condensed consolidated results of operations, cash flows and equity for the nine months ended September 30, 2021 and 2020.
As of September 30, 2021, PrimeEnergy’s significant accounting policies are consistent with those discussed in Note 1—Description of Operations and Significant Accounting Policies of its consolidated financial statements contained in PrimeEnergy’s Annual Report on Form
10-K
for the fiscal year ended December 31, 2020. Certain amounts presented in prior period financial statements have been reclassified for consistency with current period presentation. The results for interim periods are not necessarily indicative of annual results. For purposes of disclosure in the condensed consolidated financial statements, subsequent events have been evaluated through the date the statements were issued.
(2) Acquisitions and Dispositions:
Historically the Company has repurchased the interests of the partners and trust unit holders in the oil and gas limited partnerships (the “Partnerships”) and the asset and business income trusts (the “Trusts”) managed by the Company as general partner and as managing trustee, respectively. The Company repurchased $6,000 of such
 
non-controlling
 
interests during the nine months ended September 30, 2021.
(3) Additional Balance Sheet Information:
Certain balance sheet amounts are comprised of the following:
 
(Thousands of dollars)
  
September,
30, 2021
 
  
December 31,
2020
 
Accounts Receivable:
                 
Joint interest billing
   $ 2,589      $ 2,475  
Trade receivables
     1,866        1,073  
Oil and gas sales
     10,084        3,469  
Other
     400        802  
    
 
 
    
 
 
 
       14,939        7,819  
Less: Allowance for doubtful accounts
     (598      (598
    
 
 
    
 
 
 
Total
   $ 14,341      $ 7,221  
    
 
 
    
 
 
 
Accounts Payable:
                 
Trade
   $ 7,011      $ 876  
Royalty and other owners
     3,724        3,569  
Partner advances
     223        193  
Other
    
429
       579  
    
 
 
    
 
 
 
Total
   $ 11,387      $ 5,217  
    
 
 
    
 
 
 
Accrued Liabilities:
                 
Compensation and related expenses
   $ 3,259      $ 3,331  
Property costs
     2,533        2,056  
Taxes
     866        1,016  
Other
    
238
       384  
    
 
 
    
 
 
 
Total
   $ 6,896      $ 6,787  
    
 
 
    
 
 
 
 
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Table of Contents
(4) Property and Equipment:
Property and equipment at September 30, 2021 and December 31, 2020 consisted of the following:
 
(Thousands of dollars)
  
September 
30,
 
2021
    
December 31,
2020
 
Proved oil and gas properties, at cost
   $ 531,475      $ 520,488  
Less: Accumulated depletion and depreciation
     (354,978 )      (335,390
    
 
 
    
 
 
 
Oil and Gas Properties, Net
   $ 176,497      $ 185,098  
    
 
 
    
 
 
 
Field and office equipment
   $ 27,018      $ 26,797  
Less: Accumulated depreciation
     (21,244 )      (20,842
    
 
 
    
 
 
 
Field and Office Equipment, Net
   $ 5,774      $ 5,955  
    
 
 
    
 
 
 
Total Property and Equipment, Net
   $ 182,271      $ 191,053  
    
 
 
    
 
 
 
(5) Long-Term Debt:
Bank Debt:
On February 15, 2017, the Company and its lenders entered into a Third Amended and Restated Credit Agreement (the “2017 Credit Agreement”) with a maturity date of February 15, 2021. Under the 2017 Credit Agreement, the Company has a revolving line of credit and letter of credit facility of up to $300 million subject to a borrowing base that is determined semi-annually by the lenders based upon the Company’s financial statements and the estimated value of the Company’s oil and gas properties, in accordance with the Lenders’ customary practices for oil and gas loans. The credit facility is secured by substantially all of the Company’s oil and gas properties. The 2017 Credit Agreement includes terms and covenants that require the Company to maintain a minimum current ratio and total indebtedness to EBITDAX (earnings before depreciation, depletion, amortization, taxes, interest expense and exploration costs) ratio, as defined, and restrictions are placed on the payment of dividends, the amount of treasury stock the Company may purchase, commodity hedge agreements, and loans and investments in its consolidated subsidiaries and limited partnerships.
During 2020, the 2017 Credit Agreement was amended to add loans under the Paycheck Protection Program to the Permitted loans, as defined in the agreement.
On February 11, 2021, the Company and its lenders entered into a Sixth Amendment to the 2017 Credit Agreement. Under this amendment the Company’s borrowing base is $40 million. Borrowings under the 2017 Credit Agreement will bear interest at a base rate plus an applicable margin ranging from 2.00% to 3.00% or at the Company’s option, at LIBOR plus an applicable margin ranging from 3.00% to 4.00%. The 2017 Credit Agreement will mature on February 11, 2023. The Company’s borrowings under this credit facility approximates fair value because the interest rates are variable and reflective of market rates.
On
September
 30, 2021, the Company had a total of $31.5 million of borrowings outstanding under its revolving credit facility at a weighted-average interest rate of 5.35% and
$
8.5 million was available for future borrowings. The combined weighted average interest rate paid on outstanding bank borrowings subject to base rate and LIBO interest was 5.31% for the
 
nine
months ended
September
 30, 2021 as compared to 3.94% for
nine
months ended
September
 30, 2020.
Paycheck Protection Program Loans
During May 2020, Prime Operating Company and Eastern Oil Well Services Corporation, subsidiaries of the Company received loan proceeds in the amount of $1.28 million and $0.47 million, respectively, under the Paycheck Protection Program (the “PPP”) of the CARES Act, which was enacted March 27, 2020. The PPP Loans are evidenced by a promissory note in favor of the Lender, which bears interest at the rate of 1.00% per annum. No payments of principal or interest are due under the note until the date on which the amount of loan forgiveness (if any) under the CARES Act, which can be up to 10 months after the end of the related notes covered period (which is defined as 24 weeks after the date of the loan) (the “Deferral Period”). The note may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP Loans may be used only for payroll and related costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations that were incurred prior to February 15, 2020 (the “Qualifying Expenses”). Under the terms of the PPP Loans, certain amounts thereunder may be forgiven if they are used for Qualifying Expenses as described in and in compliance with the CARES Act. The Company utilized the PPP Loan proceeds exclusively for Qualifying Expenses during the
24-week
coverage period and has submitted its application for forgiveness in accordance with the terms of the CARES Act and related guidance. In the event the PPP Loan or any portion thereof is forgiven, the amount forgiven is applied to the outstanding principal.
 
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Table of Contents
To the extent, if any, that any or all of the PPP loans are not forgiven, beginning one month following
expi
ration of the Deferral Period, and continuing monthly until 24 months from the date of each applicable Note (the “Maturity Date”), the Company is obligated to make monthly payments of principal and interest to the Lender with respect to any unforgiven portion of the Note, in such equal amounts required to fully amortize the principal amount outstanding on such Note as of the last day of the applicable Deferral Period by the applicable Maturity Date. The Company accounts for these loans on the balance sheet as financial liabilities reported within the following lines: Current portion of long-term debt in the amount of $1. 37 million and included as part of the long-term bank debt in the amount of $323 thousand.
(6) Other Long-Term Obligations and Commitments:
Operating Leases:
The Company leases office facilities under operating leases and recognizes lease expense on a straight-line basis over the lease term. Leases assets and liabilities are initially recorded at commencement date based on the present value of lease payments over the lease term.
A new finance lease for office equipment is included in property and equipment, other current liabilities and other long-term liabilities this quarter. As
 most of the Company’s lease contracts do not provide an implicit discount rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The weighted average discount rate used was 5.5%. Certain leases may contain variable costs above the minimum required payments and are not included in the
right-of-use
assets or liabilities. Leases may include renewal, purchase or termination options that can extend or shorten the term of the lease. The exercise of those options is at the Company’s sole discretion and is evaluated at inception and throughout the contract to determine if a modification of the lease term is required. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Operating lease costs for the nine months ended September 30, 2021 were 
$450,000
. Cash payments included in the operating lease cost for nine months ended September 30, 2021 were 
$433,000
. The weighted-average remaining operating lease terms is 
11.5 months.
The Company amended certain leases for office space in Texas providing for payments of $299,000 in 2021, $158,000 in 2022 and $17,000 in 2023.
Rent expense for office space for the nine months ended September 30, 2021 and 2020 was $441,000 and $496,000, respectively.
The payment schedule for the Company’s operating lease obligations as of September 30, 2021 is as follows:
 
(Thousands of dollars)
  
Operating
Leases
 
2021
   $ 144  
2022
     158  
2023
     17  
    
 
 
 
Total undiscounted lease payments
   $ 319  
Less: Amount associated with discounting
     (11 )
    
 
 
 
Net operating lease liabilities
   $ 308  
    
 
 
 
Asset Retirement Obligation:
A reconciliation of the liability for plugging and abandonment costs for the
nine
months ended September 30,
2021
is as follows:

(Thousands of dollars)
  
September
 30,
 
2021
 
Asset retirement obligation at December 31, 2020
   $ 13,660  
Liabilities incurred
     721  
Liabilities settled
     (1,047 )
Accretion expense
     487  
    
 
 
 
Asset retirement obligation at
September
 30, 2021
   $ 13,821  
    
 
 
 
 
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Table of Contents
(7) Contingent Liabilities:
The Company, as managing general partner of the affiliated Partnerships, is responsible for all Partnership activities, including the drilling of development wells and the production and sale of oil and gas from productive wells. The Company also provides the administration, accounting and tax preparation work for the Partnerships, and is liable for all debts and liabilities of the affiliated Partnerships, to the extent that the assets of a given limited Partnership are not sufficient to satisfy its obligations.
The Company is subject to environmental laws and regulations. Management believes that future expenses, before recoveries from third parties, if any, will not have a material effect on the Company’s financial condition. This opinion is based on expenses incurred to date for remediation and compliance with laws and regulations, which have not been material to the Company’s results of operations.
From time to time, the Company is party to certain legal actions arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, management does not expect these matters to have a materially adverse effect on the financial position or results of operations of the Company.
(8) Stock Options and Other Compensation:
In May 1989,
non-statutory
stock options were granted by the Company to four key executive officers for the purchase of shares of common stock. At September 30, 2021 and 2020, remaining options held by two key executive officers on 767,500 shares were outstanding and exercisable at prices ranging from $1.00 to $1.25. According to their terms, the options have no expiration date.
(9) Related Party Transactions:
The Company, as managing general partner or managing trustee, makes an annual offer to repurchase the interests of the partners and trust unit holders in certain of the Partnerships or Trusts. The Company repurchased $6,000 of such
 
non-controlling
 
interests during the nine months ending September 30, 2021. Payables owed to related parties primarily represent receipts collected by the Company as agent for the joint venture partners, which may include members of the Company’s Board of Directors, for oil and gas sales net of expenses.
(10) Financial Instruments
Fair Value Measurements:
Authoritative guidance on fair value measurements defines fair value, establishes a framework for measuring fair value and stipulates the related disclosure requirements. The Company follows a three-level hierarchy, prioritizing and defining the types of inputs used to measure fair value. The fair values of the Company’s interest rate swaps, natural gas and crude oil price collars and swaps are designated as Level 3. The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020:
 
September 30, 2021
  
Quoted Prices in
Active Markets
For Identical
Assets (Level 1)
    
Significant
Other
Observable
Inputs (Level 2)
    
Significant
Unobservable
Inputs (Level 3)
    
Balance at
September 30,
2021
 
(Thousands of dollars)
                           
Liabilities
                                   
Commodity derivative contracts
   $ —        $ —        $ (7,834 )    $ (7,834 )
    
 
 
    
 
 
    
 
 
    
 
 
 
Total liabilities
   $ —        $ —        $ (7,834 )    $ (7,834 )
    
 
 
    
 
 
    
 
 
    
 
 
 
 
December 31, 2020
  
Quoted Prices in
Active Markets
For Identical
Assets (Level 1)
    
Significant
Other
Observable
Inputs (Level 2)
    
Significant
Unobservable
Inputs (Level 3)
    
Balance at
December 31,
2020
 
(Thousands of dollars)
                           
Assets
                                   
Commodity derivative contracts
   $ —        $ —        $ 97      $ 97  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total assets
   $ —        $ —        $ 97      $ 97  
    
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities
                                   
Commodity derivative contract
   $ —        $ —        $ (768    $ (768
    
 
 
    
 
 
    
 
 
    
 
 
 
Total liabilities
   $ —        $ —        $ (768    $ (768
    
 
 
    
 
 
    
 
 
    
 
 
 
 
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Table of Contents
The derivative contracts were measured based on quotes from the Company’s counterparties. Such quotes have been derived using valuation models that consider various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for natural gas and crude oil, volatility factors and interest rates, such as a LIBOR curve for a similar length of time as the derivative contract term as applicable. These estimates are verified using comparable NYMEX futures contracts or are compared to multiple quotes obtained from counterparties for reasonableness.
The significant unobservable inputs for Level 3 derivative contracts include basis differentials and volatility factors. An increase (decrease) in these unobservable inputs would result in an increase (decrease) in fair value, respectively. The Company does not have access to the specific assumptions used in its counterparties’ valuation models. Consequently, additional disclosures regarding significant Level 3 unobservable inputs were not provided.
The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy for the quarter ended September 30, 2021.
 
(Thousands of dollars)
      
Net Liabilities – December 31, 2020
   $ (671
Total realized and unrealized (gains) losses:
        
Included in earnings (a)
     (10,058 )
Purchases, sales, issuances and settlements
     2,895  
    
 
 
 
Net Liabilities — September 30, 2021
   $ (7,834 )
    
 
 
 
 
(a)
Derivative instruments are reported in revenues as realized gain/loss and on a separately reported line item captioned unrealized gain/loss on derivative instruments.
Derivative Instruments:
The Company is exposed to commodity price and interest rate risk, and management considers periodically the Company’s exposure to cash flow variability resulting from the commodity price changes and interest rate fluctuations. Futures, swaps and options are used to manage the Company’s exposure to commodity price risk inherent in the Company’s oil and gas production operations. The Company does not apply hedge accounting to any of its commodity-based derivatives. Both realized and unrealized gains and losses associated with commodity derivative instruments are recognized in earnings.
The following table sets forth the effect of derivative instruments on the consolidated balance sheets at September 30, 2021 and December 31, 2020:

         
Fair Value
 
(Thousands of dollars)
  
Balance Sheet Location
  
September 
30,
 
2021
    
December 31,
2020
 
Asset Derivatives:
                      
Derivatives not designated as cash-flow hedging instruments:
                      
Natural gas commodity contracts
  
Derivative asset long-term and

other assets
     —        $ 97  
         
 
 
    
 
 
 
Total
        $ —        $ 97  
         
 
 
    
 
 
 
Liability Derivatives:
                      
Derivatives not designated as cash-flow hedging instruments:
                      
Crude oil commodity contracts
   Derivative liability short-term    $ (3,994 )    $ (428
Natural gas commodity contracts
   Derivative liability short-term      (2,183 )      (296
Crude oil commodity contracts
   Derivative liability long-term      (1,178 )      —    
Natural gas commodity contracts
   Derivative liability long-term      (479 )      (44
         
 
 
    
 
 
 
Total
        $ (7,834 )    $ (768
         
 
 
    
 
 
 
Total derivative instruments
        $ (7,834 )    $ (671
         
 
 
    
 
 
 
 
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Table of Contents
The following table sets forth the effect of derivative instruments on the consolidated statements of operations for the nine months ended September 30, 2021 and 2020:
 
 
  
 
  
Amount of gain/loss
recognized in income
 
(Thousands of dollars)
  
Location of gain/loss recognized in income
  
2021
 
  
2020
 
Derivatives not designated as cash-flow hedge instruments:
                    
Natural gas commodity contracts
 
Unrealized
 
gain
 
(loss)
 
on
 
derivative
 
instruments,
 
net
    (2,418 )      (576 )  
Crude oil commodity contracts
 
Unrealized
 
(loss)
 
gain
 
on
 
derivative
 
instruments,
 
net
    (4,744 )      514  
Natural gas commodity contracts
 
Realized gain (loss) on derivative instruments, net
    (1,009 )      533  
Crude oil commodity contracts
 
Realized (loss) on derivative instruments, net
    (1,887 )      5,643  
       
 
 
    
 
 
 
        $ (10,058)
   $ 6,114  
       
 
 
    
 
 
 
 
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2

Table of Contents
(11) Earnings Per Share:
Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common stock had been converted to common stock in gain periods. The following reconciles amounts reported in the financial statements:
 
    
Nine Months Ended September 30,
 
    
2021
   
2020
 
    
Net Loss
(In
000’s)
   
Weighted
Average
Number of
Shares
Outstanding
    
Per
Share
Amount
   
Net
Income
(In
000’s)
    
Weighted
Average
Number of
Shares
Outstanding
    
Per
Share
Amount
 
Basic
   $ (5,021 )     1,994,177      $ (2.52     $ 65        1,994,175      $ 0.03  
Effect of dilutive securities:
                                                   
Options (a)
                                       758,367           
    
 
 
   
 
 
            
 
 
    
 
 
          
Diluted
   $ (5,021 )     1,994,177      $ (2.52   $ 65        2,752,542      $ 0.02  
    
 
 
   
 
 
            
 
 
    
 
 
          
   
    
Three Months Ended September 30,
 
    
2021
   
2020
 
    
Net Loss

(In
000’s)
   
Weighted
Average
Number of
Shares
Outstanding
    
Per
Share
Amount
   
Net
Income
(In
000’s)
    
Weighted
Average
Number of
Shares
Outstanding
    
Per
Share
Amount
 
Basic
   $ (1,163 )     1,994,177      $ (0.58 )     $ 6,501        1,994,177      $ 3.26  
Effect of dilutive securities:
                                                   
Options (a)
                              —          756,154           
    
 
 
   
 
 
            
 
 
    
 
 
          
Diluted
   $ (1,163 )     1,994,177      $ (0.58 )     $ 6,501        2,750,331      $ 2.36  
    
 
 
   
 
 
            
 
 
    
 
 
          
 
(a)
The effect of the 767,500
outstanding stock options is antidilutive for the nine and three months ended September 30, 2021 due to net loss for these periods. 
 
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3

Table of Contents
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist you in understanding our results of operations and our present financial condition. Our Condensed Consolidated Financial Statements and the accompanying Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report contain additional information that should be referred to when reviewing this material.
OVERVIEW
We are an independent oil and natural gas company engaged in acquiring, developing and producing oil and natural gas. We presently own producing and
non-producing
properties located primarily in Texas and Oklahoma. In addition, we own a substantial amount of well servicing equipment. All of our oil and gas properties and interests are located in the United States. Assets in our principal focus areas include mature properties with long-lived reserves and significant development opportunities as well as newer properties with development and exploration potential. We believe our balanced portfolio of assets and our ongoing hedging program position us well for both the current commodity price environment and future potential upside as we develop our attractive resource opportunities. Our primary sources of liquidity are cash generated from our operations and our credit facility.
Our cash flows depend on many factors, including the price of oil, gas, and natural gas liquids (NGL’s), the success of our acquisition and drilling activities, and the operational performance of our producing properties. We use derivative instruments to manage our commodity price risk. This practice may prevent us from receiving the full advantage of any increases in commodity prices above the maximum fixed amount specified in the derivative agreements and subjects us to the credit risk of the counterparties to such agreements. Since all our derivative contracts are accounted for under
mark-to-market
accounting, we expect continued volatility in gains and losses on
mark-to-market
derivative contracts in our consolidated statement of operations as changes occur in the NYMEX price indices.
Our financial results depend on many factors, particularly the price of natural gas, crude oil, and NGLs and our ability to market our products on economically attractive terms. Commodity prices are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by weather conditions, pipeline capacity constraints, inventory storage levels, basis differentials, and other factors. In addition, our realized prices are further impacted by our derivative and hedging activities.
We derive our revenue and cash flow principally from the sale of oil, natural gas, and NGLs. As a result, our revenues are determined, to a large degree, by prevailing prices for crude oil, natural gas, and NGLs. We sell our oil, natural gas, and NGLs on the open market and to local processing companies at prevailing market prices or through forward delivery contracts. Because some of our operations are located outside major markets, we are directly impacted by regional prices regardless of Henry Hub, WTI, or other major market pricing. The market price for oil, natural gas, and NGLs is dictated by supply and demand; consequently, we cannot accurately predict or control the prices we may receive for our produced products. Index prices for oil, natural gas, and NGLs are considerably higher than and we expect prices to remain volatile and consequently cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our capital program, production volumes or revenue.
We are the operator of the majority of our developed and undeveloped acreage which is nearly all held by production. In the Permian Basin of West Texas and eastern New Mexico, the Company maintains an acreage position of approximately 19,680 gross (12,460 net) acres, 97% of which is located in Reagan, Upton, Martin, and Midland counties of Texas where our current horizontal drilling activity is focused. This acreage has significant resource potential in the Spraberry and Wolfcamp intervals for additional horizontal drilling that could support the drilling of more than 250 additional horizontal wells. In Oklahoma, we maintain an acreage position of approximately 49,765 gross (10,953 net) acres. Our Oklahoma horizontal development is focused primarily in Canadian, Kingfisher, Grady, Garfield, Major and Garvin counties. We believe approximately 5,579 net acres in these counties hold significant additional resource potential that could support the drilling of as many as 49 new horizontal wells based on an estimate of four wells per section, depending on the reservoir target area. Should we choose to participate with a working interest in future development, our share of these future capital expenditures would be approximately $34 million at an average 10% ownership level.
Future development plans are established based on various factors, including the expectation of available cash flows from operations and availability of funds under our revolving credit facility.
 
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Table of Contents
District Information:
The following table represents certain reserve and well information as of December 31, 2020.
 
    
Gulf
Coast
    
Mid-
Continent
    
West
Texas
    
Other
    
Total
 
Proved Reserves as of December 31, 2020 (MBoe)
                                            
Developed
     517        1,575        5,116        6        7,214  
Undeveloped
     —          95        3,126        —          3,221  
Total
     517        1,670        8,242        6        10,435  
Average Daily Production (Boe per day)
     297        788        3,178        2        4,265  
Gross Productive Wells (Working Interest and ORRI Wells)
     239        549        556        170        1,514  
Gross Productive Wells (Working Interest Only)
     209        485        518        69        1,281  
Net Productive Wells (Working Interest Only)
     124        217        263        2        606  
Gross Operated Productive Wells
     158        209        325        —          692  
Gross Operated Water Disposal, Injection and Supply wells
     9        53        6        —          68  
In several of our producing regions, we have field service groups to service our operated wells and locations as well as third-party operators in the area. These services consist of well service support, site preparation, and construction services for drilling and workover operations. Our operations are performed utilizing workover and swab rigs, water transport trucks, hot oil trucks, saltwater disposal facilities, various land excavating equipment, and trucks we own and that are operated by our field employees.
Gulf Coast Region
Our development, exploitation, exploration, and production activities in the Gulf Coast region are primarily concentrated in southeast Texas. This region is managed from our office in Houston, Texas. Principal producing intervals are in the Wilcox, San Miguel, Olmos, and Yegua formations at depths ranging from 3,000 to 12,500 feet. We had 239 producing wells (124 net) in the Gulf Coast region as of December 31, 2020, of which 158 wells are operated by us. Average net daily production in our Gulf Coast Region in 2020 was 297 Boe. On December 31, 2020, we had 517 MBoe of proved reserves in the Gulf Coast region, which represented 5% of our total proved reserves. We maintain an acreage position of over 11,548 gross (3,968 net) acres in this region, primarily in Dimmit and Polk counties. We operate a field service group in this region from a field office in Carrizo Springs, Texas utilizing four workover rigs, nineteen water transport trucks, two saltwater disposal wells, two hot oilers, and excavating equipment. Services including well service support, site preparation, and construction services for drilling and workover operations are provided to third-party operators as well as utilized in our operated wells and locations. As of September 30, 2021, the Gulf Coast region has no operated wells in the process of being drilled, no waterfloods in the process of being installed, and no other related activities of material importance.
Mid-Continent
Region
Our
Mid-Continent
 
region is actively participating with third-party operators in the horizontal development of lands that include Company-owned interest in several counties in the Stack and Scoop plays of Oklahoma where drilling is primarily targeting reservoirs of the Mississippian, and Woodford formations. In the second quarter of 2021, the Company participated for 11.25% with Ovintiv
 
Mid-Continent,
 
LLC in the drilling of four wells in Canadian County, Oklahoma targeting the Mississippian and Woodford formations, which are currently in the process of being completed. Our share of these will be approximately $2.8 million. As of September 30, 2021, our
 
Mid-Continent
 
region has four other wells operated by third parties that have been drilled but have yet to be completed. These four wells were included as Proved Undeveloped in the 2020
 
year-end
 
reserve report: one for 9.9% interest and three for less than one percent
 interest.
West Texas Region
Our West Texas activities are concentrated in the Permian Basin of West Texas and New Mexico. The basin covers more than 75,000 square miles and extends across 52 Counties. The Wolfcamp and Spraberry reservoirs of this basin are among the largest contiguous accumulations of oil and gas in the United States. Production from these reservoirs is West Texas Intermediate Sweet
 
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Crude oil and high-quality casing-head gas. This region is managed from our office in Midland, Texas. As of December 31, 2020, we had 556 wells (263 net) in the West Texas area, of which 325 wells are operated by us. Principal producing intervals are in the Wolfcamp and Spraberry formations at depths ranging from 5,500 to 12,500 feet. The average net daily production in Our West Texas Region in 2020 was 3,178 Boe. On December 31, 2020, we had 8,242 MBoe of proved reserves in the West Texas area, or 79% of our total proved reserves. We maintain an acreage position of approximately 19,679 gross (12,461 net) acres in the Permian Basin in West Texas, primarily in Reagan, Upton, Martin, and Midland counties, and believe this acreage has significant resource potential for horizontal drilling in the Spraberry, Jo Mill, and Wolfcamp intervals. We operate a field service group in this region utilizing nine workover rigs, three hot oiler trucks, one kill truck, and two roustabout trucks. Services including well service support, site preparation, and construction services for drilling and workover operations are provided to third-party operators as well as utilized in our operated wells and locations.
In the third quarter of 2021, the Company and Apache Corporation completed nine new Kashmir wells in Upton County, Texas: three each in the Upper Wolfcamp, Jo Mill, and Lower Spraberry reservoirs. Six of these had been drilled in the spring of 2020 and three were drilled early in 2021. The Company owns 47.5% working interest in these wells and has invested approximately $24 million
to-date
in their drilling and completions. All nine wells are producing as of October 4, 2021. We believe the additional production from these wells will have a significant impact on the Company’s cash flow in the fourth quarter of 2021.
Reserve Information:
Our interests in proved developed and undeveloped oil and gas properties, including the interests held by the Partnerships, have been evaluated by Ryder Scott Company, L.P. for each of the three years ended December 31, 2020. The professional qualifications of the technical persons primarily responsible for overseeing the preparation of the reserve estimates can be found in Exhibit 99.1, the Ryder Scott Company, L.P. Report on Registrant’s Reserves Estimates. In matters related to the preparation of our reserve estimates, our district managers report to the Engineering Data manager, who maintains oversight and compliance responsibility for the internal reserve estimate process and provides oversight for the annual preparation of reserve estimates of 100% of our
year-end
reserves by our independent third-party engineers, Ryder Scott Company, L.P. The members of our district and central groups consist of degreed engineers and geologists with between approximately twenty and thirty-five years of industry experience, and between eight and twenty-five years of experience managing our reserves. Our Engineering Data manager, the technical person primarily responsible for overseeing the preparation of reserves estimates, has over thirty years of experience, holds a Bachelor’s degree in Geology and an MBA in finance, and is a member of the Society of Petroleum Engineers and American Association of Petroleum Geologist. See Part II, Item 8 “Financial Statements and Supplementary Data”, for additional discussions regarding proved reserves and their related cash flows.
All of our reserves are located within the continental United States. The following table summarizes our oil and gas reserves at each of the respective dates:
 
    
Reserve Category
        
    
Proved Developed
    
Proved Undeveloped
    
Total
 
As of December 31,
  
Oil
(MBbls)
    
NGLs
(MBbls)
    
Gas
(MMcf)
    
Total
(MBoe)
    
Oil
(MBbls)
    
NGLs
(MBbls)
    
Gas
(MMcf)
    
Total
(MBoe)
    
Oil
(MBbls)
    
NGLs
(MBbls)
    
Gas
(MMcf)
    
Total
(MBoe)
 
2018
     6,404        2,707        21,065        12,622        10        12        124        43        6,414        2,719        21,189        12,665  
2019
     4,381        2,914        19,995        10,268        1,833        1,017        4,547        3,608        6,214        3,931        24,542        14,235  
2020
     2,684        2,258        13,633        7,214        1,784        787        3,897        3,221        4,468        3,045        17,530        10,435  
 
(a)
In computing total reserves on a barrel of oil equivalent (Boe) basis, gas is converted to oil based on its relative energy content at the rate of six Mcf of gas to one barrel of oil, and NGLs are converted based upon volume; one barrel of natural gas liquids equals one barrel of oil.
On
December 31, 2020, the Company had 3,221 Mboe of proved undeveloped (PUD) reserves attributable to 13 wells operated by others, three of which are new wells spud in 2020 but not drilled until the first quarter of 2021, and 10 of which that were drilled as of
 
year-end
 
but not yet completed. The three new horizontal wells along with six uncompleted wells are located on our Kashmir tract in Upton County, Texas. They are operated by Apache Corporation and all nine wells are producing as of October 4, 2021. These nine wells account for 3,127 Mboe of the total undeveloped reserves at
 
year-end.
 
Our average 47.5% share of the total cost of these nine horizontal wells will be approximately $27.8 million. The four remaining PUD wells, drilled but not completed at
 
year-end,
 
are located in Grady County, Oklahoma and account for 95 Mboe of the total undeveloped
reserves.
 
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Additional drilling and future development plans will be established based on an expectation of available cash flows from operations and the availability of funds under our revolving credit facility.
We employ technologies to establish proven reserves that have demonstrated consistent results capable of repetition. The technologies being used in the estimation of our proved reserves include, but are not limited to, decline curve and volumetric analysis, analogy, geologic mapping, as well as evaluation of reservoir properties, production, and well test data. The estimated reserves of wells with sufficient production history are estimated using appropriate decline curves. Estimated reserves of producing wells with limited production history and for undeveloped locations are estimated using performance data from analogous wells in the area. These wells are considered analogous based on production performance from the same formation and with similar completion techniques.
The estimated future net revenue (using current prices and costs as of those dates) and the present value of future net revenue (at a 10% discount for estimated timing of cash flow) for our proved developed and proved undeveloped oil and gas reserves at the end of each of the three years ended December 31, 2020, are summarized as follows (in thousands of dollars):
 
   
Proved Developed
   
Proved Undeveloped
    
Total
 
As of December 31,
 
Future Net
Revenue
   
Present
Value 10
Of Future
Net
Revenue
   
Future Net
Revenue
   
Present
Value 10
Of Future
Net
Revenue
    
Future Net
Revenue
    
Present
Value 10
Of Future
Net
Revenue
    
Present
Value 10
Of Future
Income
Taxes
    
Standardized
Measure of
Discounted
Cash flow
 
2018   $ 239,337     $ 161,376     $ 767     $ 525      $ 240,104      $ 161,901      $ 23,992      $ 137,909  
2019   $ 116,592     $ 82,155     $ 42,700     $ 17,876      $ 159,292      $ 100,031      $ 18,419      $ 81,612  
2020   $ 43,886     $ 34,717     $ 37,346     $ 21,823      $ 81,232      $ 56,539      $ 14,920      $ 41,619  
The PV 10 Value represents the discounted future net cash flows attributable to our proved oil and gas reserves before income tax, discounted at 10%. Although this measure is not in accordance with U.S. generally accepted accounting principles (“GAAP”), we believe that the presentation of the PV10 Value is relevant and useful to investors because it presents the discounted future net cash flow attributable to proved reserves before taking into account corporate future income taxes and the current tax structure. We use this measure when assessing the potential return on investment related to oil and gas properties. The PV10 of future income taxes represents the sole reconciling item between this
non-GAAP
PV10 Value versus the GAAP measure presented in the standardized measure of discounted cash flow. A reconciliation of these values is presented in the last three columns of the table above. The standardized measure of discounted future net cash flows represents the present value of future cash flows attributable to proved oil and natural gas reserves after income tax, discounted at 10%.
“Proved developed” oil and gas reserves are reserves that can be expected to be recovered from existing wells with existing equipment and operating methods. “Proved undeveloped” oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Our reserves include amounts attributable to
non-controlling
interests in the Partnerships. These interests represent less than 10% of our reserves.
In accordance with U.S. generally accepted accounting principles, product prices are determined using the twelve-month average oil and gas index prices, calculated as the unweighted arithmetic average for the first day of the month price for each month, adjusted for oilfield or gas gathering hub and wellhead price differentials (e.g. grade, transportation, gravity, sulfur, and basic sediment and water) as appropriate. Also, in accordance with SEC specifications and U.S. generally accepted accounting principles, changes in market prices subsequent to December 31 are not considered.
While it may be reasonably anticipated that the prices received for the sale of our production may be higher or lower than the prices used in this evaluation, as described above, and the operating costs relating to such production may also increase or decrease from existing levels, such possible changes in prices and costs were, in accordance with rules adopted by the SEC, omitted from consideration in making this evaluation for the SEC case. Actual volumes produced, prices received and costs incurred may vary significantly from the SEC case.
Natural gas prices, based on the twelve-month average of the first of the month Henry Hub index price, were $1.985 per MMBtu in 2020 as compared to $2.58 per MMBtu in 2019, and $3.10 per MMBtu in 2018. Oil prices, based on the NYMEX first of the month average price, were $39.57 per barrel in 2020 as compared to $55.69 per barrel in 2019, and $65.56 per barrel in 2018.
RECENT ACTIVITIES
Maintaining a strong balance sheet and ample liquidity are key components of our business strategy. For 2021, we will continue our focus on preserving financial flexibility and ample liquidity as we manage the risks facing our industry. Our 2021 capital budget is reflective of current commodity prices and has been established based on an expectation of available cash flows, with any cash flow deficiencies expected to be funded by borrowings under our revolving credit facility. As we have done historically to preserve or enhance liquidity, we may adjust our capital program throughout the year, divest
non-strategic
assets, or enter into strategic joint ventures.
 
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In the third quarter of 2021, the Company, together with Apache Corporation, completed nine new horizontal wells on the Kashmir tract in Upton County, Texas. These nine wells include three laterals in each of the Upper Wolfcamp, Jo Mill, and Lower Spraberry reservoirs. All nine wells were on production by October 4, 2021. The Company has an average of 47.5% working interest in these nine wells with a total investment of approximately $24 million. We believe the additional income from these wells will have a significant impact on the Company’s fourth-quarter cash flow. In addition to the Middle and Upper Wolfcamp, the Jo Mill and the Lower Spraberry, which we now consider fully developed, we believe there is future development potential in the Middle Spraberry reservoir on this 1280 acre block. This reservoir will likely be developed with four
two-mile
laterals. The approximate completed cost of four wells in the Middle Spraberry is $30.2 million, with the Company’s share being $14.2 million.
In the second quarter of 2021, the Company participated with Ovintiv
Mid-Continent,
LLC in the drilling of four horizontal wells located in Canadian County, Oklahoma. These four
two-mile
laterals are in the process of being completed and are expected to be on production in December of this year. The Company has an 11.25% working interest in each well and expects to invest approximately $1.98 million in these wells.
In West Texas, in addition to the Kashmir Tract described above, we are actively developing a contiguous 3,260 acre Area of Mutual Interest (AMI) in Upton County with our joint venture partner Apache Corporation. In this acreage block, the Company has leasehold interest of between 14% and 56% depending on the particular lease and depth being developed. Development
to-date
has been in the Wolfcamp “B” reservoir where we have 33 horizontal wells currently producing. We believe this reservoir is fully developed and the next phase of development for this block is of the shallower Upper Wolfcamp, Jo Mill, and Lower Spraberry reservoirs. These reservoirs have been
proven-up
by near-offset completions. PrimeEnergy and Apache are planning an initial three wells to be drilled in 2022 that will each be three miles in length. The Company has 36 horizontals laid out for the development of these three reservoirs,18 of which are designed as three-mile laterals. In addition to these reservoirs, there is a Middle Spraberry target that will likely be developed in the future with 12 horizontal wells. In total, we anticipate 48 horizontal wells will develop these four reservoirs with a cost estimate of $146 million net to the Company. The actual number of wells that are eventually drilled, as well as the cost and the timing of drilling, will vary based upon many factors including commodity market conditions.
Also in the Permian Basin, we are developing a
965-acre
block with ConocoPhillips in Martin County, Texas. In 2016 and 2017, four horizontal wells were drilled and have been producing from the Wolfcamp. The Company owns between 35% and 38% interest in various leases of this joint venture acreage where ConocoPhillips is the operator. No near-term additional drilling plans have been received, however, development of offset acreage by other operators has demonstrated the potential for good economic production from multiple landing zones on our acreage block.
In Reagan County, Texas, the Company has two separate joint development projects that are in the planning stage for the initial phase of development to occur in 2022: one with BTA Producers, Inc. and one with Hibernia Resources, LLC. These two joint development acreage blocks can accommodate the drilling of 144 horizontal wells to produce from five prospective reservoirs, four of which are proven. The Company’s share is expected to be 50% and the potential investment by the Company would be approximately $442 million. The actual number of wells eventually drilled, and the cost and the timing of such wells are dependent upon many factors including commodity market conditions.
Also, In Reagan County, Texas, the Company and Pioneer Natural Resources have agreed to jointly develop approximately 3,680 gross acres. This agreement facilitates the drilling of as many as 108 horizontal laterals where the company would have an average of 34.5% working interest and invest approximately $236 million. We believe this agreement represents significant future value for PrimeEnergy.
In addition, we are in discussions with Earthstone Energy, Inc. regarding the drilling of three wells in Reagan County, Texas, in which the Company would have 20% working interest and would invest approximately $3.8 million in three 9,650 foot laterals.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash generated from our operations, through our producing oil and gas properties, field services business, and sales of acreage.
Net cash provided by operating activities for the nine months ended September 30, 2021, was $18.8 million, compared to $17.9 million in the first nine months of 2020. Excluding the effects of significant unforeseen expenses or other income, our cash flow from operations fluctuates primarily because of variations in oil and gas production and prices or changes in working capital accounts. Our oil and gas production will vary based on actual well performance but may be curtailed due to factors beyond our control.
 
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Table of Contents
Our realized oil and gas prices vary due to world political events, supply and demand of products, product storage levels, and weather patterns. We sell the majority of our production at spot market prices. Accordingly, product price volatility will affect our cash flow from operations. To mitigate price volatility, we sometimes lock in prices for some portion of our production through the use of derivatives.
Maintaining a strong balance sheet and ample liquidity are key components of our business strategy. For 2021, we will continue our focus on preserving financial flexibility and ample liquidity as we manage the risks facing our industry. Our 2021 capital budget is reflective of commodity prices and has been established based on an expectation of available cash flows, with any cash flow deficiencies expected to be funded by borrowings under our revolving credit facility. As we have done historically to preserve or enhance liquidity, we may adjust our capital program throughout the year, divest assets, or enter into strategic joint ventures. We are actively in discussions with financial partners for funding to develop our asset base and, if required, pay down our revolving credit facility should our borrowing base become limited due to the deterioration of commodity prices.
The Company maintains a Credit Agreement with a maturity date of February 15, 2023, providing for a credit facility totaling $300 million, with a borrowing base of $40 million. At September 30, 2021, the Company had $31.5 million in outstanding borrowings and $8.5 million in availability under this facility. The bank reviews the borrowing base semi-annually and, at their discretion, may decrease or propose an increase to the borrowing base relative to a
re-determined
estimate of proved oil and gas reserves. The current borrowing base review is in progress and expected to be set at $50 million. Our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial and operational covenants defined in the agreement. We are currently in compliance with these covenants and expect to be in compliance over the next twelve months. If we do not comply with these covenants on a continuing basis, the lenders have the right to refuse to advance additional funds under the facility and/or declare all principal and interest immediately due and payable. Our borrowing base may decrease as a result of lower natural gas or oil prices, operating difficulties, declines in reserves, lending requirements or regulations, the issuance of new indebtedness or for other reasons set forth in our revolving credit agreement. In the event of a decrease in our borrowing base due to declines in commodity prices or otherwise, our ability to borrow under our revolving credit facility may be limited and we could be required to repay any indebtedness in excess of the
re-determined
borrowing base.
Our credit agreement requires us to hedge a portion of our production as forecasted for the PDP reserves included in our borrowing base review engineering reports. Accordingly, as of September 30, 2021, the Company has in place the following swap and put agreements for oil and natural gas.
 
    
2021
    
2022
    
2023
    
2021
    
2022
    
2023
 
Swap Agreements
                                                     
Natural Gas (MMBTU)
     268,000        928,000        131,000      $ 2.48      $ 2.67      $ 2.81  
Oil (barrels)
     133,500        196,200        27,200      $ 53.60      $ 51.99      $ 50.31  
The Company’s activities include development drilling. Our strategy is to develop a balanced portfolio of drilling prospects that includes lower risk wells with a high probability of success and higher risk wells with greater economic potential. In 2016, based upon the results of horizontal wells and historical vertical well performance, we decided to reduce the number of vertical wells in our drilling program and focus primarily on horizontal well drilling. We believe horizontal development of our resource base provides superior returns relative to vertical development, due to the ability of horizontals to come in contact with and drain from a greater volume of reservoir rock over more acreage, with less infrastructure, and thus at a lower cost of development per acre.
Our primary focus is the development of our leasehold acreage in the Permian Basin of West Texas where the Company currently holds an acreage position of 19,680 gross (12,460 net) acres, the majority of which is in Reagan, Upton, Martin and Midland counties. We believe this acreage has significant resource potential in as many as 10 reservoirs, including benches of the Spraberry, Jo Mill, and Wolfcamp, and can support the potential drilling of more than 250 additional horizontal wells.
The Middle Wolfcamp was our primary target for production in the area until the Company drilled three horizontal wells with Apache Corporation into the shallower reservoirs of the Wolfcamp “A”, the Jo Mill, and the Lower Spraberry, in 2019. These three test wells proved the productive capability of these reservoirs for the 1,280 acre Kashmir block in which we recently completed an additional nine wells. These nine wells were completed in the third quarter and all were on production by October 4
,
2021. We have an average 47.5% interest in these wells and expect a total investment net to the Company of approximately $24 million.
The successful development of these reservoirs has proven the productive potential of these reservoirs on our nearby
3,260-acre
AMI block with Apache Corporation in Upton County, Texas. Here the Company holds between 14% and 56% interest and is planning the drilling of an initial three wells to be drilled in 2022. These three will each be three-mile-long laterals. The future development will likely be the drilling of 48 horizontal wells targeting four reservoirs from the Wolfcamp “A” through the Middle Spraberry. The cost of such development will be approximately $370 million with the Company’s share being approximately $146 million. The actual number of wells that will be drilled, the cost, and the timing of drilling will vary based upon many factors, including commodity market conditions.
 
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In Reagan County, Texas, the Company holds 12,700 Gross (8.870 net) acres with exceptional potential. Offset operators have proven the productive capability of four reservoirs from the Middle Wolfcamp to the Lower Spraberry. Here the Company could participate in an estimated 352 horizontals with a net cost of approximately $890 million. Near-term development plans being discussed include the drilling of three 12,500’ laterals on one acreage block with BTA Producers, Inc., and six horizontal laterals on a second acreage block with laterals from 7,500’ to 10,000’ in length with Hibernia Resources, LLC. The Company’s share of these wells would average about 37.5% and cost approximately $35.2 million net.
In Oklahoma, the Company’s horizontal activity is focused in Canadian, Grady, Kingfisher, Garfield, Major, and Garvin counties where we have approximately 579 net leasehold acres with exceptional development potential. We believe this acreage could support the drilling of as many as 49 new horizontal wells based on an estimate of four wells per section: two in the Mississippian and two in the Woodford Shale. Should we choose to participate in future development, our share of the capital expenditures would be approximately $34 million at an average 10% ownership, otherwise the Company will sell its rights for cash, or cash plus a royalty or working interest.
The majority of our capital spending is discretionary, and the ultimate level of expenditures will be dependent on our assessment of the oil and gas business environment, the number and quality of oil and gas prospects available, the market for oilfield services, and oil and gas business opportunities in general.
The Company has in place both a stock repurchase program and a limited partnership interest repurchase program. Spending under these programs in 2020 was $1.452 million. The Company expects continued spending under these programs through 2021.
RESULTS OF OPERATIONS
2021 and 2020 Compared
We reported net income of $6.5 million, or $3.26 per share and $65 thousand or $0.03 per share for the three and nine months ended September 30, 2020, respectively, as compared to net losses of $1.2 million, or $(0.58) per share and $5.0 million, or $(2.52) per share for the three and nine months ended September 30, 2021, respectively. Current year net loss reflects changes in production combined with commodity price increases over the three and nine months ended September 30, 2020, decreases in gains related to the sale of acreage and changes related to the valuation of derivative instruments. The significant components of income and expense are discussed below.
Oil, gas and NGLs sales
increased $9.2 million, or 103.9% to $18.1 million for the three months ended September 30, 2021 from $8.9 million for the three months ended September 30, 2020 and $19.8 million, or 75.2% to $46.1 million for the nine months ended September 30, 2021 from $26.3 million for the nine months ended September 30, 2020.
The following table summarizes the primary components of production volumes and average sales prices realized for the nine months ended September 30, 2021 and 2020 (excluding realized gains and losses from derivatives).
 
           
Nine months ended September 30,
 
    
2021
    
2020
    
Increase /
(Decrease)
    
Increase /
(Decrease)
 
Barrels of Oil Produced
     480,000        538,000        (58,000      (10.80 )% 
Average Price Received
   $ 63.28      $ 38.41      $ 24.88        64.8
  
 
 
    
 
 
    
 
 
    
Oil Revenue (In 000’s)
   $ 30,376      $ 20,663      $ 9,713        47.0
  
 
 
    
 
 
    
 
 
    
Mcf of Gas Sold
     2,395,000        2,038,000        357,000        17.5
Average Price Received
   $ 3.32      $ 1.20      $ 2.12        177.1
  
 
 
    
 
 
    
 
 
    
Gas Revenue (In 000’s)
   $ 7,948      $ 2,441      $ 5,507        225.6
  
 
 
    
 
 
    
 
 
    
Barrels of Natural Gas Liquids Sold
     298,000        319,000        (21,000      (6.60 )% 
Average Price Received
   $ 26.11      $ 10.07      $ 16.04        159.3
  
 
 
    
 
 
    
 
 
    
Natural Gas Liquids Revenue (In 000’s)
   $ 7,781      $ 3,212      $ 4,569        142.2
  
 
 
    
 
 
    
 
 
    
Total Oil & Gas Revenue (In 000’s)
   $ 46,105      $ 26,316      $ 19,789        75.2
  
 
 
    
 
 
    
 
 
    
 
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Three months ended September 30,
 
    
2021
    
2020
    
Increase /
(Decrease)
    
Increase /
(Decrease)
 
Barrels of Oil Produced
     152,000        160,000        (8,000      (5.0 )% 
Average Price Received
   $ 68.70      $ 39.62      $ 29.08        73.4
  
 
 
    
 
 
    
 
 
    
Oil Revenue (In 000’s)
   $ 10.442      $ 6,339      $ 4,103        64.7
  
 
 
    
 
 
    
 
 
    
Mcf of Gas Sold
     950,000        496,000        454,000        91.5
Average Price Received
   $ 4.21      $ 2.12      $ 2.09        98.5
  
 
 
    
 
 
    
 
 
    
Gas Revenue (In 000’s)
   $ 3,998      $ 1,052      $ 2,946        280.0
  
 
 
    
 
 
    
 
 
    
Barrels of Natural Gas Liquids Sold
     103,000        106,000        (3,000      (2.80 )% 
Average Price Received
   $ 35.26      $ 13.91      $ 21.35        153.5
  
 
 
    
 
 
    
 
 
    
Natural Gas Liquids Revenue (In 000’s)
   $ 3,632      $ 1,474      $ 2,158        146.4
  
 
 
    
 
 
    
 
 
    
Total Oil & Gas Revenue (In 000’s)
   $ 18,072      $ 8,865      $ 9,207        103.9
  
 
 
    
 
 
    
 
 
    
Oil, Natural Gas and NGL Derivatives
We do not apply hedge accounting to any of our commodity based derivatives, thus changes in the fair market value of commodity contracts held at the end of a reported period, referred to as
mark-to-market
adjustments, are recognized as unrealized gains and losses in the accompanying condensed consolidated statements of operations. As oil and natural gas prices remain volatile,
mark-to-market
accounting treatment creates volatility in our revenues.
Field service income
increased $0.4 million or 15.9% to $3.0 million for the third quarter 2021 from $2.6 million for the third quarter 2020 and decreased $1.1 million, or 12.0% to $8.1 million for the nine months ended September 30, 2021 from $9.2 million for the nine months ended September 30, 2020. Workover rig services, hot oil treatments, saltwater hauling and disposal represent the bulk of our field service operations.
Lease operating expense
increased $3.4 million or 90.5% to $7.2 million for the third quarter 2021 to $3.8 million for the third quarter 2020, and increased $1.4 million or 8.8% to $17.8 million for the nine months ended September 30, 2021 from $16.4 million for the nine months ended September 30, 2020. This increase is primarily due to returning to production the high lifting cost properties
shut-in
during 2020 combined with higher production taxes related to higher commodity prices.
Field service expense
increased $1.4 million or 72.9% to $3.4 million for the third quarter 2021 from $2.0 million for the third quarter 2020 and increased $0.3 million, or 4.0% to $7.7 million for the nine months ended September 30, 2021 from $7.4 million for the nine months ended September 30, 2020. Field service expenses primarily consist of salaries and vehicle operating expenses which have increased during the three and nine months ended September 30, 2021 over the same periods of 2020 related to increased utilization of the equipment as oil and gas prices increased during 2021.
Depreciation, depletion, amortization and accretion on discounted liabilities
decreased $2.5 million, or 27.0% to $6.9 million for the third quarter 2021 from $9.4 million for the third quarter 2020 and decreased $4.5 million, or 18.5% to $20.0 million for the nine months ended September 30, 2021 from $24.5 million for the nine months ended September 30, 2020, reflecting the reduced capital base of the producing properties in 2021.
General and administrative expense
decreased $0.2 million, or 7.9% to $2.4 million for the three months ended September 30, 2021 from $2.6 million for the three months ended September 30, 2020, and decreased $5.4 million, or 42.0% to $7.5 million for the nine months ended September 30, 2021 from $12.9 million for the nine months ended September 30, 2020. This overall decrease in 2021 is primarily due to decreases in employee wages and benefits and by staff reductions in 2020.
Gain on sale and exchange of assets
of $15.0 million for the nine months ended September 30, 2020 consists of principally of sales of deep rights in undeveloped acreage in West Texas and marginal wells in West Virginia. No such sales took place during 2021.
Interest expense
decreased to $0.46 million for the third quarter 2021 from $0.47 million for the third quarter 2020 and to $1.5 million for the nine months ended September 30, 2021 from $1.6 million for the nine months ended September 30, 2020. This decrease reflects the decrease in current borrowings under our revolving credit agreement.
Income tax expense or benefit
for the September 30, 2021 and 2020 periods varied due to the change in net income or loss for those periods.
 
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Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a smaller reporting company and no response is required pursuant to this Item.
 
Item 4.
CONTROLS AND PROCEDURES
As of the end of the current reported period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules
13a-15
and
15d-15
of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective with respect to the recording, processing, summarizing and reporting, within the time periods specified in the Commission’s rules and forms, of information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
There were no changes in the Company’s internal control over financial reporting that occurred during the first nine months of 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
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Table of Contents
PART II—OTHER INFORMATION
 
Item 1.
LEGAL PROCEEDINGS
None.
 
Item 1A.
RISK FACTORS
The Company is a smaller reporting company and no response is required pursuant to this Item.
 
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of equity securities by the Company during the period covered by this report.
During the nine months ended September 30, 2021, the Company purchased the following shares of common stock as treasury shares.
 
2021 Month
  
Number of
shares
    
Average price
paid per
share
    
Maximum number
of shares that
may
yet be purchased
under the
program at
month end
(1)
 
January
     1—        $ —          147,921  
February
     —        $ —          147,921  
March
     —        $ —          147,921  
April
     —        $ —        147,921  
May
     —        $ —        147,921  
June
     —        $ —        147,921  
July
     —        $ —        147,921  
August
     —        $ —        147,921  
September
     —        $ —        147,021  
  
 
 
    
 
 
    
Total/Average
      $       
 
(1)
In December 1993, we announced that the Board of Directors authorized a stock repurchase program whereby we may purchase outstanding shares of the common stock from
time-to-time,
in open market transactions or negotiated sales. On October 31, 2012 and June 13, 2018, the Board of Directors of the Company approved an additional 500,000 and 200,000 shares respectively, of the Company’s stock to be included in the stock repurchase program. A total of 3,700,000 shares have been authorized, to date, under this program. Through September 30, 2021, a total of 3,552,279 shares have been repurchased under this program for $74,934,725 at an average price of $21.09 per share. Additional purchases of shares may occur as market conditions warrant.
 
Item 3.
DEFAULTS UPON SENIOR SECURITIES
None
 
Item 4.
RESERVED
 
Item 5.
OTHER INFORMATION
None
 
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Item 6.
EXHIBITS
The following exhibits are filed as a part of this report:
 
Exhibit No.
    
3.1    Certificate of Incorporation of PrimeEnergy Resources Corporation, as amended and restated of December 21, 2018, (filed as Exhibit 3.1 of PrimeEnergy Resources Corporation Form 8-K on December 27, 2018, and incorporated herein by reference).
3.2    Bylaws of PrimeEnergy Resources Corporation as amended and restated as of April 24, 2020 (filed as Exhibit 3.2 of PrimeEnergy Resources Corporation Form 8-K on April 27, 2020 and incorporated herein by reference).
10.18    Composite copy of Non-Statutory Option Agreements (Incorporated by reference to Exhibit 10.18 of PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2004).
10.22.5.10    Third Amended and Restated Credit Agreement dated as of February 15, 2017 among PrimeEnergy Resources Corporation, as Borrower, Compass Bank, as Administrative Agent and Lender, Wells Fargo, National Association, as Document Agent, the Lenders Party Hereto (Compass Bank, Wells Fargo, National Association, Citibank, N.A.) and BBVA Compass Bank, as Letter of Credit Issuer and Sole Lead Arranger and Sole Bookrunner (Incorporated by reference to Exhibit 10.22.5.10 to PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2016).
10.22.5.10.1    FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 22, 2017 among PRIMEENERGY CORPORATION, as Borrower, THE LENDERS PARTY HERETO, COMPASS BANK, as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA COMPASS, as Sole Lead Arranger and Sole Book Runner, (Incorporated by reference to Exhibit 10.22.5.10.1 to PrimeEnergy Corporation Form 10-K for the year ended December 31, 2017).
10.22.5.10.2    SECOND AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of July 17, 2018 among PRIMEENERGY CORPORATION, as Borrower, THE LENDERS PARTY HERETO, COMPASS BANK, as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA COMPASS, as Sole Lead Arranger and Sole Book Runner, (Incorporated by reference to Exhibit 10.22.5.10.2 to PrimeEnergy Corporation Form 10-Q for the quarter ended June 30, 2018).
10.22.5.10.3    THIRD AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of January 8, 2019, among PRIMEENERGY RESOURCES CORPORATION, as Borrower, THE LENDERS PARTY HERETO, COMPASS BANK, as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA COMPASS, as Sole Lead Arranger and Sole Book Runner (Incorporated by reference to Exhibit 10.22.5.10.3 to PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2018).
10.22.5.10.4    FOURTH AMENDMENT TO THE THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 8, 2020 among PRIMEENERGY RESOURCES CORPORATION, as Borrower, THE LENDERS PARTY HERETO, BBVA USA (f/k/a COMPASS BANK), as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA USA, as Sole Lead Arranger and Sole Book Runner (Incorporated by reference to 10.22.5.10.4 to PrimeEnergy Resources Corporation Form 10-Q for the quarter ended September 30, 2020).
10.22.5.10.5    FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of September 4, 2020, among PRIMEENERGY RESOURCES CORPORATION, as Borrower, THE LENDERS PARTY HERETO, BBVA USA (f/k/a COMPASS BANK,) as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA USA, as Sole Lead Arranger and Sole Book Runner (Incorporated by reference to 10.22.5.10.5 to PrimeEnergy Resources Corporation Form 10-Q for the quarter ended September 30, 2020).
10.22.5.10.6    SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of FEBRUARY 11, 2021, among PRIMEENERGY RESOURCES CORPORATION, as Borrower, THE GUARANTORS PARTY HERETO, THE LENDERS PARTY, HERETO, BBVA USA, as Administrative Agent and BBVA USA, as Sole Lead Arranger and Sole Book Runner (Incorporated by reference to Exhibit 10.22.5.10.6 to PrimeEnergy Resources Corporation Form 8-K dated February 16, 2021).
 
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Table of Contents
Exhibit No.
    
10.22.5.11    Amended, Restated and Consolidated Guaranty dated as of February 15, 2017, among PrimeEnergy Management Corporation, Prime Operating Company, Eastern Oil Well Service Company, Southwest Oilfield Construction Company, EOWS Midland Company and Prime Offshore L.L.C. in favor of Compass Bank, as Administrative Agent for the Lenders (Incorporated by reference to Exhibit 10.22.5.11 to PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2016).
10.22.5.12    Amended, Restated and Consolidated Pledge and Security Agreement dated as of February 15, 2017, among PrimeEnergy Resources Corporation, PrimeEnergy Management Corporation, Prime Operating Company, Eastern Oil Well Service Company, Southwest Oilfield Construction Company, EOWS Midland Company and Prime Offshore L.L.C. and Compass Bank, as Administrative Agent for the Secured Parties (Incorporated by reference to Exhibit 10.22.5.12 to PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2016).
10.22.5.13    Amended, Restated and Consolidated Deed of Trust, Mortgage, Security Agreement, Assignment of Production and Financing Statement Dated as of May 5, 2017 (Incorporated by reference to Exhibit 10.22.5.13 to PrimeEnergy Resources Corporation Form 10-Q for the quarter ended March 31, 2017).
10.22.5.14    Deed of Trust, Mortgage, Security Agreement, Assignment of Production and Financing Statement Dated as of May 5, 2017 (Incorporated by reference to Exhibit 10.22.5.14 to PrimeEnergy Resources Corporation Form 10-Q for the quarter ended March 31, 2017).
14    PrimeEnergy Resources Corporation Code of Business Conduct and Ethics, as amended December 16, 2011 (Incorporated by reference to Exhibit 14 of PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2011).
31.1    Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).
31.2    Certification of Chief Financial Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).
32.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101.INS    XBRL (eXtensible Business Reporting Language) Instance Document (filed herewith)
101.SCH    XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LAB    XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
104    Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
 
   
PRIMEENERGY RESOURCES CORPORATION
Dated: November 19, 2021
   
By:
  /s/ Charles E. Drimal, Jr.
      Charles E. Drimal, Jr.
      Chairman, President
 
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