Attached files
| file | filename |
|---|---|
| EX-99.3 - EXHIBIT 99.3 - Riley Exploration Permian, Inc. | brhc10023369_ex99-3.htm |
| EX-99.2 - EXHIBIT 99.2 - Riley Exploration Permian, Inc. | brhc10023369_ex99-2.htm |
| 8-K/A - 8-K/A - Riley Exploration Permian, Inc. | brhc10023369_8ka.htm |
Exhibit 99.1
Riley Exploration – Permian, LLC
Condensed Consolidated Financial Statements
1
Riley Exploration – Permian, LLC
|
|
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Condensed Consolidated Financial Statements (Unaudited)
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Page
|
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Condensed Consolidated Balance Sheets as of December 31, 2020 and September 30, 2020
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3
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|
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Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2020 and 2019
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4
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Condensed Consolidated Statements of Changes in Members' Equity for the Three Months Ended December 31, 2020 and 2019
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5
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2020 and 2019
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6
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Notes to the Condensed Consolidated Financial Statements
|
8
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Riley Exploration – Permian, LLC
($ in thousands)
(unaudited)
|
December 31,
2020
|
September 30,
2020
|
|||||||
|
Assets
|
||||||||
|
Current Assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
1,877
|
$
|
1,660
|
||||
|
Accounts receivable
|
10,526
|
10,128
|
||||||
|
Accounts receivable – related parties
|
313
|
55
|
||||||
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Prepaid expenses and other current assets
|
1,807
|
1,752
|
||||||
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Current derivative assets
|
6,081
|
18,819
|
||||||
|
Total Current Assets
|
20,604
|
32,414
|
||||||
|
Non-Current Assets:
|
||||||||
|
Oil and natural gas properties, net (successful efforts)
|
313,232
|
310,726
|
||||||
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Other property and equipment, net
|
2,041
|
1,801
|
||||||
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Right of use assets
|
604
|
700
|
||||||
|
Non-current derivative assets
|
—
|
3,102
|
||||||
|
Other non-current assets
|
2,034
|
2,249
|
||||||
|
Total Non-Current Assets
|
317,911
|
318,578
|
||||||
|
Total Assets
|
$
|
338,515
|
$
|
350,992
|
||||
|
Liabilities, Series A Preferred Units, and Members' Equity
|
||||||||
|
Current Liabilities:
|
||||||||
|
Accounts payable
|
$
|
1,357
|
$
|
4,739
|
||||
|
Accrued liabilities
|
11,073
|
8,746
|
||||||
|
Current lease liability
|
399
|
392
|
||||||
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Revenue payable
|
4,527
|
4,432
|
||||||
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Advances from joint interest owners
|
252
|
254
|
||||||
|
Advances from related parties
|
570
|
—
|
||||||
|
Current derivative liabilities
|
272
|
—
|
||||||
|
Total Current Liabilities
|
18,450
|
18,563
|
||||||
|
Non-Current Liabilities:
|
||||||||
|
Non-current derivative liabilities
|
2,970
|
—
|
||||||
|
Asset retirement obligations
|
2,212
|
2,268
|
||||||
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Revolving credit facility
|
97,500
|
101,000
|
||||||
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Deferred tax liabilities
|
1,444
|
1,834
|
||||||
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Non-current lease liability
|
212
|
314
|
||||||
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Other non-current liabilities
|
160
|
104
|
||||||
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Total Non-Current Liabilities
|
104,498
|
105,520
|
||||||
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Total Liabilities
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122,948
|
124,083
|
||||||
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Series A Preferred Units
|
61,196
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60,292
|
||||||
|
|
||||||||
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Members' Equity
|
154,371
|
166,617
|
||||||
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Total Liabilities, Series A Preferred Units, and Members' Equity
|
$
|
338,515
|
$
|
350,992
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Riley Exploration – Permian, LLC
($ in thousands, except per unit amounts)
(unaudited)
|
Three Months Ended December 31,
|
||||||||
|
2020
|
2019
|
|||||||
|
Revenues:
|
||||||||
|
Oil and natural gas sales, net
|
$
|
22,414
|
$
|
28,499
|
||||
|
Contract services – related parties
|
600
|
1,050
|
||||||
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Total Revenues
|
23,014
|
29,549
|
||||||
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Costs and Expenses:
|
||||||||
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Lease operating expenses
|
4,796
|
5,729
|
||||||
|
Production taxes
|
1,061
|
1,359
|
||||||
|
Exploration costs
|
424
|
727
|
||||||
|
Depletion, depreciation, amortization and accretion
|
5,990
|
5,635
|
||||||
|
General and administrative:
|
||||||||
|
Administrative costs
|
2,445
|
3,219
|
||||||
|
Unit-based compensation expense
|
413
|
153
|
||||||
|
Cost of contract services - related parties
|
148
|
168
|
||||||
|
Transaction costs
|
1,049
|
(1
|
)
|
|||||
|
Total Costs and Expenses
|
16,326
|
16,989
|
||||||
|
|
||||||||
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Income From Operations
|
6,688
|
12,560
|
||||||
|
Other Expense:
|
||||||||
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Interest expense
|
(1,235
|
)
|
(1,366
|
)
|
||||
|
Loss on derivatives
|
(13,909
|
)
|
(18,035
|
)
|
||||
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Total Other Expense
|
(15,144
|
)
|
(19,401
|
)
|
||||
|
|
||||||||
|
Net Loss Before Income Taxes
|
(8,456
|
)
|
(6,841
|
)
|
||||
|
Income tax benefit
|
515
|
—
|
||||||
|
Net Loss
|
(7,941
|
)
|
(6,841
|
)
|
||||
|
Dividends on preferred units
|
(917
|
)
|
(864
|
)
|
||||
|
Net Loss Attributable to Common Unitholders
|
$
|
(8,858
|
)
|
$
|
(7,705
|
)
|
||
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Net Loss per Unit:
|
||||||||
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Basic
|
$
|
(5.79
|
)
|
$
|
(5.04
|
)
|
||
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Diluted
|
$
|
(5.79
|
)
|
$
|
(5.04
|
)
|
||
|
Weighted Average Common Units Outstanding:
|
||||||||
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Basic
|
1,530
|
1,526
|
||||||
|
Diluted
|
1,530
|
1,526
|
||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Riley Exploration – Permian, LLC
($ and units in thousands)
(unaudited)
|
Units
Outstanding
|
Amount
|
|||||||
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For the Three Months Ended December 31, 2019
|
||||||||
|
Balance, September 30, 2019
|
1,527
|
$
|
149,383
|
|||||
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Issuance of common units under long-term incentive plan
|
15
|
—
|
||||||
|
Purchase of common units under long-term incentive plan
|
(2
|
)
|
(194
|
)
|
||||
|
Dividends on preferred units
|
—
|
(864
|
)
|
|||||
|
Dividends on common units
|
—
|
(4,997
|
)
|
|||||
|
Unit-based compensation expense
|
—
|
153
|
||||||
|
Net loss
|
—
|
(6,841
|
)
|
|||||
|
Balance, December 31, 2019
|
1,540
|
$
|
136,640
|
|||||
|
For the Three Months Ended December 31, 2020
|
||||||||
|
Balance, September 30, 2020
|
1,555
|
$
|
166,617
|
|||||
|
Issuance of common units under long-term incentive plan
|
13
|
—
|
||||||
|
Dividends on preferred units
|
—
|
(917
|
)
|
|||||
|
Dividends on common units
|
—
|
(3,801
|
)
|
|||||
|
Unit-based compensation expense
|
—
|
413
|
||||||
|
Net loss
|
—
|
(7,941
|
)
|
|||||
|
Balance, December 31, 2020
|
1,568
|
$
|
154,371
|
|||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Riley Exploration – Permian, LLC
($ in thousands)
(unaudited)
|
Three Months Ended December 31,
|
||||||||
|
2020
|
2019
|
|||||||
|
Cash Flows from Operating Activities:
|
||||||||
|
Net loss
|
$
|
(7,941
|
)
|
$
|
(6,841
|
)
|
||
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
||||||||
|
Oil and gas lease abandonments
|
424
|
557
|
||||||
|
Depletion, depreciation, amortization and accretion
|
5,990
|
5,635
|
||||||
|
Loss on derivatives
|
13,909
|
18,035
|
||||||
|
Settlements on derivative contracts
|
5,173
|
556
|
||||||
|
Amortization of debt issuance costs
|
155
|
153
|
||||||
|
Unit-based compensation expense
|
413
|
153
|
||||||
|
Deferred income tax benefit
|
(515
|
)
|
—
|
|||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
(397
|
)
|
190
|
|||||
|
Accounts receivable – related parties
|
(258
|
)
|
108
|
|||||
|
Prepaid expenses and other current assets
|
(39
|
)
|
712
|
|||||
|
Other non-current assets
|
1
|
17
|
||||||
|
Accounts payable and accrued liabilities
|
(385
|
)
|
(919
|
)
|
||||
|
Revenue payable
|
95
|
536
|
||||||
|
Advances from joint interest owners
|
(2
|
)
|
3,458
|
|||||
|
Advances from related parties
|
570
|
—
|
||||||
|
Net Cash Provided By Operating Activities
|
17,193
|
22,350
|
||||||
|
Cash Flows From Investing Activities:
|
||||||||
|
Additions to oil and natural gas properties
|
(9,389
|
)
|
(9,533
|
)
|
||||
|
Acquisition of oil and natural gas properties
|
—
|
(3,209
|
)
|
|||||
|
Additions to other property and equipment
|
(318
|
)
|
(25
|
)
|
||||
|
Net Cash Used In Investing Activities
|
(9,707
|
)
|
(12,767
|
)
|
||||
|
Cash Flows From Financing Activities:
|
||||||||
|
Debt issuance costs
|
(52
|
)
|
(267
|
)
|
||||
|
Proceeds from revolving credit facility
|
2,000
|
—
|
||||||
|
Repayment under revolving credit facility
|
(5,500
|
)
|
(2,000
|
)
|
||||
|
Payment of common unit dividends
|
(3,717
|
)
|
(5,334
|
)
|
||||
|
Purchase of common units under long-term incentive plan
|
—
|
(194
|
)
|
|||||
|
Net Cash Used In Financing Activities
|
(7,269
|
)
|
(7,795
|
)
|
||||
|
|
||||||||
|
Net Increase in Cash and Cash Equivalents
|
217
|
1,788
|
||||||
|
|
||||||||
|
Cash and Cash Equivalents, Beginning of Period
|
1,660
|
3,726
|
||||||
|
Cash and Cash Equivalents, End of Period
|
$
|
1,877
|
$
|
5,514
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Riley Exploration – Permian, LLC
Condensed Consolidated Statements of Cash Flows – (Continued)
($ in thousands)
(unaudited)
|
Three Months Ended December 31,
|
||||||||
|
2020
|
2019
|
|||||||
|
Supplemental Disclosure of Cash Flow Information
|
||||||||
|
Cash Paid For:
|
||||||||
|
Interest
|
$
|
850
|
$
|
1,238
|
||||
|
Non-cash Investing and Financing Activities:
|
||||||||
|
Changes in capital expenditures in accounts payable and accrued liabilities
|
$
|
(680
|
)
|
$
|
10,564
|
|||
|
Common unit dividends incurred but not paid
|
$
|
84
|
$
|
47
|
||||
|
Asset retirement obligations
|
$
|
17
|
$
|
844
|
||||
|
Preferred unit dividends paid in kind
|
$
|
904
|
$
|
851
|
||||
|
Preferred unit dividends
|
$
|
917
|
$
|
864
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements
(unaudited)
|
1.
|
Nature of Business
|
Riley Exploration – Permian, LLC ("Riley Permian", "the Company", "we", "our", or "us") is a growth-oriented, independent oil and natural gas company focused on rapidly growing our conventional reserves, production
and cash flow through the acquisition, exploration, development and production of oil, natural gas and natural gas liquids ("NGLs") in the Permian Basin. Our activities are primarily focused on the San Andres Formation, a shelf margin deposit on
the Central Basin Platform and Northwest Shelf. The Company was formed to focus on opportunities (i) with favorable reservoir and geological characteristics primarily for oil development, (ii) that offer large contiguous acreage positions with
significant untapped potential in terms of ultimate recoverable reserves and (iii) with a high degree of operational control. Our acreage is primarily located on large, contiguous blocks in Yoakum County, Texas and Lea, Roosevelt, and Chaves
Counties, New Mexico.
Current Commodity Environment
During 2020, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, spread quickly across the globe. Federal, state and local governments mobilized to implement containment mechanisms
and minimize impacts to their populations and economies. Various containment measures, which included the quarantining of cities, regions and countries, have resulted in a severe drop in general economic activity and a resulting decrease in energy
demand.
Currently, oil and natural gas operations are considered essential in the State of Texas and New Mexico, and the Company has not had any significant disruptions in operations.
This outbreak and the related responses of governmental authorities and others to limit the spread of the virus significantly reduced global economic activity, resulting in a significant decline in the demand for oil
and other commodities. These factors caused a swift and material deterioration in commodity prices for a majority of 2020. However, near the end of 2020, oil prices steadily increased but are expected to continue to be volatile as these events
evolve. The Company cannot estimate the full length or gravity of the future impacts at this time and if there is another significant decline in oil price, it could have a material adverse effect on the Company’s results of operations, financial
position, liquidity and the value of oil and natural gas reserves.
CARES Act and Consolidated Appropriations Act
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), and on December 27, 2020, President Trump signed into law the Consolidated Appropriations Act.
These Acts are meant to provide fast and direct economic assistance for American workers, families, and small businesses, and preserve jobs for American industries. The Company evaluated the outlook of its future operations, current financial
position and liquidity and determined not to take the relief provided by the CARES Act and the Consolidated Appropriations Act.
|
2.
|
Basis of Presentation
|
These unaudited condensed consolidated financial statements as of December 31, 2020 and for the three months ended December 31, 2020 and 2019 include the accounts of Riley Permian and its wholly-owned subsidiaries
Riley Permian Operating Company, LLC ("RPOC") and Riley Employee Member, LLC. All intercompany balances and transactions have been eliminated upon consolidation.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been
condensed or omitted pursuant to the rules and regulation of the Securities and Exchange Commission. These condensed consolidated financial statement should be read in conjunction with our audited consolidated financial statements and related notes
for the year ended September 30, 2020.
These condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, that are, in the opinion of the Company's management, necessary for a fair presentation of the
results for the interim periods. These condensed consolidated financial statements are not necessarily indicative of the results for the entire fiscal year.
8
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
|
3.
|
Summary of Significant Accounting Policies
|
Significant Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and
accompanying condensed notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Making accurate estimates and assumptions is particularly difficult as the oil and natural gas industry experiences depressed commodity pricing and reduced global demand from the effects of COVID-19 and actions by
OPEC. These circumstances generally increase the estimation uncertainty in the Company's accounting estimates, particularly the Company's reserve estimates.
The Company evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Company considers reasonable in the particular circumstances. Actual results may
differ significantly from the Company’s estimates. Any effects on the Company’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the
revision become known. Significant items subject to such estimates and assumptions include, but are not limited to, estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the
carrying value of oil and natural gas properties, accounts receivable and accrued operating expenses, the fair value determination of acquired assets and liabilities, certain tax accruals and the fair value of derivatives.
Accounts Receivable
The Company had no allowance for doubtful accounts at December 31, 2020 and September 30, 2020.
Accounts receivable is summarized below:
|
December 31,
2020
|
September 30,
2020
|
|||||||
|
($ in thousands)
|
||||||||
|
Oil, natural gas and NGL sales
|
$
|
8,906
|
$
|
6,919
|
||||
|
Joint interest accounts receivable
|
514
|
1,022
|
||||||
|
Realized derivative receivable
|
1,101
|
2,187
|
||||||
|
Other accounts receivable
|
5
|
—
|
||||||
|
Total accounts receivable
|
$
|
10,526
|
$
|
10,128
|
||||
9
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
Accrued Liabilities
Accrued liabilities consisted of the following:
|
December 31,
2020
|
September 30,
2020
|
|||||||
|
($ in thousands)
|
||||||||
|
Accrued capital expenditures
|
$
|
4,780
|
$
|
2,964
|
||||
|
Accrued lease operating expenses
|
2,430
|
1,617
|
||||||
|
Accrued ad valorem tax
|
907
|
680
|
||||||
|
Accrued general and administrative costs
|
1,617
|
2,125
|
||||||
|
Accrued interest expense
|
31
|
63
|
||||||
|
Accrued dividends on preferred units
|
917
|
903
|
||||||
|
Accrued dividends on common units
|
123
|
95
|
||||||
|
Other accrued expenditures
|
268
|
299
|
||||||
|
Total accrued liabilities
|
$
|
11,073
|
$
|
8,746
|
||||
Asset Retirement Obligations
Components of the changes in asset retirement obligations ("ARO") are shown below:
|
December 31,
2020
|
September 30,
2020
|
|||||||
|
($ in thousands)
|
||||||||
|
ARO, beginning balance
|
$
|
2,326
|
$
|
1,203
|
||||
|
Liabilities incurred
|
17
|
68
|
||||||
|
Liabilities acquired
|
—
|
1,161
|
||||||
|
Revision of estimated obligations
|
—
|
(45
|
)
|
|||||
|
Liability settlements and disposals
|
—
|
(131
|
)
|
|||||
|
Accretion
|
21
|
70
|
||||||
|
ARO, ending balance
|
2,364
|
2,326
|
||||||
|
Less: current ARO
|
(152
|
)
|
(58
|
)
|
||||
|
ARO, long-term
|
$
|
2,212
|
$
|
2,268
|
||||
10
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
Revenue Recognition
The following table presents oil and natural gas revenues disaggregated by product:
|
Three Months Ended December 31,
|
||||||||
|
2020
|
2019
|
|||||||
|
($ in thousands)
|
||||||||
|
Operating revenues:
|
||||||||
|
Oil
|
$
|
22,107
|
$
|
28,798
|
||||
|
Natural gas
|
119
|
(178
|
)
|
|||||
|
Natural gas liquids
|
188
|
(121
|
)
|
|||||
|
Total operating revenues
|
$
|
22,414
|
$
|
28,499
|
||||
Transaction Costs
The Company recognized transaction costs of $1.0 million and $0 for the three months ended December 31, 2020 and 2019. These costs relate to the fees incurred for the current reverse merger transaction between the
Company and Tengasco, Inc. (TGC). See further discussion in Note 15 - Subsequent Events.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes accounting
requirements for the recognition of credit losses from an incurred or probable impairment methodology to a current expected credit losses (“CECL”) methodology. The CECL model is applicable to the measurement of credit losses on financial assets
measured at amortized cost, including but not limited to trade receivables. The Company adopted this ASU effective October 1, 2020 using a modified retrospective approach. The adoption of this guidance did not have a material effect on the
Company’s condensed consolidated financial statements or related disclosures.
The company is exposed to credit losses primarily through receivables that result from oil and natural gas sales. Estimates of expected credit losses for accounts receivables consider factors such as historical
collection experience, credit quality of our customers and current and future economic and market conditions.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The purpose of this amendment is to
improve the effectiveness of disclosures in the notes of the financial statements. This ASU removes certain disclosure requirements around transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value
measurements, modifies certain reporting requirements around Level 3 fair value measurements and investments in certain entities that calculate net asset value, and adds certain disclosure requirements for Level 3 fair value measurements. The
Company adopted this ASU effective October 1, 2020. The adoption of this ASU did not have a material impact on the Company's financial statements.
11
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
Issued Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 840): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides companies with optional
guidance to ease the potential accounting burden associated with transitioning away from reference rates (e.g., London Interbank Offered Rate (“LIBOR”)) that are expected to be discontinued. ASU 2020-04 allows, among other things, certain contract
modifications, such as those within the scope of Topic 470 on debt, to be accounted as a continuation of the existing contract. This ASU was effective upon the issuance and its optional relief can be applied through December 31, 2022. Due to the
Sixth Amendment to the Credit Agreement ("Sixth Amendment") which included provisions in consideration of the phase out, the Company applied the optional expedient pursuant to ASC 848-20-35-14, which allows reporting entities to not have to
reassess the embedded derivatives under ASC 815-15. The Company is adopting the optional expedient to reduce the costs and complexity of accounting for contract modifications as a result of changes due to reference rate reform.
|
4.
|
Oil and Natural Gas Properties
|
Oil and natural gas properties are summarized below:
|
December 31,
2020
|
September 30,
2020
|
|||||||
|
($ in thousands)
|
||||||||
|
Proved
|
$
|
344,990
|
$
|
326,420
|
||||
|
Unproved
|
30,783
|
32,084
|
||||||
|
Work-in-progress
|
6,526
|
15,398
|
||||||
|
382,299
|
373,902
|
|||||||
|
Accumulated depletion and amortization
|
(69,067
|
)
|
(63,176
|
)
|
||||
|
Total oil and natural gas properties, net
|
$
|
313,232
|
$
|
310,726
|
||||
Depletion and amortization expense for proved oil and natural gas properties was $5.9 million and $5.5 million, respectively, for the three months ended December 31, 2020 and 2019.
The Company incurred $424 thousand and $727 thousand of exploration costs for the three months ended December 31, 2020 and 2019, respectively, $424 thousand and $557 thousand of which related to the abandonment of
oil and natural gas leases. The Company also incurred $0 and $170 thousand of geological and geophysical costs during the three months ended December 31, 2020 and 2019, respectively.
Acquisition of Oil and Natural Gas Properties
On December 20, 2019, the Company acquired 38 net acres (unaudited) in Yoakum County, Texas. The acquisition included 17 total wells, with 11 producing and 6 salt water disposals, for a total
purchase price of $3.2 million, as adjusted in accordance with the terms of the purchase and sale agreement with J. Cleo Thompson and James Cleo Thompson, Jr., L.P. The effective date of the transaction was August 1, 2019. The transaction was
accounted for as an asset acquisition in accordance with ASU 2017-01 and was therefore recorded based on the total consideration paid, with value assigned to unproved oil and natural gas properties, capitalized asset retirement cost and ARO.
12
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
|
5.
|
Other Non-Current Assets
|
Other non-current assets consisted of the following:
|
December 31,
2020
|
September 30,
2020
|
|||||||
|
($ in thousands)
|
||||||||
|
Debt issuance costs, net
|
$
|
1,764
|
$
|
1,867
|
||||
|
Prepayments to outside operators
|
188
|
284
|
||||||
|
Other deposits
|
82
|
98
|
||||||
|
Total other non-current assets
|
$
|
2,034
|
$
|
2,249
|
||||
|
6.
|
Derivative Instruments
|
Crude Oil Contracts
The Company uses commodity based derivative contracts to reduce exposure to fluctuations in crude oil prices. While the use of these contracts limits the downside risk for adverse price changes, their use may also
limit future revenues from favorable price changes.
As of December 31, 2020, the Company's oil derivative instruments consisted of the following types:
|
•
|
Fixed Price Swaps – the Company receives a fixed price for the contract and pays a floating market price to the counterparty over a specified period for a contracted volume.
|
|
•
|
Costless collars – the combination of a put option (fixed floor) and call option (fixed ceiling), with the options structured so that the premium paid to purchase the put option is offset by the premium
received from the sale of the call option. If the market price exceeds the call strike price or falls below the put strike price, we receive the fixed price and pay the market price. If the market price is between the put and the call
strike price, no payments are due from either party.
|
|
•
|
Basis Protection Swaps – Basis swaps are settled based on differences between a fixed price differential and the differential between the settlement prices of two referenced indexes. We receive the fixed
price differential and pay the differential between the referenced indexes.
|
13
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
The following table summarizes the open financial derivative positions as of December 31, 2020, related to crude oil production.
|
Weighted Average Price
|
||||||||||||||||||
|
Calendar Quarter
|
Notional Volume
|
Fixed
|
Put
|
Call
|
||||||||||||||
|
(Bbl)
|
($ per Bbl)
|
|||||||||||||||||
|
Crude Oil Swaps
|
||||||||||||||||||
|
Q1 2021
|
442,253
|
$
|
52.30
|
$
|
—
|
$
|
—
|
|||||||||||
|
Q2 2021
|
517,768
|
$
|
51.17
|
$
|
—
|
$
|
—
|
|||||||||||
|
Q3 2021
|
534,278
|
$
|
50.99
|
$
|
—
|
$
|
—
|
|||||||||||
|
Q4 2021
|
528,116
|
$
|
51.06
|
$
|
—
|
$
|
—
|
|||||||||||
|
2022
|
360,000
|
$
|
45.25
|
$
|
—
|
$
|
—
|
|||||||||||
|
Natural Gas Swaps
|
||||||||||||||||||
|
Q1 2021
|
450,000
|
$
|
2.97
|
$
|
—
|
$
|
—
|
|||||||||||
|
Q2 2021
|
450,000
|
$
|
2.97
|
$
|
—
|
$
|
—
|
|||||||||||
|
Q3 2021
|
450,000
|
$
|
2.97
|
$
|
—
|
$
|
—
|
|||||||||||
|
Q4 2021
|
450,000
|
$
|
2.97
|
$
|
—
|
$
|
—
|
|||||||||||
|
Crude Oil Collars
|
||||||||||||||||||
|
2022
|
360,000
|
$
|
—
|
$
|
35.00
|
$
|
42.63
|
|||||||||||
|
Crude Oil Basis
|
||||||||||||||||||
|
Q1 2021
|
435,000
|
$
|
0.40
|
$
|
—
|
$
|
—
|
|||||||||||
|
Q2 2021
|
435,000
|
$
|
0.40
|
$
|
—
|
$
|
—
|
|||||||||||
|
Q3 2021
|
435,000
|
$
|
0.40
|
$
|
—
|
$
|
—
|
|||||||||||
|
Q4 2021
|
435,000
|
$
|
0.40
|
$
|
—
|
$
|
—
|
|||||||||||
Interest Rate Contracts
The Company has entered into floating-to-fixed interest rate swaps (we receive a floating market rate and pay a fixed interest rate) to manage interest rate exposure related to the revolving credit facility.
The notional amount of the interest rate swaps, as of December 31, 2020 and September 30, 2020, was $95 million and expires on September 28, 2021.
14
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
Balance Sheet Presentation of Derivatives
The following table presents the location and fair value of the Company’s derivative contracts included in the accompanying consolidated balance sheets as of December 31, 2020 and September 30, 2020.
|
December 31, 2020
|
||||||||||||
|
Balance Sheet Classification
|
Gross Fair
Value
|
Amounts
Netted
|
Net Fair
Value
|
|||||||||
|
($ in thousands)
|
||||||||||||
|
Current derivative assets
|
$
|
9,419
|
$
|
(3,338
|
)
|
$
|
6,081
|
|||||
|
Non-current derivative assets
|
—
|
—
|
—
|
|||||||||
|
Current derivative liabilities
|
(3,610
|
)
|
3,338
|
(272
|
)
|
|||||||
|
Non-current derivative liabilities
|
(2,970
|
)
|
—
|
(2,970
|
)
|
|||||||
|
Total
|
$
|
2,839
|
$
|
—
|
$
|
2,839
|
||||||
|
September 30, 2020
|
||||||||||||
|
Balance Sheet Classification
|
Gross Fair
Value
|
Amounts
Netted
|
Net Fair
Value
|
|||||||||
|
($ in thousands)
|
||||||||||||
|
Current derivative assets
|
$
|
19,690
|
$
|
(871
|
)
|
$
|
18,819
|
|||||
|
Non-current derivative assets
|
4,651
|
(1,549
|
)
|
3,102
|
||||||||
|
Current derivative liabilities
|
(871
|
)
|
871
|
—
|
||||||||
|
Non-current derivative liabilities
|
(1,549
|
)
|
1,549
|
—
|
||||||||
|
Total
|
$
|
21,921
|
$
|
—
|
$
|
21,921
|
||||||
The following table presents the Company's derivative activities for the three months ended December 31, 2020 and 2019.
|
Three Months Ended December 31,
|
||||||||
|
2020
|
2019
|
|||||||
|
($ in thousands)
|
||||||||
|
Fair value of net asset, beginning of period
|
$
|
21,921
|
$
|
14,959
|
||||
|
Loss on derivatives
|
(13,909
|
)
|
(18,035
|
)
|
||||
|
Settlements on derivatives
|
(5,173
|
)
|
(556
|
)
|
||||
|
Fair value of net asset (liability), end of period
|
$
|
2,839
|
$
|
(3,632
|
)
|
|||
15
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
|
7.
|
Fair Value Measurements
|
The carrying values of financial instruments comprising cash and cash equivalents, accounts payable, accounts receivable and related party accounts receivable approximate fair values due to the short-term maturities
of these instruments. The carrying value reported for the revolving line of credit approximates fair value because the underlying instruments are at interest rates which approximate current market rates.
Assets and Liabilities Measured on a Recurring Basis
The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2020 and September 30, 2020, by level within the fair value
hierarchy:
|
December 31, 2020
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
($ in thousands)
|
||||||||||||||||
|
Financial assets:
|
||||||||||||||||
|
Commodity derivative assets
|
$
|
—
|
$
|
9,419
|
$
|
—
|
$
|
9,419
|
||||||||
|
Financial liabilities:
|
||||||||||||||||
|
Commodity derivative liabilities
|
$
|
—
|
$
|
(5,963
|
)
|
$
|
—
|
$
|
(5,963
|
)
|
||||||
|
Interest rate liabilities
|
$
|
—
|
$
|
(617
|
)
|
$
|
—
|
$
|
(617
|
)
|
||||||
|
September 30, 2020
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
($ in thousands)
|
||||||||||||||||
|
Financial assets:
|
||||||||||||||||
|
Commodity derivative assets
|
$
|
—
|
$
|
24,341
|
$
|
—
|
$
|
24,341
|
||||||||
|
Financial liabilities:
|
||||||||||||||||
|
Commodity derivative liabilities
|
$
|
—
|
$
|
(1,672
|
)
|
$
|
—
|
$
|
(1,672
|
)
|
||||||
|
Interest rate liabilities
|
$
|
—
|
$
|
(748
|
)
|
$
|
—
|
$
|
(748
|
)
|
||||||
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Assets and liabilities accounted for at fair value on a non-recurring basis in accordance with the fair value hierarchy include the initial recognition of asset retirement obligations and the fair value of oil and
natural gas properties when acquired in a business combination or assessed for impairment.
The fair value measurements of assets acquired and liabilities assumed are measured on a nonrecurring basis on the acquisition date using an income valuation technique based on inputs that are not observable in the
market and therefore represent Level 3 inputs. Significant inputs used to determine the fair value include estimates of: (i) reserves; (ii) future commodity prices; (iii) operating and development costs; and (iv) a market-based weighted average
cost of capital rate. The underlying commodity prices embedded in the Company's estimated cash flows are the product of a process that begins with NYMEX forward curve pricing, adjusted for estimated location and quality differentials, as well as
other factors that the Company’s management believes will impact realizable prices. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation.
16
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
The fair value of asset retirement obligations incurred and acquired during the three months ended December 31, 2020 and 2019, totaled approximately $17 thousand and $873 thousand, respectively. The fair value of
additions to the asset retirement obligation liabilities is measured using valuation techniques consistent with the income approach, which converts future cash flows to a single discounted amount. Significant inputs to the valuation include: (i)
$50 thousand estimated plug and abandonment cost per well for all oil and natural gas wells and $52 thousand for estimated plug and abandonment cost per well for all disposal wells for the three months ended December 31, 2020 and 2019; (ii) a 27
year and 12 year weighted average by fair value of the estimated remaining life per well for the three months ended December 31, 2020 and 2019; (iii) future inflation factors; and (iv) our average credit-adjusted risk-free rate of 5.17% and 8.34%
for the three months ended December 31, 2020 and 2019. These assumptions represent Level 3 inputs.
If the carrying amount of our oil and natural gas properties exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the oil and natural gas properties to fair value. The fair
value of our oil and natural gas properties is determined using valuation techniques consistent with the income and market approach. The factors used to determine fair value are subject to management’s judgment and expertise and include, but are
not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates,
anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with the expected cash flow projected. These assumptions represent Level 3 inputs.
|
8.
|
Transactions with Related Parties
|
Contract Services
In May 2019, Combo Resources, LLC ("Combo") entered into a contract services agreement with RPOC, whereby RPOC became the contract operator on behalf of Combo and provides certain administrative services to Combo in
exchange for payment of a fee equal to $250 thousand per month and reimbursement of all third party expenses. This fee was subsequently decreased to $150 thousand per month effective July 1, 2020 and further decreased to $100 thousand per month
effective August 1, 2020. Combo was previously owned by Oakspring Energy Holdings, LLC ("Oakspring") and by a wholly-owned subsidiary of Riley Exploration Group, Inc. ("REG"). On December 31, 2020, Oakspring contributed their interest in Combo to
certain investment funds of Yorktown Partners, LLC, and the wholly-owned subsidiary of REG contributed its' interest in Combo to Riley Exploration Group, LLC.
The Company recognized $300 thousand and $750 thousand in the three months ended December 31, 2020 and 2019, respectively, in revenue under the contract services agreement and had an accounts receivable of $313
thousand and $55 thousand as of December 31, 2020 and September 30, 2020, respectively. Additionally, the Company recognized an advance from Combo for $570 thousand as of December 31, 2020 for the completion of a well.
In May 2019, REG entered into a contract services agreement with RPOC with an effective date of May 1, 2019, whereby RPOC will provide certain operational services to REG in exchange for payment of a fee equal to $75
thousand per month. This fee was subsequently increased to $100 thousand per month effective September 1, 2019.
The Company recognized $300 thousand and $300 thousand in the three months ended December 31, 2020 and 2019, respectively, in revenue under the contract services agreement. The Company did not recognize an accounts
receivable under the contract services agreement as of December 31, 2020 and September 30, 2020.
The Company incurred costs directly relating to the performance of its obligations under these contract service agreements and recognized $148 thousand and $168 thousand, respectively, for the three months ended
December 31, 2020 and 2019.
|
9.
|
Revolving Credit Facility
|
On September 28, 2017, the Company and SunTrust Robinson Humphrey, Inc., now Truist Bank as successor by merger, as lead arranger and administrative agent, entered into a credit agreement to establish a senior
secured revolving credit facility. The credit facility had an initial borrowing base of $25 million with a maximum facility amount of $500 million. The credit facility maturity date is set on September 28, 2023 in accordance with the Sixth
Amendment effective August 31, 2020. Substantially all of the Company’s assets are secured under the credit facility. The Company's borrowing base was $135 million with commitments totaling $132.5 million at December 31, 2020.
17
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
Interest expense and unused commitment fees related to the credit facility for the three months ended December 31, 2020 and 2019, totaled $1.1 million and $1.2 million, respectively. The amortization of debt issuance
costs for the three months ended December 31, 2020 and 2019 was $155 thousand and $153 thousand, respectively. The weighted average interest rate as of December 31, 2020 and September 30, 2020 was 3.16% and 4.09%, respectively.
As of December 31, 2020 and September 30, 2020, the Company was in compliance with all covenants contained in the credit agreement and had $97.5 million and $101 million, respectively, of outstanding borrowings and
an additional $35 million and $34 million, respectively, available commitments under the borrowing base.
|
10.
|
Members’ Equity
|
As of December 31, 2020, the common units authorized and approved by the Board of Managers totaled 1,568,370 and the total number of Preferred Series A Units were 511,695.
On October 1, 2020, the Company granted 13,309 restricted units to certain executives which vest over a three-year period, which reduced the 2018 LTIP common units available for issuances to 135,241. See further
discussion in Note 12 – Unit-Based Compensation.
|
11.
|
Preferred Units
|
As of August 13, 2020, the Company entered into the Fourth Amended and Restated Limited Liability Agreement (the "Fourth LLC Agreement") which declared the mandatory redemption date for all Series A Preferred Units
in cash to one year following the expiration of the credit agreement (as may be further amended, restated, supplemented, modified or replaced from time to time) which is currently set to mature on September 28, 2023.
At any time prior to an IPO or Listing Transaction and at such holder’s sole discretion, a holder of Series A Preferred Units may elect to convert such Series A Preferred Units to a number of common units in
accordance with the formula set forth in the Fourth LLC Agreement. Immediately prior to any conversion, all accrued and undeclared but unpaid dividends on the Series A Preferred Units shall be paid in kind to such holder of Series A Preferred Units
electing to convert its units. The Series A Preferred conversion price is $120 per unit for the periods presented, as adjusted to reflect any subdivision, stock split, recapitalization, reclassification or consolidation of the common units.
Immediately following the execution of an underwriting agreement, but prior to the closing of an IPO or Listing Transaction, all outstanding Series A Preferred Units shall be automatically converted into Listed
Shares at a conversion rate formula set forth in the Fourth LLC Agreement. The conversion will result in a deemed preferred distribution to the Series A Preferred Unit holders, which will reduce income attributable to common units in the period in
which the conversion occurs.
The tables below summarize the changes in preferred units during the three months ended December 31, 2020 and 2019:
|
Units
|
Amount
|
|||||||
|
($ in thousands)
|
||||||||
|
Balance, September 30, 2020
|
504,168
|
$
|
60,292
|
|||||
|
Dividends paid in kind
|
7,527
|
904
|
||||||
|
Balance, December 31, 2020
|
511,695
|
$
|
61,196
|
|||||
18
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
|
Units
|
Amount
|
|||||||
|
($ in thousands)
|
||||||||
|
Balance, September 30, 2019
|
475,152
|
$
|
56,810
|
|||||
|
Dividends paid in kind
|
7,094
|
851
|
||||||
|
Balance, December 31, 2019
|
482,246
|
$
|
57,661
|
|||||
During the three months ended December 31, 2020 and 2019, the Company issued 7,527 units and 7,094 units of Series A Preferred Units as paid in kind dividends. As of December 31, 2020 and September 30, 2020, the
Company had accrued dividends payable on the Series A Preferred Units of $917 thousand and $903 thousand, respectively, which are included in accrued liabilities in the condensed consolidated balance sheets.
Subsequent to the balance sheet date of December 31, 2020, the Company elected under the Fourth LLC Agreement to pay all Series A Preferred dividends in cash instead of additional Series A Preferred Units. On January
29, 2021, the Company paid $917 thousand on 7,639 Series A Preferred Units accrued at December 31, 2020.
In accordance with ASC 480-10-S99 Distinguishing Liabilities From Equity, equity securities are required to be classified outside of permanent equity in temporary equity if they are redeemable or may become
redeemable for cash or other assets. As the Company is not considered to have sole control over the contractually mandated redemption which is currently set for redemption in 2024, the Series A Preferred Units have been classified as mezzanine
equity.
19
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
|
12.
|
Unit-Based Compensation
|
Long-Term Incentive Plan
Restricted Units: The Company granted 14,766 restricted units to certain executives on April 29, 2019. Restricted units vest over a two- to three-year period and the holder
receives dividends, in arrears, once the units vest. The Company has accrued for these dividends and are reported in accrued liabilities and other non-current liabilities. The total expense is amortized on a straight-line basis, over the vesting
period. The Company recorded $166 thousand and $153 thousand of unit-based compensation expense for the three months ended December 31, 2020 and 2019 related to this issuance. Approximately $601 thousand of additional unit-based compensation
expense will be recognized associated with this grant over the next 14 months.
The Company granted 15,767 restricted units to certain executives effective February 1, 2020 which vest over a three-year period and the Company simultaneously repurchased 1,229 shares from these executives for
payment of their employee tax withholding obligations, resulting in a net issuance of 14,538. The total expense is amortized on a straight-line basis, over the vesting period. The Company recorded $122 thousand and $0 of unit-based compensation
expense for the three months ended December 31, 2020 and 2019 related to this issuance. Approximately $1.1 million of additional unit-based compensation expense will be recognized associated with this grant over the next 26 months.
On October 1, 2020, the Company granted 13,309 restricted units to certain executives which vest over a three-year period. The total expense is amortized on a straight-line basis, over the vesting period. The Company
recorded $125 thousand of unit-based compensation expense for the three months ended December 31, 2020 related to this issuance. Approximately $1.4 million of additional unit-based compensation expense will be recognized associated with this grant
over the next 33 months.
On October 5, 2020, an executive of the Company forfeited 904 restricted units from the grant dated April 29, 2019 and 1,802 restricted units from the grant dated February 1, 2020 totaling a total forfeiture of 2,706
restricted units.
Total unit-based compensation expense of $413 thousand and $153 thousand, respectively, is included in general and administrative costs on the Company's condensed consolidated statement of operations for all of the
issuances outstanding at December 31, 2020 and 2019. The Company will recognize any forfeited units, and any unpaid dividends for those units, as they occur as a reduction to accrued liabilities and members' equity on the consolidated balance
sheet.
20
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
|
13.
|
Net Income (Loss) Per Unit
|
The table below sets forth the computation of basic and diluted net loss per unit for the three months ended December 31, 2020 and 2019:
|
Three Months Ended December 31,
|
||||||||
|
2020
|
2019
|
|||||||
|
Net loss attributable to common unitholders (in thousands) - Basic and Diluted
|
$
|
(8,858
|
)
|
$
|
(7,705
|
)
|
||
|
Basic weighted-average common units outstanding
|
1,529,937
|
1,525,791
|
||||||
|
Effecting of dilutive securities:
|
||||||||
|
Series A preferred units
|
—
|
—
|
||||||
|
Restricted units
|
—
|
—
|
||||||
|
Diluted weighted-average common units outstanding
|
1,529,937
|
1,525,791
|
||||||
|
Basic net loss per common unit
|
$
|
(5.79
|
)
|
$
|
(5.04
|
)
|
||
|
Diluted net loss per common unit
|
$
|
(5.79
|
)
|
$
|
(5.04
|
)
|
||
For the three months ended December 31, 2020 and 2019, the following units were excluded from the calculation of diluted net loss per unit due to their anti-dilutive effect:
|
Three Months Ended December 31,
|
||||||||
|
2020
|
2019
|
|||||||
|
Series A preferred units
|
511,695
|
482,246
|
||||||
|
Restricted units
|
34,512
|
14,766
|
||||||
|
14.
|
Commitments and Contingencies
|
Legal Matters
On December 10, 2020 a purported shareholder of TGC filed a lawsuit against TGC, the members of the TGC board of directors, Merger Sub (as defined below), and the Company in the United States District Court, District
of Delaware, captioned Lewis D. Baker v. Tengasco, Inc. (the "Baker complaint"). Refer to Note 15 – Subsequent Events for a more detailed discussion regarding the merger agreement. The Baker complaint was voluntarily dismissed without prejudice on
February 24, 2021.
In addition to the matter disclosed above, the Company is party to certain lawsuits arising in the ordinary course of the Company’s business. The Company cannot predict the outcome of any such lawsuits with
certainty, but management believes it is remote that pending or threatened legal matters will have a material adverse impact on the Company’s financial condition.
Due to the nature of the Company's business, the Company may at times be subject to claims and legal actions. The Company accrues liabilities when it is probable that future costs will be incurred, and such costs can
be reasonably estimated. Such accruals are based on developments to date and the Company’s estimates of the outcomes of these matters. The Company did not recognize any material liability as of December 31, 2020 and September 30, 2020. Management
believes it is remote that the impact of such matters will have a materially adverse effect on the Company’s financial position, results of operations, or cash flows.
21
Riley Exploration – Permian, LLC
Notes to the Condensed Consolidated Financial Statements – (Continued)
(unaudited)
Environmental Matters
The Company is subject to various federal, state and local laws and regulations relating to the protection of the environment. These laws, which are often changing, regulate the discharge of materials into the
environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. The Company recorded no environmental liabilities as of December 31, 2020 and
September 30, 2020.
|
15.
|
Subsequent Events
|
Events that could materially affect our financial position and results of operations after December 31, 2020, have been reviewed and evaluated by the Company as of March 4, 2021.
Tengasco Merger
On October 21, 2020, TGC, an exploration and production oil and natural gas company, and the Company entered into a definitive merger agreement under which TGC would acquire the Company and all its subsidiaries in
exchange for shares of TGC common stock (the "Transaction"). TGC formed Antman Sub LLC ("Merger Sub") as a direct wholly-owned subsidiary to merge into Riley Permian.
On February 26, 2021 (the "Closing Date"), the Company and TGC consummated the Transaction and Merger Sub merged into Riley Permian, with Riley Permian surviving as a direct wholly-owned subsidiary. The merger
between Riley Permian and Merger Sub resulted in Riley Permian's common units being exchanged for TGC stock. As part of the merger agreement, TGC was renamed Riley Exploration Permian, Inc. ("REPX") and Riley Permian became a wholly-owned
subsidiary of REPX.
Immediately prior to the closing of the merger, Riley Permian converted all of the issued and outstanding Series A Preferred Units into common units of Riley Permian. In connection with the merger, unit holdings of
Riley Permian were entitled to receive, in exchange for each common unit, shares of TGC (which were renamed REPX) par value $0.001 per share (“TGC common stock”) based on the exchange ratio set forth in the merger agreement (the “Exchange Ratio”),
with cash paid in lieu of the issuance of any fractional shares. The Exchange Ratio was 97.796467 shares of TGC common stock for each common unit of Riley.
On the Closing Date, REPX effected a reverse stock split of the common stock in a ratio of one-for-twelve resulting in outstanding common stock of approximately 17.8 million shares after also giving effect to the
merger. Pursuant to the merger agreement, on the Closing Date each restricted share of common stock issued in the Transaction is to be issued under the 2021 Long Term Incentive Plan ( the "2021 LTIP Plan"). The only 2021 LTIP Plan shares being
registered under REPX are those shares of unvested restricted common stock outstanding of the Company. Riley Permian obtained approximately 95% of the equity voting interest in REPX. Riley Permian has determined to be the accounting acquirer and
therefore the transaction will be accounted for as a reverse acquisition. The assets and liabilities of Riley Permian will be accounted for at carryover basis and the assets and liabilities of TGC will be accounted for at fair value. Due to the
recent closing of the Transaction, the acquisition date fair value of the assets and liabilities of TGC and certain other related disclosures were not yet available as of the date of this report.
22