UNITED STATES Washington, D.C. 20549 FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended |
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _______________________to____________________________ |
Commission File No. 000-52583
Ridgewood Energy U Fund, LLC
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 20-5464059 (I.R.S. Employer Identification No.) |
14 Philips Parkway, Montvale, NJ 07645
(Address of principal executive offices) (Zip code)
(800) 942-5550
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒x No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
Large accelerated filer | Accelerated filer | ||
Non-accelerated filer | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act of 1934. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934)Act). Yes ☐o No ☒
As of November 7, 2017August 10, 2020, there were 486.4825 shares of LLC Membership Interest outstanding.
PAGE | |||
PART I - FINANCIAL INFORMATION | |||
Item 1. | 1 | ||
1 | |||
2 | |||
3 | |||
Unaudited Condensed Statements of Cash Flows for the | |||
Item 2. | |||
Item 3. | |||
Item 4. | |||
PART II - OTHER INFORMATION | |||
Item 1. | |||
Item 1A. | |||
Item 2. | |||
Item 3. | |||
Item 4. | |||
Item 5. | |||
Item 6. | |||
PART I – FINANCIAL INFORMATION
RIDGEWOOD ENERGY U FUND, LLC
(in thousands, except share data)
September 30, 2017 | December 31, 2016 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,919 | $ | 1,463 | ||||
Salvage fund | 991 | 117 | ||||||
Production receivable | 562 | 361 | ||||||
Other current assets | 30 | 22 | ||||||
Total current assets | 3,502 | 1,963 | ||||||
Salvage fund | 933 | 1,588 | ||||||
Investment in Delta House | 119 | 119 | ||||||
Oil and gas properties: | ||||||||
Proved properties | 11,081 | 11,143 | ||||||
Less: accumulated depletion and amortization | (6,596 | ) | (5,358 | ) | ||||
Total oil and gas properties, net | 4,485 | 5,785 | ||||||
Total assets | $ | 9,039 | $ | 9,455 | ||||
Liabilities and Members' Capital | ||||||||
Current liabilities: | ||||||||
Due to operators | $ | 211 | $ | 265 | ||||
Accrued expenses | 59 | 59 | ||||||
Asset retirement obligations | 991 | 117 | ||||||
Total current liabilities | 1,261 | 441 | ||||||
Asset retirement obligations | 488 | 1,349 | ||||||
Total liabilities | 1,749 | 1,790 | ||||||
Commitments and contingencies (Note 3) | ||||||||
Members' capital: | ||||||||
Manager: | ||||||||
Distributions | (1,643 | ) | (1,342 | ) | ||||
Retained earnings | 582 | 161 | ||||||
Manager's total | (1,061 | ) | (1,181 | ) | ||||
Shareholders: | ||||||||
Capital contributions (1,000 shares authorized; | ||||||||
486.4825 issued and outstanding) | 72,381 | 72,381 | ||||||
Syndication costs | (8,541 | ) | (8,541 | ) | ||||
Distributions | (11,601 | ) | (9,895 | ) | ||||
Accumulated deficit | (43,888 | ) | (45,099 | ) | ||||
Shareholders' total | 8,351 | 8,846 | ||||||
Total members' capital | 7,290 | 7,665 | ||||||
Total liabilities and members' capital | $ | 9,039 | $ | 9,455 |
June 30, 2020 | December 31, 2019 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,360 | $ | 1,345 | ||||
Salvage fund | 90 | 85 | ||||||
Production receivable | 304 | 552 | ||||||
Other current assets | - | 10 | ||||||
Total current assets | 1,754 | 1,992 | ||||||
Salvage fund | 1,548 | 1,597 | ||||||
Investment in Delta House | 119 | 119 | ||||||
Oil and gas properties: | ||||||||
Proved properties | 9,465 | 9,497 | ||||||
Less: accumulated depletion and amortization | (6,426 | ) | (6,045 | ) | ||||
Total oil and gas properties, net | 3,039 | 3,452 | ||||||
Total assets | $ | 6,460 | $ | 7,160 | ||||
Liabilities and Members' Capital | ||||||||
Current liabilities: | ||||||||
Due to operators | $ | 147 | $ | 401 | ||||
Accrued expenses | 39 | 45 | ||||||
Asset retirement obligations | 90 | 85 | ||||||
Total current liabilities | 276 | 531 | ||||||
Asset retirement obligations | 1,128 | 1,190 | ||||||
Total liabilities | 1,404 | 1,721 | ||||||
Commitments and contingencies (Note 3) | ||||||||
Members' capital: | ||||||||
Manager: | ||||||||
Distributions | (2,799 | ) | (2,683 | ) | ||||
Retained earnings | 1,749 | 1,637 | ||||||
Manager's total | (1,050 | ) | (1,046 | ) | ||||
Shareholders: | ||||||||
Capital contributions (1,000 shares authorized; | ||||||||
486.4825 issued and outstanding) | 72,381 | 72,381 | ||||||
Syndication costs | (8,541 | ) | (8,541 | ) | ||||
Distributions | (18,152 | ) | (17,492 | ) | ||||
Accumulated deficit | (39,582 | ) | (39,863 | ) | ||||
Shareholders' total | 6,106 | 6,485 | ||||||
Total members' capital | 5,056 | 5,439 | ||||||
Total liabilities and members' capital | $ | 6,460 | $ | 7,160 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
1 |
RIDGEWOOD ENERGY U FUND, LLC
(in thousands, except per share data)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | ||||||||||||||||
Oil and gas revenue | $ | 1,548 | $ | 1,157 | $ | 4,336 | $ | 3,223 | ||||||||
Expenses | ||||||||||||||||
Depletion and amortization | 451 | 435 | 1,238 | 1,647 | ||||||||||||
Management fees to affiliate (Note 2) | 59 | 65 | 178 | 196 | ||||||||||||
Operating expenses | 366 | 575 | 1,189 | 2,110 | ||||||||||||
General and administrative expenses | 37 | 39 | 121 | 110 | ||||||||||||
Total expenses | 913 | 1,114 | 2,726 | 4,063 | ||||||||||||
Income (loss) from operations | 635 | 43 | 1,610 | (840 | ) | |||||||||||
Other income (loss) | ||||||||||||||||
Loss on investment in Delta House | - | (110 | ) | - | (110 | ) | ||||||||||
Dividend income | 7 | 58 | 19 | 181 | ||||||||||||
Interest income | 1 | - | 3 | 1 | ||||||||||||
Total other income (loss) | 8 | (52 | ) | 22 | 72 | |||||||||||
Net income (loss) | $ | 643 | $ | (9 | ) | $ | 1,632 | $ | (768 | ) | ||||||
Manager Interest | ||||||||||||||||
Net income | $ | 160 | $ | 76 | $ | 421 | $ | 132 | ||||||||
Shareholder Interest | ||||||||||||||||
Net income (loss) | $ | 483 | $ | (85 | ) | $ | 1,211 | $ | (900 | ) | ||||||
Net income (loss) per share | $ | 991 | $ | (175 | ) | $ | 2,489 | $ | (1,849 | ) |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue | ||||||||||||||||
Oil and gas revenue | $ | 425 | $ | 1,136 | $ | 1,531 | $ | 2,173 | ||||||||
Expenses | ||||||||||||||||
Depletion and amortization | 155 | 169 | 381 | 329 | ||||||||||||
Operating expenses | 276 | 510 | 586 | 1,095 | ||||||||||||
Management fees to affiliate (Note 2) | 58 | 59 | 117 | 118 | ||||||||||||
General and administrative expenses | 38 | 66 | 79 | 110 | ||||||||||||
Total expenses | 527 | 804 | 1,163 | 1,652 | ||||||||||||
(Loss) income from operations | (102 | ) | 332 | 368 | 521 | |||||||||||
Other income | ||||||||||||||||
Dividend income | 10 | 9 | 18 | 18 | ||||||||||||
Interest income | 2 | 5 | 7 | 7 | ||||||||||||
Total other income | 12 | 14 | 25 | 25 | ||||||||||||
Net (loss) income | $ | (90 | ) | $ | 346 | $ | 393 | $ | 546 | |||||||
Manager Interest | ||||||||||||||||
Net income | $ | 8 | $ | 75 | $ | 112 | $ | 128 | ||||||||
Shareholder Interest | ||||||||||||||||
Net (loss) income | $ | (98 | ) | $ | 271 | $ | 281 | $ | 418 | |||||||
Net (loss) income per share | $ | (202 | ) | $ | 556 | $ | 576 | $ | 858 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
2 |
RIDGEWOOD ENERGY U FUND, LLC
IN MEMBERS’ CAPITAL
(in thousands)
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 1,632 | $ | (768 | ) | |||
Adjustments to reconcile net income (loss) to net cash | ||||||||
provided by operating activities: | ||||||||
Depletion and amortization | 1,238 | 1,647 | ||||||
Loss on investment in Delta House | - | 110 | ||||||
Accretion expense | 19 | - | ||||||
Changes in assets and liabilities: | ||||||||
Increase in production receivable | (201 | ) | (23 | ) | ||||
Increase in other current assets | (8 | ) | (13 | ) | ||||
Decrease in due to operators | (54 | ) | (19 | ) | ||||
Increase in accrued expenses | - | 13 | ||||||
Settlement of asset retirement obligation | (6 | ) | - | |||||
Net cash provided by operating activities | 2,620 | 947 | ||||||
Cash flows from investing activities | ||||||||
Credits (capital expenditures) for oil and gas properties | 62 | (2 | ) | |||||
Increase in salvage fund | (219 | ) | (342 | ) | ||||
Net cash used in investing activities | (157 | ) | (344 | ) | ||||
Cash flows from financing activities | ||||||||
Distributions | (2,007 | ) | (338 | ) | ||||
Net cash used in financing activities | (2,007 | ) | (338 | ) | ||||
Net increase in cash and cash equivalents | 456 | 265 | ||||||
Cash and cash equivalents, beginning of period | 1,463 | 855 | ||||||
Cash and cash equivalents, end of period | $ | 1,919 | $ | 1,120 |
Six months ended June 30, 2020 | ||||||||||||||||
# of Shares | Manager | Shareholders | Total | |||||||||||||
Balances, December 31, 2019 | 486.4825 | $ | (1,046 | ) | $ | 6,485 | $ | 5,439 | ||||||||
Distributions | - | (116 | ) | (660 | ) | (776 | ) | |||||||||
Net income | - | 104 | 379 | 483 | ||||||||||||
Balances, March 31, 2020 | 486.4825 | $ | (1,058 | ) | $ | 6,204 | $ | 5,146 | ||||||||
Net income (loss) | - | 8 | (98 | ) | (90 | ) | ||||||||||
Balances, June 30, 2020 | 486.4825 | $ | (1,050 | ) | $ | 6,106 | $ | 5,056 |
Six months ended June 30, 2019 | ||||||||||||||||
# of Shares | Manager | Shareholders | Total | |||||||||||||
Balances, December 31, 2018 | 486.4825 | $ | (1,040 | ) | $ | 7,289 | $ | 6,249 | ||||||||
Distributions | - | (117 | ) | (664 | ) | (781 | ) | |||||||||
Net income | - | 53 | 147 | 200 | ||||||||||||
Balances, March 31, 2019 | 486.4825 | $ | (1,104 | ) | $ | 6,772 | $ | 5,668 | ||||||||
Distributions | - | (103 | ) | (580 | ) | (683 | ) | |||||||||
Net income | - | 75 | 271 | 346 | ||||||||||||
Balances, June 30, 2019 | 486.4825 | $ | (1,132 | ) | $ | 6,463 | $ | 5,331 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
3 |
RIDGEWOOD ENERGY U FUND, LLC
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Six months ended June 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 393 | $ | 546 | ||||
Adjustments to reconcile net income to net cash | ||||||||
provided by operating activities: | ||||||||
Depletion and amortization | 381 | 329 | ||||||
Accretion expense | 8 | 7 | ||||||
Changes in assets and liabilities: | ||||||||
Decrease in production receivable | 248 | 100 | ||||||
Decrease in other current assets | 10 | 191 | ||||||
(Decrease) increase in due to operators | (87 | ) | 29 | |||||
(Decrease) increase in accrued expenses | (6 | ) | 8 | |||||
Settlement of asset retirement obligations | (65 | ) | (15 | ) | ||||
Net cash provided by operating activities | 882 | 1,195 | ||||||
Cash flows from investing activities | ||||||||
Payments to operators for working interests and expenditures | - | (26 | ) | |||||
Capital expenditures for oil and gas properties | (135 | ) | (130 | ) | ||||
Decrease (increase) in salvage fund | 44 | (6 | ) | |||||
Net cash used in investing activities | (91 | ) | (162 | ) | ||||
Cash flows from financing activities | ||||||||
Distributions | (776 | ) | (1,464 | ) | ||||
Net cash used in financing activities | (776 | ) | (1,464 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 15 | (431 | ) | |||||
Cash and cash equivalents, beginning of period | 1,345 | 1,921 | ||||||
Cash and cash equivalents, end of period | $ | 1,360 | $ | 1,490 | ||||
Supplemental disclosure of non-cash investing activities | ||||||||
Due to operators for accrued capital expenditures for oil and gas properties | $ | - | $ | 1 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
4 |
RIDGEWOOD ENERGY U FUND, LLC
1. | Organization and Summary of Significant Accounting Policies |
Organization and Summary of Significant Accounting Policies
The Ridgewood Energy U Fund, LLC (the “Fund”), a Delaware limited liability company, was formed on August 28, 2006 and operates pursuant to a limited liability company agreement (the “LLC Agreement”) dated as of October 1, 2006 by and among Ridgewood Energy Corporation (the “Manager”) and the shareholders of the Fund, which addresses matters such as the authority and voting rights of the Manager and shareholders, capitalization, transferability of membership interests, participation in costs and revenues, distribution of assets and dissolution and winding up. The Fund was organized to primarily acquire interests in oil and gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of Mexico.
The Manager has direct and
exclusive control over the management of the Fund’s operations. The Manager performs, or arranges for the performance of, the management, advisory and administrative services required forBasis of Presentation
These unaudited interim condensed financial statements have been prepared by the Fund’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Fund’s financial position, results of operations, changes in members’ capital and cash flows for the periods presented. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in these unaudited interim condensed financial statements. The financial position, results of operations, financial position,changes in members’ capital and cash flows for the periods presented herein are not necessarily indicative of future financial results. These unaudited interim condensed financial statements should be read in conjunction with the Fund’s December 31, 20162019 financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K (“20162019 Annual Report”) filed with the Securities and Exchange Commission (“SEC”). The year-end condensed balance sheet data was derived from audited financial statements for the year ended December 31, 2016,2019, but does not include all annual disclosures required by GAAP.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an ongoing basis, the Managermanagement reviews its estimates, including those related to the fair value of financial instruments, depletion and amortization, determination of proved reserves, impairment of long-lived assets and asset retirement obligations. Actual results may differ from those estimates.
Summary of Significant Accounting Policies
The Fund has provided discussion of significant accounting policies in Note 1 of “Notes to Financial Statements” – “Organization and Summary of Significant Accounting Policies” contained in Item 8. “Financial Statements and Supplementary Data” within its 20162019 Annual Report. There have been no significant changes to the Fund’s significant accounting policies during the three and ninesix months ended SeptemberJune 30, 2017.
Fair Value Measurements
The Fund follows the accounting guidance for fair value measurement for measuring fair value of assets and liabilities in its financial statements. The Fund’s financial assets and liabilities consist of cash and cash equivalents, salvage fund, production receivable, other current assets, investment in Delta House, due to operators and accrued expenses. Except for investment in Delta House, the carrying amounts of these financial assets and liabilities approximate fair value due to their short-term nature. The Fund’s investment in Delta House is valued using the measurement alternative for investment in other entities (see Investment in Delta House below for additional information). The Fund also applies the provisions of the fair value measurement accounting guidance to its non-financial assets and liabilities, such as oil and gas properties and asset retirement obligations, on a non-recurring basis.
5 |
Investment in Delta House
The Fund has investments in Delta House Oil and Gas Lateral, LLC and Delta House FPS, LLC (collectively “Delta House”), legal entities that own interests in a deepwater floating production system operated by LLOGMurphy Exploration Company.& Production Company - USA. The investment in Delta House is valued using the measurement alternative to record the investment at cost, less impairment and plus or minus subsequent adjustments for observable price changes with change in basis reported in current earnings. At each reporting period, the Fund accounts forreviews its investment in Delta House usingto evaluate whether the cost methodinvestment is impaired. During each of accounting for investments as it does not have the ability to exercise significant influence over such investment. Under the cost method, the Fund recognizes an investment in the equity of an investee at cost. The Fund reviews its cost method investment for impairment at each reporting period and when an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment. Losses on cost method investments including impairments that are deemed to be other than temporary are classified as non-operating losses in the Fund’s statements of operations. During the three and ninesix months ended SeptemberJune 30, 2017,2020 and 2019, there were no such events or changes in circumstances that indicate thatimpairments of the Fund’s investment in Delta House is impaired.
Asset Retirement Obligations
For oil and gas properties, there are obligations to perform removal and remediation activities when the properties are retired. Upon the determination that a property is either proved or dry, a retirement obligation is incurred. The Fund recognizes the fair value of a liability for an asset retirement obligation in the period incurred.incurred based on expected future cash outflows required to satisfy the obligation discounted at the Fund’s credit-adjusted risk-free rate. Plug and abandonment costs associated with unsuccessful projects are expensed as dry-hole costs. At least bi-annually,Annually, or more frequently if an event occurs that would dictate a change in assumptions or estimates underlying the obligations, the Fund reassesses its asset retirement obligations to determine whether any revisions to the obligations are necessary. The Fund maintains a salvage fund to provide for the funding of future asset retirement obligations.
Revenue Recognition
Oil and gas revenues are recognized at the point when control of oil and natural gas is transferred to the customers. Natural gas liquid sales are included within gas sales. The Fund’s oil and natural gas generally are sold to its customers at prevailing market prices based on an index in which the prices are published, adjusted for pricing differentials, quality of oil and pipeline allowances. Under the Fund’s oil and natural gas contracts, each unit of oil and natural gas represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and the transaction price related to the remaining performance obligations is the variable index-based price attributable to each unit of oil and natural gas that is transferred to the customer. The Fund invoices customers once its performance obligations have been satisfied, at which point the payment is unconditional. Accordingly, the Fund’s oil and natural gas contracts do not give rise to contract assets or liabilities. The receivables related to the Fund’s oil and gas revenue are included within “Production receivable” on the Fund’s balance sheets.
The Fund also has an estimation process for revenue and related accruals, and any identified difference between its revenue estimates and actual revenue has not been significant. During each of the three and six months ended June 30, 2020 and 2019, revenue recognized from performance obligations satisfied in previous periods was not significant.
Impairment of Long-Lived Assets
The Fund reviews the carrying value of its oil and gas properties annually and when management determines thatfor impairment whenever events and circumstances indicate that the recorded carrying value of the oil and gas properties may not be recoverable. Impairments are determined by comparing estimated future net undiscounted cash flows to the carrying value of the oil and gas properties at the time of the review. If the carrying value exceeds the estimated future net undiscounted cash flows, the carrying value of the assetoil and gas properties is written down to fair value, which is determined using estimated future net discounted cash flows from the asset.valuation techniques that include both market and income approaches and use Level 3 inputs. The fair value determinations require considerable judgment and are sensitive to change. Different pricing assumptions, reserve estimates or discount rates could result in a different calculated impairment. Given
There were no impairments during the volatilitythree and six months ended June 30, 2020 and 2019. During first half of 2020, there has been a significant fluctuation in oil and natural gas commodity prices it is reasonably possible thatprimarily due to the Fund’s estimate of future net discounted cash flows from proved oil and natural gas reserves could change in the near term.
6 |
Recent Accounting Pronouncements
In January 2016,August 2018, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that requires,on fair value measurement, which adds, among other things, companiesdisclosure requirements for the range and weighted average of significant unobservable inputs used to measure investments in other entities, except those accounted for under the equity method, atdevelop Level 3 fair value and recognize any changes in fair value in net income unless an election is made to record the investment at cost, less impairment and plus or minus subsequent adjustments for observable price changes with change in basis reported in current earnings. measurements. This pronouncementaccounting guidance is effective for the Fund in the first quarter of 2018. Early2020 with early adoption is not permitted. The Fund does not expect the accounting guidance will have a material impact on its financial statements upon adoption.
In June 2016, the FASB issued accounting guidance on measurement of credit losses, which introduces, among other things, a new expected loss impairment model that applies to most financial assets measured at amortized cost and certain other instruments including trade and other receivables and other financial assets. Under the new accounting guidance, entities are required to estimate expected credit loss over the revenue associated withlife of financial assets and record an allowance against the Fund’s existing contractsasset’s amortized cost basis to present the financial asset at the amount expected to be collected. The estimate of expected credit losses will be recognizedrequire entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. The accounting guidance and the most recent update issued in February 2020 are effective for the Fund in the period that controlfirst quarter of the related commodity is transferred to the customer, which is generally consistent2023 with its current revenue recognition model.early adoption permitted. The Fund will adopt the newearly adopted this accounting guidance using the modified retrospective method at the date of adoption, which isand related updates prospectively on January 1, 2018. Although2020 and the Fund hasadoption did not identified changes to its revenue recognition that would result in a material cumulative effect adjustment to retained earnings on January 1, 2018,2020.
The Fund is exposed to credit losses through the sales of oil and natural gas to customers. However, the Fund expects the adoptiononly sells to a small number of major oil and gas companies that have investment-grade credit ratings. Based on historical collection experience, current and future economic and market conditions and a review of the accounting guidance will result in enhanced disclosurescurrent status of customers' production receivables, the Fund has not recorded an expected loss allowance as there are no past due receivable balances or projected credit losses. The Fund considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined based on the composition of its customer base, there was no related to revenue recognition policies, the Fund’s performance obligations and significant judgments used in applying the new revenue recognition accounting guidance.
2. | Related Parties |
Pursuant to the terms of the LLC Agreement, the Manager is entitled to receive an annual management fee, payable monthly, of 2.5% of total capital contributions, net of cumulative dry-hole and related well costs incurred by the Fund. In addition, pursuant to the terms of the LLC Agreement, the Manager is also permitted to waive the management fee at its own discretion. Such fee may be temporarily waived to accommodate the Fund’s short-term capital commitments.Fund and fully depleted project investments. In 2012, the Manager elected to reduce its management fee to 1% annually.annually, however, the Manager is still permitted to waive all or a portion of the reduced management fee at its own discretion. Therefore, all or a portion of the reduced management fee may be temporarily waived to accommodate the Fund’s short-term commitments. Management fees during each of the three and ninesix months ended SeptemberJune 30, 20172020 and 20162019 were $0.1 million and $0.2 million, respectively.
The Manager is also entitled to receive a 15% interest inof the cash distributions from operations made by the Fund. The Fund did not pay distributions during the three months ended June 30, 2020. Distributions paid to the Manager during the six months ended June 30, 2020 were $0.1 million. Distributions paid to the Manager during the three and ninesix months ended SeptemberJune 30, 20172019 were $0.1 million and $0.3$0.2 million, respectively. Distributions paid to the Manager during the three and nine months ended September 30, 2016 were $44 thousand and $51 thousand, respectively.
The Fund entered into a master agreement withutilizes DH Sales and Transport, LLC, a wholly ownedwholly-owned subsidiary of the Manager, to facilitate the transportation and sale of oil and natural gas produced from the Diller and Marmalard projects. The Fund has provided discussion of this agreement in Note 2 of “Notes to Financial Statements” – “Related Parties” contained in Item 8. “Financial Statements and Supplementary Data” within its 2016 Annual Report.
At times, short-term payables and receivables, which do not bear interest, arise from transactions with affiliates in the ordinary course of business.
The Fund has working interest ownership in certain projects to acquire and develop oil and natural gas projects, which are also owned by other entities that are likewise managed by the Manager.
3. | Commitments and Contingencies |
Capital Commitments
As of SeptemberJune 30, 2017,2020, the Fund’s estimated capital commitments related to its oil and gas properties were $5.4$4.0 million (which include asset retirement obligations for the Fund’s projects of $2.5$1.8 million), of which $1.0$0.1 million is expected to be spent during the next twelve months. Future results of operations and cash flows are dependent on the ongoing development and the related production of oil and gas revenues from the Fund’s producing projects.
7 |
Based upon its current cash position, salvage fund and its current reserve estimates, the Fund expects cash flow from operations to be sufficient to cover its commitments as well asand ongoing operations. Reserve estimates are projections based on engineering data that cannot be measured with precision, require substantial judgment, and are subject to frequent revision.
Impact from COVID-19
The extent of the impact of the COVID-19 pandemic on the Fund’s financial position, results of operations and cash flows will depend on future developments, including the duration and spread of the pandemic and related advisories and restrictions and the impact of COVID-19 on oil and natural gas commodity prices, financial markets and the overall economy, all of which are highly uncertain and cannot be predicted. Lower oil and gas prices may reduce the amount of oil and gas products which can be economically produced. Although the extent of the impact of the COVID-19 pandemic and resulting market disruption to the Fund’s operating results and cash flows is unknown, the period of low oil and natural gas commodity prices negatively impacted cash flow generated by the Fund’s projects. With the continued uncertainty, the Fund has elected to conserve capital for unforeseen expenses and to temporarily suspend distributions. If the financial markets and/or the overall economy are impacted by the COVID-19 pandemic for a prolonged period, the Fund, its operators and other working interest partners’ financial performance results may be materially adversely affected, which could significantly affect the Fund’s liquidity, development of oil and gas and expected operating results. It is likely that estimates of oil and gas products that can be economically produced will be reduced, which increases the likelihood of impairments and higher depletion rates.
Environmental and Governmental Regulations
Many aspects of the oil and gas industry are subject to federal, state and local environmental laws and regulations. The Manager and operators of the Fund’s properties are continually taking action they believe appropriate to satisfy applicable federal, state and local environmental regulations. However, due to the significant public and governmental interest in environmental matters related to those activities, the Manager cannot predict the effects of possible future legislation, rule changes, or governmental or private claims. As of SeptemberJune 30, 20172020 and December 31, 2016,2019, there were no known environmental contingencies that required adjustment to, or disclosure in, the Fund’s financial statements.
Oil and gas industry legislation and administrative regulations are periodically changed for a variety of political, economic, and other reasons. Any such future laws and regulations could result in increased compliance costs or additional operating restrictions, which could have a material adverse effect on the Fund’s operating results and cash flows. It is not possible at this time to predict whether such legislation or regulation, if proposed, will be adopted as initially written, if at all, or how legislation or new regulation that may be adopted would impact the Fund’s business.
BOEM Notice to Lessees on Supplemental Bonding
On July 14, 2016, the Bureau of Ocean Energy Management (“BOEM”) issued a Notice to Lessees (“NTL”NTL 2016-N01”) that discontinued and materially replaced existing policies and procedures regarding financial security (i.e. supplemental bonding) for decommissioning obligations of lessees of federal oil and gas leases and owners of pipeline rights-of-way, rights-of use and easements on the Outer Continental Shelf (“Lessees”). Generally, the new NTL 2016-N01 (i) ended the practice of excusing Lessees from providing such additional security where co-lessees had sufficient financial strength to meet such decommissioning obligations, (ii) established new criteria for determining financial strength and additional security requirements of such Lessees, (iii) provided acceptable forms of such additional security, and (iv) replaced the waiver system with one of self-insurance. The new rule became effective as of September 12, 2016; however, on January 6, 2017, the BOEM announced that it was suspending the implementation timeline for six months in certain circumstances. On May 1, 2017, the Secretary of the U.S. Department of the Interior (“Interior”) directed the BOEM to complete a review of NTL 2016-N01, to provide a report to certain Interior personnel describing the results of the review and options for revising or rescinding NTL 2016-N01, and to keep the implementation timeline extension in effect pending the completion of the review of NTL 2016-N01 by the identified Interior personnel. On June 22, 2017, the BOEM announced that the implementation timeline extension will remain in effect pending the completion of itsthe review of the new NTL. The Fund, as well as other industry participants, are working withNTL 2016-N01. As of June 30, 2020, the BOEM has not lifted its operators and working interest partners to determine and agree uponsuspension of the correct levelimplementation of decommissioning obligations to which they may be liable and the manner in which such obligations will be secured.NTL 2016-N01. The impact of the NTL 2016-N01, if enforced without change or amendment, may require the Fund to fully secure all of its potential abandonment liabilities to the BOEM’s satisfaction using one or more of the enumerated methods for doing so. Potentially this could increase costs to the Fund if the Fund is required to obtain additional supplemental bonding, fund escrow accounts or obtain letters of credit.
8 |
Insurance Coverage
The Fund is subject to all risks inherent in the oil and natural gas business. Insurance coverage as is customary for entities engaged in similar operations is maintained, but losses may occur from uninsurable risks or amounts in excess of existing insurance coverage. The occurrence of an event that is not insured or not fully insured could have a material adverse impact upon earnings and financial position. Moreover, insurance is obtained as a package covering all of the fundsentities managed by the Manager. Depending on the extent, nature and payment of claims made by the Fund or other fundsentities managed by the Manager, yearly insurance coverage may be exhausted and become insufficient to cover a claim by the Fund in a given year.
9 |
Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q (“Quarterly Report”) and the documents Ridgewood Energy U Fund, LLC (the “Fund”) has incorporated by reference into this Quarterly Report, other than purely historical information, including estimates, projections, statements relating to the Fund’s business plans, strategies, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. You are therefore cautioned against relying on any such forward-looking statements. Forward-looking statements can generally be identified by words such as “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “target,” “pursue,” “may,” “will,” “will likely result,” and similar expressions and references to future periods. Examples of events that could cause actual results to differ materially from historical results or those anticipated include weather conditions, such as hurricanes, changes in market and other conditions affecting the pricing, production and demand of oil and natural gas, the cost and availability of equipment, and changes in domestic and foreign governmental regulations. Examples of forward-looking statements made herein include statements regarding projects, investments, insurance, capital expenditures and liquidity. Forward-looking statements made in this document speak only as of the date on which they are made. The Fund undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Critical Accounting Policies and Estimates
There were no changes to the Fund’s critical accounting policies and estimates from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2016.
Overview of the Fund’s Business
The Fund was organized primarily to acquire interests in oil and natural gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of Mexico. The Fund’s primary investment objective is to generate cash flow for distribution to its shareholders by generating returns across a portfolio of oil and natural gas projects. Distributions to shareholders are made in accordance with the Fund’s limited liability company agreement (the “LLC Agreement”).
Ridgewood Energy Corporation (the “Manager”) is the Manager, and as such, has direct and exclusive control over the management of the Fund’s operations. The Manager performs, or arranges for the performance of, the management, advisory and administrative services required for the Fund’s operations. As compensation for its services, the Manager is entitled to an annual management fee, payable monthly, equal to 2.5%1% of the total capital contributions made by the Fund’s shareholders, net of cumulative dry-hole and related well costs incurred by the Fund. In 2012, the Manager elected to reduce its management fee to 1% annually.Fund and fully depleted project investments. The Fund does not currently, nor is there any plan to, operate any project in which the Fund participates. The Manager enters into operating agreements with third-party operators for the management of all exploration, development and producing operations, as appropriate. The Manager also participates in distributions.
Recent Developments
In March 2020, the World Health Organization recognized the novel strain of coronavirus (“COVID-19”) as a global pandemic, which resulted in a significant drop in oil demand caused by lockdown measures and industrial slowdown around the world. In addition, in March 2020, the failure of an alliance between the Saudi Arabia-led Organization of Petroleum Exporting Countries (“OPEC”) and Russia to reach an agreement on oil production volumes resulted in an oil “price war”, caused oil prices to collapse. Although on April 12, 2020, OPEC and Russia agreed to reduce production by approximately 9.7 million barrels per day in May and June 2020, the COVID-19 pandemic, the initial oil price war and significant oil demand destruction as a result of world-wide government ordered lock-downs pushed oil prices to their lowest level during April 2020 as compared to the past several years. Since then, the oil market has stabilized and strengthened with oil prices gradually rising. On June 6, 2020, OPEC and Russia agreed to extend the production cut of approximately 9.7 million barrels per day through the end of July 2020.
10 |
Although the extent of the impact of the COVID-19 pandemic and resulting market disruption to the Fund’s operating results and cash flows is unknown, the period of low oil and natural gas commodity prices negatively impacted cash flow generated by the Fund’s projects. With the continued uncertainty, the Fund has elected to conserve capital for unforeseen expenses and to temporarily suspend distributions. However, because the Fund owns its oil and gas properties with no debt and these projects are long-lived assets that are expected to produce over many years with relatively low operating costs, the Fund believes that it is positioned to weather this period of uncertainty and volatility from the COVID-19 pandemic. However, if oil and natural gas commodity prices and the overall economy are impacted by the COVID-19 pandemic for a prolonged period, the Fund, its operators and other working interest partners’ financial performance results may be adversely impacted, which could significantly affect the Fund’s liquidity and expected operating results.
Commodity Price Changes
Changes in oil and natural gas commodity prices may significantly affect liquidity and expected operating results. Declines in oil and natural gas commodity prices not only reduce revenues and profits but could also reduce the quantities of reserves that are commercially recoverable. Significant declines in prices couldrecoverable and result in non-cash charges to earnings due to impairment.
Oil and natural gas commodity prices have been subject to significant fluctuations during the past several years. During first half of 2020, oil and natural gas commodity prices experienced significant volatility primarily attributable to the COVID-19 pandemic. The Fund anticipates price cyclicality in its planning and believes it is well positioned to withstand price volatility. The Fund continueswill continue to conserveclosely manage and coordinate its capital spending estimates within its expected cash flows to complete the ongoingprovide for future development costs of the Diller and Marmalardits producing projects, as budgeted.
Market pricing for oil and natural gas is volatile and is likely to continue to be volatile in the future. This volatility is caused by numerous factors and market conditions that the Fund cannot control or influence. Therefore, it is impossible to predict the future price of oil and natural gas with any certainty. Factors affecting market pricing for oil and natural gas include:
· | weather conditions; |
· | economic conditions, including demand for petroleum-based products; |
· | actions by OPEC, the Organization of Petroleum Exporting Countries; |
· | political instability in the Middle East and other major oil and gas producing regions; |
· | worldwide economic, political and social conditions impacting the global supply and demand for oil and natural gas, which may be driven by various risks, including war, terrorism, political unrest, or health epidemics (such as the global COVID-19 pandemic in early 2020); |
· | continued social distancing and other measures implemented due to the COVID-19 pandemic, which results in a decrease in demand in oil and natural gas prices and operational decisions such as well shut-ins; |
· | governmental regulations, both domestic and foreign; |
· | domestic and foreign tax policy; |
· | the pace adopted by foreign governments for the exploration, development, and production of their national reserves; |
· | the supply and price of foreign oil and gas; |
· | the cost of exploring for, producing and delivering oil and gas; |
· | the discovery rate of new oil and gas reserves; |
· | the rate of decline of existing and new oil and gas reserves; |
· | available pipeline and other oil and gas transportation capacity; |
· | the ability of oil and gas companies to raise capital; |
· | the overall supply and demand for oil and gas; and |
· | the price and availability of alternate fuel sources. |
11 |
Business Update
Information regarding the Fund’s current projects, all of which are located in the United States offshore waters ofin the Gulf of Mexico, is provided in the following table. See “Liquidity Needs” under this Item 2. “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report for information regarding the funding of the Fund’s capital commitments.
Total Spent | |||||||||||||
Working | through | Total Fund | |||||||||||
Project | Interest | September 30, 2017 | Budget | Status | |||||||||
(in thousands) | |||||||||||||
Producing Properties | |||||||||||||
Cobalt Project | 5.0 | % | $ | 2,368 | $ | 2,481 | The Cobalt Project, a single-well project, commenced production in 2009. Recompletions are planned for 2018 at estimated total costs of $45 thousand. The Fund expects to spend $68 thousand for asset retirement obligations. | ||||||
Diller Project | 0.88 | % | $ | 2,770 | $ | 3,865 | The Diller Project is expected to include the development of two wells. Well #1 commenced production in 2015. Well #2 is expected to commence production in 2019. Well #1, which was shut-in in late-2016 due to well hydrate remediation work, resumed production in mid-January 2017. The Fund expects to spend $0.7 million for additional development costs and $0.4 million for asset retirement obligations. | ||||||
Marmalard Project | 0.88 | % | $ | 5,552 | $ | 8,753 | The Marmalard Project is expected to include the development of six wells. Four wells commenced production in 2015. Additional wells are expected to commence production in 2019 and 2020. The Fund expects to spend $2.1 million for additional development costs and $1.1 million for asset retirement obligations. |
Total Spent | ||||||||||||||
Working | through | Total Fund | ||||||||||||
Project | Interest | June 30, 2020 | Budget | Status | ||||||||||
(in thousands) | ||||||||||||||
Diller Project | 0.88% | $ | 3,729 | $ | 4,547 | The Diller Project is expected to include the development of three wells. Well #1 commenced production in 2015. Well #2 commenced production in late-November 2019. Well #3 is expected to commence production in fourth quarter 2022. During May 2020, production from the Diller Project was shut-in due to the low-price environment. Production from the wells returned at its normal levels in June 2020. The Fund expects to spend $0.5 million for additional development costs and $0.3 million for asset retirement obligations. | ||||||||
Marmalard Project | 0.84% | $ | 5,621 | $ | 7,900 | The Marmalard Project is expected to include the development of six wells. Four wells commenced production in 2015. Additional wells are expected to commence production in 2022. One well, which had been shut-in since late-February 2019 due to remediation work for downhole mechanical issues, resumed production in third quarter 2019. During May 2020, production from the Marmalard Project was shut-in due to the low-price environment. Production from the wells returned at its normal production levels in June 2020. The Fund expects to spend $1.8 million for additional development costs and $0.5 million for asset retirement obligations. |
Results of Operations
The following table summarizes the Fund’s results of operations during the three and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, and should be read in conjunction with the Fund’s financial statements and notes thereto included within Item 1. “Financial Statements” in Part I of this Quarterly Report.
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(in thousands) | ||||||||||||||||
Revenue | ||||||||||||||||
Oil and gas revenue | $ | 425 | $ | 1,136 | $ | 1,531 | $ | 2,173 | ||||||||
Expenses | ||||||||||||||||
Depletion and amortization | 155 | 169 | 381 | 329 | ||||||||||||
Operating expenses | 276 | 510 | 586 | 1,095 | ||||||||||||
Management fees to affiliate | 58 | 59 | 117 | 118 | ||||||||||||
General and administrative expenses | 38 | 66 | 79 | 110 | ||||||||||||
Total expenses | 527 | 804 | 1,163 | 1,652 | ||||||||||||
(Loss) income from operations | (102 | ) | 332 | 368 | 521 | |||||||||||
Other income | ||||||||||||||||
Dividend income | 10 | 9 | 18 | 18 | ||||||||||||
Interest income | 2 | 5 | 7 | 7 | ||||||||||||
Total other income | 12 | 14 | 25 | 25 | ||||||||||||
Net (loss) income | $ | (90 | ) | $ | 346 | $ | 393 | $ | 546 |
12 |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(in thousands) | ||||||||||||||||
Revenue | ||||||||||||||||
Oil and gas revenue | $ | 1,548 | $ | 1,157 | $ | 4,336 | $ | 3,223 | ||||||||
Expenses | ||||||||||||||||
Depletion and amortization | 451 | 435 | 1,238 | 1,647 | ||||||||||||
Management fees to affiliate | 59 | 65 | 178 | 196 | ||||||||||||
Operating expenses | 366 | 575 | 1,189 | 2,110 | ||||||||||||
General and administrative expenses | 37 | 39 | 121 | 110 | ||||||||||||
Total expenses | 913 | 1,114 | 2,726 | 4,063 | ||||||||||||
Income (loss) from operations | 635 | 43 | 1,610 | (840 | ) | |||||||||||
Other income (loss) | ||||||||||||||||
Loss on investment in Delta House | - | (110 | ) | - | (110 | ) | ||||||||||
Dividend income | 7 | 58 | 19 | 181 | ||||||||||||
Interest income | 1 | - | 3 | 1 | ||||||||||||
Total other income (loss) | 8 | (52 | ) | 22 | 72 | |||||||||||
Net income (loss) | $ | 643 | $ | (9 | ) | $ | 1,632 | $ | (768 | ) |
Overview.
The following table provides information related to the Fund’s oil and natural gas production and oil and gas revenue during the three andThree months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Number of wells producing | 6 | 6 | 6 | 6 | ||||||||||||
Total number of production days | 545 | 479 | 1,553 | 1,482 | ||||||||||||
Oil sales (in thousands of barrels) | 27 | 23 | 75 | 71 | ||||||||||||
Average oil price per barrel | $ | 49 | $ | 44 | $ | 49 | $ | 39 | ||||||||
Gas sales (in thousands of mcfs) | 68 | 54 | 194 | 178 | ||||||||||||
Average gas price per mcf | $ | 3.42 | $ | 2.69 | $ | 3.25 | $ | 2.31 |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Number of wells producing | 6 | 4 | 6 | 5 | ||||||||||||
Total number of production days | 371 | 392 | 900 | 734 | ||||||||||||
Oil sales (in thousands of barrels) | 15 | 16 | 36 | 31 | ||||||||||||
Average oil price per barrel | $ | 26 | $ | 66 | $ | 39 | $ | 63 | ||||||||
Gas sales (in thousands of mcfs) | 29 | 34 | 70 | 70 | ||||||||||||
Average gas price per mcf | $ | 1.49 | $ | 2.76 | $ | 1.73 | $ | 2.98 |
The increases in the number of wells producing, production days and oil sales volume noted in the above table were primarily related to the commencement of production of an additional well in the Diller Project which was shut-in in late 2016 due to well hydrate remediation work. In addition, the increases in gas sales were also attributable to the Marmalard Project, which did not produce NGLs during thirdfourth quarter 2016 due to third-party facilities’ repair and maintenance activities. These increases were partially offset by decreases related to one well2019 coupled with two wells in the Marmalard Project, which was shut-inexperienced periodic shut-ins during the early partfirst half of first quarter 20172019 due to well remediation worka mechanical issue. During the three months ended June 30, 2020, the decreases in production days and oil and gas sales volumes were primarily attributable to restore higher flow ratesthe shut-in of production from this well.the Diller and Marmalard projects during May 2020 as a result of the low-price environment. Production from the Diller and Marmalard wells returned to normal production levels in June 2020. See additional discussion in “Business Update” section above.
Oil and Gas Revenue
.Oil and gas revenue during the ninesix months ended SeptemberJune 30, 20172020 was $4.3$1.5 million, an increasea decrease of $1.1$0.6 million from the ninesix months ended SeptemberJune 30, 2016.2019. The increasedecrease was attributable to increaseddecreased oil and gas prices totaling $0.9 million coupled withpartially offset by increased oil sales volume totaling $0.2$0.3 million.
See “Overview” above for factors that impact the oil and gas revenue volume and rate variances.
Depletion and Amortization
. Depletion and amortization during each of the three months endedDepletion and amortization during the six months ended June 30, 2020 was $0.4 million, an increase of $16 thousand$0.1 million from the threesix months ended SeptemberJune 30, 2016.2019. The increase was attributable to an increase in oil production volumes totaling $90$37 thousand partially offset by a decreasecoupled with an increase in the average depletion rate totaling $74$15 thousand.
See “Overview” above for certain factors that impact the depletion and amortization volume and rate variances. Depletion and amortization rates may also be impacted by changes in reserve estimates provided annually by the Fund’s independent petroleum engineers.
Operating Expenses.
Operating expenses represent costs specifically identifiable or allocable to the Fund’s wells, as detailed in the following table.Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(in thousands) | ||||||||||||||||
Lease operating expense | $ | 192 | $ | 187 | $ | 411 | $ | 371 | ||||||||
Transportation and processing expense | 65 | 67 | 150 | 134 | ||||||||||||
Insurance expense | 7 | 13 | 15 | 37 | ||||||||||||
Accretion expense | 4 | 3 | 8 | 7 | ||||||||||||
Workover expense | 8 | 240 | 2 | 546 | ||||||||||||
$ | 276 | $ | 510 | $ | 586 | $ | 1,095 |
13 |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(in thousands) | ||||||||||||||||
Lease operating expense | $ | 258 | $ | 468 | $ | 752 | $ | 1,790 | ||||||||
Transportation and processing expense | 96 | 82 | 309 | 251 | ||||||||||||
Workover expense | (6 | ) | 1 | 75 | 28 | |||||||||||
Insurance expense | 11 | 18 | 33 | 36 | ||||||||||||
Accretion expense and other | 7 | 6 | 20 | 5 | ||||||||||||
$ | 366 | $ | 575 | $ | 1,189 | $ | 2,110 |
Lease operating expense and transportation and processing expense relatesrelate to the Fund’s producing properties. Workover expense, which represents costs to restore or stimulate production of existing reserves, primarily relates to the Diller and Marmalard projects. Insurance expense represents premiums related to the Fund’s properties,projects, which vary depending upon the number of wells producing or drilling. Accretion expense relates to the asset retirement obligations established for the Fund’s provedoil and gas properties.
Production costs, which includesinclude lease operating expense, transportation and processing expense and insurance expense, was $9.59were $0.3 million ($13.41 per barrel of oil equivalent (“BOE”or “BOE”) and $10.21$0.6 million ($12.06 per BOEBOE) during the three and ninesix months ended SeptemberJune 30, 2017,2020, respectively, compared to $17.97$0.3 million ($12.42 per BOEBOE) and $20.72$0.5 million ($12.65 per BOEBOE) during the three and ninesix months ended SeptemberJune 30, 2016,2019, respectively. The decreases
Although production costs were relatively consistent during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, production costs per BOE slightly increased during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily attributable to decreased oil and natural gas production from the Diller and Marmalard projects which had lower cost per BOE in 2017 as a result of a reduction in production handling feesshut-in during May 2020 due to the low-price environment. Production from $15.50 per BOE to $4.50 per BOE effective December 2016. The production handling fees for the Diller and Marmalard projects decline over time as certainwells returned to normal production hurdles are metlevels in accordance with theirJune 2020. Production costs and production handling agreement relatingcosts per BOE were relatively consistent during the six months ended June 30, 2020 compared to the Delta House production facility.
Management Fees to Affiliate. An annual management fee, totaling 1% of total capital contributions, net of cumulative dry-hole well costs incurred by the Fund and fully depleted project investments, is paid monthly to the Manager. All or a portion of such fee may be temporarily waived by the Manager to accommodate the Fund’s short-term commitments.
General and Administrative Expenses.
General and administrative expenses represent costs specifically identifiable or allocable to the Fund, such as accounting and professional fees and insurance expenses.Dividend Income.
Dividend income is related to the Fund’s investment in Delta House.Interest Income
. Interest income is comprised of interest earned on cash and cash equivalents and salvage fund.Capital Resources and Liquidity
Operating Cash Flows
Cash flows provided by operating activities during the ninesix months ended SeptemberJune 30, 20172020 were $2.6$0.9 million, primarily related to revenue received of $4.1$1.8 million, partially offset by operating expenses of $1.2$0.7 million, management fees of $0.2$0.1 million, general and administrative expenses of $0.1 million and the settlement of asset retirement obligations of $0.1 million.
Cash flows provided by operating activities during the six months ended June 30, 2019 were $1.2 million, primarily related to revenue received of $2.3 million, partially offset by operating expenses of $0.9 million, management fees of $0.1 million and general and administrative expenses of $0.1 million.
Investing Cash Flows
Cash flows used in investing activities during the ninesix months ended SeptemberJune 30, 20172020 were $0.2$0.1 million, primarily related to investments in salvage fund.
Cash flows used in investing activities during the ninesix months ended SeptemberJune 30, 20162019 were $0.3$0.2 million, primarily related to investments in salvage fund.
Financing Cash Flows
Cash flows used in financing activities during the ninesix months ended SeptemberJune 30, 20172020 were $2.0$0.8 million, related to manager and shareholder distributions.
Cash flows used in financing activities during the ninesix months ended SeptemberJune 30, 20162019 were $0.3$1.5 million, related to manager and shareholder distributions.
14 |
Estimated Capital Expenditures
Capital expenditures for oil and gas properties have been funded with the capital raised by the Fund in its private placement offering. The Fund’s remaining capital has been fully allocated to complete its projects. As a result, the Fund will not invest in any new projects and will limit its investment activities, if any, to those projects in which it currently has a working interest.
Liquidity Needs
The Fund’s primary short-term liquidity needs are to fund its operations and capital expenditures for its oil and gas properties. Such needs are funded utilizing operating income and existing cash on-hand.
As of SeptemberJune 30, 2017,2020, the Fund’s estimated capital commitments related to its oil and gas properties were $5.4$4.0 million (which include asset retirement obligations for the Fund’s projects of $2.5$1.8 million), of which $1.0$0.1 million is expected to be spent during the next twelve months. Future results of operations and cash flows are dependent on the ongoing development and the related production of oil and gas revenues from the Fund’s producing projects.
Based upon its current cash position, salvage fund and its current reserve estimates, the Fund expects cash flow from operations to be sufficient to cover its commitments as well asand ongoing operations. Reserve estimates are projections based on engineering data that cannot be measured with precision, require substantial judgment, and are subject to frequent revision.
The Manager is entitled to receive an annual management fee from the Fund regardless of the Fund’s profitability in that year. However, pursuant to the terms of the LLC Agreement, the Manager is also permitted to waive all or a portion of the management fee at its own discretion.
Distributions, if any, are funded from available cash from operations, as defined in the LLC Agreement, and the frequency and amount are within the Manager’s discretion. Due to the future capital required to develop the Diller and Marmalard projects,However, distributions may be impacted by amounts reserved to provideof future capital required for theirthe ongoing development costsof the Diller and Marmalard projects and funding their estimated asset retirement obligations.
Off-Balance Sheet Arrangements
The Fund had no off-balance sheet arrangements as of SeptemberJune 30, 20172020 and December 31, 20162019 and does not anticipate the use of such arrangements in the future.
Contractual Obligations
The Fund enters into participation and joint operating agreements with operators. On behalf of the Fund, an operator enters into various contractual commitments pertaining to exploration, development and production activities. The Fund does not negotiate such contracts. No contractual obligations exist as of SeptemberJune 30, 20172020 and December 31, 2016,2019, other than those discussed in “Estimated Capital Expenditures” above.
Recent Accounting Pronouncements
See Note 1 of “Notes to Unaudited Condensed Financial Statements” - “Organization and Summary of Significant Accounting Policies” contained in Item 1. “Financial Statements” within Part I of this Quarterly Report for a discussion of recent accounting pronouncements.
Not required.
15 |
In accordance with Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Fund’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Fund’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Fund’s disclosure controls and procedures were effective as of SeptemberJune 30, 2017.
There has been no change in the Fund’s internal control over financial reporting that occurred during the three months ended SeptemberJune 30, 20172020 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.
PART II – OTHER INFORMATION
None.
Not required.
None.
None.
None.
None.
16 |
EXHIBIT NUMBER | TITLE OF EXHIBIT | METHOD OF FILING | |
31.1 | Filed herewith | ||
31.2 | Filed herewith | ||
32 | Filed herewith | ||
101.INS | XBRL Instance Document | Filed herewith | |
101.SCH | XBRL Taxonomy Extension Schema | Filed herewith | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | Filed herewith | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | Filed herewith | |
101.LAB | XBRL Taxonomy Extension Label Linkbase | Filed herewith | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | Filed herewith |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
RIDGEWOOD ENERGY U FUND, LLC | ||||||
Dated: | By: | /s/ | ROBERT E. SWANSON | |||
Name: | Robert E. Swanson | |||||
Title: | Chief Executive Officer | |||||
(Principal Executive Officer) | ||||||
Dated: | By: | /s/ | KATHLEEN P. MCSHERRY | |||
Name: | Kathleen P. McSherry | |||||
Title: | Executive Vice President and Chief Financial Officer | |||||
(Principal Financial and Accounting Officer) |
17