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Form 8-K/A NORTHERN OIL & GAS, INC. For: Jul 01

September 13, 2019 4:32 PM EDT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K/A

Amendment No. 1

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 1, 2019

 

 

NORTHERN OIL AND GAS, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   001-33999   95-3848122

(State or other jurisdiction

of incorporation)

  (Commission File Number)  

(IRS Employer

Identification No.)

 

601 Carlson Parkway, Suite 990

Minnetonka, Minnesota

  55305
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code (952) 476-9800

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17CFR 240.14a-12)

 

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.001   NOG   NYSE American

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


EXPLANATORY NOTE

On July 1, 2019, Northern Oil and Gas, Inc. (the “Company”) completed its acquisition (the “VEN Bakken Acquisition”) of certain oil and gas properties and interests from VEN Bakken, LLC (“VEN Bakken”), a wholly-owned subsidiary of Flywheel Bakken, LLC (“Flywheel Bakken”).

This Amendment No. 1 on Form 8-K/A is being filed by the Company to amend its current report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on July 2, 2019 (the “Original Report”), solely to provide the disclosures required by Item 9.01 of Form 8-K that were omitted from the Original Report, including the required audited and unaudited financial statements of Flywheel Bakken as well as the required pro forma financial information. Except as otherwise provided herein, the disclosures made in the Original Report remain unchanged.

 

Item 9.01.

Financial Statements and Exhibits.

(a)    Financial Statements of Businesses Acquired.

The audited consolidated financial statements of Flywheel Bakken as of December 31, 2018 and 2017, and for the year ended December 31, 2018 and the period from March 27, 2017 (inception) to December 31, 2017, are filed as Exhibit 99.2 and incorporated by reference herein.

The unaudited consolidated financial statements of Flywheel Bakken as of June 30, 2019 and for the three and six month periods ended June 30, 2019 and 2018 are filed as Exhibit 99.3 and incorporated by reference herein.

(b)    Pro Forma Financial Information.

The unaudited pro forma financial statements of the Company for the year ended December 31, 2018, and as of and for the six months ended June 30, 2019, are furnished as Exhibit 99.4 hereto and incorporated herein by reference. The unaudited pro forma financial statements furnished herewith give effect to the VEN Bakken Acquisition.

(d)    Exhibits.

 

Exhibit
No.
  

Description

23.1    Consent of Ernst & Young LLP, Independent Auditors.
99.2    Consolidated Financial Statements of Flywheel Bakken as of December 31, 2018 and 2017, and for the year ended December 31, 2018 and the period from March  27, 2017 (inception) to December 31, 2017.
99.3    Consolidated Financial Statements of Flywheel Bakken as of June 30, 2019 and for the three and six month periods ended June 30, 2019 and 2018
99.4    Unaudited Pro Forma Financial Statements of the Company for the year ended December 31, 2018, and as of and for the six months ended June 30, 2019.


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 hereunto duly authorized.

 

Date: September 13, 2019     NORTHERN OIL AND GAS, INC.
    By   /s/ Erik J. Romslo
      Erik J. Romslo
      Executive Vice President, General Counsel and Secretary

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the following registration statements:

 

  (1)

Registration Statement (Form S-3 No. 333-225828)

 

  (2)

Registration Statement (Form S-3 No. 333-225832)

 

  (3)

Registration Statement (Form S-3 No. 333-225835)

 

  (4)

Registration Statement (Form S-3 No. 333-227945)

 

  (5)

Registration Statement (Form S-4 No. 333-216887)

 

  (6)

Registration Statement (Form S-8 No. 333-188999)

 

  (7)

Registration Statement (Form S-8 No. 333-205617)

 

  (8)

Registration Statement (Form S-8 No. 333-212929)

 

  (9)

Registration Statement (Form S-8 No. 333-227948)

of our report dated April 26, 2019, with respect to the consolidated financial statements of Flywheel Bakken, LLC as of December 31, 2018 and 2017, and for the year ended December 31, 2018 and the period from March 27, 2017 (inception) to December 31, 2017, included in this Current Report on Form 8-K/A of Northern Oil and Gas, Inc.

/s/ Ernst & Young LLP

Tulsa, Oklahoma

September 13, 2019

EXHIBIT 99.2

Report of Independent Auditors

The Members

Flywheel Bakken, LLC

We have audited the accompanying consolidated financial statements of Flywheel Bakken, LLC and subsidiaries, which comprise the consolidated balance sheets as of December 31, 2018 and 2017, and the related consolidated statements of operations, members’ equity and cash flows for the year ended December 31, 2018 and for the period from March 27, 2017 (inception) to December 31, 2017, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Flywheel Bakken, LLC and subsidiaries, at December 31, 2018 and 2017, and the consolidated results of their operations and their cash flows for the year ended December 31, 2018 and for the period from March 27, 2017 (inception) to December 31, 2017 in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Tulsa, OK

April 26, 2019


Flywheel Bakken, LLC

Consolidated Balance Sheet

 

     December 31,
2018
    December 31,
2017
 
     (in thousands)  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 1,416     $ 3,462  

Accounts receivable – oil, natural gas, and NGLs

     18,880       9,230  

Accounts receivable – affiliated parties

     2,125       —    

Commodity derivatives

     9,471       —    

Other current assets

     618       315  
  

 

 

   

 

 

 

Total current assets

     32,510       13,007  
  

 

 

   

 

 

 

Property and equipment:

    

Oil and gas properties, successful efforts method

     302,551       272,270  

Less: accumulated depreciation, depletion and amortization

     (42,098     (2,751
  

 

 

   

 

 

 

Oil and gas properties, net

     260,453       269,519  

Other property and equipment, net

     —         197  

Other noncurrent assets:

    

Commodity derivatives

     9,764       —    

Other assets

     631       903  
  

 

 

   

 

 

 

Total assets

   $ 303,358     $ 283,626  
  

 

 

   

 

 

 

Liabilities and members’ equity

    

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 7,211     $ 11,307  

Commodity derivatives

     —         10,469  
  

 

 

   

 

 

 

Total current liabilities

     7,211       21,776  
  

 

 

   

 

 

 

Long-term liabilities:

    

Revolving credit facility

     137,885       141,105  

Asset retirement obligations

     974       857  

Commodity derivatives

     1,386       9,676  
  

 

 

   

 

 

 

Total long-term liabilities

     140,245       151,638  
  

 

 

   

 

 

 

Members’ capital

     155,902       110,212  
  

 

 

   

 

 

 

Total liabilities and members’ capital

   $ 303,358     $ 283,626  
  

 

 

   

 

 

 

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


Flywheel Bakken, LLC

Consolidated Statement of Operations

 

     For the year
ended
December 31,
2018
    Period From
March 27,
2017
(inception) to
December 31,
2017
 
     (in thousands)  

Revenues and other

    

Oil, natural gas, and NGL sales

   $ 183,563     $ 10,501  

Gain (loss) on derivatives, net

     19,402       (20,170
  

 

 

   

 

 

 

Total revenue

     202,965       (9,669

Operating costs and expenses

    

Lease operating expense

     23,037       764  

Transportation, gathering, and processing

     19,355       1,111  

Production and ad valorem taxes

     15,458       873  

Exploration and other expense

     8       50  

General and administrative expense

     4,967       4,392  

Depreciation, depletion, amortization, and accretion

     39,473       2,811  

Acquisition costs

     —         1,123  
  

 

 

   

 

 

 

Total operating costs and expenses

     102,298       11,124  

Other income (expense), net:

    

Other income

     723       4  

Interest expense

     (7,561     (526
  

 

 

   

 

 

 

Other income (expense), net:

     (6,838     (522
  

 

 

   

 

 

 

Net income (loss)

   $ 93,829     $ (21,315
  

 

 

   

 

 

 

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


Flywheel Bakken, LLC

Consolidated Statement of Members’ Capital

 

     Total  
     (in thousands)  

Balance at inception, March 27, 2017

   $ —    

Capital contributions

     131,527  

Net loss

     (21,315
  

 

 

 

Balance at December 31, 2017

     110,212  

Distributions

     (48,139

Net income

     93,829  
  

 

 

 

Balance at December 31, 2018

   $ 155,902  
  

 

 

 

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


Flywheel Bakken, LLC

Consolidated Statement of Cash Flows

 

     For the year
ended
December 31,
2018
    Period From
March 27,
2017
(inception) to
December 31,
2017
 
     (in thousands)  

Operating activities

    

Net income (loss)

   $ 93,829     $ (21,315

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

    

Depreciation, depletion, and amortization

     39,400       2,805  

Accretion of asset retirement obligations

     73       6  

Amortization of debt issuance costs

     395       32  

Gain (loss) on derivatives, net

     (20,091     20,170  

Settlement paid on derivatives

     (18,352     (114

Changes in assets and liabilities:

    

Increase in accounts receivable

     (11,775     (8,530

Decrease (increase) in other current and non-current assets

     419       (269

(Decrease) increase in accounts payable and accrued liabilities

     (3,772     2,823  

Increase in ARO liability

     44       —    
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     80,170       (4,392

Investing activities

    

Additions to oil and natural gas properties – acquisitions

     —         (263,281

Additions to oil and natural gas properties – operations

     (30,604     (397

Proceeds from distribution of other property and equipment, net

     143       (250
  

 

 

   

 

 

 

Net cash used in investing activities

     (30,461     (263,928

Financing activities

    

(Distributions to) contributions from members, net of notes receivable

     (48,139     130,710  

Borrowings on revolving credit facility

     63,100       143,000  

Payments on revolving credit facility

     (66,600     —    

Debt issuance costs

     (116     (1,928
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (51,755     271,782  
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     (2,046     3,462  

Cash and cash equivalents at beginning of period

     3,462       —    
  

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 1,416     $ 3,462  
  

 

 

   

 

 

 

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


Flywheel Bakken, LLC

Notes to Consolidated Financial Statements

1. Organization and Business

Flywheel Bakken, LLC (“Flywheel Bakken” or the “Company”), previously Valorem Energy, LLC, a Delaware limited liability company, is a privately-owned exploration and production company formed on March 27, 2017 (“Inception”), to acquire, develop, and produce oil and gas properties. Flywheel Bakken’s wholly owned subsidiaries include Flywheel Bakken Operating, LLC (“Flywheel Bakken Operating”), previously Valorem Energy Operating, LLC, Valorem Energy Member, LLC (“Valorem Member”), Valorem Energy Management, LLC (“Valorem Management”), and VEN Bakken, LLC (“VEN Bakken”), all of which are Delaware limited liability companies.

Funding sources for the Company’s operations and acquisitions of properties are accomplished through member contributions by the Kayne Private Energy Income Fund, L.P. (“KPEIF”), affiliates of KPEIF, and members of management (“Management”), (collectively the “Members”), the utilization of its own cash resources, or any combination of these sources. The Company’s oil and gas properties are primarily located in the state of North Dakota with some minor interests in South Dakota and Montana.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Flywheel Bakken and its wholly owned subsidiaries, Flywheel Bakken Operating, Valorem Member, Valorem Management, and VEN Bakken. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates of oil and gas reserves, as determined by independent petroleum engineers, are continually subject to revision based on price, production history, and other factors. Changes in the estimated oil and gas reserves utilized for depreciation, depletion, and amortization or the estimated future cash flows attributable to the reserves that are utilized for impairment assessments could have a significant impact on the future results of operations. Actual results could differ from those estimates.


Financial Instruments

The Company’s financial instruments are measured at fair value and consist primarily of cash and cash equivalents, an interest swap, commodity derivative contracts, accounts receivable, accounts payable, and the revolving credit facility. The Company’s derivative instruments are measured at fair value on a recurring basis, see Note 8 for further discussion. The carrying amount for the Company’s revolving credit facility is considered to be representative of fair market value due to the floating interest rate. The carrying amounts of the Company’s other financial instruments are considered to be representative of their fair market value due to their short-term nature.

The Company applies fair value accounting guidance to measure nonfinancial assets and liabilities, such as the acquisition or impairment of oil and natural gas properties and the inception value of asset retirement obligations. These assets and liabilities are subject to fair value adjustments only in certain circumstances and are not subject to recurring revaluations. See Notes 5 and 6 for further discussion.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A hierarchy exists for measuring fair value that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy consists of three broad levels:

 

  Level 1:

Valuations consist of unadjusted quoted prices in active markets for identical assets and liabilities. This level has the highest priority.

 

  Level 2:

Valuations rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability.

 

  Level 3:

Valuations are based on prices of third-party or internal valuation models, which require inputs that are significant to the fair value measurement and are less observable and, thus, have the lowest priority.

The Company classified the commodity derivative contracts and interest swap contracts outstanding as Level 2 in the fair value hierarchy based upon the data used to determine the fair values. See Note 8 for more information.

Asset retirement cost estimates are derived from historical costs, as well as management’s expectation of future cost environments. As there is no corroborating market activity to support the assumptions used, the Company has designated these liabilities as Level 3.

Derivatives

The Company is exposed to certain risks relating to its ongoing business operations, including risks related to commodity prices. As discussed more fully below, the Company uses derivative instruments primarily to manage commodity price risk. The derivatives are entered into with banks that participate in the revolving credit facility described in Note 7, and, therefore, there are no margin requirements. The revolving credit facility included an affirmative covenant requiring the Company to be 80% hedged through November 2022 for expected proved producing oil volumes only within 30 days of November 30, 2017, the closing date of the Company’s first acquisition of


properties. The Company is not subject to further hedging requirements under the revolving credit facility after November 30, 2022. All contracts have historically settled with cash and do not require the delivery of physical volumes. The Company does not intend to issue or hold derivative financial instruments for speculative trading purposes which are restricted by the revolving credit facility.

In conjunction with the acquisitions of oil and gas properties described in Note 4, the Company entered into derivative financial instruments with respect to a portion of its oil production to hedge future prices received. The instruments are used to manage the inherent uncertainty of future revenues resulting from commodity price volatility. Additionally, in conjunction with the financing of the acquisitions, the Company entered into an interest rate swap to manage the risk of interest rate volatility associated with the variable rate debt obtained to finance the acquisitions. The Company’s derivative financial instruments consist of fixed-price swaps for oil and an interest rate swap. Under the terms of the price swaps, the Company receives a fixed-price for its production and pays a variable market price to the contract counterparty.

All derivative financial instruments are recognized at their current fair value as either assets or liabilities in the balance sheets. Changes in the fair value of these derivative financial instruments are recorded in earnings. Cash settlements with counterparties are also recorded in earnings. Cash settlements to which the Company is entitled are accrued in other current assets, and cash settlements the Company is obligated to pay are included in other current liabilities in the accompanying consolidated balance sheets. See Note 8 for further discussion.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of 90 days or less to be cash equivalents. The Company currently maintains no cash equivalents or investments as available cash is used to pay down the revolving credit facility.

Oil and Gas Properties

The Company follows the successful efforts method of accounting for its oil and gas properties; accordingly, exploration costs, other than the cost of drilling exploratory wells, are charged to expense as incurred. The costs of drilling exploratory wells are capitalized, pending determination of whether the wells discover proved commercial reserves. If proved commercial reserves are not discovered, such drilling costs are expensed. Other exploration costs, including geological and geophysical costs and delay rentals on unproved leaseholds, are charged to exploration expense as incurred. The costs of all development wells and related equipment used in the production of oil and gas are capitalized. Costs to operate and maintain field equipment are expensed as incurred.

Unproved oil and gas properties are periodically assessed for impairment, and any impairment is charged to expense. The costs of properties determined to be productive are transferred to proved oil and gas properties.

Proceeds from immaterial sales of properties are credited to property costs, and a gain or loss is recognized when a significant portion of an amortization base is sold or abandoned. As of December 31, 2018, there were no sales of properties.


Depletion, depreciation, and amortization of the cost of proved oil and gas properties and well equipment is calculated using the unit-of-production method. The reserve base used to calculate depletion, depreciation, and amortization is the sum of proved developed reserves and proved undeveloped reserves for leasehold acquisition cost and the cost to acquire proved properties. The reserve base used to calculate depletion, depreciation, and amortization for development costs is proved developed reserves. Estimated future dismantlement, restoration, abandonment cost, and net salvage values are taken into account.

The Company reviews its proved oil and gas properties for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amounts of such properties may not be recoverable. If it is determined that a property’s estimated future net cash flows will not be sufficient to recover its carrying amount, an impairment charge is recognized to reduce the carrying amount of the asset to its estimated fair value by discounting anticipated future net cash flows.

Asset Retirement Obligations

A liability for an asset’s retirement is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The corresponding cost is capitalized as part of the carrying amount of the related long-lived asset. The liability is accreted to its then-present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded balance, a gain or loss is recognized.

Revenue Recognition

Oil and natural gas sales are recorded using the sales method, whereby the Company recognizes revenue based upon the amount of oil and gas sold and delivered to product purchasers on its behalf.

The Company’s revenues are derived principally from uncollateralized sales to customers in the oil and gas industry; therefore, the Company’s customers may be similarly affected by changes in economic and other conditions within the industry. The Company has experienced no credit losses on such sales.

Debt Issuance Costs

The Company incurred legal and bank fees in connection with obtaining the revolving credit facility, which was entered into on November 30, 2017. The fees were capitalized and are being amortized to interest expense over the term of the revolving credit facility utilizing the interest method. Debt issuance costs are included as a reduction to debt in the accompanying consolidated balance sheet. Amortization of debt issuance costs is included in interest expense in the accompanying consolidated statement of operations. When debt is retired before maturity, or modifications significantly change the cash flows, the related unamortized costs are expensed. See Note 7 for more information.


Long-Term Incentive Compensation

In March 2017, the Company created and authorized the issuance of up to 3,000,000 Series B Units (“Incentive Units”). To date, approximately 75% of the Series B units have been issued to employees. Series B Unit holders are not required to make cash capital contributions in return for Series B Units; rather, the Incentive Units are issued in consideration of services rendered and to be rendered by the holders for the benefit of the Company. The Incentive Units were determined to be profit interest awards and are within the scope of Accounting Standards Codification (ASC) 710, Compensation – General. See Note 13 for further discussion on the Incentive units.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes most of the existing revenue recognition requirements in U.S. GAAP and requires (i) an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services and (ii) requires expanded disclosures regarding the nature, amount, timing, and certainty of revenue and cash flows from contracts with customers. The ASU will be effective for annual and interim reporting periods beginning after December 15, 2018. The ASU allows for either full retrospective adoption, meaning the standard is applied to all periods presented in the financial statements, or modified retrospective adoption, meaning the standard is applied only to the most current period presented. The Company is currently evaluating the impact this ASU will have on its consolidated financial position, results of operations, or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset for all leases with a term greater than 12 months on the balance sheet, including operating leases. The provisions of ASU 2016-02 also modify the definition of a lease and outline the requirements for recognition, measurement, presentation, and disclosure of leasing arrangements by both lessees and lessors. This ASU is effective for financial statements issued for annual periods beginning after December 15, 2019, and for interim periods within annual periods beginning after December 15, 2020. The Company has not yet determined what the effects of adopting this updated ASU will be on its consolidated financial statements.

3. Income Taxes

The Company is not a taxpaying entity for federal or state income tax purposes, and, accordingly, it does not recognize any expense for such taxes. The income tax liability resulting from the Company’s activities is the responsibility of the Members. In the event of an examination of the Company’s tax return, the tax liability of the Members could be changed if an adjustment of the Company’s income or loss is ultimately sustained by taxing authorities.


4. Asset Acquisition

On November 30, 2017 the Company acquired oil and natural gas producing properties located primarily in North Dakota for a purchase price of approximately $260.7 million. The acquisition had an effective date of March 1, 2017. The operating results of the acquired properties have been included in these consolidated financial statements since the November 30, 2017 acquisition date.

The acquisition was funded with approximately $131.5 million of equity contributions from Members and the net proceeds from the revolving credit facility of $140.0 million. Refer to Note 7 for discussion of the revolving credit facility.

The Company accounted for the acquisition of these properties using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.

The final allocation of the purchase price to the assets acquired and liabilities assumed is summarized as follows:

 

     (in thousands)  

Proved undeveloped properties

   $ 85,389  

Proved developed properties

     176,177  

Asset retirement liability

     (851
  

 

 

 

Total purchase price

   $ 260,715  
  

 

 

 

5. Oil and Gas Properties

A summary of oil and gas properties is presented as follows:

 

     December 31,
2018
     December 31,
2017
 
     (in thousands)  

Oil and gas properties and equipment:

     

Undeveloped leasehold costs

   $ 56,600      $ 85,389  

Lease and well equipment

     41,706        36,728  

Developed leasehold and intangible drilling costs

     204,245        150,153  
  

 

 

    

 

 

 
     302,551        272,270  

Accumulated depreciation, depletion, and amortization

     (42,098      (2,751
  

 

 

    

 

 

 
   $ 260,453      $ 269,519  
  

 

 

    

 

 

 


6. Asset Retirement Obligations

A summary of the Company’s asset retirement obligations is presented as follows:

 

     For the year
ended
December 31,
2018
     Period from
March 27,
2017
(inception) to
December 31,
2017
 
     (in thousands)  

Balance at beginning of period

   $ 857      $ —    

Liabilities acquired

     —          851  

Liabilities incurred

     44        —    

Accretion expense

     73        6  

Liabilities settled

     —          —    
  

 

 

    

 

 

 

Balance at end of year

   $ 974      $ 857  
  

 

 

    

 

 

 

7. Indebtedness

The Company had the following long-term debt outstanding:

 

     December 31,
2018
     December 31,
2017
 
     (in thousands)  

Revolving credit facility – Long-term

   $ 139,500      $ 143,000  

Debt issuance costs

     (1,615      (1,895
  

 

 

    

 

 

 

Total revolving credit facility

   $ 137,885      $ 141,105  
  

 

 

    

 

 

 

Revolving Credit Facility

On November 30, 2017, the Company entered into a $500.0 million revolving credit facility between JPMorgan Chase Bank, N.A., Citigroup Global Markets, Inc., and Wells Fargo Securities, LLC, with JPMorgan Chase Bank, N.A. serving as administrative agent (collectively the “Banks”). The revolving credit facility is secured by substantially all of the Company’s oil and gas assets and matures on November 30, 2022.

The Banks established an initial borrowing base of $160.0 million under the $500.0 million revolving credit facility, subject to semiannual redeterminations based on the Banks’ evaluation of the Company’s oil and gas reserves. On November 30, 2017, the Company drew down $140.0 million under the revolving credit facility to partially fund the acquisition described in Note 4 and paid approximately $2.0 million in debt issuance costs in connection with the revolving credit facility. Outstanding borrowings under the revolving credit facility accrue interest at the London Interbank Offered Rate (“LIBOR”) plus a margin of 2.25%–3.25% that varies based on the utilization of the facility. The unused portion of the borrowing base is subject to a commitment fee ranging from 0.375% to 0.500% paid per quarter based on the utilization percentage of the borrowing base.


On October 24, 2018, the Company entered into Amendment No. 1 to the revolving credit facility, which established an updated borrowing base of $185.0 million under the $500.0 million revolving credit facility, based on the Banks’ evaluation of the Company’s oil and gas reserves. The outstanding balance on the revolving credit facility as of December 31, 2018, was $139.5 million, leaving $45.5 million of borrowing capacity available under the current borrowing base. The Company incurred and paid interest expense of $7.2 million in 2018 and $0.5 million in the period from November 30, 2017 to December 31, 2017.

The credit agreement also provides for the issuance of letters of credit, limited to the lesser of $25.0 million or availability under the credit agreement. There were no letters of credit outstanding at December 31, 2018.

Amortization of debt issuance costs totaled $395,000 for 2018 and $32,000 for the period from November 30, 2017 to December 31, 2017, and were included in interest expense. The Company had total unamortized debt issuance costs of $1.6 million and $1.9 million at December 31, 2018 and 2017, respectively, of which $0.4 million is expected to be amortized to interest expense each year over the next four years.

Debt Covenants and Maturity

The revolving credit facility agreement contains certain financial and nonfinancial covenants that limit the Company’s ability to, among other things, pay cash dividends, incur additional debt, sell assets, enter into certain hedging contracts, merge, consolidate, or make certain investments. In addition, the Company is required to maintain a ratio of EBITDAX to total debt (each as defined in the credit agreement) not to exceed 4.0 to 1.00 and a current ratio (as defined by the revolving credit facility) of not less than 1.00 to 1.00, both of which commenced with the fiscal quarter ending March 31, 2018. At December 31, 2018, the Company was in compliance with the covenants, and the Company expects to be in compliance for the next twelve months.

8. Derivative Instruments

The Company uses financial instruments to manage its exposure to market fluctuations in the price of crude oil and interest rates. The Company’s general strategy is to mitigate oil price risk with fixed price swaps and to hedge interest rate risk with swaps. The Company entered into fixed price swaps during the years ended December 31, 2018 and 2017, to reduce price risk exposure related to sales of oil. The Company also entered into an interest rate swap to reduce exposure to floating interest rates.

At December 31, 2018, the Company’s derivative instruments consisted of the following:

 

   

Interest rate swaps – The Company utilized a notional amount interest rate swap contract to manage the interest rate risk. The Company’s interest rate swap contract serves to mitigate rate risk exposure by converting a portion of the Company’s monthly floating rate on its borrowings under its revolving credit facility to monthly fixed-rate payments.

 

   

Fixed-price swaps – The Company receives a fixed price and pays a floating market price to the counterparty for a specified volume of the hedged commodity.


The Company’s derivative instruments as of December 31, 2018 were as follows:

 

     Oil Swaps
(NYMEX/WTI indexed)
 

Period

   Volumes
(Bbls)
     Weighted-
Average
Price
($/Bbl)
 

2019

     1,479,146        53.70  

2020

     1,184,414        52.08  

2021

     1,002,073        51.08  

2022

     872,864        51.15  

2023

     666,470        60.53  

 

     Interest Rate Swaps  

Period

   Notional
Amount
     Weighted-
Average
Fixed
Rate
 

2019

   $ 75,000        2.09

2020

     75,000        2.21  

2021

     75,000        2.27  

2022

     75,000        2.33  

The Company’s derivative instruments as of December 31, 2017 were as follows:

 

     Oil Swaps
(NYMEX/WTI indexed)
 

Period

   Volumes
(Bbls)
     Weighted-
Average
Price
($/Bbl)
 

2018

     1,200,542        52.01  

2019

     903,032        50.41  

2020

     766,424        50.41  

2021

     688,604        50.28  

2022

     613,756        50.28  

 

     Interest Rate Swaps  

Period

   Notional
Amount
     Weighted-
Average
Fixed
Rate
 

2018

   $ 75,000        1.78

2019

     75,000        2.10  

2020

     75,000        2.21  

2021

     75,000        2.27  

2022

     75,000        2.33  


The Company has not elected to designate its derivative instruments as cash flow hedging instruments; therefore, the changes in fair value are recognized each period in earnings as a component of revenue. The contracts are placed with major financial institutions deemed to be of high credit, each of which is a party to the revolving credit facility.

The following table summarizes the fair value, fair value hierarchy and location of each classification of the derivative instruments recorded in the consolidated balance sheet at December 31, 2018 and 2017, respectively:

 

     As of December 31, 2018  

Consolidated Balance Sheet Classification

(in thousands)

   Gross
Fair
Value
(Level 2)
     Net Fair
Value
Presented in
Consolidated
Balance
Sheet
(Level 2)
 

Short-term commodity derivative asset

   $ 9,471      $ 9,471  

Short-term interest swap derivative asset(1)

     326        326  

Long-term commodity derivative asset

     9,764        9,764  

Long-term interest swap derivative asset(2)

     211        211  

Long-term commodity derivative liability

     (1,386      (1,386
  

 

 

    

 

 

 

Total derivative contracts

   $ 18,386      $ 18,386  
  

 

 

    

 

 

 

 

(1)

Short-term interest swap derivative asset is included within Other Current Assets on the Consolidated Balance Sheet.

(2)

Long-term interest swap derivative asset is included within Other Assets on the Consolidated Balance Sheet.

 

     As of December 31, 2017  

Consolidated Balance Sheet Classification

(in thousands)

   Gross
Fair
Value
(Level 2)
     Net Fair
Value
Presented in
Consolidated
Balance
Sheet
(Level 2)
 

Short-term interest swap derivative asset(1)

   $ 3      $ 3  

Short-term commodity derivative liability

     (10,469      (10,469

Long-term interest swap derivative asset(2)

     86        86  

Long-term commodity derivative liability

     (9,676      (9,676
  

 

 

    

 

 

 

Total derivative contracts

   $ (20,056    $ (20,056
  

 

 

    

 

 

 

 

(1)

Short-term interest swap derivative asset is included within Other Current Assets on the Consolidated Balance Sheet.

(2)

Long-term interest swap derivative asset is included within Other Assets on the Consolidated Balance Sheet.

The following table summarizes gains and losses related to the derivatives reflected in the consolidated statement of operations for the year ended December 31, 2018 and for the period from March 27, 2017 (inception) to December 31, 2017.


     For the year
ended
December 31,
2018
     Period from
March 27,
2017
(inception) to
December 31,
2017
 
     (in thousands)  

Commodity mark-to-market gains/(losses)

   $ 37,906      $ (20,056

Commodity settlements paid

     (18,504      (114

Interest swap mark-to-market gains/(losses)

     537        —    

Interest swap settlements paid

     152        —    
  

 

 

    

 

 

 

Total gain/(loss) on derivative instruments

   $ 20,091      $ (20,170
  

 

 

    

 

 

 

 

(1)

Interest swap mark-to-market and settlements paid are included within Other income on the Consolidated Statement of Operations.

Concentration of Credit Risk

By using derivative instruments that are not traded on an exchange, the Company exposes itself to credit risk from its counterparties. Credit risk is the risk of loss from counterparties not performing under the terms of the derivative instrument. When the fair value of a derivative instrument is an asset, the counterparty is expected to owe the Company, which creates credit risk. To minimize the credit risk in derivative instruments, the Company enters into derivative contracts only with counterparties that are creditworthy financial institutions that are parties to the revolving credit facility, which were also deemed by management as competent and competitive market-makers. Refer to Note 2 for additional information on the valuation of derivative assets and liabilities.

9. Risks and Uncertainties

Historically, the market for oil and natural gas has experienced significant price fluctuations. Prices are impacted by supply and demand, both domestic and international; seasonal variations caused by changing weather conditions; political conditions; governmental regulations; the availability, proximity, and capacity of gathering systems for natural gas and numerous other factors. Increases or decreases in prices received could have a significant impact on the Company’s future results of operations, reserves estimates, and financial position. The Company has certain commodity swap contracts in place with two counterparties to reduce its exposure to changes in commodity prices.

Estimating oil and gas reserves is complex and is not exact because of the numerous uncertainties inherent in the process. The process relies on interpretations of available geological, geophysical, engineering, and production data. The extent, quality, and reliability of both the data and the associated interpretations of that data can vary. The process also requires certain economic assumptions, including, but not limited to, oil and gas prices, drilling and operating expenses, capital expenditures, and taxes. Actual future production, oil and gas prices, revenues, taxes, development expenditures, operating expenses, and quantities of recoverable oil and gas most likely will vary from the Company’s estimates. Any significant variance could materially affect the Company’s future results of operations, reserves estimates, and financial position.


10. Commitments and Contingencies

All of the Company’s operations are subject to federal, state, and local environmental regulations. To the best of management’s knowledge, the Company is in compliance with such laws and regulations.

The Company is subject to potential lawsuits involving a variety of claims arising in the ordinary course of business. The Company also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal, or release of certain chemical, mineral, and petroleum substances at various active and inactive sites. The Company regularly assesses the need for accounting recognition or disclosure of contingencies. In the case of all known contingencies (other than those related to income taxes), a liability is accrued when the loss is probable, and the amount is reasonably estimable. If a range of the amounts can be reasonably estimated, but no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. These liabilities are not reduced for potential insurance or third-party recoveries. If applicable, receivables are accrued for probable insurance or other third-party recoveries.

11. Capital Structure

Initial funding for the Company was obtained by issuing common membership interests in the Company (“Series A Units”) at a purchase price of $1,000 per Series A Unit up to a total of approximately 301,000 units. The Company’s Limited Liability Company (“LLC”) Agreement provides that the Company use the proceeds from the sale of the Series A Units for the acquisition and development of oil and gas properties, capital expenditures, working capital, and general Company purposes.

Management of its business affairs resides with the Company. Transfer of Series A Unit interests is only permitted if certain conditions specified in the LLC Agreement are met and is subject to approval of the Board of Directors.

Available cash flow after meeting operating requirements, property acquisition(s), and debt repayments may be used to make distributions to the partners according to their respective ownership interests.

As of December 31, 2018, approximately 131,000 Series A Units had been issued.

12. Affiliated-Party Transactions

On August 27, 2018, Valorem Energy, LLC entered into an Assignment Agreement with Flywheel Energy, LLC; Kayne Private Energy Income Fund, L.P.; and Kayne Private Energy Income Parallel Fund, L.P. whereby a special one-time $2.2 million contribution was approved from Flywheel Energy, LLC, an affiliated company.

Effective as of September 1, 2018, Flywheel Bakken entered into an Amended and Restated Management Agreement with Flywheel Energy Management, LLC and Flywheel Energy, LLC, whereby Flywheel Energy Management, LLC provides certain management services to Flywheel Bakken. In accordance with these services, Flywheel Bakken agreed to reimbursement Flywheel Energy Management, LLC for all direct costs, and an allocated portion of indirect costs attributable


to the business. Additionally, Flywheel Energy Management, LLC and Flywheel Energy, LLC agreed to reimburse Flywheel Bakken for direct costs, and an allocated portion of indirect costs attributable to the businesses. Total costs to be reimbursed by Flywheel Energy, LLC incurred in 2018 were $2.6 million. Net reimbursements received by Flywheel Bakken in 2018 were $0.5 million. The remaining amount due is shown on the balance sheets as accounts receivable – affiliate.

Management investors have the opportunity to borrow and invest in the Company amounts equal to their cash equity contributions. The loans are recorded as notes receivable and shown on the balance sheets as other assets. Interest is charged at the lowest Internal Revenue Service rate in effect. Repayment and interest payments occur when equity distributions are made. Amounts due from management were $0.4 million and $0.8 million at December 31, 2018 and 2017, respectively.

13. Incentive Units

On March 27, 2017 (the “Grant date”), a total of 3,000,000 incentive units, made up of all Series B Units, were created and authorized for issuance by the Members to employees. The Series B Units are considered a profits interest and are accounted for under the deferred compensation guidance in ASC 710, Compensation – General. These Series B Units do not represent a legal form of equity as there is no initial investment required to obtain the Series B Units. While the Series B Units allow employees to receive a portion of distributable cash after the Series A Members achieve certain returns on their contributions, the Series B Units are non-voting and subordinate to debt and Series A Units based on the waterfall distribution.

At December 31, 2018, management did not consider it probable that either (i) the payout thresholds necessary to trigger distributions to Series B Unitholders would be achieved or (ii) that a triggering event that would lead to full vesting of the Series B Units would occur. Therefore, management has assessed the present value of expected future benefits associated with the Series B Units to be zero at December 31, 2018.

14. Subsequent Events

On April 18, 2019, the Company entered into an agreement to sell all of the Company’s oil and gas properties and associated working capital for approximately $310 million, subject to normal purchase price adjustments. The closing and effective date of this transaction is scheduled to occur on July 1, 2019.

Subsequent events have been evaluated through April 26, 2019, the date the consolidated financial statements were available to be issued.

Exhibit 99.3

Flywheel Bakken, LLC

Consolidated Balance Sheets

(Unaudited)

 

     June 30,
2019
    December 31,
2018
 
Assets    (in thousands)  

Current assets:

    

Cash and cash equivalents

   $ 825     $ 1,416  

Accounts receivable – oil, natural gas, and NGLs

     13,739       18,880  

Accounts receivable – affiliated parties

     2,125       2,125  

Commodity derivatives

     550       9,471  

Other current assets

     737       618  
  

 

 

   

 

 

 

Total current assets

     17,976       32,510  
  

 

 

   

 

 

 

Property and equipment:

    

Oil and gas properties, successful efforts method

     314,280       302,551  

Less: accumulated depreciation, depletion and amortization

     (57,779     (42,098
  

 

 

   

 

 

 

Oil and gas properties, net

     256,501       260,453  

Other noncurrent assets:

    

Commodity derivatives

     1,063       9,764  

Other assets

     253       631  
  

 

 

   

 

 

 

Total assets

   $ 275,793     $ 303,358  
  

 

 

   

 

 

 

Liabilities and members’ equity

    

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 10,458     $ 7,211  

Commodity derivatives

     3,814       —    

Other current liabilities

     243       —    
  

 

 

   

 

 

 

Total current liabilities

     14,515       7,211  
  

 

 

   

 

 

 

Long-term liabilities:

    

Revolving credit facility

     134,591       137,885  

Asset retirement obligations

     1,016       974  

Commodity derivatives

     6,405       1,386  

Other liabilities

     1,336       —    
  

 

 

   

 

 

 

Total long-term liabilities

     143,348       140,245  
  

 

 

   

 

 

 

Members’ capital

     117,930       155,902  
  

 

 

   

 

 

 

Total liabilities and members’ capital

   $ 275,793     $ 303,358  
  

 

 

   

 

 

 

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


Flywheel Bakken, LLC

Consolidated Statements of Operations

(Unaudited)

 

     Three Months
Ended

June 30, 2019
    Three Months
Ended

June 30, 2018
    Six Months
Ended

June 30, 2019
    Six Months
Ended

June 30, 2018
 
     (in thousands)     (in thousands)  

Revenues and other

        

Oil, natural gas, and NGL sales

   $ 29,385     $ 48,343     $ 59,483     $ 95,210  

Realized loss on derivatives, net

     (2,219     (30,068     (2,607     (39,885
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     27,166       18,275       56,876       55,325  

Operating costs and expenses

        

Lease operating expense

     5,862       5,913       11,109       11,126  

Transportation, gathering, and processing

     3,799       5,564       7,977       9,694  

Production and ad valorem taxes

     2,505       3,958       4,777       8,004  

Exploration and other expense

     2       4       2       4  

General and administrative expense

     964       1,899       2,042       3,703  

Depreciation, depletion, amortization, and accretion

     5,855       8,946       15,723       19,732  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

     18,987       26,284       41,630       52,263  

Other income (expense), net:

        

Other income

     1       —         4       —    

Interest expense

     (1,789     (1,856     (3,390     (3,693

Unrealized gain (loss) on Commodity derivatives

     9,083       —         (26,456     —    

Unrealized loss on interest rate swap derivatives

     (1,342     —         (2,094     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net:

     5,953       (1,856     (31,936     (3,693
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 14,132     $ (9,865   $ (16,690   $ (631
  

 

 

   

 

 

   

 

 

   

 

 

 

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


Flywheel Bakken, LLC

Consolidated Statements of Members’ Capital

(Unaudited)

 

     Total  
     (in thousands)  

Balance at December 31, 2017

   $ 110,212  

Net income

     9,234  
  

 

 

 

Balance at March 31, 2018

     119,447  

Distributions

     (15,000

Net loss

     (9,865
  

 

 

 

Balance at June 30, 2018

   $ 94,581  
  

 

 

 

Balance at December 31, 2018

     155,902  

Distributions

     (13,000

Shares repurchased

     (262

Net loss

     (30,822
  

 

 

 

Balance at March 31, 2019

     111,818  

Distributions

     (8,020

Net income

     14,132  
  

 

 

 

Balance at June 30, 2019

   $ 117,930  
  

 

 

 

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


Flywheel Bakken, LLC

Consolidated Statements of Cash Flows

(Unaudited)

 

     Six Months
Ended

June, 30 2019
    Six Months
Ended

June, 30 2018
 
     (in thousands)  

Operating activities

    

Net loss

   $ (16,690   $ (631

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation, depletion, and amortization

     15,682       19,695  

Accretion of asset retirement obligations

     41       37  

Amortization of debt issuance costs

     206       194  

Loss on derivatives, net

     30,956       39,885  

Settlement paid on derivatives

     (2,406     (10,257

Changes in assets and liabilities:

    

Decrease (increase) in accounts receivable

     4,226       (17,350

(Increase) decrease in other current and non-current assets

     (258     108  

Increase (decrease) in accounts payable and accrued liabilities

     947       (4,143
  

 

 

   

 

 

 

Net cash provided by operating activities

     32,704       27,538  

Investing activities

    

Additions to oil and natural gas properties – operations

     (8,638     (12,077

Additions to other property and equipment

     —         (15
  

 

 

   

 

 

 

Net cash used in investing activities

     (8,638     (12,092

Financing activities

    

Distributions to members, net of notes receivable

     (20,895     (14,907

Shares repurchased

     (262     —    

Borrowings on revolving credit facility

     23,000       26,100  

Payments on revolving credit facility

     (26,500     (28,800

Debt issuance costs

     —         (35
  

 

 

   

 

 

 

Net cash used in by financing activities

     (24,657     (17,642
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (591     (2,196

Cash and cash equivalents at beginning of period

     1,416       3,462  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 825     $ 1,265  
  

 

 

   

 

 

 

Non-cash Items

    

Non-cash Distributions

     (125     —    

Net accrued additions to oil and natural gas properties

     1,006       5,725  

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


Flywheel Bakken, LLC

Notes to Consolidated Financial Statements

 

1.

Organization and Business

Flywheel Bakken, LLC (“Flywheel Bakken” or the “Company”), previously Valorem Energy, LLC, a Delaware limited liability company, is a privately-owned exploration and production company formed on March 27, 2017 (“Inception”), to acquire, develop, and produce oil and gas properties. Flywheel Bakken’s wholly owned subsidiaries include Flywheel Bakken Operating, LLC (“Flywheel Bakken Operating”), previously Valorem Energy Operating, LLC, Valorem Energy Member, LLC (“Valorem Member”), Valorem Energy Management, LLC (“Valorem Management”), and VEN Bakken, LLC (“VEN Bakken”), all of which are Delaware limited liability companies.

Funding sources for the Company’s operations and acquisitions of properties are accomplished through member contributions by the Kayne Private Energy Income Fund, L.P. (“KPEIF”), affiliates of KPEIF, and members of management (“Management”), (collectively the “Members”), the utilization of its own cash resources, or any combination of these sources. The Company’s oil and gas properties are primarily located in the state of North Dakota with some minor interests in South Dakota and Montana.

 

2.

Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Flywheel Bakken and its wholly owned subsidiaries, Flywheel Bakken Operating, Valorem Member, Valorem Management, and VEN Bakken. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates of oil and gas reserves, as determined by independent petroleum engineers, are continually subject to revision based on price, production history, and other factors. Changes in the estimated oil and gas reserves utilized for depreciation, depletion, and amortization or the estimated future cash flows attributable to the reserves that are utilized for impairment assessments could have a significant impact on the future results of operations. Actual results could differ from those estimates.


Financial Instruments

The Company’s financial instruments are measured at fair value and consist primarily of cash and cash equivalents, an interest swap, commodity derivative contracts, accounts receivable, accounts payable, and the revolving credit facility. The Company’s derivative instruments are measured at fair value on a recurring basis, see Note 7 for further discussion. The carrying amount for the Company’s revolving credit facility is considered to be representative of fair market value due to the floating interest rate. The carrying amounts of the Company’s other financial instruments are considered to be representative of their fair market value due to their short-term nature.

The Company applies fair value accounting guidance to measure nonfinancial assets and liabilities, such as the acquisition or impairment of oil and natural gas properties and the inception value of asset retirement obligations. These assets and liabilities are subject to fair value adjustments only in certain circumstances and are not subject to recurring revaluations. See Notes 4 and 5 for further discussion.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A hierarchy exists for measuring fair value that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy consists of three broad levels:

 

  Level 1:

Valuations consist of unadjusted quoted prices in active markets for identical assets and liabilities. This level has the highest priority.

 

  Level 2:

Valuations rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability.

 

  Level 3:

Valuations are based on prices of third-party or internal valuation models, which require inputs that are significant to the fair value measurement and are less observable and, thus, have the lowest priority.

The Company classified the commodity derivative contracts and interest swap contract outstanding as Level 2 in the fair value hierarchy based upon the data used to determine the fair values. See Note 7 for more information.

Asset retirement cost estimates are derived from historical costs, as well as management’s expectation of future cost environments. As there is no corroborating market activity to support the assumptions used, the Company has designated these liabilities as Level 3.

Derivatives

The Company is exposed to certain risks relating to its ongoing business operations, including risks related to commodity prices. As discussed more fully below, the Company uses derivative instruments primarily to manage commodity price risk. The derivatives are entered into with banks that participate in the revolving credit facility described in Note 6, and, therefore, there are no margin requirements. The revolving credit facility included an affirmative covenant requiring the Company to be 80% hedged through November 2022 for expected proved producing oil volumes only within 30 days of November 30, 2017, the closing date of the Company’s first acquisition of


properties. The Company is not subject to further hedging requirements under the revolving credit facility after November 30, 2022. All contracts have historically settled with cash and do not require the delivery of physical volumes. The Company does not intend to issue or hold derivative financial instruments for speculative trading purposes which are restricted by the revolving credit facility.

In conjunction with the acquisitions of oil and gas properties, the Company entered into derivative financial instruments with respect to a portion of its oil production to hedge future prices received. The instruments are used to manage the inherent uncertainty of future revenues resulting from commodity price volatility. Additionally, in conjunction with the financing of the acquisitions, the Company entered into an interest rate swap to manage the risk of interest rate volatility associated with the variable rate debt obtained to finance the acquisitions. The Company’s derivative financial instruments consist of fixed-price swaps for oil and an interest rate swap. Under the terms of the price swaps, the Company receives a fixed-price for its production and pays a variable market price to the contract counterparty.

All derivative financial instruments are recognized at their current fair value as either assets or liabilities in the balance sheets. Changes in the fair value of these derivative financial instruments are recorded in earnings. Cash settlements with counterparties are also recorded in earnings. Cash settlements to which the Company is entitled are accrued in other current assets, and cash settlements the Company is obligated to pay are included in other current liabilities in the accompanying consolidated balance sheets. See Note 7 for further discussion.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of 90 days or less to be cash equivalents. The Company currently maintains no cash equivalents or investments as available cash is used to pay down the revolving credit facility.

Oil and Gas Properties

The Company follows the successful efforts method of accounting for its oil and gas properties; accordingly, exploration costs, other than the cost of drilling exploratory wells, are charged to expense as incurred. The costs of drilling exploratory wells are capitalized, pending determination of whether the wells discover proved commercial reserves. If proved commercial reserves are not discovered, such drilling costs are expensed. Other exploration costs, including geological and geophysical costs and delay rentals on unproved leaseholds, are charged to exploration expense as incurred. The costs of all development wells and related equipment used in the production of oil and gas are capitalized. Costs to operate and maintain field equipment are expensed as incurred.

Unproved oil and gas properties are periodically assessed for impairment, and any impairment is charged to expense. The costs of properties determined to be productive are transferred to proved oil and gas properties.

Proceeds from immaterial sales of properties are credited to property costs, and a gain or loss is recognized when a significant portion of an amortization base is sold or abandoned. During the periods ended June 30, 2019 and 2018, there were no sales of properties. On April 18, 2019, the Company entered into an agreement to sell all of the Company’s oil and gas properties and associated working capital for approximately $310 million, subject to normal purchase price adjustments. The closing and effective date of this transaction occurred on July 1, 2019.


Depletion, depreciation, and amortization of the cost of proved oil and gas properties and well equipment is calculated using the unit-of-production method. The reserve base used to calculate depletion, depreciation, and amortization is the sum of proved developed reserves and proved undeveloped reserves for leasehold acquisition cost and the cost to acquire proved properties. The reserve base used to calculate depletion, depreciation, and amortization for development costs is proved developed reserves. Estimated future dismantlement, restoration, abandonment cost, and net salvage values are taken into account.

The Company reviews its proved oil and gas properties for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amounts of such properties may not be recoverable. If it is determined that a property’s estimated future net cash flows will not be sufficient to recover its carrying amount, an impairment charge is recognized to reduce the carrying amount of the asset to its estimated fair value by discounting anticipated future net cash flows.

Asset Retirement Obligations

A liability for an asset’s retirement is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The corresponding cost is capitalized as part of the carrying amount of the related long-lived asset. The liability is accreted to its then-present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded balance, a gain or loss is recognized.

Revenue Recognition

Oil and natural gas sales are recorded using the sales method, whereby the Company recognizes revenue based upon the amount of oil and gas sold and delivered to product purchasers on its behalf.

The Company’s revenues are derived principally from uncollateralized sales to customers in the oil and gas industry; therefore, the Company’s customers may be similarly affected by changes in economic and other conditions within the industry. The Company has experienced no credit losses on such sales.

Debt Issuance Costs

The Company incurred legal and bank fees in connection with obtaining the revolving credit facility, which was entered into on November 30, 2017. The fees were capitalized and are being amortized to interest expense over the term of the revolving credit facility utilizing the interest method. Debt issuance costs are included as a reduction to debt in the accompanying consolidated balance sheet. Amortization of debt issuance costs is included in interest expense in the accompanying consolidated statement of operations. When debt is retired before maturity, or modifications significantly change the cash flows, the related unamortized costs are expensed. See Note 6 for more information.


Long-Term Incentive Compensation

In March 2017, the Company created and authorized the issuance of up to 3,000,000 Series B Units (“Incentive Units”). To date, approximately 75% of the Series B units have been issued to employees. Series B Unit holders are not required to make cash capital contributions in return for Series B Units; rather, the Incentive Units are issued in consideration of services rendered and to be rendered by the holders for the benefit of the Company. The Incentive Units were determined to be profit interest awards and are within the scope of Accounting Standards Codification (ASC) 710, Compensation – General. See Note 12 for further discussion on the Incentive units.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes most of the existing revenue recognition requirements in U.S. GAAP and requires (i) an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services and (ii) requires expanded disclosures regarding the nature, amount, timing, and certainty of revenue and cash flows from contracts with customers. The ASU will be effective for annual and interim reporting periods beginning after December 15, 2018. The ASU allows for either full retrospective adoption, meaning the standard is applied to all periods presented in the financial statements, or modified retrospective adoption, meaning the standard is applied only to the most current period presented. The Company is currently evaluating the impact this ASU will have on its consolidated financial position, results of operations, or cash flows. The company’s adoption of ASU 2014-09 is not expected to have a material impact.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset for all leases with a term greater than 12 months on the balance sheet, including operating leases. The provisions of ASU 2016-02 also modify the definition of a lease and outline the requirements for recognition, measurement, presentation, and disclosure of leasing arrangements by both lessees and lessors. This ASU is effective for financial statements issued for annual periods beginning after December 15, 2019, and for interim periods within annual periods beginning after December 15, 2020. The Company has not yet determined what the effects of adopting this updated ASU will be on its consolidated financial statements. The company’s adoption of ASU 2016-02 is not expected to have a material impact.

 

3.

Income Taxes

The Company is not a taxpaying entity for federal or state income tax purposes, and, accordingly, it does not recognize any expense for such taxes. The income tax liability resulting from the Company’s activities is the responsibility of the Members. In the event of an examination of the Company’s tax return, the tax liability of the Members could be changed if an adjustment of the Company’s income or loss is ultimately sustained by taxing authorities.


4.

Oil and Gas Properties

A summary of oil and gas properties is presented as follows:

 

     June 30, 2019      December 31,
2018
 
     (in thousands)  

Oil and gas properties and equipment:

     

Undeveloped leasehold costs

   $ 56,600      $ 56,600  

Lease and well equipment

     44,379        41,706  

Developed leasehold and intangible drilling costs

     213,301        204,245  
  

 

 

    

 

 

 
     314,280        302,551  

Accumulated depreciation, depletion, and amortization

     (57,779      (42,098
  

 

 

    

 

 

 
   $ 256,501      $ 260,453  
  

 

 

    

 

 

 

 

5.

Asset Retirement Obligations

A summary of the Company’s asset retirement obligations is presented as follows:

 

     For the six
months ended
June 30, 2019
     For the year
ended
December 31,

2018
 
     (in thousands)  

Balance at beginning of period

   $ 974      $ 857  

Liabilities incurred

     1        44  

Accretion expense

     41        73  

Liabilities settled

     —          —    
  

 

 

    

 

 

 

Balance at end of period

   $ 1,016      $ 974  
  

 

 

    

 

 

 

 

6.

Indebtedness

The Company had the following long-term debt outstanding:

 

     June 30, 2019      December 31,
2018
 
     (in thousands)  

Revolving credit facility – Long-term

   $ 136,000      $ 139,500  

Debt issuance costs

     (1,409      (1,615
  

 

 

    

 

 

 

Total revolving credit facility

   $ 134,591      $ 137,885  
  

 

 

    

 

 

 

Revolving Credit Facility

On November 30, 2017, the Company entered into a $500.0 million revolving credit facility between JPMorgan Chase Bank, N.A., Citigroup Global Markets, Inc., and Wells Fargo Securities, LLC, with JPMorgan Chase Bank, N.A. serving as administrative agent (collectively the “Banks”). The revolving credit facility is secured by substantially all of the Company’s oil and gas assets and matures on November 30, 2022.


The Banks established an initial borrowing base of $160.0 million under the $500.0 million revolving credit facility, subject to semiannual redeterminations based on the Banks’ evaluation of the Company’s oil and gas reserves. Outstanding borrowings under the revolving credit facility accrue interest at the London Interbank Offered Rate (“LIBOR”) plus a margin of 2.25%–3.25% that varies based on the utilization of the facility. The unused portion of the borrowing base is subject to a commitment fee ranging from 0.375% to 0.500% paid per quarter based on the utilization percentage of the borrowing base.

On April 23, 2019, the Company entered into Amendment No. 2 to the revolving credit facility, which established an updated borrowing base of $160.0 million under the $500.0 million revolving credit facility, based on the Banks’ evaluation of the Company’s oil and gas reserves. The outstanding balance on the revolving credit facility as of June 30, 2019, was $136.0 million, leaving $24.0 million of borrowing capacity available under the current borrowing base. The Company incurred and paid interest expense of $3.2 million and $3.5 million at June 30, 2019 and 2018, respectively.

The credit agreement also provides for the issuance of letters of credit, limited to the lesser of $25.0 million or availability under the credit agreement. There were no letters of credit outstanding at June 30, 2019.

Amortization of debt issuance costs totaled $0.2 million at June 30, 2019 and 2018. The Company had total unamortized debt issuance costs of $1.4 million and $1.7 million at June 30, 2019 and 2018, respectively, of which $0.4 million is expected to be amortized to interest expense each year over the next four years.

Debt Covenants and Maturity

The revolving credit facility agreement contains certain financial and nonfinancial covenants that limit the Company’s ability to, among other things, pay cash dividends, incur additional debt, sell assets, enter into certain hedging contracts, merge, consolidate, or make certain investments. In addition, the Company is required to maintain a ratio of EBITDAX to total debt (each as defined in the credit agreement) not to exceed 4.0 to 1.00 and a current ratio (as defined by the revolving credit facility) of not less than 1.00 to 1.00, both of which commenced with the fiscal quarter ending March 31, 2018. At June 30, 2019, the Company was in compliance with debt covenants.

 

7.

Derivative Instruments

The Company uses financial instruments to manage its exposure to market fluctuations in the price of crude oil and interest rates. The Company’s general strategy is to mitigate oil price risk with fixed price swaps and to hedge interest rate risk with swaps. The Company entered into fixed price swaps during the periods ended June 30, 2019 and December 31, 2018, to reduce price risk exposure related to sales of oil. The Company also entered into an interest rate swap to reduce exposure to floating interest rates.


At June 30, 2019 and December 31, 2018, the Company’s derivative instruments consisted of the following:

 

   

Interest rate swap – The Company utilized a notional amount interest rate swap contract to manage the interest rate risk. The Company’s interest rate swap contract serves to mitigate rate risk exposure by converting a portion of the Company’s monthly floating rate on its borrowings under its revolving credit facility to monthly fixed-rate payments.

 

   

Fixed-price swaps – The Company receives a fixed price and pays a floating market price to the counterparty for a specified volume of the hedged commodity.

The Company’s derivative instruments as of June 30, 2019 were as follows:

 

     Oil Swaps
(NYMEX/WTI indexed)
 

Period

   Volumes (Bbls)      Weighted-
Average Price

($/Bbl)
 

2019

     726,575        56.17  

2020

     1,365,414        54.18  

2021

     1,002,074        51.08  

2022

     872,864        51.15  
     Interest Rate Swaps  

Period

   Notional Amount
(thousands)
     Weighted-
Average Fixed

Rate
 

2019

   $ 75,000        2.09  

2020

     75,000        2.21  

2021

     75,000        2.27  

2022

     75,000        2.33  

The Company’s derivative instruments as of December 31, 2018 were as follows:

 

     Oil Swaps
(NYMEX/WTI indexed)
 

Period

   Volumes (Bbls)      Weighted-
Average Price

($/Bbl)
 

2019

     1,479,146        53.70  

2020

     1,184,414        52.08  

2021

     1,002,074        51.08  

2022

     872,864        51.18  

2023

     666,470        60.53  


     Interest Rate Swaps  

Period

   Notional Amount
(thousands)
     Weighted-
Average Fixed

Rate
 

2019

     75,000        2.09  

2020

     75,000        2.21  

2021

     75,000        2.27  

2022

     75,000        2.33  

The Company has not elected to designate its derivative instruments as cash flow hedging instruments; therefore, the changes in fair value are recognized each period in earnings as a component of revenue. The contracts are placed with major financial institutions deemed to be of high credit, each of which is a party to the revolving credit facility.

The following table summarizes the fair value, fair value hierarchy and location of each classification of the derivative instruments recorded in the consolidated balance sheet at June 30, 2019 and December 31, 2018, respectively:

 

     As of June 30, 2019  

Consolidated Balance Sheet Classification

(in thousands)                                                 

   Gross Fair Value
(Level 2)
     Net Fair Value
Presented in
Consolidated
Balance Sheet
(Level 2)
 

Short-term commodity derivative asset

   $ 550      $ 550  

Short-term interest swap derivative asset1

     22        22  

Short-term commodity derivative liability

     (3,814      (3,814

Short-term interest swap derivative liability2

     (243      (243

Long-term commodity derivative asset

     1,063        1,063  

Long-term commodity derivative liability

     (6,405      (6,405

Long-term interest rate derivative liability3

     (1,336      (1,336
  

 

 

    

 

 

 

Total derivative contracts

   $ (10,163    $ (10,163
  

 

 

    

 

 

 

 

1 

Short-term interest swap derivative asset is included within Other Current Assets on the Consolidated Balance Sheet.

2 

Short-term interest swap derivative liability is included within Other Current Liabilities on the Consolidated Balance Sheet.

3 

Long-term interest swap derivative liabilities is included within Other Liabilities on the Consolidated Balance Sheet.


     As of December 31, 2018  

Consolidated Balance Sheet Classification

(in thousands)                                                 

   Gross Fair Value
(Level 2)
     Net Fair Value
Presented in
Consolidated
Balance Sheet
(Level 2)
 

Short-term commodity derivative asset

   $ 9,471      $ 9,471  

Short-term interest swap derivative asset

     326        326  

Long-term commodity derivative asset

     9,764        9,764  

Long-term interest swap derivative asset

     211        211  

Long-term commodity derivative liability

     (1,386      (1,386
  

 

 

    

 

 

 

Total derivative contracts

   $ 18,386      $ 18,386  
  

 

 

    

 

 

 

The following table summarizes gains and losses related to the derivatives reflected in the consolidated statement of operations for the six months ended June 30, 2019 and 2018, respectively.

 

     For the six
months ended
June 30, 2019
     For the six
months ended
June 30, 2018
 
     (in thousands)  

Commodity mark-to-market gains/(losses)

   $ (26,456    $ (29,628

Commodity settlements paid

     (2,607      (10,261

Interest swap mark-to-market gains/(losses)

     (2,094      —    

Interest swap settlements paid

     200        4  
  

 

 

    

 

 

 

Total gain/(loss) on derivative instruments

   $ (30,957    $ (39,885
  

 

 

    

 

 

 

 

1 

Interest swap mark-to-market and settlements paid are included within Other income on the Consolidated Statement of Operations.

Concentration of Credit Risk

By using derivative instruments that are not traded on an exchange, the Company exposes itself to credit risk from its counterparties. Credit risk is the risk of loss from counterparties not performing under the terms of the derivative instrument. When the fair value of a derivative instrument is an asset, the counterparty is expected to owe the Company, which creates credit risk. To minimize the credit risk in derivative instruments, the Company enters into derivative contracts only with counterparties that are creditworthy financial institutions that are parties to the revolving credit facility, which were also deemed by management as competent and competitive market-makers. Refer to Note 2 for additional information on the valuation of derivative assets and liabilities.

 

8.

Risks and Uncertainties

Historically, the market for oil and natural gas has experienced significant price fluctuations. Prices are impacted by supply and demand, both domestic and international; seasonal variations caused by changing weather conditions; political conditions; governmental regulations; the availability, proximity, and capacity of gathering systems for natural gas and numerous other factors. Increases or decreases in prices received could have a significant impact on the Company’s future results of operations, reserves estimates, and financial position. The Company has certain commodity swap contracts in place with three counterparties to reduce its exposure to changes in commodity prices.


Estimating oil and gas reserves is complex and is not exact because of the numerous uncertainties inherent in the process. The process relies on interpretations of available geological, geophysical, engineering, and production data. The extent, quality, and reliability of both the data and the associated interpretations of that data can vary. The process also requires certain economic assumptions, including, but not limited to, oil and gas prices, drilling and operating expenses, capital expenditures, and taxes. Actual future production, oil and gas prices, revenues, taxes, development expenditures, operating expenses, and quantities of recoverable oil and gas most likely will vary from the Company’s estimates. Any significant variance could materially affect the Company’s future results of operations, reserves estimates, and financial position.

 

9.

Commitments and Contingencies

All of the Company’s operations are subject to federal, state, and local environmental regulations. To the best of management’s knowledge, the Company is in compliance with such laws and regulations.

The Company is subject to potential lawsuits involving a variety of claims arising in the ordinary course of business. The Company also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal, or release of certain chemical, mineral, and petroleum substances at various active and inactive sites. The Company regularly assesses the need for accounting recognition or disclosure of contingencies. In the case of all known contingencies (other than those related to income taxes), a liability is accrued when the loss is probable, and the amount is reasonably estimable. If a range of the amounts can be reasonably estimated, but no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. These liabilities are not reduced for potential insurance or third-party recoveries. If applicable, receivables are accrued for probable insurance or other third-party recoveries.

 

10.

Capital Structure

Initial funding for the Company was obtained by issuing common membership interests in the Company (“Series A Units”) at a purchase price of $1,000 per Series A Unit up to a total of approximately 301,000 units. The Company’s Limited Liability Company (“LLC”) Agreement provides that the Company use the proceeds from the sale of the Series A Units for the acquisition and development of oil and gas properties, capital expenditures, working capital, and general Company purposes.

Management of its business affairs resides with the Company. Transfer of Series A Unit interests is only permitted if certain conditions specified in the LLC Agreement are met and is subject to approval of the Board of Directors.

Available cash flow after meeting operating requirements, property acquisition(s), and debt repayments may be used to make distributions to the partners according to their respective ownership interests.

As of June 30, 2019, approximately 131,000 Series A Units had been issued.


11.

Affiliated-Party Transactions

On August 27, 2018, Valorem Energy, LLC entered into an Assignment Agreement with Flywheel Energy, LLC; Kayne Private Energy Income Fund, L.P.; and Kayne Private Energy Income Parallel Fund, L.P. whereby a special one-time $2.2 million contribution was approved from Flywheel Energy, LLC, an affiliated company.

Effective as of September 1, 2018, Flywheel Bakken entered into an Amended and Restated Management Agreement with Flywheel Energy Management, LLC and Flywheel Energy, LLC, whereby Flywheel Energy Management, LLC provides certain management services to Flywheel Bakken. In accordance with these services, Flywheel Bakken agreed to reimbursement Flywheel Energy Management, LLC for all direct costs, and an allocated portion of indirect costs attributable to the business. Additionally, Flywheel Energy Management, LLC and Flywheel Energy, LLC agreed to reimburse Flywheel Bakken for direct costs, and an allocated portion of indirect costs attributable to the businesses. Total costs to be reimbursed by Flywheel Energy, LLC incurred in 2018 were $2.6 million. Net reimbursements received by Flywheel Bakken in 2019 were $1.0 million. The remaining amount due is shown on the balance sheets as accounts receivable – affiliate.

Management investors have the opportunity to borrow and invest in the Company amounts equal to their cash equity contributions. The loans are recorded as notes receivable and shown on the balance sheets as other assets. Interest is charged at the lowest Internal Revenue Service rate in effect. Repayment and interest payments occur when equity distributions are made. Amounts due from management were $0.2 million and $0.7 million at June 30, 2019 and 2018, respectively.

 

12.

Incentive Units

On March 27, 2017 (the “Grant date”), a total of 3,000,000 incentive units, made up of all Series B Units, were created and authorized for issuance by the Members to employees. The Series B Units are considered a profits interest and are accounted for under the deferred compensation guidance in ASC 710, Compensation – General. These Series B Units do not represent a legal form of equity as there is no initial investment required to obtain the Series B Units. While the Series B Units allow employees to receive a portion of distributable cash after the Series A Members achieve certain returns on their contributions, the Series B Units are non-voting and subordinate to debt and Series A Units based on the waterfall distribution.

At December 31, 2018, management did not consider it probable that either (i) the payout thresholds necessary to trigger distributions to Series B Unitholders would be achieved or (ii) that a triggering event that would lead to full vesting of the Series B Units would occur. Therefore, management has assessed the present value of expected future benefits associated with the Series B Units to be zero at December 31, 2018.

 

13.

Subsequent Events

On April 18, 2019, the Company entered into an agreement to sell all of the Company’s oil and gas properties and associated working capital for approximately $310 million, subject to normal purchase price adjustments. The closing and effective date of this transaction occurred on July 1, 2019.

Subsequent events have been evaluated through September 12, 2019, the date the consolidated financial statements were available to be issued.

EXHIBIT 99.4

UNAUDITED PRO FORMA FINANCIAL STATEMENTS AND OTHER DATA

On July 1, 2019, Northern Oil and Gas, Inc. (“Northern”, the “Company”, “we”, and “our”) completed the acquisition of certain oil and gas properties and interests from VEN Bakken, LLC (“Seller”), a wholly-owned subsidiary of Flywheel Bakken, LLC (“Flywheel Bakken”), with an effective date of July 1, 2019 (the “VEN Bakken Acquisition”). At closing the acquired assets consisted of approximately 87.8 net producing wells and 4.1 net wells in process, as well as approximately 18,000 net acres in North Dakota. The Company paid closing consideration to Seller consisting of $170.1 million in cash, 5,602,147 shares of the Company’s common stock, and a 6.0% Senior Unsecured Promissory Note due 2022 in the aggregate principal amount of $130.0 million (the “Promissory Note”). The cash and Promissory Note portions of the consideration are net of preliminary and customary purchase price adjustments and remain subject to final post-closing settlement between the Company and Seller.

The following unaudited pro forma financial statements present (i) our unaudited pro forma balance sheet as of June 30, 2019, (ii) our unaudited pro forma statement of operations for the year ended December 31, 2018, and (iii) our unaudited pro forma statement of operations for the six months ended June 30, 2019. The unaudited pro forma balance sheet has been developed by applying pro forma adjustments to our historical balance sheet to give effect to the VEN Bakken Acquisition as if it had occurred on June 30, 2019. The unaudited pro forma statements of operations have been developed by applying pro forma adjustments to our historical statements of operations to give effect to the VEN Bakken Acquisition as if it had occurred on January 1, 2018.

The unaudited pro forma financial statements are for illustrative and informational purposes only and are not intended to represent or be indicative of what our results of operations would have been had the above transactions occurred as of or on the dates indicated. The unaudited pro forma financial statements also should not be considered representative of our future results of operations.

The pro forma adjustments related to the VEN Bakken Acquisition are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable and are subject to change. Accordingly, these pro forma adjustments are preliminary and have been made solely for the purpose of providing these unaudited pro forma financial statements. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could be material. The differences, if any, could have a material impact on the accompanying unaudited pro forma financial statements and our future results of operations.


NORTHERN OIL AND GAS, INC.

PRO FORMA BALANCE SHEET

(in thousands)

(unaudited)

 

     As of June 30, 2019  
     Historical
Northern
Oil and Gas
    Historical
VEN Bakken
Acquisition
    VEN Bakken
Acquisition
Adjustments
        Pro Forma
Combined
 

Assets

          

Current Assets:

          

Cash and cash equivalents

   $ 2,794     $ 825     $ (825   (b)   $ 2,794  

Accounts receivable, net

     87,697       15,864       (15,864   (b)     87,697  

Advances to operators

     1,425       —         —           1,425  

Prepaid expenses and other

     8,226       737       (737   (b)     8,226  

Derivative instruments

     32,531       550       (550   (b)     32,531  

Income tax receivable

     395       —         —           395  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total current assets

     133,068       17,976       (17,976       133,068  

Oil and Natural Gas Properties, Full Cost Method of Accounting:

          

Proved properties

     3,607,214       314,280       5,861     (a), (c)     3,927,355  

Unproved properties

     9,249       —         —           9,249  

Other property and equipment

     1,609       —         —           1,609  

Less accumulated depreciation, depletion, amortization and impairment

     (2,324,790     (57,779     57,779     (b)     (2,324,790
  

 

 

   

 

 

   

 

 

     

 

 

 

Oil and natural gas properties, net

     1,293,282       256,501       63,640         1,613,423  

Other Assets:

          

Derivative instruments

     26,610       1,063       (1,063   (b)     26,610  

Deferred income taxes

     420       —         —           420  

Acquisition deposit

     31,000       —         (31,000   (d)     —    

Other noncurrent assets, net

     10,012       253       (253   (b)     10,012  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total Assets

   $ 1,494,391     $ 275,793     $ 13,348       $ 1,783,533  
  

 

 

   

 

 

   

 

 

     

 

 

 

Liabilities and Stockholders’ Equity (Deficit)/Members’ Capital

          

Current Liabilities:

          

Accounts payable

   $ 93,355     $ 10,458     $ (10,458   (b)     93,355  

Accrued liabilities

     83,880       —         —           83,880  

Accrued interest

     15,050       —         —           15,050  

Debt exchange derivative

     2,791       —         —           2,791  

Derivative instruments

     95       3,814       215     (a), (e)     4,124  

Contingent consideration

     36,992       —         —           36,992  

Other current liabilities

     566       243       (243   (b)     566  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

     232,726       14,515       (10,486       236,758  
  

 

 

   

 

 

   

 

 

     

 

 

 

Long-Term Liabilities:

          

Long-term debt, net

     857,198       134,591       133,146     (f)     1,124,935  

Derivative instruments

     1,644       6,405       (740   (a), (e)     7,309  

Asset retirement obligations

     12,845       1,016       (1,016   (b)     12,845  

Other noncurrent liabilities

     329       1,336       (1,336   (b)     329  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total Liabilities

     1,104,742       157,863       119,568         1,382,176  

Commitments and Contingencies

          

Stockholders’ Equity/Members’ capital:

          

Preferred stock, par value $.001; 5,000,000 authorized, no shares outstanding

     —         —         —           —    

Common stock, par value $.001; 675,000,000 authorized, 389,435,991 shares outstanding at 6/30/2019

     389       —         6     (g)     395  

Members’ capital

     —         117,930       (117,930   (b)     —    

Additional paid-in capital

     1,248,906       —         11,703     (g)     1,260,609  

Retained deficit

     (859,647     —         —           (859,647
  

 

 

   

 

 

   

 

 

     

 

 

 

Total stockholders’ equity/members’ capital

     389,649       117,930       (106,221       401,357  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total Liabilities and Stockholders’ Equity/Members’ Capital

   $ 1,494,391     $ 275,793     $ 13,348       $ 1,783,533  
  

 

 

   

 

 

   

 

 

     

 

 

 

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


NORTHERN OIL AND GAS, INC.

PRO FORMA STATEMENT OF OPERATIONS

(in thousands, except share and per share numbers)

(unaudited)

 

     For the Year Ended December 31, 2018  
     Historical
Northern
Oil and Gas
    Historical
VEN Bakken
Acquisition
    VEN Bakken
Acquisition
Adjustments
         Pro Forma
Combined
 

REVENUES

           

Oil and Gas Sales

   $ 493,909     $ 183,563     $ —          $ 677,472  

Gain (Loss) on Derivative Instruments, Net

     185,006       19,402       —            204,408  

Other Revenue

     9       —         —            9  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total Revenues

     678,924       202,965       —            881,889  

OPERATING EXPENSES

           

Production Expenses

     66,646       42,392       —            109,038  

Production Taxes

     45,302       15,458       —            60,760  

General and Administrative Expenses

     14,568       4,967       —            19,535  

Depletion, Depreciation, Amortization, and Accretion

     119,780       39,473       5,870     (h)      165,123  

Exploration and other expense

     —         8       —            8  

Impairment of Other Current Assets

     —         —         —            —    
  

 

 

   

 

 

   

 

 

      

 

 

 

Total Expenses

     246,296       102,298       5,870          354,464  

INCOME (LOSS) FROM OPERATIONS

     432,628       100,667       (5,870        527,425  

OTHER INCOME AND EXPENSE

           

Interest Expense, Net of Capitalization

     (86,005     (7,561     (6,607   (i)      (100,173

Write-Off of Debt Issuance Costs

     —         —         —            —    

Loss on the Extinguishment of Debt

     (173,430     —         —            (173,430

Debt Exchange Derivative Gain/(Loss)

     (598     —         —            (598

Contingent Consideration Loss

     (28,968     —         —            (28,968

Financing Expense

     (884     —         —            (884

Other Income (Expense)

     891       723       —            1,614  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total Other Income (Expense)

     (288,994     (6,838     (6,607        (302,439

INCOME (LOSS) BEFORE TAXES

     143,634       93,829       (12,477        224,986  

INCOME TAX BENEFIT

     (55     —         —            (55
  

 

 

   

 

 

   

 

 

      

 

 

 

NET INCOME (LOSS)

   $ 143,689     $ 93,829     $ (12,477      $ 225,041  
  

 

 

   

 

 

   

 

 

      

 

 

 

Net Income (Loss) Per Common Share - Basic

   $ 0.61            $ 0.93  

Net Income (Loss) Per Common Share - Diluted

   $ 0.61            $ 0.93  

Weighted Average Shares Outstanding - Basic

     236,206,457         5,602,147     (j)      241,808,604  

Weighted Average Shares Outstanding - Diluted

     236,773,911         5,602,147     (j)      242,376,058  

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


NORTHERN OIL AND GAS, INC.

PRO FORMA STATEMENT OF OPERATIONS

(in thousands, except share and per share numbers)

(unaudited)

 

     For the Six Months Ended June 30, 2019  
     Historical
Northern
Oil and Gas
    Historical
VEN Bakken
Acquisition
    VEN Bakken
Acquisition
Adjustments
         Pro Forma
Combined
 

REVENUES

           

Oil and Gas Sales

   $ 282,530     $ 59,483     $ —          $ 342,013  

Gain (Loss) on Derivative Instruments, Net

     (103,031     (31,157     —            (134,188

Other Revenue

     7       —         —            7  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total Revenues

     179,506       28,326       —            207,832  

OPERATING EXPENSES

           

Production Expenses

     50,799       19,086       —            69,885  

Production Taxes

     26,553       4,777       —            31,330  

General and Administrative Expenses

     11,300       2,042       —            13,342  

Depletion, Depreciation, Amortization, and Accretion

     91,225       15,723       (5,480   (h)      101,468  

Exploration and other expense

     —         2       —            2  

Impairment of Other Current Assets

     2,694       —         —            2,694  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total Expenses

     182,571       41,630       (5,480        218,721  

INCOME (LOSS) FROM OPERATIONS

     (3,065     (13,304     5,480          (10,889

OTHER INCOME AND EXPENSE

           

Interest Expense, Net of Capitalization

     (37,327     (3,390     (3,694   (i)      (44,411

Write-Off of Debt Issuance Costs

     —         —         —            —    

Loss on the Extinguishment of Debt

     (425     —         —            (425

Debt Exchange Derivative Gain/(Loss)

     1,413       —         —            1,413  

Contingent Consideration Loss

     (23,371     —         —            (23,371

Financing Expense

     —         —         —            —    

Other Income (Expense)

     14       4       —            18  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total Other Income (Expense)

     (59,696     (3,386     (3,694        (66,776

INCOME (LOSS) BEFORE TAXES

     (62,762     (16,690     1,786          (77,665

INCOME TAX BENEFIT

     —         —         —            —    
  

 

 

   

 

 

   

 

 

      

 

 

 

NET INCOME (LOSS)

   $ (62,762   $ (16,690   $ 1,786        $ (77,665
  

 

 

   

 

 

   

 

 

      

 

 

 

Net Income (Loss) Per Common Share - Basic

   $ (0.17          $ (0.20

Net Income (Loss) Per Common Share - Diluted

   $ (0.17          $ (0.20

Weighted Average Shares Outstanding - Basic

     374,927,630         5,602,147     (j)      380,529,777  

Weighted Average Shares Outstanding - Diluted

     374,927,630         5,602,147     (j)      380,529,777  

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


NOTE 1. BASIS OF PRO FORMA PRESENTATION

These financial statements present our unaudited pro forma balance sheet as of June 30, 2019, unaudited pro forma statement of operations for the year ended December 31, 2018 and unaudited pro forma statement of operations for the six months ended June 30, 2019. These unaudited statements have been developed by applying pro forma adjustments to our historical financial statements to give effect to the VEN Bakken Acquisition.

The unaudited pro forma financial statements were prepared in accordance with Regulation S-X Article 11 of the Securities and Exchange Commission.

The pro forma adjustments related to the purchase price allocation of the VEN Bakken Acquisition are preliminary and are subject to revisions as additional information becomes available. Revisions to the preliminary purchase price allocation may have a significant impact on the pro forma amounts of depreciation, depletion, amortization, and accretion expense. The pro forma adjustments related to the VEN Bakken Acquisition reflect the fair values of the assets as of July 1, 2019 (the closing date of the transaction). The pro forma adjustments do not necessarily reflect the fair values that would have been recorded if the acquisition had occurred on January 1, 2018 or June 30, 2019.

The unaudited pro forma financial statements should be read together with our historical financial statements and the related notes as of and for the year ended December 31, 2018 and the six months ended June 30, 2019, and the historical financial statements and related notes for Flywheel Bakken as of and for the year ended December 31, 2018, and the six months ended June 30, 2019.

The pro forma financial information presented gives effect to pro forma events that are (1) directly attributable to the VEN Bakken Acquisition, (2) factually supportable and (3) with respect to the pro forma statements of operations, expected to have a continuing impact. The pro forma financial information is not necessarily indicative of financial results that would have been attained had the VEN Bakken Acquisition occurred on the date indicated or which could be achieved in the future. The pro forma adjustments are based on currently available information and certain estimates and assumptions. However, our management believes that the assumptions provide a reasonable basis for presenting the significant effects of the transactions as contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma financial statements.

NOTE 2. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS

The accompanying unaudited pro forma combined financial statements reflect the following pro forma adjustments:

 

  (a)

Represents the preliminary purchase price allocation for the VEN Bakken Acquisition of $310.4 million, consisting of $320.1 million of proved oil and natural gas properties, which was reduced by $9.7 million of assumed derivative instrument liabilities.

 

  (b)

Represents the elimination of historical assets, liabilities, and members’ capital related to the VEN Bakken Acquisition that we are not acquiring or assuming.

 

  (c)

Represents the elimination of the historical VEN Bakken Acquisition proved oil and natural gas properties of $314.3 million, which was offset by additions of proved oil and natural gas properties from the VEN Bakken Acquisition of $320.1 million.

 

  (d)

Represents the elimination of the acquisition deposit for the VEN Bakken Acquisition, which was released to Seller at closing.

 

  (e)

Represents adjustments to the historical VEN Bakken Acquisition derivative instrument liabilities, which were assumed by the Company, to reflect their fair values at closing.

 

  (f)

Represents the elimination of the historical VEN Bakken Acquisition long-term debt, net of $134.6 million, which the Company did not assume, offset by a $267.7 million increase due to the issuance of the Promissory Note at closing and additional borrowing on our revolving credit facility to fund payment of the cash closing consideration.


  (g)

Represents the 5,602,147 shares of our common stock issued as part of the closing consideration, valued at $11.7 million based on the $2.09 per share closing price of our common stock on the closing date of the acquisition.

 

  (h)

Represents the increase (decrease) in depreciation, depletion, amortization, and accretion expense computed on a unit of production basis following the preliminary purchase price allocation to proved oil and natural gas properties, as if the VEN Bakken Acquisition was consummated on January 1, 2018.

 

  (i)

Represents the increase in interest expense due to the issuance of the Promissory Note at closing and additional borrowing on our revolving credit facility to fund payment of the cash closing consideration, as if the VEN Bakken Acquisition closed on January 1, 2018.

 

  (j)

Represents the impact on weighted average shares outstanding of the shares issued as consideration in the VEN Bakken Acquisition, as if the VEN Bakken Acquisition closed and thus the shares were issued on January 1, 2018 (rather than July 1, 2019).


SUPPLEMENTAL PRO FORMA COMBINED OIL AND NATURAL GAS RESERVE AND

STANDARDIZED MEASURE INFORMATION (UNAUDITED)

The following unaudited supplemental pro forma oil and natural gas reserve tables present how the combined oil and natural gas reserves and standardized measure information of the Company and the VEN Bakken Acquisition may have appeared had the VEN Bakken Acquisition occurred on January 1, 2018. The supplemental pro forma combined oil and natural gas reserves and standardized measure information are for illustrative purposes only.

All of the reserves are located in the United States. Reserve estimates are based on the following:

 

(a)

For the Company’s Historical Results: as reported in our Annual Report on Form 10-K for the year ended December 31, 2018, based upon a reserve report prepared by our independent petroleum engineers as of December 31, 2018;

 

(b)

For the VEN Bakken Acquisition Historical Results: based upon a reserve report prepared by independent petroleum engineers as of December 31, 2018;

Numerous uncertainties are inherent in estimating quantities and values of proved reserves and in projecting future rates of production and the amount and timing of development expenditures, including many factors beyond the property owner’s control. Reserve engineering is a subjective process of estimating the recovery from underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Because all reserve estimates are to some degree subjective, the quantities of oil and gas that are ultimately recovered, production and operating costs, the amount and timing of future development expenditures and future oil and gas sales prices may each differ from those assumed in these estimates. In addition, different reserve engineers may make different estimates of reserve quantities and cash flows based upon the same available data. The standardized measure shown below represents an estimate only and should not be construed as the current market value of the estimated oil and natural gas reserves reported below.

The pro forma estimates of proved reserves presented below include only those quantities of oil and natural gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future periods from known reservoirs under existing economic, operating and regulatory practices. Proved developed reserves represent only those reserves estimated to be recovered through existing wells. Proved undeveloped reserves include those reserves that may be recovered from new wells on undrilled acreage or from existing wells on which a relatively major expenditure for recompletion or secondary recovery operation is required.

The following tables provide a summary of the changes in estimated proved reserves for the year ended December 31, 2018, as well as pro forma proved developed and proved undeveloped reserves as of the beginning and end of the year, giving effect to the VEN Bakken Acquisition as if it had occurred on January 1, 2018. The pro forma standardized measure does not include future income taxes attributable to the VEN Bakken Acquisition as the relevant entities are considered pass-through entities for tax purposes.


Estimated Pro Forma Combined Quantities of Proved Reserves

 

     Historical Northern Oil and Gas  
     Natural Gas
(MMcf)
     Oil
(Mbbl)
     MBOE  

Proved Developed and Undeveloped Reserves at December 31, 2017

     78,120        62,812        75,832  
  

 

 

    

 

 

    

 

 

 

Revisions of Previous Estimates

     426        3,470        3,541  

Extensions, Discoveries and Other Additions

     28,348        28,516        33,241  

Purchases of minerals in place

     37,397        25,965        32,198  

Production

     (9,225      (7,790      (9,328
  

 

 

    

 

 

    

 

 

 

Proved Developed and Undeveloped Reserves at December 31, 2018

     135,066        112,973        135,484  
  

 

 

    

 

 

    

 

 

 

Proved Developed Reserves:

        

December 31, 2017

     46,518        38,592        46,345  
  

 

 

    

 

 

    

 

 

 

December 31, 2018

     82,315        62,497        76,216  
  

 

 

    

 

 

    

 

 

 

Proved Undeveloped Reserves:

        

December 31, 2017

     31,602        24,220        29,487  
  

 

 

    

 

 

    

 

 

 

December 31, 2018

     52,752        50,476        59,268  
  

 

 

    

 

 

    

 

 

 

 

     Historical VEN Bakken Acquisition  
     Natural Gas
(MMcf)
     Oil
(Mbbl)
     MBOE  

Proved Developed and Undeveloped Reserves at December 31, 2017

     64,723        22,136        32,923  
  

 

 

    

 

 

    

 

 

 

Revisions of Previous Estimates

     (1,236      133        (73

Extensions, Discoveries and Other Additions

     7,575        3,165        4,428  

Purchases of minerals in place

     —          —          —    

Production

     (3,806      (2,614      (3,248
  

 

 

    

 

 

    

 

 

 

Proved Developed and Undeveloped Reserves at December 31, 2018

     67,256        22,820        34,029  
  

 

 

    

 

 

    

 

 

 

Proved Developed Reserves:

        

December 31, 2017

       37,031          11,798          17,970  
  

 

 

    

 

 

    

 

 

 

December 31, 2018

     37,801        13,333        19,633  
  

 

 

    

 

 

    

 

 

 

Proved Undeveloped Reserves:

        

December 31, 2017

     27,692        10,338        14,953  
  

 

 

    

 

 

    

 

 

 

December 31, 2018

     29,455        9,487        14,396  
  

 

 

    

 

 

    

 

 

 

 

     Pro Forma Combined  
     Natural Gas
(MMcf)
     Oil
(Mbbl)
     MBOE  

Proved Developed and Undeveloped Reserves at December 31, 2017

     142,843        84,948        108,755  
  

 

 

    

 

 

    

 

 

 

Revisions of Previous Estimates

     (810      3,603        3,468  

Extensions, Discoveries and Other Additions

     35,923        31,681        37,669  

Purchases of minerals in place

     37,397        25,965        32,198  

Production

     (13,031      (10,404      (12,576
  

 

 

    

 

 

    

 

 

 

Proved Developed and Undeveloped Reserves at December 31, 2018

     202,322        135,793        169,513  
  

 

 

    

 

 

    

 

 

 

Proved Developed Reserves:

        

December 31, 2017

     83,549        50,390        64,315  
  

 

 

    

 

 

    

 

 

 

December 31, 2018

     120,116        75,830        95,849  
  

 

 

    

 

 

    

 

 

 

Proved Undeveloped Reserves:

        

December 31, 2017

     59,294        34,558        44,440  
  

 

 

    

 

 

    

 

 

 

December 31, 2018

     82,207        59,963        73,664  
  

 

 

    

 

 

    

 

 

 


Pro Forma Combined Standardized Measure of Discounted Future Net Cash Flows

(in thousands)

 

     As of December 31, 2018  
     Historical
Northern
Oil and Gas
     Historical
VEN Bakken
Acquisition
     Pro Forma
Combined
 

Future Cash Inflows

   $ 7,524,587      $ 1,711,364      $ 9,235,951  

Future Production Costs

     (2,605,279      (734,266      (3,339,545

Future Development Costs

     (784,615      (146,488      (931,103

Future Income Tax Expense

     (611,989         (611,989
  

 

 

    

 

 

    

 

 

 

Future Net Cash Flows

     3,522,704        830,610        4,353,314  

10% Annual Discount for Estimated Timing of Cash Flows

     (1,643,061      (366,552      (2,009,613
  

 

 

    

 

 

    

 

 

 

Standardized Measure of Discounted Future Net Cash Flows

   $ 1,879,643      $ 464,058      $ 2,343,701  
  

 

 

    

 

 

    

 

 

 

Pro Forma Combined Changes in the Standardized Measure of Discounted Future Net Cash Flows

(in thousands)

 

     As of December 31, 2018  
     Historical
Northern
Oil and Gas
     Historical
VEN Bakken
Acquisition
     Pro Forma
Combined
 

Standardized measure, beginning of period

   $ 753,986      $ 297,660      $ 1,051,646  

Sales of oil and natural gas produced, net of production costs

     (381,961      (125,705      (507,666

Extensions and discoveries

     549,353        64,588        613,941  

Previously estimated development costs incurred

     115,542        25,364        140,906  

Net change of prices and production costs

     484,122        167,319        651,441  

Change in future development costs

     (91,829      (8,237      (100,066

Revisions of previous quantity estimates

     66,185        (1,145      65,040  

Accretion of discount

     75,800        29,766        105,566  

Change in income taxes

     (296,571      —          (296,571

Acquisition of reserves

     502,193        —          502,193  

Changes in timing and other

     102,825        14,448        117,273  
  

 

 

    

 

 

    

 

 

 

Standardized measure, end of period

   $  1,879,643      $ 464,058      $  2,343,703  
  

 

 

    

 

 

    

 

 

 


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