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REVENUE RECOGNITION
 6 Months Ended
Jun. 30, 2021
Revenue from Contract with Customer [Abstract]  
REVENUE RECOGNITION

4. REVENUE RECOGNITION

 

The Company’s revenues are primarily derived from its non-operated interest in the sales of oil and natural gas production. The sales of oil and natural gas are made under contracts that operators of the wells have negotiated with third-party customers. The Company receives payment from the sale of oil and natural gas production between one to three months after delivery. At the end of each period when the performance obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are accrued in oil and natural gas sales receivable in the consolidated balance sheets. Variances between the Company’s estimated revenue and actual payments are recorded in the month the payment is received. Accordingly, the variable consideration is not constrained. As a non-operator of its oil and natural gas properties, the Company records its share of the revenues and expenses based upon the information provided by the operators within the revenue statements.

 

The Company’s oil and natural gas production is typically sold at delivery points to various purchasers under contract terms that are common in the oil and natural gas industry. Regardless of the contract type, the terms of these contracts compensate the well operators for the value of the oil and natural gas at specified prices, and then the well operators remit payment to the Company for its share in the value of the oil and natural gas sold.

 

During 2020, the Company acquired operated oil and gas producing properties (see Note 2- Acquisitions, above). The Company sells its oil production at the delivery point specified in the contract and collects an agreed-upon index price, net of pricing differentials. The purchaser takes custody, title and risk of loss of the oil at the delivery point; therefore, control passes at the delivery point. The Company recognizes revenue at the net price received when control transfers to the purchaser. Natural gas and natural gas liquid (“NGL”) are sold at the lease location, which is generally when control of the natural gas and NGL transfers to the purchaser, and revenue is recognized as the amount received from the purchaser.

 

The Company does not disclose the values of unsatisfied performance obligations under its contracts with customers as it applies the practical exemption in accordance with Accounting Standards Codification (ASC) 606. The exemption applies to variable consideration that is recognized as control of the product is transferred to the customer. Since each unit of product represents a separate performance obligation, future volumes are wholly unsatisfied, and disclosure of the transaction price allocated to the remaining performance obligations is not required.

 

The Company reports revenue as the gross amount received from the well operators before taking into account production taxes and transportation costs. Production taxes are reported separately, and transportation costs are included in lease operating expense in the accompanying unaudited condensed consolidated statements of operations. The revenue and costs in the consolidated statements of operations were reported gross for the three and six months ended June 30, 2021 and 2020, as the gross amounts were known.

 

 

The Company’s operated revenues are growing. Operated revenues for the three months ended June 30, 2021, and 2020 were 32% and 14% of total revenues, respectively. The Company’s operated revenues for the six months ended June 30, 2021, and 2020 were 32% and 3%, respectively. The Company disaggregates total revenues from its share of revenue from the sale of oil and natural gas and liquids by state. The Company’s revenues in North Dakota, Texas, New Mexico and other states for the three and six months ended June 30, 2021 and 2020, are presented in the following table:

 

   Three Months Ended
June 30,		   Six Months Ended
June 30,		 
   2021   2020   2021   2020 
   (in thousands) 
Revenue:                
North Dakota                    
Oil  $698   $142   $1,221   $631 
Natural gas and liquids    68    (17)   148    32 
Total  $766   $125   $1,369   $663 
                     
Texas                    
Oil  $615   $59   $1,118   $425 
Natural gas and liquids   80    5    98    24 
Total  $695   $64   $1,216   $449 
                     
New Mexico                    
Oil  $98   $-   $212   $- 
Natural gas and liquids   -    -    -    - 
Total  $98   $-   $212   $- 
                     
Other                    
Oil  $96   $-   $88   $- 
Natural gas and liquids   1    -    (18)   - 
Total  $97   $-   $70   $- 
                     
Total revenue  $1,656   $189   $2,867   $1,112 

 

Significant concentrations of credit risk

 

The Company has exposure to credit risk in the event of non-payment of oil and natural gas receivables by purchasers and by joint interest operators of the Company’s oil and natural gas properties. The following table presents the purchasers and joint interest operators that accounted for 10% or more of the Company’s total oil and natural gas revenue for at least one of the periods presented:

 

Operator  2021   2020 
Zavanna, LLC   37%   44%
Infinity Hydrocarbons, LLC   29%   3%
CML Exploration, LLC   10%   37%