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Supplemental Oil and Natural Gas Information (Unaudited)

12 Months Ended

Dec. 31, 2019

Oil and Gas Exploration and Production Industries Disclosures [Abstract]

Supplemental Oil and Natural Gas Information (Unaudited)

17. SUPPLEMENTAL OIL AND NATURAL GAS INFORMATION (UNAUDITED)

Capitalized Costs incurred

The capitalized costs incurred in crude oil and natural gas acquisitions, exploration and development activities for the years ended December 31, 2019 and 2018 are highlighted in the table below:

	2019		2018
	(in thousands)
Proved property acquisition	$	-	$	-
Unproved property acquisition		12		244
Development		305		39
Exploration		552		1,234

Total	$	869	$	1,517

Capitalized Costs

The following table presents the Company’s capitalized costs associated with oil and natural gas producing activities as of December 31, 2019 and 2018:

	2019			2018
	(in thousands)
Oil and Natural Gas Properties:
Unevaluated properties:
Unproved leasehold costs	$	3,741		$	3,728
Evaluated properties in full cost pool		89,113			88,764
Less accumulated depreciation, depletion and amortization		(84,400	)		(83,729	)

Net capitalized costs	$	8,454		$	8,763

The Company’s depreciation, depletion and amortization was $671 thousand ($4.63 per BOE) and $368 thousand ($3.20 per BOE) for the years ended December 31, 2019 and 2018, respectively.

Unevaluated oil and natural gas properties consist of leasehold costs that are excluded from the depletion, depreciation and amortization calculation and the ceiling test until a determination about the existence of proved reserves can be completed. Unevaluated oil and natural gas properties consisted of unproved lease acquisition costs and costs paid to evaluate potential acquisition prospects of $3.7 million and $3.7 million at December 31, 2019 and 2018, respectively.

On a quarterly basis, management reviews market conditions and other changes in circumstances related to the Company’s unevaluated properties and transfers the costs to evaluated properties within the full cost pool as warranted. As a result of a transfer of acreage for working interest in wells drilled in South Texas, which was completed in May 2019, the Company revalued the remaining acreage held in the area and transferred unproved leasehold acreage of $0.4 million to the full cost pool. During 2018, the Company reclassified $0.7 million of unevaluated oil and natural gas properties to the full cost pool related to the drilling and completion of the J. Beeler No. 1 well in South Texas, which was completed in December 2018.

Results of Operations from oil and natural gas producing activities

Presented below are the results of operations from oil and natural gas producing activities for the years ended December 31, 2019 and 2018:

	2019			2018
	(in thousands)
Oil and natural gas sales	$	6,573		$	5,539
Lease operating expense		(1,848	)		(1,898	)
Production taxes		(429	)		(392	)
Depreciation, depletion and amortization		(671	)		(368	)
Impairment of oil and natural gas properties		-			-

Results of operations from oil and natural gas producing activities	$	3,625		$	2,881

Oil and Natural Gas Reserves (Unaudited)

Proved reserves are estimated quantities of oil, NGLs and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Oil and natural gas prices used are the average price during the 12-month period prior to the effective date of the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements. Proved developed reserves are reserves that can reasonably be expected to be recovered through existing wells with existing equipment and operating methods. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries and undeveloped locations are more imprecise than estimates of established producing oil and natural gas properties. Accordingly, these estimates are expected to change as future information becomes available.

Proved oil and natural gas reserve quantities at December 31, 2019 and the related discounted future net cash flows before income taxes are based on the estimates prepared by Don Jacks, PE. Proved oil and natural gas reserve quantities at December 31, 2018 and the related discounted future net cash flows before income taxes are based on the estimates prepared by Jane E. Trusty, PE. Both estimates have been prepared in accordance with guidelines established by the SEC. All of the Company’s estimated proved reserves are located in the United States.

As of December 31, 2019, 2018 and 2017, the Company had no proved undeveloped reserves and all proved reserves were proved developed producing.

The Company’s estimated quantities of proved oil and natural gas reserves and changes in net proved reserves are summarized below for the years ended December 31, 2019 and 2018:

	2019						2018
	Oil			Gas			Oil			Gas
	(bbls)			(mcfe) ⁽¹⁾			(bbls)			(mcfe) ⁽¹⁾

Total proved reserves:
Reserve quantities, beginning of year		751,260			737,998			676,030			888,507
Revisions of previous estimates		99,352			511,969			88,956			58,177
Discoveries and extensions		72,907			101,892			61,277			78,007
Sale of minerals in place		(5,924	)		(13,083	)		-			-
Production		(110,090	)		(209,518	)		(75,003	)		(286,692	)

Reserve quantities, end of year		807,505			1,129,258			751,260			737,998

⁽¹⁾

Mcf equivalents (Mcfe) consist of natural gas reserves in mcf plus NGLs converted to mcf using a factor of 6 mcf for each barrel of NGL.

Notable changes in proved reserves for the year ended December 31, 2019 included the following:

	●	Discoveries and extensions of 89,889 BOE were primarily attributable to drilling in our South Texas properties.
	●	Revisions of previous estimates of 184,680 BOE were primarily attributable to revisions due to the performance of the J. Beeler well drilled in late 2018 in our South Texas properties.

Standardized Measure (Unaudited)

The Company computes 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 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 year-end estimated future reserve quantities. The following prices as adjusted for transportation, quality, and basis differentials were used in the calculation of the standardized measure:

	2019		2018

Oil per Bbl	$	55.69	$	65.56
Gas per Mcfe ⁽¹⁾	$	2.58	$	3.10

⁽¹⁾

Consists of the weighted average price for natural gas in mcf plus NGLs converted to mcf using a factor of 6 mcf for each barrel of NGL.

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 year-end costs and assuming continuation of existing economic conditions. Estimated future income taxes are computed using the current statutory income tax rates, including consideration for estimated future statutory depletion. The resulting future net cash flows are reduced to present value amounts by applying a 10% annual discount factor.

The standardized measure of discounted future net cash flows relating to the Company’s proved oil and natural gas reserves is as follows as of December 31, 2019 and 2018:

	2019			2018
	(in thousands)
Future cash inflows	$	45,528		$	49,457
Future cash outflows:
Production costs		(21,435	)		(23,648	)
Development costs		-			-
Income taxes		(3,747	)		(4,341	)

Future net cash flows		20,436			21,468
10% annual discount factor		(9,998	)		(9,869	)

Standardized measure of discounted future net cash flows	$	10,348		$	11,599

Changes in Standardized Measure (Unaudited)

The changes in the standardized measure of future net cash flows relating to proved oil and natural gas reserves for the years ended December 31, 2019 and 2018 are as follows:

	2019			2018
	(in thousands)
Standardized measure, beginning of year	$	11,599		$	9,253
Sales of oil and natural gas, net of production costs		(4,296	)		(3,235	)
Net changes in prices and production costs		(2,499	)		3,419
Changes in estimated future development costs		-			-
Extensions and discoveries		2,231			1,912
Sale of minerals in place		(83	)		-
Revisions in previous quantity estimates		2,130			761
Previously estimated development costs incurred		-			-
Net changes in income taxes		(299	)		(1,425	)
Accretion of discount		1,068			925
Changes in timing and other		499			(11	)

Standardized measure, end of year	$	10,348		$	11,599