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2019-09-30
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 September 30, 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.)
|
|
|
|
|
|
717 Texas Avenue, Suite 2000
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 October 31, 2020, there were 57,907,609 shares of common
stock, par value $0.01 per share, outstanding.
TABLE OF CONTENTS
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)
|
|
|
September 30,
2020
|
|
|
December 31, 2019
|
|
|
|
|
(in thousands, except share amounts)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
94,548
|
|
|
$
|
116,237
|
|
|
Accounts receivable – trade, net
|
|
|
22,194
|
|
|
|
51,355
|
|
|
Derivative instruments
|
|
|
375
|
|
|
|
7,283
|
|
|
Restricted cash
|
|
|
24,887
|
|
|
|
32,932
|
|
|
Other current assets
|
|
|
11,925
|
|
|
|
12,853
|
|
|
Assets held for sale
|
|
|
—
|
|
|
|
104,773
|
|
|
Total current assets
|
|
|
153,929
|
|
|
|
325,433
|
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties (successful efforts method)
|
|
|
125,389
|
|
|
|
180,307
|
|
|
Less accumulated depletion and amortization
|
|
|
(111,480
|
)
|
|
|
(35,603
|
)
|
|
|
|
|
13,909
|
|
|
|
144,704
|
|
|
|
|
|
|
|
|
|
|
|
|
Other property and equipment
|
|
|
396,449
|
|
|
|
388,851
|
|
|
Less accumulated depreciation
|
|
|
(292,416
|
)
|
|
|
(50,381
|
)
|
|
|
|
|
104,033
|
|
|
|
338,470
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
|
4,690
|
|
|
|
7,652
|
|
|
|
|
|
4,690
|
|
|
|
7,652
|
|
|
Total noncurrent assets
|
|
|
122,632
|
|
|
|
490,826
|
|
|
Total assets
|
|
$
|
276,561
|
|
|
$
|
816,259
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
34,907
|
|
|
$
|
80,579
|
|
|
Derivative instruments
|
|
|
1,795
|
|
|
|
1,087
|
|
|
Other accrued liabilities
|
|
|
31,776
|
|
|
|
26,728
|
|
|
Liabilities held for sale
|
|
|
—
|
|
|
|
35,177
|
|
|
Total current liabilities
|
|
|
68,478
|
|
|
|
143,571
|
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
Credit facilities
|
|
|
80,000
|
|
|
|
69,800
|
|
|
Asset retirement obligations and other noncurrent liabilities
|
|
|
16,209
|
|
|
|
29,337
|
|
|
Total noncurrent liabilities
|
|
|
96,209
|
|
|
|
99,137
|
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
Preferred Stock ($0.01 par value, 30,000,000 shares authorized; no
shares
issued at September 30, 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 and
outstanding at
September 30, 2020, and December 31, 2019,
respectively)
|
|
|
579
|
|
|
|
581
|
|
|
Additional paid-in capital
|
|
|
759,186
|
|
|
|
861,764
|
|
|
Accumulated deficit
|
|
|
(647,891
|
)
|
|
|
(288,794
|
)
|
|
Total equity
|
|
|
111,874
|
|
|
|
573,551
|
|
|
Total liabilities and equity
|
|
$
|
276,561
|
|
|
$
|
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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(in thousands, except per share amounts)
|
|
|
Revenues and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids sales
|
|
$
|
7,340
|
|
|
$
|
51,029
|
|
|
$
|
33,072
|
|
|
$
|
194,131
|
|
|
Gains (losses) on commodity derivatives
|
|
|
(2,948
|
)
|
|
|
5,665
|
|
|
|
3,773
|
|
|
|
12,673
|
|
|
Marketing revenues
|
|
|
29,054
|
|
|
|
45,828
|
|
|
|
84,840
|
|
|
|
166,569
|
|
|
Other revenues
|
|
|
29
|
|
|
|
5,532
|
|
|
|
69
|
|
|
|
16,685
|
|
|
|
|
|
33,475
|
|
|
|
108,054
|
|
|
|
121,754
|
|
|
|
390,058
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
|
2,367
|
|
|
|
18,307
|
|
|
|
10,212
|
|
|
|
66,204
|
|
|
Transportation expenses
|
|
|
818
|
|
|
|
16,275
|
|
|
|
4,201
|
|
|
|
53,478
|
|
|
Marketing expenses
|
|
|
20,284
|
|
|
|
37,688
|
|
|
|
58,431
|
|
|
|
132,888
|
|
|
General and administrative expenses
|
|
|
16,871
|
|
|
|
16,954
|
|
|
|
37,994
|
|
|
|
49,434
|
|
|
Exploration costs
|
|
|
413
|
|
|
|
1,947
|
|
|
|
413
|
|
|
|
4,154
|
|
|
Depreciation, depletion and amortization
|
|
|
3,915
|
|
|
|
20,060
|
|
|
|
19,027
|
|
|
|
65,013
|
|
|
Impairment of assets held for sale and
long-lived assets
|
|
|
219,606
|
|
|
|
95,080
|
|
|
|
341,264
|
|
|
|
113,470
|
|
|
Taxes, other than income taxes
|
|
|
846
|
|
|
|
5,111
|
|
|
|
3,436
|
|
|
|
14,010
|
|
|
(Gains) losses on sale of assets and other, net
|
|
|
3,515
|
|
|
|
(7,587
|
)
|
|
|
1,484
|
|
|
|
(24,967
|
)
|
|
|
|
|
268,635
|
|
|
|
203,835
|
|
|
|
476,462
|
|
|
|
473,684
|
|
|
Operating loss
|
|
|
(235,160
|
)
|
|
|
(95,781
|
)
|
|
|
(354,708
|
)
|
|
|
(83,626
|
)
|
|
Other income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of amounts capitalized
|
|
|
(700
|
)
|
|
|
(2,329
|
)
|
|
|
(2,368
|
)
|
|
|
(5,403
|
)
|
|
Other, net
|
|
|
(309
|
)
|
|
|
(595
|
)
|
|
|
(1,317
|
)
|
|
|
(708
|
)
|
|
|
|
|
(1,009
|
)
|
|
|
(2,924
|
)
|
|
|
(3,685
|
)
|
|
|
(6,111
|
)
|
|
Reorganization items, net
|
|
|
(210
|
)
|
|
|
(284
|
)
|
|
|
(704
|
)
|
|
|
(756
|
)
|
|
Loss before income taxes
|
|
|
(236,379
|
)
|
|
|
(98,989
|
)
|
|
|
(359,097
|
)
|
|
|
(90,493
|
)
|
|
Income tax expense
|
|
|
—
|
|
|
|
126,646
|
|
|
|
—
|
|
|
|
129,092
|
|
|
Net loss
|
|
$
|
(236,379
|
)
|
|
$
|
(225,635
|
)
|
|
$
|
(359,097
|
)
|
|
$
|
(219,585
|
)
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(4.07
|
)
|
|
$
|
(3.76
|
)
|
|
$
|
(6.18
|
)
|
|
$
|
(3.40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding ‒ basic and
diluted
|
|
|
58,044
|
|
|
|
60,004
|
|
|
|
58,080
|
|
|
|
64,576
|
|
|
Distributions declared per share
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.75
|
|
|
$
|
—
|
|
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
|
|
|
Distributions to shareholders
|
|
|
|
|
|
|
—
|
|
|
|
(57,908
|
)
|
|
|
—
|
|
|
|
(57,908
|
)
|
|
March 31, 2020
|
|
|
57,908
|
|
|
|
579
|
|
|
|
802,616
|
|
|
|
(390,300
|
)
|
|
|
412,895
|
|
|
Net loss
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,212
|
)
|
|
|
(21,212
|
)
|
|
Distributions to shareholders
|
|
|
|
|
|
|
—
|
|
|
|
(43,430
|
)
|
|
|
—
|
|
|
|
(43,430
|
)
|
|
June 30, 2020
|
|
|
57,908
|
|
|
|
579
|
|
|
|
759,186
|
|
|
|
(411,512
|
)
|
|
|
348,253
|
|
|
Net loss
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(236,379
|
)
|
|
|
(236,379
|
)
|
|
September 30, 2020
|
|
|
57,908
|
|
|
$
|
579
|
|
|
$
|
759,186
|
|
|
$
|
(647,891
|
)
|
|
$
|
111,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
Issuance of common stock
|
|
|
82
|
|
|
|
1
|
|
|
|
1,485
|
|
|
|
—
|
|
|
|
1,486
|
|
|
March 31, 2019
|
|
|
66,791
|
|
|
|
668
|
|
|
|
1,223,803
|
|
|
|
17,678
|
|
|
|
1,242,149
|
|
|
Net loss
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,676
|
)
|
|
|
(6,676
|
)
|
|
Repurchases of common stock
|
|
|
(3,170
|
)
|
|
|
(32
|
)
|
|
|
(43,275
|
)
|
|
|
—
|
|
|
|
(43,307
|
)
|
|
June 30, 2019
|
|
|
63,621
|
|
|
|
636
|
|
|
|
1,180,528
|
|
|
|
11,002
|
|
|
|
1,192,166
|
|
|
Net loss
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(225,635
|
)
|
|
|
(225,635
|
)
|
|
Repurchases of common stock
|
|
|
(4,989
|
)
|
|
|
(50
|
)
|
|
|
(65,303
|
)
|
|
|
—
|
|
|
|
(65,353
|
)
|
|
Other
|
|
|
|
|
|
|
—
|
|
|
|
258
|
|
|
|
—
|
|
|
|
258
|
|
|
September 30, 2019
|
|
|
58,632
|
|
|
$
|
586
|
|
|
$
|
1,115,483
|
|
|
$
|
(214,633
|
)
|
|
$
|
901,436
|
|
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)
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(in thousands)
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(359,097
|
)
|
|
$
|
(219,585
|
)
|
|
Adjustments to reconcile net loss to net cash (used in)
provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
19,027
|
|
|
|
65,013
|
|
|
Impairment of assets held for sale and long-lived assets
|
|
|
341,264
|
|
|
|
113,470
|
|
|
Deferred income taxes
|
|
|
—
|
|
|
|
129,092
|
|
|
Gains on derivatives, net
|
|
|
(3,773
|
)
|
|
|
(6,386
|
)
|
|
Cash settlements on derivatives
|
|
|
11,389
|
|
|
|
5,740
|
|
|
Share-based compensation expenses
|
|
|
(3,381
|
)
|
|
|
10,624
|
|
|
(Gains) losses on sale of assets and other, net
|
|
|
1,510
|
|
|
|
(27,366
|
)
|
|
Other
|
|
|
2,602
|
|
|
|
8,897
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Decrease in accounts receivable – trade, net
|
|
|
23,416
|
|
|
|
37,305
|
|
|
Decrease in other assets
|
|
|
2,666
|
|
|
|
5,367
|
|
|
Decrease in accounts payable and accrued expenses
|
|
|
(34,824
|
)
|
|
|
(29,997
|
)
|
|
Decrease in other liabilities
|
|
|
(5,885
|
)
|
|
|
(4,331
|
)
|
|
Net cash (used in) provided by operating activities
|
|
|
(5,086
|
)
|
|
|
87,843
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
|
|
—
|
|
|
|
(3,380
|
)
|
|
Development of oil and natural gas properties
|
|
|
(292
|
)
|
|
|
(67,864
|
)
|
|
Purchases of other property and equipment
|
|
|
(31,242
|
)
|
|
|
(82,232
|
)
|
|
Proceeds from sale of properties and equipment and other
|
|
|
100,677
|
|
|
|
177,907
|
|
|
Net cash provided by investing activities
|
|
|
69,143
|
|
|
|
24,431
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
|
Repurchases of shares
|
|
|
(2,653
|
)
|
|
|
(143,097
|
)
|
|
Proceeds from borrowings
|
|
|
11,200
|
|
|
|
142,825
|
|
|
Repayments of debt
|
|
|
(1,000
|
)
|
|
|
(29,615
|
)
|
|
Debt issuance costs paid
|
|
|
—
|
|
|
|
(3,246
|
)
|
|
Distributions to shareholders
|
|
|
(101,338
|
)
|
|
|
—
|
|
|
Net cash used in financing activities
|
|
|
(93,791
|
)
|
|
|
(33,133
|
)
|
|
Net (decrease) increase in cash, cash equivalents and restricted
cash
|
|
|
(29,734
|
)
|
|
|
79,141
|
|
|
Cash, cash equivalents and restricted cash:
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
149,169
|
|
|
|
49,777
|
|
|
Ending
|
|
$
|
119,435
|
|
|
$
|
128,918
|
|
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.
Nature of Business
The Company is incorporated under Delaware law and its headquarters
are in Houston, Texas. Prior to the recent sales of
interests in oil and natural gas properties and the sale of its
wholly owned subsidiary Blue Mountain Midstream LLC (“Blue Mountain
Midstream”), discussed below, Riviera was an independent oil and
natural gas company. The Company had two reporting
segments, upstream and Blue Mountain. The upstream
reporting segment was engaged in the exploration, development,
production, and sale of oil, natural gas, and natural gas liquids
(“NGL”) and its properties were all located in the United States
(“U.S.”). The Blue Mountain reporting segment consisted
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.
Recent Developments
Section 271 Sale
In July 2020, the Company signed definitive agreements to sell
substantially all of its interests
located in its two upstream operating regions, North Louisiana and the Mid-Continent,
and in August 2020, signed a definitive agreement to sell Blue
Mountain Midstream (the “Blue Mountain
Divestiture”). The Blue
Mountain Divestiture, together with the sales of interests in
properties located in North Louisiana and the Mid-Continent
(collectively, the “271 Sale”),
constituted a sale of substantially all of the consolidated assets
of the Company for purposes of Section 271(a) of the
Delaware General Corporate Law, as amended. Therefore, on August 23, 2020,
the Company elected to obtain shareholder approval and
authorization of the 271 Sale. Holders of a
majority of the Company’s issued and outstanding shares of common
stock (the “Majority Stockholders”) executed and delivered to the
Company a written consent in lieu of a special
meeting. The written consent delivered by the Majority
Stockholders authorized and approved the
271 Sale. On September 1, 2020, and
October 1, 2020, the Company completed the sales of its
interests in properties located in North Louisiana and the
Mid-Continent, respectively. In addition, on
October 8, 2020, the Company completed the Blue Mountain
Divestiture. See Note 3 for additional information
about divestitures.
Plan of Liquidation
On August 24, 2020, following approval of the 271 Sale,
the Company announced that it was evaluating the process of
winding-up and of returning the majority of its remaining capital
to its shareholders. On October 12, 2020, the Board
of Directors of the Company (the “Board”), approved the dissolution, winding up and
liquidation of the Company (the “Plan of Liquidation”) and adopted
the Plan of Liquidation. Also, on October 12, 2020,
the required percentage of the Company’s shareholders approved,
through written consent in accordance with the bylaws of the
Company, the Plan of Liquidation. The Plan of
Liquidation contemplates the orderly sale of the Company’s
remaining assets and the discharge of all outstanding liabilities
to third parties and, after the establishment of appropriate
reserves, the distribution of any remaining cash to
shareholders. See Note 18 for more information.
Other Recent Developments
The Company and the oil and gas industry have been adversely
impacted by certain events, including the initial dramatic increase
in output from the Organization of
Petroleum Exporting Countries and other oil producing
nations (“OPEC+”) in the
first quarter of 2020 and the destruction of demand resulting from
the unprecedented global health and economic crisis sparked by the
novel coronavirus disease (“COVID-19”) global pandemic. While OPEC+ has agreed to cut production, downward
pressure on commodity prices has continued. In
order to reduce expenses, in April 2020, the Board made the
decision to consolidate the management of Blue Mountain Midstream
within the Company’s existing executive management team and further
reduced expenses by integration of the operations of the two
companies wherever practical. The Company incurred
severance expenses of approximately $10 million and $15 million for
the three months and nine months ended September 30, 2020,
respectively, in connection with integration activities,
divestitures and the Plan of Liquidation.
6
Table of Contents
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
As described further below, the Company recorded impairments on oil
and natural gas properties and property, plant and equipment for
the
nine
months ended
September 30,
2020. The
impairment charges recorded in the three months ended
September 30, 2020, were primarily due to the Company’s exit
from the midstream business. The impairment charges
recorded in the first quarter and second quarter of 2020 were
primarily due to declines in commodity prices and
declines in
expected future volumes. The COVID-19 pandemic continues to evolve and identification of all trends, events and
uncertainties,
including a possible widespread resurgence in COVID-19 infections
in the
remainder
of 2020 without the availability of generally effective
therapeutics or a vaccine for the disease, that may impact the Company’s financial condition
and results of operations are unknown at this time.
Due to the adoption of the Plan of Liquidation, the
Company’s results of operations for the three months and nine
months ended September 30, 2020, are not indicative of its
future results.
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 consolidated 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. Investments in noncontrolled entities over
which the Company exercises significant influence are accounted for
under the equity method.
There have been no material changes in critical accounting policies
during the nine months ended September 30, 2020, as compared
to the critical accounting policies described in Item 8.
“Financial Statements and Supplementary Data” of the Company’s
Annual Report on Form 10-K for the year ended December 31,
2019. Based on the approval of the Plan of Liquidation
in October 2020, discussed above, the
Company plans to adopt the liquidation basis of accounting in the
fourth quarter of 2020. See Note 18.
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
impairment evaluations, estimates of the Company’s reserves of oil,
natural gas and 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.
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 consolidated 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 September 30, 2020, and December 31,
2019. See Note 8 for details about the fair value
of the Company’s derivative financial instruments.
7
Table of Contents
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
Recently Adopted Accounting Standard
In June 2016, the FASB issued an 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 $4 million and $1 million at
September 30, 2020, and December 31, 2019,
respectively.
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 or there are alternative
indications of impairment. 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, or the Company takes into consideration contract
prices from executed definitive agreements. 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 assumptions represent Level 3
inputs. 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, during the nine months ended
September 30, 2020, the Company recorded noncash impairment
charges of approximately $101 million associated with proved oil
and natural gas properties. Of this, approximately $85
million related to divested properties located in Oklahoma,
approximately $12 million to divested properties located in North
Louisiana, and approximately $4 million to divested properties
located in East Texas. There was no such charge during
the three months ended September 30, 2020. During
the three months and nine months ended September 30, 2019, the
Company recorded noncash impairment charges of approximately $95
million and $113 million, respectively, associated with divested
proved oil and gas properties located in the Hugoton Basin and
Michigan. The impairment charges in both periods were
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 charges are associated with
the upstream reporting segment and are included in “impairment of
assets held for sale and long-lived assets” on the condensed
consolidated statements of operations. See Note 3
for additional information about divestitures.
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.
8
Table of Contents
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
Based on the analysis described above, during the nine months ended
September 30, 2020, the Company recorded a noncash impairment
charge of approximately $3 million associated with unproved oil and
natural gas properties located in Oklahoma. There was no
such charge during the three months ended September 30,
2020. The impairment was primarily due to a decline in
commodity prices. The charge is associated with the
upstream reporting segment and is included in “impairment of assets
held for sale and long-lived assets” on the condensed consolidated
statement of operations.
Other Property and Equipment and Other Assets
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 or there are alternative indications of
impairment. The fair values of other property and
equipment are measured using valuation techniques consistent with
the income approach, converting future cash flows to a single
discounted amount, or the Company takes into consideration contract
prices from executed definitive agreements. Significant
inputs used to determine the fair values of other property and
equipment and other assets 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.
At September 30, 2020, because of the Blue Mountain
Divestiture, the Company performed an impairment evaluation of Blue
Mountain Midstream’s other property and equipment and other
assets. Based on the analysis described above, during
the three months and nine months ended September 30, 2020, the
Company recorded impairment charges of approximately $220 million
and $237 million, respectively, to reduce the carrying value of
Blue Mountain Midstream’s assets to fair value less cost to sell
using Level 3 inputs. The impairment charges recorded in the
three months ended September 30, 2020, were primarily
triggered by the Company’s exit from the midstream business, with
the fair value being predominantly driven by the contract price of
the Blue Mountain Divestiture. The impairment charges
recorded in the first quarter and second quarter of 2020 were
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 charges are primarily associated with
the Blue Mountain reporting segment, with $1 million of the charges
associated with the upstream reporting segment and are included in
“impairment of assets held for sale and long-lived assets” on the
condensed consolidated statements of operations.
Note 2 – Revenues
Disaggregation of Revenue
Substantially all of the revenues reported on the Company’s
unaudited condensed consolidated statements of operations included
herein relates to properties that were divested either prior or
subsequent to September 30, 2020. See Note 1,
Note 3 and Note 18 for information about
divestitures.
9
Table of Contents
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
Continued
(Unaudited)
The following tables present the Company’s disaggregated revenues
by source and geographic area:
|
|
|
Three Months Ended September 30, 2020
|
|
|
|
|
Natural
Gas
|
|
|
Oil
|
|
|
NGL
|
|
|
Oil, Natural Gas and NGL Sales
|
|
|
Marketing
Revenues
|
|
|
Other
Revenues
|
|
|
Total
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Continent
|
|
$
|
2,140
|
|
|
$
|
2,657
|
|
|
$
|
645
|
|
|
$
|
5,442
|
|
|
$
|
—
|
|
|
$
|
30
|
|
|
$
|
5,472
|
|
|
East Texas
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(11
|
)
|
|
North Louisiana
|
|
|
1,675
|
|
|
|
187
|
|
|
|
53
|
|
|
|
1,915
|
|
|
|
113
|
|
|
|
—
|
|
|
|
2,028
|
|
|
Uinta Basin
|
|
|
(13
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(13
|
)
|
|
Other divested
properties
|
|
|
5
|
|
|
|
—
|
|
|
|
2
|
|
|
|
7
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
6
|
|
|
Blue Mountain
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,941
|
|
|
|
—
|
|
|
|
28,941
|
|
|
Total
|
|
$
|
3,796
|
|
|
$
|
2,844
|
|
|
$
|
700
|
|
|
$
|
7,340
|
|
|
$
|
29,054
|
|
|
$
|
29
|
|
|
$
|
36,423
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
|
|
Natural
Gas
|
|
|
Oil
|
|
|
NGL
|
|
|
Oil, Natural Gas and NGL Sales
|
|
|
Marketing
Revenues
|
|
|
Other
Revenues
|
|
|
Total
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugoton Basin
|
|
$
|
12,057
|
|
|
$
|
405
|
|
|
$
|
5,561
|
|
|
$
|
18,023
|
|
|
$
|
9,810
|
|
|
$
|
5,413
|
|
|