UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading symbols(s) |
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Name of exchange on which registered |
None |
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None |
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None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
As of October 31, 2019, there were
TABLE OF CONTENTS
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1 |
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Item 1. |
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2 |
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3 |
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4 |
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5 |
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6 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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33 |
Item 3. |
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55 |
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Item 4. |
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56 |
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Item 1. |
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58 |
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Item 1A. |
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58 |
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Item 2. |
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59 |
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Item 3. |
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59 |
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Item 4. |
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59 |
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Item 5. |
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59 |
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Item 6. |
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60 |
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61 |
i
GLOSSARY OF TERMS
As commonly used in the oil and natural gas industry and as used in this Quarterly Report on Form 10-Q, the following terms have the following meanings:
Bbl. One stock tank barrel or 42 United States gallons liquid volume.
Btu. One British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 degrees to 59.5 degrees Fahrenheit.
MBbls. One thousand barrels of oil or other liquid hydrocarbons.
MBbls/d. MBbls per day.
Mcf. One thousand cubic feet.
Mcfe. One thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.
MMBbls. One million barrels of oil or other liquid hydrocarbons.
MMBtu. One million British thermal units.
MMcf. One million cubic feet.
MMcf/d. MMcf per day.
MMcfe. One million cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.
MMcfe/d. MMcfe per day.
MMMBtu. One billion British thermal units.
NGL. Natural gas liquids, which are the hydrocarbon liquids contained within natural gas.
1
PART I – FINANCIAL INFORMATION
Item 1. |
Financial Statements |
RIVIERA RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30, 2019 |
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December 31, 2018 |
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(in thousands, except share amounts) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable – trade, net |
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Derivative instruments |
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Restricted cash |
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Other current assets |
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Assets held for sale |
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Total current assets |
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Noncurrent assets: |
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Oil and natural gas properties (successful efforts method) |
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Less accumulated depletion and amortization |
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Other property and equipment |
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Less accumulated depreciation |
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Derivative instruments |
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Deferred income taxes |
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Other noncurrent assets |
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Total noncurrent assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Derivative instruments |
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Other accrued liabilities |
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Liabilities held for sale |
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Total current liabilities |
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Noncurrent liabilities: |
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Credit facilities |
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Asset retirement obligations |
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Other noncurrent liabilities |
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Total noncurrent liabilities |
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Commitments and contingencies (Note 10) |
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Equity: |
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Preferred Stock ($ issued at September 30, 2019, or December 31, 2018) |
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Common Stock ($ shares and December 31, 2018, respectively) |
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Additional paid-in capital |
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Retained (deficit) earnings |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
RIVIERA RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2019 |
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2018 |
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2019 |
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2018 |
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(in thousands, except per share amounts) |
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Revenues and other: |
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Oil, natural gas and natural gas liquids sales |
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$ |
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$ |
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$ |
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$ |
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Gains (losses) on commodity derivatives |
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Marketing revenues |
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Other revenues |
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Expenses: |
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Lease operating expenses |
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Transportation expenses |
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Marketing expenses |
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General and administrative expenses |
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Exploration costs |
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Depreciation, depletion and amortization |
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Impairment of assets held for sale |
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Taxes, other than income taxes |
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(Gains) losses on sale of assets and other, net |
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Other income and (expenses): |
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Interest expense, net of amounts capitalized |
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Other, net |
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Reorganization items, net |
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(Loss) income from continuing operations before income taxes |
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Income tax expense (benefit) |
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(Loss) income from continuing operations |
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(Loss) income from discontinued operations, net of income taxes |
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Net (loss) income |
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$ |
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$ |
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$ |
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$ |
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Income (loss) per share: |
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(Loss) income from continuing operations per share ‒ Basic |
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$ |
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$ |
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$ |
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$ |
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(Loss) income from continuing operations per share ‒ Diluted |
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$ |
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$ |
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$ |
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$ |
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(Loss) income from discontinued operations per share ‒ Basic |
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$ |
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$ |
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$ |
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$ |
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(Loss) income from discontinued operations per share ‒ Diluted |
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$ |
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$ |
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$ |
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$ |
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Net (loss) income per share ‒ Basic |
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$ |
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$ |
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$ |
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$ |
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Net (loss) income per share ‒ Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares outstanding ‒ Basic |
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Weighted average shares outstanding ‒ Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
RIVIERA RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
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Common Stock |
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Additional Paid in Capital |
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Accumulated Earnings (Deficit) |
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Total Equity |
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Shares |
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Amount |
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(in thousands) |
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December 31, 2018 |
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$ |
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$ |
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$ |
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$ |
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Net income |
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Repurchases of common stock |
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Issuance of common stock |
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March 31, 2019 |
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Net loss |
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Repurchases of common stock |
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( |
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( |
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June 30, 2019 |
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Net loss |
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Repurchases of common stock |
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( |
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Other |
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September 30, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
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Common Stock |
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Additional Paid in Capital |
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Accumulated Earnings |
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Net Parent Company Investment |
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Total Equity |
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Shares |
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Amount |
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(in thousands) |
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December 31, 2017 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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Net transfers to Parent |
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( |
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( |
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March 31, 2018 |
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Net income |
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Net transfers to Parent |
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( |
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( |
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June 30, 2018 |
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Net loss |
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( |
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Net transfers to Parent |
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( |
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Spin-off related adjustments |
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Issuances of common stock and reclassification of former parent company investment |
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( |
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Repurchases of common stock |
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( |
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( |
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( |
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( |
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September 30, 2018 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
RIVIERA RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended September 30, |
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2019 |
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2018 |
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(in thousands) |
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Cash flow from operating activities: |
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Net (loss) income |
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$ |
( |
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$ |
|
|
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
|
|
|
|
( |
) |
Depreciation, depletion and amortization |
|
|
|
|
|
|
|
|
Impairment of assets held for sale |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
|
|
Total (gains) losses on derivatives, net |
|
|
( |
) |
|
|
|
|
Cash settlements on derivatives |
|
|
|
|
|
|
( |
) |
Share-based compensation expenses |
|
|
|
|
|
|
|
|
Gains on sale of assets and other, net |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
|
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease in accounts receivable – trade, net |
|
|
|
|
|
|
|
|
Decrease in other assets |
|
|
|
|
|
|
|
|
Decrease in accounts payable and accrued expenses |
|
|
( |
) |
|
|
( |
) |
Decrease in other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) operating activities |
|
|
|
|
|
|
( |
) |
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment |
|
|
( |
) |
|
|
|
|
Development of oil and natural gas properties |
|
|
( |
) |
|
|
( |
) |
Purchases of other property and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of properties and equipment and other |
|
|
|
|
|
|
|
|
Net cash provided by investing activities — continuing operations |
|
|
|
|
|
|
|
|
Net cash provided by investing activities — discontinued operations |
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
Net transfers to Parent |
|
|
|
|
|
|
( |
) |
Repurchases of shares |
|
|
( |
) |
|
|
( |
) |
Proceeds from borrowings |
|
|
|
|
|
|
|
|
Repayments of debt |
|
|
( |
) |
|
|
|
|
Debt issuance costs paid |
|
|
( |
) |
|
|
( |
) |
Distributions to unitholders |
|
|
|
|
|
|
( |
) |
Other |
|
|
|
|
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
|
|
|
|
( |
) |
Cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
Beginning |
|
|
|
|
|
|
|
|
Ending |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Basis of Presentation
Unless otherwise indicated or the context otherwise requires, references herein to the “Company” refer (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
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’s consolidated financial statements and accounting records for the periods presented as the Company was historically managed as a subsidiary of LINN Energy.
Nature of Business
The Company’s upstream reporting segment properties are located in five operating regions in the United States (“U.S.”): the Hugoton Basin, East Texas, the Mid-Continent, 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 2019 and 2018, the Company divested all of its properties located in the previous Michigan/Illinois and in the Permian Basin operating regions, respectively. The Company entered into an agreement to sell its remaining interests in properties located in the Hugoton Basin (including its interest in Mayzure), which is anticipated to close in the fourth quarter of 2019. See Note 3 for additional information. As a result of this divestiture, the Company will no longer have a Hugoton Basin operating region.
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
6
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted under Securities and Exchange Commission (“SEC”) 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 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.
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 $
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.
New Accounting Standards Issued But Not Yet Adopted
In June 2016, the FASB issued an ASU that is intended to change the impairment model for trade receivables, net investments in leases, debt securities, loans and certain other instruments. Adoption of this standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those years. Modified retrospective application of this
7
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
standard is required upon adoption. The Company is currently evaluating the impact of the adoption of this ASU on its financial statements and related disclosures.
Note 2 – Revenues
Disaggregation of Revenue
The following tables present the Company’s disaggregated revenues by source and geographic area:
|
|
Three Months Ended September 30, 2019 |
|
|||||||||||||||||||||||||
|
|
Natural Gas |
|
|
Oil |
|
|
NGL |
|
|
Oil, Natural Gas and NGL Sales |
|
|
Marketing Revenues |
|
|
Other Revenues |
|
|
Total |
|
|||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugoton Basin |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Mid-Continent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Louisiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uinta Basin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michigan/Illinois (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Mountain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1) |
|
|
|
Three Months Ended September 30, 2018 |
|
|||||||||||||||||||||||||
|
|
Natural Gas |
|
|
Oil |
|
|
NGL |
|
|
Oil, Natural Gas and NGL Sales |
|
|
Marketing Revenues |
|
|
Other Revenues |
|
|
Total |
|
|||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugoton Basin |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
East Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Continent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michigan/Illinois |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uinta Basin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Louisiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permian Basin |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
Blue Mountain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
8
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
|
|
Nine Months Ended September 30, 2019 |
|
|||||||||||||||||||||||||
|
|
Natural Gas |
|
|
Oil |
|
|
NGL |
|
|
Oil, Natural Gas and NGL Sales |
|
|
Marketing Revenues |
|
|
Other Revenues |
|
|
Total |
|
|||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugoton Basin (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Mid-Continent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Louisiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michigan/Illinois (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uinta Basin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Mountain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1) |
During the nine months ended September 30, 2019, the Company completed the sale of its interest in non-operated properties located in the Hugoton Basin and its Michigan/Illinois operating regions. |
|
|
Nine Months Ended September 30, 2018 |
|
|||||||||||||||||||||||||
|
|
Natural Gas |
|
|
Oil |
|
|
NGL |
|
|
Oil, Natural Gas and NGL Sales |
|
|
Marketing Revenues |
|
|
Other Revenues |
|
|
Total |
|
|||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugoton Basin |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
East Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Continent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michigan/Illinois |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uinta Basin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
North Louisiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permian Basin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Mountain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 $
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
9
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
For the Company’s product sales that have a contract term greater than one year, the Company utilized the practical expedient in ASC 606-10-50-14(A), which states the Company is not required to disclose the transaction price allocated to remaining 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
Divestitures – Through the Third Quarter of 2019
Blue Mountain Midstream entered into an agreement with a potential customer to construct a gathering system, as well as gather and process gas. During the third quarter of 2019, a decision was made not to proceed with the gas gathering and processing contract, and as a result, the customer is to reimburse Blue Mountain Midstream for capital deployed and operating expenses incurred, in addition to paying a success fee for constructing the assets. As of September 30, 2019, Blue Mountain Midstream received the first capital reimbursement of approximately $
On September 5, 2019, the Company completed the sale of its interest in properties located in Illinois. Cash proceeds from the sale of these properties were approximately $
On July 3, 2019, the Company completed the sale of its interest in properties located in Michigan (the “Michigan Assets Sale”). Cash proceeds from the sale of these properties were approximately $
On May 31, 2019, the Company completed the sale of its interest in non-operated properties located in the Hugoton Basin in Kansas. Cash proceeds received from the sale of these properties were approximately $
On January 17, 2019, the Company completed the sale of its interest in properties located in the Arkoma Basin in Oklahoma (the “Arkoma Assets Sale”). Cash proceeds received from the sale of these properties were approximately $
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 and losses on these divestitures are included in “(gains) losses on sale of assets and other, net” on the condensed consolidated statements of operations and were included in the Upstream reporting segment.
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.
10
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Divestitures – Subsequent Event
On August 28, 2019, the Company signed an agreement to sell its interest in the remaining properties located in the Hugoton Basin (the “Hugoton Basin Assets Sale”) for approximately $
The Company recognized a pre-tax loss of approximately $
In connection with the Hugoton Basin Assets Sale, the buyer will also acquire the Company’s interests in Mayzure (including the VPP interests). In March 2019, Riviera contributed the VPP Interests to Mayzure. On
On November 5, 2019, the Company signed a definitive agreement to sell its interest in properties located in the Overton field of East Texas for a contract price of approximately $
The assets and liabilities associated with the Hugoton Basin Assets Sale were classified as “held for sale” on the condensed consolidated balance sheet at September 30, 2019.
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:
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||
|
(in thousands) |
|
|||||
Assets: |
|
|
|
|
|
|
|
Oil and natural gas properties |
$ |
|
|
|
$ |
|
|
Other property and equipment |
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
Less impairment |
|
( |
) |
|
|
|
|
Total assets held for sale |
$ |
|
|
|
$ |
|
|
Liabilities: |
|
|
|
|
|
|
|
Asset retirement obligations |
$ |
|
|
|
$ |
|
|
Mayzure notes payable, net |
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
Total liabilities held for sale |
$ |
|
|
|
$ |
|
|
Other assets include accounts receivable, inventories and restricted cash and other liabilities primarily include accounts payable.
11
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Divestitures – 2018
On April 10, 2018, the Company completed the sale of its conventional properties located in New Mexico. Cash proceeds received from the sale of these properties were approximately $
On April 4, 2018, the Company completed the sale of its interest in properties located in the Altamont Bluebell Field in Utah (the “Altamont Bluebell Assets Sale”). Cash proceeds received from the sale of these properties were approximately $
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 $
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 $
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 in “(gains) losses on sale of assets and other, net” on the condensed consolidated statements of operations and were included in the upstream reporting segment.
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
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.
|
July 1, 2018 Through July 25, 2018 |
|
|
January 1, 2018 Through July 25, 2018 |
|
||
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
Revenues and other |
$ |
|
|
|
$ |
|
|
Expenses |
|
|
|
|
|
|
|
Other income and (expenses) |
|
( |
) |
|
|
( |
) |
Net income |
$ |
|
|
|
$ |
|
|
12
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
For the three months and nine months ended September 30, 2018, the Company recorded equity losses from its historical
Note 4 – Equity
Share Repurchase Program
On July 18, 2019, the Company’s Board of Directors increased the share repurchase authorization to $
In accordance with the regulations of the SEC regarding issuer tender offers, the Company’s share repurchase program was suspended concurrent with the June 13, 2019, announcement of the Company’s intent to commence a tender offer of its common stock. The program was resumed in July 2019 following the expiration of the tender offer.
Any share repurchases are subject to restrictions in the Riviera Credit Facility (as defined below).
Tender Offer
On June 13, 2019, the Company’s Board of Directors announced the intention to commence a tender offer to purchase $
Dividends
The Company is not currently paying a cash dividend; however, the Company’s 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.
13
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
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:
|
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
Proved properties |
|
$ |
|
|
|
$ |
|
|
Unproved properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depletion and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
|
$ |
|
|
Note 6 – Debt
The following summarizes the Company’s outstanding debt:
|
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
Riviera Credit Facility (1) |
|
$ |
|
|
|
$ |
|
|
Blue Mountain Credit Facility (2) |
|
|
|
|
|
|
|
|
Total noncurrent debt, net |
|
$ |
|
|
|
$ |
|
|
(1) |
|
(2) |
|
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.
Riviera Credit Facility
Riviera’s credit agreement provides for a senior secured reserve-based revolving loan facility (the “Riviera Credit Facility”) with $
14
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
During the three months and nine months ended September 30, 2019, the Company recorded a finance fee expense of approximately $
As of September 30, 2019, there were
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. As of October 31, 2019, there were
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
The obligations under the Riviera Credit Facility are secured by mortgages covering approximately
The Riviera Credit Facility also contains affirmative and negative covenants, including compliance with laws (including environmental laws, ERISA and anti-corruption laws), maintenance of required insurance, delivery of quarterly and annual financial statements, oil and gas engineering reports and budgets, maintenance and operation of property (including oil and gas properties), restrictions on the incurrence of liens and indebtedness, mergers, consolidations and sales of assets, paying dividends or other distributions in respect of, or repurchasing or redeeming, the Company’s capital stock, making certain investments and transactions with affiliates.
The Riviera Credit Facility contains events of default and remedies customary for credit facilities of this nature. Failure to comply with the financial and other covenants in the Riviera Credit Facility would allow the lenders, subject to customary cure rights, to require immediate payment of all amounts outstanding under the Riviera Credit Facility.
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 $
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
15
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Date occurred February 8, 2019, which increased the current borrowing availability to $
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
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
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
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.
Note 7 – Derivatives
Commodity Derivatives
The Company hedges 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.
16
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
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 and margin spreads. 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 September 30, 2019:
|
|
2019 |
|
|
2020 |
|
||
Natural gas positions: |
|
|
|
|
|
|
|
|
Fixed price swaps (NYMEX Henry Hub): |
|
|
|
|
|
|
|
|
Hedged volume (MMMBtu) |
|
|
|
|
|
|
|
|
Average price ($/MMBtu) |
|
$ |
|
|
|
$ |
|
|
Collars (NYMEX Henry Hub): |
|
|
|
|
|
|
|
|
Hedged volume (MMMBtu) |
|
|
|
|
|
|
|
|
Average floor price ($/MMBtu) |
|
$ |
|
|
|
$ |
|
|
Average ceiling price ($/MMBtu) |
|
$ |
|
|
|
$ |
|
|
Oil positions: |
|
|
|
|
|
|
|
|
Fixed price swaps (NYMEX WTI): |
|
|
|
|
|
|
|
|
Hedged volume (MBbls) |
|
|
|
|
|
|
|
|
Average price ($/Bbl) |
|
$ |
|
|
|
$ |
|
|
Natural gas basis differential positions: (1) |
|
|
|
|
|
|
|
|
PEPL basis swaps: |
|
|
|
|
|
|
|
|
Hedged volume (MMMBtu) |
|
|
|
|
|
|
|
|
Hedge differential |
|
$ |
( |
) |
|
$ |
( |
) |
NWPL basis swaps: |
|
|
|
|
|
|
|
|
Hedged volume (MMMBtu) |
|
|
|
|
|
|
|
|
Hedge differential ($/MMBtu) |
|
$ |
( |
) |
|
$ |
|
|
Enable basis swaps: |
|
|
|
|
|
|
|
|
Hedged volume (MMMBtu) |
|
|
|
|
|
|
|
|
Hedge differential ($/MMBtu) |
|
$ |
( |
) |
|
$ |
|
|
Southern Star basis swaps: |
|
|
|
|
|
|
|
|
Hedged volume (MMMBtu) |
|
|
|
|
|
|
|
|
Hedge differential ($/MMBtu) |
|
$ |
( |
) |
|
$ |
|
|
NGL Positions: |
|
|
|
|
|
|
|
|
Fixed price swap (Mont Belvieu ethane): |
|
|
|
|
|
|
|
|
Hedged volume (gallons in thousands) |
|
|
|
|
|
|
|
|
Average price ($/gallon) |
|
$ |
|
|
|
$ |
|
|
Fixed price swap (Mont Belvieu propane): |
|
|
|
|
|
|
|
|
Hedged volume (gallons in thousands) |
|
|
|
|
|
|
|
|
Average price ($/gallon) |
|
$ |
|
|
|
$ |
|
|
Margin spread (Mont Belvieu propane and Conway propane): |
|
|
|
|
|
|
|
|
Hedged volume (gallons in thousands) |
|
|
|
|
|
|
|
|
Average price ($/gallon) |
|
$ |
( |
) |
|
$ |
|
|
Margin spread (Mont Belvieu natural gas and Conway natural gas): |
|
|
|
|
|
|
|
|
Hedged volume (gallons in thousands) |
|
|
|
|
|
|
|
|
Average price ($/gallon) |
|
$ |
( |
) |
|
$ |
|
|
(1) |
|
17
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
During the nine months ended September 30, 2019, the Company entered into commodity derivative contracts consisting of natural gas fixed price swaps and NGL fixed price swaps for 2019 and oil fixed price swaps and natural gas basis swaps for 2020. In addition, in July 2019, in connection with the closing of the Michigan Assets Sale, the Company canceled its MichCon natural gas basis swaps for 2019 and 2020. During the nine months ended September 30, 2018, the Company entered into commodity derivative contracts consisting of natural gas basis swaps for March 2018 through December 2019, natural gas fixed price swaps for January 2019 through December 2019 and oil fixed price swaps for January 2019 through December 2020. In addition, in April 2018, in connection with the closing of the Altamont Bluebell Assets Sale, the Company canceled its oil collars for 2018 and 2019, and paid net cash settlements of approximately $
The natural gas derivatives are settled based on the closing price of NYMEX Henry Hub natural gas on the last trading day for the delivery month, which occurs on the third business day preceding the delivery month, or the relevant index prices of natural gas published in Inside FERC’s Gas Market Report on the first business day of the delivery month. The oil derivatives are settled based on the average closing price of NYMEX WTI crude oil for each day of the delivery month. The NGL derivatives are settled based on the average effective price of natural gas liquids for each day of the delivery month, published in the issue of Oil Price Information Service.
Balance Sheet Presentation
The Company’s commodity derivatives are presented on a net basis in “derivative instruments” on the consolidated balance sheets. See Note 8 for fair value disclosures about commodity derivatives. The following table summarizes the fair value of derivatives outstanding on a gross basis:
|
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||
|
|
(in thousands) |
|
|||||
Assets: |
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
|
|
|
$ |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
|
|
|
$ |
|
|
By using derivative instruments to economically hedge exposures to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company’s counterparties are participants in the Credit Facilities or were participants prior to the amendment to the Riviera Credit Facility on September 27, 2019. The Credit Facilities are secured by certain of the Company’s and its subsidiaries’ oil, natural gas and NGL reserves and personal property; therefore, the Company is not required to post any collateral. The Company does not receive collateral from its counterparties.
The maximum amount of loss due to credit risk that the Company would incur if its counterparties failed completely to perform according to the terms of the contracts, based on the gross fair value of financial instruments, was approximately $
18
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Gains and Losses on Derivatives
A summary of gains and losses on derivatives included on the condensed consolidated statements of operations is presented below:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on commodity derivatives |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
Marketing expenses |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Gains (losses) on commodity derivatives |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
The Company received net cash settlements of approximately $
Note 8 – Fair Value Measurements on a Recurring Basis
The Company accounts for its commodity derivatives at fair value (see Note 7 for additional information) on a recurring basis. The Company determines the fair value of its commodity derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. Inputs to the pricing models include publicly available prices and forward price curves generated from a compilation of data gathered from third parties. Company management validates the data provided by third parties by understanding the pricing models used, obtaining market values from other pricing sources, analyzing pricing data in certain situations and confirming that those instruments trade in active markets. Assumed credit risk adjustments, based on published credit ratings and public bond yield spreads, are applied to the Company’s commodity derivatives.
Fair Value Hierarchy
In accordance with applicable accounting standards, the Company has categorized its financial instruments into a three-level fair value hierarchy based on the priority of inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The following presents the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:
|
|
September 30, 2019 |
|
|||||||||
|
|
Level 2 |
|
|
Netting (1) |
|
|
Total |
|
|||
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
(1) |
Represents counterparty netting under agreements governing such derivatives. |
19
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
|
|
December 31, 2018 |
|
|||||||||
|
|
Level 2 |
|
|
Netting (1) |
|
|
Total |
|
|||
|
|
(in thousands) |
|
|||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
(1) |
|
Note 9 – Asset Retirement Obligations
The Company has the obligation to plug and abandon oil and natural gas wells and related equipment at the end of production operations. Estimated asset retirement costs are recognized as liabilities with an increase to the carrying amounts of the related long-lived assets when the obligation is incurred. The liabilities are included in “other accrued liabilities” and “asset retirement obligations” on the condensed consolidated balance sheets. Accretion expense is included in “depreciation, depletion and amortization” on the condensed consolidated statements of operations. The fair value of additions to the asset retirement obligations is estimated using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation include estimates of: (i) plug and abandon costs per well based on existing regulatory requirements; (ii) remaining life per well; (iii) future inflation factors; and (iv) a credit-adjusted risk-free interest rate. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation and are the most sensitive and subject to change.
In addition, there is insufficient information to reasonably determine the timing and/or method of settlement for purposes of estimating the fair value of the asset retirement obligation of the majority of Blue Mountain Midstream’s assets. In such cases, asset retirement obligation cost is considered indeterminate because there is no data or information that can be derived from past practice, industry practice, management’s experience, or the asset’s estimated economic life. Indeterminate asset retirement obligation costs associated with Blue Mountain Midstream will be recognized in the period in which sufficient information exists to reasonably estimate potential settlement dates and methods.
The following table presents a reconciliation of the Company’s asset retirement obligations (in thousands):
Asset retirement obligations at December 31, 2018 |
|
$ |
|
|
Liabilities added from drilling |
|
|
|
|
Liabilities associated with assets divested |
|
|
( |
) |
Current year accretion expense |
|
|
|
|
Settlements |
|
|
( |
) |
Asset retirement obligations at September 30, 2019 |
|
$ |
|
|
Note 10 – Commitments and Contingencies
On May 11, 2016, Linn Energy, LLC, certain of its direct and indirect subsidiaries, and LinnCo, LLC (collectively, the “LINN Debtors”) and Berry Petroleum Company, LLC (“Berry” and collectively with the LINN Debtors, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Debtors’ Chapter 11 cases were administered jointly under the caption In re Linn Energy, LLC, et al., Case No. 16‑60040. On January 27, 2017, the Bankruptcy Court entered an order approving and confirming the plan (the “Plan”) of reorganization of the Debtors (the “Confirmation Order”). Consummation of the Plan was subject to certain conditions set forth in the Plan. On February 28, 2017, all of the conditions were satisfied or waived and the Plan became effective and was implemented in accordance with its terms. On September 27, 2018, the Bankruptcy Court closed the LINN Debtors’ Chapter 11 cases, but retained jurisdiction as provided in the Confirmation Order, including
20
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
to potentially reopen the Chapter 11 cases if certain matters currently on appeal in the U.S. Court of Appeals for the Fifth Circuit (the “Fifth Circuit”) are overturned, including the Default Interest Appeal (as defined below).
The commencement of the Chapter 11 proceedings automatically stayed certain actions against the Company, including actions to collect prepetition liabilities or to exercise control over the property of the Company’s bankruptcy estates. However, the Company is, and will continue to be until the final resolution of all claims, subject to certain contested matters and adversary proceedings stemming from the Chapter 11 proceedings, which are not affected by the closure of the LINN Debtors’ Chapter 11 cases.
On March 17, 2017, Wells Fargo Bank, National Association (“Wells Fargo”), the administrative agent under Linn Energy, Inc.’s credit facility, filed a motion in the Bankruptcy Court seeking payment of post-petition default interest of approximately $
The Company is not currently a party to any litigation or pending claims that it believes would have a material adverse effect on its overall business, financial position, results of operations or liquidity; however, cash flow could be significantly impacted in the reporting periods in which such matters are resolved.
Except for in connection with its Chapter 11 proceedings, the Company made
Note 11 – Operating Leases
Lessee
The Company leases office space and other property and equipment under lease agreements expiring on various dates through 2022. During the three months and nine months ended September 30, 2019, the Company recorded lease expenses of approximately $
21
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
As of September 30, 2019, future minimum lease payments were as follows (in thousands):
2019 |
|
$ |
|
|
2020 |
|
|
|
|
2021 |
|
|
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
|
Lessor
The Company leases a building located in Oklahoma to Roan and to a third party under lease agreements expiring on
Lease income for the three months and nine months ended September 30, 2019, totaled approximately $
As of September 30, 2019, future minimum lease revenues were as follows (in thousands):
2019 |
|
$ |
|
|
2020 |
|
|
|
|
2021 |
|
|
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
|
Note 12 – Share-Based Compensation
Riviera Omnibus Incentive Plan
In August 2018, the Company implemented the Riviera Resources, Inc. 2018 Omnibus Incentive Plan (the “Riviera Omnibus Incentive Plan”) pursuant to which employees, consultants and non-employee directors of the Company and its affiliates are eligible to receive stock options, restricted stock, dividend equivalents, performance awards, other stock-based awards and other cash-based awards.
Pursuant to the Spin-off, on August 7, 2018, certain employees of the Company received
As of September 30, 2019,
22
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The Committee (as defined in the Riviera Omnibus Incentive Plan) has broad authority under the Riviera Omnibus Incentive Plan to, among other things: (i) select participants; (ii) determine the types of awards that participants receive and the number of shares that are subject to such awards; and (iii) establish the terms and conditions of awards, including the price (if any) to be paid for the shares or the award. As of September 30, 2019, up to
As is customary in incentive plans of this nature, each share limit and the number and kind of shares available under the Riviera Omnibus Incentive Plan and any outstanding awards, as well as the exercise or purchase prices of awards, and performance targets under certain types of performance-based awards, are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends or other similar events that change the number or kind of shares outstanding, and extraordinary dividends or distributions of property to the Company’s shareholders.
Blue Mountain Midstream Omnibus Incentive Plan
Blue Mountain Midstream is governed by its Second Amended and Restated Limited Liability Operating Agreement (as amended, the “BMM LLC Agreement”), which provides for two classes of membership units: Class A Units, of which
In July 2018, Blue Mountain Midstream adopted the Blue Mountain Midstream LLC 2018 Omnibus Incentive Plan (as amended, the “BMM Incentive Plan”) pursuant to which employees and consultants of Blue Mountain Midstream and its affiliates are eligible to receive unit options, restricted units, dividend equivalents, performance awards, other unit-based awards and other cash-based awards. The Committee (as defined in the BMM Incentive Plan) has broad authority under the BMM Incentive Plan to, among other things: (i) select participants; (ii) determine the types of awards that participants receive and the number of units that are subject to such awards; and (iii) establish the terms and conditions of awards, including the price (if any) to be paid for the units or the award. The aggregate number of units available for issuance under the BMM Incentive Plan matches the maximum number of Class B Units issuable by Blue Mountain Midstream.
As of September 30, 2019, under the BMM Incentive Plan, Blue Mountain Midstream had granted awards that could result in the issuance of
If any unit option or other unit-based award granted under the BMM Incentive Plan expires, terminates or is canceled for any reason without having been exercised in full, the number of units underlying any unexercised award shall again be available for the purpose of awards under the BMM Incentive Plan. If any restricted units, performance awards or other unit-based awards denominated in units awarded under the BMM Incentive Plan are forfeited for any reason, the number of forfeited
23
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
units shall again be available for purposes of awards under the BMM Incentive Plan. Any award under the BMM Incentive Plan settled in cash shall not be counted against the maximum unit limitation.
As is customary in incentive plans of this nature, each unit limit and the number and kind of units available under the BMM Incentive Plan and any outstanding awards, as well as the exercise or purchase prices of awards, and performance targets under certain types of performance-based awards, are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, unit dividends or other similar events that change the number or kind of units outstanding, and extraordinary dividends or distributions of property to Blue Mountain Midstream’s unitholders.
Accounting for Share-Based Compensation
The condensed consolidated financial statements include
As a result of the Company’s history of cash settling awards, all unvested share-based compensation awards are liability classified at September 30, 2019. The Company has recognized a liability of approximately $
A summary of share-based compensation expenses included on the condensed consolidated statements of operations is presented below:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
General and administrative expenses (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Income tax benefit |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1) |
The three and nine months ended September 30, 2018, includes approximately $ |
Riviera Restricted Stock Units
During the nine months ended September 30, 2019, upon vesting of Riviera RSUs and at the election of participants, the Company repurchased
Blue Mountain Midstream Restricted Security Units
During the nine months ended September 30, 2019, Blue Mountain Midstream granted
24
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Performance Shares
In December 2018, the Company granted
During the nine months ended September 30, 2019, Blue Mountain Midstream granted
Note 13 – Earnings Per Share
On August 7, 2018, the Parent distributed
Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by adjusting the average number of shares outstanding for the dilutive effect, if any, of potential common shares. Basic and diluted earnings per share and the average number of shares outstanding were retrospectively restated for the number of shares of Riviera common stock outstanding immediately following the Spin-off and the same number of shares was used to calculate basic and diluted earnings per share in 2018 since there were no Riviera equity awards outstanding prior to the Spin-off.
25
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The following tables provide a reconciliation of the numerators and denominators of the basic and diluted per share computations for net income:
|
|
Three Months Ended September 30, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
|
|
(in thousands, except per share amounts) |
|
|||||
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
Loss from discontinued operations, net of income taxes |
|
|
|
|
|
|
( |
) |
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Loss per share: |
|
|
|
|
|
|
|
|
Loss from continuing operations per share ‒ Basic |
|
$ |
( |
) |
|
$ |
( |
) |
Loss from continuing operations per share ‒ Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
Loss from discontinued operations per share ‒ Basic |
|
$ |
|
|
|
$ |
( |
) |
Loss from discontinued operations per share ‒ Diluted |
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
Net loss per share ‒ Basic |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss per share ‒ Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding ‒ Basic |
|
|
|
|
|
|
|
|
Dilutive effect of unit equivalents |
|
|
|
|
|
|
|
|
Weighted average shares outstanding ‒ Diluted |
|
|
|
|
|
|
|
|
26
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
|
|
(in thousands, except per share amounts) |
|
|||||
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
$ |
( |
) |
|
$ |
|
|
Income from discontinued operations, net of income taxes |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
(Loss) income per share: |
|
|
|
|
|
|
|
|
(Loss) income from continuing operations per share ‒ Basic |
|
$ |
( |
) |
|
$ |
|
|
(Loss) income from continuing operations per share ‒ Diluted |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations per share ‒ Basic |
|
$ |
|
|
|
$ |
|
|
Income from discontinued operations per share ‒ Diluted |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share ‒ Basic |
|
$ |
( |
) |
|
$ |
|
|
Net (loss) income per share ‒ Diluted |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding ‒ Basic |
|
|
|
|
|
|
|
|
Dilutive effect of unit equivalents |
|
|
|
|
|
|
|
|
Weighted average shares outstanding ‒ Diluted |
|
|
|
|
|
|
|
|
The diluted earnings per share calculation excludes the Riviera Performance Shares for the three months and nine months ended September 30, 2019, because no performance targets have been met. The diluted earnings per share calculation excludes approximately
Note 14 – Income Taxes
For periods prior to the Spin-off, income tax expense and deferred tax balances were calculated on a separate tax return basis although Riviera’s operations have historically been included in the tax returns filed by the Parent, of which Riviera’s business was a part. Beginning August 8, 2018, as a stand-alone entity, Riviera will file tax returns on its own behalf and its deferred taxes and effective tax rate may differ from those in the historical periods.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. At September 30, 2019, and for the first time since Riviera’s inception, the Company’s earnings show a cumulative loss which is primarily due to losses generated during the third quarter of 2019. Based on the cumulative loss and projections of future taxable income for the periods in which the deferred tax assets are deductible, the Company recorded a full valuation allowance of approximately $
27
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Amounts recognized as income taxes are included in “income tax expense (benefit),” as well as discontinued operations, on the condensed consolidated statements of operations. The effective income tax rates were approximately (
Note 15 – Supplemental Disclosures to the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows
“Other current assets” reported on the condensed consolidated balance sheets include the following:
|
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
Prepaids |
|
$ |
|
|
|
$ |
|
|
Receivable from related party |
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Other current assets |
|
$ |
|
|
|
$ |
|
|
“Other accrued liabilities” reported on the condensed consolidated balance sheets include the following:
|
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
Accrued compensation |
|
$ |
|
|
|
$ |
|
|
Asset retirement obligations (current portion) |
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Other accrued liabilities |
|
$ |
|
|
|
$ |
|
|
The following table provides a reconciliation of “cash and cash equivalents” reported on the condensed consolidated balance sheets to “cash, cash equivalents and restricted cash” reported on the condensed consolidated statement of cash flows:
|
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
Restricted cash |
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash |
|
$ |
|
|
|
$ |
|
|
28
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
Cash payments for interest, net of amounts capitalized |
|
$ |
|
|
|
$ |
|
|
Cash payments for income taxes |
|
$ |
|
|
|
$ |
|
|
Cash payments for reorganization items, net |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Noncash investing activities: |
|
|
|
|
|
|
|
|
Accrued capital expenditures |
|
$ |
|
|
|
$ |
|
|
For purposes of the condensed consolidated statements of cash flows, the Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. At September 30, 2019, “restricted cash” on the condensed consolidated balance sheet consisted of approximately $
Note 16 – Related Party Transactions
Private Share Repurchases
In May 2019, the Company purchased at a discount to market,
Roan Resources LLC
On August 31, 2017, the Company completed the Roan Contribution. In exchange for their respective contributions, a subsidiary of the Company and Citizen each received a
Under the MSA, Roan reimbursed Riviera Operating for certain costs and expenses incurred by Riviera Operating in connection with providing the services, and Roan paid to Riviera Operating a service fee of $
On March 1, 2018, the Company commenced a lease agreement with Roan to lease office space in the Company’s building located in Oklahoma. The lease term is for
29
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
On January 31, 2019, a subsidiary of the Company’s subsidiary, Blue Mountain Midstream, entered into an agreement to gather, treat or dispose of produced water from Roan. On April 1, 2019, Blue Mountain Midstream began providing services under the agreement. The original term of the agreement is until
In addition, Blue Mountain Midstream has an agreement in place with Roan for the purchase and processing of natural gas from certain of Roan’s properties. For the three months and nine months ended September 30, 2019, the Company made natural gas purchases from Roan of approximately $
On July 17, 2019, a subsidiary of Blue Mountain Midstream entered into a
Note 17 – Segments
At September 30, 2019, the Company had
30
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The following tables present the Company’s financial information by reporting segment:
|
Three Months Ended September 30, 2019 |
|
|||||||||||||
|
Upstream |
|
|
Blue Mountain |
|
|
Not Allocated to Segments |
|
|
Consolidated |
|
||||
|
(in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Marketing revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes other than income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Field level cash flow |
$ |
|
|
|
$ |
|
|
|
|
( |
) |
|
|
|
|
Gains on commodity derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other indirect income (expenses) |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Loss from continuing operations before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
Three Months Ended September 30, 2018 |
|
|||||||||||||
|
Upstream |
|
|
Blue Mountain |
|
|
Not Allocated to Segments |
|
|
Consolidated |
|
||||
|
(in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Marketing revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes other than income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Field level cash flow |
$ |
|
|
|
$ |
|
|
|
|
( |
) |
|
|
|
|
Losses on commodity derivatives |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Other indirect income (expenses) |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Income from continuing operations before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
31
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
|
Nine Months Ended September 30, 2019 |
|
|||||||||||||
|
Upstream |
|
|
Blue Mountain |
|
|
Not Allocated to Segments |
|
|
Consolidated |
|
||||
|
(in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Marketing revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes other than income taxes |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Field level cash flow |
$ |
|
|
|
$ |
|
|
|
|
( |
) |
|
|
|
|
Gains on commodity derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other indirect income (expenses) |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Income from continuing operations before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
Nine Months Ended September 30, 2018 |
|
|||||||||||||
|
Upstream |
|
|
Blue Mountain |
|
|
Not Allocated to Segments |
|
|
Consolidated |
|
||||
|
(in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Marketing revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes other than income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Field level cash flow |
$ |
|
|
|
$ |
|
|
|
|
( |
) |
|
|
|
|
Losses on commodity derivatives |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Other indirect income (expenses) |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Income from continuing operations before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
32
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018. The following discussion contains forward-looking statements based on expectations, estimates and assumptions. Actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil, natural gas and NGL, production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, credit and capital market conditions, regulatory changes and other uncertainties, as well as those factors set forth in “Cautionary Statement Regarding Forward-Looking Statements” below and in Item 1A. “Risk Factors” in this Quarterly Report on Form 10‑Q and in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018, and elsewhere in the Annual Report.
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.
The reference to a “Note” herein refers to the accompanying Notes to Condensed Consolidated Financial Statements contained in Item 1. “Financial Statements.”
Executive Overview
The Company’s upstream reporting segment properties are located in five operating regions in the United States (“U.S.”):
|
• |
Hugoton Basin, which includes oil and natural gas properties, as well as the Jayhawk natural gas processing plant, located in Kansas (the “Jayhawk Plant”); |
|
• |
East Texas, which includes oil and natural gas properties producing primarily from the Travis Peak, Cotton Valley and Bossier formations; |
|
• |
Mid-Continent, which includes properties in the Northwest STACK in northwestern Oklahoma and various other oil and natural gas producing properties throughout Oklahoma; |
|
• |
North Louisiana, which includes oil and natural gas properties producing primarily from the Hosston, Cotton Valley Sandstones, Bossier and Smackover formations; and |
|
• |
Uinta Basin, which includes non-operated properties located in the Drunkards Wash field in Utah. |
The Blue Mountain reporting segment consists of a state-of-the-art cryogenic natural gas processing facility, a network of gathering pipelines and compressors and produced water services and a crude oil gathering system 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.
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
33
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(losses) in Roan as discontinued operations on its condensed consolidated financial statements. See Note 3 for additional information.
During 2019 and 2018, the Company divested all of its properties located in the previous Michigan/Illinois and in the Permian Basin operating regions, respectively. The Company entered into an agreement to sell its remaining interests in properties located in the Hugoton Basin (including its interests in Mayzure, LLC (“Mayzure”)), which is anticipated to close in the fourth quarter of 2019. See below and Note 3 for details of the Company’s divestitures. As a result of this divestiture, the Company will no longer have a Hugoton Basin operating region.
For the three months ended September 30, 2019, the Company’s results included the following:
|
• |
oil, natural gas and NGL sales of approximately $51 million compared to $90 million for the three months ended September 30, 2018; |
|
• |
average daily production of approximately 242 MMcfe/d compared to 302 MMcfe/d for the three months ended September 30, 2018; |
|
• |
net loss of approximately $226 million compared to net income of $48 million for the three months ended September 30, 2018; |
|
• |
capital expenditures of approximately $39 million compared to $34 million for the three months ended September 30, 2018; and |
|
• |
14 wells drilled (all successful) compared to 24 wells drilled (all successful) for the three months ended September 30, 2018. |
For the nine months ended September 30, 2019, the Company’s results included the following:
|
• |
oil, natural gas and NGL sales of approximately $194 million compared to $314 million for the nine months ended September 30, 2018; |
|
• |
average daily production of approximately 264 MMcfe/d compared to 338 MMcfe/d for the nine months ended September 30, 2018; |
|
• |
net loss of approximately $220 million compared to $30 million for the nine months ended September 30, 2018; |
|
• |
net cash provided by operating activities of approximately $88 million compared to cash used of approximately $28 million for the nine months ended September 30, 2018; |
|
• |
capital expenditures of approximately $141 million compared to $143 million for the nine months ended September 30, 2018; and |
|
• |
49 wells drilled (all successful) compared to 39 wells drilled (all successful) for the nine months ended September 30, 2018. |
Divestitures – Through the Third Quarter of 2019
Blue Mountain Midstream entered into an agreement with a potential customer to construct a gathering system, as well as gather and process gas. During the third quarter of 2019, a decision was made not to proceed with the gas gathering and processing contract, and as a result, the customer is to reimburse Blue Mountain Midstream for capital deployed and operating expenses incurred, in addition to paying a success fee for constructing the assets. As of September 30, 2019, Blue Mountain Midstream received the first capital reimbursement of approximately $17 million. Blue Mountain Midstream recorded the success fee for those assets of approximately $2 million, which is included in “(gains) losses on sale of assets and other, net” on the condensed consolidated statement of operations. Blue Mountain Midstream has an additional $2 million of assets subject to a final agreement, included in “assets held for sale” on the condensed consolidated balance sheet as of September 30, 2019, as well as operating expenses and an additional success fee that is expected to be recognized later in 2019.
On September 5, 2019, the Company completed the sale of its interest in properties located in Illinois (the “Illinois Assets Sale”). Cash proceeds from the sale of these properties were approximately $4 million and the Company recorded a net gain of approximately $4 million.
On July 3, 2019, the Company completed the sale of its interest in properties located in Michigan (the “Michigan Assets Sale”). Cash proceeds from the sale of these properties were approximately $36 million. The Company recorded a noncash
34
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
impairment charge to reduce the carrying value of these assets to fair value of approximately $18 million in the second quarter of 2019.
On May 31, 2019, the Company completed the sale of its interest in non-operated properties located in the Hugoton Basin in Kansas. Cash proceeds received from the sale of these properties were approximately $31 million and the Company recognized a net loss of approximately $10 million.
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 $64 million (including a deposit of approximately $5 million received in 2018), and the Company recognized a net gain of approximately $28 million.
Divestitures – Subsequent Event
On August 28, 2019, the Company signed an agreement to sell its interest in the remaining properties located in the Hugoton Basin (the “Hugoton Basin Assets Sale”) for approximately $295 million. The sale is expected to close in the fourth quarter of 2019. The Company’s Board of Directors and management will determine the use of the proceeds, which may include a significant return of capital to shareholders. During the three months and nine months ended September 30, 2019, the Company recorded a noncash impairment charge of approximately $95 million to reduce the carrying value of these assets to fair value.
In connection with the Hugoton Basin Assets Sale, the buyer will also acquire the Company’s interests in Mayzure (including the VPP Interests). 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 were incurred in connection with the Mayzure Notes. As of September 30, 2019, the Company made repayments of approximately $5 million.
On November 5, 2019, the Company signed a definitive agreement to sell its interest in properties located in the Overton field of East Texas for a contract price of approximately $19 million, subject to closing adjustments. The sale is expected to close in the first quarter of 2020.
2019 Capital Budget
For 2019, the Company estimates its total capital expenditures, excluding acquisitions, will be approximately $175 million, including approximately $66 million related to its oil and natural gas capital program and approximately $109 million related to Blue Mountain Midstream. This estimate is under continuous review and subject to ongoing adjustments.
Financing Activities
Share Repurchase Program
On July 18, 2019, the Company’s Board of Directors increased the share repurchase authorization to $150 million of the Company’s outstanding shares of common stock. During the nine months ended September 30, 2019, the Company repurchased an aggregate of 7,970,547 shares of common stock at an average price of $12.88 per share for a total cost of approximately $103 million. Included in this number are private purchases of 2,380,425 shares of common stock purchased at a discount to market, at an average price of $10.91 for a total cost of approximately $26 million. See Note 16 for additional information. At September 30, 2019, approximately $29 million was available for share repurchases under the program.
In accordance with the Securities and Exchange Commission’s regulations regarding issuer tender offers, the Company’s share repurchase program was suspended concurrent with the June 13, 2019, announcement of the Company’s intent to commence a tender offer of its common stock. The program was resumed in July 2019 following the expiration of the tender offer.
35
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Any share repurchases are subject to restrictions in the Company’s senior secured reserve-based revolving loan facility (the “Riviera Credit Facility”).
Tender Offer
On June 13, 2019, the Company’s Board of Directors announced the intention to commence a tender offer to purchase $40 million of the Company’s common stock. In July 2019, upon the terms and subject to the conditions described in the Offer to Purchase dated June 18, 2019, the Company repurchased an aggregate of 2,666,666 shares of common stock at a price of $15.00 per share for a total cost of approximately $40 million (excluding expenses of approximately $440,000 related to the tender offer).
Water Services Agreement
On January 31, 2019, a subsidiary of Blue Mountain Midstream entered into an agreement with Roan to exclusively manage all of Roan’s water needs for its drilling and completion operations in Central Oklahoma. Blue Mountain Midstream will provide comprehensive water management services including pipeline gathering, disposal, treatment and redelivery of recycled water for re-use. The agreement is supported by a 10-year acreage dedication in 67 Townships covering portions of seven Oklahoma Counties.
Oil Services Agreement
On July 17, 2019, a subsidiary of Blue Mountain Midstream entered into an agreement with Roan to gather Roan’s oil in the Merge/SCOOP/STACK play. The agreement provides for a 10-year term covering an 89,000 net acre dedicated area in nine Townships in central Oklahoma. Blue Mountain plans to construct an initial crude system consisting of approximately 50 miles of gathering pipelines with two downstream interconnections providing Roan with direct access to the Cushing market. The Blue Mountain system will initially be capable of transporting up to 60,000 barrels per day of crude oil. Services will commence in the first half of 2020.
Commodity Derivatives
During the nine months ended September 30, 2019, the Company entered into commodity derivative contracts consisting of natural gas fixed price swaps and NGL fixed price swaps for 2019 and oil fixed price swaps and natural gas basis swaps for 2020.
36
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Results of Operations
Three Months Ended September 30, 2019, Compared to Three Months Ended September 30, 2018
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
Revenues and other: |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas sales |
|
$ |
33,082 |
|
|
$ |
57,095 |
|
|
$ |
(24,013 |
) |
Oil sales |
|
|
10,575 |
|
|
|
9,658 |
|
|
|
917 |
|
NGL sales |
|
|
7,372 |
|
|
|
22,900 |
|
|
|
(15,528 |
) |
Total oil, natural gas and NGL sales |
|
|
51,029 |
|
|
|
89,653 |
|
|
|
(38,624 |
) |
Gains (losses) on commodity derivatives |
|
|
5,665 |
|
|
|
(3,175 |
) |
|
|
8,840 |
|
Marketing and other revenues |
|
|
51,360 |
|
|
|
73,123 |
|
|
|
(21,763 |
) |
|
|
|
108,054 |
|
|
|
159,601 |
|
|
|
(51,547 |
) |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
18,307 |
|
|
|
22,930 |
|
|
|
(4,623 |
) |
Transportation expenses |
|
|
16,275 |
|
|
|
22,304 |
|
|
|
(6,029 |
) |
Marketing expenses |
|
|
37,688 |
|
|
|
63,149 |
|
|
|
(25,461 |
) |
General and administrative expenses (1) |
|
|
16,954 |
|
|
|
90,931 |
|
|
|
(73,977 |
) |
Exploration costs |
|
|
1,947 |
|
|
|
2,487 |
|
|
|
(540 |
) |
Depreciation, depletion and amortization |
|
|
20,060 |
|
|
|
21,515 |
|
|
|
(1,455 |
) |
Impairment of assets held for sale |
|
|
95,080 |
|
|
|
— |
|
|
|
95,080 |
|
Taxes, other than income taxes |
|
|
5,111 |
|
|
|
7,162 |
|
|
|
(2,051 |
) |
(Gains) losses on sale of assets and other, net |
|
|
(7,587 |
) |
|
|
221 |
|
|
|
(7,808 |
) |
|
|
|
203,835 |
|
|
|
230,699 |
|
|
|
(26,864 |
) |
Other income and (expenses) |
|
|
(2,924 |
) |
|
|
(489 |
) |
|
|
(2,435 |
) |
Reorganization items, net |
|
|
(284 |
) |
|
|
(1,277 |
) |
|
|
993 |
|
Loss from continuing operations before income taxes |
|
|
(98,989 |
) |
|
|
(72,864 |
) |
|
|
(26,125 |
) |
Income tax expense (benefit) |
|
|
126,646 |
|
|
|
(39,628 |
) |
|
|
166,274 |
|
Loss from continuing operations |
|
|
(225,635 |
) |
|
|
(33,236 |
) |
|
|
(192,399 |
) |
Loss from discontinued operations, net of income taxes |
|
|
— |
|
|
|
(14,899 |
) |
|
|
14,899 |
|
Net loss |
|
$ |
(225,635 |
) |
|
$ |
(48,135 |
) |
|
$ |
(177,500 |
) |
(1) |
General and administrative expenses for the three months ended September 30, 2019, and September 30, 2018, include approximately $3 million and $56 million, respectively, of share-based compensation expenses. In addition, general and administrative expenses for the three months ended September 30, 2019, and September 30, 2018, include approximately $2 million and $8 million, respectively, of severance costs. |
37
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
Average daily production: |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (MMcf/d) |
|
|
194 |
|
|
|
243 |
|
|
|
(20 |
%) |
Oil (MBbls/d) |
|
|
2.1 |
|
|
|
1.4 |
|
|
|
50 |
% |
NGL (MBbls/d) |
|
|
6.0 |
|
|
|
8.4 |
|
|
|
(29 |
%) |
Total (MMcfe/d) |
|
|
242 |
|
|
|
302 |
|
|
|
(20 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average prices: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (Mcf) |
|
$ |
1.86 |
|
|
$ |
2.55 |
|
|
|
(27 |
%) |
Oil (Bbl) |
|
$ |
55.13 |
|
|
$ |
72.89 |
|
|
|
(24 |
%) |
NGL (Bbl) |
|
$ |
13.40 |
|
|
$ |
29.78 |
|
|
|
(55 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average NYMEX prices: |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (MMBtu) |
|
$ |
2.23 |
|
|
$ |
2.90 |
|
|
|
(23 |
%) |
Oil (Bbl) |
|
$ |
55.45 |
|
|
$ |
69.50 |
|
|
|
(20 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs per Mcfe of production: |
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
$ |
0.82 |
|
|
$ |
0.83 |
|
|
|
(1 |
%) |
Transportation expenses |
|
$ |
0.73 |
|
|
$ |
0.80 |
|
|
|
(9 |
%) |
General and administrative expenses (2) |
|
$ |
0.76 |
|
|
$ |
3.27 |
|
|
|
(77 |
%) |
Depreciation, depletion and amortization |
|
$ |
0.90 |
|
|
$ |
0.77 |
|
|
|
17 |
% |
Taxes, other than income taxes |
|
$ |
0.23 |
|
|
$ |
0.26 |
|
|
|
(12 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily production – discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity method investments ‒ Total (MMcfe/d) (3) |
|
|
— |
|
|
|
34 |
|
|
|
(100 |
%) |
(1) |
Does not include the effect of gains (losses) on derivatives. |
(2) |
General and administrative expenses for the three months ended September 30, 2019, and September 30, 2018, include approximately $3 million and $56 million, respectively, of share-based compensation expenses. In addition, general and administrative expenses for the three months ended September 30, 2019, and September 30, 2018, include approximately $2 million and $8 million, respectively, of severance costs. |
(3) |
Represents the Company’s historical 50% equity interest in Roan. |
38
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Upstream Reporting Segment
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and NGL sales |
|
$ |
51,029 |
|
|
$ |
89,653 |
|
|
$ |
(38,624 |
) |
Marketing and other revenues |
|
|
16,627 |
|
|
|
29,226 |
|
|
|
(12,599 |
) |
|
|
|
67,656 |
|
|
|
118,879 |
|
|
|
(51,223 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
18,307 |
|
|
|
22,930 |
|
|
|
(4,623 |
) |
Transportation expenses |
|
|
16,275 |
|
|
|
22,304 |
|
|
|
(6,029 |
) |
Marketing expenses |
|
|
7,948 |
|
|
|
21,629 |
|
|
|
(13,681 |
) |
Severance taxes and ad valorem taxes |
|
|
4,413 |
|
|
|
6,904 |
|
|
|
(2,491 |
) |
Total direct operating expenses |
|
|
46,943 |
|
|
|
73,767 |
|
|
|
(26,824 |
) |
Field level cash flow (1) |
|
$ |
20,713 |
|
|
$ |
45,112 |
|
|
$ |
(24,399 |
) |
(1) |
Refer to Note 17 for a reconciliation of field level cash flow to income from continuing operations before income taxes. |
Oil, Natural Gas and NGL Sales
Oil, natural gas and NGL sales decreased by approximately $39 million or 43% to approximately $51 million for the three months ended September 30, 2019, from approximately $90 million for the three months ended September 30, 2018, due to lower natural gas and NGL volumes as a result of divestitures completed in 2018 and 2019 and lower commodity prices. Lower natural gas, NGL and oil prices resulted in a decrease in revenues of approximately $14 million, $6 million and $1 million, respectively.
Average daily production volumes decreased to approximately 242 MMcfe/d for the three months ended September 30, 2019, from 302 MMcfe/d for the three months ended September 30, 2018. Lower natural gas and NGL production volumes resulted in a decrease in revenues of approximately $10 million and $10 million, respectively, offset by an increase in revenues of $2 million due to an increase in oil production volumes.
The following table sets forth average daily production by region:
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||||||
Average daily production (MMcfe/d): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugoton Basin |
|
|
106 |
|
|
|
130 |
|
|
|
(24 |
) |
|
|
(18 |
%) |
Mid-Continent |
|
|
42 |
|
|
|
56 |
|
|
|
(14 |
) |
|
|
(25 |
%) |
East Texas |
|
|
40 |
|
|
|
47 |
|
|
|
(7 |
) |
|
|
(15 |
%) |
North Louisiana |
|
|
35 |
|
|
|
25 |
|
|
|
10 |
|
|
|
40 |
% |
Uinta Basin |
|
|
17 |
|
|
|
17 |
|
|
|
— |
|
|
|
— |
|
Michigan/Illinois |
|
|
2 |
|
|
|
27 |
|
|
|
(25 |
) |
|
|
(93 |
%) |
|
|
|
242 |
|
|
|
302 |
|
|
|
(60 |
) |
|
|
(20 |
%) |
The decrease in average daily production volumes in the Hugoton Basin primarily reflect lower production volumes as a result of divestitures completed during 2018 and 2019, and the election to reject ethane. The decrease in average daily production volumes in the Mid-Continent region primarily reflects lower production volumes as a result of divestitures completed during 2018 and 2019, partially offset by increased development capital spending in the region. The decrease in average daily production in the Michigan/Illinois region reflect lower production volumes as a result of the Michigan and Illinois Assets Sales in the third quarter of 2019. See Note 3 for additional information of divestitures. The decrease in average daily production volumes in the East Texas region reflect lower production volumes as a result of reduced
39
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
development capital spending and natural declines. The increase in production volumes in the North Louisiana region is due to new wells drilled in 2019.
Marketing and Other Revenues
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Jayhawk Plant |
|
$ |
9,631 |
|
|
$ |
22,471 |
|
|
$ |
(12,840 |
) |
Helium |
|
|
5,120 |
|
|
|
5,490 |
|
|
|
(370 |
) |
Other |
|
|
1,876 |
|
|
|
1,265 |
|
|
|
611 |
|
|
|
$ |
16,627 |
|
|
$ |
29,226 |
|
|
$ |
(12,599 |
) |
Marketing and other revenues decreased by approximately $12 million or 43% to approximately $17 million for the three months ended September 30, 2019, from approximately $29 million for the three months ended September 30, 2018. The decrease was primarily due to third party take-in-kind elections. Other primarily includes revenues from other midstream systems in the East Texas and North Louisiana regions.
Lease Operating Expenses
Lease operating expenses include expenses such as labor, field office, vehicle, supervision, maintenance, tools and supplies, and workover expenses. Lease operating expenses decreased by approximately $5 million or 20% to approximately $18 million for the three months ended September 30, 2019, from approximately $23 million for the three ended September 30, 2018. The decrease was primarily due to divestitures in 2019. Lease operating expenses per Mcfe decreased to $0.82 per Mcfe for the three months ended September 30, 2019, from $0.83 per Mcfe for the three months ended September 30, 2018.
Transportation Expenses
Transportation expenses decreased by approximately $6 million or 27% to approximately $16 million for the three months ended September 30, 2019, from approximately $22 million for the three months ended September 30, 2018. Transportation expenses per Mcfe decreased to $0.73 per Mcfe for the three months ended September 30, 2019, from $0.80 per Mcfe for the three months ended September 30, 2018. The decrease in the rate per Mcfe is primarily due to higher volumes in North Louisiana due to new wells drilled in 2019.
Marketing Expenses
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Jayhawk Plant |
|
$ |
7,255 |
|
|
$ |
20,753 |
|
|
$ |
(13,498 |
) |
Other |
|
|
693 |
|
|
|
876 |
|
|
|
(183 |
) |
|
|
$ |
7,948 |
|
|
$ |
21,629 |
|
|
$ |
(13,681 |
) |
Marketing expenses represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing expenses decreased by approximately $14 million or 63% to approximately $8 million for the three months ended September 30, 2019, from approximately $22 million for the three months ended September 30, 2018. The decrease was primarily due to third party take-in-kind elections.
40
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Severance and Ad Valorem Taxes
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance taxes |
|
$ |
1,475 |
|
|
$ |
3,248 |
|
|
$ |
(1,773 |
) |
Ad valorem taxes |
|
|
2,938 |
|
|
|
3,656 |
|
|
|
(718 |
) |
|
|
$ |
4,413 |
|
|
$ |
6,904 |
|
|
$ |
(2,491 |
) |
Severance taxes, which are a function of revenues generated from production, decreased primarily due to lower production volumes. Ad valorem taxes, which are based on the value of reserves and production equipment and vary by location, decreased primarily due to divestitures completed in 2018 and 2019 and lower commodity prices.
Field Level Cash Flow
Field level cash flow decreased by approximately $24 million or 54% to approximately $21 million for the three months ended September 30, 2019, from approximately $45 million for the three months ended September 30, 2018. The decrease was primarily due to the divestitures completed in 2018 and 2019 and lower commodity prices.
Blue Mountain Reporting Segment
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing revenues |
|
$ |
34,733 |
|
|
$ |
43,897 |
|
|
$ |
(9,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
28,361 |
|
|
|
41,520 |
|
|
|
(13,159 |
) |
Severance taxes and ad valorem taxes |
|
|
643 |
|
|
|
237 |
|
|
|
406 |
|
Total direct operating expenses |
|
|
29,004 |
|
|
|
41,757 |
|
|
|
(12,753 |
) |
Field level cash flow (1) |
|
$ |
5,729 |
|
|
$ |
2,140 |
|
|
$ |
3,589 |
|
(1) |
Refer to Note 17 for a reconciliation of field level cash flow to income from continuing operations before income taxes. |
Marketing Revenues
Marketing revenues decreased by approximately $9 million or 21% to approximately $35 million for the three months ended September 30, 2019, from approximately $44 million for the three months ended September 30, 2018. The decrease was due to lower prices and lower throughput volumes sold as the production was temporarily shut-in by our primary customer.
Average daily throughput volumes decreased to approximately 114 MMcf/d for the three months ended September 30, 2019, from 123 MMcf/d for the three months ended September 30, 2018.
Marketing Expenses
Marketing expenses decreased by approximately $14 million or 32% to approximately $28 million for the three months ended September 30, 2019, from approximately $42 million for the three months ended September 30, 2018. The decrease was due to lower prices and lower throughput volumes purchased as the production was temporarily shut-in by our primary customer.
Field Level Cash Flow
Field level cash flow increased by approximately $4 million primarily due to lower marketing expenses for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, due to lower commodity prices, partially offset by lower throughput volumes sold and purchased as the production was temporarily shut-in by our primary customer.
41
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Indirect Income and Expenses Not Allocated to Segments
Gains (Losses) on Commodity Derivatives
Gains on commodity derivatives were approximately $6 million for the three months ended September 30, 2019, compared to losses of approximately $3 million for the three months ended September 30, 2018, representing a variance of approximately $9 million. Gains on commodity derivatives were primarily due to changes in fair value of the derivative contracts. The fair value on unsettled derivative contracts changes as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increase compared to the contract prices on the derivatives, losses are recognized; and if the expected future commodity prices decrease compared to the contract prices on the derivatives, gains are recognized.
The Company determines the fair value of its commodity derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. See Item 3. “Quantitative and Qualitative Disclosures About Market Risk” and Note 7 and Note 8 for additional details about the Company’s commodity derivatives. For information about the Company’s credit risk related to derivative contracts, see “Counterparty Credit Risk” under “Liquidity and Capital Resources” below.
General and Administrative Expenses
General and administrative expenses are costs not directly associated with field operations and reflect the costs of employees including executive officers, related benefits, office leases and professional fees. General and administrative expenses decreased by approximately $74 million or 81% to approximately $17 million for the three months ended September 30, 2019, from approximately $91 million for the three months ended September 30, 2018. The decrease was primarily due to lower share-based compensation expenses, lower severance costs and lower salaries and benefits related expenses due to lower headcount. General and administrative expenses per Mcfe decreased to $0.76 per Mcfe for the three months ended September 30, 2019, from $3.27 per Mcfe for the three months ended September 30, 2018.
For the professional services expenses related to the Chapter 11 proceedings, see “Reorganization Items, Net.”
Exploration Costs
Exploration costs remained consistent at approximately $2 million for both the three months ended September 30, 2019, and September 30, 2018.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization decreased by approximately $2 million or 7% to approximately $20 million for the three months ended September 30, 2019, from approximately $22 million for the three months ended September 30, 2018. Depreciation, depletion and amortization per Mcfe increased to $0.90 per Mcfe for the three months ended September 30, 2019, from $0.77 per Mcfe for the three months ended September 30, 2018.
Impairment of Assets Held for Sale
During the three months ended September 30, 2019, the Company recorded a noncash impairment charge of approximately $95 million to reduce the carrying value of its assets held for sale located in the Hugoton Basin.
(Gains) Losses on Sale of Assets and Other, Net
During the three months ended September 30, 2019, the Company recorded a net gain of approximately $7 million on divestitures (see Note 3):
|
• |
Net gain of approximately $4 million on the sale of its interest in properties located in Illinois; |
|
• |
Net loss of approximately $1 million on the sale of its interest in non-operated properties in the Hugoton Basin; and |
|
• |
Net gain of approximately $5 million as a contingent payment was received for operational requirements related to the sale of properties located in the Los Angeles Basin in California in the third quarter of 2017. |
42
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Other Income and (Expenses)
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of amounts capitalized |
|
$ |
(2,329 |
) |
|
$ |
(594 |
) |
|
$ |
(1,735 |
) |
Other, net |
|
|
(595 |
) |
|
|
105 |
|
|
|
(700 |
) |
|
|
$ |
(2,924 |
) |
|
$ |
(489 |
) |
|
$ |
(2,435 |
) |
Interest expense increased primarily due to higher debt outstanding. For the three months ended September 30, 2018, interest expense is primarily related to amortization of financing fees. See “Debt” under “Liquidity and Capital Resources” below for additional details. For the three months ended September 30, 2019, “other, net” is primarily related to writing off a portion of the unamortized deferred financing fees of approximately $700,000 and commitment fees for the undrawn portion of the Credit Facilities, partially offset by interest and rental income.
Reorganization Items, Net
The Company incurred significant costs and recognized significant gains associated with the reorganization of the Company in connection with the Chapter 11 proceedings during 2016 and 2017. Reorganization items represent costs directly associated with the Chapter 11 proceedings since the petition date. During the three months ended September 30, 2019, and September 30, 2018, reorganization items were approximately $300,000 and $1 million, respectively, primarily related to legal and other professional fees.
Income Tax Expense
The Company recognized an income tax expense of approximately $127 million compared to an income tax benefit of approximately $40 million for the three months ended September 30, 2019, and September 30, 2018, respectively. At September 30, 2019, and for the first time since Riviera’s inception, the Company’s earnings show a cumulative loss which is primarily due to losses generated during the third quarter of 2019. Based on the cumulative loss and projections of future taxable income for the periods in which our deferred tax assets are deductible, the Company recorded a full valuation allowance of approximately $127 million to reduce its federal and state net deferred tax assets to an amount that is more likely than not to be realized. The income tax benefit for the three months ended September 30, 2018, was primarily due to taxable losses.
Loss from Discontinued Operations, Net of Income Taxes
As a result of the Company’s internal reorganization in connection with the Spin-off, the equity interest in Roan was distributed to the Parent on the Reorganization Date and is no longer affiliated with Riviera. As such, the Company has classified the equity earnings in Roan as discontinued operations. Loss from discontinued operations, net of income taxes was approximately $15 million for the three months ended September 30, 2018. See Note 3 for additional information.
Net (Loss) Income
Net (loss) income decreased by approximately $178 million to a net loss of approximately $226 million for the three months ended September 30, 2019, from a net loss of approximately $48 million for the three months ended September 30, 2018. The net loss for the three months ended September 30, 2019, was primarily due to a noncash impairment charge recorded to the Company’s Hugoton Basin assets held for sale, a valuation allowance, lower production volumes and prices, partially offset by lower expenses, gains on commodity derivatives and a net gain recorded on the sale of assets. See discussion above for explanations of variances.
43
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Results of Operations
Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
Revenues and other: |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas sales |
|
$ |
136,823 |
|
|
$ |
174,085 |
|
|
$ |
(37,262 |
) |
Oil sales |
|
|
26,525 |
|
|
|
66,273 |
|
|
|
(39,748 |
) |
NGL sales |
|
|
30,783 |
|
|
|
73,175 |
|
|
|
(42,392 |
) |
Total oil, natural gas and NGL sales |
|
|
194,131 |
|
|
|
313,533 |
|
|
|
(119,402 |
) |
Gains (losses) on commodity derivatives |
|
|
12,673 |
|
|
|
(25,730 |
) |
|
|
38,403 |
|
Marketing and other revenues |
|
|
183,254 |
|
|
|
174,638 |
|
|
|
8,616 |
|
|
|
|
390,058 |
|
|
|
462,441 |
|
|
|
(72,383 |
) |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
66,204 |
|
|
|
94,902 |
|
|
|
(28,698 |
) |
Transportation expenses |
|
|
53,478 |
|
|
|
62,611 |
|
|
|
(9,133 |
) |
Marketing expenses |
|
|
132,888 |
|
|
|
145,231 |
|
|
|
(12,343 |
) |
General and administrative expenses (1) |
|
|
49,434 |
|
|
|
228,105 |
|
|
|
(178,671 |
) |
Exploration costs |
|
|
4,154 |
|
|
|
3,742 |
|
|
|
412 |
|
Depreciation, depletion and amortization |
|
|
65,013 |
|
|
|
71,960 |
|
|
|
(6,947 |
) |
Impairment of assets held for sale |
|
|
113,470 |
|
|
|
— |
|
|
|
113,470 |
|
Taxes, other than income taxes |
|
|
14,010 |
|
|
|
22,729 |
|
|
|
(8,719 |
) |
Gains on sale of assets and other, net |
|
|
(24,967 |
) |
|
|
(208,009 |
) |
|
|
183,042 |
|
|
|
|
473,684 |
|
|
|
421,271 |
|
|
|
52,413 |
|
Other income and (expenses) |
|
|
(6,111 |
) |
|
|
(1,109 |
) |
|
|
(5,002 |
) |
Reorganization items, net |
|
|
(756 |
) |
|
|
(4,487 |
) |
|
|
3,731 |
|
(Loss) income from continuing operations before income taxes |
|
|
(90,493 |
) |
|
|
35,574 |
|
|
|
(126,067 |
) |
Income tax expense |
|
|
129,092 |
|
|
|
25,247 |
|
|
|
103,845 |
|
(Loss) income from continuing operations |
|
|
(219,585 |
) |
|
|
10,327 |
|
|
|
(229,912 |
) |
Income from discontinued operations, net of income taxes |
|
|
— |
|
|
|
19,674 |
|
|
|
(19,674 |
) |
Net (loss) income |
|
$ |
(219,585 |
) |
|
$ |
30,001 |
|
|
$ |
(249,586 |
) |
(1) |
General and administrative expenses for the nine months ended September 30, 2019, and September 30, 2018, include approximately $13 million and $131 million, respectively, of share-based compensation expenses. In addition, general and administrative expenses for the nine months ended September 30, 2019, and September 30, 2018, include approximately $2 million and $26 million, respectively, of severance costs. |
44
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
Average daily production: |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (MMcf/d) |
|
|
215 |
|
|
|
249 |
|
|
|
(14 |
%) |
Oil (MBbls/d) |
|
|
1.7 |
|
|
|
3.9 |
|
|
|
(56 |
%) |
NGL (MBbls/d) |
|
|
6.4 |
|
|
|
11.0 |
|
|
|
(42 |
%) |
Total (MMcfe/d) |
|
|
264 |
|
|
|
338 |
|
|
|
(22 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average prices: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (Mcf) |
|
$ |
2.33 |
|
|
$ |
2.56 |
|
|
|
(9 |
%) |
Oil (Bbl) |
|
$ |
55.80 |
|
|
$ |
62.55 |
|
|
|
(11 |
%) |
NGL (Bbl) |
|
$ |
17.55 |
|
|
$ |
24.41 |
|
|
|
(28 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average NYMEX prices: |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (MMBtu) |
|
$ |
2.67 |
|
|
$ |
2.90 |
|
|
|
(8 |
%) |
Oil (Bbl) |
|
$ |
56.72 |
|
|
$ |
66.75 |
|
|
|
(15 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs per Mcfe of production: |
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
$ |
0.92 |
|
|
$ |
1.03 |
|
|
|
(11 |
%) |
Transportation expenses |
|
$ |
0.74 |
|
|
$ |
0.68 |
|
|
|
9 |
% |
General and administrative expenses (2) |
|
$ |
0.69 |
|
|
$ |
2.47 |
|
|
|
(72 |
%) |
Depreciation, depletion and amortization |
|
$ |
0.90 |
|
|
$ |
0.78 |
|
|
|
15 |
% |
Taxes, other than income taxes |
|
$ |
0.19 |
|
|
$ |
0.25 |
|
|
|
(24 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily production – discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity method investments ‒ Total (MMcfe/d) (3) |
|
|
— |
|
|
|
86 |
|
|
|
(100 |
%) |
(1) |
Does not include the effect of gains (losses) on derivatives. |
(2) |
General and administrative expenses for the nine months ended September 30, 2019, and September 30, 2018, include approximately $13 million and $131 million, respectively, of share-based compensation expenses. In addition, general and administrative expenses for the nine months ended September 30, 2019, and September 30, 2018, include approximately $2 million and $26 million, respectively, of severance costs. |
(3) |
Represents the Company’s historical 50% equity interest in Roan. |
45
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Upstream Reporting Segment
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and NGL sales |
|
$ |
194,131 |
|
|
$ |
313,533 |
|
|
$ |
(119,402 |
) |
Marketing and other revenues |
|
|
63,549 |
|
|
|
88,783 |
|
|
|
(25,234 |
) |
|
|
|
257,680 |
|
|
|
402,316 |
|
|
|
(144,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
66,204 |
|
|
|
94,902 |
|
|
|
(28,698 |
) |
Transportation expenses |
|
|
53,478 |
|
|
|
62,611 |
|
|
|
(9,133 |
) |
Marketing expenses |
|
|
35,568 |
|
|
|
63,009 |
|
|
|
(27,441 |
) |
Severance taxes and ad valorem taxes |
|
|
16,082 |
|
|
|
21,812 |
|
|
|
(5,730 |
) |
Total direct operating expenses |
|
|
171,332 |
|
|
|
242,334 |
|
|
|
(71,002 |
) |
Field level cash flow (1) |
|
$ |
86,348 |
|
|
$ |
159,982 |
|
|
$ |
(73,634 |
) |
(1) |
Refer to Note 17 for a reconciliation of field level cash flow to income from continuing operations before income taxes. |
Oil, Natural Gas and NGL Sales
Oil, natural gas and NGL sales decreased by approximately $120 million or 38% to approximately $194 million for the nine months ended September 30, 2019, from approximately $314 million for the nine months ended September 30, 2018, due to lower production volumes as a result of divestitures completed in 2018 and 2019. Lower natural gas, NGL and oil prices resulted in a decrease in revenues of approximately $14 million, $12 million and $3 million, respectively.
Average daily production volumes decreased to approximately 264 MMcfe/d for the nine months ended September 30, 2019, from 338 MMcfe/d for the nine months ended September 30, 2018. Lower oil, NGL and natural gas production volumes resulted in a decrease in revenues of approximately $37 million, $30 million and $24 million, respectively.
The following table sets forth average daily production by region:
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||||||
Average daily production (MMcfe/d): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugoton Basin |
|
|
114 |
|
|
|
141 |
|
|
|
(27 |
) |
|
|
(19 |
%) |
East Texas |
|
|
43 |
|
|
|
50 |
|
|
|
(7 |
) |
|
|
(14 |
%) |
Mid-Continent |
|
|
38 |
|
|
|
54 |
|
|
|
(16 |
) |
|
|
(30 |
%) |
North Louisiana |
|
|
32 |
|
|
|
27 |
|
|
|
5 |
|
|
|
19 |
% |
Michigan/Illinois |
|
|
19 |
|
|
|
28 |
|
|
|
(9 |
) |
|
|
(32 |
%) |
Uinta Basin |
|
|
18 |
|
|
|
25 |
|
|
|
(7 |
) |
|
|
(28 |
%) |
Permian Basin |
|
|
— |
|
|
|
13 |
|
|
|
(13 |
) |
|
|
(100 |
%) |
|
|
|
264 |
|
|
|
338 |
|
|
|
(74 |
) |
|
|
(22 |
%) |
The decreases in average daily production volumes in the Hugoton Basin and Mid-Continent regions primarily reflect lower production volumes as a result of divestitures completed during 2018 and 2019, partially offset by increased development capital spending in the Mid-Continent region. Additionally, Hugoton Basin volumes were impacted by the election to reject ethane. The decreases in average daily production volumes in the Uinta Basin and Permian Basin regions primarily reflect lower production volumes as a result of divestitures completed during 2018. The decrease in average daily production in the Michigan/Illinois region reflect lower production volumes, as a result of the Michigan and Illinois Assets Sales in the third quarter of 2019. See Note 3 for additional information of divestitures. The decreases in average daily production volumes in the East Texas region reflect lower production volumes as a result of reduced development capital spending and natural declines. The increase in production volumes in North Louisiana is due to new wells drilled in 2019.
46
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Marketing and Other Revenues
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Jayhawk Plant |
|
$ |
42,456 |
|
|
$ |
68,387 |
|
|
$ |
(25,931 |
) |
Helium |
|
|
15,605 |
|
|
|
16,784 |
|
|
|
(1,179 |
) |
Other |
|
|
5,488 |
|
|
|
3,612 |
|
|
|
1,876 |
|
|
|
$ |
63,549 |
|
|
$ |
88,783 |
|
|
$ |
(25,234 |
) |
Marketing and other revenues decreased by approximately $25 million or 28% to approximately $64 million for the nine months ended September 30, 2019, from approximately $89 million for the nine months ended September 30, 2018. The decrease was primarily due to third party take-in-kind elections. Other primarily includes revenues from other midstream systems in the East Texas and North Louisiana regions.
Lease Operating Expenses
Lease operating expenses include expenses such as labor, field office, vehicle, supervision, maintenance, tools and supplies, and workover expenses. Lease operating expenses decreased by approximately $29 million or 30% to approximately $66 million for the nine months ended September 30, 2019, from approximately $95 million for the nine months ended September 30, 2018. The decrease was primarily due to the divestitures completed in 2018 and 2019 and reduced labor costs for field operations as a result of cost savings initiatives. Lease operating expenses per Mcfe decreased to $0.92 per Mcfe for the nine months ended September 30, 2019, from $1.03 per Mcfe for the nine months ended September 30, 2018.
Transportation Expenses
Transportation expenses decreased by approximately $10 million or 15% to approximately $53 million for the nine months ended September 30, 2019, from approximately $63 million for the nine months ended September 30, 2018. Transportation expenses per Mcfe increased to $0.74 per Mcfe for the nine months ended September 30, 2019, from $0.68 per Mcfe for the nine months ended September 30, 2018. The increase in the rate per Mcfe is primarily driven by changes in the Company’s asset base as a result of divestitures in the first quarter of 2018 as well as lower volumes in Hugoton due to the election to reject ethane.
Marketing Expenses
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Jayhawk Plant |
|
$ |
33,446 |
|
|
$ |
60,158 |
|
|
$ |
(26,712 |
) |
Other |
|
|
2,122 |
|
|
|
2,851 |
|
|
|
(729 |
) |
|
|
$ |
35,568 |
|
|
$ |
63,009 |
|
|
$ |
(27,441 |
) |
Marketing expenses represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing expenses decreased by approximately $27 million or 44% to approximately $36 million for the nine months ended September 30, 2019, from approximately $63 million for the nine months ended September 30, 2018. The decrease was primarily due to third party take-in-kind elections.
47
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Severance and Ad Valorem Taxes
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance taxes |
|
$ |
6,120 |
|
|
$ |
10,391 |
|
|
$ |
(4,271 |
) |
Ad valorem taxes |
|
|
9,962 |
|
|
|
11,421 |
|
|
|
(1,459 |
) |
|
|
$ |
16,082 |
|
|
$ |
21,812 |
|
|
$ |
(5,730 |
) |
Severance taxes, which are a function of revenues generated from production, decreased primarily due to lower production volumes due to divestitures completed in 2018 and 2019. Ad valorem taxes, which are based on the value of reserves and production equipment and vary by location, decreased primarily due to divestitures completed in 2018 and 2019.
Field Level Cash Flow
Field level cash flow decreased by approximately $74 million or 46% to approximately $86 million for the nine months ended September 30, 2019, from approximately $160 million for the nine months ended September 30, 2018. The decrease was primarily due to the divestitures completed in 2018 and 2019 and lower commodity prices.
Blue Mountain Reporting Segment
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing revenues |
|
$ |
119,705 |
|
|
$ |
85,855 |
|
|
$ |
33,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
90,817 |
|
|
|
82,222 |
|
|
|
8,595 |
|
Severance taxes and ad valorem taxes |
|
|
2,026 |
|
|
|
714 |
|
|
|
1,312 |
|
Total direct operating expenses |
|
|
92,843 |
|
|
|
82,936 |
|
|
|
9,907 |
|
Field level cash flow (1) |
|
$ |
26,862 |
|
|
$ |
2,919 |
|
|
$ |
23,943 |
|
(1) |
Refer to Note 17 for a reconciliation of field level cash flow to income from continuing operations before income taxes. |
Marketing Revenues
Marketing revenues increased by approximately $34 million or 39% to approximately $120 million for the nine months ended September 30, 2019, from approximately $86 million for the nine months ended September 30, 2018. The increase was due to higher throughput volumes sold related to the commissioning of the cryogenic natural gas processing facility starting at the end of the second quarter of 2018 and water related services in 2019, partially offset by a decrease in prices during 2019 and lower throughput volumes sold as the production was temporarily shut-in by our primary customer during the three months ended September 30, 2019.
Average daily throughput volumes increased to approximately 117 MMcf/d for the nine months ended September 30, 2019, from 82 MMcf/d for the nine months ended September 30, 2018.
Marketing Expenses
Marketing expenses increased by approximately $9 million 10% to approximately $91 million for the nine months ended September 30, 2019, from approximately $82 million for the nine months ended September 30, 2018. The increase was due to higher throughput volumes purchased related to the commissioning of the cryogenic natural gas processing facility starting at the end of the second quarter of 2018 and water related services in 2019, partially offset by a decrease in prices during 2019 and lower throughput volumes purchased as the production was temporarily shut-in by our primary customer during the three months ended September 30, 2019.
48
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Field Level Cash Flow
Field level cash flow increased by approximately $24 million to approximately $27 million for the nine months ended September 30, 2019, from approximately $3 million for the nine months ended September 30, 2018. The increase was due to increased throughput volumes and the operations of the commissioning of the cryogenic natural gas processing facility at the end of the second quarter of 2018 and water related services in 2019, partially offset by lower prices during 2019 and lower throughput volumes sold and purchased as the production was temporarily shut-in by our primary customer during the three months ended September 30, 2019.
Indirect Income and Expenses Not Allocated to Segments
Gains (Losses) on Commodity Derivatives
Gains on commodity derivatives were approximately $13 million for the nine months ended September 30, 2019, compared to losses of $26 million for the nine months ended September 30, 2018, representing a variance of approximately $39 million. Gains on commodity derivatives were primarily due to changes in fair value of the derivative contracts. The fair value on unsettled derivative contracts changes as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increase compared to the contract prices on the derivatives, losses are recognized; and if the expected future commodity prices decrease compared to the contract prices on the derivatives, gains are recognized.
The Company determines the fair value of its commodity derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. See Item 3. “Quantitative and Qualitative Disclosures About Market Risk” and Note 7 and Note 8 for additional details about the Company’s commodity derivatives. For information about the Company’s credit risk related to derivative contracts, see “Counterparty Credit Risk” under “Liquidity and Capital Resources” below.
General and Administrative Expenses
General and administrative expenses are costs not directly associated with field operations and reflect the costs of employees including executive officers, related benefits, office leases and professional fees. General and administrative expenses decreased by approximately $179 million or 78% to approximately $49 million for the nine months ended September 30, 2019, from approximately $228 million for the nine months ended September 30, 2018. The decrease was primarily due to lower share-based compensation expenses, lower severance costs and lower salaries and benefits related expenses due to lower headcount partially offset by lower transition service fees recorded as a reduction of general and administrative expenses during the nine months ended September 30, 2018. General and administrative expenses per Mcfe decreased to $0.69 per Mcfe for the nine months ended September 30, 2019, from $2.47 per Mcfe for the nine months ended September 30, 2018.
For the professional services expenses related to the Chapter 11 proceedings, see “Reorganization Items, Net.”
Exploration Costs
Exploration costs remaining consistent at approximately $4 million for both the nine months ended September 30, 2019, and September 30, 2018.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization decreased by approximately $7 million or 10% to approximately $65 million for the nine months ended September 30, 2019, from approximately $72 million for the nine months ended September 30, 2018. The decrease was primarily due to lower total production volumes, partially offset by Blue Mountain’s increase in depreciation expense related to the commissioning of the cryogenic natural gas processing facility at the end of the second quarter of 2018 and related compression and gathering systems. Depreciation, depletion and amortization per Mcfe increased to $0.90 per Mcfe for the nine months ended September 30, 2019, from $0.78 per Mcfe for the nine months ended September 30, 2018.
Impairment of Assets Held for Sale
During the nine months ended September 30, 2019, the Company recorded noncash impairment charges of approximately $113 million to reduce the carrying value of its assets held for sale located in the Hugoton Basin and the Michigan Assets Sale.
49
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
(Gains) Losses on Sale of Assets and Other, Net
During the nine months ended September 30, 2019, the Company recorded a net gain of approximately $27 million on divestitures (see Note 3):
|
• |
Net gain of approximately $4 million on the sale of its interest in properties located in Illinois; |
|
• |
Net loss of approximately $10 million on the sale of its interest in non-operated properties in the Hugoton Basin; |
|
• |
Net gain of approximately $28 million on the Arkoma Assets Sale; and |
|
• |
Net gain of approximately $5 million as a contingent payment was received for operational requirements related to sale of properties located in the Los Angeles Basin in California in the third quarter of 2017. |
During the nine months ended September 30, 2018, the Company recorded the following amounts related to divestitures (see Note 3):
|
• |
Net gain of approximately $12 million on the New Mexico Assets Sale; |
|
• |
Net gain of approximately $83 million, including costs to sell of approximately $2 million, on the Altamont Bluebell Assets Sale; |
|
• |
Net gain of approximately $54 million, including costs to sell of approximately $2 million, on the West Texas Assets Sale; and |
|
• |
Net gain of approximately $46 million, including costs to sell of approximately $1 million, on the Oklahoma and Texas Assets Sale. |
Other Income and (Expenses)
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
Variance |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of amounts capitalized |
|
$ |
(5,403 |
) |
|
$ |
(1,582 |
) |
|
$ |
(3,821 |
) |
Other, net |
|
|
(708 |
) |
|
|
473 |
|
|
|
(1,181 |
) |
|
|
$ |
(6,111 |
) |
|
$ |
(1,109 |
) |
|
$ |
(5,002 |
) |
Interest expense increased primarily due to higher debt outstanding. For the nine months ended September 30, 2018, interest expense is primarily related to amortization of financing fees. See “Debt” under “Liquidity and Capital Resources” below for additional details. For the nine months ended September 30, 2019, “other, net” is primarily related to writing off a portion of the unamortized deferred financing fees of approximately $700,000 and commitment fees for the undrawn portion of the Credit Facilities, partially offset by interest and rental income.
Reorganization Items, Net
The Company incurred significant costs and recognized significant gains associated with the reorganization of the Company in connection with the Chapter 11 proceedings during 2016 and 2017. Reorganization items represent costs directly associated with the Chapter 11 proceedings since the petition date. During the nine months ended September 30, 2019, and September 30, 2018, reorganization items were approximately less than $1 million and $4 million, respectively, primarily related to legal and other professional fees.
Income Tax Expense
The Company recognized an income tax expense of approximately $129 million compared to $25 million for the nine months ended September 30, 2019, and September 30, 2018, respectively. At September 30, 2019, and for the first time since Riviera’s inception, the Company’s earnings show a cumulative loss which is primarily due to losses generated during the third quarter of 2019. Based on the cumulative loss and projections of future taxable income for the periods in which our deferred tax assets are deductible, the Company recorded a full valuation allowance of approximately $127 million to reduce its federal and state net deferred tax assets to an amount that is more likely than not to be realized.
50
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Income from Discontinued Operations, Net of Income Taxes
As a result of the Company’s internal reorganization in connection with the Spin-off, the equity interest in Roan was distributed to the Parent on the Reorganization Date and is no longer affiliated with Riviera. As such, the Company has classified the equity earnings in Roan as discontinued operations. Income from discontinued operations, net of income taxes was approximately $20 million for the nine months ended September 30, 2018. See Note 3 for additional information.
Net (Loss) Income
Net (loss) income decreased by approximately $250 million to a net loss of approximately $220 million for the nine months ended September 30, 2019, from net income of approximately $30 million for the nine months ended September 30, 2018. The decrease was primarily due to a noncash impairment charge recorded to the Company’s Hugoton Basin and the Michigan Asset Sale, a valuation allowance, assets held for sale, lower production revenue, lower gains on sales of assets and lower commodity revenues, partially offset by lower expenses and gains on commodity derivatives during the nine months ended September 30, 2019. See discussion above for explanations of variances.
Liquidity and Capital Resources
The Company’s sources of cash have primarily consisted of proceeds from divestitures of oil and natural gas properties, net cash provided by operating activities and borrowings under the Blue Mountain Credit Facility. As a result of divesting certain oil and natural gas properties during the nine months ended September 30, 2019, the Company received approximately $178 million in net cash proceeds. The Company has also used its cash to fund capital expenditures, principally for the development of its oil and natural gas properties, and plant and pipeline construction, the Parent’s repurchases of LINN Energy, Inc. Class A common stock prior to the Spin-off, and repurchases of Riviera’s common stock subsequent to the Spin-off. Based on current expectations, the Company believes its liquidity and capital resources will be sufficient to conduct its business and operations.
Statements of Cash Flows
The following is a comparative cash flow summary:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
|
|
(in thousands) |
|
|||||
Net cash: |
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
87,843 |
|
|
$ |
(27,520 |
) |
Net cash provided by investing activities |
|
|
24,431 |
|
|
|
201,733 |
|
Net cash used in financing activities |
|
|
(33,133 |
) |
|
|
(511,088 |
) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
$ |
79,141 |
|
|
$ |
(336,875 |
) |
Operating Activities
Cash provided by operating activities was approximately $88 million for the nine months ended September 30, 2019, compared to cash used of approximately $28 million for the nine months ended September 30, 2018, respectively.
51
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Investing Activities
The following provides a comparative summary of cash flow from investing activities:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
|
|
(in thousands) |
|
|||||
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
(150,096 |
) |
|
$ |
(172,353 |
) |
Acquisition of property, plant and equipment |
|
|
(3,380 |
) |
|
|
— |
|
Proceeds from sale of properties and equipment and other |
|
|
177,907 |
|
|
|
367,086 |
|
Net cash provided by investing activities — continuing operations |
|
|
24,431 |
|
|
|
194,733 |
|
Net cash provided by investing activities — discontinued operations |
|
|
— |
|
|
|
7,000 |
|
Net cash provided by investing activities |
|
$ |
24,431 |
|
|
$ |
201,733 |
|
The primary use of cash in investing activities is for the development of the Company’s oil and natural gas properties and construction of Blue Mountain Midstream’s cryogenic natural gas processing facility, water facilities and related compression and gathering systems. Capital expenditures decreased primarily due to lower spending on plant and pipeline construction related to Blue Mountain Midstream partially offset by higher oil and natural gas capital spending. The Company made no material acquisitions of properties during the nine months ended September 30, 2019, or September 30, 2018.
Proceeds from sale of properties and equipment and other for the nine months ended September 30, 2019, include cash proceeds received of approximately $59 million (excluding a deposit of approximately $5 million received in 2018) from the Arkoma Assets Sale, approximately $31 million from the sale of non-operated properties in the Hugoton Basin approximately $36 million from the Michigan Assets Sale, approximately $4 million from the sale of its interest in properties located in Illinois and approximately $17 million from Blue Mountain’s agreement with customer. Proceeds from sale of properties and equipment and other for the nine months ended September 30, 2018, include cash proceeds received of approximately $109 million from the West Texas Assets Sale, approximately $97 million (excluding a deposit of approximately $12 million received in 2017) from the Oklahoma and Texas Assets Sale, approximately $134 million related to the Altamont Bluebell Assets Sale and approximately $14 million related to the New Mexico Assets Sale.
See below for details regarding accrued and paid capital expenditures for the periods presented:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
Oil and natural gas |
|
$ |
59,503 |
|
|
$ |
24,657 |
|
Plant and pipeline |
|
|
78,480 |
|
|
|
117,419 |
|
Other |
|
|
2,647 |
|
|
|
827 |
|
Capital expenditures, excluding acquisitions |
|
$ |
140,630 |
|
|
$ |
142,903 |
|
The decrease in capital expenditures was primarily due to lower plant and pipeline construction activities associated with Blue Mountain Midstream, partially offset by higher oil and natural gas development activities. For 2019, the Company estimates its total capital expenditures, excluding acquisitions, will be approximately $175 million, including approximately $66 million related to its oil and natural gas capital program and approximately $109 million related to Blue Mountain Midstream. This estimate is under continuous review and subject to ongoing adjustments.
52
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Financing Activities
Cash used in financing activities was approximately $33 million for the nine months ended September 30, 2019, compared to cash used of approximately $511 million for the nine months ended September 30, 2018, respectively. During the nine months ended September 30, 2019, the primary uses of cash by financing activities were repurchases of shares and repayments under the Riviera Credit Facility, partially offset by borrowings under the Blue Mountain Credit Facility. During the nine months ended September 30, 2018, prior to the Spin-off, the primary use of cash in financing activities was transfers to the Parent to fund repurchases of the Parent’s common stock and settlement of the Parent’s restricted stock units (see Note 12). Since the Spin-off, the primary use of cash in financing activities was fore repurchases of Riviera’s common stock.
The following provides a comparative summary of proceeds from borrowings and repayments of debt:
|
Nine Months Ended September 30, 2019 |
|
|
|
(in thousands) |
|
|
Proceeds from borrowings: |
|
|
|
Blue Mountain Credit Facility |
$ |
60,900 |
|
|
$ |
60,900 |
|
Repayments of debt: |
|
|
|
Riviera Credit Facility |
$ |
(20,000 |
) |
Blue Mountain Credit Facility |
|
(4,300 |
) |
|
$ |
(24,300 |
) |
Debt
At October 31, 2019, there were no borrowings outstanding and approximately $57 million of available borrowing capacity under the Riviera Credit Facility (which includes a $33 million reduction for outstanding letters of credit). At October 31, 2019, total borrowings outstanding under the Blue Mountain Credit Facility were approximately $61 million and there was approximately $126 million of available borrowing capacity (which includes a $13 million reduction for outstanding letters of credit).
For additional information related to the Company’s debt, see Note 6.
Counterparty Credit Risk
The Company accounts for its commodity derivatives at fair value. The Company’s counterparties are participants in the Credit Facilities or were participants prior to the amendment to the Riviera Credit Facility on September 27, 2019. The Credit Facilities are secured by certain of the Company’s and its subsidiaries’ oil, natural gas and NGL reserves and personal property; therefore, the Company is not required to post any collateral. The Company does not receive collateral from its counterparties. The Company minimizes the credit risk in derivative instruments by: (i) limiting its exposure to any single counterparty; (ii) entering into derivative instruments only with counterparties that meet the Company’s minimum credit quality standard, or have a guarantee from an affiliate that meets the Company’s minimum credit quality standard; and (iii) monitoring the creditworthiness of the Company’s counterparties on an ongoing basis. In accordance with the Company’s standard practice, its commodity derivatives are subject to counterparty netting under agreements governing such derivatives and therefore the risk of loss due to counterparty nonperformance is somewhat mitigated.
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.
As a C corporation, distributions to common shareholders of current or accumulated earnings and profits are qualified dividends eligible for the 23.8% maximum federal income tax rate, inclusive of the 3.8% Medicare tax rate applicable to net investment income. Any distributions in excess of current or accumulated earnings and profits would be reported as returns of capital instead of qualified dividends. Distributions that are classified as returns of capital are nontaxable to the extent
53
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
they do not exceed a shareholder’s adjusted tax basis in the Company’s stock, or as a capital gain to the extent that the amount of the distribution exceeds a shareholder’s adjusted tax basis in the Company’s stock. As of September 30, 2019, the Company estimates it will have zero current and accumulated earnings and profits for the tax year ended December 31, 2019.
Under the Foreign Investment in Real Property Tax Act, non-U.S. persons who hold (or have held, during a certain measuring period) more than 5% of the Company’s stock will be subject to withholding at a 15% rate on the full amount of the distribution. If the Company makes distributions, it may take steps to determine the extent to which the Company, or potentially other withholding agents, will be required to withhold from any such distributions.
Contingencies
See Part II. Item 1. “Legal Proceedings” for information regarding legal proceedings that the Company is party to and any contingencies related to these legal proceedings.
Off-Balance Sheet Arrangements
The Company enters into certain off-balance sheet arrangements and transactions, including short-term operating lease arrangements and undrawn letters of credit. In addition, the Company enters into other contractual agreements in the normal course of business for processing and transportation as well as for other oil and natural gas activities. Other than the items discussed above, there are no other arrangements, transactions or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect the Company’s liquidity or capital resource positions.
Commitments and Contractual Obligations
The Company has long-term debt, asset retirement obligations, operating leases and commodity derivative liabilities that were summarized in the table of commitments and contractual obligations in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018. With the exception of borrowings and repayments of the Company’s debt obligations, there have been no other significant changes to the Company’s obligations since December 31, 2018. For additional information related to the Company’s debt, see Note 6.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company’s financial condition and results of operations is based on the condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that are believed to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. Actual results may differ from these estimates and assumptions used in the preparation of the financial statements.
Recently Issued Accounting Standards
For a discussion of recently issued accounting standards, see Note 1.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond the Company’s control. These statements may include discussions about the Company’s:
|
• |
business strategy; |
|
• |
acquisition and disposition strategy; |
|
• |
financial strategy; |
|
• |
ability to comply with the covenants with the credit facilities; |
54
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
|
• |
effects of legal proceedings; |
|
• |
drilling locations; |
|
• |
oil, natural gas and NGL reserves; |
|
• |
realized oil, natural gas and NGL prices; |
|
• |
production volumes; |
|
• |
capital expenditures; |
|
• |
economic and competitive advantages; |
|
• |
credit and capital market conditions; |
|
• |
regulatory changes; |
|
• |
lease operating expenses, general and administrative expenses and development costs; |
|
• |
future operating results; |
|
• |
plans, objectives, expectations and intentions; and |
|
• |
taxes. |
All of these types of statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, are forward-looking statements. These forward-looking statements may be found in Item 2. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are largely based on Company expectations, which reflect estimates and assumptions made by Company management. These estimates and assumptions reflect management’s best judgment based on currently known market conditions and other factors. Although the Company believes such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties beyond its control. In addition, management’s assumptions may prove to be inaccurate. The Company cautions that the forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance, and it cannot assure any reader that such statements will be realized or the events will occur. Actual results may differ materially from those anticipated or implied in forward-looking statements due to factors set forth under the caption “Risk Factors” in this Quarterly Report on Form 10‑Q and in the Annual Report on Form 10‑K for the year ended December 31, 2018, and elsewhere in the Annual Report. The forward-looking statements speak only as of the date made and, other than as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
The Company’s primary market risk is attributable to fluctuations in commodity prices. This risk can affect the Company’s business, financial condition, operating results and cash flows. See below for quantitative and qualitative information about this risk.
The following should be read in conjunction with the financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018. The reference to a “Note” herein refers to the accompanying Notes to Condensed Consolidated Financial Statements contained in Item 1. “Financial Statements.”
Commodity Price Risk
The Company’s most significant market risk relates to prices of oil, natural gas and NGL. The Company expects commodity prices to remain volatile and unpredictable. As commodity prices decline or rise significantly, revenues and marketing expenses and cash flows are likewise affected. In addition, future declines in commodity prices may result in noncash write-downs of the Company’s carrying amounts of its assets.
The Company hedges a portion of its forecasted production to reduce exposure to fluctuations in oil and natural gas prices and provide long-term cash flow predictability to manage its business. The Company does not enter into derivative contracts for trading purposes. The appropriate level of production to be hedged is an ongoing consideration based on a variety of factors, including among other things, current and future expected commodity market prices, the Company’s overall risk profile, including leverage and size and scale considerations, as well as any requirements for or restrictions on levels of
55
hedging contained in any credit facility or other debt instrument applicable at the time. In addition, when commodity prices are depressed and forward commodity price curves are flat or in backwardation, the Company may determine that the benefit of hedging its anticipated production at these levels is outweighed by its resultant inability to obtain higher revenues for its production if commodity prices recover during the duration of the contracts. As a result, the appropriate percentage of production volumes to be hedged may change over time.
At September 30, 2019, the fair value of fixed price swaps and collars was a net asset of approximately $9 million. A 10% increase in the NYMEX WTI oil, NYMEX Henry Hub natural gas and NGL prices above the September 30, 2019, prices would result in a net asset of approximately $3 million, which represents a decrease in the fair value of approximately $6 million; conversely, a 10% decrease in the NYMEX oil and Henry Hub natural gas and NGL prices below the September 30, 2019, prices would result in a net asset of approximately $15 million, which represents an increase in the fair value of approximately $6 million.
At December 31, 2018, the fair value of fixed price swaps and collars was a net asset of approximately $17 million. A 10% increase in the NYMEX WTI oil and NYMEX Henry Hub natural gas prices above the December 31, 2018, prices would result in a net liability of approximately $4 million, which represents a decrease in the fair value of approximately $21 million; conversely, a 10% decrease in the NYMEX oil and Henry Hub natural gas prices below the December 31, 2018, prices would result in a net asset of approximately $38 million, which represents an increase in the fair value of approximately $21 million.
The Company determines the fair value of its commodity derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. Inputs to the pricing models include publicly available prices and forward price curves generated from a compilation of data gathered from third parties. Company management validates the data provided by third parties by understanding the pricing models used, obtaining market values from other pricing sources, analyzing pricing data in certain situations and confirming that those instruments trade in active markets.
The prices of oil, natural gas and NGL have been extremely volatile, and the Company expects this volatility to continue. Prices for these commodities may fluctuate widely in response to relatively minor changes in the supply of and demand for such commodities, market uncertainty, including regional conditions and a variety of additional factors that are beyond its control. Actual gains or losses recognized related to the Company’s derivative contracts depend exclusively on the price of the commodities on the specified settlement dates provided by the derivative contracts. Additionally, the Company cannot be assured that its counterparties will be able to perform under its derivative contracts. If a counterparty fails to perform and the derivative arrangement is terminated, the Company’s cash flows could be impacted.
Interest Rate Risk
At September 30, 2019, the Company had debt outstanding under the Credit Facilities of $61.1 million in the aggregate which debt incurred interest at floating rates. A 1% increase in the respective market rates would result in an estimated $611,000 increase in annual interest expense.
At December 31, 2018, the Company had debt outstanding under the Credit Facilities of $24.5 million in the aggregate which debt incurred interest at floating rates. A 1% increase in the respective market rates would result in an estimated $245,000 increase in annual interest expense.
Item 4. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, and the Company’s Audit Committee of the Board of Directors, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
56
desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company carried out an evaluation under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2019.
Changes in the Company’s Internal Control Over Financial Reporting
The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal controls were designed to provide reasonable assurance as to the reliability of its financial reporting and the preparation and presentation of the condensed consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the U.S.
Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
There were no changes in our internal control over financial reporting that occurred during the third quarter of 2019 that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.
57
Part II – Other Information
Item 1. |
Legal Proceedings |
On May 11, 2016, Linn Energy, LLC, certain of its direct and indirect subsidiaries, and LinnCo, LLC (collectively, the “LINN Debtors”) and Berry Petroleum Company, LLC (“Berry” and collectively with the LINN Debtors, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Debtors’ Chapter 11 cases were administered jointly under the caption In re Linn Energy, LLC, et al., Case No. 16‑60040. On January 27, 2017, the Bankruptcy Court entered an order approving and confirming the plan (the “Plan”) of reorganization of the Debtors (the “Confirmation Order”). Consummation of the Plan was subject to certain conditions set forth in the Plan. On February 28, 2017, all of the conditions were satisfied or waived and the Plan became effective and was implemented in accordance with its terms. On September 27, 2018, the Bankruptcy Court closed the LINN Debtors’ Chapter 11 cases, but retained jurisdiction as provided in the Confirmation Order, including to potentially reopen the Chapter 11 cases if certain matters currently on appeal in the U.S. Court of Appeals for the Fifth Circuit (the “Fifth Circuit”) are overturned, including the Default Interest Appeal (as defined below).
The commencement of the Chapter 11 proceedings automatically stayed certain actions against the Company, including actions to collect prepetition liabilities or to exercise control over the property of the Company’s bankruptcy estates. However, the Company is, and will continue to be until the final resolution of all claims, subject to certain contested matters and adversary proceedings stemming from the Chapter 11 proceedings, which are not affected by the closure of the LINN Debtors’ Chapter 11 cases.
On March 17, 2017, Wells Fargo Bank, National Association (“Wells Fargo”), the administrative agent under Linn Energy, Inc.’s credit facility, filed a motion in the Bankruptcy Court seeking payment of post-petition default interest of approximately $31 million. The Company has vigorously disputed that Wells Fargo is entitled to any default interest based on the plain language of the Plan and Confirmation Order. On November 13, 2017, the Bankruptcy Court ruled that the secured lenders are not entitled to payment of post-petition default interest. That ruling was appealed by Wells Fargo and on March 29, 2018, the U.S. District Court for the Southern District of Texas (the “District Court”) affirmed the Bankruptcy Court’s ruling. On April 30, 2018, the Bankruptcy Court approved the substitution of UMB Bank, National Association (“UMB Bank”) as successor to Wells Fargo as administrative agent under Linn Energy, Inc.’s credit facility. UMB Bank then immediately filed a notice of appeal to the Fifth Circuit from the decision by the District Court to affirm the decision of the Bankruptcy Court (the “Default Interest Appeal”). The Fifth Circuit heard oral arguments on February 6, 2019, and, on June 12, 2019, affirmed the rulings of the Bankruptcy Court and District Court that UMB Bank, as the successor to Wells Fargo, was not entitled to post-petition default interest. On July 12, 2019, UMB Bank filed a petition for rehearing and rehearing en banc with the Fifth Circuit, but these petitions were denied by the Fifth Circuit on August 5, 2019. The Company has no indication of whether UMB Bank will file an additional appeal with the Supreme Court of the United States.
The Company is not currently a party to any litigation or pending claims that it believes would have a material adverse effect on its overall business, financial position, results of operations or liquidity; however, cash flow could be significantly impacted in the reporting periods in which such matters are resolved.
Item 1A. |
Risk Factors |
Our business has many risks. Factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our shares are described under the caption “Risk Factors” in our Annual Report on Form 10‑K for the year ended December 31, 2018. This information should be considered carefully, together with other information in this report and other reports and materials we file with the U.S. Securities and Exchange Commission.
Electricity prices are volatile and we may be unable to maintain stable and favorable prices and may not be able to obtain stable or favorable prices in the future, which may have a significant impact on our financial condition and results of operations.
Because our Blue Mountain segment relies on electricity for many of its operations, electricity prices are an important driver of its operating expenses. Recent dispositions of assets in our upstream reporting segment have caused our Blue Mountain reporting segment to comprise a larger portion of our portfolio. As a result, the prices at which our Blue Mountain segment is able to obtain electricity continues to have an increasingly significant impact on our consolidated operating costs and profitability. Although we enter into long-term contracts for electricity, regulatory changes, changes in interpretation of laws or other events may make it difficult for us to maintain favorable or stable electricity prices for our Blue Mountain segment and have an adverse effect on our results of operations.
58
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
The Company’s Board of Directors has authorized the repurchase of up to $100 million of the Company’s outstanding shares of common stock. On July 18, 2019, the Company’s Board of Directors authorized an increase to the $100 million repurchase program to a total of up to $150 million. Purchases may be made from time to time in negotiated purchases or in the open market, including through Rule 10b5-1 prearranged stock trading plans designed to facilitate the repurchase of the Company’s shares during times it would not otherwise be in the market due to self-imposed trading blackout periods or possible possession of material nonpublic information. The timing and amounts of any such repurchases of shares will be subject to market conditions and certain other factors, and will be in accordance with applicable securities laws and other legal requirements, including restrictions contained in the Company’s then current credit facility. The repurchase plan does not obligate the Company to acquire any specific number of shares and may be discontinued at any time.
The following sets forth information with respect to the Company’s repurchases of shares of Riviera common stock during the third quarter of 2019.
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid Per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1 – 31 |
|
|
325,533 |
|
|
$ |
10.90 |
|
|
|
325,533 |
|
|
$ |
50,538 |
|
August 1 – 31 |
|
|
1,933,794 |
|
|
$ |
10.58 |
|
|
|
1,933,794 |
|
|
|
30,072 |
|
September 1 – 30 |
|
|
68,089 |
|
|
$ |
13.19 |
|
|
|
68,089 |
|
|
|
29,174 |
|
Total |
|
|
2,327,416 |
|
|
$ |
10.70 |
|
|
|
2,327,416 |
|
|
|
|
|
Item 3. |
Defaults Upon Senior Securities |
None
Item 4. |
Mine Safety Disclosures |
Not applicable
Item 5. |
Other Information |
None
59
Item 6.Exhibits
Exhibit Number |
|
|
Description |
|
|
|
|
10.1*† |
— |
|
|
|
|
|
|
10.2 |
— |
|
|
|
|
|
|
31.1* |
— |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
|
|
|
|
31.2* |
— |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
|
|
|
|
32.1* |
— |
|
|
|
|
|
|
32.2* |
— |
|
|
|
|
|
|
101.INS* |
— |
|
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
|
101.SCH* |
— |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
|
101.CAL* |
— |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
101.DEF* |
— |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
101.LAB* |
— |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
101.PRE* |
— |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
* |
Filed herewith. |
† |
Certain schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish a supplemental copy of any omitted schedule or attachment to the Securities and Exchange Commission upon request. |
60
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
RIVIERA RESOURCES, INC. |
|
|
(Registrant) |
|
|
|
Date: November 7, 2019 |
|
/s/ Darren R. Schluter |
|
|
Darren R. Schluter |
|
|
Executive Vice President, Finance, Administration and |
|
|
(Duly Authorized Officer and Principal Accounting Officer) |
61
Exhibit 10.1
Execution Version
Purchase and Sale Agreement
Dated August 28, 2019,
By And Between
Riviera Upstream, LLC and Riviera Operating, LLC
as Seller,
And
Scout Energy Group V, LP
as Buyer
ARTICLE 2 SALE AND TRANSFER OF ASSETS; CLOSING |
19 |
|
2.01 |
Assets.19 |
|
|
2.02 |
Purchase Price; Deposit.19 |
|
|
2.03 |
Closing; Preliminary Settlement Statement.20 |
|
|
2.04 |
Closing Obligations.20 |
|
|
2.05 |
Allocations and Adjustments.21 |
|
|
2.06 |
Assumption.25 |
|
|
2.07 |
Allocation of Purchase Price.26 |
|
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER |
26 |
|
3.01 |
Organization and Good Standing.26 |
|
|
3.02 |
Authority; No Conflict.26 |
|
|
3.03 |
Bankruptcy.27 |
|
|
3.04 |
Taxes.28 |
|
|
3.05 |
Legal Proceedings.28 |
|
|
3.06 |
Brokers.29 |
|
|
3.07 |
Compliance with Legal Requirements.29 |
|
|
3.08 |
Prepayments.29 |
|
|
3.09 |
Imbalances.29 |
|
|
3.10 |
Material Contracts.29 |
|
|
3.11 |
Consents and Preferential Purchase Rights.30 |
|
|
3.12 |
Permits30 |
|
|
3.13 |
Current Commitments.30 |
|
|
3.14 |
Plant Personal Property Condition30 |
|
|
3.15 |
Environmental Laws.30 |
|
|
3.16 |
Wells.30 |
|
|
3.17 |
Employee Benefits31 |
|
|
3.18 |
Knowledge Qualifier for Non-Operated Assets.31 |
|
|
3.19 |
Disclosures with Multiple Applicability; Materiality.31 |
|
|
3.20 |
Mayzure Organizational Documents31 |
|
|
3.21 |
Equity Interests31 |
|
|
3.22 |
No Undisclosed Liabilities32 |
|
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER |
32 |
|
4.01 |
Organization and Good Standing.32 |
|
|
4.02 |
Authority; No Conflict.32 |
|
|
4.03 |
Certain Proceedings.33 |
|
|
4.04 |
Knowledgeable Investor.33 |
|
|
4.05 |
Qualification.33 |
|
|
4.06 |
Brokers.33 |
|
|
4.07 |
Financial Ability.34 |
|
|
4.08 |
Securities Laws.34 |
|
i
|
4.10 |
Basis of Buyer’s Decision.34 |
|
|
4.11 |
Business Use, Bargaining Position.35 |
|
|
4.12 |
Bankruptcy.35 |
|
ARTICLE 5 COVENANTS OF SELLER |
35 |
|
5.01 |
Access and Investigation.35 |
|
|
5.02 |
Operation of the Assets.36 |
|
|
5.03 |
Insurance.37 |
|
|
5.04 |
Consent and Waivers.37 |
|
|
5.05 |
Amendment to Schedules.37 |
|
|
5.06 |
Successor Operator.37 |
|
ARTICLE 6 OTHER COVENANTS |
38 |
|
6.01 |
Notification and Cure.38 |
|
|
6.02 |
Satisfaction of Conditions.38 |
|
|
6.03 |
Replacement of Insurance, Bonds, Letters of Credit, and Guaranties.38 |
|
|
6.04 |
Governmental Reviews.39 |
|
|
6.05 |
HSR Act.39 |
|
ARTICLE 7 CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE |
40 |
|
7.01 |
Accuracy of Representations.40 |
|
|
7.02 |
Seller’s Performance.40 |
|
|
7.03 |
No Proceedings.40 |
|
|
7.04 |
No Orders.40 |
|
|
7.05 |
Necessary Consents and Approvals.40 |
|
|
7.06 |
HSR Act.40 |
|
|
7.07 |
Closing Deliverables.41 |
|
|
7.08 |
Title Defect Values, Environmental Defect Values, etc41 |
|
|
7.09 |
Gathering Consents.41 |
|
ARTICLE 8 CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE |
41 |
|
8.01 |
Accuracy of Representations.41 |
|
|
8.02 |
Buyer’s Performance.41 |
|
|
8.03 |
No Proceedings.41 |
|
|
8.04 |
No Orders.41 |
|
|
8.05 |
Necessary Consents and Approvals.42 |
|
|
8.06 |
HSR Act.42 |
|
|
8.07 |
Closing Deliverables.42 |
|
|
8.08 |
Title Defect Values, Environmental Defect Values, etc42 |
|
|
8.09 |
Qualifications.42 |
|
|
8.10 |
Gathering Consents.42 |
|
ARTICLE 9 TERMINATION |
42 |
|
9.01 |
Termination Events.42 |
|
|
9.02 |
Effect of Termination; Distribution of the Deposit Amount.43 |
|
|
9.03 |
Return of Records Upon Termination.45 |
|
ii
|
10.01 |
Survival.45 |
|
|
10.02 |
Indemnification and Payment of Damages by Seller.45 |
|
|
10.03 |
Indemnification and Payment of Damages by Buyer.46 |
|
|
10.04 |
Indemnity Net of Insurance.47 |
|
|
10.05 |
Limitations on Liability.47 |
|
|
10.06 |
Procedure for Indemnification‑‑Third Party Claims.47 |
|
|
10.07 |
Procedure for Indemnification – Other Claims.48 |
|
|
10.08 |
Indemnification of Group Members.48 |
|
|
10.09 |
Extent of Representations and Warranties.49 |
|
|
10.10 |
Compliance With Express Negligence Test.50 |
|
|
10.11 |
Limitations of Liability.50 |
|
|
10.12 |
No Duplication.50 |
|
|
10.13 |
Disclaimer of Application of Anti-Indemnity Statutes.50 |
|
|
10.14 |
Waiver of Right to Rescission.50 |
|
ARTICLE 11 TITLE MATTERS AND ENVIRONMENTAL MATTERS; PREFERENTIAL PURCHASE RIGHTS; CONSENTS |
51 |
|
11.01 |
Title Examination and Access.51 |
|
|
11.02 |
Preferential Purchase Rights.51 |
|
|
11.03 |
Consents.51 |
|
|
11.04 |
Title Defects.52 |
|
|
11.05 |
Title Defect Value.53 |
|
|
11.06 |
Seller’s Cure or Contest of Title Defects.53 |
|
|
11.07 |
Limitations on Adjustments for Title Defects.54 |
|
|
11.08 |
Title Benefits.55 |
|
|
11.09 |
Buyer’s Environmental Assessment.56 |
|
|
11.10 |
Environmental Defect Notice.56 |
|
|
11.11 |
Seller’s Exclusion, Cure or Contest of Environmental Defects.56 |
|
|
11.12 |
Limitations.57 |
|
|
11.13 |
Exclusive Remedies.58 |
|
|
11.14 |
Casualty Loss and Condemnation58 |
|
|
11.15 |
Expert Proceedings.58 |
|
ARTICLE 12 EMPLOYMENT MATTERS |
60 |
|
12.01 |
Seller Benefit Plans60 |
|
|
12.02 |
Pre-Employee Start Date Claims under Seller Benefit Plans and Accrued Vacation Balances60 |
|
|
12.03 |
Available Employees’ Offers and Post-Employee Start Date Employment and Benefits60 |
|
|
12.04 |
Post-Employee Start Date Employment Claims62 |
|
|
12.05 |
Buyer Welfare Plans62 |
|
|
12.06 |
WARN Act62 |
|
|
12.07 |
No Third Party Beneficiary Rights62 |
|
ARTICLE 13 GENERAL PROVISIONS. |
63 |
|
13.01 |
Records.63 |
|
iii
|
13.03 |
Notices.65 |
|
|
13.04 |
Governing Law; Jurisdiction; Service of Process; Jury Waiver.66 |
|
|
13.05 |
Further Assurances.67 |
|
|
13.06 |
Waiver.67 |
|
|
13.07 |
Entire Agreement and Modification.67 |
|
|
13.08 |
Assignments, Successors, and No Third Party Rights.68 |
|
|
13.09 |
Severability.68 |
|
|
13.10 |
Article and Section Headings, Construction.68 |
|
|
13.11 |
Counterparts.69 |
|
|
13.12 |
Press Release.69 |
|
|
13.13 |
Confidentiality.69 |
|
|
13.14 |
Name Change.69 |
|
|
13.15 |
Preparation of Agreement.70 |
|
|
13.16 |
Appendices, Exhibits and Schedules.70 |
|
iv
EXHIBITS AND SCHEDULES
Exhibit A |
Leases |
Exhibit A-1 |
Fee Minerals |
Exhibit A-2 |
Processing Plants |
Exhibit A-3 |
Gathering System |
Exhibit A-4 |
Easements and Surface Interests |
Exhibit A-5 |
Real Property |
Exhibit B |
Wells |
Exhibit C |
Personal Property |
Exhibit D |
Vehicles |
Exhibit E |
Excluded Assets |
Exhibit F |
Form of Assignment and Bill of Sale |
Exhibit G |
Form of Certificates |
Exhibit H |
Form of Deed |
Exhibit I |
Available Employee Limits |
Exhibit J |
Form of Equity Interest Assignment |
Schedule 2.07 |
Allocation of Purchase Price |
Schedule 3.02(b) |
No Conflict |
Schedule 3.04 |
Taxes |
Schedule 3.05 |
Assumed Litigation and Retained Litigation |
Schedule 3.07 |
Compliance with Legal Requirements |
Schedule 3.09 |
Imbalances |
Schedule 3.10 |
Material Contracts |
Schedule 3.11 |
Consents and Preferential Purchase Rights |
Schedule 3.12 |
Permits |
Schedule 3.13 |
Current Commitments |
Schedule 3.15 |
Environmental Laws |
Schedule 3.17(a) |
Seller Benefit Plans |
Schedule 3.22 |
No Undisclosed Liabilities |
Schedule 5.02 |
Certain Authorized Pre-Closing Actions |
v
This PURCHASE AND SALE AGREEMENT (this “Agreement”) is made as of August 28, 2019 (the “Execution Date”), by and between Riviera Upstream, LLC, a Delaware limited liability company (“RUL”), and Riviera Operating, LLC, a Delaware limited liability company (“ROL”, and together with RUL, “Seller”), and Scout Energy Group V LP, a Texas limited partnership, (“Buyer”). Seller and Buyer are sometimes hereinafter referred to individually as a “Party” and collectively as the “Parties.”
RECITAL
Seller desires to sell, and Buyer desires to purchase, (a) all of Seller’s collective right, title and interest in and to certain oil and gas properties in the Hugoton Basin and related assets and contracts and (b) one hundred percent (100%) of the issued and outstanding shares of equity interests of Mayzure, LLC, a Delaware limited liability company (“Mayzure”), effective as of the Effective Time, for the consideration and on the terms set forth in this Agreement.
AGREEMENT
For and in consideration of the promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, agree as follows:
artcile 1
For purposes of this Agreement, in addition to other capitalized terms defined in this Agreement, the following terms have the meanings specified or referred to in this Article 1 when capitalized:
“AAA” – the American Arbitration Association.
“Accounting Expert” – as defined in Section 2.05(d).
“AFE” – as defined in Section 3.13.
“Affiliate” – with respect to a Party, any Person directly or indirectly controlled by, controlling, or under common control with, such Party, including any subsidiary of such Party and any “affiliate” of such Party within the meaning of Reg. §240.12b-2 of the Securities Exchange Act of 1934, as amended. As used in this definition, “control” means possession, directly or indirectly, of the power to direct or cause the direction of management, policies, or action through ownership of voting securities, contract, voting trust, or membership in management or in the group appointing or electing management or otherwise through formal or informal arrangements or business relationships. The terms “controlled by,” “controlling,” and other derivatives shall be construed accordingly.
“Aggregate Defect Deductible” – an amount equal to three percent (3%) of the unadjusted Purchase Price.
1
“Aggregate Environmental Defect Value” – as defined in Section 11.12.
“Aggregate Title Defect Value” – as defined in Section 11.07.
“Allocated Values” – the values assigned among the Assets as set forth on Schedule 2.07.
“Applicable Contracts” – all Contracts to which Seller is a party or is bound that primarily relate to any of the Assets and (in each case) that will be binding on Buyer after the Closing, including: communitization agreements; net profits agreements; production payment agreements; area of mutual interest agreements; joint venture agreements; confidentiality agreements; farmin and farmout agreements; bottom hole agreements; crude oil, condensate, and natural gas purchase and sale, gathering, transportation, and marketing agreements; hydrocarbon storage agreements; acreage contribution agreements; operating agreements; balancing agreements; pooling declarations or agreements; unitization agreements; processing agreements; saltwater disposal agreements; facilities or equipment leases; and other similar contracts and agreements, but exclusive of any master service agreements and Contracts relating to the Excluded Assets.
“Asset Taxes” – ad valorem, property, excise, severance, production, sales, real estate, use, personal property and similar Taxes (including any interest, fine, penalty or additions to tax imposed by Governmental Bodies in connection with such taxes) based upon the operation or ownership of the Assets and the assets of Mayzure, the production of Hydrocarbons or the receipt of proceeds therefrom, but excluding, for the avoidance of doubt, Income Taxes and Transfer Taxes.
“Assets” – all of Seller’s right, title, and interest in, to, and under the following, without duplication, except to the extent constituting Excluded Assets:
(a)all of the oil and gas leases and subleases described in Exhibit A or located within the Designated Area, together with any and all other right, title and interest of Seller in and to the leasehold estates created thereby subject to the terms, conditions, covenants and obligations set forth in such leases or Exhibit A (such interest in such leases, the “Leases”), all related rights and interests in the lands covered by the Leases and any lands pooled or unitized therewith (such lands, the “Lands”), and all Royalties applicable to the Leases and the Lands;
(b)any and all oil, gas, water, observation, injection, CO2 and disposal wells located on any of the Lands or located within the Designated Area, whether producing, shut-in, or temporarily abandoned, (such interest in such wells, including the wells set forth in Exhibit B, the “Wells”), and all Hydrocarbons produced therefrom or allocated thereto from and after the Effective Time;
(c)all fee mineral interests related to or located on the Lands or located within the Designated Area, including those described on Exhibit A-1, (such interests the “Fee Minerals”);
(d)all rights and interests in, under or derived from all unitization and pooling agreements, declarations and orders in effect with respect to any of the Leases or Wells and the units created thereby, (the “Units” and together with the Leases, the Lands, the Wells, and the Fee Minerals, the “Properties” or individually, a “Property”);
2
(e)all rights and interest in the Jayhawk plant, as described on Exhibit A-2 (the “Jayhawk Plant”) and the Satanta gas plant, as described on Exhibit A-2 (the “Satanta Plant” and, together with the Jayhawk Plant, the “Processing Plants”);
(f)all pipelines and gathering systems used solely in connection with the Properties or located within the Designated Area, including the “Gathering System” as described on Exhibit A-3;
(g)to the extent that they may be assigned, transferred or re-issued by Seller (with consent, if applicable, but without the payment of any fee unless Buyer agrees in writing to pay such fee), all permits, licenses, allowances, water rights, registrations, consents, orders, approvals, variances, authorizations, servitudes, easements, rights-of-way, surface leases, other surface interests and surface rights to the extent appurtenant to or used primarily in connection with the ownership, operation, production, gathering, treatment, processing, storing, sale or disposal of Hydrocarbons or produced water from the Properties, the Gathering System, or any of the Assets, including those described on Exhibit A-4;
(h)all equipment, machinery, fixtures and other personal, movable and mixed property located on any of the Properties, the Gathering System, the Processing Plants, or other Assets that is used primarily in connection therewith, including those items listed on Exhibit C, and including well equipment, casing, tubing, pumps, motors, machinery, platforms, rods, tanks, boilers, fixtures, compression equipment, flowlines, pipelines, gathering systems associated with the Wells, manifolds, processing and separation facilities, pads, structures, materials, and other items primarily used in the operation thereof (collectively, the “Personal Property”);
(i)the real property described on Exhibit A-5 and any Personal Property located thereon;
(j)all vehicles described on Exhibit D, subject to Seller’s right to remove any of the vehicles from Exhibit D assigned to any Available Employees who are not made an offer of employment by Buyer in accordance with Section 12.03(c);
(k)all disposal wells and evaporation pits that are located on the Lands or in the Designated Area;
(l)to the extent assignable (with consent, if applicable, but without the payment of any fee unless Buyer agrees in writing to pay such fee), all Applicable Contracts and all rights thereunder insofar as and only to the extent relating to the Assets;
(m)all Imbalances relating to the Assets;
(o)the Specified Receivables;
(p)originals (if available, and otherwise copies) and copies in digital form (if available) of all of the books, files, records, information and data, whether written or electronically stored, primarily relating to the Assets in Seller’s possession, including: (i) land and title records
3
(including prospect files, maps, lease records, abstracts of title, title opinions and title curative documents); (ii) Applicable Contract files; (iii) correspondence; (iv) operations, environmental, production, and accounting records; (v) facility and well records; (vi) plant maintenance, compliance, and process safety management records; and (vii) to the extent assignable (with consent, if applicable, but without the payment of any fee unless Buyer agrees in writing to pay such fee), geological and seismic data (excluding interpretive data) (collectively, “Records”);
(q)all Hydrocarbons in storage or existing in stock tanks, pipelines or plants (including inventory); and
(r)all radio equipment, SCADA and measurement technology, and other production related mobility devices (such as SCADA controllers), well communication devices, field office information technology and equipment (including desktop computers, laptop computers, servers, networking equipment, local area network equipment and telephone equipment, but excluding in each case, licensed software, proprietary Seller information or connections that may be located on such devices or equipment) and any other information technology systems and licenses associated with the foregoing, in each case only to the extent such assets and licenses are (i) used or held for use solely in connection with the operation of the Properties, (ii) assignable (with consent, if applicable, but without the payment of any fee unless Buyer agrees in writing to pay such fee; provided Seller shall use commercially reasonable efforts to cause the transfer of all such rights and interests to Buyer), and (iii) located on the Properties (the “Production-Related IT Equipment”).
To the extent that any of the foregoing are used or relate to both the Assets and certain of the Excluded Assets, such as, by way of example but not limitation, ingress and egress rights and road and pipeline easements, such assets or rights shall be jointly-owned by Seller, as part of the Excluded Assets, and by Buyer, as part of the Assets.
“Assignment” – the Assignment and Bill of Sale from Seller to Buyer substantially in the form attached to this Agreement as Exhibit F.
“Assumed Liabilities” – as defined in Section 2.06.
“Assumed Litigation” – the litigation set forth in Schedule 3.05 Part A.
“Available Employees”– certain employees of Seller or its Affiliates identified in the Available Employee List to whom Buyer may, but shall not be obligated to, make an offer of employment; provided, however that Seller may not identify employees in the Available Employee List beyond the job titles indicated on Exhibit I or who do not primarily perform services in for the Seller in connection with the Assets without approval of the Buyer.
“Available Employee List”– as defined in Section 12.03(b).
“Breach” – a “Breach” of a representation, warranty, covenant, obligation, or other provision of this Agreement or any certificate delivered pursuant to Section 2.04(a)(iv) or Section 2.04(b)(iii) of this Agreement shall be deemed to have occurred if there is or has been any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision.
4
“Business Day” – any day other than a Saturday, Sunday, or any other day on which commercial banks in the State of Texas are authorized or required by law or executive order to close.
“Buyer” – as defined in the preamble to this Agreement.
“Buyer’s Closing Documents” – as defined in Section 4.02(a).
“Buyer Group” – Buyer and its Affiliates, and their respective Representatives.
“Casualty Loss” – as defined in Section 11.14.
“Closing” – the closing of the Contemplated Transactions.
“Closing Date” – as defined in Section 2.03.
“COBRA” – as defined in Section 12.05.
“Code” – the Internal Revenue Code of 1986, as amended.
“Complete Remediation” – with respect to an Environmental Defect, a remediation or cure of such Environmental Defect which is substantially completed in accordance with the Lowest Cost Response.
“Confidentiality Agreement” – that certain confidentiality agreement dated as of May 16, 2019 by and between Riviera Resources, Inc. and Buyer.
“Consent” – any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization) from any Person that is required to be obtained in connection with the execution or delivery of this Agreement or the consummation of the Contemplated Transactions.
“Contemplated Transactions” – all of the transactions contemplated by this Agreement, including:
(a)the sale of the Assets and Equity Interests by Seller to Buyer;
(b)the performance by the Parties of their respective covenants and obligations under this Agreement; and
(c)Buyer’s acquisition, ownership, and exercise of control over the Assets and Equity Interests.
“Continuing Employees” – as defined in Section 12.03(d).
“Contract” – any written or oral contract, agreement or any other legally binding arrangement, but excluding, however, any Lease, easement, right-of-way, permit or other instrument creating or evidencing an interest in the Assets or any real or immovable property related to or used in connection with the operations of any Assets.
5
“Cure” – as defined in Section 11.06.
“Damages” – any and all claims, demands, payments, charges, judgments, assessments, losses, liabilities, damages, penalties, fines, expenses, costs, fees, settlements, and deficiencies, including any attorneys’ fees, legal, and other costs and expenses suffered or incurred therewith.
“De Minimis Environmental Defect Cost” – Fifty Thousand Dollars ($50,000).
“De Minimis Title Defect Cost” – Fifty Thousand Dollars ($50,000) per Well.
“Defect Notice Date” – as defined in Section 11.04.
“Defensible Title” – title of Seller with respect to the Processing Plants and Wells that, as of the Closing Date and subject to the Permitted Encumbrances, is deducible of record or title evidenced by unrecorded instruments or elections, in each case, made or delivered pursuant to joint operating agreements, pooling agreements or unitization agreements and:
(a)With respect to the currently producing formation in each Well (in each case, subject to any reservations, limitations or depth restrictions described in Schedule 2.07 or Exhibit B), entitles Seller to receive not less than the Net Revenue Interest set forth in Schedule 2.07 for such Well, except for (i) decreases in connection with those operations in which Seller or its successors or assigns may from and after the Effective Time and in accordance with the terms of this Agreement elect to be a non-consenting co-owner, (ii) decreases resulting from the establishment or amendment from and after the Effective Time of pools or units in accordance with this Agreement, and (iii) decreases required to allow other Working Interest owners to make up past underproduction or pipelines to make up past under deliveries;
(b)with respect to the currently producing formation in each Well (in each case, subject to any reservations, limitations or depth restrictions described in Schedule 2.07 or Exhibit B), obligates Seller to bear not more than the Working Interest set forth in Schedule 2.07 for such Well, except (i) increases resulting from contribution requirements with respect to defaulting co-owners under applicable operating agreements, or (ii) increases to the extent that such increases are accompanied by a proportionate increase in Seller’s Net Revenue Interest; and
(c)is free and clear of all Encumbrances.
“Deposit Amount” – Ten percent (10%) of the unadjusted Purchase Price (including any interest accrued thereon).
“Designated Area” – the area within the following counties in the state of (a) Kansas: Finney, Grant, Hamilton, Haskill, Kearney, Mead, Morton, Seward, Stanton, and Stevens, and (b) Oklahoma: Beaver and Texas.
“Dispute Notice” – as defined in Section 2.05(d).
“Disputed Matter” – as defined in Section 11.15(a).
“DOJ” – the Antitrust Division of the U.S. Department of Justice.
6
“DTPA” – as defined in Section 4.11.
“Effective Time” – July 1, 2019, at 12:01 a.m. local time at the location of the Assets.
“Employee Start Date” – the day after Closing.
“Encumbrance” – any charge, equitable interest, privilege, lien, mortgage, deed of trust, production payment, option, pledge, collateral assignment, security interest, or other arrangement substantially equivalent thereto.
“Environmental Condition” – any event occurring or condition existing on the Execution Date with respect to the Units, Leases, Wells or Processing Plants that causes a Unit, Lease, Well or Processing Plant to be subject to remediation under, or in violation of, an Environmental Law, other than any such event or condition to the extent caused by or relating to NORM or that was disclosed to Buyer (or of which Buyer otherwise had Knowledge) prior to the Execution Date.
“Environmental Defect” – an Environmental Condition discovered by Buyer or its Representatives as a result of any environmental diligence conducted by or on behalf of Buyer pursuant to Section 11.09 of this Agreement.
“Environmental Defect Cure Period” – as defined in Section 11.11(a).
“Environmental Defect Notice” – as defined in Section 11.10.
“Environmental Defect Value” – with respect to each Environmental Defect, the amount of the Lowest Cost Response for such Environmental Defect.
“Environmental Law” – any applicable Legal Requirement in effect as of the Execution Date relating to pollution or the protection of the environment, including those Legal Requirements relating to the storage, handling, and use of Hazardous Materials and those Legal Requirements relating to the generation, processing, treatment, storage, transportation, disposal or other management thereof. The term “Environmental Law” does not include (a) good or desirable operating practices or standards that may be voluntarily employed or adopted by other oil and gas well operators or recommended, but not required, by a Governmental Body or (b) the Occupational Safety and Health Act of 1970, 29 U.S.C. § 651 et seq., as amended, or any other Legal Requirement governing worker safety or workplace conditions.
“Environmental Liabilities” – all costs, Damages, expenses, liabilities, obligations, and other responsibilities arising from or under either Environmental Laws or Third Party claims relating to the environment, and which relate to the Assets or the ownership or operation of the same.
“Equity Interests” – one hundred percent (100%) of the issued and outstanding shares of equity interests of Mayzure.
“Equity Interests Assignment” – the Assignment from RUL to Buyer of the Equity Interests in substantially the form of Exhibit J.
7
“ERISA” – the Employee Retirement Security Act of 1974, as amended.
“ERISA Affiliate” – with respect to any entity, any other entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes such first entity, or that is a member of the same “controlled group” as such first entity pursuant to Section 4001(a)(14) of ERISA.
“Escrow Account” – as defined in Section 2.02.
“Escrow Agent” – Citibank, N.A.
“Escrow Agreement” – as defined in Section 2.02.
“Excluded Assets” – with respect to Seller, (a) all of Seller’s corporate minute books, financial records and other business records that relate to Seller’s business generally (including the ownership and operation of the Assets); (b) except to the extent related to any Assumed Liabilities, all trade credits, all accounts, all receivables of Seller and all other proceeds, income or revenues of Seller attributable to the Assets and attributable to any period of time prior to the Effective Time (other than the Suspense Funds and Specified Receivables); (c) except to the extent related to any Assumed Liabilities all claims and causes of action of Seller or its Affiliates that are attributable to periods of time prior to the Effective Time (including claims for adjustments or refunds); (d) except to the extent related to any Assumed Liabilities subject to Section 11.14, all rights and interests of Seller (i) under any policy or agreement of insurance or indemnity, (ii) under any bond, or (iii) to any insurance or condemnation proceeds or awards arising, in each case, from acts, omissions or events or damage to or destruction of property; (e) Seller’s rights with respect to all Hydrocarbons produced and sold from the Assets with respect to all periods prior to the Effective Time; (f) all claims of Seller or any of its Affiliates for refunds of, rights to receive funds from any Governmental Body, or loss carry forwards or credits with respect to (i) Asset Taxes attributable to any period (or portion thereof) prior to the Effective Time, (ii) Income Taxes paid by Seller or its Affiliates, or (iii) any Taxes attributable to the Excluded Assets; (g) all information technology assets, other than the Production-Related IT Equipment; (h) all rights, benefits and releases of Seller or its Affiliates under or with respect to any Contract that are attributable to periods of time prior to Closing; (i) all of Seller’s proprietary computer software, patents, trade secrets, copyrights, names, trademarks, logos and other intellectual property; (j) all documents and instruments of Seller that may be protected by an attorney-client privilege or any attorney work product doctrine; (k) all data that cannot be disclosed to Buyer as a result of confidentiality arrangements under existing written agreements; (l) all audit rights or obligations of Seller for which Seller bears responsibility arising under any of the Applicable Contracts or otherwise with respect to any period prior to the Effective Time or to any of the Excluded Assets, except for any Imbalances assumed by Buyer; (m) Seller’s reserve reports and Seller’s interpretations of any geophysical or other seismic and related technical data and information relating to the Assets; (n) documents prepared or received by Seller or its Affiliates with respect to (i) lists of prospective purchasers for such transactions compiled by Seller, (ii) bids submitted by other prospective purchasers of the Assets, (iii) analyses by Seller or its Affiliates of any bids submitted by any prospective purchaser, (iv) correspondence between or among Seller, its Representatives, and any prospective purchaser other than Buyer, and (v) correspondence between Seller or any of its Representatives with respect to any of the bids, the prospective purchasers or the transactions contemplated by this Agreement;
8
(o) a copy of all Records so long as originals or a copy thereof are delivered to Buyer; (p) any Contracts that constitute master services agreements or similar contracts; (q) any Hedge Contracts; (r) any debt instruments; (s) any of Seller’s assets other than the Assets; (t) any records or data related to Available Employees other than the data to be provided in the Available Employee List; and (u) any leases, rights and other assets specifically listed in Exhibit E. To the extent any Excluded Assets are owned by Mayzure, then prior to Closing, RUL shall cause Mayzure to assign or distribute any such Excluded Assets to Seller or its Affiliates (other than Mayzure) or one or more Third Parties.
“Execution Date” – as defined in the preamble to this Agreement.
“Expert” – as defined in Section 11.15(b).
“Expert Decision” – as defined in Section 11.15(d).
“Expert Proceeding Notice” – as defined in Section 11.15(a).
“Fee Minerals” – as set forth in the definition of “Assets”.
“Final Amount” – as defined in Section 2.05(d).
“Final Settlement Date” – as defined in Section 2.05(d).
“Final Settlement Statement” – as defined in Section 2.05(d).
“FTC” – the Federal Trade Commission.
“Fundamental Representations” – those representations set forth in Sections 3.01, 3.02, 3.03, and 3.06.
“GAAP” – generally accepted accounting principles in the United States as interpreted as of the Execution Date.
“Gathering System” – as set forth in the definition of “Assets”.
“Governmental Authorization” – any approval, consent, license, permit, registration, variance, exemption, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement.
“Governmental Body” – any (a) nation, state, county, city, town, village, district, or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign, or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); (d) multi-national organization or body; or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature.
“Group” – either Buyer Group or Seller Group, as applicable.
9
“Hazardous Materials” – any (a) chemical, constituent, material, pollutant, contaminant, substance, or waste that is regulated by any Governmental Body or may form the basis of liability under any Environmental Law; and (b) petroleum, Hydrocarbons, or petroleum products.
“Hedge Contract” – any Contract to which Seller or any of its Affiliates is a party with respect to any swap, forward, future or derivative transaction or option or similar agreement, whether exchange traded, “over-the-counter” or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions.
“HSR Act” – the Hart-Scott-Rodino-Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
“Hydrocarbons” – oil and gas and other hydrocarbons (including condensate) produced or processed in association therewith (whether or not such item is in liquid or gaseous form), or any combination thereof, and any minerals produced in association therewith.
“Imbalances” – over-production or under-production or over-deliveries or under-deliveries with respect to Hydrocarbons produced from or allocated to the Assets, regardless of whether such over-production or under-production or over-deliveries or under-deliveries arise at the wellhead, pipeline, gathering system, transportation system, processing plant, or other location, including any imbalances under gas balancing or similar agreements, imbalances under production handling agreements, imbalances under processing agreements, imbalances under the Leases, and imbalances under gathering or transportation agreements.
“Income Taxes” – income or franchise Taxes based upon, measured by, or calculated with respect to net income, profits, capital, or similar measures (or multiple bases, including corporate, franchise, business and occupation, business license, or similar Taxes, if net income, profits, capital, or a similar measure is one of the bases on which such Tax is based, measured, or calculated), but excluding ad valorem, property, excise, severance, production, sales, use, real or personal property transfer or other similar Taxes.
“Individual Claim Threshold” – as defined in Section 10.05.
“Instruments of Conveyance” – the Assignment, Equity Interest Assignment and Deed. Except for the special warranty of Defensible Title by, through and under Seller contained therein, the foregoing Instruments of Conveyance shall be without warranty of title, whether express, implied, statutory, or otherwise, it being understood that Buyer shall have the right to conduct pre-Closing title due diligence as described below in Article 11, and that the rights and remedies set forth in Article 11 shall be Buyer’s sole rights and remedies with respect to title.
“Knowledge” – an individual will be deemed to have “Knowledge” of a particular fact or other matter if such individual is actually aware of such fact or other matter, without any duty of inquiry. A Seller Party will be deemed to have “Knowledge” of a particular fact or other matter if any of the following individuals has Knowledge of such fact or other matter: David B. Rottino, President and Chief Executive Officer, Daniel Furbee, Executive Vice President and Chief
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Operating Officer, James G. Frew, Executive Vice President and Chief Financial Officer, Darren Schluter, Executive Vice President, Administration, Finance and Chief Accounting Officer, and Allen Rambar, Vice President, Operations. Buyer will be deemed to have “Knowledge” of a particular fact or other matter if any of the following individuals has Knowledge of such fact or other matter: Todd Flott, Managing Director, Jon Piot, Managing Director, John Baschab, Managing Director, Juan Nevarez, Senior Vice President, Business Development, Kevin Rathke, Vice President, Operations, and Mike Mercer, Vice President, Operations.
“Jayhawk Plant” - as set forth in the definition of “Assets”.
“Lands” – as set forth in the definition of “Assets”.
“Leases” – as set forth in the definition of “Assets”.
“Legal Requirement” – any federal, state, local, municipal, foreign, international, or multinational law, Order, constitution, ordinance, or rule, including rules of common law, regulation, statute, treaty, or other legally enforceable directive or requirement.
“Lowest Cost Response” – the response required or allowed under Environmental Laws in effect on the date this Agreement is executed that addresses and resolves in compliance with Environmental Laws (for current and future use in the same manner as currently used) the identified Environmental Condition in the most cost-effective manner (considered as a whole) as compared to any other response that is required or allowed under Environmental Laws. The Lowest Cost Response shall include taking no action, leaving the condition unaddressed, periodic monitoring or the recording of notices in lieu of remediation, if such responses are allowed under Environmental Laws. The Lowest Cost Response shall not include any costs or expenses relating to the assessment, remediation, removal, abatement, transportation and disposal of any asbestos, asbestos containing materials or NORM.
“Material Adverse Effect” – any change, inaccuracy, effect, event, result, occurrence, condition or fact (for the purposes of this definition, each, an “event”) (whether foreseeable or not and whether covered by insurance or not) that has had or would be reasonably likely to have, individually or in the aggregate with any other event or events, a material adverse effect on the ownership, operation or financial condition of the Assets, taken as a whole; provided, however, that the term “Material Adverse Effect” shall not include material adverse effects resulting from (i) entering into this Agreement or the announcement of the Contemplated Transactions; (ii) changes in Hydrocarbon prices; (iii) any action or omission of Seller taken in accordance with the terms of this Agreement or with the prior consent of Buyer; (iv) any effect resulting from general changes in industry, economic or political conditions in the United States; (v) civil unrest, any outbreak of disease or hostilities, terrorist activities or war or any similar disorder; (vi) acts or failures to act of any Governmental Body (including any new regulations related to the upstream industry), except to the extent arising from Seller’s action or inaction; (vii) acts of God, including hurricanes and storms; (viii) any reclassification or recalculation of reserves in the ordinary course of business; (ix) natural declines in well performance; (x) general changes in Legal Requirements, in regulatory policies, or in GAAP; (xi) changes in the stock price of Buyer; (xii) matters that are cured or no longer exist by the earlier of Closing and the termination of this Agreement; or (xiii)
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matters as to which an adjustment is provided for under Section 2.05(c) or Seller has indemnified Buyer hereunder.
“Material Contracts” – as defined in Section 3.10.
“Mayzure” – as defined in the recitals.
“MMMF” – asbestos and other man-made material fibers.
“Net Revenue Interest” – with respect to any Well, the interest in and to all Hydrocarbons produced, saved and sold from or allocated to such Well (in each case, limited to the applicable currently producing formation as described in the definition of “Defensible Title” and subject to any reservations, limitations or depth restrictions described in Schedule 2.07 or Exhibit B, after satisfaction of all other Royalties).
“Non-Operated Assets” – Assets operated by any Person other than Seller or its Affiliates.
“NORM” – naturally occurring radioactive material.
“Order” – any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator.
“Organizational Documents” – (a) the articles or certificate of incorporation and the bylaws of a corporation; (b) the articles of organization and resolutions of a limited liability company; (c) the certificate of limited partnership and limited partnership agreement of a limited partnership; and (d) any amendment to any of the foregoing.
“Outside Date” – as defined in Section 9.01(d).
“Party” or “Parties” – as defined in the preamble to this Agreement.
“Permits” – all environmental and other governmental (whether federal, state, local or tribal) certificates, consents, permits (including conditional use permits), licenses, orders, authorizations, franchises and related instruments or rights solely relating to the ownership, operation or use of the Assets.
“Permitted Encumbrance” – any of the following:
(a)the terms and conditions of all Leases and Contracts if the net cumulative effect of such Leases and Contracts does not (i) materially interfere with the operation or use of any of the Assets (as currently operated and used), (ii) operate to reduce the Net Revenue Interest of Seller with respect to the currently producing formation of any Well to an amount less than the Net Revenue Interest set forth in Schedule 2.07, or (iii) obligate Seller to bear a Working Interest with respect to the currently producing formation of any Well in any amount greater than the Working Interest set forth in Schedule 2.07 (unless the Net Revenue Interest for such Well is greater than the Net Revenue Interest set forth in Schedule 2.07 in the same or greater proportion as any increase in such Working Interest);
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(b)any Preferential Purchase Rights, Consents and similar agreements;
(c)excepting circumstances where such rights have already been triggered prior to the Effective Time, rights of reassignment arising upon final intention to abandon or release the Assets;
(d)liens for Taxes not yet due or delinquent or, if delinquent, that are being contested in good faith by appropriate proceedings by or on behalf of Seller;
(e)all rights to consent by, required notices to, filings with, or other actions by Governmental Bodies in connection with the conveyance of the Leases, if the same are customarily sought and received after the Closing;
(f)Encumbrances or defects that Buyer has waived or is deemed to have waived pursuant to the terms of this Agreement or Title Defects that were not properly asserted by Buyer prior to the Defect Notice Date;
(g)all Legal Requirements and all rights reserved to or vested in any Governmental Body (i) to control or regulate any Asset in any manner; (ii) by the terms of any right, power, franchise, grant, license or permit, or by any provision of law, to terminate such right, power, franchise, grant, license or permit or to purchase, condemn, expropriate or recapture or to designate a purchaser of any of the Assets; (iii) to use such property in a manner which does not materially impair the use of such property for the purposes for which it is currently owned and operated; or (iv) to enforce any obligations or duties affecting the Assets to any Governmental Body with respect to any right, power, franchise, grant, license or permit;
(h)rights of a common owner of any interest currently held by Seller and such common owner as tenants in common or through common ownership to the extent that the same does not materially impair the use or operation of the Assets as currently used and operated;
(i)easements, conditions, covenants, restrictions, servitudes, permits, rights-of-way, surface leases, and other rights in the Assets for the purpose of operations, facilities, roads, alleys, highways, railways, pipelines, transmission lines, transportation lines, distribution lines, power lines, telephone lines, removal of timber, grazing, logging operations, canals, ditches, reservoirs and other like purposes, or for the joint or common use of real estate, rights-of-way, facilities and equipment, which, in each case, do not materially impair the operation or use of the Assets as currently operated and used;
(j)vendors, carriers, warehousemen’s, repairmen’s, mechanics’, workmen’s, materialmen’s, construction or other like liens arising by operation of law in the ordinary course of business or incident to the construction or improvement of any property in respect of obligations which are not yet due or which are being contested in good faith by appropriate proceedings by or on behalf of Seller;
(k)Encumbrances created under Leases or any joint operating agreements applicable to the Assets or by operation of law in respect of obligations that are not yet due or that are being contested in good faith by appropriate proceedings by or on behalf of Seller;
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(l)with respect to any interest in the Assets acquired through compulsory pooling, failure of the records of any Governmental Body to reflect Seller as the owner of any Assets;
(m)any Encumbrance affecting the Assets that is discharged by Seller or waived (or deemed to be waived) by Buyer pursuant to the terms of this Agreement at or prior to Closing;
(n)the Assumed Litigation;
(o)defects based solely on assertions that Seller’s files lack information (including title opinions);
(p)lessor’s royalties, overriding royalties, production payments, net profits interests, reversionary interests, and similar burdens if the net cumulative effect of such burdens (i) does not materially interfere with the operation or use of any of the Assets (as currently operated and used), (ii) operate to reduce the Net Revenue Interest of Seller with respect to the currently producing formation of any Well to an amount less than the Net Revenue Interest set forth in Schedule 2.07, or (iii) obligate Seller to bear a Working Interest with respect to the producing formation of any Well in any amount greater than the Working Interest set forth in Schedule 2.07 (unless the Net Revenue Interest for such Well is greater than the Net Revenue Interest set forth in Schedule 2.07 in the same or greater proportion as any increase in such Working Interest);
(q)defects or irregularities of title (i) as to which the relevant statute(s) of limitations or prescription would bar any attack or claim against Seller’s title; (ii) arising out of lack of evidence of, or other defects with respect to, authorization, execution, delivery, acknowledgment, or approval of any instrument in Seller’s chain of title absent reasonable evidence of an actual claim of superior title from a Third Party attributable to such matter; (iii) consisting of the failure to recite marital status or omissions of heirship proceedings in documents; (iv) resulting from lack of survey, unless a survey is expressly required by applicable Legal Requirements; (v) resulting from failure to record releases of liens, production payments, or mortgages that have expired by their own terms or the enforcement of which are barred by the applicable statute(s) of limitations or prescription; (vi) arising out of lack of entity authorization unless Buyer provides affirmative evidence that such entity action was not authorized and results in another Person’s actual and superior claim of title; (vii) resulting from or related to probate proceedings or the lack thereof that have been outstanding for five (5) years or more; (viii) resulting from unreleased instruments (including leases covering Hydrocarbons), absent specific evidence that such instruments continue in force and effect and constitute a superior claim of title with respect to the Leases or Wells; (ix) based on a gap in Seller’s chain of title to any Well or Lease (A) so long as such gap does not provide a Third Party with a superior claim or (B) unless Buyer affirmatively shows such gap to exist in such records by an abstract of title, title opinion or landman’s title chain; (x) consisting of the lack of a lease amendment or consent authorizing pooling or unitization, or (xi) that have been cured by prescription or limitations;
(r)Imbalances;
(s)plugging and surface restoration obligations related directly to the Assets, but only to the extent such obligations do not interfere in any material respect with the use or operation of any Assets (as currently used or operated);
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(t)calls on Hydrocarbon production under existing Contracts;
(u)any matters referenced or set forth on Exhibit A, Exhibit B, or Schedule 2.07;
(v)mortgages on the lessor’s interest under a Lease, whether or not subordinate to such Lease, that have expired on their own terms or the enforcement of which are barred by applicable statute(s) of limitations or prescription; and
(w)any maintenance of uniform interest provision in an operating agreement if waived with respect to the Contemplated Transactions by the party or parties having the right to enforce such provision or if the violation of such provision would not give rise to the unwinding of the sale of the affected Asset from Seller to Buyer.
“Person” – any individual, firm, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body.
“Personal Property” – as set forth in the definition of “Assets”.
“Phase I Environmental Site Assessment” – a Phase I environmental property assessment of the Assets that satisfies the basic assessment requirements set forth under the current ASTM International Standard Practice for Environmental Site Assessments (Designation E1527-13) or any other visual site assessment or review of records, reports or documents.
“Post-Closing Date” – as defined in Section 2.05(d).
“Preferential Purchase Right” – any right or agreement that enables any Person to purchase or acquire any Asset or the Equity Interests or any interest therein or portion thereof as a result of or in connection with the execution or delivery of this Agreement or the consummation of the Contemplated Transactions.
“Preliminary Amount” – the Purchase Price, adjusted as provided in Section 2.05(b), based upon the best information available at the time of the Closing.
“Preliminary Settlement Statement” – as defined in Section 2.03.
“Proceeding” – any proceeding, action, arbitration, audit, hearing, investigation, request for information, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator.
“Processing Plant” - as set forth in the definition of “Assets”.
“Production-Related IT Equipment” – as set forth in the definition of “Assets”.
“Property” or “Properties” – as set forth in the definition of “Assets”.
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“Property Costs” – all operating expenses (including utilities, payroll, costs of insurance, rentals, title examination and curative actions, and overhead costs), capital expenditures (including rentals, options and other lease maintenance payments, broker fees (but expressly excluding any broker fees owed by Seller Group related to the transaction contemplated by this Agreement) and other property acquisition costs and costs of acquiring equipment), and Asset Taxes, respectively, incurred in the ordinary course of business attributable to the use, operation, and ownership of the Assets, but excluding Damages attributable to (a) personal injury or death, property damage, torts, breach of contract, or violation of any Legal Requirement, (b) Environmental Liabilities, (c) obligations with respect to Imbalances, (d) obligations to pay Royalties or other interest owners revenues or proceeds relating to the Assets but held in suspense, and (e) claims for indemnification or reimbursement from any Third Party with respect to costs of the types described in the preceding clauses (a) through (e), whether such claims are made pursuant to contract or otherwise.
“Purchase Price” – as defined in Section 2.02.
“Records” – as set forth in the definition of “Assets”.
“Representative” – with respect to a particular Person, any director, officer, manager, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors.
“Required Consent” – any Consent with respect to which (a) there is a provision within the applicable instrument that such Consent may be withheld in the sole and absolute discretion of the holder, or (b) there is a provision within the applicable instrument expressly stating that an assignment in violation thereof (i) is void or voidable, (ii) triggers the payment of specified liquidated damages, or (iii) causes termination of the applicable Assets to be assigned. For the avoidance of doubt, “Required Consent” does not include any Consent, which, by its terms, cannot be unreasonably withheld.
“Retained Assets” – any rights, titles, interests, assets, and properties that are originally included in the Assets under the terms of this Agreement, but that are subsequently excluded from the Assets or sale under this Agreement pursuant to the terms of this Agreement at any time before or after the Closing.
“Retained Liabilities” – Damages, liabilities and obligations arising out of (a) the disposal or transportation prior to Closing of any Hazardous Materials generated or used by Seller and taken from the Assets to any location that is not an Asset; (b) personal injury (including death) claims attributable to Seller’s or its Affiliate’s operation of the Assets prior to Closing; (c) failure to properly and timely pay, in accordance with the terms of any Lease, Contract or applicable Legal Requirement, all Royalties and any other Working Interest amounts (in each case) with respect to the Assets that are due by Seller or any of its Affiliates and attributable to Seller’s ownership of the Assets prior to the Effective Time; (d) the Retained Litigation; (e) any claim made by an employee of Seller or any Affiliate of Seller directly relating to such employment; and (f) disposal wells plugged prior to the Effective Time; provided that, from and after the date that is twenty-four (24) months following the Closing Date, all Damages, liabilities and obligations arising out of clauses (a), (b) and (c) shall no longer be Retained Liabilities and shall be deemed Assumed Liabilities.
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“Retained Litigation” – the litigation set forth in Schedule 3.05 Part B.
“Royalties” – royalties, overriding royalties, production payments, carried interests, net profits interests, reversionary interests, back-in interests and other burdens upon, measured by or payable out of production.
“Satanta Plant” - as set forth in the definition of “Assets”.
“Seller” – as defined in the preamble to this Agreement.
“Seller Benefit Plans” – as defined in Section 3.17(a).
“Seller Closing Documents” – as defined in Section 3.02(a).
“Seller Group” – Seller and its Affiliates (other than Mayzure), and their respective Representatives.
“Seller Party” – each of RUL and ROL, individually.
“Specified Receivables” – accounts receivable owed to Seller as operator of any Wells to satisfy previous overpayments by Seller to Third Parties, and the right to recoup same out of proceeds of production in respect of such Wells.
“Straddle Period” – any tax period beginning before and ending after the Effective Time.
“Suspense Funds” – proceeds of production and associated penalties and interest in respect of any of the Wells that are payable to any Third Party and are being held in suspense by Seller as the operator of such Wells.
“Tax” or “Taxes” – (a) any and all federal, state, provincial, local, foreign and other taxes, levies, fees, imposts, duties, assessments, and other governmental charges imposed by any Governmental Body, including income, profits, franchise, alternative or add-on minimum, gross receipts, environmental (including taxes under Section 59A of the Code), registration, withholding, employment, social security (or similar), disability, occupation, ad valorem, property, value added, capital gains, sales, goods and services, use, real or personal property, capital stock, license, branch, payroll, estimated, unemployment, severance, compensation, utility, stamp, premium, windfall profits, transfer, gains, production and excise taxes, and customs duties, together with any interest, penalties, fines or additions thereto and (b) any successor or transferee liability in respect of any items described in clause (a) above.
“Tax Allocation” – as defined in Section 2.07.
“Tax Returns” – any and all reports, returns, declarations, claims for refund, elections, disclosures, estimates, information reports or returns or statements supplied or required to be supplied to a Governmental Body in connection with Taxes, including any schedule or attachment thereto or amendment thereof.
“Third Party” – any Person other than a Party or an Affiliate of a Party.
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“Threatened” – a claim, Proceeding, dispute, action, or other matter will be deemed to have been “Threatened” if any demand or statement has been made in writing to a Party or any of its officers, directors, or employees that would lead a prudent Person to conclude that such a claim, Proceeding, dispute, action, or other matter is likely to be asserted, commenced, taken, or otherwise pursued in the future.
“Title Benefit” – as defined in Section 11.08.
“Title Benefit Notice” – as defined in Section 11.08.
“Title Benefit Properties” – as defined in Section 11.08.
“Title Benefit Value” – as defined in Section 11.08.
“Title Defect” – any Encumbrance, defect or other matter that causes Seller not to have Defensible Title in and to any of the Well or Processing Plants, without duplication; provided that the following shall not be considered Title Defects:
(a)defects arising out of the lack of corporate or other entity authorization unless Buyer provides affirmative evidence that such corporate or other entity action was not authorized and results in another Person’s actual and superior claim of title to the relevant Assets;
(b)defects based on a gap in Seller’s chain of title in the county or parish records, unless Buyer affirmatively shows such gap to exist in such records by an abstract of title, title opinion or landman’s title chain, which documents (if any) shall be included in a Title Defect Notice (for the avoidance of doubt, a non-certified, cursory or limited title chain will satisfy this requirement);
(c)defects based upon the failure to record any federal or state Leases or any assignments of interests in such Leases in any applicable public records;
(d)any Encumbrance or loss of title resulting from Seller’s conduct of business between the Effective Time and the Closing that is permitted by this Agreement;
(e)defects arising from any change in applicable Legal Requirement after the Execution Date;
(f)defects arising from any prior oil and gas lease taken more than ten (10) years prior to the Effective Time relating to the lands covered by a Lease not being surrendered of record, unless Buyer provides affirmative evidence that a Third Party has conducted operations on, or asserted ownership of, the Assets in the past five (5) years;
(g)defects that affect only which non-Seller Person has the right to receive royalty payments rather than the amount or the proper payment of such royalty payment;
(h)defects based solely on the lack of information in Seller’s files;
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(i)defects arising from a mortgage encumbering the oil, gas or mineral estate of any lessor unless a complaint of foreclosure has been duly filed or any similar action taken by the mortgagee thereunder and in such case such mortgage has not been subordinated to the Lease applicable to such Asset;
(i)defects based on the Assets being held of record in the name Linn Energy Holdings, LLC or Linn Operating, LLC; and
(j)defects or irregularities that would customarily be waived by a reasonably prudent owner or operator of oil and gas properties in the same geographic area where the Assets are located.
“Title Defect Cure Period” – as defined in Section 11.06(a).
“Title Defect Notice” – as defined in Section 11.04.
“Title Defect Property” – as defined in Section 11.04.
“Title Defect Value” – as defined in Section 11.04.
“Transfer Tax” – all transfer, documentary, sales, use, stamp, registration and similar Taxes (but excluding Income Taxes) and fees arising out of, or in connection with, the transfer of the Assets or the Equity Interests.
“Wells” – as set forth in the definition of “Assets”.
“Working Interest” – with respect to any Well, the interest in and to such Well that is burdened with the obligation to bear and pay costs and expenses of maintenance, development and operations on or in connection with such Well (in each case, limited to the applicable currently producing formation as described in the definition of “Defensible Title” and subject to any reservations, limitations or depth restrictions described in Exhibit B or Schedule 2.07), but without regard to the effect of any Royalties or other burdens.
ARTICLE 2
SALE AND TRANSFER OF ASSETS; CLOSING
2.01Assets. Subject to the terms and conditions of this Agreement, at the Closing, Seller shall sell and transfer (or shall cause to be sold and transferred) the Assets and the Equity Interests to Buyer, and Buyer shall purchase, pay for, and accept the Assets and the Equity Interests from Seller.
2.02Purchase Price; Deposit. Subject to any adjustments that may be made under Section 2.05, the purchase price for the Assets and the Equity Interests will be Two Hundred Ninety-Five Million Dollars $295,000,000 (the “Purchase Price”). Within two (2) Business Days after the execution of this Agreement, Buyer will deposit by wire transfer in same day funds into an escrow account (the “Escrow Account”) established pursuant to the terms of a mutually agreeable Escrow Agreement (the “Escrow Agreement”) an amount equal to the Deposit Amount. The entire Deposit Amount shall be held by the Escrow Agent, and if the Closing timely occurs,
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on or before the Closing Date, the Parties shall execute and deliver to the Escrow Agent a joint instruction letter directing the Escrow Agent to release the Deposit Amount to Seller at Closing, which Deposit Amount shall be applied as a credit toward the Preliminary Amount as provided in Section 2.05(a). If this Agreement is terminated prior to the Closing in accordance with Section 9.01, then the provisions of Section 9.01(h) shall apply and the distribution of the Deposit Amount shall be governed in accordance therewith.
2.03Closing; Preliminary Settlement Statement. The Closing shall take place at the offices of Seller at 600 Travis Street, Suite 1700, Houston, Texas 77002 on or before October 31, 2019, or if all conditions to Closing under Article 7 and Article 8 have not yet been satisfied or waived, within ten (10) Business Days, after such conditions have been satisfied or waived, subject to the provisions of Article 9 (the “Closing Date”). Subject to the provisions of Articles 7, 8, and 9, failure to consummate the purchase and sale provided for in this Agreement on the date and time and at the place determined pursuant to this Section 2.03 shall not, in and of itself, result in the termination of this Agreement and shall not relieve either Party of any obligation under this Agreement. Not later than five (5) Business Days prior to the Closing Date, Seller will deliver to Buyer a statement setting forth in reasonable detail Seller’s reasonable determination of the Preliminary Amount based upon the best information available at that time (the “Preliminary Settlement Statement”). As part of the Preliminary Settlement Statement, Buyer shall provide to Seller such data as is reasonably necessary to support any estimated allocation, for purposes of establishing the Preliminary Amount. Within two (2) Business Days after its receipt of the Preliminary Settlement Statement, Buyer may submit to Seller in writing any objections or proposed changes thereto and Seller shall consider all such objections and proposed changes in good faith. The estimate agreed to by Seller and Buyer, or, absent such agreement, delivered in the Preliminary Settlement Statement by Seller in accordance with this Section 2.03, will be the Preliminary Amount to be paid by Buyer to Seller at the Closing.
2.04Closing Obligations. At the Closing:
(a) |
Each Seller Party shall deliver (and execute, as appropriate), or cause to be delivered (and executed, as appropriate), to Buyer: |
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(i) |
the Instruments of Conveyance in the appropriate number for recording in the real property records where the Assets are located; |
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(ii) |
possession of the Assets (except the Specified Receivables and the Suspense Funds, which shall be conveyed to Buyer by way of one or more adjustments to the Purchase Price as provided in Section 2.05(c)(i)(F) and Section 2.05(c)(ii)(E)); |
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(iii) |
possession of the Assets; |
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(v) |
a Treasury Regulation Section 1.1445-2(b)(2) statement, certifying that such Seller Party is not a “foreign person” within the meaning of the Code; |
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(ii) |
the Instruments of Conveyance in the appropriate number for recording in the real property records where the Assets are located; |
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(iv) |
an executed counterpart of the Preliminary Settlement Statement; |
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(v) |
for each Well operated by any Seller Party or its Affiliate on the Closing Date, such regulatory documentation as is necessary to designate Buyer as operator of such Wells and the other Assets; |
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(vi) |
evidence of replacement bonds, guarantees, and other sureties pursuant to Section 6.03(a) and evidence of such other authorizations and qualifications as may be necessary for Buyer to own and operate the Assets; and |
2.05Allocations and Adjustments. If the Closing occurs:
(a) |
Buyer shall be entitled to all production and products from or attributable to the Assets from and after the Effective Time and the proceeds thereof, and to all other income, |
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(i) |
increased by the following amounts: |
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with respect to the Assets for which Seller would otherwise be entitled under Section 2.05(a); |
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(B) |
the amount of all Asset Taxes allocable to Buyer pursuant to Section 13.02(b) but paid or economically borne by Seller; |
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(C) |
the aggregate amount of all non-reimbursed Property Costs (other than Asset Taxes) that have been paid by Seller that are attributable to the ownership and operation of the Assets after the Effective Time (including prepayments with respect to any period after the Effective Time); |
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(D) |
the amount of any other upward adjustment specifically provided for in this Agreement or mutually agreed upon by the Parties; |
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(E) |
to the extent that proceeds for such volumes have not been received by Seller, an amount equal to the value of all Hydrocarbons attributable to the Wells in storage facilities, stock tanks, pipelines or plants (including inventory) as of the Effective Time; |
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(ii) |
decreased by the following amounts: |
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(B) |
the amount of all Asset Taxes allocable to Seller pursuant to Section 13.02(b) but paid or economically borne by Buyer; |
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(D) |
the aggregate amount of all non-reimbursed Property Costs (other than Asset Taxes) that are attributable to the ownership or operation of the Assets prior to the Effective Time (excluding prepayments with respect to any period after the Effective Time) and paid by Buyer; |
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(F) |
the amount of any other downward adjustment specifically provided for in this Agreement or mutually agreed upon by the Parties; and |
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Days after the Final Settlement Date by wire transfer of immediately available funds to the accounts specified pursuant to wire instructions delivered in advance by Seller or Buyer, as applicable. |
2.06Assumption. If the Closing occurs, from and after the Closing Date, Buyer shall assume, fulfill, perform, pay, and discharge the following liabilities arising from, based upon, related to, or associated with the Assets and the Equity Interests and only to the extent not constituting Retained Liabilities (collectively, the “Assumed Liabilities”) subject to Seller’s indemnity obligations under Section 10.02 (further subject to the limitations and restrictions in Article 10): any and all Damages and obligations, known or unknown, allocable to the Assets and the Equity Interests prior to, at, or after the Effective Time, including any and all Damages and obligations: (a) attributable to or resulting from the use, maintenance, ownership, or operation of the Assets, regardless whether arising before, at or after the Effective Time, except for Property Costs which shall have been accounted for as provided under Section 2.05; (b) imposed by any Legal Requirement or Governmental Body relating to the Assets and the Equity Interests; (c) for plugging, abandonment, decommissioning, and surface restoration of the Assets, including oil, gas, injection, water, or other wells and all surface facilities; (d) subject to Buyer’s rights and remedies set forth in Article 11 and the special warranty of Defensible Title set forth in the Instruments of Conveyance, attributable to or resulting from lack of Defensible Title to the Assets; (e) attributable to the Suspense Funds, to the extent actually received by Buyer (or for which a reduction to the Purchase Price was made); (f) attributable to the Imbalances; (g) subject to Buyer’s rights and remedies set forth in Article 11, attributable to or resulting from all Environmental Liabilities relating to the Assets; (h) related to the conveyance of the Assets or the Equity Interests to Buyer at Closing (including arising from the conveyance thereof without consent or in violation of a preferential purchase right or any maintenance of uniform interest provision); (i) attributable to or resulting from Asset Taxes and assessments attributable to the Assets to the extent attributable to periods (or portions thereof) from and after the Effective Time; (j) attributable to or resulting from Transfer Taxes, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties, if any, imposed or required in connection with the sale of the Assets or Equity Interests to Buyer or the filing or recording of all assignments related to the sale of the Assets to Buyer; (k) attributable to the Leases and the Applicable Contracts; (l) attributable to the Assumed Litigation. Buyer acknowledges that: (i) the Assets have been used in connection with the exploration for, and the development, production, treatment, and transportation of, Hydrocarbons; (ii) spills of wastes, Hydrocarbons, produced water, Hazardous Materials, and other materials and substances may have occurred in the past or in connection with the Assets; (iii) there is a possibility that there are currently unknown, abandoned wells, plugged wells, pipelines, and other equipment on or underneath the property underlying the Assets; (iv) it is the intent of the Parties that all liability associated with the above matters as well as any responsibility and liability to decommission, plug, or replug such wells (including the Wells) in accordance with all Legal Requirements and requirements of Governmental Bodies be passed to Buyer effective as of the Effective Time and that Buyer shall assume all responsibility and liability for such matters and all claims and demands related thereto; (v) the Assets may contain asbestos, Hazardous Materials, or NORM; (vi) NORM may affix or attach itself to the inside of wells, materials, and equipment as scale or in other forms; (vii) wells, materials, and equipment located on the Assets may contain NORM; and (viii) special procedures may be required for remediating, removing, transporting, and disposing of asbestos, NORM, Hazardous Materials, and other materials from the Assets. From and after the Closing, but effective as of the Effective Time,
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subject to Seller’s indemnity obligations under Section 10.02 (subject to the limitations and restrictions in Article 10), Buyer shall assume, with respect to the Assets, all responsibility and liability for any assessment, remediation, removal, transportation, and disposal of these materials and associated activities in accordance with all Legal Requirements and requirements of Governmental Bodies.
2.07Allocation of Purchase Price. The Purchase Price shall be allocated among the Assets as set forth in Schedule 2.07 hereto. Seller and Buyer agree to be bound by the Allocated Values set forth in Schedule 2.07 for purposes of Article 11 hereof. Seller and Buyer further agree that for the purpose of making the requisite filings under Section 1060 of the Code, and the regulations thereunder, the Purchase Price and any liabilities assumed by Buyer under this Agreement that are treated as consideration for Tax purposes shall be allocated among the Assets in a manner consistent with the Allocated Values, as set forth on Schedule 2.07 (the “Tax Allocation”). Seller and Buyer each agree to report, and to cause their respective Affiliates to report, the federal, state, and local income and other Tax consequences of the Contemplated Transactions, and in particular to report the information required by Section 1060(b) of the Code, and to jointly prepare Form 8594 (Asset Acquisition Statement under Section 1060 of the Code) as promptly as possible following the Closing Date and in a manner consistent with the Tax Allocation as revised to take into account subsequent adjustments to the Purchase Price, including any adjustments pursuant to the Agreement to determine the Final Amount, and shall not take any position inconsistent therewith upon examination of any tax return, in any refund claim, in any litigation, investigation or otherwise, unless required to do so by any Legal Requirement after notice to and discussions with the other Party, or with such other Party’s prior consent.
REPRESENTATIONS AND WARRANTIES OF SELLER
Each Seller Party represents and warrants to Buyer as of the Execution Date and the Closing Date, the following:
3.01Organization and Good Standing. Such Seller Party and Mayzure are each a Delaware limited liability company, and are duly organized, validly existing, and in good standing under the laws of the State of Delaware and, where required, are duly qualified to do business and is in good standing in each jurisdiction in which the Assets (or, in the case of Mayzure, any of its assets) are located, with full limited liability company power and authority to conduct its business as it is now being conducted, and to own or use the properties and assets that it purports to own or use. Such Seller Party is not a “foreign person” for purposes of Section 1445 of the Code.
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|
(i) |
contravene, conflict with, or result in a violation of (A) any provision of the Organizational Documents of such Seller Party or Mayzure, or (B) any resolution adopted by the board of directors, managers or officers of such Seller Party or Mayzure; |
|
(iii) |
contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that relates to the Assets; or |
|
(iv) |
result in the imposition or creation of any Encumbrance upon or with respect to any of the Assets, except for Permitted Encumbrances. |
3.03Bankruptcy. Except for claims or matters related to the bankruptcy case of Linn Energy, LLC and its subsidiaries commenced on May 11, 2016 and concluded on February 28, 2017, for which the United States Bankruptcy Court for the Southern District of Texas retains jurisdiction, there are no bankruptcy, reorganization, receivership, or arrangement proceedings pending or being contemplated by such Seller Party or, to such Seller Party’s Knowledge, Threatened against such Seller Party.
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3.05Legal Proceedings. Other than the Assumed Litigation and Retained Litigation, such Seller Party has not been served with any Proceeding, and, to such Seller Party’s Knowledge, there is no pending or Threatened Proceeding (except for immaterial or frivolous claims) against such Seller Party or any of its Affiliates, in each case, that (a) relates to such Seller Party’s ownership or operation of any of the Assets or the Equity Interests, or (b) challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions.
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3.06Brokers. Neither such Seller Party nor its Affiliates have incurred any obligation or liability, contingent or otherwise, for broker’s or finder’s fees with respect to the Contemplated Transactions other than obligations that are and will remain the sole responsibility of such Seller Party and its Affiliates.
3.07Compliance with Legal Requirements. To such Seller Party’s Knowledge, except as set forth in Schedule 3.07 or where lack of compliance would not have a Material Adverse Effect, there is no uncured violation by such Seller Party of any Legal Requirements (other than Environmental Laws) with respect to such Seller Party’s ownership and operation of the Assets or the Equity Interests.
3.08Prepayments. Except for any Imbalances, such Seller Party has not received payment under any Contract for the sale of Hydrocarbons produced from the Assets which requires delivery in the future to any party of Hydrocarbons previously paid for and not yet delivered.
3.09Imbalances. To such Seller Party’s Knowledge, except as set forth in Schedule 3.09, there are no Imbalances with respect to such Seller Party’s obligations relating to the Wells as of the Effective Time.
3.10Material Contracts. To such Seller Party’s Knowledge, Schedule 3.10 sets forth all Applicable Contracts with respect to such Seller Party of the type described below as of the Execution Date (collectively, the “Material Contracts”):
(a) |
any Applicable Contract that is a Hydrocarbon purchase and sale, transportation, gathering, treating, processing, or similar Applicable Contract that is not terminable without penalty on ninety (90) days’ or less notice; |
(c) |
any Applicable Contract that can reasonably be expected to result in aggregate payments by such Seller Party of more than Two Hundred Thousand Dollars ($200,000) net to such Seller Party’s interest during the current or any subsequent fiscal year or more than Five Hundred Thousand ($500,000) in the aggregate net to such Seller Party’s interest over the term of such Applicable Contract (based on the terms thereof and contracted (or if none, current) quantities where applicable); |
(d) |
any Applicable Contract that is an indenture, mortgage, loan, credit agreement, sale-leaseback, guaranty of any obligation, bond, letter of credit, or similar financial Contract; and |
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Neither such Seller Party, nor to the Knowledge of such Seller Party, any other party is in default under any Material Contract, except as set forth in Schedule 3.10. Except as set forth in Schedule 3.10, there are no Contracts with Affiliates of such Seller Party that will be binding on the Assets after Closing.
3.11Consents and Preferential Purchase Rights. To such Seller Party’s Knowledge, except as set forth in Schedule 3.11, none of the Assets or the Equity Interests is subject to any Preferential Purchase Rights or Consents required to be obtained by such Seller Party which may be applicable to the Contemplated Transactions, except for (a) Consents and approvals of Governmental Bodies that are customarily obtained after Closing, (b) Contracts that are terminable upon not greater than ninety (90) days’ notice without payment of any fee, and (c) compliance with the HSR Act.
3.12Permits. To such Seller Party’s Knowledge, except as set forth in Schedule 3.12, (a) with respect to Assets currently operated by such Seller Party or any of its Affiliates, such Seller Party or its Affiliate (as applicable) has acquired all Permits from appropriate Governmental Bodies to conduct operations on such Assets in material compliance with all applicable Legal Requirements; (b) all such Permits are in full force and effect and no Proceeding is pending or Threatened to suspend, revoke or terminate any such Permit or declare any such Permit invalid; and (c) such Seller Party is in compliance in all material respects with all such Permits.
3.13Current Commitments. Schedule 3.13 sets forth, as of the Execution Date, all approved authorizations for expenditures and other approved capital commitments, individually equal to or greater than Two Hundred Thousand Dollars ($200,000) (net to such Seller Party’s interest) (the “AFEs”) relating to the Assets to drill or rework any Wells or for other capital expenditures pursuant to any of the Material Contracts for which all of the activities anticipated in such AFEs have not been completed by the Execution Date.
3.14Plant Personal Property Condition. With respect to Personal Property used in connection with the Processing Plants, the Personal Property is sufficient and in satisfactory working condition in order to allow the operations of the plant to continue in a manner that is materially consistent with practices during the ninety (90) day period before the Execution Date at the Processing Plants, and no Personal Property has been, or will be, removed from the Processing Plants between the Effective Time and Closing.
3.15Environmental Laws. Except as disclosed on Schedule 3.15, (a) there are no actions, suits or proceedings pending, or to such Seller Party’s Knowledge, threatened in writing, before any Governmental Body with respect to the Assets alleging material violations of, or material liabilities under, Environmental Laws, or claiming remediation obligations, and (b) such Seller Party has received no notice from any Governmental Body of any alleged or actual material violation or non-compliance with, or material liability under, any Environmental Law or of material non-compliance with the terms or conditions of any environmental permits, arising from, based upon, associated with or related to the Assets or the ownership or operation of any thereof.
3.16Wells. Except as disclosed on Schedule 3.16 (a) no Well is subject to material penalties on allowable production after the Effective Time because of any overproduction, and (b) there are no Wells that such Seller Party is obligated by applicable Legal Requirement or contract
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to plug or abandon or that are currently subject to exceptions to a requirement to plug or abandon issued by a Governmental Body
(b) |
THIS SECTION 3.17 CONTAINS THE EXCLUSIVE REPRESENTATIONS AND WARRANTIES OF SUCH SELLER PARTY WITH RESPECT TO EMPLOYEE BENEFITS MATTERS. NO OTHER PROVISION OF THIS AGREEMENT SHALL BE CONSTRUED AS CONSTITUTING A REPRESENTATION OR WARRANTY REGARDING SUCH MATTERS. |
3.18Knowledge Qualifier for Non-Operated Assets. To the extent that such Seller Party has made any representations or warranties in this Article 3 in connection with matters relating to Non-Operated Assets, each and every such representation and warranty shall be deemed to be qualified by the phrase, “To such Seller Party’s Knowledge.”
3.19Disclosures with Multiple Applicability; Materiality. If any fact, condition, or matter disclosed in Seller’s disclosure Schedules applies to more than one Section of this Article 3, a single disclosure of such fact, condition, or matter on Seller’s disclosure Schedules shall constitute disclosure with respect to all sections of this Article 3 to which such fact, condition, or other matter applies, regardless of the section of Seller’s disclosure Schedules in which such fact, condition, or other matter is described. Inclusion of a matter on Seller’s disclosure Schedules with respect to a representation or warranty that is qualified by “material” or “Material Adverse Effect” or any variant thereof shall not necessarily be deemed an indication that such matter does, or may, be material or have a Material Adverse Effect. Matters may be disclosed on a Schedule to this Agreement for purposes of information only.
3.20Mayzure Organizational Documents. RUL has delivered to Buyer true and complete copies of the Organizational Documents of Mayzure, each as amended to date, and has made available for inspection minute book of Mayzure.
3.21Equity Interests. The Equity Interests constitute one hundred percent (100%) of the total issued and outstanding membership interests or other equity interests in Mayzure. RUL has legal, beneficial and record title to all of the Equity Interests free and clear of any Encumbrances other than Mayzure’s Organizational Documents and, except for this Agreement and any debt instruments that will be released at Closing, there are no Contracts or commitments that could require RUL to sell, transfer or otherwise dispose of the Equity Interests, other than this Agreement, or issue any other membership interests in Mayzure. There are no voting trusts,
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proxies or other agreements or understandings with respect to the voting of the Equity Interests. Immediately upon consummation of the Contemplated Transactions, Buyer will own all of the Equity Interests free and clear of all Encumbrances, other than Mayzure’s Organizational Documents or any Encumbrances created by, through or under Buyer or its Affiliates, or any restrictions on transfer that may be imposed by federal or state securities laws.
3.22No Undisclosed Liabilities. Except to the extent associated with proceeds of helium produced from the Wells, or as otherwise disclosed on Schedule 3.22 (none of which have or will have arisen as a result of negligence, gross negligence, strict liability, tort, toxic tort, environmental liabilities, violations of law, or default under any material contract attributable to Mayzure or for which Mayzure shall be responsible), Mayzure does not have any material debts, liabilities, or obligations of any kind or character whatsoever, whether accrued, absolute, contingent, matured, not matured, known, unknown, or otherwise, and whether or not of a character as would be required to be reflected in a balance sheet of Mayzure.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller, as of the Execution Date and the Closing Date, the following:
4.01Organization and Good Standing. Buyer is a limited partnership and duly organized, validly existing, and in good standing under the laws of Texas and is duly qualified to do business and is in good standing in each jurisdiction in which the Assets are located. Buyer’s Affiliate Scout Energy Management, LLC is a limited liability company and duly organized, validly existing, and in good standing under the laws of Texas and is duly qualified to do business and is in good standing in each jurisdiction in which the Assets are located.
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(d) |
Buyer is not and shall not be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. |
4.03Certain Proceedings. There is no Proceeding pending against Buyer that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. To Buyer’s Knowledge, no such Proceeding has been Threatened.
4.04Knowledgeable Investor. Buyer is an experienced and knowledgeable investor in the oil and gas business. Prior to entering into this Agreement, Buyer was advised by its own legal, tax, and other professional counsel concerning this Agreement, the Contemplated Transactions, the Equity Interests, the Assets, and their value, and it has relied solely thereon and on the representations and obligations of Seller in this Agreement and the documents to be executed by Seller in connection with this Agreement at the Closing. Buyer is acquiring the Assets and the Equity Interests for its own account and not for sale or distribution in violation of the Securities Act of 1933, as amended, the rules and regulations thereunder, any applicable state blue sky laws, or any other applicable Legal Requirements.
4.05Qualification. Buyer is an “accredited investor,” as such term is defined in Regulation D of the Securities Act of 1933, as amended. Buyer is not acquiring the Assets or Equity Interests in connection with a distribution or resale thereof in violation of federal or state securities laws and the rules and regulations thereunder. Without limiting Section 6.02, Buyer is, or as of the Closing will be, qualified under applicable Legal Requirements to hold leases, rights-of-way, and other rights issued or controlled by (or on behalf of) any applicable Governmental Body and will be qualified under applicable Legal Requirements to own and operate the Assets. Buyer has, or as of the Closing will have, posted such bonds as may be required for the ownership or, where applicable, operatorship by Buyer of the Assets. To Buyer’s Knowledge, no fact or condition exists with respect to Buyer or the Assets which may cause any Governmental Body to withhold its approval of the Contemplated Transactions.
4.06Brokers. Neither Buyer nor its Affiliates have incurred any obligation or liability, contingent or otherwise, for broker’s or finder’s fees with respect to the Contemplated
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Transactions other than obligations that are or will remain the sole responsibility of Buyer and its Affiliates.
4.07Financial Ability. Buyer has sufficient cash, available lines of credit, or other sources of immediately available funds to enable it to (a) deliver the amounts due at the Closing, (b) take such actions as may be required to consummate the Contemplated Transactions, and (c) timely pay and perform Buyer’s obligations under this Agreement and Buyer’s Closing Documents. Buyer expressly acknowledges that the failure to have sufficient funds shall in no event be a condition to the performance of its obligations hereunder, and in no event shall the Buyer’s failure to perform its obligations hereunder be excused by failure to receive funds from any source.
4.08Securities Laws. The solicitation of offers and the sale of the Assets and the Equity Interests by Seller have not been registered under any securities laws. At no time has Buyer been presented with or solicited by or through any public promotion or any form of advertising in connection with the Contemplated Transactions. Buyer is not acquiring the Assets or the Equity Interests with the intent of distributing fractional, undivided interests that would be subject to regulation by federal or state securities laws, and that if it sells, transfers, or otherwise disposes of the Assets or the Equity Interests or fractional undivided interests therein, it shall do so in compliance with applicable federal and state securities laws.
4.09Due Diligence. Without limiting or impairing any representation, warranty, covenant or agreement of Seller contained in this Agreement and the Seller Closing Documents, or Buyer’s right to rely thereon, subject to Buyer’s rights to access the Assets to conduct a due diligence review in accordance with this Agreement, at Closing, Buyer and its Representatives have (a) been permitted full and complete access to all materials relating to the Assets and the Equity Interests, (b) been afforded the opportunity to ask all questions of Seller (or Seller’s Representatives) concerning the Assets, (c) been afforded the opportunity to investigate the condition of the Assets and the Equity Interests, and (d) had the opportunity to take such other actions and make such other independent investigations as Buyer deems necessary to evaluate the Assets and the Equity Interests and understand the merits and risks of an investment therein and to verify the truth, accuracy, and completeness of the materials, documents, and other information provided or made available to Buyer (whether by Seller or otherwise). Buyer hereby waives any claims arising out of any materials, documents, or other information provided or made available to Buyer (whether by Seller or otherwise), whether under this Agreement, at common law, by statute, or otherwise.
4.10Basis of Buyer’s Decision. By reason of Buyer’s knowledge and experience in the evaluation, acquisition, and operation of oil and gas properties, Buyer has evaluated the merits and the risks of purchasing the Assets and the Equity Interests from Seller and has formed an opinion based solely on Buyer’s knowledge and experience, Seller’s representations, warranties, covenants, and agreements contained in this Agreement and the Seller Closing Documents, and as of Closing, Buyer’s due diligence, and not on any other representations or warranties by Seller. Buyer has not relied and shall not rely on any statements by Seller or its Representatives (other than those representations, warranties, covenants, and agreements of Seller contained in this Agreement and the Seller Closing Documents) in making its decision to enter into this Agreement or to close the Contemplated Transactions. Buyer understands and acknowledges that
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neither the United States Securities and Exchange Commission nor any other Governmental Body has passed upon the Assets or the Equity Interests or made any finding or determination as to the fairness of an investment in the Assets or the Equity Interests or the accuracy or adequacy of the disclosures made to Buyer, and, except as set forth in Article 9, Buyer is not entitled to cancel, terminate, or revoke this Agreement, whether due to the inability of Buyer to obtain financing or pay the Purchase Price, or otherwise.
4.11Business Use, Bargaining Position. Buyer is purchasing the Assets and the Equity Interests for commercial or business use. Buyer has sufficient knowledge and experience in financial and business matters that enables it to evaluate the merits and the risks of transactions such as the Contemplated Transactions, and Buyer is not in a significantly disparate bargaining position with Seller. Buyer expressly acknowledges and recognizes that the price for which Seller has agreed to sell the Assets and the Equity Interests and perform its obligations under the terms of this Agreement has been predicated upon the inapplicability of the Texas Deceptive Trade Practices - Consumer Protection Act, V.C.T.A. BUS & COMM Ann. § 17.41 et seq. (the “DTPA”), to the extent applicable, or any similar Legal Requirement, and the waiver of the DTPA, and any similar Legal Requirement, by Buyer contained in Section 13.04. Buyer further recognizes that Seller, in determining to proceed with entering into this Agreement, has expressly relied on the provisions of this Article 4.
4.12Bankruptcy. There are no bankruptcy, reorganization, receivership, or arrangement proceedings pending or being contemplated by Buyer or, to Buyer’s Knowledge, Threatened against Buyer. Buyer is, and will be immediately after giving effect to the Contemplated Transactions, solvent.
ARTICLE 5
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5.02Operation of the Assets. Except as set forth on Schedule 5.02, or as required by applicable Legal Requirements, between the Execution Date and the Closing, Seller shall operate its business with respect to its ownership and operation of the Assets in the ordinary course, and, without limiting the generality of the preceding, shall:
(c) |
not commence, propose, or agree to participate in any single operation with respect to the Wells or Leases with an anticipated cost in excess of Two Hundred Thousand Dollars ($200,000) net to Seller’s interest, except for any emergency operations; |
(d) |
not execute, terminate, cancel, extend, or materially amend or modify any Material Contract or Lease other than the execution or extension of a Contract for the sale, exchange, transportation, gathering, treating, or processing of Hydrocarbons terminable without penalty on ninety (90) days’ or shorter notice. |
Buyer acknowledges that Seller owns undivided interests in certain of the properties comprising the Assets, and Buyer agrees that the acts or omissions of the other working interest owners who are not Seller or an Affiliate of Seller shall not constitute a Breach of the provisions of this Section 5.02, nor shall any action required by a vote of working interest owners constitute such a Breach so long as Seller or its Affiliate has voted its interest in a manner that complies with the provisions of this Section 5.02. Further, no action or inaction of any Third Party operator with respect to any
36
Asset shall constitute a Breach of this Section 5.02 to the extent Seller uses commercially reasonable efforts to cause such Third Party operator to operate such applicable Asset in a manner consistent with this Section 5.02. Seller may seek Buyer’s approval to perform any action that would otherwise be restricted by this Section 5.02, and Buyer’s approval of any such action shall not be unreasonably withheld, conditioned, or delayed, and shall be considered granted ten (10) days (unless a shorter time is reasonably required by the circumstances and such shorter time is specified in Seller’s notice) after delivery of notice from Seller to Buyer requesting such consent unless Buyer notifies Seller to the contrary during such ten (10)-day period. Notwithstanding the foregoing provisions of this Section 5.02, in the event of an emergency, Seller may take such action as reasonably necessary and shall notify Buyer of such action promptly thereafter. Any matter approved (or deemed approved) by Buyer pursuant to this Section 5.02 that would otherwise constitute a Breach of one of Seller’s representations and warranties in Article 3 shall be deemed to be an exclusion from all representations and warranties for which it is relevant.
5.03Insurance. Seller shall maintain in force during the period from the Execution Date until the Closing, all of Seller’s insurance policies pertaining to the Assets in the amounts and with the coverages currently maintained by Seller. The daily pro-rated annual premiums for insurance that accrue after the Effective Time and are attributable to the insurance coverage for the period after the Effective Time until the Closing will constitute Property Costs.
5.04Consent and Waivers. Seller shall use commercially reasonable efforts to obtain prior to the Closing written waivers of all Preferential Purchase Rights and all Consents necessary for the transfer of the Assets and the Equity Interests to Buyer; provided that in the event Seller is unable to obtain all such waivers of Preferential Purchase Rights and Consents after using such commercially reasonable efforts, such failure to satisfy shall not constitute a Breach of this Agreement. Seller shall not be required to make any payments to, or undertake any obligations for the benefit of, the holders of such rights in order to obtain the Required Consents. Buyer shall cooperate with Seller in seeking to obtain such Consents.
5.05Amendment to Schedules. Until the fifth (5th) Business Day before Closing, Seller shall have the right (but not the obligation) to supplement the Schedules relating to the representations and warranties set forth in Article 3 with respect to any matters occurring subsequent to the Execution Date. Except to the extent such updates are a direct result of actions taken with Buyer’s consent pursuant to Section 5.02, prior to Closing, any such supplement shall not be considered for purposes of determining if Buyer’s Closing conditions have been met under Section 7.01 or for determining any remedies available under this Agreement; provided, however, that if Closing occurs, then such supplements shall be incorporated into Seller’s disclosure Schedules and any claim related to such matters disclosed in the supplements shall be deemed waived and Buyer shall not be entitled to make a claim thereon under this Agreement or otherwise with respect to such matters.
5.06Successor Operator. While Buyer acknowledges that it desires to succeed Seller (or its Affiliates) as operator of those Assets or portions thereof that Seller (or its Affiliates) may presently operate, Buyer acknowledges and agrees that Seller cannot and does not covenant or warrant that Buyer shall become successor operator of such Assets because the Assets or portions thereof may be subject to operating or other agreements that control the appointment of a successor operator. Seller agrees, however, that as to the Assets any Seller Party or its Affiliate operates,
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Seller shall use commercially reasonable efforts to support Buyer’s efforts to become successor operator of such Assets (to the extent permitted under any applicable operating agreement) effective as of the Closing (at Buyer’s sole cost and expense) and to designate or appoint, to the extent legally possible and permitted under any applicable operating agreement, Buyer as successor operator of such Assets effective as of Closing.
article 6
6.01Notification and Cure. If Buyer has Knowledge as of the Execution Date of any Breach of any Seller Party’s representations and warranties, Buyer shall have no remedy under this Agreement, including under Section 9.01 and Article 10, with respect to such Breach. Between the Execution Date and the Closing Date, Buyer shall promptly notify Seller in writing and Seller shall promptly notify Buyer in writing if Seller or Buyer, as applicable, obtains Knowledge of any Breach, in any material respect, of the other Party’s representations and warranties or covenants as of the Execution Date, or of an occurrence after the Execution Date that would cause or constitute a Breach, in any material respect, of any such representation and warranty or covenant had such representation and warranty or covenants been made as of the time of occurrence or discovery of such fact or condition. If any of Buyer’s or Seller’s representations or warranties are untrue or shall become untrue in any material respect between the Execution Date and the Closing Date, or if any of Buyer’s or Seller’s covenants or agreements to be performed or observed prior to or on the Closing Date shall not have been so performed or observed in any material respect, and if such breach of representation, warranty, covenant or agreement shall (if curable) be cured by the Closing (or, if the Closing does not occur, by the date set forth in Section 9.01(d)), then such breach shall be considered not to have occurred for all purposes of this Agreement.
6.02Satisfaction of Conditions. Between the Execution Date and the Closing Date (a) Seller shall use commercially reasonable efforts to cause the conditions in Article 7 to be satisfied, and (b) Buyer shall use commercially reasonable efforts to cause the conditions in Article 8 to be satisfied.
6.03Replacement of Insurance, Bonds, Letters of Credit, and Guaranties.
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6.04Governmental Reviews. Except for the HSR Act, Seller and Buyer shall (and shall cause their respective Affiliates to), in a timely manner, make all other required filings (if any) with, prepare applications to, and conduct negotiations with Governmental Bodies as required to consummate the Contemplated Transactions. Each Party shall, to the extent permitted pursuant to applicable Legal Requirements, cooperate with and use all reasonable efforts to assist the other with respect to such filings, applications and negotiations. Buyer shall bear the cost of all filing or application fees payable to any Governmental Body with respect to the Contemplated Transactions, regardless of whether Buyer, Seller, or any Affiliate of any of them is required to make the payment.
6.05HSR Act. If applicable, within ten (10) Business Days following the execution by Buyer and Seller of this Agreement, Buyer and Seller will each prepare and simultaneously file with the DOJ and the FTC the notification and report form required for the transactions contemplated by this Agreement by the HSR Act and request early termination of the waiting period thereunder. Buyer and Seller agree to respond promptly to any inquiries or requests for information or documentary material from the DOJ or the FTC concerning such filings and to comply in all material respects with the filing requirements of the HSR Act. Buyer and Seller shall cooperate with each other and, subject to the terms of the Confidentiality Agreement, shall promptly furnish all information to the other Party that is necessary in connection with Buyer’s and Seller’s compliance with the HSR Act. Buyer and Seller shall keep each other fully advised with respect to any requests from or communications with the DOJ or FTC concerning such filings and shall consult with each other with respect to all responses thereto. Each of Seller and Buyer shall use its commercially reasonable efforts to take all actions reasonably necessary and appropriate in connection with any HSR Act filing to satisfy the conditions to the Closing and consummate Contemplated Transactions as promptly as practicable and in any event not later than the Outside Date; provided, however, nothing in this Agreement shall require Buyer or Seller to propose, negotiate, effect or agree to, the sale, divestiture, license or other disposition of any assets or businesses of Buyer or Seller (including the Assets) or otherwise take any action that limits the freedom of action with respect to, or its ability to retain or operate any of the businesses of the Buyer or Seller or the Assets. The filing fees associated with any such HSR Act filing shall be borne by Buyer. Notwithstanding any provision of this Section 6.05, no Party shall be required to provide the other Party with information regarding the value of the transaction or subject to the attorney client privilege, work product doctrine or other similar privilege absent entering into a mutually acceptable joint defense agreement.
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CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE
Buyer’s obligation to purchase the Assets and the Equity Interests and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part):
7.01Accuracy of Representations. All of Seller’s representations and warranties in this Agreement must have been true and correct in all material respects (or, with respect to representations and warranties qualified by materiality or Material Adverse Effect, true and correct in all respects) as of the Execution Date, and must be true and correct in all material respects (or, with respect to representations and warranties qualified by materiality or Material Adverse Effect, true and correct in all respects) as of the Closing Date as if made on the Closing Date, other than any such representation and warranty that refers to a specified date, which need only be true and correct in all material respects (or, if qualified by materiality or Material Adverse Effect, true and correct in all respects) on and as of such specified date.
7.02Seller’s Performance. All of the covenants and obligations that Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been duly performed and complied with in all material respects.
7.03No Proceedings. Since the Execution Date, there must not have been commenced or Threatened against Seller, or against any of Seller’s Affiliates, any Proceeding (other than any matter initiated by either Buyer or its Affiliates) seeking to restrain, enjoin, or otherwise prohibit or make illegal, or seeking to recover material damages on account of, any of the Contemplated Transactions.
7.04No Orders. On the Closing Date, there shall be no Order pending or remaining in force of any Governmental Body having appropriate jurisdiction that attempts to restrain, enjoin, or otherwise prohibit the consummation of the Contemplated Transactions, or that grants material damages in connection therewith.
7.05Necessary Consents and Approvals. All Consents from Governmental Bodies and all approvals from Governmental Bodies required for the Contemplated Transactions, except Consents and approvals of assignments by Governmental Bodies that are customarily obtained after closing, shall have been granted, or the necessary waiting period shall have expired, or early termination of the waiting period shall have been granted.
7.01HSR Act. Any waiting period applicable to the consummation of the Contemplated Transactions under the terms of this Agreement under the HSR Act shall have expired or been terminated.
7.07Closing Deliverables. Seller shall have delivered (or be ready, willing and able to deliver at the Closing) to Buyer the documents and other items required to be delivered by Seller under Section 2.04(a).
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7.08Title Defect Values, Environmental Defect Values, etc. The sum of (i) all Title Defect Values agreed on by the Parties or finally determined pursuant to Article 11, plus (ii) the Aggregate Environmental Defect Values agreed on by the Parties or finally determined pursuant to Article 11, plus (iii) the aggregate downward Purchase Price adjustments under Section 11.09, plus (iv) the aggregate downward Purchase Price adjustments under Section 11.03, does not exceed twenty-five percent (25%) of the unadjusted Purchase Price.
7.09Gathering Consents. All applicable consents to the assignment of Seller’s operating rights and obligations relating to the Gathering System shall have been granted or the Parties shall have entered in to the operating agreement described in Section 11.03(c).
article 8
CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE
Seller’s obligation to sell the Assets and the Equity Interests and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part):
8.01Accuracy of Representations. All of Buyer’s representations and warranties in this Agreement must have been true and correct in all material respects (or, with respect to representations and warranties qualified by materiality or Material Adverse Effect, true and correct in all respects) as of the Execution Date, and must be true and correct in all material respects (or, with respect to representations and warranties qualified by materiality or Material Adverse Effect, true and correct in all respects) as of the Closing Date as if made on the Closing Date, other than any such representation and warranty that refers to a specified date, which need only be true and correct in all material respects (or, if qualified by materiality or Material Adverse Effect, true and correct in all respects) on and as of such specified date.
8.02Buyer’s Performance. All of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been duly performed and complied with in all material respects.
8.03No Proceedings. Since the Execution Date, there must not have been commenced or Threatened against Buyer or against any of its Affiliates, any Proceeding (other than any matter initiated by Seller or an Affiliate of Seller) seeking to restrain, enjoin, or otherwise prohibit or make illegal, or seeking to recover material damages on account of, any of the Contemplated Transactions.
8.04No Orders. On the Closing Date, there shall be no Order pending or remaining in force of any Governmental Body having appropriate jurisdiction that attempts to restrain, enjoin, or otherwise prohibit the consummation of the Contemplated Transactions, or that grants material damages in connection therewith.
8.05Necessary Consents and Approvals. All Consents from Governmental Bodies and all approvals from Governmental Bodies required for the Contemplated Transactions, except Consents and approvals of assignments by Governmental Bodies that are customarily obtained after closing, shall have been granted, or the necessary waiting period shall have expired, or early termination of the waiting period shall have been granted.
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8.06HSR Act. Any waiting period applicable to the consummation of the Contemplated Transactions under the HSR Act shall have expired or been terminated.
8.07Closing Deliverables. Buyer shall have delivered (or be ready, willing and able to deliver at the Closing) to Seller the documents and other items required to be delivered by Buyer under Section 2.04(b).
8.08Title Defect Values, Environmental Defect Values, etc. The sum of (i) all Title Defect Values agreed on by the Parties or finally determined pursuant to Article 11, plus (ii) the Aggregate Environmental Defect Values agreed on by the Parties or finally determined pursuant to Article 11, plus (iii) the aggregate downward Purchase Price adjustments under Section 11.02, plus (iv) the aggregate downward Purchase Price adjustments under Section 11.09, plus (v) the aggregate downward Purchase Price adjustments under Section 11.03, does not exceed twenty-five percent (25%) of the unadjusted Purchase Price.
8.09Qualifications. Buyer shall have obtained or, where applicable caused its Affiliate Scout Energy Management LLC to obtain, all authorizations, qualifications, and approvals required to be obtained prior to Closing under Section 6.03(a).
8.10Gathering Consents. All applicable consents to the assignment of Seller’s operating rights and obligations relating to the Gathering System shall have been granted or the Parties shall have entered in to the operating agreement described in Section 11.03(c).
article 9
9.01Termination Events. This Agreement may, by written notice given prior to or at the Closing, be terminated:
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(f) |
by Seller if the Closing condition in Section 8.08 is not satisfied (or not possible of being satisfied at Closing); |
(g) |
by Buyer if the Closing condition in Section 7.08 is not satisfied (or not possible of being satisfied at Closing); or |
(h) |
by Seller if Buyer fails to deposit the Deposit Amount pursuant to Section 2.02 of this Agreement. |
9.02Effect of Termination; Distribution of the Deposit Amount.
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(d) |
If this Agreement is terminated by either Buyer or Seller pursuant to Section 9.01 for any reason other than as described in Section 9.02(b), then, in any such case, the Parties shall, within two (2) Business Days of such termination, execute and deliver to the Escrow Agent a joint instruction letter directing the Escrow Agent to release the Deposit Amount to Buyer. |
9.03Return of Records Upon Termination. Upon termination of this Agreement, (a) Buyer shall promptly return to Seller or destroy (at Seller’s option) all title, engineering, geological
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and geophysical data, environmental assessments and reports, maps, documents and other information furnished by Seller to Buyer in connection with its due diligence investigation of the Assets and the Equity Interests and (b) an officer of Buyer shall certify Buyer’s compliance with the preceding clause (a) to Seller in writing.
article 10
10.01Survival. The survival periods for the various representations, warranties, covenants and agreements contained herein shall be as follows: (a) Fundamental Representations shall survive indefinitely; (b) the representations and warranties in Section 3.04 shall survive for the applicable statute of limitations plus sixty (60) days; (c) the special warranty of Defensible Title set forth in the Instruments of Conveyance shall survive for twenty-four (24) months after Closing; (d) all covenants and agreements of Seller to be performed at or following the Closing shall survive until fully performed; (e) all other representations, warranties, covenants and agreements of Seller shall survive for twelve (12) months after Closing; provided, that the covenants of Buyer and Seller set forth in Section 13.02 shall survive for the applicable statute of limitations plus sixty (60) days; and (f) all other representations, warranties, covenants and agreements of Buyer shall survive indefinitely. Representations, warranties, covenants and agreements shall be of no further force and effect after the date of their expiration; provided that there shall be no termination of any bona fide claim asserted pursuant to this Agreement with respect to such a representation, warranty, covenant or agreement prior to its expiration date. The indemnities in Sections 10.02(a), 10.02(b), 10.03(a) and 10.03(b) shall terminate as of the termination date of each respective representation, warranty, covenant or agreement that is subject to indemnification thereunder, except in each case as to matters for which a specific written claim for indemnity has been delivered to the indemnifying person on or before such termination date. The indemnities in Section 10.02(c) shall continue for twenty-four (24) months following the Closing Date. All other indemnities, and all other provisions of this Agreement, shall survive the Closing without time limit except as may otherwise be expressly provided herein.
10.02Indemnification and Payment of Damages by Seller. Except as otherwise limited in this Article 10, from and after the Closing, Seller shall defend, release, indemnify, and hold harmless Buyer Group from and against, and shall pay to the Buyer Group the amount of, any and all Damages, whether or not involving a Third Party claim or incurred in the investigation or defense of any of the same or in asserting, preserving, or enforcing any of their respective rights under this Agreement arising from, based upon, related to, or associated with:
(a) |
any Breach of any representation or warranty made by Seller in this Agreement, or in any certificate delivered by Seller pursuant to this Agreement; |
(d) |
the use, ownership or operation of the Excluded Assets; and |
(e) |
the use, ownership or operation of the Retained Assets. |
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Notwithstanding anything to the contrary contained in this Agreement, after the Closing, the remedies provided in this Article 10 and Article 11, along with the special warranty of Defensible Title set forth in the Instruments of Conveyance, are Buyer Group’s exclusive legal remedies against Seller with respect to this Agreement and the Contemplated Transactions, including breaches of the representations, warranties, covenants, obligations, and agreements of the Parties contained in this Agreement or the affirmations of such representations, warranties, covenants, obligations, and agreements contained in the certificate delivered by Seller at Closing pursuant to Section 2.04, and except for the remedies provided in this Article 10 and Article 11, along with the special warranty of Defensible Title set forth in the Instruments of Conveyance, Buyer releases Seller Group from any and all claims, causes of action, Proceedings, or other legal rights and remedies of Buyer Group, known or unknown, which Buyer might now or subsequently have, based on, relating to or in any way arising out of this Agreement, the Contemplated Transactions, the ownership, use or operation of the Assets or the Equity Interests prior to the Closing, or the condition, quality, status, or nature of the Assets or the Equity Interests prior to the Closing, including any and all claims related to environmental matters or liability or violations of environmental laws and including rights to contribution under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, breaches of statutory or implied warranties, nuisance, or other tort actions, rights to punitive damages, common law rights of contribution, and rights under insurance maintained by Seller or any of Seller’s Affiliates. Seller shall have no obligation to indemnify any of the Buyer Group for any Damages for which Buyer is obligated to indemnify Seller Group pursuant to Section 10.03.
10.03Indemnification and Payment of Damages by Buyer. Except as otherwise limited in this Article 10 and Article 11, from and after the Closing, Buyer shall assume, be responsible for, pay on a current basis, and shall defend, release, indemnify, and hold harmless Seller Group from and against, and shall pay to Seller Group the amount of any and all Damages, whether or not involving a Third Party claim or incurred in the investigation or defense of any of the same or in asserting, preserving, or enforcing any of their respective rights under this Agreement arising from, based upon, related to, or associated with:
(a) |
any Breach of any representation or warranty made by Buyer in this Agreement or in any certificate delivered by Buyer pursuant to this Agreement; |
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(e) |
(i) the ownership of the Equity Interests and of Mayzure from and after the Closing Date and (ii) the business of Mayzure from and after the Closing Date. |
Notwithstanding anything to the contrary contained in this Agreement, and except for Seller’s termination rights under Article 9 of this Agreement, the remedies provided in this Article 10 are Seller Group’s exclusive legal remedies for Buyer’s Breaches, all other legal rights and remedies being expressly waived by Seller Group; provided that Seller is entitled to any equitable remedies available under applicable Legal Requirements in connection with any Breach by Buyer of Article 13.
10.04Indemnity Net of Insurance. The amount of any Damages for which an indemnified Party is entitled to indemnity under this Article 10 shall be reduced by the amount of insurance or indemnification proceeds realized by the indemnified Party or its Affiliates with respect to such Damages (net of any collection costs, and excluding the proceeds of any insurance policy issued or underwritten, or indemnity granted, by the indemnified Party or its Affiliates).
10.05Limitations on Liability. Except with respect to the Fundamental Representations and the representations and warranties included in Section 3.04, if the Closing occurs, Seller shall not have any liability for any indemnification under Section 10.02(a): (a) for any Damages with respect to any occurrence, claim, award or judgment with respect to that do not individually exceed One Hundred Thousand Dollars ($100,000) net to Seller’s interest (the “Individual Claim Threshold”); or (b) unless and until the aggregate Damages for which claim notices for claims meeting the Individual Claim Threshold are delivered by Buyer exceed two percent (2%) of the unadjusted Purchase Price, and then only to the extent such Damages exceed two percent (2%) of the unadjusted Purchase Price. Except with respect to the Fundamental Representations and the representations and warranties included in Section 3.04, in no event will Seller be liable for Damages indemnified under Section 10.02(a) to the extent such damages, exceed twenty percent (20%) of the unadjusted Purchase Price. Notwithstanding anything herein to the contrary, in no event will Seller’s aggregate liability under this Agreement exceed one hundred percent (100%) of the unadjusted Purchase Price.
10.06Procedure for Indemnification‑‑Third Party Claims.
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10.07Procedure for Indemnification – Other Claims. A claim for indemnification for any matter not involving a Third Party claim may be asserted by notice to the Party from whom indemnification is sought.
10.08Indemnification of Group Members. The indemnities in favor of Buyer and Seller provided in Section 10.08 and Section 10.03, respectively, shall be for the benefit of and extend to such Party’s present and former Group members. Any claim for indemnity under this Article 10 by any Group member other than Buyer or Seller must be brought and administered by the relevant Party to this Agreement. No indemnified party other than Buyer and Seller shall have any rights against either Seller or Buyer under the terms of this Article 10 except as may be exercised on its behalf by Buyer or Seller, as applicable, pursuant to this Section 10.08. Each of Seller and Buyer may elect to exercise or not exercise indemnification rights under this Section on behalf of the other indemnified party affiliated with it in its sole discretion and shall have no liability to any such other indemnified party for any action or inaction under this Section.
10.09Extent of Representations and Warranties.
(a) |
Except as and to the extent expressly set forth in this Agreement or in the Instruments of Conveyance, Seller makes no representations or |
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(b) |
Buyer acknowledges and affirms that it has made its own independent investigation, analysis, and evaluation of the Contemplated Transactions, the Assets and the Equity Interests (including Buyer’s own estimate and appraisal of the extent and value of Seller’s Hydrocarbon reserves attributable to the Assets and an independent assessment and appraisal of the environmental risks associated with the acquisition of the Assets and the Equity Interests). Buyer acknowledges that in entering into this Agreement, it has relied on the aforementioned investigation and the express representations and warranties of Seller contained in this Agreement and the Seller Closing Documents. Buyer hereby irrevocably covenants to refrain from, directly or indirectly, asserting any claim, or commencing, instituting, or causing to be commenced, any Proceeding of any kind against Seller or its Affiliates, alleging facts contrary to the foregoing acknowledgment and affirmation. |
10.10Compliance With Express Negligence Test. The Parties agree that any indemnity, defense, and/or release obligation arising under this Agreement shall apply without regard to the negligence, strict liability, or other fault of the indemnified party, whether active, passive, joint, concurrent, comparative, contributory or sole, or any pre-existing condition, any breach of contract or breach of warranty, or violation of any legal requirement, except to the extent such damages were occasioned by the gross negligence or willful misconduct of
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the indemnified party or any group member thereof, it being the Parties’ intention that Damages to the extent arising from the gross negligence or willful misconduct of the indemnified party or any group member thereof not be covered by the release, defense, or indemnity obligations in this Agreement. The foregoing is a specifically bargained for allocation of risk among the Parties, which the Parties agree and acknowledge satisfies the express negligence rule and conspicuousness requirement under Texas law.
10.11Limitations of Liability. Notwithstanding anything to the contrary contained in this Agreement, in no event shall Seller or Buyer ever be liable for, and each Party releases the other from, any consequential, special, indirect, exemplary, or punitive damages or claims relating to or arising out of the Contemplated Transactions or this Agreement; provided, however, that any consequential, special, indirect, exemplary, or punitive damages recovered by a Third Party (including a Governmental Body, but excluding any Affiliate of any Group member) against a Person entitled to indemnity pursuant to this Article 10 shall be included in the Damages recoverable under such indemnity. Notwithstanding the foregoing, lost profits shall not be excluded by this provision as to recovery hereunder to the extent constituting direct Damages.
10.12No Duplication. Any liability for indemnification hereunder shall be determined without duplication of recovery by reason of the state of facts giving rise to such liability constituting a Breach of more than one representation, warranty, covenant, obligation, or agreement herein. Neither Buyer nor Seller shall be liable for indemnification with respect to any Damages based on any sets of facts to the extent the Purchase Price is being or has been adjusted pursuant to Section 2.05 by reason of the same set of facts.
10.13Disclaimer of Application of Anti-Indemnity Statutes. Seller and Buyer acknowledge and agree that the provisions of any anti-indemnity statute relating to oilfield services and associated activities shall not be applicable to this Agreement and/or the Contemplated Transactions.
10.14Waiver of Right to Rescission. Seller and Buyer acknowledge that, following the Closing, the payment of money, as limited by the terms of this Agreement, shall be adequate compensation for Breach of any representation, warranty, covenant or agreement contained herein or for any other claim arising in connection with or with respect to the Contemplated Transactions. As the payment of money shall be adequate compensation, following Closing, Seller and Buyer waive any right to rescind this Agreement or any of the transactions contemplated hereby.
article 11
TITLE MATTERS AND ENVIRONMENTAL MATTERS; PREFERENTIAL PURCHASE RIGHTS; CONSENTS
11.01Title Examination and Access. Buyer may make or cause to be made at its expense such examination as it may desire of Seller’s title to the Assets. For such purposes, until the Defect Notice Date, Seller shall give to Buyer and its Representatives access during Seller’s regular hours of business to originals or, in Seller’s sole discretion, copies (which copies may, at Seller’s sole discretion, be in electronic format), of all of the files, records, contracts,
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correspondence, maps, data, reports, plats, abstracts of title, lease files, well files, unit files, division order files, production marketing files, title opinions, title files, title records, ownership maps, surveys, and any other information, data, records, and files that Seller has relating in any way to the title to the Assets, the past or present operation thereof, and the marketing of production therefrom, in accordance with, and subject to the limitations in, Section 5.01.
11.02Preferential Purchase Rights. Seller shall provide all notices necessary to comply with or obtain the waiver of all Preferential Purchase Rights which are applicable to the Contemplated Transactions prior to the Closing Date and in accordance with Section 5.04. To the extent any such Preferential Purchase Rights are exercised by any holders thereof, then the Asset(s) subject to such Preferential Purchase Rights shall not be sold to Buyer and shall be excluded from the Assets and sale under this Agreement and shall be considered Retained Assets. The Purchase Price shall be adjusted downward by the Allocated Value of the Asset(s) so retained. On the Closing Date, if the time period for exercising any Preferential Purchase Right has not expired, but no notice of waiver (nor of the exercise of such Preferential Purchase Right) has been received from the holder thereof, then the Asset(s) subject to such Preferential Purchase Right shall be included in the Closing, with no adjustment to the Purchase Price. After the Closing, if the holder of such Preferential Purchase Right exercises the Preferential Purchase Right, then Buyer shall convey the affected Asset(s) to such party, and shall receive the consideration for such affected Asset(s) directly from such party. If any holder of a Preferential Purchase Right initially elects to exercise that Preferential Purchase Right, but after the Closing Date, refuses to consummate the purchase of the affected Asset(s), then, subject to the Parties’ respective rights and remedies as to the obligation to consummate the Contemplated Transactions, Buyer shall purchase such Asset(s) for the Allocated Value thereof (subject to the adjustments pursuant to Section 2.05), and the closing of such transaction shall take place on a date designated by Seller not more than one hundred eighty (180) days after the Closing Date. If such holder’s refusal to consummate the purchase of the affected Asset(s) occurs prior to the Closing Date, then, subject to the Parties’ respective rights and remedies as to the obligation to consummate the Contemplated Transactions, Buyer shall purchase the affected Asset(s) at the Closing in accordance with the terms of this Agreement.
11.03Consents. Seller shall initiate all procedures required to comply with or obtain all Consents required for the transfer of the Assets in accordance with Section 5.04.
(a) |
If Seller fails to obtain any Consent necessary for the transfer of any Asset to Buyer, Seller’s failure shall be handled as follows: |
|
(i) |
If the Consent is not a Required Consent, then the affected Assets shall nevertheless be conveyed at the Closing as part of the Assets. Any Damages that arise due to the failure to obtain such Consent shall be borne by Buyer, and Buyer shall defend, release, indemnify and hold harmless Seller Group from and against the same. |
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(c) |
If Seller fails to obtain the consents applicable to the assignment of Seller’s operating rights and obligations relating to the Gathering System on or before the Closing, the Parties shall enter into an operating agreement whereby Buyer is obligated to assume and perform all obligations of Seller pertaining to the Gathering System and Buyer is entitled to all rights and proceeds of Seller pertaining to the Gathering System. |
11.04Title Defects. Buyer shall notify Seller of Title Defects (“Title Defect Notice(s)”) promptly after the discovery thereof, but in no event later than 5:00 p.m. Central Time on October 19, 2019 (the “Defect Notice Date”). To be effective, each Title Defect Notice shall be in writing and include (a) a description of the alleged Title Defect and the Processing Plant, Well or portion thereof affected by such alleged Title Defect (each, a “Title Defect Property”), (b) the Allocated Value of each Title Defect Property, (c) supporting documents reasonably necessary for Seller to verify the existence of the alleged Title Defect, (d) Buyer’s preferred manner of curing such Title Defect, and (e) the amount by which Buyer reasonably believes the Allocated Value of each Title Defect Property is reduced by such alleged Title Defect and the computations upon which Buyer’s belief is based (the “Title Defect Value”). To give Seller an opportunity to commence reviewing and curing Title Defects, Buyer agrees to use reasonable efforts to give Seller, on a weekly basis prior to the Defect Notice Date, written notice of all alleged Title Defects (as well as any claims that would be claims under the special warranty of Defensible Title set forth in the Instruments of Conveyance) discovered by Buyer during the preceding week. Notwithstanding anything herein to the contrary, subject to Buyer’s rights under the special warranty of Defensible Title in the Instruments of Conveyance, Buyer forever waives, and Seller shall have no liability for, Title Defects not asserted by a Title Defect Notice meeting all of the requirements set forth in the preceding sentence no later than 5:00 p.m. Central Time on the Defect Notice Date.
11.05Title Defect Value. The Title Defect Value shall be determined pursuant to the following guidelines, where applicable:
(a) |
if the Parties agree on the Title Defect Value, then that amount shall be the Title Defect Value; |
(b) |
if the Title Defect is an Encumbrance that is undisputed and liquidated in amount, then the Title Defect Value shall be the amount necessary to be paid to remove the Title Defect from the Title Defect Property; |
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which is the Net Revenue Interest decrease and the denominator of which is the Net Revenue Interest set forth for such Title Defect Property in Schedule 2.07; |
In no event, however, shall the total of the Title Defect Values related to a particular Asset exceed the Allocated Value of such Asset. The Title Defect Value with respect to a Title Defect shall be determined without any duplication of any costs or losses included in any other Title Defect Value hereunder, or for which Buyer otherwise receives credit in the calculation of the Purchase Price.
11.06Seller’s Cure or Contest of Title Defects.
Seller may contest any asserted Title Defect or Buyer’s good faith estimate of the Title Defect Value as described in Section 11.06(b) and may seek to cure any asserted Title Defect as described in Section 11.06(a).
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|
include a downward adjustment in the Final Settlement Statement equal to the Title Defect Value for such Asset; or |
11.07Limitations on Adjustments for Title Defects. Notwithstanding the provisions of Sections 11.04, 11.05 and 11.06, Seller shall be obligated to adjust the Purchase Price to account for uncured Title Defects only to the extent that the sum of (x) the aggregate Title Defect Values of all uncured Title Defects (the “Aggregate Title Defect Value”) (after taking into account any offsetting Title Benefit Values) plus (y) the Aggregate Environmental Defect Value exceeds the Aggregate Defect Deductible. In addition, no Title Defect Value will be considered in calculating the Aggregate Title Defect Value unless the Title Defect Value with respect to a single Well is equal to or greater than the De Minimis Title Defect Cost.
11.08Title Benefits. If Seller discovers any right, circumstance or condition that operates (a) to increase the Net Revenue Interest for any Well above that shown in Schedule 2.07, to the extent the same does not cause a greater than proportionate increase in Seller’s Working Interest therein above that shown in Schedule 2.07, or (b) to decrease the Working Interest of Seller in any Well below that shown in Schedule 2.07, as applicable, to the extent the same causes a decrease in Seller’s Working Interest that is proportionately greater than the decrease in Seller’s Net Revenue Interest therein below that shown in Schedule 2.07 (each, a “Title Benefit”), then Seller shall, from time to time and without limitation, have the right, but not the obligation, to give Buyer written notice of any such Title Benefits (a “Title Benefit Notice”), as soon as practicable but not later than 5:00 p.m. Central Time on the Defect Notice Date, stating with reasonable specificity the Assets affected, the particular Title Benefit claimed, and Seller’s good faith estimate of the amount the additional interest increases the value of the affected Assets over and above that Asset’s Allocated Value (the “Title Benefit Value”). Buyer shall also promptly furnish Seller with written notice of any Title Benefit (including a description of such Title Benefit and the Assets affected thereby with reasonable specificity (the “Title Benefit Properties”)) which is discovered by any of Buyer’s or any of its Affiliates’ Representatives, employees, title attorneys, landmen, or other title
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examiners. The Title Benefit Value of any Title Benefit shall be determined by the following methodology, terms and conditions (without duplication): (i) if the Parties agree on the Title Benefit Value, then that amount shall be the Title Benefit Value; (ii) if the Title Benefit represents a discrepancy between (A) Seller’s Net Revenue Interest for any Title Benefit Property and (B) the Net Revenue Interest set forth for such Title Benefit Property in Schedule 2.07, and there is also a proportionate increase in Working Interest for such Title Benefit Property as applicable, then the Title Benefit Value shall be the product of the Allocated Value of such Title Benefit Property multiplied by a fraction, the numerator of which is the Net Revenue Interest increase and the denominator of which is the Net Revenue Interest set forth for such Title Benefit Property in Schedule 2.07, as applicable; (iii) if the Title Benefit represents a decrease of (A) Seller’s Working Interest for any Title Benefit Property below (B) the Working Interest set forth for such Title Benefit Property in Schedule 2.07, as applicable, then the Title Benefit Value shall be determined by calculating the Net Revenue Interest that results from such reduced Working Interest, determining what the Net Revenue Interest would be using such calculated Net Revenue Interest and the Working Interest set forth in Schedule 2.07, as applicable; and (iv) if the Title Benefit is of a type not described above, then the Title Benefit Value shall be determined by taking into account the Allocated Value of the Title Benefit Property, the portion of such Title Benefit Property affected by such Title Benefit, the legal effect of the Title Benefit, the potential economic effect of the Title Benefit over the life of such Title Benefit Property, the values placed upon the Title Benefit by Buyer and Seller and such other reasonable factors as are necessary to make a proper evaluation.
Seller and Buyer shall attempt to agree on the existence and Title Benefit Value for all Title Benefits on before the end of the Title Defect Cure Period. If Buyer agrees with the existence of the Title Benefit and Seller’s good faith estimate of the Title Benefit Value, then the Aggregate Title Defect Value shall be offset by the amount of the Title Benefit Value. If the Parties cannot reach agreement by the end of the Title Defect Cure Period, the Title Benefit or the Title Benefit Value in dispute shall be submitted to arbitration in accordance with the procedures set forth in Section 11.15. Notwithstanding the foregoing, the Parties agree and acknowledge that there shall be no upward adjustment to the Purchase Price for any Title Benefit. If a contested Title Benefit cannot be resolved prior to the Closing, Seller shall convey the affected Asset to Buyer and Buyer shall pay for the Asset at the Closing in accordance with this Agreement as though there were no Title Benefits; provided, however, if the Title Benefit contest results in a determination that a Title Benefit exists, then the Aggregate Title Defect Value shall be adjusted downward by the Title Benefit Value as determined in such contest (which adjustment shall be made on the Final Settlement Statement).
11.09Buyer’s Environmental Assessment. Beginning on the Execution Date and ending at 5:00 p.m. Central Time on the Defect Notice Date, Buyer shall have the right, at its sole cost, risk, liability, and expense, to conduct a Phase I Environmental Site Assessment of the Assets. During Seller’s regular hours of business and after providing Seller with written notice of any such activities no less than two (2) Business Days in advance (which written notice shall include the written permission of the operator (if other than Seller) and any applicable Third Party operator or other Third Party whose permission is legally required, which Seller shall reasonably cooperate with Buyer in securing), Buyer and its representatives shall be permitted to enter upon the Assets, inspect the same, review all of Seller’s files and records (other than those for which Seller has an attorney-client privilege) relating to the Assets, and generally conduct visual, non-invasive tests,
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examinations, and investigations. No sampling or other invasive inspections of the Assets may be conducted prior to Closing without Seller’s prior written consent. Buyer’s access shall be in accordance with, and subject to the limitations in, Section 5.01. Notwithstanding anything in this Agreement to the contrary, if (a) Buyer is not granted access to any Asset to conduct its Phase I Environmental Site Assessment of the Assets or (b) Buyer determines in good faith that (based on the results of its Phase I Environmental Site Assessment) sampling or testing of environmental media or operation of equipment is recommended on an Asset and Buyer is not granted permission and access to conduct such activities, then Buyer may elect to exclude such Asset, together with all associated Assets, and reduce the Purchase Price by the Allocated Value of such Assets (which will become Retained Assets).
11.10Environmental Defect Notice. Buyer shall notify Seller in writing of any Environmental Defect (an “Environmental Defect Notice”) promptly after the discovery thereof, but in no event later than 5:00 p.m. Central Time on the Defect Notice Date. To be effective, an Environmental Defect Notice shall include: (i) the Well, Lease, Unit or Processing Plant affected; (ii) a complete and detailed description of the alleged Environmental Defect and the basis for such assertion under the terms of this Agreement; (iii) Buyer’s good faith estimate of the Environmental Defect Value with respect to such Environmental Defect; and (iv) appropriate documentation reasonably necessary for Seller to substantiate Buyer’s claim and calculation of the Environmental Defect Value. Notwithstanding anything herein to the contrary, Buyer forever waives Environmental Defects not asserted by an Environmental Defect Notice meeting all of the requirements set forth in the preceding sentence no later than 5:00 p.m. Central Time on the Defect Notice Date.
11.11Seller’s Exclusion, Cure or Contest of Environmental Defects. Seller, in its sole discretion, (x) may elect to (A) exclude at Closing any Asset affected by an asserted Environmental Defect together with any Assets whose ownership cannot be practically separated from the affected Asset (the “Integral Assets”), which excluded Assets and Integral Assets will become a Retained Asset if the Environmental Defect Value with respect to such Environmental Defect equals or exceeds the Allocated Value of the affected Asset(s) and the Allocated Value of the Integral Assets and (B) reduce the Purchase Price by the Allocated Value(s) of the affected Asset(s) and any Integral Asset(s), (y) may contest any asserted Environmental Defect or Buyer’s good faith estimate of the Environmental Defect Value as described in Section 11.11(b) and/or (z) may seek to remediate or cure any asserted Environmental Defect to the extent of the Lowest Cost Response as described in Section 11.11(a).
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Requirements in a prompt and timely fashion for the type of remediation or cure. If Seller elects to pursue remediation or cure and: |
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(ii) |
does not complete a Complete Remediation prior to the Closing, unless Seller elects to exclude such Asset(s) in accordance with this Section 11.11, then Seller shall convey the affected Asset(s) to Buyer and Buyer shall pay for the affected Asset(s) at the Closing; provided, however that if Seller is unable to complete a Complete Remediation of the Environmental Defect within the time provided in this Section 11.11, then Seller shall include a downward adjustment in the Final Settlement Statement equal to the Environmental Defect Value for such Asset(s). |
11.12Limitations. Notwithstanding the provisions of Sections 11.10 and 11.11, no adjustment to the Purchase Price for Environmental Defect Values shall be made unless and until the sum of (x) the aggregate value of all Environmental Defect Values (the “Aggregate Environmental Defect Value”) plus (y) the Aggregate Title Defect Value (after taking into account any offsetting Title Benefit Values) exceeds the Aggregate Defect Deductible. Only Environmental Defect Values that are equal to or greater than the De Minimis Environmental Defect Cost with respect to any single Environmental Defect for a Well, Lease or Unit shall be considered in calculating the Aggregate Environmental Defect Value.
11.13Exclusive Remedies. The rights and remedies granted to Buyer in this Agreement are the exclusive rights and remedies against Seller related to any Environmental Condition, or Damages related thereto. Except as set forth in this Agreement, Buyer expressly waives, and releases Seller Group from, any and all other rights and remedies it may have under Environmental Laws against Seller regarding Environmental Conditions, whether for contribution, indemnity, or otherwise. The foregoing is a specifically bargained for allocation of risk among the Parties, which the Parties agree and acknowledge satisfies the express negligence rule and conspicuousness requirement under Texas law.
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11.14Casualty Loss and Condemnation. If, after the Execution Date but prior to Closing Date, any portion of the Assets is destroyed by fire or other casualty or is expropriated or taken in condemnation or under right of eminent domain (a “Casualty Loss”), this Agreement shall remain in full force and effect, and Buyer shall nevertheless be required to close the Contemplated Transactions. In the event that the amount of the costs and expenses associated with repairing or restoring the Assets affected by such Casualty Loss exceeds One Million Dollars ($1,000,000) net to Seller’s interest, Seller must elect by written notice to Buyer prior to Closing either to (a) cause the Assets affected by such Casualty Loss to be repaired or restored, at Seller’s sole cost, as promptly as reasonably practicable (which work may extend after the Closing Date), or (b) indemnify Buyer under an indemnification agreement mutually acceptable to the Parties against any costs or expenses that Buyer reasonably incurs to repair or restore the Assets subject to such Casualty Loss. In each case, Seller shall retain all rights to insurance and other claims against Third Parties with respect to the applicable Casualty Loss except to the extent the Parties otherwise agree in writing. Seller shall have no other liability or responsibility to Buyer with respect to a condemnation or Casualty Loss, even if such Casualty Loss shall have resulted from or shall have arisen out of the sole or concurrent negligence, fault, or violation of a Legal Requirement of Seller or any member of Seller Group.
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(e) |
The Expert Decision shall be final and binding upon the Parties, without right of appeal, absent manifest error. In making its determination, the Expert shall be bound by the rules set forth in this Article 11. The Expert may consult with and engage disinterested Third Parties to advise the Expert, but shall disclose to the Parties the identities of such consultants. Any such consultant shall not have worked as an employee or consultant for either Party or its Affiliates during the five (5)-year period preceding the arbitration nor have any financial interest in the dispute. |
12.01Seller Benefit Plans. Effective as of his or her Employee Start Date, each Continuing Employee shall cease to accrue further benefits and shall cease to be an active participant under the Seller Benefit Plans. Buyer shall not assume any of the Seller Benefit Plans. From and after each Continuing Employee’s Employee Start Date, Seller and its ERISA Affiliates
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shall retain and shall be solely responsible for all obligations and liabilities under the Seller Benefit Plans or related to changes by Seller thereto, and neither Buyer nor its Affiliates shall have any obligation, liability or responsibility from and after such Continuing Employee’s Employee Start Date to or under the Seller Benefit Plans, whether such obligation, liability or responsibility arose before, on or after such Continuing Employee’s Employee Start Date.
12.02Pre-Employee Start Date Claims under Seller Benefit Plans and Accrued Vacation Balances.
(a)To the extent that an Available Employee was a participant in a Seller Benefit Plan, the Seller Benefit Plans shall be responsible for providing welfare benefits (including medical, hospital, dental, accidental death and dismemberment, life, disability and other similar benefits) to any participating Available Employees for all claims incurred prior to his or her Employee Start Date under and subject to the terms and conditions of such plans. For purposes of this Section 12.02, a claim is incurred with respect to (i) accidental death and dismemberment, disability, life and other similar benefits when the event giving rise to such claim occurred and (ii) medical, hospital, dental and other similar benefits when the services with respect to such claim are rendered; provided, that all services related to a continuous period of hospitalization shall be deemed to be rendered upon the commencement of such period.
(b)Seller shall pay each Continuing Employee’s accrued and unused vacation balance (the “Accrued Vacation Balances”), in each case, to the extent such Accrued Vacation Balance existed immediately prior to such Continuing Employee’s Employee Start Date, in accordance with applicable Legal Requirements.
12.03Available Employees’ Offers and Post-Employee Start Date Employment and Benefits.
(a)Following the Execution Date, Seller shall provide Buyer reasonable access to the Available Employees.
(b)Within two (2) Business Days of the Execution Date, Seller will provide Buyer with a list that sets forth the name of each Available Employee, and for each such individual, his or her name, job title, annualized salary or hourly wage, bonus eligibility/target, long-term incentive eligibility/target, vacation eligibility, hire date/start date, leave status (including expected duration of any leave), details of any visa, and any vehicle described on Exhibit D assigned to the Available Employee by Seller (the “Available Employee List”).
(c)Beginning seven (7) Business Days following the Execution Date, Buyer or its Affiliate may make written offers of employment to any of the Available Employees to whom Buyer or its Affiliate elects to make an offer of employment, with such offers providing for an Employee Start Date the day after Closing. Each offer of employment shall provide the applicable Available Employee at least five (5) Business Days to either accept or reject such offer. No later than the date that is three (3) Business Days prior to the anticipated Closing Date, Buyer shall notify Seller as to each Available Employee who has accepted an offer from Buyer or any of its Affiliates, which acceptance shall be conditioned upon the occurrence of the Closing and effective as of the Employee Start Date and may be conditioned on other typical hiring policies, and each Available Employee who has rejected Buyer’s or its Affiliate’s offer of employment. BUYER
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SHALL INDEMNIFY AND HOLD HARMLESS SELLER AND ITS AFFILIATES WITH RESPECT TO ALL CLAIMS AND LIABILITIES RELATING TO OR ARISING OUT OF BUYER’S OR ITS AFFILIATE’S EMPLOYEE SELECTION AND EMPLOYMENT OFFER PROCESS DESCRIBED IN THIS SECTION 12.03 (INCLUDING ANY CLAIM OF DISCRIMINATION OR OTHER ILLEGALITY IN SUCH SELECTION AND OFFER PROCESS).
(d)As to each Available Employee to whom Buyer does not made an offer of employment at least seven (7) Business Days prior to Closing, Buyer agrees that it and its Affiliates shall not employ such Available Employee prior to the date that is six (6) months after Closing, and during such six (6) month period, Buyer will not solicit an employment relationship or negotiate employment terms with such Available Employee. Notwithstanding the foregoing, in the event an Available Employee to whom Buyer does not made an offer of employment at least seven (7) Business Days prior to Closing becomes employed by a Third Party, this Section 12.03(d) shall not prevent Buyer or its Affiliates from contracting for services from such Third Party so long as the contractor relationship does not resemble or otherwise create an employer-employee relationship.
(e)Each Available Employee who is actively at work as of Closing or is on a previously scheduled and approved (by Seller or its Affiliates) short-term disability, long-term disability, workers’ compensation or other approved leave of absence and accepts an offer of employment from Buyer or its Affiliate and, in each instance, assumes employment with Buyer or its Affiliate is referred to as a “Continuing Employee.” The date that a Continuing Employee begins employment with Buyer or its Affiliate is referred to as his or her “Employee Start Date.” Buyer or its Affiliate will provide each Continuing Employee with the same or similar benefits as similarly situated current employees of Buyer or its Affiliate; provided that nothing in the foregoing shall affect the right of Buyer or its Affiliates to terminate the employment of a Continuing Employee for any reason or at any time. Seller retains the right to terminate the employment of a Continuing Employee for any reason or at any time prior to the Employee Start Date. On or before the Employee Start Date of each Continuing Employee, Seller shall take all necessary action to fully vest as of such date such Continuing Employee’s account balances and other benefits under all Seller Benefit Plans, if any, that are employee pension benefit plans (as such term is defined in Section 3(2) of ERISA).
(f)Buyer or its Affiliate shall cause each Continuing Employee and his or her eligible dependents (including all such employee’s dependents covered immediately prior to the Employee Start Date by a group health plan maintained by Seller or its Affiliates) to be eligible to be covered under a group health plan maintained by Buyer or its Affiliate that (i) provides medical and dental benefits coverage to such Continuing Employee and such eligible dependents effective as of the first day of the calendar month following such Continuing Employee’s Employee Start Date (unless such Continuing Employee’s Employee Start Date is the first day of a calendar month, in which case, such coverage shall be effective immediately as of such Continuing Employee’s Employee Start Date).
12.04Post-Employee Start Date Employment Claims. Buyer shall indemnify, defend and hold Seller and its Affiliates harmless from and against any and all liability of any kind or nature involving or related to the employment of each Continuing Employee by Buyer or its
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Affiliate after his or her Employee Start Date, including any liability related to any employee benefit plan sponsored or maintained by Buyer or its ERISA Affiliates after the Employee Start Date. Seller shall indemnify, defend and hold Buyer and its Affiliates harmless from and against any and all liability of any kind or nature or related to (a) the employment of any Available Employee who does not become a Continuing Employee, including any liability related to any Seller Benefit Plan and (b) the employment of the Continuing Employees by Seller or its Affiliate before his or her Employee Start Date, including any liability related to any employee benefit plan sponsored, maintained or changed by any Seller Party or any of their respective ERISA Affiliates before the Employee Start Date.
12.05Buyer Welfare Plans. Buyer shall cause the waiver of all limitations as to pre-existing conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the Continuing Employees. Buyer shall provide continuation health care coverage to Continuing Employees and their qualified beneficiaries who incur a qualifying event, in accordance with the continuation health care coverage requirements of Section 4980B of the Code and Title I, Subtitle B, Part 6 of ERISA (“COBRA”) or any similar provisions of state Legal Requirement, on or after the Employee Start Date.
12.06WARN Act. From the date of this Agreement until the final Employee Start Date, Seller shall not and shall cause its Affiliates not to, terminate the employment of any Available Employees such that a “plant closing” or “mass layoff” (as those terms are defined in the WARN Act or any similar state Legal Requirement) occurs prior to the final Employee Start Date without complying with the WARN Act. Buyer agrees to provide any notice to each Continuing Employee required under the WARN Act or any similar state Legal Requirement with respect to any “plant closing” or “mass layoff” affecting such Continuing Employee that may occur on or after his or her Employee Start Date.
12.07No Third Party Beneficiary Rights. NOTHING HEREIN, EXPRESSED OR IMPLIED, SHALL CONFER UPON ANY AVAILABLE EMPLOYEES (OR ANY OF THEIR BENEFICIARIES OR ALTERNATE PAYEES) ANY RIGHTS OR REMEDIES (INCLUDING ANY RIGHT TO EMPLOYMENT OR CONTINUED EMPLOYMENT, OR ANY RIGHT TO COMPENSATION OR BENEFITS FOR ANY PERIOD) OF ANY NATURE OR KIND WHATSOEVER, UNDER OR BY REASON OF THIS AGREEMENT OR OTHERWISE. IN ADDITION, THE PROVISIONS OF THIS ARTICLE 12, ARE FOR THE SOLE BENEFIT OF THE PARTIES AND ARE NOT FOR THE BENEFIT OF ANY THIRD PARTY. NOTHING IN THIS ARTICLE 12, EXPRESS OR IMPLIED, SHALL BE (A) DEEMED AN AMENDMENT OF ANY SELLER BENEFIT PLAN PROVIDING BENEFITS TO ANY AVAILABLE EMPLOYEE, OR (B) CONSTRUED TO PREVENT BUYER OR ITS AFFILIATES FROM TERMINATING OR MODIFYING TO ANY EXTENT OR IN ANY RESPECT ANY EMPLOYEE BENEFIT PLAN THAT BUYER OR ITS AFFILIATES MAY ESTABLISH OR MAINTAIN.
13.01Records. Seller, at Buyer’s cost and expense, shall deliver originals of all Records to Buyer (FOB Seller’s office) within fifteen (15) days after the Closing. With respect to any
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original Records delivered to Buyer, (a) Seller shall be entitled to retain copies of such Records, and (b) Buyer shall retain any such original Records for at least seven (7) years beyond the Closing Date, during which seven (7)-year period Seller shall be entitled to obtain access to such Records, at reasonable business hours and upon prior notice to Buyer, so that Seller may make copies of such original Records, at its own expense, as may be reasonable or necessary for tax purposes or in connection with any Proceeding or Threatened Proceeding against Seller.
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timely payments will be made from one Party to the other to the extent necessary to cause each Party to bear the amount of such Asset Tax that is allocable to such Party under this Section 13.02(b). Any allocation of Asset Taxes between the Parties shall be in accordance with this Section 13.02(b). |
(e) |
Seller shall be entitled to any and all refunds of Taxes allocated to Seller pursuant to Section 13.02(b), and Buyer shall be entitled to any and all refunds of Taxes allocated to Buyer |
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pursuant to Section 13.02(b). If a Party receives a refund of Taxes to which the other Party is entitled pursuant to this Section 13.02(e), the first Party shall promptly pay such amount to the other Party, net of any reasonable costs or expenses incurred by the first Party in procuring such refund. |
13.03Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and shall be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by electronic mail with receipt acknowledged, with the receiving Party affirmatively obligated to promptly acknowledge receipt, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate recipients, addresses, and fax numbers set forth below (or to such other recipients, addresses, or fax numbers as a Party may from time to time designate by notice to the other Party):
Scout Energy Group V, LP
4901 LBJ FWY, STE 300
Dallas, Texas 75244
Attention: Jon Piot
Email Address: jpiot@scoutep.com
NOTICES TO SELLER:
c/o Riviera Upstream, LLC
600 Travis Street, Suite 1700
Houston, Texas 77002
Attention: General Counsel
E-mail: Handerson@RVRAresources.com and legal@RVRAresources.com
With a copy (which shall not constitute notice) to:
Kirkland & Ellis LLP
609 Main Street, 45th Floor
Houston, TX 77002
Attention: Anthony Speier, P.C.
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Rahul Vashi |
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Email: |
anthony.speier@kirkland.com |
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rahul.vashi@kirkland.com |
13.04Governing Law; Jurisdiction; Service of Process; Jury Waiver. THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE RIGHTS, DUTIES AND THE LEGAL RELATIONS AMONG THE PARTIES HERETO AND THERETO SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION
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OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION; PROVIDED, HOWEVER, THAT ANY MATTERS RELATED TO REAL PROPERTY SHALL BE GOVERNED BY THE LAWS OF THE STATE WHERE SUCH REAL PROPERTY IS LOCATED. WITHOUT LIMITING THE PARTIES’ AGREEMENT TO ARBITRATE IN SECTION 11.15 OR THE DISPUTE RESOLUTION PROCEDURE PROVIDED IN SECTION 2.05(d) WITH RESPECT TO DISPUTES ARISING THEREUNDER, THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE FEDERAL COURTS OF THE UNITED STATES LOCATED IN HOUSTON, TEXAS OR THE STATE COURTS LOCATED IN HOUSTON, TEXAS FOR ANY ACTION ARISING OUT OF THIS AGREEMENT, ANY TRANSACTION DOCUMENTS, OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM THIS AGREEMENT, ANY TRANSACTION DOCUMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY SHALL BE EXCLUSIVELY LITIGATED IN SUCH COURTS DESCRIBED ABOVE HAVING SITES IN HOUSTON, TEXAS AND EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS SOLELY IN RESPECT OF ANY PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT. EACH PARTY HERETO VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LEGAL REQUIREMENTS, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY TRANSACTION DOCUMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. THE PARTIES FURTHER AGREE, TO THE EXTENT PERMITTED BY LAW, THAT A FINAL AND NONAPPEALABLE JUDGMENT AGAINST A PARTY IN ANY ACTION OR PROCEEDING CONTEMPLATED ABOVE SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION WITHIN OR OUTSIDE THE UNITED STATES BY SUIT ON THE JUDGMENT, A CERTIFIED OR EXEMPLIFIED COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND AMOUNT OF SUCH JUDGMENT. TO THE EXTENT THAT A PARTY OR ANY OF ITS AFFILIATES HAS ACQUIRED, OR HEREAFTER MAY ACQUIRE, ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH PARTY (ON ITS OWN BEHALF AND ON BEHALF OF ITS AFFILIATES) HEREBY IRREVOCABLY (I) WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS WITH RESPECT TO THIS AGREEMENT AND (II) SUBMITS TO THE PERSONAL JURISDICTION OF ANY COURT DESCRIBED IN THIS SECTION 13.04.
13.05Further Assurances. The Parties agree (a) to furnish upon request to each other such further information, (b) to execute, acknowledge, and deliver to each other such other documents, and (c) to do such other acts and things, all as the other Party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.
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13.06Waiver. The rights and remedies of the Parties are cumulative and not alternative. Neither the failure nor any delay by either Party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement shall operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege shall preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable Legal Requirement, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one Party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other Party, (b) no waiver that may be given by a Party shall be applicable except in the specific instance for which it is given, and (c) no notice to or demand on one Party shall be deemed to be a waiver of any obligation of such Party or of the right of the Party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.
13.07Entire Agreement and Modification. This Agreement supersedes all prior discussions, communications, and agreements (whether oral or written) between the Parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the Parties with respect to its subject matter. This Agreement may not be amended or otherwise modified except by a written agreement executed by both Parties. No representation, promise, inducement, or statement of intention with respect to the subject matter of this Agreement has been made by either Party that is not embodied in this Agreement together with the documents, instruments, and writings that are delivered pursuant hereto, and neither Party shall be bound by or liable for any alleged representation, promise, inducement, or statement of intention not so set forth. In the event of a conflict between the terms and provisions of this Agreement and the terms and provisions of any Schedule or Exhibit hereto, the terms and provisions of this Agreement shall govern, control, and prevail.
13.08Assignments, Successors, and No Third Party Rights. Except for Buyer’s right to direct that all or a portion of the Processing Plants be assigned by Seller to an Affiliate of Buyer at Closing, neither Party may assign any of its rights, liabilities, covenants, or obligations under this Agreement (as distinguished from an assignment of the Assets after Closing) without the prior written consent of the other Party (which consent may be granted or denied at the sole discretion of the other Party), and (a) any assignment made without such consent shall be void, and (b) in the event of such consent, such assignment nevertheless shall not relieve such assigning Party of any of its obligations under this Agreement without the prior written consent of the other Party. Subject to the preceding sentence, this Agreement shall apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the Parties. Nothing expressed or referred to in this Agreement shall be construed to give any Person other than the Parties or any other agreement contemplated herein (and Buyer Group and Seller Group who are entitled to indemnification under Article 10), any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. Subject to the preceding sentence, this Agreement, any other agreement contemplated herein, and all provisions and conditions hereof and thereof, are for the sole and exclusive benefit of the Parties and such other agreements (and Buyer Group and Seller Group who are entitled to indemnification under Article 10), and their respective successors and permitted assigns.
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13.09Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.
13.10Article and Section Headings, Construction. The headings of Sections, Articles, Exhibits, and Schedules in this Agreement are provided for convenience only and shall not affect its construction or interpretation. All references to “Section,” “Article,” “Exhibit,” or “Schedule” refer to the corresponding Section, Article, Exhibit, or Schedule of this Agreement. Unless expressly provided to the contrary, the words “hereunder,” “hereof,” “herein,” and words of similar import are references to this Agreement as a whole and not any particular Section, Article, Exhibit, Schedule, or other provision of this Agreement. Each definition of a defined term herein shall be equally applicable both to the singular and the plural forms of the term so defined. All words used in this Agreement shall be construed to be of such gender or number, as the circumstances require. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms and (in its various forms) means including without limitation. If the date specified in this Agreement for giving any notice or taking any action is not a Business Day (or if the period during which any notice is required to be given or any action taken expires on a date which is not a Business Day), then the date for giving such notice or taking such action (or the expiration date of such period during which notice is required to be given or action taken) shall be the next day which is a Business Day. Each Party has had substantial input into the drafting and preparation of this Agreement and has had the opportunity to exercise business discretion in relation to the negotiation of the details of the Contemplated Transactions. This Agreement is the result of arm’s-length negotiations from equal bargaining positions. This Agreement shall not be construed against either Party, and no consideration shall be given or presumption made on the basis of who drafted this Agreement or any particular provision hereof or who supplied the form of Agreement.
13.11Counterparts. This Agreement may be executed and delivered (including by facsimile or e-mail transmission) in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement and all of which, when taken together, shall be deemed to constitute one and the same agreement.
13.12Press Release. If any Party wishes to make a press release or other public announcement respecting this Agreement or the Contemplated Transactions (unless the subject matter of such release has previously been made public pursuant to the terms of this Section 13.12), such Party will provide the others with a draft of the press release or other public announcement for review at least one (1) Business Day prior to the time that such press release or other public announcement is to be made. The Parties will attempt in good faith to expeditiously reach agreement on such press release or other public announcement and the contents thereof. Failure to provide comments back to the other Party within one (1) Business Day of receipt of the draft release or announcement will be deemed consent to the public disclosure of such press release or other public announcement and the content thereof, so long as the reviewing Party’s name is not included in the release or announcement. Seller and Buyer shall each be liable for the compliance
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of their respective Affiliates with the terms of this Section 13.12. Notwithstanding anything to the contrary in this Section 13.12, no Party shall issue a press release or other public announcement that includes the name of a non-releasing Party or its Affiliates without the prior written consent of such non-releasing Party (which consent may be withheld in such non-releasing Party’s sole discretion); provided that such restriction shall not apply if the subject matter of such release has previously been made public pursuant to the terms of this Section 13.12.
13.13Confidentiality. The Confidentiality Agreement shall terminate on the Closing Date and will thereafter be of no further force or effect. Each Party shall keep confidential, and cause its Affiliates and instruct its Representatives to keep confidential, all terms and provisions of this Agreement, except (a) as required by Legal Requirements or any standards or rules of any stock exchange to which such Party or any of its Affiliates is subject, (b) for information that is available to the public on the Closing Date, or thereafter becomes available to the public other than as a result of a breach of this Section 13.13, (c) to the extent required to be disclosed in connection with complying with or obtaining a waiver of any Preferential Purchase Right or Consent, and (d) to the extent that such Party must disclose the same in any Proceeding brought by it to enforce its rights under this Agreement. This Section 13.13 shall not prevent either Party from recording the Instruments of Conveyance delivered at the Closing or from complying with any disclosure requirements of Governmental Bodies that are applicable to the transfer of the Assets. The covenant set forth in this Section shall terminate two (2) years after the Closing Date.
13.14Name Change. As promptly as practicable, but in any event within sixty (60) days after the Closing Date, Buyer shall eliminate, remove or paint over the use of the name “Linn”, “Riviera” or variants thereof from the Assets, and, except with respect to such grace period for eliminating the existing usage, shall have no right to use any logos, trademarks, or trade names belonging to Seller or any of its Affiliates. Buyer shall be solely responsible for any direct or indirect costs or expenses resulting from the change in use of name and any resulting notification or approval requirements.
13.15Preparation of Agreement. Both Seller and Buyer and their respective counsel participated in the preparation of this Agreement. In the event of any ambiguity in this Agreement, no presumption shall arise based on the identity of the draftsman of this Agreement.
13.16Appendices, Exhibits and Schedules. All of the Appendices, Exhibits and Schedules referred to in this Agreement are hereby incorporated into this Agreement by reference and constitute a part of this Agreement. Each Party to this Agreement and its counsel has received a complete set of Appendices, Exhibits and Schedules prior to and as of the execution of this Agreement.
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IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement as of the date first written above.
SELLER:
Riviera Upstream, LLC
By: /s/ David B. Rottino
Name: David B. Rottino
Title: President and Chief Executive Officer
Riviera Operating, LLC
By: /s/ David B. Rottino
Name: David B. Rottino
Title: President and Chief Executive Officer
Signature Page to Purchase and Sale Agreement
Scout Energy Group V, LP
By Scout Energy Group V GP, LLC,
its general partner
Signature Page to Purchase and Sale Agreement
Exhibit 31.1
CERTIFICATION
I, David B. Rottino, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Riviera Resources, Inc. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2019
/s/ David B. Rottino |
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David B. Rottino |
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President and Chief Executive Officer |
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CERTIFICATION
I, James G. Frew, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Riviera Resources, Inc. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2019
/s/ James G. Frew |
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James G. Frew |
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Executive Vice President and Chief Financial Officer |
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Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Riviera Resources, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David B. Rottino, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 7, 2019 |
/s/ David B. Rottino |
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David B. Rottino |
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President and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Riviera Resources, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James G. Frew, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 7, 2019 |
/s/ James G. Frew |
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James G. Frew |
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Executive Vice President and Chief Financial Officer |