rvra-10q_20190331.htm

 

 

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 March 31, 2019

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: 333-225927

 

Riviera Resources, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

(State or other jurisdiction of incorporation or organization)

 

82-5121920

(I.R.S. Employer Identification No.)

 

 

 

600 Travis Street, Suite 1700

Houston, Texas

(Address of principal executive offices)

 

77002

(Zip Code)

(281) 840-4000

(Registrant’s telephone number, including area code)

 

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

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).    Yes      No  

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.

 

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  

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 April 30, 2019, there were 65,441,848 shares of common stock, par value $0.01 per share, outstanding.

Title of each class

 

Trading symbols(s)

 

Name of exchange on which registered

None

 

None

 

None

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

Glossary of Terms

 

1

 

 

 

 

 

 

 

Part I – Financial Information

 

 

Item 1.

 

Financial Statements

 

 

 

 

Condensed Consolidated Balance Sheets

 

2

 

 

Condensed Consolidated Statements of Operations

 

4

 

 

Condensed Consolidated Statements of Equity

 

5

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

Notes to Condensed Consolidated Financial Statements

 

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

42

Item 4.

 

Controls and Procedures

 

43

 

 

 

 

 

 

 

Part II – Other Information

 

 

Item 1.

 

Legal Proceedings

 

44

Item 1A.

 

Risk Factors

 

44

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

44

Item 3.

 

Defaults Upon Senior Securities

 

45

Item 4.

 

Mine Safety Disclosures

 

45

Item 5.

 

Other Information

 

45

Item 6.

 

Exhibits

 

46

 

 

 

 

 

 

 

Signatures

 

47

 

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Table of Contents

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.

 

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Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

RIVIERA RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(in thousands, except share amounts)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

102,260

 

 

$

18,529

 

Accounts receivable – trade, net

 

 

85,470

 

 

 

114,489

 

Derivative instruments

 

 

3,861

 

 

 

10,758

 

Restricted cash

 

 

26,721

 

 

 

31,248

 

Other current assets

 

 

19,290

 

 

 

26,721

 

Assets held for sale

 

 

 

 

 

38,396

 

Total current assets

 

 

237,602

 

 

 

240,141

 

Noncurrent assets:

 

 

 

 

 

 

 

 

Oil and natural gas properties (successful efforts method)

 

 

792,861

 

 

 

756,552

 

Less accumulated depletion and amortization

 

 

(103,955

)

 

 

(93,507

)

 

 

 

688,906

 

 

 

663,045

 

 

 

 

 

 

 

 

 

 

Other property and equipment

 

 

629,312

 

 

 

606,244

 

Less accumulated depreciation

 

 

(72,043

)

 

 

(62,368

)

 

 

 

557,269

 

 

 

543,876

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

 

2,024

 

 

 

4,603

 

Deferred income taxes

 

 

124,598

 

 

 

129,091

 

Other noncurrent assets

 

 

13,695

 

 

 

12,078

 

 

 

 

140,317

 

 

 

145,772

 

Total noncurrent assets

 

 

1,386,492

 

 

 

1,352,693

 

Total assets

 

$

1,624,094

 

 

$

1,592,834

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

154,162

 

 

$

159,228

 

Derivative instruments

 

 

5,579

 

 

 

4,719

 

Current portion of Mayzure Notes payable

 

 

10,658

 

 

 

 

Other accrued liabilities

 

 

18,028

 

 

 

34,474

 

Liabilities held for sale

 

 

 

 

 

3,725

 

Total current liabilities

 

 

188,427

 

 

 

202,146

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

Mayzure Notes payable, net

 

 

68,671

 

 

 

 

Credit facilities

 

 

14,500

 

 

 

24,500

 

Asset retirement obligations

 

 

104,658

 

 

 

103,814

 

Other noncurrent liabilities

 

 

5,689

 

 

 

 

Total noncurrent liabilities

 

 

193,518

 

 

 

128,314

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Table of Contents

RIVIERA RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS - Continued

(Unaudited)

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(in thousands, except share amounts)

 

Equity:

 

 

 

 

 

 

 

 

Preferred Stock ($0.01 par value, 30,000,000 shares authorized; no shares

   issued at March 31, 2019, or December 31, 2018)

 

 

 

 

 

 

Common Stock ($0.01 par value, 270,000,000 shares authorized; 66,791,031

   shares and 69,197,284 shares issued at March 31, 2019, and

   December 31, 2018, respectively)

 

 

668

 

 

 

692

 

Additional paid-in capital

 

 

1,223,803

 

 

 

1,256,730

 

Retained earnings

 

 

17,678

 

 

 

4,952

 

Total equity

 

 

1,242,149

 

 

 

1,262,374

 

Total liabilities and equity

 

$

1,624,094

 

 

$

1,592,834

 

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

 

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Table of Contents

RIVIERA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

(in thousands, except per share

amounts)

 

Revenues and other:

 

 

 

 

 

 

 

 

Oil, natural gas and natural gas liquids sales

 

$

76,345

 

 

$

136,876

 

Losses on commodity derivatives

 

 

(13,241

)

 

 

(15,030

)

Marketing revenues

 

 

67,347

 

 

 

46,267

 

Other revenues

 

 

6,003

 

 

 

5,894

 

 

 

 

136,454

 

 

 

174,007

 

Expenses:

 

 

 

 

 

 

 

 

Lease operating expenses

 

 

24,052

 

 

 

47,884

 

Transportation expenses

 

 

19,150

 

 

 

19,094

 

Marketing expenses

 

 

53,389

 

 

 

41,755

 

General and administrative expenses

 

 

19,039

 

 

 

44,779

 

Exploration costs

 

 

1,238

 

 

 

1,202

 

Depreciation, depletion and amortization

 

 

21,772

 

 

 

28,465

 

Taxes, other than income taxes

 

 

6,300

 

 

 

8,452

 

Gains on sale of assets and other, net

 

 

(27,265

)

 

 

(106,296

)

 

 

 

117,675

 

 

 

85,335

 

Other income and (expenses):

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

 

(971

)

 

 

(404

)

Other, net

 

 

(589

)

 

 

(170

)

 

 

 

(1,560

)

 

 

(574

)

Reorganization items, net

 

 

 

 

 

(1,951

)

Income from continuing operations before income taxes

 

 

17,219

 

 

 

86,147

 

Income tax expense

 

 

4,493

 

 

 

51,539

 

Income from continuing operations

 

 

12,726

 

 

 

34,608

 

Income from discontinued operations, net of income taxes

 

 

 

 

 

36,331

 

Net income

 

$

12,726

 

 

$

70,939

 

Income per share:

 

 

 

 

 

 

 

 

Income from continuing operations per share ‒ Basic

 

$

0.18

 

 

$

0.45

 

Income from continuing operations per share ‒ Diluted

 

$

0.18

 

 

$

0.45

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations per share ‒ Basic

 

$

 

 

$

0.48

 

Income from discontinued operations per share ‒ Diluted

 

$

 

 

$

0.48

 

 

 

 

 

 

 

 

 

 

Net income per share ‒ Basic

 

$

0.18

 

 

$

0.93

 

Net income per share ‒ Diluted

 

$

0.18

 

 

$

0.93

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding ‒ Basic

 

 

68,817

 

 

 

76,191

 

Weighted average shares outstanding ‒ Diluted

 

 

69,000

 

 

 

76,191

 

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

 

 

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RIVIERA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

 

 

Common Stock

 

 

Additional Paid in Capital

 

 

Accumulated Deficit

 

 

Total Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

69,197

 

 

$

692

 

 

$

1,256,730

 

 

$

4,952

 

 

$

1,262,374

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

12,726

 

 

 

12,726

 

Repurchases of common stock

 

 

(2,488

)

 

 

(25

)

 

 

(34,412

)

 

 

 

 

 

(34,437

)

Issuance of common stock

 

 

82

 

 

 

1

 

 

 

1,485

 

 

 

 

 

 

1,486

 

March 31, 2019

 

 

66,791

 

 

$

668

 

 

$

1,223,803

 

 

$

17,678

 

 

$

1,242,149

 

 

 

 

Total Equity

 

 

 

(in thousands)

 

 

 

 

 

 

December 31, 2017

 

$

2,339,046

 

Net income

 

 

70,939

 

Net transfers to Parent

 

 

(408,093

)

March 31, 2018

 

$

2,001,892

 

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

 

 

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Table of Contents

RIVIERA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

12,726

 

 

$

70,939

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Income from discontinued operations

 

 

 

 

 

(36,331

)

Depreciation, depletion and amortization

 

 

21,772

 

 

 

28,465

 

Deferred income taxes

 

 

4,493

 

 

 

52,025

 

Total losses on derivatives, net

 

 

15,421

 

 

 

15,030

 

Cash settlements on derivatives

 

 

(5,085

)

 

 

(4,494

)

Share-based compensation expenses

 

 

4,236

 

 

 

17,037

 

Gains on sale of assets and other, net

 

 

(28,564

)

 

 

(107,223

)

Other

 

 

1,583

 

 

 

1,421

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Decrease in accounts receivable – trade, net

 

 

26,536

 

 

 

5,415

 

Decrease in other assets

 

 

9,257

 

 

 

12,002

 

Increase (decrease) in accounts payable and accrued expenses

 

 

(15,840

)

 

 

13,802

 

Decrease in other liabilities

 

 

(8,857

)

 

 

(17,222

)

Net cash provided by operating activities

 

 

37,678

 

 

 

50,866

 

Cash flow from investing activities:

 

 

 

 

 

 

 

 

Development of oil and natural gas properties

 

 

(30,512

)

 

 

(26,024

)

Purchases of other property and equipment

 

 

(23,183

)

 

 

(46,110

)

Proceeds from sale of properties and equipment and other

 

 

60,141

 

 

 

232,394

 

Net cash provided by investing activities

 

 

6,446

 

 

 

160,260

 

Cash flow from financing activities:

 

 

 

 

 

 

 

 

Net transfers to Parent

 

 

 

 

 

(419,556

)

Repurchases of shares

 

 

(34,130

)

 

 

 

Proceeds from borrowings

 

 

96,225

 

 

 

 

Repayments of debt

 

 

(24,300

)

 

 

 

Debt issuance costs paid

 

 

(2,715

)

 

 

(26

)

Distributions to unitholders

 

 

 

 

 

(8,007

)

Net cash provided by (used in) financing activities

 

 

35,080

 

 

 

(427,589

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

79,204

 

 

 

(216,463

)

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Beginning

 

 

49,777

 

 

 

520,922

 

Ending

 

$

128,981

 

 

$

304,459

 

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

 

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Table of Contents

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 (i) prior to the Spin-off (as defined below) to Linn Energy, Inc. (the “Parent”) and its consolidated subsidiaries, and (ii) after the Spin-off, to Riviera Resources, Inc. (“Riviera”) and its consolidated subsidiaries.  Unless otherwise indicated or the context otherwise requires, references herein to “LINN Energy” refer to Linn Energy, Inc. and its consolidated subsidiaries.

In April 2018, the Parent announced its intention to separate Riviera from LINN Energy.

To effect the separation, the Parent and certain of its then direct and indirect subsidiaries undertook an internal reorganization (including the conversion of Riviera Resources, LLC from a limited liability company to a corporation named Riviera Resources, Inc.), following which Riviera holds, directly or through its subsidiaries, substantially all of the assets of LINN Energy, other than LINN Energy’s 50% equity interest in Roan Resources LLC (“Roan”).  A subsidiary of the Company held the equity interest in Roan until the Parent’s internal reorganization on July 25, 2018 (the “Reorganization Date”).  Following the internal reorganization, the Parent distributed all of the outstanding shares of Riviera common stock to the Parent’s shareholders on a pro rata basis (the “Spin-off”).  The Spin-off was completed on August 7, 2018.

Following the Spin-off, Riviera is an independent oil and natural gas company with a strategic focus on efficiently operating its mature low-decline assets, developing its growth-oriented assets, and returning capital to shareholders.  Riviera is quoted for trading on the OTCQX Market under the ticker “RVRA,” and the Parent did not retain any ownership interest in the Company.

Prior to the Spin-off, the accompanying condensed consolidated financial statements were prepared on a stand-alone basis and derived from Linn Energy, Inc.’s consolidated financial statements and accounting records for the periods presented as the Company was historically managed as a subsidiary of Linn Energy, Inc.

Nature of Business

The Company’s upstream reporting segment properties are currently located in six operating regions in the United States (“U.S.”): the Hugoton Basin, East Texas, the Mid-Continent, Michigan/Illinois, North Louisiana and the Uinta Basin.  In addition, the Company’s upstream reporting segment contributed a term overriding royalty interest in helium produced from certain oil and natural gas properties in the Hugoton Basin (the “VPP Interests”) to Mayzure, LLC (“Mayzure”), a wholly owned subsidiary of the Company.  The Blue Mountain reporting segment consists of a cryogenic natural gas processing facility, a network of gathering pipelines and compressors and produced water services in the Merge/SCOOP/STACK play, each of which is owned by Blue Mountain Midstream LLC (“Blue Mountain Midstream”), a wholly owned subsidiary of the Company.  During 2018, the Company divested all of its properties located in the previous Permian Basin operating region.  See Note 3 for additional information.

Historically, a subsidiary of the Company also owned a 50% equity interest in Roan.  The Company’s equity earnings (losses), consisting of its share of Roan’s earnings or losses, are included in the condensed consolidated financial statements through the Reorganization Date.  However, on the Reorganization Date, the equity interest in Roan was distributed to the Parent and is no longer affiliated with Riviera.  As such, the Company has classified the investment and equity earnings (losses) in Roan as discontinued operations on its condensed consolidated financial statements.  See Note 3 for additional information.

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 financial statements and notes in the Company’s Annual Report on Form 10‑K for the year ended

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Table of Contents

RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

December 31, 2018.  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. Prior to the Spin-off, the condensed consolidated financial statements were prepared on a carve-out basis and reflect significant assumptions and allocations.  The condensed consolidated financial statements for previous periods include certain reclassifications that were made to conform to current presentation.  Such reclassifications have no impact on previously reported net income (loss), stockholders’ equity, or cash flows.

Investments in noncontrolled entities over which the Company exercises significant influence are accounted for under the equity method.

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 estimates of the Company’s reserves of oil, natural gas and natural gas liquids (“NGL”), future cash flows from oil and natural gas properties, depreciation, depletion and amortization, asset retirement obligations, certain revenues and operating expenses, and fair values of commodity derivatives.  In addition, as part of fresh start accounting, the Company made estimates and assumptions related to its reorganization value, liabilities subject to compromise, the fair value of assets and liabilities recorded as a result of the adoption of fresh start accounting and income taxes.

As fair value is a market-based measurement, it is determined based on the assumptions that market participants would use.  These estimates and assumptions are based on management’s best estimates and judgment.  Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances.  Such estimates and assumptions are adjusted when facts and circumstances dictate.  As future events and their effects cannot be determined with precision, actual results could differ from these estimates.  Any changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Recently Adopted Accounting Standard

In February 2016, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) that is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet.  The Company adopted this ASU effective January 1, 2019, using the modified retrospective effective date method and applied practical expedients which, among other things, allowed the Company to carryforward its historical lease classification, for the nonrecognition of short-term leases and for the combination of lease and non-lease components, by asset class.  The adoption of this ASU resulted in an increase in both assets and liabilities of approximately $1 million as of January 1, 2019, related to the Company’s leasing activities with no material impact to the statement of operations.

The Company’s leases primarily include buildings, office equipment, and field equipment.  The Company elected to combine lease and non-lease components for leases of office equipment and field equipment.

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Table of Contents

RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Note 2 – Revenues

Disaggregation of Revenue

The following tables present the Company’s disaggregated revenues by source and geographic area:

 

 

Three Months Ended March 31, 2019

 

 

 

Natural

Gas

 

 

Oil

 

 

NGL

 

 

Oil, Natural Gas and NGL Sales

 

 

Marketing

Revenues

 

 

Other

Revenues

 

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hugoton Basin

 

$

22,899

 

 

$

376

 

 

$

9,970

 

 

$

33,245

 

 

$

23,692

 

 

$

5,968

 

 

$

62,905

 

East Texas

 

 

11,486

 

 

 

852

 

 

 

603

 

 

 

12,941

 

 

 

1,089

 

 

 

2

 

 

 

14,032

 

Mid-Continent

 

 

4,736

 

 

 

2,967

 

 

 

2,438

 

 

 

10,141

 

 

 

 

 

 

11

 

 

 

10,152

 

Michigan/Illinois

 

 

7,089

 

 

 

650

 

 

 

10

 

 

 

7,749

 

 

 

 

 

 

20

 

 

 

7,769

 

Uinta Basin

 

 

6,441

 

 

 

86

 

 

 

5

 

 

 

6,532

 

 

 

 

 

 

 

 

 

6,532

 

North Louisiana

 

 

4,486

 

 

 

797

 

 

 

454

 

 

 

5,737

 

 

 

238

 

 

 

2

 

 

 

5,977

 

Blue Mountain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42,328

 

 

 

 

 

 

42,328

 

Total

 

$

57,137

 

 

$

5,728

 

 

$

13,480

 

 

$

76,345

 

 

$

67,347

 

 

$

6,003

 

 

$

149,695

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

Natural

Gas

 

 

Oil

 

 

NGL

 

 

Oil, Natural Gas and NGL Sales

 

 

Marketing

Revenues

 

 

Other

Revenues

 

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hugoton Basin

 

$

22,363

 

 

$

2,732

 

 

$

19,514

 

 

$

44,609

 

 

$

24,080

 

 

$

5,831

 

 

$

74,520

 

East Texas

 

 

14,776

 

 

 

1,340

 

 

 

1,306

 

 

 

17,422

 

 

 

36

 

 

 

5

 

 

 

17,463

 

Mid-Continent

 

 

7,933

 

 

 

11,867

 

 

 

3,054

 

 

 

22,854

 

 

 

 

 

 

14

 

 

 

22,868

 

Michigan/Illinois

 

 

6,472

 

 

 

710

 

 

 

11

 

 

 

7,193

 

 

 

 

 

 

29

 

 

 

7,222

 

Uinta Basin

 

 

3,380

 

 

 

7,370

 

 

 

1,358

 

 

 

12,108

 

 

 

 

 

 

(2

)

 

 

12,106

 

North Louisiana

 

 

6,378

 

 

 

1,569

 

 

 

(436

)

 

 

7,511

 

 

 

259

 

 

 

1

 

 

 

7,771

 

Permian Basin

 

 

2,026

 

 

 

20,108

 

 

 

3,045

 

 

 

25,179

 

 

 

 

 

 

16

 

 

 

25,195

 

Blue Mountain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,892

 

 

 

 

 

 

21,892

 

Total

 

$

63,328

 

 

$

45,696

 

 

$

27,852

 

 

$

136,876

 

 

$

46,267

 

 

$

5,894

 

 

$

189,037

 

 

Contract Balances

Under the Company’s product sales contracts, its 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 $73 million and $107 million as of March 31, 2019, and December 31, 2018, respectively.

Performance Obligations

The 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.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

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 performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation.  Under these sales contracts, each unit of product generally represents a separate performance obligation; therefore future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

Note 3 – Divestitures and Discontinued Operations

Divestiture – 2019

On January 17, 2019, the Company completed the sale of its interest in properties located in the Arkoma Basin in Oklahoma (the “Arkoma Assets Sale”).  Cash proceeds received from the sale of these properties were approximately $65 million (including a deposit of approximately $5 million received in 2018), and the Company recognized a net gain of approximately $28 million.

The assets and liabilities associated with the Arkoma Assets Sale were classified as “held for sale” on the condensed consolidated balance sheet at December 31, 2018.

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,

2018

 

 

(in thousands)

 

Assets:

 

 

 

Oil and natural gas properties

$

38,083

 

Other property and equipment

 

152

 

Other

 

161

 

Total assets held for sale

$

38,396

 

Liabilities:

 

 

 

Asset retirement obligations

$

2,700

 

Other

 

1,025

 

Total liabilities held for sale

$

3,725

 

 

Other assets primarily include inventories and other liabilities primarily include accounts payable.

Divestitures – 2018

On March 29, 2018, the Company completed the sale of its interest in conventional properties located in west Texas.  Cash proceeds received from the sale of these properties were approximately $108 million, net of costs to sell of approximately $1 million, and the Company recognized a net gain of approximately $53 million.

On February 28, 2018, the Company completed the sale of its Oklahoma waterflood and Texas Panhandle properties.  Cash proceeds received from the sale of these properties were approximately $112 million (including a deposit of approximately $12 million received in 2017), net of costs to sell of approximately $1 million, and the Company recognized a net gain of approximately $48 million.

The divestitures discussed above are not presented as discontinued operations because they do not represent a strategic shift that will have a major effect on the Company’s operations and financial results.  The gains on these divestitures are included

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

in “gains on sale of assets and other, net” on the condensed consolidated statements of operations and were included in the upstream reporting segment.

Divestiture – Subsequent Event

On April 24, 2019, the Company signed a definitive agreement to sell its interest in certain non-operated properties located in the Hugoton Basin for a contract price of $31 million, subject to closing adjustments.  The sale is expected to close in the second quarter of 2019.

Discontinued Operations

As discussed in Note 1, historically, a subsidiary of the Company owned the equity interest in Roan.  However, on the Reorganization Date, the equity interest in Roan was distributed to the Parent and is no longer affiliated with Riviera.  On August 31, 2017, the Parent, through certain of its then subsidiaries, completed the transaction in which the Company and Citizen Energy II, LLC (“Citizen”) each contributed certain upstream assets located in Oklahoma to a newly formed company, Roan (such contribution, the “Roan Contribution”), which was focused on the accelerated development of the Merge/SCOOP/STACK play.  In exchange for their respective contributions, a subsidiary of the Company and Citizen each received a 50% equity interest in Roan.

The Company used the equity method of accounting for its investment in Roan.  The Company’s equity earnings (losses) consisted of its share of Roan’s earnings or losses and the amortization of the difference between the Company’s investment in Roan and Roan’s underlying net assets attributable to certain assets and were classified as discontinued operations on the condensed consolidated statement of operations.

The following are summarized statement of operations information for Roan.

Summarized Roan Resources LLC Statement of Operations Information

 

Three Months Ended March 31, 2018

 

 

(in thousands)

 

 

 

 

 

Revenues and other

$

101,084

 

Expenses

 

57,909

 

Other income and (expenses)

 

(1,799

)

Net income

$

41,376

 

 

For the three months ended March 31, 2018, the Company recorded equity earnings from its historical 50% interest in Roan of approximately $36 million (inclusive of an income tax benefit of approximately $11 million).  The equity earnings are included in “income from discontinued operations, net of income taxes” on the condensed consolidated statement of operations.

Note 4 – Equity

Share Repurchase Program

On August 16, 2018, the Company’s Board of Directors authorized the repurchase of up to $100 million of the Company’s outstanding shares of common stock.  During the three months ended March 31, 2019, the Company repurchased an aggregate of 2,495,975 shares of common stock at an average price of $13.80 per share for a total cost of approximately $34 million.  In addition, in April 2019, the Company repurchased 1,351,850 shares of common stock at an average price of $14.55 for a the total cost of approximately $20 million.  At April 30, 2019, approximately $28 million was available for share repurchases under the program.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Any share repurchases are subject to restrictions in the Riviera Credit Facility.

Dividends

The Company is not currently paying a cash dividend; however, the Board of Directors periodically reviews the Company’s liquidity position to evaluate whether or not to pay a cash dividend.  Any future payment of cash dividends would be subject to the restrictions in the Riviera Credit Facility.

Note 5 – Oil and Natural Gas Properties

Oil and Natural Gas Capitalized Costs

Aggregate capitalized costs related to oil, natural gas and NGL production activities with applicable accumulated depletion and amortization are presented below:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Proved properties

 

$

743,858

 

 

$

709,053

 

Unproved properties

 

 

49,003

 

 

 

47,499

 

 

 

 

792,861

 

 

 

756,552

 

Less accumulated depletion and amortization

 

 

(103,955

)

 

 

(93,507

)

 

 

$

688,906

 

 

$

663,045

 

 

Note 6 – Debt

The following summarizes the Company’s outstanding debt:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(in thousands, except percentages)

 

 

 

 

 

 

 

 

 

 

Riviera Credit Facility (1)

 

$

 

 

$

20,000

 

Blue Mountain Credit Facility (2)

 

 

14,500

 

 

 

4,500

 

Mayzure Notes (3)

 

 

81,925

 

 

 

 

Net unamortized deferred financing fees

 

 

(2,596

)

 

 

 

Total debt, net

 

 

93,829

 

 

 

24,500

 

Less current portion of Mayzure Notes

 

 

(10,658

)

 

 

 

Total noncurrent debt, net

 

$

83,171

 

 

$

24,500

 

 

(1)

Variable interest rate of 5.0% at December 31, 2018.

(2)

Variable interest rate of 4.5% at both March 31, 2019, and December 31, 2018.

(3)

The Mayzure Notes are secured by Mayzure’s VPP interests, but Neither the Company, nor any of its subsidiaries other than Mayzure, have guaranteed the Mayzure Notes.

Fair Value

The Company’s debt is recorded at the carrying amount on the consolidated balance sheets.  The carrying amounts of the credit facilities and term loans approximate fair value because the interest rates are variable and reflective of market rates.  

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

The fair value of the Company’s Mayzure Notes (as defined below) (which was estimated using a Level 2 fair value measurement) was approximately $83 million at March 31, 2019.

Riviera Credit Facility

Riviera’s credit agreement provides for a senior secured reserve-based revolving loan facility (the “Riviera Credit Facility”) with $385 million in borrowing commitments at March 31, 2019.  In January 2019, in connection with the closing of the Arkoma Assets Sale, the maximum borrowing commitment was reduced from $425 million to $385 million.  In March 2019, the Company entered into an amendment to the Riviera Credit Facility to, among other things, allow for the issuance of the Mayzure Notes (as described below).  The amendment did not result in a change to the current borrowing commitment.

As of March 31, 2019, there were no borrowings outstanding under the Riviera Credit Facility and there was approximately $351 million of available borrowing capacity (which includes a $34 million reduction for outstanding letters of credit).  The maturity date is August 4, 2020.

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. In April 2019, the Company completed its semi-annual redetermination, and the borrowing base was reduced from $385 million to $250 million.  As of April 30, 2019, there were no borrowings outstanding under the Riviera Credit Facility and there was approximately $216 million of available borrowing capacity (which includes a $34 million reduction for outstanding letters of credit.  Upon closing of the sale of certain non-operated properties in the Hugoton Basin the borrowing base will be reduced to $245 million.

At the Company’s election, interest on borrowings under the Riviera Credit Facility is determined by reference to either the London Interbank Offered Rate (“LIBOR”) plus an applicable margin ranging from 2.50% to 3.50% per annum or the alternate base rate (“ABR”) plus an applicable margin ranging from 1.50% to 2.50% per annum, depending on utilization of the borrowing base.  Interest is generally payable in arrears quarterly for loans bearing interest based at the ABR and at the end of the applicable interest period for loans bearing interest at the LIBOR, or if such interest period is longer than three months, at the end of the three month intervals during such interest period.  The Company is required to pay a commitment fee to the lenders under the Riviera Credit Facility, which accrues at a rate per annum of 0.50% on the average daily unused amount of the available revolving loan commitments of the lenders.

The obligations under the Riviera Credit Facility are secured by mortgages covering approximately 85% of the total value of the proved reserves of the oil and natural gas properties of the Company and certain of its subsidiaries, along with liens on substantially all personal property of the Company and certain of its subsidiaries excluding Mayzure and Blue Mountain Midstream, and are guaranteed by the Company and certain of its subsidiaries, subject to customary exceptions.  Under the Riviera Credit Facility, the Company is required to maintain (i) a maximum total net debt to last twelve months EBITDA ratio of 4.0 to 1.0, and (ii) a minimum adjusted current ratio of 1.0 to 1.0.

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.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Blue Mountain Credit Facility

On August 10, 2018, Blue Mountain Midstream entered into a credit agreement with Royal Bank of Canada, as administrative agent, and the lenders and agents party thereto, providing for a new senior secured revolving loan facility (the “Blue Mountain Credit Facility” and together with the Riviera Credit Facility, the “Credit Facilities”), providing for an initial borrowing commitment of $200 million.

Before Blue Mountain Midstream completed certain operational milestones (such completion of the operational milestones, the “Covenant Changeover Date”), a condition to any borrowing was that Blue Mountain Midstream’s consolidated total indebtedness to capitalization ratio (the “Debt/Cap Ratio”) be not greater than 0.35 to 1.00 upon giving effect to such borrowing.  As such, prior to the Covenant Changeover Date, the available borrowing capacity under the Blue Mountain Credit Facility was less than the aggregate amount of the lenders’ commitments at such time.  The Covenant Changeover Date occurred February 8, 2019, which increased the current borrowing availability to $200 million.  Blue Mountain Midstream no longer has to comply with the Debt/Cap Ratio as a condition to drawing and may borrow up to the total amount of the lenders’ aggregate commitments.  The Blue Mountain Credit Facility also provides for the ability to increase the aggregate commitments of the lenders to up to $400 million, subject to obtaining commitments for any such increase, which may result in an increase in Blue Mountain Midstream’s available borrowing capacity.  As of March 31, 2019, total borrowings outstanding under the Blue Mountain Credit Facility were $14.5 million and there was approximately $174 million of available borrowing capacity (which includes a $12 million reduction for outstanding letters of credit).  The Blue Mountain Credit Facility matures on August 10, 2023.

At Blue Mountain Midstream’s election, interest on borrowings under the Blue Mountain Credit Facility is determined by reference to either the LIBOR plus an applicable margin ranging from 2.00% to 3.00% per annum or the ABR plus an applicable margin ranging from 1.00% to 2.00% per annum, both depending on Blue Mountain Midstream’s consolidated total leverage ratio.  Interest is generally payable in arrears on the last day of March, June, September and December for loans bearing interest based at the ABR and at the end of the applicable interest period for loans bearing interest at the LIBOR, or if such interest period is longer than three months, at the end of three month intervals during such interest period.

Blue Mountain Midstream is required under the Blue Mountain Credit Facility to pay a commitment fee to the lenders, which accrues at a rate per annum of 0.375% or 0.50% (depending on Blue Mountain Midstream’s consolidated total leverage ratio) on the average daily unused amount of the available revolving loan commitments of the lenders.

The Blue Mountain Credit Facility is secured by a first priority lien on substantially all the assets of Blue Mountain Midstream.  Under the Blue Mountain Credit Facility, Blue Mountain Midstream is required to maintain (i) for certain periods, a ratio of consolidated total debt (subject to certain carve-outs) to the sum of (a) total debt (subject to certain carve-outs) and (b) consolidated owners’ equity interest in Blue Mountain Midstream and its potential future subsidiaries of no greater than 0.35 to 1.00, and (ii) subject to satisfaction of certain conditions and for certain periods (a) a ratio of consolidated EBITDA to consolidated interest expense no less than 2.50 to 1.00, (b) a ratio of consolidated net debt to consolidated EBITDA (the “consolidated total leverage ratio”) no greater than 4.50 to 1.00 or 5.00 to 1.00, as applicable, and (c) in case certain other kinds of indebtedness are outstanding, a ratio of consolidated net debt secured by a lien on property of Blue Mountain Midstream to consolidated EBITDA no greater than 3.00 to 1.00.

The Blue Mountain Credit Facility also contains affirmative and negative covenants customary for credit facilities of this nature, including compliance with laws (including environmental laws, ERISA and anti-corruption laws), maintenance of required insurance, delivery of quarterly and annual financial statements, budgets, maintenance and operation of property, restrictions on the incurrence of liens and indebtedness, mergers, consolidations and sales of assets and transactions with affiliates.

The Blue Mountain Credit Facility contains events of default and remedies customary for credit facilities of this nature.  If Blue Mountain Midstream does not comply with the covenants in the Blue Mountain Credit Facility, the lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the Blue Mountain Credit Facility.

14


Table of Contents

RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Mayzure Notes

In March 2019, Riviera contributed the VPP Interests to Mayzure.  On March 20, 2019, Mayzure issued 5.16% senior secured notes in the amount of approximately $82 million, due September 20, 2028 (the “Mayzure Notes”), which are secured by the VPP interests.  Neither Riviera Resources, Inc., nor any of its subsidiaries other than Mayzure, have guaranteed the Mayzure Notes.  In consideration for the distribution of the VPP Interests, Mayzure contributed the net proceeds from the issuance of the Mayzure Notes to Riviera.  Financing fees and expenses of approximately $3 million incurred in connection with the Mayzure Notes will be amortized over the life of the Mayzure Notes.  Such amortized expenses are recorded in “interest expense, net of amounts capitalized” on the condensed consolidated statement of operations.  Principal and interest under the Mayzure Notes are payable on a monthly basis commencing April 20, 2019, as a volumetric production payment from the VPP Interests.  In accordance with the terms of the Mayzure Notes, the Company made a principal repayment of approximately $1 million in April 2019.

Note 7 – Derivatives

Commodity Derivatives

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 also hedges its exposure to natural gas differentials in certain operating areas.  In addition, the Company hedges purchase costs and margins of its Blue Mountain Midstream business.

The Company enters into commodity hedging transactions primarily in the form of fixed price swap contracts that are designed to provide a fixed price, collars, basis swaps, margin spreads and, from time to time, put options that are designed to provide a fixed price floor with the opportunity for upside.  The Company enters into these transactions with respect to a portion of its projected production to provide an economic hedge of the risk related to the future commodity prices received or paid.  The Company does not enter into derivative contracts for trading purposes.  The Company did not designate any of its contracts as cash flow hedges; therefore, the changes in fair value of these instruments are recorded in current earnings.  See Note 8 for fair value disclosures about commodity derivatives.

The following table presents derivative positions for the periods indicated as of March 31, 2019:

 

 

2019

 

 

2020

 

Natural gas positions:

 

 

 

 

 

 

 

 

Fixed price swaps (NYMEX Henry Hub):

 

 

 

 

 

 

 

 

Hedged volume (MMMBtu)

 

 

42,900

 

 

 

10,980

 

Average price ($/MMBtu)

 

$

2.88

 

 

$

2.82

 

Collars (NYMEX Henry Hub):

 

 

 

 

 

 

 

 

Hedged volume (MMMBtu)

 

 

5,500

 

 

 

 

Average floor price ($/MMBtu)

 

$

2.75

 

 

$

 

Average ceiling price ($/MMBtu)

 

$

3.00

 

 

$

 

Oil positions:

 

 

 

 

 

 

 

 

Fixed price swaps (NYMEX WTI):

 

 

 

 

 

 

 

 

Hedged volume (MBbls)