Exhibit 99.2
Acquired Properties
Combined Statement of Revenue and Direct Operating Expenses
For the Years Ended December 31, 2023 and 2022
Table of Contents
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Acquired Properties
Combined Statement of Revenues and Direct Operating Expenses
For the Years Ended December 31, 2023 and 2022
See accompanying notes to the Combined Statement of Revenues and Direct Operating Expenses
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Acquired Properties
Notes to the Combined Statement of Revenues and Direct Operating Expenses
Note 1 – Basis of Presentation
The Bayswater entities are under common-control and thus the collective results of the Sellers, inclusive of the incremental working interests described above, have been combined in the accompanying Combined Statement of Revenues and Direct Operating Expenses. Upon combination, all intercompany accounts and transactions are eliminated.
The accompanying Combined Statement of Revenue and Direct Operating Expenses’ purpose is to present activity solely related to the revenues and direct operating expenses of the oil and natural gas interests of the Acquired Properties. It is not intended to be a complete presentation of the results of operations of the Acquired Properties and may not be representative of future operations as it does not include general and administrative expenses, interest income or expense, depreciation, depletion and amortization, income taxes or other income and expense items not directly associated with revenues from oil and gas.
Note 2 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of the Combined Statement of Revenue and Direct Operating Expenses in conformity with GAAP required Bayswater’s management to make various assumptions, judgements and estimates to determine the reported amounts of revenues and direct operating expenses of the Acquired Properties for the periods reported. These estimates and assumptions are based on Bayswater’s best estimates and judgements. Changes in these assumptions, judgements and estimates will occur due to the passage of time and occurrence of future events. Accordingly, actual results could differ materially from amounts previously established.
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Acquired Properties
Notes to the Combined Statement of Revenues and Direct Operating Expenses
Note 2 – Summary of Significant Accounting Policies (continued)
Revenue Recognition
Oil and natural gas revenues from production on the Acquired Properties in which Bayswater shares an economic interest with other owners are recognized on the basis of Bayswater’s pro-rata interest and are recognized in the month production is delivered to the purchaser, at which point Bayswater’s performance obligations under its commodity sales contracts are satisfied and control of the commodity is transferred to the purchaser. For commodity sales contracts related to production from oil and gas properties operated by Bayswater, fees included in the contract that are incurred prior to control transfer are classified as oil gathering expenses on the Combined Statement of Revenues and Direct Operating Expenses and fees incurred after control transfers are included as a reduction to the transaction price and are netted within oil and gas sales on the Combined Statement of Revenues and Direct Operating Expenses. For commodity sales contracts related to production from non-operated oil and gas properties, all fees are included as a reduction to the transaction price and are netted within oil and gas sales on the Combined Statement of Revenues and Direct Operating Expenses. Provided that reasonable estimates can be made, revenue and receivables are accrued to recognize delivery of product to the purchaser in the month the performance obligation is satisfied. Differences between estimates and actual volumes and prices, if any, are adjusted upon final settlement.
Direct Operating Expenses
Direct operating expenses are recognized when incurred and include amounts required to operate the wells to produce, gather, transport, process and treat oil and natural gas. Direct operating expenses also include production and property taxes and expenses with support personnel, support services, equipment and facilities related to oil and natural gas production.
Concentrations of Credit Risk
There were no joint interest operators that accounted for 10% or more of the Acquired Properties’ total revenue in any of the periods presented. The following table presents purchasers that accounted for 10% or more of the Acquired Properties’ total revenue in at least one of the periods presented:
| Year Ended December 31, 2023 | Year Ended December 31, 2022 | |||||||
| Purchasers | ||||||||
| A | 58 | % | 27 | % | ||||
| B | 9 | % | 19 | % | ||||
| C | 6 | % | 14 | % | ||||
| D | - | 19 | % | |||||
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Acquired Properties
Notes to the Combined Statement of Revenues and Direct Operating Expenses
Note 3 – Related Party Transactions
The majority of the Acquired Properties are operated by an entity under common-control with the Sellers (the “Operator”). For these properties, the Operator assesses certain overhead charges to, among other things, operate producing oil and gas wells and to drill and complete new oil and gas wells. The amount and frequency of these charges are based on industry-standard agreements used between third party joint-owners of oil and gas properties. During the years ended December 31, 2023 and 2022, the Operator billed $2,687,187 and $1,885,417, respectively, in producing overhead fees to the Acquired Properties. The producing overhead is presented in lease operating expenses, related party on the Combined Statement of Revenues and Direct Operating Expenses.
Note 4 – Commitments and Contingencies
The activities of the Acquired Properties are subject to potential claims and litigation in the normal course of operations. Pursuant to the terms of the Agreement between Bayswater and Prairie, certain liabilities arising in connection with ownership of the Acquired Properties prior to the effective date are to be retained by Bayswater.
Management is not aware of any pending or threatened legal, environmental remediation or other commitments or contingencies that would have a material effect on the Acquired Properties, other than customary plugging and abandonment obligations associated with the Acquired Properties.
Gas Processing Agreement
The Acquired Properties are subject to a Natural Gas Gathering and Processing Agreement (the “Gas Agreement”) with a gas processing company (the “Gas Processing Company”), under which all natural gas produced from certain Weld County leases within certain drill spacing units under the Acquired Properties will be gathered and purchased by the Gas Processing Company. The Gas Agreement provides for payments based on volumes gathered and processed, as well as a guaranteed monthly payment of $98,778 intended to reimburse costs incurred by the Gas Processing Company in order to connect the gathering facility to the covered leases and drill spacing units. Per the Gas Agreement, guaranteed monthly payments commenced on the date of initial deliveries of natural gas, which was October 2019, and continue over 120 months.
Additionally, the Gas Agreement, as amended, allocates a portion of the Gas Processing Company’s firm commitments to transport natural gas liquids processed by the Gas Processing Company to the Acquired Properties beginning in July 2022 and continuing through October 2029. The commitments cover 3.6 million barrels of natural gas liquids over this period and, beginning in January 2023, are subject to monthly shortfall fees of $4.83 per barrel for any under-delivered volumes, subject to annual consumer price index-based escalations. As of December 31, 2023, the remaining commitments cover 2.3 million barrels of natural gas liquids. No shortfall payments have been required to date and none are expected to be made based on estimated NGL production forecasts.
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Acquired Properties
Notes to the Combined Statement of Revenues and Direct Operating Expenses
Note 4 – Commitments and Contingencies (continued)
Gas Processing Agreement (continued)
The estimated future commitment for the Acquired Properties under the Gas Agreement as of December 31, 2023 is presented in the table below:
| Guaranteed Monthly Payment | Maximum Shortfall Fee | Maximum Commitment | ||||||||||
| 2024 | $ | 927,516 | $ | 2,603,287 | $ | 3,530,803 | ||||||
| 2025 | 927,516 | 1,970,676 | 2,898,192 | |||||||||
| 2026 | 927,516 | 1,608,528 | 2,536,044 | |||||||||
| 2027 | 927,516 | 1,282,456 | 2,209,972 | |||||||||
| 2028 | 927,516 | 895,490 | 1,823,006 | |||||||||
| Thereafter | 695,637 | 278,045 | 973,682 | |||||||||
| Total | $ | 5,333,217 | $ | 8,638,482 | $ | 13,971,699 | ||||||
Oil Purchase Agreement
The Acquired Properties are also subject to a Crude Oil Purchase and Sale Agreement (the “Oil Agreement”) with an oil pipeline company (the “Oil Pipeline Company”), under which all oil produced from certain Weld County leases within certain drill spacing units under the Acquired Properties will be gathered and purchased by the Oil Pipeline Company. Additionally, the Oil Agreement, as amended in 2023, requires a minimum volume of 15.85 million barrels of oil from the Acquired Properties to be delivered each year beginning in 2023 and continuing through 2026. As of December 31, 2023, 12.7 million barrels of oil remained to be delivered. All oil delivered to the Oil Pipeline Company from the Acquired Properties under the Oil Agreement will be subject to a gathering fee of $1.68 - $1.91 per barrel, and under-delivered volumes will incur a fee of $1.73 - $1.91, subject to annual consumer price index-based escalations. There were no under-delivered volumes during the years ended December 31, 2023 and 2022.
The estimated future commitment for the Acquired Properties under the Oil Agreement as of December 31, 2023 is presented in the table below:
| Total Oil Gathering Fee Exposure | ||||
| 2024 | $ | 5,564,918 | ||
| 2025 | 9,928,045 | |||
| 2026 | 5,795,084 | |||
| Total | $ | 21,288,047 | ||
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Acquired Properties
Notes to the Combined Statement of Revenues and Direct Operating Expenses
Note 5 – Excluded Expenses
Indirect general and administrative expenses, interest expense, income taxes, depreciation, depletion, amortization, impairment, and other indirect expenses have not been allocated to the Acquired Properties by Bayswater and as such, have been excluded from the accompanying Combined Statement of Revenue and Direct Operating Expenses.
Note 6 – Subsequent Events
Subsequent
events have been evaluated through February
Note 7 – Supplemental Oil and Gas Information (Unaudited)
Oil and Natural Gas Reserves
The estimates of proved oil and natural gas reserves and discounted future net cash flows for the Acquired Properties as of December 31, 2023 and 2022, were prepared using historical data and other information by qualified petroleum engineers at Bayswater and audited by a third-party. The process of estimating quantities of proved oil and natural gas reserves is very complex, requiring significant subjective decisions to be made in the evaluation of available geologic, engineering and economic data for each reservoir. The data for any given reservoir may also change substantially over time as the result of numerous factors, including but not limited to, additional development activity, production history and continual reassessment of the viability of production under varying economic conditions. As a result, revisions to existing reserve estimates may occur from time to time.
The estimated proved net recoverable 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. In accordance with the Securities and Exchange Commission’s (“SEC”) guidelines, estimates of proved reserves from which present values are derived were based on unweighted 12-month average price of the first day of the month price for the period, and held constant. Proved developed reserves represent only those reserves estimated to be recovered through existing wells. All the Acquired Properties’ reserves set forth herein are in the United States and are proved reserves.
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Acquired Properties
Notes to the Combined Statement of Revenues and Direct Operating Expenses
Note 7 – Supplemental Oil and Gas Information (Unaudited) (continued)
Oil and Natural Gas Reserves (continued)
The Acquired Properties’ estimated quantities of proved oil and natural gas reserves and changes in net proved reserves are summarized below for the years ended December 31, 2023 and 2022:
| Crude Oil (Bbl) | Natural Gas Liquids (Bbl) | Natural Gas (Mcf) | ||||||||||
| Proved developed and undeveloped reserves - January 1, 2022 | ||||||||||||
| Oil and gas production | ||||||||||||
| Acquisition of reserves | 4,050,976 | 2,102,982 | 12,200,238 | |||||||||
| Extensions and discoveries | - | - | - | |||||||||
| Revisions of previous estimates | ||||||||||||
| Proved developed and undeveloped reserves - December 31, 2022 | ||||||||||||
| Proved developed reserves at beginning of year | ||||||||||||
| Proved developed reserves at end of year | ||||||||||||
| Proved undeveloped reserves at beginning of year | 26,317,727 | 14,945,292 | 80,537,902 | |||||||||
| Proved undeveloped reserves at end of year | 20,705,060 | 9,362,604 | 57,142,798 | |||||||||
| Crude Oil (Bbl) | Natural Gas Liquids (Bbl) | Natural Gas (Mcf) | ||||||||||
| Proved developed and undeveloped reserves - January 1, 2023 | ||||||||||||
| Oil and gas production | ||||||||||||
| Acquisition of reserves | - | - | - | |||||||||
| Extensions and discoveries | - | - | - | |||||||||
| Revisions of previous estimates | ||||||||||||
| Proved developed and undeveloped reserves - December 31, 2023 | ||||||||||||
| Proved developed reserves at beginning of year | ||||||||||||
| Proved developed reserves at end of year | ||||||||||||
| Proved undeveloped reserves at beginning of year | 20,705,060 | 9,362,604 | 57,142,798 | |||||||||
| Proved undeveloped reserves at end of year | 11,758,906 | 5,503,407 | 33,735,918 | |||||||||
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Acquired Properties
Notes to the Combined Statement of Revenues and Direct Operating Expenses
Note 7 – Supplemental Oil and Gas Information (Unaudited) (continued)
Standardized Measure
The Acquired Properties compute a standardized measure of future net cash flows and changes therein relating to estimated proved reserves in accordance with authoritative accounting guidance. The assumptions used to compute the standardized measure are those prescribed by the Financial Accounting Standards Board (“FASB”) and the SEC. These assumptions do not necessarily reflect the Company’s expectations of actual revenues to be derived from those reserves, nor their present value amount. The limitations inherent in the reserve quantity estimation process, as discussed previously, are equally applicable to the standardized measure computations since these reserve quantity estimates are the basis for the valuation process.
Future cash inflows and production and development costs are determined by applying prices and costs, including transportation, quality, and basis differentials, to the yearend estimated future reserve quantities. The following weighted average prices as adjusted for transportation, quality, and basis differentials were used in the calculation of the standardized measure:
| 2023 | 2022 | |||||||
| Crude Oil per Bbl | $ | 75.40 | $ | 90.67 | ||||
| Natural Gas Liquids per Bbl | $ | 20.34 | $ | 31.85 | ||||
| Natural Gas per Mcf | $ | 0.78 | $ | 5.18 | ||||
Future
operating costs are determined based on estimates of expenditures to be incurred in developing and producing the proved reserves in place
at the end of the period using yearend costs and assuming continuation of existing economic conditions. The standardized measure presented
here does not include the effects of federal
The standardized measure of discounted future net cash flows relating to the Acquired Properties’ proved oil and natural gas reserves is as follows (in thousands):
| December 31, 2023 | December 31, 2022 | |||||||
| Future cash inflows | $ | $ | ||||||
| Future production costs | ||||||||
| Future development costs | (93,467 | ) | (353,044 | ) | ||||
| Future net cash flows | ||||||||
| Less: 10% annual discount to reflect timing of cash flows | ||||||||
| Standardized measure of discounted future net cash flows | $ | $ | ||||||
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Acquired Properties
Notes to the Combined Statement of Revenues and Direct Operating Expenses
Note 7 – Supplemental Oil and Gas Information (Unaudited) (continued)
Changes in Standardized Measure
Changes in the standardized measure of discounted future net cash flows before income taxes related to the proved oil and gas reserves of the Acquired Properties are as follows (in thousands):
| For the Years Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Standardized measure – beginning of the year | $ | $ | ||||||
| Sales of oil and natural gas, net of production costs | ||||||||
| Net changes in price and production costs | ||||||||
| Revisions of previous quantity estimates | ||||||||
| Acquisition of reserves | - | 108,069 | ||||||
| Development costs incurred | ||||||||
| Extensions and discoveries | - | - | ||||||
| Accretion of discount | ||||||||
| Net change in future development costs | ||||||||
| Changes in timing and other | ||||||||
| Standardized measure – end of year | $ | $ | ||||||
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