Document_and_Entity_Informatio
Document and Entity Information | 6 Months Ended | |
Jun. 30, 2014 | Jul. 24, 2014 | |
Document And Entity Information Abstract | ' | ' |
Document Type | '10-Q | ' |
Amendment Flag | 'false | ' |
Document Period End Date | 30-Jun-14 | ' |
Entity Registrant Name | 'RIDGEWOOD ENERGY A-1 FUND LLC | ' |
Entity Central Index Key | '0001457919 | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Document Fiscal Year Focus | '2014 | ' |
Document Fiscal Period Focus | 'Q2 | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 207.7026 |
UNAUDITED_CONDENSED_BALANCE_SH
UNAUDITED CONDENSED BALANCE SHEETS (USD $) | Jun. 30, 2014 | Dec. 31, 2013 |
In Thousands, unless otherwise specified | ||
Current assets: | ' | ' |
Cash and cash equivalents | $5,561 | $4,690 |
Production receivable | 361 | 962 |
Asset held for sale | ' | 1,266 |
Other current assets | 24 | 72 |
Total current assets | 5,946 | 6,990 |
Salvage fund | 1,771 | 1,763 |
Other assets | 427 | 488 |
Oil and gas properties: | ' | ' |
Advances to operators for working interests and expenditures | ' | 68 |
Proved properties | 16,500 | 15,735 |
Equipment and facilities - in progress | 3,511 | 1,842 |
Less: accumulated depletion, depreciation and amortization | -12,190 | -11,547 |
Total oil and gas properties, net | 7,821 | 6,098 |
Total assets | 15,965 | 15,339 |
Current liabilities: | ' | ' |
Due to operators | 1,323 | 1,241 |
Accrued expenses | 31 | 39 |
Liability held for sale | ' | 684 |
Total current liabilities | 1,354 | 1,964 |
Asset retirement obligations | 946 | 946 |
Total liabilities | 2,300 | 2,910 |
Commitments and contingencies (Note 5) | ' | ' |
Members' capital: | ' | ' |
Distributions | -4,890 | -4,480 |
Retained earnings | 5,085 | 4,844 |
Manager's total | 195 | 364 |
Capital contributions (250 shares authorized; 207.7026 issued and outstanding) | 41,143 | 41,143 |
Syndication costs | -4,804 | -4,804 |
Distributions | -34,476 | -25,389 |
Retained earnings | 11,606 | 1,118 |
Shareholders' total | 13,469 | 12,068 |
Accumulated other comprehensive income (loss) | 1 | -3 |
Total members' capital | 13,665 | 12,429 |
Total liabilities and members' capital | $15,965 | $15,339 |
UNAUDITED_CONDENSED_BALANCE_SH1
UNAUDITED CONDENSED BALANCE SHEETS (Parenthetical) | Jun. 30, 2014 | Dec. 31, 2013 |
UNAUDITED CONDENSED BALANCE SHEETS [Abstract] | ' | ' |
Shares authorized | 250 | 250 |
Shares issued | 207.7026 | 207.7026 |
Shares outstanding | 207.7026 | 207.7026 |
UNAUDITED_CONDENSED_STATEMENTS
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (USD $) | 3 Months Ended | 6 Months Ended | ||
In Thousands, except Per Share data, unless otherwise specified | Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 |
Revenue | ' | ' | ' | ' |
Oil and gas revenue | $1,092 | $2,905 | $1,800 | $7,091 |
Expenses | ' | ' | ' | ' |
Depletion, depreciation and amortization | 356 | 766 | 643 | 1,768 |
Management fees to affiliate (Note 3) | 160 | 233 | 317 | 465 |
Operating expenses | 174 | 448 | 265 | 1,126 |
Workover expense | -10 | 34 | 147 | 61 |
General and administrative expenses | 52 | 73 | 115 | 139 |
Total expenses | 732 | 1,554 | 1,487 | 3,559 |
Gain on sale of oil and gas properties | 69 | ' | 10,408 | ' |
Income from operations | 429 | 1,351 | 10,721 | 3,532 |
Interest income | 4 | 4 | 8 | 9 |
Net income | 433 | 1,355 | 10,729 | 3,541 |
Other comprehensive (loss) income | ' | ' | ' | ' |
Unrealized (loss) gain on marketable securities | ' | -11 | 4 | -17 |
Total comprehensive income | 433 | 1,344 | 10,733 | 3,524 |
Manager Interest | ' | ' | ' | ' |
Net income | 105 | 310 | 241 | 779 |
Shareholder Interest | ' | ' | ' | ' |
Net income | $328 | $1,045 | $10,488 | $2,762 |
Net income per share | $1,582 | $5,030 | $50,496 | $13,300 |
UNAUDITED_CONDENSED_STATEMENTS1
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS (USD $) | 6 Months Ended | |
In Thousands, unless otherwise specified | Jun. 30, 2014 | Jun. 30, 2013 |
Cash flows from operating activities | ' | ' |
Net income | $10,729 | $3,541 |
Adjustments to reconcile net income to net cash provided by operating activities: | ' | ' |
Depletion, depreciation and amortization | 643 | 1,768 |
Gain on sale of oil and gas properties | -10,408 | ' |
Changes in assets and liabilities: | ' | ' |
Decrease in production receivable | 601 | 942 |
Decrease in other current assets | 48 | 48 |
(Decrease) increase in due to operators | -340 | 131 |
Decrease in accrued expenses | -8 | -7 |
Net cash provided by operating activities | 1,265 | 6,423 |
Cash flows from investing activities | ' | ' |
Proceeds from sale of oil and gas properties | 10,990 | ' |
Capital expenditures for oil and gas properties | -1,883 | -405 |
Investments in salvage fund | -4 | -8 |
Net cash provided by (used in) investing activities | 9,103 | -413 |
Cash flows from financing activities | ' | ' |
Distributions | -9,497 | -5,215 |
Net cash used in financing activities | -9,497 | -5,215 |
Net increase in cash and cash equivalents | 871 | 795 |
Cash and cash equivalents, beginning of period | 4,690 | 5,045 |
Cash and cash equivalents, end of period | 5,561 | 5,840 |
Supplemental schedule of non-cash investing activities | ' | ' |
Advances used for capital expenditures in oil and gas properties reclassified to proved properties | $68 | ' |
Organization_and_Summary_of_Si
Organization and Summary of Significant Accounting Policies | 6 Months Ended | ||||||||||||
Jun. 30, 2014 | |||||||||||||
Organization and Summary of Significant Accounting Policies [Abstract] | ' | ||||||||||||
Organization and Summary of Significant Accounting Policies | ' | ||||||||||||
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. With respect to project investments, the Manager locates potential projects, conducts due diligence, and negotiates and completes the transactions in which the investments are made. The Manager performs, or arranges for the performance of, the management, advisory and administrative services required for Fund operations. Such services include, without limitation, the administration of shareholder accounts, shareholder relations and the preparation, review and dissemination of tax and other financial information. In addition, the Manager provides office space, equipment and facilities and other services necessary for Fund operations. The Manager also engages and manages the contractual relations with unaffiliated custodians, depositories, accountants, attorneys, broker-dealers, corporate fiduciaries, insurers, banks and others as required. See Notes 3, 4 and 5. | |||||||||||||
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 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 results of operations, financial position, 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, 2013 financial statements and notes thereto included in the Fund's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC"). The year-end condensed balance sheet data was derived from audited financial statements, but does not include all 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 Manager reviews its estimates, including those related to the fair value of financial instruments, property balances, determination of proved reserves, impairments and asset retirement obligations. Actual results may differ from those estimates. | |||||||||||||
Fair Value Measurements | |||||||||||||
The fair value measurement guidance provides a hierarchy that prioritizes and defines the types of inputs used to measure fair value. The fair value hierarchy gives the highest priority to Level 1 inputs, which consists of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3 valuations are derived from inputs that are significant and unobservable; hence, these valuations have the lowest priority. Cash and cash equivalents approximate fair value based on Level 1 inputs. Mortgage-backed securities are recorded based on Level 2 inputs, as such instruments trade in over-the-counter markets. | |||||||||||||
Cash and Cash Equivalents | |||||||||||||
All highly liquid investments with maturities, when purchased, of three months or less, are considered cash and cash equivalents. At times, deposits may be in excess of federally insured limits, which are $250 thousand per insured financial institution. At June 30, 2014, the Fund's bank balances were maintained in uninsured bank accounts at Wells Fargo Bank, N.A. | |||||||||||||
Salvage Fund | |||||||||||||
The Fund deposits in a separate interest-bearing account, or salvage fund, money to provide for the dismantling and removal of production platforms and facilities and plugging and abandoning its wells at the end of their useful lives, in accordance with applicable federal and state laws and regulations. At June 30, 2014 and December 31, 2013, 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. | |||||||||||||
Gross | |||||||||||||
Amortized | Unrealized | Fair | |||||||||||
Cost | Gains (Losses) | Value | |||||||||||
(in thousands) | |||||||||||||
Government National Mortgage Association securities (GNMA July 2041) | |||||||||||||
June 30, 2014 | $ | 84 | $ | 4 | $ | 88 | |||||||
December 31, 2013 | $ | 90 | $ | 1 | $ | 91 | |||||||
Federal National Mortgage Association security (FNMA January 2042) | |||||||||||||
June 30, 2014 | $ | 178 | $ | (3 | ) | $ | 175 | ||||||
December 31, 2013 | $ | 198 | $ | (4 | ) | $ | 194 | ||||||
The unrealized gains and losses on the Fund's investments in federal agency mortgage-backed securities were the result of fluctuations in market interest rates. The contractual cash flows of those investments are guaranteed by an agency of the U.S. government. It is expected that the securities would not be settled at a price less than the amortized cost basis of the Fund's investments. Unrealized gains or losses on available-for-sale securities are reported in other comprehensive income until realized. | |||||||||||||
For all investments, interest income is accrued as earned and amortization of premium or discount, if any, is included in interest income. Interest earned on the account will become part of the salvage fund. There are no restrictions on withdrawals from the salvage fund. | |||||||||||||
Debt Discounts and Deferred Financing Costs | |||||||||||||
Debt discounts and deferred financing costs include lender fees and other costs of the Credit Agreement (see Note 4. "Credit Agreement - Beta Project Financing") such as the conveyance of override royalty interests related to the Beta Project. These costs are deferred and amortized over the term of the debt period or until the redemption of the debt and are included on the balance sheet within "Other assets". At June 30, 2014 and December 31, 2013, $0.4 million and $0.5 million, respectively, of debt discounts and deferred financing costs were unamortized. Amortization expense was $31 thousand for each of the three months ended June 30, 2014 and 2013. Amortization expense was $61 thousand for each of the six months ended June 30, 2014 and 2013. During the period of asset construction, amortization expense, as a component of interest, is capitalized and included on the balance sheet within "Oil and gas properties". | |||||||||||||
Oil and Gas Properties | |||||||||||||
The Fund invests in oil and gas properties, which are operated by unaffiliated entities that are responsible for drilling, administering and producing activities pursuant to the terms of the applicable operating agreements with working interest owners. The Fund's portion of exploration, drilling, operating and capital equipment expenditures is billed by operators. | |||||||||||||
Exploration, development and acquisition costs are accounted for using the successful efforts method. Costs of acquiring unproved and proved oil and natural gas leasehold acreage, including lease bonuses, brokers' fees and other related costs are capitalized. Costs of drilling and equipping productive wells and related production facilities are capitalized. Costs of developing production facilities and pipelines that service multiple oil and gas properties are segregated as "Equipment and facilities - in progress." Exploratory costs are capitalized pending determination of whether proved reserves have been found. If proved commercial reserves are not found, exploratory drilling costs are expensed as dry-hole costs. Interest costs related to the Credit Agreement (see Note 4. "Credit Agreement - Beta Project Financing") are capitalized during the period of asset construction. Annual lease rentals and exploration expenses are expensed as incurred. All costs related to production activity and workover efforts are expensed as incurred. | |||||||||||||
Upon the sale, retirement or abandonment of a property, the cost and related accumulated depletion, depreciation and amortization, if any, is eliminated from the property accounts, and the resultant gain or loss is recognized. | |||||||||||||
At June 30, 2014 and December 31, 2013, amounts recorded in due to operators totaling $1.2 million and $0.7 million, respectively, related to capital expenditures for oil and gas properties. | |||||||||||||
Advances to Operators for Working Interests and Expenditures | |||||||||||||
The Fund's acquisition of a working interest in a well or a project requires it to make a payment to the seller for the Fund's rights, title and interest. The Fund may be required to advance its share of estimated cash expenditures for the succeeding month's operation. The Fund accounts for such payments as advances to operators for working interests and expenditures. As drilling costs are incurred, the advances are reclassified to unproved or proved properties. | |||||||||||||
Asset Retirement Obligations | |||||||||||||
For oil and gas properties, there are obligations to perform removal and remediation activities when the properties are retired. When a project reaches drilling depth and is determined to be either proved or dry, an asset retirement obligation is incurred. Plug and abandonment costs associated with unsuccessful projects are expensed as dry-hole costs. As indicated above, the Fund maintains a salvage fund to provide for the funding of future asset retirement obligations. | |||||||||||||
Syndication Costs | |||||||||||||
Syndication costs are direct costs incurred by the Fund in connection with the offering of the Fund's shares, including professional fees, selling expenses and administrative costs payable to the Manager, an affiliate of the Manager and unaffiliated broker-dealers, which are reflected on the Fund's balance sheet as a reduction of shareholders' capital. | |||||||||||||
Revenue Recognition and Imbalances | |||||||||||||
Oil and gas revenues are recognized when oil and gas is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectability of the revenue is probable. The Fund uses the sales method of accounting for gas production imbalances. The volumes of gas sold may differ from the volumes to which the Fund is entitled based on its interests in the properties. These differences create imbalances that are recognized as a liability only when the properties' estimated remaining reserves net to the Fund will not be sufficient to enable the underproduced owner to recoup its entitled share through production. The Fund's recorded liability, if any, would be reflected in other liabilities. No receivables are recorded for those wells where the Fund has taken less than its share of production. | |||||||||||||
Derivative Instruments | |||||||||||||
The Fund may periodically utilize derivative instruments to manage the price risk attributable to its oil and gas production. Derivative instruments are carried on the balance sheet at fair value and recorded as either an asset or liability. Changes in the fair value of the derivatives are recorded currently in earnings unless specific hedge accounting criteria are met. At this time, the Fund has elected not to use hedge accounting for its derivatives and, accordingly, the derivatives are marked-to-market each quarter with fair value gains and losses recognized currently as other income on the statement of operations. The estimated fair value of such contracts is based upon various factors, including reported prices on the New York Mercantile Exchange ("NYMEX") and the Intercontinental Exchange ("ICE"), volatility, and the time value of options. The Fund recognizes all unrealized and realized gains and losses related to these contracts on a mark-to-market basis on the statement of operations within other income or loss. The related cash flow impact of the derivative activities are reflected as cash flows from operating activities on the statement of cash flows. The Fund actively monitors the creditworthiness of each counterparty and assesses the impact, if any, on its derivative positions. | |||||||||||||
Impairment of Long-Lived Assets | |||||||||||||
The Fund reviews the value of its oil and gas properties whenever management determines that events and circumstances indicate that the recorded carrying value of properties may not be recoverable. Impairments of proved properties are determined by comparing future net undiscounted cash flows to the net book value at the time of the review. If the net book value exceeds the future net undiscounted cash flows, the carrying value of the property is written down to fair value, which is determined using net discounted future cash flows from the property. The Fund provides for impairments on unproved properties when it determines that the property will not be developed or a permanent impairment in value has occurred. 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 the volatility of oil and natural gas prices, it is reasonably possible that the Fund's estimate of discounted future net cash flows from proved oil and natural gas reserves could change in the near term. If oil and natural gas prices decline significantly, even if only for a short period of time, it is possible that write-downs of oil and gas properties could occur. | |||||||||||||
Depletion, Depreciation and Amortization | |||||||||||||
Depletion, depreciation and amortization of the cost of proved oil and gas properties are calculated using the units-of-production method. Proved developed reserves are used as the base for depleting capitalized costs associated with successful exploratory well costs, development costs and related facilities. The sum of proved developed and proved undeveloped reserves is used as the base for depleting or amortizing leasehold acquisition costs. In certain circumstances, equipment and facilities costs are depreciated over the estimated useful life of the asset. | |||||||||||||
Income Taxes | |||||||||||||
No provision is made for income taxes in the financial statements. The Fund is a limited liability company, and as such, the Fund's income or loss is passed through and included in the tax returns of the Fund's shareholders. | |||||||||||||
Income and Expense Allocation | |||||||||||||
Profits and losses are allocated to shareholders and the Manager in accordance with the LLC agreement. | |||||||||||||
Distributions | |||||||||||||
Distributions to shareholders are allocated in proportion to the number of shares held. The Manager determines whether available cash from operations, as defined in the LLC Agreement, will be distributed. Such distributions are allocated 85% to the shareholders and 15% to the Manager, as required by the LLC Agreement. | |||||||||||||
Available cash from dispositions, as defined in the LLC Agreement, will be paid 99% to shareholders and 1% to the Manager until the shareholders have received total distributions equal to their capital contributions. After shareholders have received distributions equal to their capital contributions, 85% of available cash from dispositions will be distributed to shareholders and 15% to the Manager. During the six months ended June 30, 2014, the Fund made distributions of available cash from dispositions related to the sale of the Raven Project totaling $7.2 million. There were no such dispositions during the three months ended June 30, 2014 and during the three and six months ended June 30, 2013. | |||||||||||||
Recent Accounting Pronouncements | |||||||||||||
The Fund has considered recent accounting pronouncements and believes that these recent pronouncements will not have a material effect on the Fund's financial statements. |
Oil_and_Gas_Properties
Oil and Gas Properties | 6 Months Ended |
Jun. 30, 2014 | |
Oil and Gas Properties [Abstract] | ' |
Oil and Gas Properties | ' |
2. Oil and Gas Properties | |
On January 17, 2014, the Fund, along with its affiliates, Ridgewood Energy Gulf of Mexico Oil and Gas Fund, L.P., Ridgewood Energy P Fund, LLC, Ridgewood Energy W Fund, LLC, and Ridgewood Energy Y Fund, LLC, (when used with the Fund the "Ridgewood Funds") entered into a purchase and sale agreement to sell the Ridgewood Funds' interests in the Raven Project, located in the state waters of Louisiana, to Castex Energy Partners, L.P. ("Castex") for cash consideration totaling $21.7 million. The closing of the sale transaction occurred on January 30, 2014. | |
The Fund had a 25% working interest in the Raven Project and received $11.0 million in cash proceeds from the sale. The net carrying value for the Raven Project on the date of the sale was $0.6 million, thereby resulting in a gain to the Fund of $10.4 million, which was recognized during the six months ended June 30, 2014. Such included a gain of $69 thousand, which resulted from post-closing adjustments to the Raven Project sale price. There was no such amount recorded during the three and six months ended June 30, 2013. | |
At December 31, 2013, the Fund's balance sheet reflects the Raven Project's cost and accumulated depletion classified as "Asset held for sale", which totaled $1.3 million, and the Raven Project's asset retirement obligation classified as "Liability held for sale", which totaled $0.7 million. Such asset was monetized and obligation was relieved upon the closing of the Raven Project's sale. | |
Capitalized exploratory well costs are expensed as dry-hole costs in the event that reserves are not found or are not in sufficient quantities to complete the well and develop the field. At times, the Fund receives adjustments to certain wells from their respective operators upon review and audit of the wells' costs. | |
During the three and six months ended June 30, 2014, the Fund recorded credits to workover expense of $10 thousand and workover expense of $0.1 million, respectively, principally related to the Carrera Project. During the three and six months ended June 30, 2013, workover expense of $34 thousand and $0.1 million, respectively, related to the Alpha, Carrera and Liberty projects. | |
Related_Parties
Related Parties | 6 Months Ended |
Jun. 30, 2014 | |
Related Parties [Abstract] | ' |
Related Parties | ' |
3. Related Parties | |
The LLC Agreement provides that the Manager render management, administrative and advisory services to the Fund. For such services, the Manager is paid 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. Management fees for the three and six months ended June 30, 2014 were $0.2 million and $0.3 million, respectively. Management fees for the three and six months ended June 30, 2013 were $0.2 million and $0.5 million, respectively. | |
The Manager is entitled to receive a 15% interest in cash distributions from operations made by the Fund. Distributions paid to the Manager for the three and six months ended June 30, 2014 were $0.1 million and $0.4 million, respectively. Distributions paid to the Manager for the three and six months ended June 30, 2013 were $0.4 million and $0.8 million, respectively. In addition, the Manager is entitled to receive a 1% interest in cash distributions from dispositions. Distributions from the sale of the Raven project paid to the Manager during the six months ended June 30, 2014 were $0.1 million. There were no such distributions during the three months ended June 30, 2014 and during the three and six months ended June 30, 2013. | |
At times, short-term payables and receivables, which do not bear interest, arise from transactions with affiliates in the ordinary course of business. | |
None of the amounts paid to the Manager have been derived as a result of arm's length negotiations. | |
The Fund has working interest ownership in certain projects to acquire and develop oil and natural gas projects with other entities that are likewise managed by the Manager. |
Credit_Agreement_Beta_Project_
Credit Agreement - Beta Project Financing | 6 Months Ended |
Jun. 30, 2014 | |
Credit Agreement - Beta Project Financing [Abstract] | ' |
Credit Agreement - Beta Project Financing | ' |
4. Credit Agreement - Beta Project Financing | |
In November 2012, the Fund entered into a credit agreement (the "Credit Agreement") with Rahr Energy Investments LLC, as Administrative Agent and Lender (and any other banks or financial institutions that may in the future become a party thereto, collectively "Lenders") that provides for an aggregate loan commitment to the Fund of approximately $8.3 million ("Loan"), to provide capital toward the funding of the Fund's share of development costs on the Beta Project. | |
As of June 30, 2014 and December 31, 2013, the Fund had no borrowings under the Credit Agreement. The Fund anticipates it will borrow approximately $8.3 million over the development period of the Beta Project, which will bear interest at 8% compounded annually and accrue only on Loan proceeds as they are drawn. Principal and interest will not be payable until such time that initial production has commenced for the Beta Project, which is currently expected to occur in 2016. At that time, if certain revenue production levels are met, principal and interest will be repaid at a monthly rate of 1.25% of the Fund's total principal outstanding at the date the Beta Project commences production for the first seven months of production, and a monthly rate of 4.5% of the Fund's total principal outstanding at the date the Beta Project commences production thereafter until the Loan is repaid in full, in no event later than December 31, 2020. The Loan may be prepaid by the Fund without premium or penalty. | |
As additional consideration to the Lenders, the Fund has agreed to convey an overriding royalty interest ("ORRI") in its working interests in the Beta Project to the Lenders. The Fund recorded the additional consideration as debt discounts and deferred financing costs at a fair value of $0.6 million, which is amortized to interest expense over the expected payoff period of the Loan. The fair value of the ORRI was determined using net discounted cash flows from the Beta Project related to the ORRI based on Level 3 inputs, which include projected net income from reserves and forward pricing curves. At June 30, 2014 and December 31, 2013, the outstanding debt discounts and deferred financing costs were $0.4 million and $0.5 million, respectively. | |
The Credit Agreement contains customary covenants, for which the Fund believes it is in compliance at June 30, 2014 and December 31, 2013. | |
Commitments_and_Contingencies
Commitments and Contingencies | 6 Months Ended |
Jun. 30, 2014 | |
Commitments and Contingencies [Abstract] | ' |
Commitments and Contingencies | ' |
5. Commitments and Contingencies | |
Capital Commitments | |
The Fund has entered into multiple agreements for the acquisition, drilling and development of its investment properties. The estimated capital expenditures associated with these agreements vary depending on the stage of development on a property-by-property basis. Currently, the Fund has one non-producing property, the Beta Project, for which additional development costs must be incurred in order to commence production. The Fund currently anticipates such development will include a four-well development with related platform and pipeline infrastructure. It is also possible that full development of the Beta Project will entail the drilling of an additional well beyond the four projected wells, the cost of which is not included in the below estimates. | |
As of June 30, 2014, the Fund's estimated capital commitments related to its investments in oil and gas properties were $11.6 million, of which $4.5 million is expected to be spent during the next twelve months. These expected capital commitments exceed available working capital by $7.0 million at June 30, 2014, which includes projected interest costs and asset retirement obligations for the Beta Project. In November 2012, the Fund entered into a credit agreement that provides for an aggregate loan commitment of up to $8.3 million to provide capital toward the funding of the Fund's share of development costs on the Beta Project. Principal and interest amounts are contracted to be repaid upon the onset of production of the Beta Project, which is expected in 2016, over a period not to extend beyond December 31, 2020. See Note 4. "Credit Agreement - Beta Project Financing," for additional information. The Fund expects that cash flows from operations will be sufficient to fund its remaining commitments. | |
Environmental Considerations | |
The exploration for and development of oil and natural gas involves the extraction, production and transportation of materials which, under certain conditions, can be hazardous or cause environmental pollution problems. 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 and do not currently anticipate that compliance with federal, state and local environmental regulations will have a material adverse effect upon capital expenditures, results of operations or the competitive position of the Fund in the oil and gas industry. 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. At June 30, 2014 and December 31, 2013, there were no known environmental contingencies that required the Fund to record a liability. | |
During the past several years, the United States Congress, as well as certain regulatory agencies with jurisdiction over the Fund's business, have considered or proposed legislation or regulation relating to the upstream oil and gas industry both onshore and offshore including a proposal to raise or eliminate the cap on liability for oil spill cleanups under the Oil Pollution Act of 1990. If any such proposals were to be enacted or adopted they could potentially materially impact the Fund's operations. 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. 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. | |
Insurance Coverage | |
The Fund is subject to all risks inherent in the exploration for and development of oil and natural gas. 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 funds managed by the Manager. Claims made by other funds managed by the Manager can reduce or eliminate insurance for the Fund. | |
Organization_and_Summary_of_Si1
Organization and Summary of Significant Accounting Policies (Policy) | 6 Months Ended | ||||||||||||
Jun. 30, 2014 | |||||||||||||
Organization and Summary of Significant Accounting Policies [Abstract] | ' | ||||||||||||
Basis of Presentation | ' | ||||||||||||
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 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 results of operations, financial position, 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, 2013 financial statements and notes thereto included in the Fund's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC"). The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. | |||||||||||||
Use of Estimates | ' | ||||||||||||
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 Manager reviews its estimates, including those related to the fair value of financial instruments, property balances, determination of proved reserves, impairments and asset retirement obligations. Actual results may differ from those estimates. | |||||||||||||
Fair Value Measurements | ' | ||||||||||||
Fair Value Measurements | |||||||||||||
The fair value measurement guidance provides a hierarchy that prioritizes and defines the types of inputs used to measure fair value. The fair value hierarchy gives the highest priority to Level 1 inputs, which consists of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3 valuations are derived from inputs that are significant and unobservable; hence, these valuations have the lowest priority. Cash and cash equivalents approximate fair value based on Level 1 inputs. Mortgage-backed securities are recorded based on Level 2 inputs, as such instruments trade in over-the-counter markets. | |||||||||||||
Cash and Cash Equivalents | ' | ||||||||||||
Cash and Cash Equivalents | |||||||||||||
All highly liquid investments with maturities, when purchased, of three months or less, are considered cash and cash equivalents. At times, deposits may be in excess of federally insured limits, which are $250 thousand per insured financial institution. At June 30, 2014, the Fund's bank balances were maintained in uninsured bank accounts at Wells Fargo Bank, N.A. | |||||||||||||
Salvage Fund | ' | ||||||||||||
Salvage Fund | |||||||||||||
The Fund deposits in a separate interest-bearing account, or salvage fund, money to provide for the dismantling and removal of production platforms and facilities and plugging and abandoning its wells at the end of their useful lives, in accordance with applicable federal and state laws and regulations. At June 30, 2014 and December 31, 2013, 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. | |||||||||||||
Gross | |||||||||||||
Amortized | Unrealized | Fair | |||||||||||
Cost | Gains (Losses) | Value | |||||||||||
(in thousands) | |||||||||||||
Government National Mortgage Association securities (GNMA July 2041) | |||||||||||||
June 30, 2014 | $ | 84 | $ | 4 | $ | 88 | |||||||
December 31, 2013 | $ | 90 | $ | 1 | $ | 91 | |||||||
Federal National Mortgage Association security (FNMA January 2042) | |||||||||||||
June 30, 2014 | $ | 178 | $ | (3 | ) | $ | 175 | ||||||
December 31, 2013 | $ | 198 | $ | (4 | ) | $ | 194 | ||||||
The unrealized gains and losses on the Fund's investments in federal agency mortgage-backed securities were the result of fluctuations in market interest rates. The contractual cash flows of those investments are guaranteed by an agency of the U.S. government. It is expected that the securities would not be settled at a price less than the amortized cost basis of the Fund's investments. Unrealized gains or losses on available-for-sale securities are reported in other comprehensive income until realized. | |||||||||||||
For all investments, interest income is accrued as earned and amortization of premium or discount, if any, is included in interest income. Interest earned on the account will become part of the salvage fund. There are no restrictions on withdrawals from the salvage fund. | |||||||||||||
Debt Discounts and Deferred Financing Costs | ' | ||||||||||||
Debt Discounts and Deferred Financing Costs | |||||||||||||
Debt discounts and deferred financing costs include lender fees and other costs of the Credit Agreement (see Note 4. "Credit Agreement - Beta Project Financing") such as the conveyance of override royalty interests related to the Beta Project. These costs are deferred and amortized over the term of the debt period or until the redemption of the debt and are included on the balance sheet within "Other assets". At June 30, 2014 and December 31, 2013, $0.4 million and $0.5 million, respectively, of debt discounts and deferred financing costs were unamortized. Amortization expense was $31 thousand for each of the three months ended June 30, 2014 and 2013. Amortization expense was $61 thousand for each of the six months ended June 30, 2014 and 2013. During the period of asset construction, amortization expense, as a component of interest, is capitalized and included on the balance sheet within "Oil and gas properties". | |||||||||||||
Oil and Gas Properties | ' | ||||||||||||
Oil and Gas Properties | |||||||||||||
The Fund invests in oil and gas properties, which are operated by unaffiliated entities that are responsible for drilling, administering and producing activities pursuant to the terms of the applicable operating agreements with working interest owners. The Fund's portion of exploration, drilling, operating and capital equipment expenditures is billed by operators. | |||||||||||||
Exploration, development and acquisition costs are accounted for using the successful efforts method. Costs of acquiring unproved and proved oil and natural gas leasehold acreage, including lease bonuses, brokers' fees and other related costs are capitalized. Costs of drilling and equipping productive wells and related production facilities are capitalized. Costs of developing production facilities and pipelines that service multiple oil and gas properties are segregated as "Equipment and facilities - in progress." Exploratory costs are capitalized pending determination of whether proved reserves have been found. If proved commercial reserves are not found, exploratory drilling costs are expensed as dry-hole costs. Interest costs related to the Credit Agreement (see Note 4. "Credit Agreement - Beta Project Financing") are capitalized during the period of asset construction. Annual lease rentals and exploration expenses are expensed as incurred. All costs related to production activity and workover efforts are expensed as incurred. | |||||||||||||
Upon the sale, retirement or abandonment of a property, the cost and related accumulated depletion, depreciation and amortization, if any, is eliminated from the property accounts, and the resultant gain or loss is recognized. | |||||||||||||
At June 30, 2014 and December 31, 2013, amounts recorded in due to operators totaling $1.2 million and $0.7 million, respectively, related to capital expenditures for oil and gas properties. | |||||||||||||
Advances to Operators for Working Interests and Expenditures | ' | ||||||||||||
Advances to Operators for Working Interests and Expenditures | |||||||||||||
The Fund's acquisition of a working interest in a well or a project requires it to make a payment to the seller for the Fund's rights, title and interest. The Fund may be required to advance its share of estimated cash expenditures for the succeeding month's operation. The Fund accounts for such payments as advances to operators for working interests and expenditures. As drilling costs are incurred, the advances are reclassified to unproved or proved properties. | |||||||||||||
Asset Retirement Obligations | ' | ||||||||||||
Asset Retirement Obligations | |||||||||||||
For oil and gas properties, there are obligations to perform removal and remediation activities when the properties are retired. When a project reaches drilling depth and is determined to be either proved or dry, an asset retirement obligation is incurred. Plug and abandonment costs associated with unsuccessful projects are expensed as dry-hole costs. As indicated above, the Fund maintains a salvage fund to provide for the funding of future asset retirement obligations. | |||||||||||||
Syndication Costs | ' | ||||||||||||
Syndication Costs | |||||||||||||
Syndication costs are direct costs incurred by the Fund in connection with the offering of the Fund's shares, including professional fees, selling expenses and administrative costs payable to the Manager, an affiliate of the Manager and unaffiliated broker-dealers, which are reflected on the Fund's balance sheet as a reduction of shareholders' capital. | |||||||||||||
Revenue Recognition and Imbalances | ' | ||||||||||||
Revenue Recognition and Imbalances | |||||||||||||
Oil and gas revenues are recognized when oil and gas is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectability of the revenue is probable. The Fund uses the sales method of accounting for gas production imbalances. The volumes of gas sold may differ from the volumes to which the Fund is entitled based on its interests in the properties. These differences create imbalances that are recognized as a liability only when the properties' estimated remaining reserves net to the Fund will not be sufficient to enable the underproduced owner to recoup its entitled share through production. The Fund's recorded liability, if any, would be reflected in other liabilities. No receivables are recorded for those wells where the Fund has taken less than its share of production. | |||||||||||||
Derivative Instruments | ' | ||||||||||||
Derivative Instruments | |||||||||||||
The Fund may periodically utilize derivative instruments to manage the price risk attributable to its oil and gas production. Derivative instruments are carried on the balance sheet at fair value and recorded as either an asset or liability. Changes in the fair value of the derivatives are recorded currently in earnings unless specific hedge accounting criteria are met. At this time, the Fund has elected not to use hedge accounting for its derivatives and, accordingly, the derivatives are marked-to-market each quarter with fair value gains and losses recognized currently as other income on the statement of operations. The estimated fair value of such contracts is based upon various factors, including reported prices on the New York Mercantile Exchange ("NYMEX") and the Intercontinental Exchange ("ICE"), volatility, and the time value of options. The Fund recognizes all unrealized and realized gains and losses related to these contracts on a mark-to-market basis on the statement of operations within other income or loss. The related cash flow impact of the derivative activities are reflected as cash flows from operating activities on the statement of cash flows. The Fund actively monitors the creditworthiness of each counterparty and assesses the impact, if any, on its derivative positions. | |||||||||||||
Impairment of Long-Lived Assets | ' | ||||||||||||
Impairment of Long-Lived Assets | |||||||||||||
The Fund reviews the value of its oil and gas properties whenever management determines that events and circumstances indicate that the recorded carrying value of properties may not be recoverable. Impairments of proved properties are determined by comparing future net undiscounted cash flows to the net book value at the time of the review. If the net book value exceeds the future net undiscounted cash flows, the carrying value of the property is written down to fair value, which is determined using net discounted future cash flows from the property. The Fund provides for impairments on unproved properties when it determines that the property will not be developed or a permanent impairment in value has occurred. 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 the volatility of oil and natural gas prices, it is reasonably possible that the Fund's estimate of discounted future net cash flows from proved oil and natural gas reserves could change in the near term. If oil and natural gas prices decline significantly, even if only for a short period of time, it is possible that write-downs of oil and gas properties could occur. | |||||||||||||
Depletion, Depreciation and Amortization | ' | ||||||||||||
Depletion, Depreciation and Amortization | |||||||||||||
Depletion, depreciation and amortization of the cost of proved oil and gas properties are calculated using the units-of-production method. Proved developed reserves are used as the base for depleting capitalized costs associated with successful exploratory well costs, development costs and related facilities. The sum of proved developed and proved undeveloped reserves is used as the base for depleting or amortizing leasehold acquisition costs. In certain circumstances, equipment and facilities costs are depreciated over the estimated useful life of the asset. | |||||||||||||
Income Taxes | ' | ||||||||||||
Income Taxes | |||||||||||||
No provision is made for income taxes in the financial statements. The Fund is a limited liability company, and as such, the Fund's income or loss is passed through and included in the tax returns of the Fund's shareholders. | |||||||||||||
Income and Expense Allocation | ' | ||||||||||||
Income and Expense Allocation | |||||||||||||
Profits and losses are allocated to shareholders and the Manager in accordance with the LLC agreement. | |||||||||||||
Distributions | ' | ||||||||||||
Distributions | |||||||||||||
Distributions to shareholders are allocated in proportion to the number of shares held. The Manager determines whether available cash from operations, as defined in the LLC Agreement, will be distributed. Such distributions are allocated 85% to the shareholders and 15% to the Manager, as required by the LLC Agreement. | |||||||||||||
Available cash from dispositions, as defined in the LLC Agreement, will be paid 99% to shareholders and 1% to the Manager until the shareholders have received total distributions equal to their capital contributions. After shareholders have received distributions equal to their capital contributions, 85% of available cash from dispositions will be distributed to shareholders and 15% to the Manager. During the six months ended June 30, 2014, the Fund made distributions of available cash from dispositions related to the sale of the Raven Project totaling $7.2 million. There were no such dispositions during the three months ended June 30, 2014 and during the three and six months ended June 30, 2013. | |||||||||||||
Recent Accounting Pronouncements | ' | ||||||||||||
Recent Accounting Pronouncements | |||||||||||||
The Fund has considered recent accounting pronouncements and believes that these recent pronouncements will not have a material effect on the Fund's financial statements. |
Organization_and_Summary_of_Si2
Organization and Summary of Significant Accounting Policies (Tables) | 6 Months Ended | ||||||||||||
Jun. 30, 2014 | |||||||||||||
Organization and Summary of Significant Accounting Policies [Abstract] | ' | ||||||||||||
Summary of Available-For-Sale Securities | ' | ||||||||||||
Gross | |||||||||||||
Amortized | Unrealized | Fair | |||||||||||
Cost | Gains (Losses) | Value | |||||||||||
(in thousands) | |||||||||||||
Government National Mortgage Association securities (GNMA July 2041) | |||||||||||||
June 30, 2014 | $ | 84 | $ | 4 | $ | 88 | |||||||
December 31, 2013 | $ | 90 | $ | 1 | $ | 91 | |||||||
Federal National Mortgage Association security (FNMA January 2042) | |||||||||||||
June 30, 2014 | $ | 178 | $ | (3 | ) | $ | 175 | ||||||
December 31, 2013 | $ | 198 | $ | (4 | ) | $ | 194 | ||||||
Organization_and_Summary_of_Si3
Organization and Summary of Significant Accounting Policies (Narrative) (Details) (USD $) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 | Dec. 31, 2013 | |
Organization and Summary of Significant Accounting Policies [Abstract] | ' | ' | ' | ' | ' |
Maximum cash balance federally insured per financial institution | $250,000 | ' | $250,000 | ' | ' |
Unamortized debt discounts and deferred financing costs | 400,000 | ' | 400,000 | ' | 500,000 |
Amortization of financing costs | 31,000 | 31,000 | 61,000 | 61,000 | ' |
Value of capital expenditures for oil and gas properties owed to operators | 1,200,000 | ' | 1,200,000 | ' | 700,000 |
Percentage of cash from operations allocated to shareholders | 85.00% | ' | 85.00% | ' | ' |
Percentage of cash from operations allocated to fund manager | 15.00% | ' | 15.00% | ' | ' |
Percentage of available cash from dispositions allocated to shareholders | 99.00% | ' | 99.00% | ' | ' |
Percentage of available cash from dispositions allocated to fund manager | 1.00% | ' | 1.00% | ' | ' |
Percentage of available cash from dispositions allocated to shareholders after distributions have equaled capital contributions | 85.00% | ' | 85.00% | ' | ' |
Percentage of available cash from dispositions allocated to fund manager after distributions have equaled capital contributions | 15.00% | ' | 15.00% | ' | ' |
Distributions related to Raven Project | ' | ' | $7,200,000 | ' | ' |
Organization_and_Summary_of_Si4
Organization and Summary of Significant Accounting Policies (Schedule of Available-For-Sale Securities) (Details) (USD $) | 6 Months Ended | 12 Months Ended |
In Thousands, unless otherwise specified | Jun. 30, 2014 | Dec. 31, 2013 |
GNMA July 2041 [Member] | ' | ' |
Schedule of Available-for-sale Securities [Line Items] | ' | ' |
Amortized Cost | $84 | $90 |
Gross Unrealized Gains (Losses) | 4 | 1 |
Fair Value | 88 | 91 |
FNMA January 2042 [Member] | ' | ' |
Schedule of Available-for-sale Securities [Line Items] | ' | ' |
Amortized Cost | 178 | 198 |
Gross Unrealized Gains (Losses) | -3 | -4 |
Fair Value | $175 | $194 |
Oil_and_Gas_Properties_Details
Oil and Gas Properties (Details) (USD $) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 | Dec. 31, 2013 | |
Oil and Gas Properties [Abstract] | ' | ' | ' | ' | ' |
Cash consideration | $21,700,000 | ' | $21,700,000 | ' | ' |
Working interest percentage | ' | ' | 25.00% | ' | ' |
Proceeds from sale of oil and gas properties | ' | ' | 10,990,000 | ' | ' |
Carrying value of oil and gas properties at date of sale | 600,000 | ' | 600,000 | ' | ' |
Gain on sale of oil and gas properties | 69,000 | ' | 10,408,000 | ' | ' |
Asset held for sale | ' | ' | ' | ' | 1,266,000 |
Liability held for sale | ' | ' | ' | ' | 684,000 |
Workover expense | ($10,000) | $34,000 | $147,000 | $61,000 | ' |
Related_Parties_Details
Related Parties (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 | |
Related Party Transaction [Line Items] | ' | ' | ' | ' |
Annual management fee percentage rate | 2.50% | ' | 2.50% | ' |
Annual management fees paid to Fund Manager | $160,000 | $233,000 | $317,000 | $465,000 |
Percentage of total distributions allocated to Fund Manager | 15.00% | ' | 15.00% | ' |
Fund Manager [Member] | ' | ' | ' | ' |
Related Party Transaction [Line Items] | ' | ' | ' | ' |
Distributions | -100,000 | -400,000 | -400,000 | -800,000 |
Fund Manager [Member] | Raven Project [Member] | ' | ' | ' | ' |
Related Party Transaction [Line Items] | ' | ' | ' | ' |
Percentage of total distributions allocated to Fund Manager | 1.00% | ' | 1.00% | ' |
Distributions | ' | ' | ($100,000) | ' |
Credit_Agreement_Beta_Project_1
Credit Agreement - Beta Project Financing (Details) (USD $) | 6 Months Ended | ||
In Millions, unless otherwise specified | Jun. 30, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Credit Agreement - Beta Project Financing [Abstract] | ' | ' | ' |
Credit agreement, maximum borrowing capacity | $8.30 | ' | ' |
Credit agreement, interest rate | 8.00% | ' | ' |
Credit agreement, contingency repayment rate, first seven months of production | 1.25% | ' | ' |
Credit agreement, contingency repayment rate, after first seven months of production | 4.50% | ' | ' |
Credit agreement, maturity date | 31-Dec-20 | ' | ' |
Deferred financing cost | $0.40 | $0.50 | $0.60 |
Commitments_and_Contingencies_
Commitments and Contingencies (Details) (USD $) | 6 Months Ended |
In Millions, unless otherwise specified | Jun. 30, 2014 |
Commitments and Contingencies [Abstract] | ' |
Commitments for the drilling and development of investment properties | $11.60 |
Commitments for the drilling and development of investment properties expected to be incurred in the next 12 months | 4.5 |
Commitments for the drilling and development of investment properties in excess of working capital | 7 |
Credit agreement, maximum borrowing capacity | $8.30 |