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Note 17 - Supplemental Oil and Natural Gas Information (Unaudited) | 12 Months Ended
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Dec. 31, 2023
Notes to Financial Statements |
Oil and Gas Exploration and Production Industries Disclosures [Text Block] | 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, 2023 and 2022 are provided in the table below:
|  | 2023 |  |  | 2022 |
|  | (in thousands) |
Proved property acquisition |  | $ | - |  |  | $ | 102,223 |
Development (1) |  |  | 5,149 |  |  |  | 7,808 |
Exploration |  |  | - |  |  |  | - |
Total |  | $ | 5,149 |  |  | $ | 110,031 |
| (1) | Includes amounts related to estimated asset retirement obligations of $3.1 million and $2.1 million for the years ended December 31, 2023 and 2022, respectively.
Net Capitalized Costs The following table presents the Company’s capitalized costs associated with oil and natural gas producing activities as of December 31, 2023 and 2022:
|  | 2023 |  |  | 2022 |
|  | (in thousands) |
Oil and Natural Gas Properties: |  |  |  |  |  |  |  |
Unevaluated properties (1): |  |  |  |  |  |  |  |
Unproved leasehold costs |  | $ | - |  |  | $ | 1,584 |
Evaluated properties in full cost pool |  |  | 176,679 |  |  |  | 203,144 |
Less accumulated depletion and ceiling test impairment (2) (3) |  |  | (106,504 | ) |  |  | (96,725 | )
Net capitalized costs |  | $ | 70,175 |  |  | $ | 108,003 |
| (1) | 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 $1.6 million at December 31, 2022. 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. During 2023, the unevaluated property balance was transferred to evaluated properties due to the Company evaluating its use of capital relative to its portfolio and strategic initiatives and determining that it no longer plans to fund development of its unevaluated acreage.
| (2) | The Company incurred ceiling test write-downs of $26.7 million and $0 for the years ended December 31, 2023 and 2022, respectively. Under the full-cost method of accounting, the net book value of proved oil and gas properties, less related deferred income taxes, may not exceed a calculated “ceiling.” The ceiling limitation is the estimated after-tax future net cash flows from proved oil and gas reserves. Estimated future net cash flows are calculated using the unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months, adjusted for location and quality differentials, held flat for the life of the production (except where prices are defined by contractual arrangements), less estimated operating costs, production taxes and future development costs, all discounted at 10 percent per annum. Future cash outflows associated with settling accrued asset retirement obligations are excluded from the calculation.
| (3) | Depletion expense was $9.8 million ($15.66 per BOE) and $8.5 million ($13.75 per BOE) for the years ended December 31, 2023 and 2022, respectively.
Results of Operations from oil and natural gas producing activities The following table includes revenues and expenses associated with the Company’s oil and gas producing activities. It does not include any allocation of the Company’s interest costs or general corporate overhead and therefore, it is not necessarily indicative of the contribution to net earnings of the Company’s oil and gas operations. Income tax expense has been calculated by applying statutory income tax rates to oil and gas sales after deducting costs, including DD&A, and giving effect to permanent differences. Presented below are the results of operations from oil and natural gas producing activities for the years ended December 31, 2023 and 2022:
|  | 2023 |  |  | 2022 |
|  | (in thousands) |
Oil and natural gas sales |  | $ | 32,316 |  |  | $ | 44,552 |
Lease operating expense |  |  | (15,254 | ) |  |  | (16,667 | )
Gathering, treating, and transportation costs |  |  | (557 | ) |  |  | (573 | )
Production taxes |  |  | (2,107 | ) |  |  | (3,010 | )
Depletion |  |  | (9,779 | ) |  |  | (8,530 | )
Income tax benefit |  |  | 891 |  |  |  | 1,893 |
Results of operations from oil and natural gas producing activities |  | $ | 5,510 |  |  | $ | 17,665 |
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. Accordingly, these estimates are expected to change as future information becomes available. Proved oil and natural gas reserve quantities at December 31, 2023 and 2022 and the related discounted future net cash flows before income taxes are based on the estimates prepared by On Point Resources. The estimates have been prepared in accordance with guidelines established by the Securities and Exchange Commission. All of the Company’s estimated proved reserves are located in the United States. As of December 31, 2023, and 2022, the Company had no proved undeveloped reserves. All proved reserves were proved developed producing and proved developed non-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, 2023 and 2022:
|  | 2023 |  |  | 2022 |
|  | Oil |  |  | Gas |  |  | Oil |  |  | Gas |
|  | (bbls) |  |  | (mcfe) (1) |  |  | (bbls) |  |  | (mcfe) (1) |
Total proved reserves: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Reserve quantities, beginning of year |  |  | 5,140,090 |  |  |  | 16,348,264 |  |  |  | 1,021,620 |  |  |  | 1,938,048 |
Revisions of previous estimates |  |  | (822,786 | ) |  |  | (3,421,047 | ) |  |  | (153,434 | ) |  |  | 4,066,007 |
Discoveries and extensions |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Purchases of minerals in place |  |  | - |  |  |  | - |  |  |  | 4,777,193 |  |  |  | 11,753,283 |
Sale of minerals in place |  |  | (742,798 | ) |  |  | (1,448,181 | ) |  |  | (108,833 | ) |  |  | (64,338 | )
Production |  |  | (391,645 | ) |  |  | (1,396,650 | ) |  |  | (396,456 | ) |  |  | (1,344,736 | )
Reserve quantities, end of year |  |  | 3,182,861 |  |  |  | 10,082,386 |  |  |  | 5,140,090 |  |  |  | 16,348,264 |
| (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 years ended December 31, 2023 and 2022 included the following:
| ● | Downward oil and gas revisions in 2023 primarily represent revisions due to a decrease in estimated pricing, which resulted in shortening the economic lives of certain properties.
| ● | Sales of minerals in place in 2023 represent reserves associated with primarily non-operated properties sold during 2023. Please see Note 2-Acquisitions and divestitures.
| ● | Downward oil revisions in 2022 primarily represent revisions related to assets acquired in our January 2022 acquisition. Certain wells acquired in West Texas were required to be shut-in temporarily.
| ● | Upward gas revisions in 2022 primarily represent revisions related to assets acquired in our July 2022 acquisition. Revisions represent changes in estimated operating costs and pricing differentials.
| ● | Purchases of minerals in place in 2022 represent reserves added as a result of the three separate acquisitions completed during the year. Please see Note 2-Acquisitions and divestitures.
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:
|  | 2023 |  |  | 2022 |
Oil per Bbl |  | $ | 78.22 |  |  | $ | 93.67 |
Gas per Mmbtu |  | $ | 2.64 |  |  | $ | 6.36 |
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, 2023 and 2022:
|  | 2023 |  |  | 2022 |
|  | (in thousands) |
Future cash inflows |  | $ | 265,529 |  |  | $ | 562,545 |
Future cash outflows: |  |  |  |  |  |  |  |
Production costs |  |  | (142,737 | ) |  |  | (227,365 | )
Development costs |  |  | (37,730 | ) |  |  | (12,716 | )
Income taxes |  |  | (3,940 | ) |  |  | (48,833 | )
Future net cash flows |  |  | 81,122 |  |  |  | 273,631 |
10% annual discount factor |  |  | (20,840 | ) |  |  | (129,843 | )
Standardized measure of discounted future net cash flows |  | $ | 60,282 |  |  | $ | 143,788 |
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, 2023 and 2022 are as follows:
|  | 2023 |  |  | 2022 |
|  | (in thousands) |
Standardized measure, beginning of year |  | $ | 143,788 |  |  | $ | 19,167 |
Sales of oil and natural gas, net of production costs |  |  | (14,398 | ) |  |  | (24,302 | )
Net changes in prices and production costs |  |  | (66,494 | ) |  |  | 52,053 |
Changes in estimated future development costs |  |  | (4,834 | ) |  |  | (2,860 | )
Extensions and discoveries |  |  | - |  |  |  | - |
Purchases of minerals in place |  |  | - |  |  |  | 116,673 |
Sale of minerals in place |  |  | (16,055 | ) |  |  | (1,606 | )
Revisions in previous quantity estimates |  |  | (22,724 | ) |  |  | 12,662 |
Previously estimated development costs incurred |  |  | 215 |  |  |  | - |
Net changes in income taxes |  |  | 25,874 |  |  |  | (27,021 | )
Accretion of discount |  |  | 14,759 |  |  |  | 10,170 |
Changes in timing and other |  |  | 151 |  |  |  | (11,148 | )
Standardized measure, end of year |  | $ | 60,282 |  |  | $ | 143,788 |

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