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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2020

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 Number: 333-225927

 

Riviera Resources, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

(State or other jurisdiction of incorporation or organization)

 

82-5121920

(I.R.S. Employer Identification No.)

 

 

 

600 Travis Street, Suite 1700

Houston, Texas

(Address of principal executive offices)

 

77002

(Zip Code)

(281) 840-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading symbols(s)

 

Name of exchange on which registered

None

 

None

 

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes      No  

As of April 30, 2020, there were 57,907,609 shares of common stock, par value $0.01 per share, outstanding.

 

 


 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

Glossary of Terms

 

1

 

 

 

 

 

 

 

Part I – Financial Information

 

 

Item 1.

 

Financial Statements

 

 

 

 

Condensed Consolidated Balance Sheets

 

2

 

 

Condensed Consolidated Statements of Operations

 

3

 

 

Condensed Consolidated Statements of Equity

 

4

 

 

Condensed Consolidated Statements of Cash Flows

 

5

 

 

Notes to Condensed Consolidated Financial Statements

 

6

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

39

Item 4.

 

Controls and Procedures

 

40

 

 

 

 

 

 

 

Part II – Other Information

 

 

Item 1.

 

Legal Proceedings

 

41

Item 1A.

 

Risk Factors

 

41

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

Item 3.

 

Defaults Upon Senior Securities

 

42

Item 4.

 

Mine Safety Disclosures

 

42

Item 5.

 

Other Information

 

42

Item 6.

 

Exhibits

 

43

 

 

 

 

 

 

 

Signatures

 

44

 

i


Table of Contents

GLOSSARY OF TERMS

As commonly used in the oil and natural gas industry and as used in this Quarterly Report on Form 10-Q, the following terms have the following meanings:

Bbl.  One stock tank barrel or 42 United States gallons liquid volume.

Btu.  One British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 degrees to 59.5 degrees Fahrenheit.

MBbls.  One thousand barrels of oil or other liquid hydrocarbons.

MBbls/d. MBbls per day.

Mcf.  One thousand cubic feet.

Mcfe.  One thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.

MMBbls.  One million barrels of oil or other liquid hydrocarbons.

MMBtu.  One million British thermal units.

MMcf.  One million cubic feet.

MMcf/d. MMcf per day.

MMcfe.  One million cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.

MMcfe/d. MMcfe per day.

MMMBtu.  One billion British thermal units.

NGL.  Natural gas liquids, which are the hydrocarbon liquids contained within natural gas.

 

1


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

RIVIERA RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

(in thousands, except share amounts)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

165,223

 

 

$

116,237

 

Accounts receivable – trade, net

 

 

28,474

 

 

 

51,355

 

Derivative instruments

 

 

12,075

 

 

 

7,283

 

Restricted cash

 

 

29,090

 

 

 

32,932

 

Other current assets

 

 

14,549

 

 

 

12,853

 

Assets held for sale

 

 

1,195

 

 

 

104,773

 

Total current assets

 

 

250,606

 

 

 

325,433

 

Noncurrent assets:

 

 

 

 

 

 

 

 

Oil and natural gas properties (successful efforts method)

 

 

178,738

 

 

 

180,307

 

Less accumulated depletion and amortization

 

 

(128,041

)

 

 

(35,603

)

 

 

 

50,697

 

 

 

144,704

 

 

 

 

 

 

 

 

 

 

Other property and equipment

 

 

399,905

 

 

 

388,851

 

Less accumulated depreciation

 

 

(70,272

)

 

 

(50,381

)

 

 

 

329,633

 

 

 

338,470

 

 

 

 

 

 

 

 

 

 

Other noncurrent assets

 

 

6,675

 

 

 

7,652

 

 

 

 

6,675

 

 

 

7,652

 

Total noncurrent assets

 

 

387,005

 

 

 

490,826

 

Total assets

 

$

637,611

 

 

$

816,259

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

55,743

 

 

$

80,579

 

Derivative instruments

 

 

14

 

 

 

1,087

 

Other accrued liabilities

 

 

14,758

 

 

 

26,728

 

Distributions payable

 

 

57,908

 

 

 

 

Liabilities held for sale

 

 

809

 

 

 

35,177

 

Total current liabilities

 

 

129,232

 

 

 

143,571

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

Credit facilities

 

 

72,800

 

 

 

69,800

 

Asset retirement obligations and other noncurrent liabilities

 

 

22,684

 

 

 

29,337

 

Total noncurrent liabilities

 

 

95,484

 

 

 

99,137

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Preferred Stock ($0.01 par value, 30,000,000 shares authorized; no shares

   issued at March 31, 2020, or December 31, 2019)

 

 

 

 

 

 

Common Stock ($0.01 par value, 270,000,000 shares authorized; 57,907,609

   shares and 58,168,756 shares issued at March 31, 2020, and

   December 31, 2019, respectively)

 

 

579

 

 

 

581

 

Additional paid-in capital

 

 

802,616

 

 

 

861,764

 

Retained (deficit) earnings

 

 

(390,300

)

 

 

(288,794

)

Total equity

 

 

412,895

 

 

 

573,551

 

Total liabilities and equity

 

$

637,611

 

 

$

816,259

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2


Table of Contents

RIVIERA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in thousands, except per share amounts)

 

Revenues and other:

 

 

 

 

 

 

 

 

Oil, natural gas and natural gas liquids sales

 

$

14,798

 

 

$

76,345

 

Gains (losses) on commodity derivatives

 

 

8,079

 

 

 

(13,241

)

Marketing revenues

 

 

33,922

 

 

 

67,347

 

Other revenues

 

 

31

 

 

 

6,003

 

 

 

 

56,830

 

 

 

136,454

 

Expenses:

 

 

 

 

 

 

 

 

Lease operating expenses

 

 

4,951

 

 

 

24,052

 

Transportation expenses

 

 

2,174

 

 

 

19,150

 

Marketing expenses

 

 

21,319

 

 

 

53,389

 

General and administrative expenses

 

 

9,904

 

 

 

19,039

 

Exploration costs

 

 

 

 

 

1,238

 

Depreciation, depletion and amortization

 

 

10,319

 

 

 

21,772

 

Impairment of assets held for sale and long-lived assets

 

 

106,784

 

 

 

 

Taxes, other than income taxes

 

 

1,215

 

 

 

6,300

 

(Gains) losses on sale of assets and other, net

 

 

460

 

 

 

(27,265

)

 

 

 

157,126

 

 

 

117,675

 

Other income and (expenses):

 

 

 

 

 

 

 

 

Interest expense, net of amounts capitalized

 

 

(929

)

 

 

(971

)

Other, net

 

 

(60

)

 

 

(589

)

 

 

 

(989

)

 

 

(1,560

)

Reorganization items, net

 

 

(221

)

 

 

 

(Loss) income before income taxes

 

 

(101,506

)

 

 

17,219

 

Income tax expense

 

 

 

 

 

4,493

 

Net (loss) income

 

$

(101,506

)

 

$

12,726

 

(Loss) income per share:

 

 

 

 

 

 

 

 

Basic

 

$

(1.75

)

 

$

0.18

 

Diluted

 

$

(1.75

)

 

$

0.18

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding ‒ basic

 

 

58,162

 

 

 

68,817

 

Weighted average shares outstanding ‒ diluted

 

 

58,162

 

 

 

69,000

 

Distributions declared per share

 

$

1.00

 

 

$

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


Table of Contents

RIVIERA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

 

 

Common Stock

 

 

Additional Paid in Capital

 

 

Accumulated Earnings (Deficit)

 

 

Total Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

58,169

 

 

$

581

 

 

$

861,764

 

 

$

(288,794

)

 

$

573,551

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(101,506

)

 

 

(101,506

)

Repurchases of common stock

 

 

(323

)

 

 

(3

)

 

 

(2,063

)

 

 

 

 

 

(2,066

)

Issuance of common stock

 

 

62

 

 

 

1

 

 

 

823

 

 

 

 

 

 

824

 

Accrued distributions to shareholders

 

 

 

 

 

 

 

 

 

(57,908

)

 

 

 

 

 

(57,908

)

March 31, 2020

 

 

57,908

 

 

$

579

 

 

$

802,616

 

 

$

(390,300

)

 

$

412,895

 

 

 

 

 

Common Stock

 

 

Additional Paid in Capital

 

 

Accumulated Earnings (Deficit)

 

 

Total Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

69,197

 

 

$

692

 

 

$

1,256,730

 

 

$

4,952

 

 

$

1,262,374

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

12,726

 

 

 

12,726

 

Repurchases of common stock

 

 

(2,488

)

 

 

(25

)

 

 

(34,412

)

 

 

 

 

 

(34,437

)

Issuances of common stock

 

 

82

 

 

 

1

 

 

 

1,485

 

 

 

 

 

 

1,486

 

March 31, 2019

 

 

66,791

 

 

$

668

 

 

$

1,223,803

 

 

$

17,678

 

 

$

1,242,149

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

4


Table of Contents

RIVIERA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(101,506

)

 

$

12,726

 

Adjustments to reconcile net (loss) income to net cash provided by (used

   in) operating activities:

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

10,319

 

 

 

21,772

 

Impairment of assets held for sale and long-lived assets

 

 

106,784

 

 

 

 

Deferred income taxes

 

 

 

 

 

4,493

 

Total (gains) losses on derivatives, net

 

 

(8,079

)

 

 

15,421

 

Cash settlements on derivatives

 

 

2,173

 

 

 

(5,085

)

Share-based compensation expenses

 

 

(3,575

)

 

 

4,236

 

(Gains) losses on sale of assets and other, net

 

 

181

 

 

 

(28,564

)

Other

 

 

980

 

 

 

1,583

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Decrease in accounts receivable – trade, net

 

 

19,835

 

 

 

26,536

 

(Increase) decrease in other assets

 

 

(1,358

)

 

 

9,257

 

Decrease in accounts payable and accrued expenses

 

 

(22,095

)

 

 

(15,840

)

Decrease in other liabilities

 

 

(7,715

)

 

 

(8,857

)

Net cash provided by (used in) operating activities

 

 

(4,056

)

 

 

37,678

 

Cash flow from investing activities:

 

 

 

 

 

 

 

 

Development of oil and natural gas properties

 

 

(1,337

)

 

 

(30,512

)

Purchases of other property and equipment

 

 

(16,322

)

 

 

(23,183

)

Proceeds from sale of properties and equipment and other

 

 

66,512

 

 

 

60,141

 

Net cash provided by investing activities

 

 

48,853

 

 

 

6,446

 

Cash flow from financing activities:

 

 

 

 

 

 

 

 

Repurchases of shares

 

 

(2,653

)

 

 

(34,130

)

Proceeds from borrowings

 

 

3,000

 

 

 

96,225

 

Repayments of debt

 

 

 

 

 

(24,300

)

Debt issuance costs paid

 

 

 

 

 

(2,715

)

Net cash provided by financing activities

 

 

347

 

 

 

35,080

 

Net increase in cash, cash equivalents and restricted cash

 

 

45,144

 

 

 

79,204

 

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Beginning

 

 

149,169

 

 

 

49,777

 

Ending

 

$

194,313

 

 

$

128,981

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


Table of Contents

 

RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation

Unless otherwise indicated or the context otherwise requires, references herein to the “Company” refer to Riviera Resources, Inc. (“Riviera”) and its consolidated subsidiaries.  Unless otherwise indicated or the context otherwise requires, references herein to “LINN Energy” refer to Linn Energy, Inc. and its consolidated subsidiaries.

In 2016, Linn Energy, LLC, certain of its direct and indirect subsidiaries, and LinnCo, LLC (collectively, the “LINN Debtors”) filed Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code.  The LINN Debtors emerged from bankruptcy in 2017.  See Note 10 for additional details.  In 2018, LINN Energy completed the spin-off of Riviera from LINN Energy.  To effect the separation, LINN Energy and certain of its then direct and indirect subsidiaries undertook an internal reorganization, including the conversion of Riviera Resources, LLC from a limited liability company to a corporation named Riviera Resources, Inc.

Nature of Business

Riviera is an independent oil and natural gas company with a strategic focus on efficiently operating its mature low-decline assets, developing its growth-oriented assets, and returning capital to shareholders.  Riviera is quoted for trading on the OTCQX Market under the ticker “RVRA.”

The Company has two reporting segments: upstream and Blue Mountain.  The Company’s upstream reporting segment properties are located in two operating regions in the United States (“U.S.”): the Mid-Continent and North Louisiana.  The Blue Mountain reporting segment consists of a cryogenic natural gas processing facility, a network of gathering pipelines and compressors and produced water services and a crude oil gathering system located in the Merge/SCOOP/STACK play, each of which is owned by Blue Mountain Midstream LLC (“Blue Mountain Midstream”), a wholly owned subsidiary of the Company.  During 2020, the Company divested all of its properties located in the Uinta Basin and East Texas operating regions.  During 2019, the Company divested all of its properties located in the Hugoton Basin and Michigan/Illinois operating regions.  See Note 3 for additional information.

Principles of Consolidation and Reporting

The information reported herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the results for the interim periods.  Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted under Securities and Exchange Commission rules and regulations; as such, this report should be read in conjunction with the financial statements and notes in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019.  The results reported in these unaudited condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year.

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries.  All significant intercompany transactions and balances have been eliminated.  The condensed consolidated financial statements for prior periods include certain reclassifications that were made to conform to current presentation.  Such reclassifications have no impact on previously reported net income (loss), stockholders’ equity, or cash flows.  Investments in noncontrolled entities over which the Company exercises significant influence are accounted for under the equity method.

Use of Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions about future events.  These estimates and the underlying assumptions affect the amount of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses.  The estimates that are particularly significant to the financial statements include estimates of the Company’s reserves of oil, natural gas and natural gas liquids (“NGL”), future cash flows from oil and natural gas properties, depreciation, depletion and amortization, asset retirement obligations, certain revenues and operating expenses, and fair values of commodity derivatives.

6


Table of Contents

RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

As fair value is a market-based measurement, it is determined based on the assumptions that market participants would use.  These estimates and assumptions are based on management’s best estimates and judgment.  Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances.  Such estimates and assumptions are adjusted when facts and circumstances dictate.  As future events and their effects cannot be determined with precision, actual results could differ from these estimates.  Any changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Fair Value of Financial Instruments

The carrying values of the Company’s receivables, payables and credit facilities are estimated to be substantially the same as their fair values at March 31, 2020, and December 31, 2019.  See Note 8 for details about the fair value of the Company’s derivative financial instruments.

Recently Adopted Accounting Standard

In June 2016, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) that is intended to change the impairment model for trade receivables, net investments in leases, debt securities, loans and certain other instruments.  The Company adopted this ASU effective January 1, 2020, using the modified retrospective effective date method.  The Company’s trade receivables due in one year or less represent substantially all the items that are within the scope of the new standard.  The adoption of this ASU did not have a material impact on the Company’s results of operations or financial position.

Trade accounts receivable are recorded at the invoiced amount and do not bear interest.  The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio.  In establishing the required allowance, management considers historical losses, current receivables aging, and existing industry and national economic data.  Account balances are charged off against the allowance after all means of collection have been exhausted and the potential recovery is remote.  The balance in the Company’s allowance for doubtful accounts related to trade accounts receivable was approximately $1 million at both March 31, 2020, and December 31, 2019.

Impairment of Assets Held for Sale and Long-Lived Assets

Proved Oil and Natural Gas Properties

The Company evaluates the impairment of its proved oil and natural gas properties on a field-by-field basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  The carrying values of proved properties are reduced to fair value when the expected undiscounted future cash flows of proved and risk-adjusted probable and possible reserves are less than net book value.  The fair values of proved properties are measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount.  Significant inputs used to determine the fair values of proved properties include estimates of: (i) reserves; (ii) future operating and development costs; (iii) future commodity prices; and (iv) a market-based weighted average cost of capital rate.  These inputs require assumptions by the Company’s management at the time of the valuation and are the most sensitive and subject to change.  The underlying commodity prices embedded in the Company’s estimated cash flows are the product of a process that begins with New York Mercantile Exchange (“NYMEX”) forward curve pricing, adjusted for estimated location and quality differentials, as well as other factors that Company management believes will impact realizable prices.

Based on the analysis described above, for the three months ended March 31, 2020, the Company recorded a noncash impairment charge of approximately $87 million associated with proved oil and natural gas properties.  Of this charge, approximately $85 million related to properties located in Oklahoma and approximately $2 million related to properties held for sale.  The impairment charge was primarily due to a decline in commodity prices.  The carrying values of the impaired proved properties were reduced to fair value, estimated using inputs characteristic of a Level 3 fair value measurement.  The impairment charge is included in “impairment of assets held for sale and long-lived assets” on the condensed consolidated statement of operations and is associated with the upstream reporting segment.

7


Table of Contents

RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Unproved Oil and Natural Gas Properties

The Company evaluates the impairment of its unproved oil and natural gas properties whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  The carrying values of unproved properties are reduced to fair value based on management’s experience in similar situations and other factors such as the lease terms of the properties and the relative proportion of such properties on which proved reserves have been found in the past.

Based on the analysis described above, during the three months ended March 31, 2020, the Company recorded a noncash impairment charge of approximately $3 million associated with unproved oil and natural gas properties located in Oklahoma.  The impairment was primarily due to a decline in commodity prices.  The impairment charge is included in “impairment of assets held for sale and long-lived assets” on the condensed consolidated statement of operations and is associated with the upstream reporting segment.

Other Property and Equipment

The Company evaluates the impairment of its other property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  The carrying values of other property and equipment are reduced to fair value when the expected undiscounted future cash flows are less than net book value.  Significant inputs used to determine the fair values of other property and equipment include estimates of future operating costs, future volumes and future commodity prices.  These inputs require assumptions by the Company’s management at the time of the valuation and are the most sensitive and subject to change.

Based on the analysis described above, during the three months ended March 31, 2020, the Company recorded a noncash impairment charge of approximately $17 million associated with its crude oil gathering system assets.  The impairment was primarily due to a decline in expected future volumes in the crude gathering business, related to the economics of customers drilling in the area.  The impairment charge is included in “impairment of assets held for sale and long-lived assets” on the condensed consolidated statement of operations and is associated with the Blue Mountain reporting segment.

Note 2 – Revenues

Disaggregation of Revenue

The following tables present the Company’s disaggregated revenues by source and geographic area:

 

 

 

Three Months Ended March 31, 2020

 

 

 

Natural

Gas

 

 

Oil

 

 

NGL

 

 

Oil, Natural Gas and NGL Sales

 

 

Marketing

Revenues

 

 

Other

Revenues

 

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mid-Continent

 

$

2,608

 

 

$

3,682

 

 

$

649

 

 

$

6,939

 

 

$

 

 

$

47

 

 

$

6,986

 

East Texas (1)

 

 

2,829

 

 

 

298

 

 

 

210

 

 

 

3,337

 

 

 

1,627

 

 

 

2

 

 

 

4,966

 

North Louisiana

 

 

3,140

 

 

 

365

 

 

 

138

 

 

 

3,643

 

 

 

225

 

 

 

2

 

 

 

3,870

 

Uinta Basin (1)

 

 

917

 

 

 

(2

)

 

 

(8

)

 

 

907

 

 

 

 

 

 

 

 

 

907

 

Other divested

   properties

 

 

(34

)

 

 

27

 

 

 

(21

)

 

 

(28

)

 

 

4

 

 

 

(20

)

 

 

(44

)

Blue Mountain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,066

 

 

 

 

 

 

32,066

 

Total

 

$

9,460

 

 

$

4,370

 

 

$

968

 

 

$

14,798

 

 

$

33,922

 

 

$

31

 

 

$

48,751

 

 

(1)

During 2020, the Company divested all of its properties located in these operating regions.

 

8


Table of Contents

RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

 

Three Months Ended March 31, 2019

 

 

 

Natural

Gas

 

 

Oil

 

 

NGL

 

 

Oil, Natural Gas and NGL Sales

 

 

Marketing

Revenues

 

 

Other

Revenues

 

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hugoton Basin (1)

 

$

22,899

 

 

$

376

 

 

$

9,970

 

 

$

33,245

 

 

$

23,692

 

 

$

5,968

 

 

$

62,905

 

Mid-Continent

 

 

4,736

 

 

 

2,967

 

 

 

2,438

 

 

 

10,141

 

 

 

 

 

 

11

 

 

 

10,152

 

East Texas

 

 

11,486

 

 

 

852

 

 

 

603

 

 

 

12,941

 

 

 

1,089

 

 

 

2

 

 

 

14,032

 

North Louisiana

 

 

4,486

 

 

 

797

 

 

 

454

 

 

 

5,737

 

 

 

238

 

 

 

2

 

 

 

5,977

 

Uinta Basin

 

 

6,441

 

 

 

86

 

 

 

5

 

 

 

6,532

 

 

 

 

 

 

 

 

 

6,532

 

Michigan/Illinois (1)

 

 

7,089

 

 

 

650

 

 

 

10

 

 

 

7,749

 

 

 

 

 

 

20

 

 

 

7,769

 

Blue Mountain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42,328

 

 

 

 

 

 

42,328

 

Total

 

$

57,137

 

 

$

5,728

 

 

$

13,480

 

 

$

76,345

 

 

$

67,347

 

 

$

6,003

 

 

$

149,695

 

 

(1)

During 2019, the Company divested all of its properties located in these operating regions.

Contract Balances

Under the Company’s product sales contracts, customers are invoiced once the Company’s performance obligations have been satisfied, at which point payment is unconditional.  Accordingly, the Company’s product sales contracts do not give rise to material contract assets or contract liabilities.

The Company had trade accounts receivable related to revenue from contracts with customers of approximately $20 million and $43 million as of March 31, 2020, and December 31, 2019, respectively.

Performance Obligations

The majority of the Company’s sales are short-term in nature with a contract term of one year or less.  For those contracts, the Company utilized the practical expedient in ASC 606-10-50-14 that exempts the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

For the Company’s product sales that have a contract term greater than one year, the Company utilized the practical expedient in ASC 606-10-50-14(A), which states the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation.  Under these sales contracts, each unit of product generally represents a separate performance obligation; therefore future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

Note 3 – Divestitures

Divestitures – First Quarter 2020

On January 15, 2020, the Company completed the sale of its interest in non-operated properties located in the Drunkards Wash field in the Uinta Basin.  Cash proceeds from the sale of these properties were approximately $4 million (including a deposit of approximately $450,000 received in 2019), and the Company recorded a net gain of approximately $1 million.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

On January 31, 2020, the Company completed the sale of its interest in properties located in the Overton field in East Texas.  Cash proceeds from the sale of these properties were approximately $17 million (including a deposit of approximately $2 million received in 2019).

On February 14, 2020, the Company completed the sale of its interest in properties located in the Personville field in East Texas.  Cash proceeds from the sale of these properties were approximately $28 million (including a deposit of approximately $3 million received in 2019).

On February 28, 2020, the Company completed the sale of its office building located in Oklahoma City, Oklahoma.  Cash proceeds from the sale were approximately $21 million.

Divestitures – Subsequent Event

On April 2, 2020, the Company completed the sale of its remaining interest in properties located in East Texas.  Cash proceeds from the sale of these properties were approximately $392,000.  During the three months ended March 31, 2020, the Company recorded a noncash impairment charge of approximately $1 million to reduce the carrying value of these assets to fair value.  These properties are included in “assets held for sale” and “liabilities held for sale” on the condensed consolidated balance sheet as of March 31, 2020.

Divestitures – 2019

On November 22, 2019, the Company completed the sale of its interest in properties located in the Hugoton Basin (the “Hugoton Basin Assets Sale”).  Cash proceeds from the sale of these properties were approximately $286 million.  In connection with the Hugoton Basin Assets Sale, the buyer also acquired the Company’s interest in Mayzure, LLC, a wholly owned subsidiary of the Company, which was the counterparty to the volumetric production payment agreements based on helium produced from certain oil and natural gas properties in the Hugoton Basin.

The Company recognized pre-tax income of approximately $10 million for the three months ended March 31, 2019, from the Hugoton Basin.

On September 5, 2019, the Company completed the sale of its interest in properties located in Illinois.  Cash proceeds from the sale of these properties were approximately $4 million.

On August 30, 2019, the Company completed the sale of its interest in non-core assets located in North Louisiana.  Cash proceeds from the sale were approximately $2 million.

On July 3, 2019, the Company completed the sale of its interest in properties located in Michigan.  Cash proceeds from the sale of these properties were approximately $39 million.

On May 31, 2019, the Company completed the sale of its interest in non-operated properties located in the Hugoton Basin in Kansas.  Cash proceeds from the sale of these properties were approximately $29 million.

On January 17, 2019, the Company completed the sale of its interest in properties located in the Arkoma Basin in Oklahoma.  Cash proceeds from the sale of these properties were approximately $64 million (including a deposit of approximately $5 million received in 2018), and the Company recorded a net gain of approximately $28 million.

The 2020 and 2019 divestitures discussed above are not presented as discontinued operations because they do not represent a strategic shift that will have a major effect on the Company’s operations and financial results.  The gains and losses on these divestitures are included in “(gains) losses on sale of assets and other, net” on the condensed consolidated statements of operations and were included in the upstream reporting segment.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

The following table presents carrying amounts of the assets and liabilities of the Company’s properties classified as held for sale on the condensed consolidated balance sheets:

 

 

March 31,

2020

 

 

December 31,

2019

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

Oil and natural gas properties

$

179

 

 

$

17,732

 

Other property and equipment

 

1,011

 

 

 

85,798

 

Other

 

5

 

 

 

1,243

 

Total assets held for sale

$

1,195

 

 

$

104,773

 

Liabilities:

 

 

 

 

 

 

 

Asset retirement obligations

$

744

 

 

$

33,542

 

Other

 

65

 

 

 

1,635

 

Total liabilities held for sale

$

809

 

 

$

35,177

 

 

Other assets primarily include inventories and other liabilities primarily include accounts payable.

Note 4 – Equity (Deficit)

Share Repurchase Program

On July 18, 2019, the Board of Directors of the Company authorized the repurchase of up to $150 million of the Company’s outstanding shares of common stock.  During the three months ended March 31, 2020, the Company repurchased an aggregate of 282,742 shares of common stock at an average price of $7.31 per share for a total cost of approximately $2 million.  At April 30, 2020, approximately $22 million was available for share repurchases under the program.  Any share repurchases are subject to restrictions in the Riviera Credit Facility (as defined in Note 6).

Dividends

Although the Company paid cash distributions in 2019 and 2020, the Company is not paying a regular cash dividend.  The Board of Directors periodically reviews the Company’s liquidity position to evaluate whether or not to pay a cash dividend.  Any future payment of cash dividends would be subject to the restrictions in the Riviera Credit Facility (as defined in Note 6).

Cash Distributions

On March 9, 2020, the Board of Directors of the Company declared a cash distribution of $1.00 per share.  A cash distribution totaling approximately $58 million was paid on April 22, 2020, to shareholders of record as of the close of business on April 8, 2020.  At March 31, 2020, the Company recorded “distributions payable” of approximately $58 million on the condensed consolidated balance sheet.  In addition, approximately $12 million and $11 million for potential future distributions was recorded in restricted cash at March 31, 2020, and December 31, 2019, respectively.  At March 31, 2020, and December 31, 2019, distributions payable of approximately $1 million and $2 million, respectively, related to outstanding share-based compensation awards was also recorded.  These amounts are included in “other accrued liabilities” and “asset retirement obligations and other noncurrent liabilities” on the condensed consolidated balance sheets.

Cash Distributions – Subsequent Event

On April 23, 2020, the Board of Directors of the Company approved a cash distribution of $0.75 per share.  The distribution totaling approximately $45 million is payable on or around May 12, 2020, to all shareholders of record as of the close of business on May 7, 2020.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Note 5 – Oil and Natural Gas Properties

Oil and Natural Gas Capitalized Costs

Aggregate capitalized costs related to oil, natural gas and NGL production activities with applicable accumulated depletion and amortization are presented below:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Proved properties

 

$

173,317

 

 

$

174,845

 

Unproved properties

 

 

5,421

 

 

 

5,462

 

 

 

 

178,738

 

 

 

180,307

 

Less accumulated depletion and amortization

 

 

(128,041

)

 

 

(35,603

)

 

 

$

50,697

 

 

$

144,704

 

 

Note 6 – Debt

Fair Value

The Company’s debt is recorded at the carrying amount on the condensed consolidated balance sheets.  The carrying amounts of the credit facilities approximate fair value because the interest rates are variable and reflective of market rates.

Riviera Credit Facility

Riviera’s credit agreement provides for a senior secured reserve-based revolving loan facility (the “Riviera Credit Facility”) with a borrowing base and borrowing commitments of $90 million at March 31, 2020.  As of March 31, 2020, there were no borrowings outstanding under the Riviera Credit Facility and there was approximately $89 million of available borrowing capacity (which includes a reduction of approximately $701,000 for outstanding letters of credit).  The maturity date is August 4, 2021.

Redetermination of the borrowing base under the Riviera Credit Facility, based primarily on reserve reports using lender commodity price expectations at such time, occurs semi-annually, in April and October.  A reduction to the borrowing base is expected with the April redetermination.

At the Company’s election, interest on borrowings under the Riviera Credit Facility is determined by reference to either the London Interbank Offered Rate (“LIBOR”) plus an applicable margin ranging from 2.00% to 3.00% per annum or the alternate base rate (“ABR”) plus an applicable margin ranging from 1.00% to 2.00% per annum, depending on utilization of the borrowing base.  Interest is generally payable in arrears quarterly for loans bearing interest based at the ABR and at the end of the applicable interest period for loans bearing interest at the LIBOR, or if such interest period is longer than three months, at the end of the three-month intervals during such interest period.  The Company is required to pay a commitment fee to the lenders under the Riviera Credit Facility, which accrues at a rate per annum of 0.50% on the average daily unused amount of the available revolving loan commitments of the lenders.

The obligations under the Riviera Credit Facility are secured by mortgages covering approximately 85% of the total value of the proved reserves of the oil and natural gas properties of the Company and certain of its subsidiaries, along with liens on substantially all personal property of the Company and certain of its subsidiaries excluding Blue Mountain Midstream, and are guaranteed by the Company and certain of its subsidiaries, subject to customary exceptions.  Under the Riviera Credit Facility, the Company is required to maintain (i) a maximum total net debt to last twelve months EBITDA ratio of 4.0 to 1.0, and (ii) a minimum adjusted current ratio of 1.0 to 1.0.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

The Riviera Credit Facility also contains affirmative and negative covenants, including compliance with laws (including environmental laws, ERISA and anti-corruption laws), maintenance of required insurance, delivery of quarterly and annual financial statements, oil and gas engineering reports and budgets, maintenance and operation of property (including oil and gas properties), restrictions on the incurrence of liens and indebtedness, mergers, consolidations and sales of assets, paying dividends or other distributions in respect of, or repurchasing or redeeming, the Company’s capital stock, making certain investments and transactions with affiliates.

The Riviera Credit Facility contains events of default and remedies customary for credit facilities of this nature.  Failure to comply with the financial and other covenants in the Riviera Credit Facility would allow the lenders, subject to customary cure rights, to require immediate payment of all amounts outstanding under the Riviera Credit Facility.

Blue Mountain Credit Facility

Blue Mountain Midstream’s credit agreement provides for a senior secured revolving loan facility (the “Blue Mountain Credit Facility”), with a borrowing base and a borrowing commitment of $200 million at March 31, 2020.  The Blue Mountain Credit Facility together with the Riviera Credit Facility, are referred to as the “Credit Facilities”).

The Blue Mountain Credit Facility provides for the ability to increase the aggregate commitments of the lenders to up to $400 million, subject to obtaining commitments for any such increase, which may result in an increase in Blue Mountain Midstream’s available borrowing capacity.  As of March 31, 2020, total borrowings outstanding under the Blue Mountain Credit Facility were approximately $73 million and there was approximately $115 million of available borrowing capacity (which includes a reduction of approximately $12 million for outstanding letters of credit), subject to covenant restrictions in the Blue Mountain Credit Facility.  As of April 30, 2020, total borrowings outstanding under the Blue Mountain Credit Facility were approximately $75 million and there was approximately $114 million of available capacity (which includes a reduction of approximately $11 million reduction for outstanding letters of credit), subject to covenant restrictions in the Blue Mountain Credit Facility.  The maturity date is August 10, 2023.

At Blue Mountain Midstream’s election, interest on borrowings under the Blue Mountain Credit Facility is determined by reference to either the LIBOR plus an applicable margin ranging from 2.00% to 3.00% per annum or the ABR plus an applicable margin ranging from 1.00% to 2.00% per annum, both depending on Blue Mountain Midstream’s consolidated total leverage ratio.  Interest is generally payable in arrears on the last day of March, June, September and December for loans bearing interest based at the ABR and at the end of the applicable interest period for loans bearing interest at the LIBOR, or if such interest period is longer than three months, at the end of three-month intervals during such interest period.

Blue Mountain Midstream is required under the Blue Mountain Credit Facility to pay a commitment fee to the lenders, which accrues at a rate per annum of 0.375% or 0.50% (depending on Blue Mountain Midstream’s consolidated total leverage ratio) on the average daily unused amount of the available revolving loan commitments of the lenders.

The Blue Mountain Credit Facility is secured by a first priority lien on substantially all the assets of Blue Mountain Midstream.  Under the Blue Mountain Credit Facility, Blue Mountain Midstream is required to maintain (i) a ratio of consolidated EBITDA to consolidated interest expense no less than 2.50 to 1.00, (ii) a ratio of consolidated net debt to consolidated EBITDA (the “consolidated total leverage ratio”) no greater than 4.50 to 1.00 or 5.00 to 1.00, as applicable, and (iii) in case certain other kinds of indebtedness are outstanding, a ratio of consolidated net debt secured by a lien on property of Blue Mountain Midstream to consolidated EBITDA no greater than 3.00 to 1.00.

The Blue Mountain Credit Facility also contains affirmative and negative covenants customary for credit facilities of this nature, including compliance with laws (including environmental laws, ERISA and anti-corruption laws), maintenance of required insurance, delivery of quarterly and annual financial statements, budgets, maintenance and operation of property, restrictions on the incurrence of liens and indebtedness, mergers, consolidations and sales of assets and transactions with affiliates.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

The Blue Mountain Credit Facility contains events of default and remedies customary for credit facilities of this nature.  If Blue Mountain Midstream does not comply with the covenants in the Blue Mountain Credit Facility, the lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the Blue Mountain Credit Facility.

Note 7 – Derivatives

Commodity Derivatives

The following table presents derivative positions for the periods indicated as of March 31, 2020:

 

2020

 

 

2021

 

Natural gas positions:

 

 

 

 

 

 

 

Fixed price swaps (NYMEX Henry Hub):

 

 

 

 

 

 

 

Hedged volume (MMMBtu)

 

8,250

 

 

 

3,650

 

Average price ($/MMBtu)

$

2.82

 

 

$

2.44

 

Oil positions:

 

 

 

 

 

 

 

Fixed price swaps (NYMEX WTI):

 

 

 

 

 

 

 

Hedged volume (MBbls)

 

138

 

 

 

 

Average price ($/Bbl)

$

64.63

 

 

$

 

Natural gas basis differential positions: (1)

 

 

 

 

 

 

 

PEPL basis swaps:

 

 

 

 

 

 

 

Hedged volume (MMMBtu)

 

5,500

 

 

 

 

Hedge differential

$

(0.45

)

 

$

 

 

(1)

Settled or to be settled, as applicable, on the indicated pricing index to hedge basis differential to the NYMEX Henry Hub natural gas price.

During the three months ended March 31, 2020, the Company entered into commodity derivative contracts consisting of natural gas fixed price swaps for 2021.  In addition, the Company unwound certain of its oil fixed price swaps associated with Blue Mountain Midstream for 2020 and received proceeds of approximately $377,000.  During the three months ended March 31, 2019, the Company entered into commodity derivative contracts consisting of natural gas fixed price swaps and NGL fixed price swaps for 2019 and natural gas basis swaps for 2020.

The natural gas derivatives are settled based on the closing price of NYMEX Henry Hub natural gas on the last trading day for the delivery month, which occurs on the third business day preceding the delivery month, or the relevant index prices of natural gas published in Inside Federal Energy Regulatory Commission’s Gas Market Report on the first business day of the delivery month.  The oil derivatives are settled based on the average closing price of NYMEX WTI crude oil for each day of the delivery month.  The NGL derivatives are settled based on the average effective price of natural gas liquids for each day of the delivery month, published in the issue of Oil Price Information Service.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Balance Sheet Presentation

The Company’s commodity derivatives are presented on a net basis in “derivative instruments” and “other noncurrent assets” on the condensed consolidated balance sheets.  See Note 8 for fair value disclosures about commodity derivatives.  The following table summarizes the fair value of derivatives outstanding on a gross basis: