UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q
| 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. 000-53895
Ridgewood Energy A-1 Fund, LLC
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 01-0921132 (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 ☐o
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 ☐o
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 | x | Smaller reporting company Emerging growth company | x o |
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. Act. ☐o
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 ☒x
As of November 7, 2017May 10, 2021, there were 207.7026 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 A-1 FUND, LLC
(in thousands, except share data)
| September 30, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 2,777 | $ | 3,458 | ||||
| Salvage fund | 942 | 266 | ||||||
| Production receivable | 210 | 324 | ||||||
| Other current assets | 74 | 119 | ||||||
| Total current assets | 4,003 | 4,167 | ||||||
| Salvage fund | 558 | 1,286 | ||||||
| Oil and gas properties: | ||||||||
| Proved properties | 19,962 | 18,056 | ||||||
| Less: accumulated depletion and amortization | (6,493 | ) | (3,804 | ) | ||||
| Total oil and gas properties, net | 13,469 | 14,252 | ||||||
| Total assets | $ | 18,030 | $ | 19,705 | ||||
| Liabilities and Members' Capital | ||||||||
| Current liabilities: | ||||||||
| Due to operators | $ | 552 | $ | 462 | ||||
| Accrued expenses | 240 | 566 | ||||||
| Current portion of long-term borrowings | 1,393 | 690 | ||||||
| Asset retirement obligations | 942 | 266 | ||||||
| Total current liabilities | 3,127 | 1,984 | ||||||
| Long-term borrowings | 5,841 | 6,453 | ||||||
| Asset retirement obligations | 553 | 1,409 | ||||||
| Other liabilities | 40 | 40 | ||||||
| Total liabilities | 9,561 | 9,886 | ||||||
| Commitments and contingencies (Note 4) | ||||||||
| Members' capital: | ||||||||
| Manager: | ||||||||
| Distributions | (5,058 | ) | (5,058 | ) | ||||
| Retained earnings | 5,356 | 5,117 | ||||||
| Manager's total | 298 | 59 | ||||||
| Shareholders: | ||||||||
| Capital contributions (250 shares authorized; | ||||||||
| 207.7026 issued and outstanding) | 41,143 | 41,143 | ||||||
| Syndication costs | (4,804 | ) | (4,804 | ) | ||||
| Distributions | (35,427 | ) | (35,427 | ) | ||||
| Retained earnings | 7,257 | 8,845 | ||||||
| Shareholders' total | 8,169 | 9,757 | ||||||
| Accumulated other comprehensive income | 2 | 3 | ||||||
| Total members' capital | 8,469 | 9,819 | ||||||
| Total liabilities and members' capital | $ | 18,030 | $ | 19,705 | ||||
| March 31, 2021 | December 31, 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,314 | $ | 1,150 | ||||
| Salvage fund | 107 | 365 | ||||||
| Production receivable | 325 | 221 | ||||||
| Due from affiliate (Note 2) | 36 | 92 | ||||||
| Other current assets | 74 | 60 | ||||||
| Total current assets | 1,856 | 1,888 | ||||||
| Salvage fund | 1,711 | 1,661 | ||||||
| Oil and gas properties: | ||||||||
| Proved properties | 16,867 | 16,866 | ||||||
| Less: accumulated depletion and amortization | (10,445 | ) | (9,829 | ) | ||||
| Total oil and gas properties, net | 6,422 | 7,037 | ||||||
| Total assets | $ | 9,989 | $ | 10,586 | ||||
| Liabilities and Members' Capital | ||||||||
| Current liabilities: | ||||||||
| Due to operators | $ | 19 | $ | 16 | ||||
| Accrued expenses | 45 | 51 | ||||||
| Current portion of long-term borrowings | 1,157 | 633 | ||||||
| Asset retirement obligations | 107 | 365 | ||||||
| Total current liabilities | 1,328 | 1,065 | ||||||
| Long-term borrowings | 97 | 787 | ||||||
| Asset retirement obligations | 1,206 | 1,200 | ||||||
| Total liabilities | 2,631 | 3,052 | ||||||
| Commitments and contingencies (Note 4) | ||||||||
| Members' capital: | ||||||||
| Manager: | ||||||||
| Distributions | (5,484 | ) | (5,461 | ) | ||||
| Retained earnings | 6,641 | 6,560 | ||||||
| Manager's total | 1,157 | 1,099 | ||||||
| Shareholders: | ||||||||
| Capital contributions (250 shares authorized; | ||||||||
| 207.7026 issued and outstanding) | 41,143 | 41,143 | ||||||
| Syndication costs | (4,804 | ) | (4,804 | ) | ||||
| Distributions | (37,837 | ) | (37,707 | ) | ||||
| Retained earnings | 7,699 | 7,803 | ||||||
| Shareholders' total | 6,201 | 6,435 | ||||||
| Total members' capital | 7,358 | 7,534 | ||||||
| Total liabilities and members' capital | $ | 9,989 | $ | 10,586 | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 1 |
RIDGEWOOD ENERGY A-1 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 | $ | 777 | $ | 220 | $ | 2,692 | $ | 376 | ||||||||
| Expenses | ||||||||||||||||
| Depletion and amortization | 395 | 167 | 2,563 | 198 | ||||||||||||
| Management fees to affiliate (Note 2) | 93 | 64 | 280 | 254 | ||||||||||||
| Operating expenses | 164 | 91 | 515 | 134 | ||||||||||||
| General and administrative expenses | 38 | 41 | 126 | 114 | ||||||||||||
| Total expenses | 690 | 363 | 3,484 | 700 | ||||||||||||
| Income (loss) from operations | 87 | (143 | ) | (792 | ) | (324 | ) | |||||||||
| Interest expense, net | (187 | ) | (103 | ) | (557 | ) | (100 | ) | ||||||||
| Net loss | (100 | ) | (246 | ) | (1,349 | ) | (424 | ) | ||||||||
| Other comprehensive (loss) income | ||||||||||||||||
| Unrealized (loss) gain on marketable securities | - | - | (1 | ) | 1 | |||||||||||
| Total comprehensive loss | $ | (100 | ) | $ | (246 | ) | $ | (1,350 | ) | $ | (423 | ) | ||||
| Manager Interest | ||||||||||||||||
| Net income (loss) | $ | 68 | $ | 2 | $ | 239 | $ | (20 | ) | |||||||
| Shareholder Interest | ||||||||||||||||
| Net loss | $ | (168 | ) | $ | (248 | ) | $ | (1,588 | ) | $ | (404 | ) | ||||
| Net loss per share | $ | (813 | ) | $ | (1,194 | ) | $ | (7,649 | ) | $ | (1,944 | ) | ||||
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue | ||||||||
| Oil and gas revenue | $ | 675 | $ | 745 | ||||
| Other revenue | 107 | 42 | ||||||
| Total revenue | 782 | 787 | ||||||
| Expenses | ||||||||
| Depletion and amortization | 567 | 493 | ||||||
| Operating expenses | 97 | 195 | ||||||
| Management fees to affiliate (Note 2) | 75 | 93 | ||||||
| General and administrative expenses | 35 | 47 | ||||||
| Total expenses | 774 | 828 | ||||||
| Income (loss) from operations | 8 | (41 | ) | |||||
| Interest expense, net | (31 | ) | (37 | ) | ||||
| Net loss | $ | (23 | ) | $ | (78 | ) | ||
| Manager Interest | ||||||||
| Net income | $ | 81 | $ | 63 | ||||
| Shareholder Interest | ||||||||
| Net loss | $ | (104 | ) | $ | (141 | ) | ||
| Net loss per share | $ | (503 | ) | $ | (679 | ) | ||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 2 |
RIDGEWOOD ENERGY A-1 FUND, LLC
IN MEMBERS’ CAPITAL
(in thousands)
| Nine months ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (1,349 | ) | $ | (424 | ) | ||
| Adjustments to reconcile net loss to net cash | ||||||||
| provided by (used in) operating activities: | ||||||||
| Depletion and amortization | 2,563 | 198 | ||||||
| Accretion expense | 22 | - | ||||||
| Amortization of debt discounts and deferred financing costs | 91 | 31 | ||||||
| Changes in assets and liabilities: | ||||||||
| Decrease (increase) in production receivable | 114 | (137 | ) | |||||
| Decrease (increase) in other current assets | 45 | (70 | ) | |||||
| Increase (decrease) in due to operators | 38 | (6 | ) | |||||
| (Decrease) increase in accrued expenses | (14 | ) | 107 | |||||
| Settlement of asset retirement obligation | (82 | ) | - | |||||
| Net cash provided by (used in) operating activities | 1,428 | (301 | ) | |||||
| Cash flows from investing activities | ||||||||
| Capital expenditures for oil and gas properties | (2,160 | ) | (1,517 | ) | ||||
| Decrease (increase) in salvage fund | 51 | (3 | ) | |||||
| Net cash used in investing activities | (2,109 | ) | (1,520 | ) | ||||
| Cash flows from financing activities | ||||||||
| Long-term borrowings | - | 1,120 | ||||||
| Net cash provided by financing activities | - | 1,120 | ||||||
| Net decrease in cash and cash equivalents | (681 | ) | (701 | ) | ||||
| Cash and cash equivalents, beginning of period | 3,458 | 1,444 | ||||||
| Cash and cash equivalents, end of period | $ | 2,777 | $ | 743 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest, net of amounts capitalized | $ | 485 | $ | - | ||||
| Supplemental disclosure of non-cash investing activities | ||||||||
Due to operators for accrued capital expenditures for oil and gas properties | $ | 467 | $ | 254 | ||||
| Three months ended March 31, 2021 | ||||||||||||||||
| # of Shares | Manager | Shareholders | Total | |||||||||||||
| Balances, December 31, 2020 | 207.7026 | $ | 1,099 | $ | 6,435 | $ | 7,534 | |||||||||
| Distributions | - | (23 | ) | (130 | ) | (153 | ) | |||||||||
| Net income (loss) | - | 81 | (104 | ) | (23 | ) | ||||||||||
| Balances, March 31, 2021 | 207.7026 | $ | 1,157 | $ | 6,201 | $ | 7,358 | |||||||||
| Three months ended March 31, 2020 | ||||||||||||||||
| # of Shares | Manager | Shareholders | Total | |||||||||||||
| Balances, December 31, 2019 | 207.7026 | $ | 1,017 | $ | 7,809 | $ | 8,826 | |||||||||
| Distributions | - | (43 | ) | (243 | ) | (286 | ) | |||||||||
| Net income (loss) | - | 63 | (141 | ) | (78 | ) | ||||||||||
| Balances, March 31, 2020 | 207.7026 | $ | 1,037 | $ | 7,425 | $ | 8,462 | |||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 3 |
RIDGEWOOD ENERGY A-1 FUND, LLC
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (23 | ) | $ | (78 | ) | ||
| Adjustments to reconcile net loss to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depletion and amortization | 567 | 493 | ||||||
| Accretion expense | 6 | 7 | ||||||
| Amortization of debt discounts | 1 | 1 | ||||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in production receivable | (104 | ) | 189 | |||||
| Decrease in due from affiliate | 56 | 3 | ||||||
| (Increase) decrease in other current assets | (28 | ) | 18 | |||||
| Increase (decrease) in due to operators | 3 | (90 | ) | |||||
| Decrease in accrued expenses | (6 | ) | (4 | ) | ||||
| Decrease in other current liabilities | - | (164 | ) | |||||
| Settlement of asset retirement obligations | (209 | ) | - | |||||
| Net cash provided by operating activities | 263 | 375 | ||||||
| Cash flows from investing activities | ||||||||
| Credits (capital expenditures) for oil and gas properties | 13 | (10 | ) | |||||
| Proceeds from salvage fund | 263 | - | ||||||
| Increase in salvage fund | (55 | ) | (40 | ) | ||||
| Net cash provided by (used in) investing activities | 221 | (50 | ) | |||||
| Cash flows from financing activities | ||||||||
| Repayments of long-term borrowings | (167 | ) | (172 | ) | ||||
| Distributions | (153 | ) | (286 | ) | ||||
| Net cash used in financing activities | (320 | ) | (458 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | 164 | (133 | ) | |||||
| Cash and cash equivalents, beginning of period | 1,150 | 1,566 | ||||||
| Cash and cash equivalents, end of period | $ | 1,314 | $ | 1,433 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | 30 | $ | 41 | ||||
| Supplemental disclosure of non-cash investing activities | ||||||||
| Due to operators for accrued capital expenditures for oil and gas properties | $ | - | $ | 7 | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
RIDGEWOOD ENERGY A-1 FUND, LLC
| 1. | Organization and Summary of Significant Accounting Policies |
Organization
The Ridgewood Energy A-1 Fund, LLC (the “Fund”), a Delaware limited liability company, was formed on February 3, 2009 and operates pursuant to a limited liability company agreement (the “LLC Agreement”) dated as of March 2, 2009 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 for Fundthe Fund’s operations. Such services include, without limitation, the administration of shareholder accounts, shareholder relations, the preparation, review and dissemination of tax and other financial information and the management of the Fund’s investments in projects. In addition, the Manager provides office space, equipment and facilities and other services necessary for Fundthe Fund’s operations. The Manager also engages and manages contractual relations with unaffiliated custodians, depositories, accountants, attorneys, corporate fiduciaries, insurers, banks and others as required. See Notes 2, 3 and 4.
Basis 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, 20162020 financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K (“20162020 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, 2016,2020, 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 20162020 Annual Report. There have been no significant changes to the Fund’s significant accounting policies during the three and nine months ended September 30, 2017.
Fair Value Measurements
The Fund depositsfollows the accounting guidance for fair value measurement for measuring fair value of assets and liabilities in a separate interest-bearing account, orits financial statements. The Fund’s financial assets and liabilities consist of cash and cash equivalents, salvage fund, production receivable, due from affiliate, other current assets, due to operators, accrued expenses and long-term debt. Except for long-term debt, the carrying amounts of these financial assets and liabilities approximate fair value due to their short-term nature.
| 5 |
The Fund’s long-term debt is valued using an income approach and classified as Level 3 in the fair value hierarchy. The fair value of long-term debt is estimated by discounting future cash payments of principal and interest to providea present value amount using a market yield for debt instruments with similar terms, maturities and credit ratings. The Fund also applies the fundingprovisions of the fair value measurement accounting guidance to its non-financial assets and liabilities, such as oil and gas properties and asset retirement obligations. As of September 30, 2017 and December 31, 2016, the Fund had investments in federal agency mortgage-backed securities as detailed in the following table, which are classified as available for sale. Available-for-sale securities are carried in the financial statements at fair value. Mortgage-backed securities within the salvage fund are recorded basedobligations, on Level 2 inputs, as such instruments trade in over-the-counter markets.
| Gross | ||||||||||||
| Amortized | Unrealized | Fair | ||||||||||
| Cost | Gains | Value | ||||||||||
| (in thousands) | ||||||||||||
| Government National Mortgage Association security (GNMA July 2041) | ||||||||||||
| September 30, 2017 | $ | 46 | $ | 2 | $ | 48 | ||||||
| December 31, 2016 | $ | 64 | $ | 3 | $ | 67 | ||||||
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. The following table presents changes in asset retirement obligations duringfor the ninefollowing periods:
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| (in thousands) | ||||||||
| Balance, beginning of period | $ | 1,565 | $ | 1,500 | ||||
| Liabilities settled | (209 | ) | - | |||||
| Accretion expense | 6 | 7 | ||||||
| Revision of estimates | (49 | ) | - | |||||
| Balance, end of period | $ | 1,313 | $ | 1,507 | ||||
During the three months ended September 30, 2017 and 2016.
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Balance, beginning of period | $ | 1,675 | $ | 2,119 | ||||
| Liabilities incurred | 2 | - | ||||||
| Liabilities settled | (82 | ) | - | |||||
| Accretion expense | 22 | - | ||||||
| Revision of estimates | (122 | ) | - | |||||
| Balance, end of period | $ | 1,495 | $ | 2,119 | ||||
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 maintainsinvoices 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.
Other revenue is generated from the Fund’s production handling, gathering and operating services agreement with affiliated entities and other third parties. The Fund earns a salvage fundfee for its services and recognizes these fees as revenue at the time its performance obligations are satisfied as the control of oil and natural gas is never transferred to providethe Fund, thus there are no unsatisfied performance obligations. The Fund’s project operator performs joint interest billing once the performance obligations have been satisfied, at which point the payment is unconditional. Accordingly, the Fund’s production handling, gathering and operating services agreement with affiliated entities and other third parties does not give rise to contract assets or liabilities. The receivables related to the Fund’s proportionate share of revenue from affiliates are included within “Due from affiliate” on the Fund’s balance sheets. The receivables related to the Fund’s proportionate share of revenue from third parties are presented as a reduction from “Due to operator” on the Fund’s balance sheets. The receivables are settled by issuance of a non-cash credit from the Beta Project operator to the Fund when the operator performs the joint interest billing of the lease operating expenses due from the Fund.
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 the fundingthree months ended March 31, 2021 and 2020, revenue recognized from performance obligations satisfied in previous periods was not significant.
| 6 |
Allowance for Credit Losses
The Fund is exposed to credit losses through the sale of asset retirement obligations.
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 its oil and gas properties may not be recoverable. Impairments are determinedRecoverability is evaluated 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 impaired, and written down to fair value. 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 of oil and natural gas reserves and future development costs or discount rates could result in a different calculatedsignificant impact on the amount of impairment. Given the volatility
There were no impairments of oil and natural gas prices, it is reasonably possible thatproperties during the Fund’s estimate of future net discounted cash flows from proved oilthree months ended March 31, 2021 and natural gas reserves could change in the near term.
Recent Accounting Pronouncements
The Fund has substantially completedconsidered recent accounting pronouncements issued and the evaluation of the accounting guidance and currently expects the adoption of the accounting guidanceFund has not identified new standards that it believes will not have a materialan impact on the Fund’s financial statements. Under the new accounting guidance, the revenue associated with the Fund’s existing contracts will be recognized in the period that control of the related commodity is transferred to the customer, which is generally consistent with its current revenue recognition model. The Fund will adopt the new accounting guidance using the modified retrospective method at the date of adoption, which is January 1, 2018. Although the Fund has not identified changes to its revenue recognition that would result in a material cumulative effect adjustment to retained earnings on January 1, 2018, the Fund expects the adoption of the accounting guidance will result in enhanced disclosures 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,Fund and fully depleted project investments, however, the Manager is also permitted to waive all or a portion of the management fee at its own discretion. SuchTherefore, all or a portion of the management fee may be temporarily waived to accommodate the Fund’s short-term capital commitments. Management fees during each of the three and nine months ended September 30, 2017March 31, 2021 and 20162020 were $0.1 million and $0.3 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 distributionsDistributions paid to the Manager during the three and nine months ended September 30, 2017March 31, 2021 and 2016.
The Fund entered into a master agreement withutilizes Beta 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 Beta Project.
The Fund has provided discussionand other third-party working interest owners in the Beta Project are parties to a production handling, gathering and operating services agreement (“PHA”) with Ridgewood Claiborne, LLC, a wholly-owned entity of this agreementRidgewood Energy Oil & Gas Fund II, L.P. (“Institutional Fund II”), and other third-party working interest owners in Note 2the Claiborne Project. On September 23, 2020, a third-party working interest owner of “Notesthe Claiborne Project executed a consent letter to Financial Statements” – “Related Parties” containedassign the rights to the services under the PHA to Ridgewood Rattlesnake, LLC, a wholly-owned entity of Ridgewood Energy Oil & Gas Fund III, L.P. (“Institutional Fund III”). Institutional Fund II and Institutional Fund III are entities that are managed by the Fund’s Manager. During the three months ended March 31, 2021, the Fund earned $36 thousand, representing its proportionate share of the production handling fees earned from Institutional Fund II and Institutional Fund III, which is included within “Other revenue” on the Fund’s statement of operations. During the three months ended March 31, 2020, the Fund earned $11 thousand, representing its proportionate share of the production handling fees earned from Institutional Fund II, which is included within “Other revenue” on the Fund’s statement of operations. As of March 31, 2021 and December 31, 2020, the Fund’s receivables of $36 thousand and $18 thousand, respectively, related to the Fund’s proportionate share of revenue from Institutional Fund II and Institutional Fund III are included within “Due from affiliate” on the Fund’s balance sheets. The receivables are settled by issuance of a non-cash credit from the Beta Project operator to the Fund on behalf of the Claiborne Project working interest owners when the operator performs the joint interest billing of the lease operating expenses due from the Fund. The revenue received from the PHA is utilized by the Fund to repay a portion of the long-term debt outstanding under its Credit Agreement (defined below) until the loan is repaid in Item 8. “Financial Statements and Supplementary Data” within its 2016 Annual Report.full, in no event later than December 31, 2022.
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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. | Credit Agreement – Beta Project Financing |
As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the Fund had outstanding borrowings of $7.3$1.3 million and $1.4 million, respectively, under its credit agreement dated November 27, 2012, as amended on September 30, 2016, September 15, 2017, June 1, 2018 and August 10, 2018 (the “Credit Agreement”). As of March 31, 2021, the estimated fair value of the debt was $1.3 million.
Borrowings under the credit agreement. The loan bearsCredit Agreement bear interest at 8%8.75% compounded annually.monthly. Principal and interest payments are repaid atbased on the lesserfixed percentage of the Monthly Fixed Amount or the Debt Service Cap amount,Fund’s Net Revenue, as defined in the credit agreement, untilCredit Agreement. Beginning on April 1, 2019 and each April 1st thereafter, the Fund’s fixed percentage is the greater of (i) 30% or (ii) the Fixed Reassessment Percentage, as defined in the Credit Agreement. The Fixed Reassessment Percentage is determined annually beginning April 1, 2019 and each April 1st thereafter, and is based on the Fund’s ratio of its outstanding debt as of the reassessment date relative to 80% of third-party reserve engineer’s proved plus probable future undiscounted cash flows attributable to the Beta Project through the maturity of the loan is repaid in full, in no event later thanof December 31, 2020.2022. As of April 1, 2021, the Fund’s fixed percentage was determined to be 51%. The loan may be prepaid by the Fund without premium or penalty. As of December 31, 2016, in accordance with the terms of the credit agreement, there are no additional borrowings availablePursuant to the Fund. On September 15, 2017,Credit Agreement, the Fund and other participating funds managed by the Manager, entered into the second amendment to the credit agreement (“Second Amendment”). The Second Amendment principally amended the definition of net revenues, which is the basis for the calculation of the Debt Service Cap amount.
As of March 31, 2021 and December 31, 2020, the unamortized debt discounts related to the loan is repaid in full. of $6 thousand and $7 thousand, respectively, were presented as a reduction of long-term borrowings on the Fund’s balance sheets. Amortization expense during each of the three months ended March 31, 2021 and 2020 of $1 thousand was included on the Fund’s statements of operations within “Interest expense, net”. As of March 31, 2021 and December 31, 2020, there were no accrued interest costs outstanding. Interest costs incurred during the three months ended March 31, 2021 and 2020 of $30 thousand and $41 thousand, respectively, were included on the Fund’s statements of operations within “Interest expense, net”.
The credit agreementCredit Agreement contains customary covenants, with which the Fund was in compliance as of September 30, 2017March 31, 2021 and December 31, 2016.
| 4. | Commitments and Contingencies |
Capital Commitments
As of September 30, 2017,March 31, 2021, the Fund’s estimated capital commitments related to its oil and gas properties were $3.7$2.6 million (which include asset retirement obligations for the Fund’s projects of $2.3$1.7 million), of which $2.1$0.4 million is expected to be spent during the next twelve months primarily related to the additional development costsrecompletion work for the Beta Project. As a resultProject and the settlement of continued developmentasset retirement obligations for certain of the Beta Project, the Fund has experienced negative cash flows for the nine months ended September 30, 2017.Fund’s projects. Future results of operations and cash flows are dependent on the continued successful developmentrevenues from production and the related productionsale of oil and gas revenues from the Beta Project.
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, borrowing repayments and 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. However, if cash flow from operations is not sufficient to meet the Fund’s commitments, the Manager willmay temporarily waive all or a portion of the management fee as well as provide short-term financing to accommodate the Fund’s short-term commitments if needed.
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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 scope of the pandemic, related advisories and restrictions that have been and continue to be taken to combat virus transmission and the impact of the pandemic on oil and natural gas commodity prices, financial markets and the overall global 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 continued 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 during 2020 negatively impacted cash flow generated by the Fund’s Beta Project. If the overall global economy, including financial markets therein, is further adversely 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 future 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 September 30, 2017March 31, 2021 and December 31, 2016,2020, 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 March 31, 2021, 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.
On October 16, 2020, BOEM and the Bureau of Safety and Environmental Enforcement published a proposed new rule at 85 FR 65904 on Risk, Management, Financial Assurance and Loss Prevention, addressing the streamlining of evaluation criteria when determining whether oil, gas and sulfur leases, right-of-use and easement grant holders, and pipeline right-of-way grant holders may be required to provide bonds or other security above the prescribed amounts for base bonds to ensure compliance with the Outer Continental Shelf obligations, primarily decommissioning obligations. The proposed rule was significantly less stringent with respect to financial assurance than NTL 2016-N01. To date, however, Interior has not issued a final rule. The Fund is not able to evaluate the impact of the proposed new rule on its operations or financial condition until the final rule is issued.
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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.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q (“Quarterly Report”) and the documents Ridgewood Energy A-1 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 that1995. Such forward-looking statements 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 the impact on the Fund’s business and operations of the ongoing Coronavirus (“COVID-19”) pandemic and any other future widespread health emergencies or public health crises such as pandemics and epidemics, 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% of the total capital contributions made by the Fund’s shareholders, net of cumulative dry-hole and related well costs incurred by the Fund.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 categorized the outbreak of 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” and caused oil prices to collapse. On April 12, 2020, OPEC and Russia agreed to reduce production by approximately 9.7 million barrels per day in May and June 2020. Despite this agreement, oil prices decreased to their lowest level in April 2020 as compared to the past several years as a result of the initial oil price war and significant decreases in oil demand caused by world-wide government-ordered lock-downs. 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 and maintain a production cut of 7.7 million barrels per day from August 2020 through the end of 2020. On December 3, 2020, OPEC and Russia agreed to reduce the production cut to 7.2 million barrels per day beginning in January 2021 and will then meet monthly to assess market conditions and decide on further production adjustments for the following month, with further monthly adjustments being no more than 0.5 million barrels per day. In accordance with this approach, OPEC and Russia have agreed to gradually reduce the production cut down to 5.759 million barrels per day by July 2021 while Saudi Arabia has maintained its additional voluntary production cut of 1.0 million barrels per day from February 2021 through April 2021.
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Although the ultimate 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 during 2020 negatively impacted cash flow generated by the Beta Project. However, because the Fund owns the Beta Project with little debt and the project is a long-lived asset that is 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 continue to be impacted by the COVID-19 pandemic, 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. Despite operating in a sustained lower commodity price environment, theThe Fund continuedwill continue to advance theclosely manage and coordinate its capital spending estimates within its expected cash flows to provide for future development costs of the Beta Project, which commenced production during the second half of 2016. The Fund has suspended distributions and continues to conserve cash to provide for the continued development of the Beta Project.
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:
| · | 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); |
| · | 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; |
| · | 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; |
| · | 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; |
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| · | 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. |
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 | Total | |||||||||||||
| Working | through | Fund | ||||||||||||
| Project | Interest | September 30, 2017 | Budget | Status | ||||||||||
| (in thousands) | ||||||||||||||
| Producing Properties | ||||||||||||||
| Beta Project | 2.0% | $ | 16,689 | $ | 19,069 | The Beta Project is expected to include the development of five wells. Wells #1 and #2 commenced production during third quarter 2016 and fourth quarter 2016, respectively. Wells #3 and #4 commenced production during second quarter 2017 and third quarter 2017, respectively. Well #5 began drilling in third quarter 2017 and is expected to commence production in first quarter 2018. The Fund expects to spend $1.5 million for additional development costs and $0.9 million for asset retirement obligations. | ||||||||
| Liberty Project | 2.0% | $ | 3,004 | $ | 3,445 | The Liberty Project, a single-well project, commenced production in 2010. After various shut-ins in late-2015 and early-2016, due to third-party facilities' repair and maintenance activities, the well resumed production in early-May 2016. The well was shut-in again in late-June 2017 due to gas dehydration unit work, resuming production in late-September 2017. The operator is currently flowing the well's current zone together with the behind-pipe zone at no cost to the Fund. The Fund expects to spend $0.4 million for asset retirement obligations. | ||||||||
| Total Spent | Total | ||||||||||||
| Working | through | Fund | |||||||||||
| Project | Interest | March 31, 2021 | Budget | Status | |||||||||
| (in thousands) | |||||||||||||
| Producing Properties | |||||||||||||
| Beta Project | 1.64% | $ | 15,513 | $ | 17,103 | The Beta Project includes the development of seven wells. Wells #1 and #2 commenced production in 2016. Wells #3 and #4 commenced production in 2017. Wells #5 and #6 commenced production in 2018. Well #7 commenced production in 2019. During May 2020, production from the Beta Project was curtailed due to the low-price environment. Production from the wells returned in June 2020 at production levels prior to curtailment. During second half of 2020, the project experienced several periods of storm-related safety shut-ins as a result of active storm systems passing through the Gulf of Mexico. The Fund expects to spend $0.8 million for additional development costs and $0.8 million for asset retirement obligations. | |||||||
| Fully Depleted Properties | |||||||||||||
| Liberty Project | 2.0% | $ | 3,213 | $ | 3,279 | The Liberty Project, a single-well project, commenced production in 2010. The well reached the end of its productive life in first quarter 2020. During first quarter 2021, the Fund spent $0.2 million related to the settlement of the project's asset retirement obligations. The Fund expects to spend an additional $0.1 million for asset retirement obligations. | |||||||
Results of Operations
The following table summarizes the Fund’s results of operations during the three and nine months ended September 30, 2017March 31, 2021 and 2016,2020, 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.
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| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenue | ||||||||||||||||
| Oil and gas revenue | $ | 777 | $ | 220 | $ | 2,692 | $ | 376 | ||||||||
| Expenses | ||||||||||||||||
| Depletion and amortization | 395 | 167 | 2,563 | 198 | ||||||||||||
| Management fees to affiliate | 93 | 64 | 280 | 254 | ||||||||||||
| Operating expenses | 164 | 91 | 515 | 134 | ||||||||||||
| General and administrative expenses | 38 | 41 | 126 | 114 | ||||||||||||
| Total expenses | 690 | 363 | 3,484 | 700 | ||||||||||||
| Income (loss) from operations | 87 | (143 | ) | (792 | ) | (324 | ) | |||||||||
| Interest expense, net | (187 | ) | (103 | ) | (557 | ) | (100 | ) | ||||||||
| Net loss | (100 | ) | (246 | ) | (1,349 | ) | (424 | ) | ||||||||
| Other comprehensive (loss) income | ||||||||||||||||
| Unrealized (loss) gain on marketable securities | - | - | (1 | ) | 1 | |||||||||||
| Total comprehensive loss | $ | (100 | ) | $ | (246 | ) | $ | (1,350 | ) | $ | (423 | ) | ||||
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| (in thousands) | ||||||||
| Revenue | ||||||||
| Oil and gas revenue | $ | 675 | $ | 745 | ||||
| Other revenue | 107 | 42 | ||||||
| Total revenue | 782 | 787 | ||||||
| Expenses | ||||||||
| Depletion and amortization | 567 | 493 | ||||||
| Operating expenses | 97 | 195 | ||||||
| Management fees to affiliate | 75 | 93 | ||||||
| General and administrative expenses | 35 | 47 | ||||||
| Total expenses | 774 | 828 | ||||||
| Income (loss) from operations | 8 | (41 | ) | |||||
| Interest expense, net | (31 | ) | (37 | ) | ||||
| Net loss | (23 | ) | (78 | ) | ||||
Overview.
The following table provides information related to the Fund’s oil and natural gas production and oil and gas revenue during the three| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Number of wells producing | 5 | 2 | 5 | 2 | ||||||||||||
| Total number of production days | 280 | 117 | 859 | 190 | ||||||||||||
| Oil sales (in thousands of barrels) | 17 | 5 | 56 | 7 | ||||||||||||
| Average oil price per barrel | $ | 43 | $ | 40 | $ | 44 | $ | 39 | ||||||||
| Gas sales (in thousands of mcfs) | 21 | 8 | 73 | 14 | ||||||||||||
| Average gas price per mcf | $ | 3.61 | $ | 2.36 | $ | 3.35 | $ | 1.97 | ||||||||
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Number of wells producing | 7 | 8 | ||||||
| Total number of production days | 622 | 628 | ||||||
| Oil sales (in thousands of barrels) | 11 | 15 | ||||||
| Average oil price per barrel | $ | 57 | $ | 45 | ||||
| Gas sales (in thousands of mcfs) | 15 | 26 | ||||||
| Average gas price per mcf | $ | 4.04 | $ | 1.82 | ||||
The increasesdecrease in the abovenumber of wells producing noted in the table were primarilyabove related to the commencement of production of four wells in the Beta Project, two wells during the second half of 2016 and two wells during 2017, partially offset by the Liberty Project, which was shut-inreached the end of its productive life during first quarter 2020. The decreases in oil and gas sales volumes noted in the majoritytable above were primarily attributable to natural decline in production from the Beta Project during first quarter 2021 coupled with the Liberty Project, which reached the end of thirdits productive life during first quarter 2017.2020. See additional discussion in “Business Update” section above.
Oil and Gas Revenue.
See “Overview” above for factors that impact the oil and gas revenue volume and rate variances.
Other Revenue. Other revenue is generated from the Fund’s production handling, gathering and operating services agreement with affiliated entities and other third parties.
Depletion and Amortization
See “Overview”“Overview” above for certain factors that impact the depletion and amortization volume and rate variances. Depletion and amortization ratesReserves estimates may also be impacted by changessignificant declines in reserve estimates provided annually by the Fund’s independent petroleum engineers.
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Operating Expenses.
Operating expenses represent costs specifically identifiable or allocable to the Fund’s wells, as detailed in the following table.| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Lease operating expense | $ | 98 | $ | 31 | $ | 333 | $ | 56 | ||||||||
| Insurance expense | 42 | 50 | 103 | 65 | ||||||||||||
| Transportation and processing expense | 12 | - | 28 | - | ||||||||||||
| Accretion expense | 7 | - | 22 | - | ||||||||||||
| Workover expense and other | 5 | 10 | 29 | 13 | ||||||||||||
| $ | 164 | $ | 91 | $ | 515 | $ | 134 | |||||||||
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| (in thousands) | ||||||||
| Lease operating expense | $ | 33 | $ | 83 | ||||
| Transportation and processing expense | 33 | 41 | ||||||
| Insurance expense | 19 | 18 | ||||||
| Workover expense | 6 | 46 | ||||||
| Accretion expense | 6 | 7 | ||||||
| $ | 97 | $ | 195 | |||||
Lease operating expense and transportation and processing expense relatesrelate to the Fund’s producing properties.projects. Insurance expense represents premiums related to the Fund’s properties,projects, which vary depending upon the number of wells producing or drilling. Workover expense represents costs to restore or stimulate production of existing reserves. Accretion expense relates to the asset retirement obligations established for the Fund’s provedoil and gas properties. Workover expense represents
Production costs, to restore or stimulate production of existing reserves.
Production costs were relatively consistent during the three months ended March 31, 2021 compared to the three months ended March 30, 2020. The decrease in production costs per BOE during the three and nine months ended September 30, 2017, respectively,March 31, 2021 compared to $12.69 per BOE and $12.75 per BOE during the three and nine months ended September 30, 2016, respectively. The decreases wereMarch 31, 2020 was primarily attributable to decreased oil and natural gas production as a result of natural decline in production from the Fund’s Beta Project which commenced production in thirdduring first quarter 2016, and has lower cost per BOE as compared2021. In addition, the decrease was also attributable to the Liberty Project, duewhich reached the end of its productive life during first quarter 2020.
See “Overview” above for factors that impact oil and natural gas production.
Management Fees to Affiliate. An annual management fee, totaling 2.5% 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 processingManager. All or a portion of production through its standalone facility. The production costs per BOEsuch fee may decline over time as throughput increases frombe temporarily waived by the project or other projects expectedManager to tie-in toaccommodate the facility.
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.Interest Expense, Net
. Interest expense, net is comprised of interest expense and amortization of debt discountsCapital Resources and Liquidity
Operating Cash Flows
Cash flows provided by operating activities during the ninethree months ended September 30, 2017March 31, 2021 were $1.4$0.3 million, primarily related to revenue received of $2.8$0.7 million, partially offset by operating expensesthe settlement of $0.9asset retirement obligations of $0.2 million, management fees of $0.3 million, general and administrativeoperating expenses of $0.1 million and the settlement of an asset retirement obligationmanagement fees of $0.1 million.
Cash flows used inprovided by operating activities during the ninethree months ended September 30, 2016March 31, 2020 were $0.3$0.4 million, primarily related to revenue received of $0.8 million, partially offset by payment of $0.2 million related to the Fund’s proportionate share of a settlement for litigation between the Beta Project’s operator and a third-party, operating expenses of $0.1 million, management fees of $0.3 million, operating expenses of $0.2$0.1 million and general and administrative expenses of $0.1 million.
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Investing Cash Flows
Cash flows provided by investing activities during the three months ended March 31, 2021 were $0.2 million, primarily related to proceeds from the salvage fund of $0.3 million, partially offset by revenue receivedinvestments in salvage fund of $0.2$0.1 million.
Cash flows used in investing activities during the ninethree months ended September 30, 2017March 31, 2020 were $2.1$0.1 million, primarily related to capital expenditures for oil and gas properties.
Financing Cash Flows
Cash flows used in investing activities during the nine months ended September 30, 2016 were $1.5 million, primarily related to capital expenditures for oil and gas properties.
Cash flows provided byused in financing activities during the ninethree months ended September 30, 2016March 31, 2020 were $1.1$0.5 million, related to proceeds frommanager and shareholder distributions of $0.3 million and the repayments of long-term borrowings.
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 and in certain circumstances, through debt financing. 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, capital expenditures for its oil and gas properties and borrowing repayments. Such needs are funded utilizing operating income and existing cash on-hand.
As of September 30, 2017,March 31, 2021, the Fund’s estimated capital commitments related to its oil and gas properties were $3.7$2.6 million (which include asset retirement obligations for the Fund’s projects of $2.3$1.7 million), of which $2.1$0.4 million is expected to be spent during the next twelve months primarily related to the additional development costsrecompletion work for the Beta Project. As a resultProject and the settlement of continued developmentasset retirement obligations for certain of the Beta Project, the Fund has experienced negative cash flows for the nine months ended September 30, 2017.Fund’s projects. Future results of operations and cash flows are dependent on the continued successful developmentrevenues from production and the related productionsale of oil and gas revenues from the Beta Project.
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, borrowing repayments 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. However, if cash flow from operations is not sufficient to meet the Fund’s commitments, the Manager willmay temporarily waive all or a portion of the management fee as well as provide short-term financing to accommodate the Fund’s short-term commitments if needed.
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 significant capital required to develop the Beta Project,However, distributions have been impacted, and may be impacted in the future, by amounts reserved to provide for its ongoing development costs, debt service costs,the borrowing repayments for the Credit Agreement (defined below) and funding itsof estimated asset retirement obligations.
Credit Agreement
As of March 31, 2021 and December 31, 2020, the Fund entered into ahad outstanding borrowings of $1.3 million and $1.4 million, respectively, under its credit agreement (asdated November 27, 2012, as amended on September 30, 2016, and September 15, 2017, theJune 1, 2018 and August 10, 2018 (the “Credit Agreement”) to provide capital toward the funding of the Fund’s share of development costs on the Beta Project. As of September 30, 2017 and December 31, 2016, the Fund had borrowed $7.3 million.
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Borrowings under the Credit Agreement. As of December 31, 2016, in accordance with the terms of the Credit Agreement there are no additional borrowings available to the Fund.
The Credit Agreement contains customary negative covenants including covenants that limit the Fund’s ability to, among other things, grant liens, change the nature of its business, or merge into or consolidate with other persons. The events which constitute events of default are also customary for credit facilities of this nature and include payment defaults, breaches of representations, warrantswarranties and covenants, insolvency and change of control. Upon the occurrence of a default, in some cases following a notice and cure period, the lenders under the Credit Agreement may accelerate the maturity of the loan and require full and immediate repayment of all borrowings under the Credit Agreement. The Fund believes it is in compliance with all covenants under the Credit Agreement as of September 30, 2017March 31, 2021 and December 31, 2016.
Off-Balance Sheet Arrangements
The Fund had no off-balance sheet arrangements as of September 30, 2017March 31, 2021 and December 31, 20162020 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 September 30, 2017March 31, 2021 and December 31, 2016,2020, other than those discussed in “Estimated Capital Expenditures” and “Liquidity Needs – Credit Agreement”Agreement” 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.
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 September 30, 2017.
There has been no change in the Fund’s internal control over financial reporting that occurred during the three months ended September 30, 2017March 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting. The Fund has not experienced any material impact to internal control over financial reporting due to the COVID-19 pandemic.
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PART II – OTHER INFORMATION
None.
Not required.
None.
None.
None.
None.
EXHIBIT NUMBER | TITLE OF EXHIBIT | METHOD OF FILING | ||
| 31.1 | Certification of Robert E. Swanson, Chief Executive Officer of | Filed herewith | ||
| 31.2 | Certification of Kathleen P. McSherry, Executive Vice President | Filed herewith | ||
| 32 | Certifications pursuant to 18 U.S.C. Section 1350, as adopted | 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 |
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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 A-1 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) |
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