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ROAN RESOURCES, INC. filed on Mon, April 01 10-K

ROAN RESOURCES, INC. filed on Mon, April 01 10-K

1 апреля, 2019

ROAN RESOURCES, INC. filed 10-K with SEC. Read ‘s full filing at 000132642819000006.

Net acres. The percentage of total acres an owner has out of a particular number of acres, or a specified tract. An owner who has 50% working interest in 100 acres owns 50 net acres.

PV-10. The present value of estimated future cash inflows from proved oil and natural gas reserves, less future development and production costs, discounted at 10% per annum to reflect the timing of future cash flows.

Standardized measure. Discounted future net cash flows estimated by applying year end prices to the estimated future production of year end proved reserves. Future cash inflows are reduced by estimated future production and development costs based on period-end costs to determine pre-tax cash inflows. Future income taxes, if applicable, are computed by applying the statutory tax rate to the excess of pre-tax cash inflows over our tax basis in the oil and natural gas properties. Future net cash inflows after income taxes are discounted using a 10% annual discount rate.

Reorganization. Refers to the reorganization transactions contemplated by the master reorganization agreement, dated September 17, 2018, by and among Linn Energy, Inc., Roan Holdings, LLC, and Roan Resources LLC, pursuant to which New Linn’s and Roan Holdings’ respective 50% equity interest in Roan LLC were moved under Roan Inc.

Riviera Separation. Refers to the reorganization transactions pursuant to which Old Linn contributed certain of its assets to Riviera except for its 50% equity interest in Roan LLC, as further described in Reorganization.

Our predecessor, Roan LLC, was initially formed by Citizen in May 2017. In June 2017, subsidiaries of Old Linn, together with Citizen and Roan LLC entered into the Contribution, pursuant to which, among other things, Old Linn and Citizen agreed to contribute certain oil and natural gas assets to Roan LLC, each in exchange for a 50% equity interest in Roan LLC. On August 31, 2017, Old Linn and Citizen consummated the transactions contemplated by such contribution agreement. Following these transactions, Citizen’s equity interest in Roan LLC was held through its wholly-owned subsidiary, Roan Holdings.

In the third quarter of 2018, Old Linn and certain of its subsidiaries undertook an internal reorganization, pursuant to which Old Linn merged with and into a wholly-owned subsidiary of New Linn. Following such internal reorganization, New Linn completed the spin-off of substantially all of its assets, other than its 50% equity interest in Roan LLC.

On September 17, 2018, New Linn, Roan Holdings and Roan LLC entered into a master reorganization agreement, to effectuate the reorganization of New Linn’s and Roan Holdings’ respective 50% equity interests in Roan LLC under Roan Inc. On September 24, 2018, the Company consummated the Reorganization, which resulted in the existing stockholders of New Linn receiving 50% of the Class A common stock of the Company and Roan Holdings receiving 50% of the Class A common stock of the Company. In connection with the Reorganization, the Company became the owner, indirectly through its wholly-owned subsidiaries, of 100% of the equity in, and is the sole manager of, Roan LLC. The Company is responsible for all operational, management and administrative decisions relating to Roan LLC’s business.

As of December 31, 2018, we held leasehold interests in approximately 383,000 gross (172,000 net) acres in the Anadarko Basin. At December 31, 2018, our total estimated proved reserves were approximately 305,959 MBoe. For the quarter ended December 31, 2018, our average net daily production was 54.1 MBoe/ d (approximately 27% oil, 42% natural gas and 31% NGLs).

•Maintain a high degree of operational control to facilitate efficient development and capital budgeting. We seek to maintain operational control of our properties in order to better execute on our strategy of enhancing returns through operational improvements and cost efficiencies. As of December 31, 2018, we operated approximately 71% of our total acreage. We believe that maintaining a high degree of control of the development of our properties and of our production enables us to increase hydrocarbon recovery rates, lower capital and operating costs and improve drilling performance through optimization of our drilling, completion and production management techniques. Additionally, we believe operatorship allows us to control wellsite selection, spacing and lateral targeting and manage the pace of our development activities, which we believe can significantly enhance full-cycle returns.

Maintain a high degree of operational control to facilitate efficient development and capital budgeting. We seek to maintain operational control of our properties in order to better execute on our strategy of enhancing returns through operational improvements and cost efficiencies. As of December 31, 2018, we operated approximately 71% of our total acreage. We believe that maintaining a high degree of control of the development of our properties and of our production enables us to increase hydrocarbon recovery rates, lower capital and operating costs and improve drilling performance through optimization of our drilling, completion and production management techniques. Additionally, we believe operatorship allows us to control wellsite selection, spacing and lateral targeting and manage the pace of our development activities, which we believe can significantly enhance full-cycle returns.

•Large, contiguous acreage position in the core of the Merge play with significant operational control. We are the largest leaseholder in the Merge play, with approximately 115,000 net acres as of December 31, 2018. We believe that the scale and concentration of our acreage position allows for efficient field development through long laterals and shared facilities, with approximately 80% of our Merge sections capable of 1.5 mile or longer lateral development. Additionally, our acreage position is concentrated in areas that we believe demonstrate higher percentage production of oil and NGLs within the Merge play, and provides us development opportunities through multiple stacked prospective development horizons. As of December 31, 2018, we operated 81% of our net acreage in the Merge and we intend to maintain operational control over the majority of our drilling inventory, as we believe this enables us to increase our production and reserves and control our development costs, and ultimately increase shareholder value.

Large, contiguous acreage position in the core of the Merge play with significant operational control. We are the largest leaseholder in the Merge play, with approximately 115,000 net acres as of December 31, 2018. We believe that the scale and concentration of our acreage position allows for efficient field development through long laterals and shared facilities, with approximately 80% of our Merge sections capable of 1.5 mile or longer lateral development. Additionally, our acreage position is concentrated in areas that we believe demonstrate higher percentage production of oil and NGLs within the Merge play, and provides us development opportunities through multiple stacked prospective development horizons. As of December 31, 2018, we operated 81% of our net acreage in the Merge and we intend to maintain operational control over the majority of our drilling inventory, as we believe this enables us to increase our production and reserves and control our development costs, and ultimately increase shareholder value.

•Significant financial strength and flexibility. We believe we have a strong financial position, including a low debt profile and a large production base that generates significant cash flow, allowing us to strategically allocate capital in order to enhance shareholder value. We are well-positioned to adjust our development program based on market and industry conditions, as we have minimal commitments to deliver specified volumes, no rig contracts extending beyond 12 months and approximately 84% of our acreage is HBP as of December 31, 2018. We believe that our conservative capital structure, which we will seek to maintain through a disciplined approach to capital spending, and other potential financing sources will provide us with sufficient liquidity and flexibility to execute our development capital program.

Significant financial strength and flexibility. We believe we have a strong financial position, including a low debt profile and a large production base that generates significant cash flow, allowing us to strategically allocate capital in order to enhance shareholder value. We are well-positioned to adjust our development program based on market and industry conditions, as we have minimal commitments to deliver specified volumes, no rig contracts extending beyond 12 months and approximately 84% of our acreage is HBP as of December 31, 2018. We believe that our conservative capital structure, which we will seek to maintain through a disciplined approach to capital spending, and other potential financing sources will provide us with sufficient liquidity and flexibility to execute our development capital program.

•High Degree of Operational Control. We expect that we will be able to control operations on approximately 71% of our acreage in the Merge, SCOOP and STACK plays. For these purposes, we have assumed that we will control any unit in which we have leased a minimum of 37.5% of the acreage in the unit. Operational control of our leasehold positions allows us to control the development and production methods, as well as the pace of development on our wells.

High Degree of Operational Control. We expect that we will be able to control operations on approximately 71% of our acreage in the Merge, SCOOP and STACK plays. For these purposes, we have assumed that we will control any unit in which we have leased a minimum of 37.5% of the acreage in the unit. Operational control of our leasehold positions allows us to control the development and production methods, as well as the pace of development on our wells.

•Contiguous Acreage Position. A substantial portion of the sections in which we have operational control are offset to the north or south by adjacent controlled sections. Specifically, approximately 66% of our sections in the Merge, SCOOP and STACK plays can be developed on a multi-unit basis. As a result, we are able to develop long lateral horizontal wells for the majority of our drilling program, which we believe have exhibited superior economics as compared to shorter laterals as a result of development cost efficiencies.

Contiguous Acreage Position. A substantial portion of the sections in which we have operational control are offset to the north or south by adjacent controlled sections. Specifically, approximately 66% of our sections in the Merge, SCOOP and STACK plays can be developed on a multi-unit basis. As a result, we are able to develop long lateral horizontal wells for the majority of our drilling program, which we believe have exhibited superior economics as compared to shorter laterals as a result of development cost efficiencies.

•Largely Held-by-Production. Approximately 84% of our total acreage position was HBP as of December 31, 2018. We expect this high percentage of HBP acreage to enhance capital efficiencies in our development program, as we will pursue development locations with the favorable risk-adjusted rates of return in our location selection process, as opposed to selecting locations in order to hold acreage.

Largely Held-by-Production. Approximately 84% of our total acreage position was HBP as of December 31, 2018. We expect this high percentage of HBP acreage to enhance capital efficiencies in our development program, as we will pursue development locations with the favorable risk-adjusted rates of return in our location selection process, as opposed to selecting locations in order to hold acreage.

We refer to gross and net acreage where we are designated as operator or expect to be designated as operator based on the size of our working interest relative to other working interest owners as ‘our operated acreage’ or acreage we ‘operated’ in this Annual Report. As of December 31, 2018, we operated approximately 71% of our net acreage and had an average working interest of approximately 70% in all of our operated acreage. From January 1, 2018 through December 31, 2018, we drilled or participated in 214 gross horizontal wells that had first sales as of December 31, 2018.

As of December 31, 2018, approximately 84% of our total net acreage was held by production. This positions us to control the pace of our development efforts, strategically develop our acreage with a near-term focus on high-return projects, limit expenditures on lease renewals and limit the risk of losing high quality acreage through expiration of leases. Additionally, we closely monitor activity of other industry participants and adjust our future development plans based on information and what we believe to be best practices learned from our peers.

For the year ended December 31, 2018, our average net daily production was 43.7 MBoe/d (approximately 27% oil, 44% natural gas and 29% NGLs). During 2017, our average net daily production was 16.2 MBoe/d (approximately 25% oil, 49% natural gas and 26% NGLs). As of December 31, 2018, we had 1,263 gross (502 net) producing wells online, operated and non-operated.

Evaluation of Proved Reserves. Approximately 93% of our proved reserve estimates as of December 31, 2018 were prepared by DeGolyer and MacNaughton, our independent reserve engineers. Our personnel prepared reserve estimates with respect to the remaining approximate 7% of our proved reserves as of December 31, 2018.

Many of the leases comprising the undeveloped acreage set forth in the table above will expire at the end of their respective primary terms unless production from the leasehold acreage has been established prior to such date, in which event the lease will remain in effect until the cessation of production. As of December 31, 2018, approximately 84% of our total net acreage was held by production.

The typical oil and natural gas lease agreement covering our properties provides for the payment of royalties to the mineral owner for all oil and natural gas produced from any wells drilled on the leased premises. The lessor royalties and other leasehold burdens on our properties generally range from 12.5% to 25.0%, resulting in a net revenue interest to us generally ranging from 74% to 81% of our working interest, with an average net revenue interest of 78.9%.

The rates charged by many interstate liquids pipelines are currently adjusted pursuant to an annual indexing methodology established and regulated by FERC, under which pipelines increase or decrease their rates in accordance with an index adjustment specified by FERC. For the five-year period beginning July 1, 2016, FERC established an annual index adjustment equal to the change in the producer price index for finished goods plus 1.23%. This adjustment is subject to review every five years. Under FERC’s regulations, a liquids pipeline can request a rate increase that exceeds the rate obtained through application of the indexing methodology by obtaining market based rate authority (demonstrating the pipeline lacks market power), establishing rates by settlement with all existing shippers, or through a cost of service approach (if the pipeline establishes that a substantial divergence exists between the actual costs experienced by the pipeline and the rates resulting from application of the indexing methodology). Increases in liquids transportation rates may result in lower revenue and cash flows for us.

Our business and operating results can be harmed by factors such as the availability, terms of and cost of capital, increases in interest rates or a reduction in credit rating. These changes could cause our cost of doing business to increase, limit our ability to pursue acquisition opportunities, reduce cash flow used for drilling and place us at a competitive disadvantage. For example, as of December 31, 2018, we had $514.6 million of debt outstanding, with a weighted average interest rate of 5.21%, and a 1.0% increase in interest rates would result in an increase in annual interest expense of $5.1 million, assuming no change in the amount of debt outstanding. Recent and continuing disruptions and volatility in the global financial markets may lead to a contraction in credit availability impacting our ability to finance our operations. We require continued access to capital. A significant reduction in cash flows from operations or the availability of credit could materially and adversely affect our ability to achieve our planned growth and operating results.

Our credit facility limits the amounts we can borrow up to a borrowing base amount, which the lenders, in their sole discretion, will determine semiannually on April 1st and October 1st of each year. The borrowing base will depend on, among other things, projected revenues from, and asset values of, the proved oil and natural gas properties securing our credit facility and hedging arrangements. The lenders can unilaterally adjust the borrowing base and the borrowings permitted to be outstanding under our credit facility. Any increase in the borrowing base will require the consent of the lenders holding 100% of the commitments.

As of December 31, 2018, approximately 61% of our total estimated proved reserves were classified as proved undeveloped. Development of these proved undeveloped reserves may take longer and require higher levels of capital expenditures than we currently anticipate. Delays in the development of our reserves, increases in costs to drill and develop such reserves or decreases in commodity prices will reduce the value of our estimated PUDs and future net revenues estimated for such reserves and may result in some projects becoming uneconomic. In addition, delays in the development of reserves could cause us to lose leases through expiration or could cause us to reclassify our PUDs as unproved reserves. Further, we may be required to write down our PUDs if we do not drill those wells within five years after their respective dates of booking.

Approximately 16% of our net leasehold acreage is undeveloped and that acreage may not ultimately be developed or become commercially productive, which could cause us to lose rights under our leases as well as have a material adverse effect on our oil and natural gas reserves and future production and, therefore, our future cash flow and income.

As of December 31, 2018, approximately 16% of our net leasehold acreage was undeveloped or acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves. Unless production is established on the undeveloped acreage covered by our leases, such leases will expire. Our future oil and natural gas reserves and production and, therefore, our future cash flow and income are highly dependent on successfully developing our undeveloped leasehold acreage. Further, to the extent we determine that it is not economic to develop particular undeveloped acreage, we may intentionally allow leases to expire.

Our top four customers represented approximately 77% of our total revenue for the year ended December 31, 2018. It is likely that we will continue to derive a significant portion of our revenue from a relatively small number of customers for the foreseeable future. Loss of one of these purchasers could adversely affect our revenues in the short term.

Our principal stockholders and their affiliates beneficially own approximately 75% (50% of which is beneficially owned by Roan Holdings) of our outstanding Class A common stock. Consequently, they will continue to have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Because our board will be classified through the 2020 annual meeting, certain of our directors will not come up for election until after the 2020 annual meeting. This concentration of ownership and the rights of our principal stockholders will limit your ability to influence corporate matters, and as a result, actions may be taken that you may not view as beneficial.

among other things, potential competitive business activities or business opportunities. Several of our principal stockholders are private equity firms or investment funds in the business of making investments in entities in a variety of industries. As a result, our principal stockholders’ existing and future portfolio companies may compete with us for investment or business opportunities. These conflicts of interest may not be resolved in our favor. Certain of our principal stockholders owning approximately 25% of our outstanding Class A common stock own a significant interest in Riviera, the owner of Blue Mountain.

•Average daily sales volumes were 43.7 MBoe for the year ended December 31, 2018, an increase of 170% compared to 16.2 MBoe during 2017.

Average daily sales volumes were 43.7 MBoe for the year ended December 31, 2018, an increase of 170% compared to 16.2 MBoe during 2017.

Production taxes. Production taxes are paid on produced oil, natural gas and NGLs based on a percentage of revenues at fixed rates established by federal, state or local taxing authorities. In general, the production taxes we pay correlate to changes in our oil, natural gas and NGL revenues. As all of our oil and natural gas production is in the state of Oklahoma, we are generally subject to a tax rate of 2% for the first 36 months of production and 7% thereafter for wells spud on or after July 1, 2015. Starting with July 2018 production, the tax rate increased to 5% for the first 36 months of production and 7% thereafter. We are also subject to ad valorem taxes in the counties where our production is located. Ad valorem taxes are generally based on the valuation of our oil and natural gas properties, which also trend with oil and natural gas prices and vary across the different counties in which we operate.

Oil sales. Our oil sales increased by approximately $198.4 million, or 258%, to $275.2 million for the year ended December 31, 2018 from $76.9 million for the year ended December 31, 2017. This increase was primarily due to the increase in production as well as the increase in average sales prices received for our produced volumes. Our oil production increased 2,910 MBbls, or 200%, to 4,364 MBbls for the year ended December 31, 2018 from 1,454 MBbls for the year ended December 31, 2017. The increase in production volumes was due to production associated with oil and natural gas properties contributed by Linn in August 2017 and drilling activity in the fourth quarter of 2017 and throughout 2018. The increase in average sales prices received on our oil production for the year ended December 31, 2018 reflects the increase in the index price for oil in 2018 as compared to 2017.

Natural gas sales. Our natural gas sales increased by approximately $26.8 million, or 55%, to $76.1 million for the year ended December 31, 2018 from $49.2 million for the year ended December 31, 2017. This increase was primarily due to the increase in production, partially offset by a decrease in average sales prices received for those produced volumes and the impact of netting transportation costs with revenue as a result of adopting ASC 606. Our natural gas production increased 24,308 MMcf, or 138%, to 41,890 MMcf for the year ended December 31, 2018 from 17,582 MMcf for the year ended December 31, 2017. The increase in production volumes was due to production associated with oil and natural gas properties contributed by Linn in August 2017 and drilling activity in the fourth quarter of 2017 and throughout 2018. The decrease in average sales prices received on our natural gas production for the year ended December 31, 2018 reflects the decrease in the Oklahoma index prices we received under our contract terms for natural gas in 2018 as compared to 2017. Additionally, our average sales price for the year ended December 31, 2018 was reduced by transportation costs for the produced natural gas volumes.

Production expenses. Production expenses were $47.6 million, or $2.99 per Boe, for the year ended December 31, 2018, which was an increase of $30.7 million, or 182%, from $16.9 million, or $2.86 per Boe, for the year ended December 31, 2017. The increase in production expenses during 2018 compared to 2017 was primarily due to increased production.

Production taxes. Production taxes were $17.6 million for the year ended December 31, 2018, an increase of $13.9 million, or 377%, from $3.7 million for the year ended December 31, 2017. Production taxes primarily increased due to increased revenues and increased production tax rates, which became effective in July 2018.

Depreciation, depletion, amortization and accretion. Depreciation, depletion, amortization and accretion was $123.9 million, or $7.78 per Boe, for the year ended December 31, 2018, and $37.4 million, or $6.33 per Boe, for the year ended December 31, 2017, which is an increase of $86.5 million or 232%. The increase in depreciation, depletion, amortization and accretion was primarily due to increased production and, to a lesser extent, an increase in the depletion rate for our oil and natural gas properties. The per Boe increase in the depletion rate is attributable to higher capital expenditures in 2018.

General and administrative. General and administrative expenses were $60.9 million, or $3.82 per Boe, for the year ended December 31, 2018, an increase of $29.5 million or 94% from $31.4 million, or $5.31 per Boe, for the year ended December 31, 2017. During the year ended December 31, 2018, general and administrative expenses included salaries and benefits of $21.7 million and equity-based compensation expense of $11.0 million. Additionally, we incurred consulting and professional fees as part of the implementation of systems and processes and transition efforts in 2018 as well as $4.6 million of costs associated with the Reorganization. These expenses were offset by bonuses paid by Citizen of approximately $9.0 million during the year ended December 31, 2017.

Natural gas sales. Our natural gas sales increased by approximately $33.1 million, or 206%, to $49.2 million for the year ended December 31, 2017 from $16.1 million for the year ended December 31, 2016. This increase was due to increased production and an increase in average sales prices received for our produced volumes. Our natural gas production increased by 11,200 MMcf, or 175%, for the year ended December 31, 2017 compared with the year ended December 31, 2016. The increase in production volumes was due to production associated with oil and natural gas properties contributed by Linn in August 2017 and drilling activity in 2017. The increase in average sales prices received on our natural gas production for the year ended December 31, 2017 reflects the increase in the index price for the year ended December 31, 2017 as compared to the year ended December 31, 2016.

NGL sales. Our NGL sales increased by approximately $32.0 million, or 385%, to $40.3 million for the year ended December 31, 2017 from $8.3 million for the year ended December 31, 2016. This increase was primarily due to increased production as well as an increase in average sales prices received for our produced volumes. Our NGL production increased by 978 MBbls, or 179%, for the year ended December 31, 2017 compared with the year ended December 31, 2016. The increase in production volumes was due to production associated with oil and natural gas properties contributed by Linn in August 2017 and drilling activity in 2017. The increase in average sales prices received on our NGL production for the year ended December 31, 2017 reflects the increase in the index prices for NGLs in 2017.

Production expenses. Production expenses were $16.9 million, or $2.86 per Boe, for the year ended December 31, 2017, which was an increase of $11.8 million, or 231%, from $5.1 million, or $2.17 per Boe, for the year ended December 31, 2016. The increase in production expenses during 2017 compared to 2016 was primarily due to increased production.

Gathering, transportation and processing. Gathering, transportation, and processing costs were $18.6 million, or $3.15 per Boe, for the year ended December 31, 2017, which was an increase of $12.7 million, or 215%, from $5.9 million, or $2.52 per Boe, for the year ended December 31, 2016. The increase in gathering, transportation and processing costs during 2017 as compared to 2016 was primarily related to increased production.

Production taxes. Production taxes were $3.7 million for the year ended December 31, 2017, which was an increase of $2.6 million, or 239%, from $1.1 million for the year ended December 31, 2016. Production taxes primarily increased due to increased revenues.

Depreciation, depletion, amortization and accretion. Depreciation, depletion, amortization and accretion was $37.4 million, or $6.33 per Boe, for the year ended December 31, 2017, which was an increase of $12.4 million, or 50%, from $25.0 million, or $10.64 per Boe, for the year ended December 31, 2016. The increase in depreciation, depletion, amortization and accretion was primarily due to increased production.

General and administrative. General and administrative expenses were $31.4 million, or $5.31 per Boe, for the year ended December 31, 2017, which was an increase of $25.8 million, or 462%, from $5.6 million, or $2.38 per Boe, for the year ended December 31, 2016. During the year ended December 31, 2017, general and administrative expenses included fees paid to Citizen and Linn under our MSAs of $10.0 million, bonuses paid by Citizen of approximately $9.0 million, equity-based compensation expense of $0.4 million and professional and consulting expenses related to Roan’s transition and system implementation.

Amounts borrowed under the credit facility bear interest at London Interbank Offered Rate (‘LIBOR’) or the alternate base rate (‘ABR’) at our election. The rate used for ABR loans is based on the higher of the prime rate, the federal funds effective rate plus 0.50% or the one-month LIBOR rate plus 1%. Either rate is adjusted upward by an applicable margin (ranging from 2.00% to 3.00% for LIBOR and 1.00% to 2.00% for ABR), based on the utilization percentage of the credit facility. Additionally, the credit facility provides for a commitment fee of 0.375% to 0.50% based on utilization, which is payable at the end of each calendar quarter.

The credit facility contains representations, warranties, covenants, conditions and defaults customary for transactions of this type, including but not limited to: (i) limitations on liens and incurrence of debt covenants; (ii) limitations on the sale of property, mergers, consolidations and other similar transactions covenants; (iii) limitations on investments, loans and advances covenants; and (iv) limitations on dividends, distributions, redemptions and restricted payments covenants. Additionally, we are prohibited from hedging in excess of (a) 80% of reasonably anticipated projected production for the first thirty (30) month rolling period (based upon our internal projections) and (b) 80% of reasonably anticipated projected production from proved reserves for the second thirty (30) month rolling period of such sixty (60) month period (based on the most recently delivered reserve report). If the amount of borrowings outstanding exceed 50% of the borrowing base, we are required to hedge a minimum of 50% of the future production expected to be derived from proved developed reserves for the next eight quarters per our most recent reserve report.

(1) Includes interest expense on our outstanding borrowings calculated using the weighted average interest rate of 5.21% at December 31, 2018.

Proved reserves are based on the quantities of oil, natural gas and NGL that by analysis of geoscience and engineering data can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain. Our reserve estimates as of December 31, 2018 were prepared by DeGolyer and MacNaughton, our independent reserve engineers, and our internal staff. DeGolyer and MacNaughton prepared reserve estimates for 93% of our total reserves.

At December 31, 2018, we had a net asset position of $101.8 million related to our derivative contracts. Utilizing actual derivative contractual volumes under our fixed price swaps as of December 31, 2018, an increase of 10% in the forward curves associated with the underlying commodity would have decreased the net asset position to $55.9 million, while a decrease of 10% in the forward curves associated with the underlying commodity would have increased the net asset position to $159.7 million.

As of December 31, 2018, we had $514.6 million in outstanding borrowings under our credit facility with a weighted average interest rate on these borrowings of 5.21%. An increase or decrease of 1% in the interest rate would have a corresponding increase or decrease in our interest expense of approximately $5.1 million based on outstanding borrowings of $514.6 million under our credit facility as of December 31, 2018.

Roan LLC was initially formed by Citizen Energy II, LLC (‘Citizen’) in May 2017. On August 31, 2017, the Company executed a contribution agreement (the ‘Contribution Agreement’) by and among Roan LLC, Citizen, Linn Energy Holdings, LLC (‘LEH’) and Linn Operating, LLC (‘LOI’, and together with LEH, ‘Linn’) pursuant to which, among other things, Citizen and Linn agreed to contribute oil and natural gas properties within an area-of-mutual-interest to the Company (collectively the ‘Contribution’). In exchange for their contributions, Citizen and Linn each received a 50% equity interest in Roan LLC.

In 2018, the Company adopted a 401(k) retirement plan and health and welfare benefit plans in which our employees are eligible to participate. Under the 401(k) retirement plan, the Company provides for an employer match of employee contributions of up to 6% of eligible compensation and a profit-sharing contribution of up to 8% of eligible compensation. For the year ended December 31, 2018, the Company paid $1.2 million in contributions to the plan.

As noted in Note 1 – Business and Organization, in connection with the Contribution, Roan LLC acquired from Linn certain oil and natural gas properties located in Central Oklahoma (the ‘Linn Acquisition’). In exchange for the contributed oil and natural gas properties, Linn received a 50% equity interest in Roan LLC valued at approximately $1.3 billion based on the value of the business. Accordingly, the fair value of the Company was primarily comprised of the fair value of these contributed oil and natural gas properties. See Note 10 – Equity for further discussion of the equity issued to Linn.

(1) Possible reserves had a reserve risk factor of 35%, probable reserves had a reserve risk factor of 75%, and proved undeveloped reserves had a reserve risk factor of 90%.

In September 2017, the Company entered into a $750.0 million credit agreement with an initial borrowing base of $200.0 million and maturity on September 5, 2022 (as amended, the ‘2017 Credit Facility’). In September 2018, the redetermination resulted in an increase to the borrowing base to $675.0 million. Redetermination of the borrowing base of the 2017 Credit Facility occurs semiannually on or about October 1 and April 1. As of December 31, 2018, the Company had $514.6 million of outstanding borrowings and no letters of credit outstanding under the 2017 Credit Facility. At December 31, 2018, the weighted average interest rate on borrowings under our 2017 Credit Facility was 5.21%. The 2017 Credit Facility is secured by substantially all of the assets of the Company.

The Company amended the 2017 Credit Facility in September 2018 to increase the borrowing base as noted above as well as to allow for permitted additional debt of up to $500 million before any reduction in the borrowing base would occur, to reduce the applicable margin for both London Interbank Offered Rate (‘LIBOR’) and alternate base rate (‘ABR’) loans by 0.25% for each utilization level, and to reduce the commitment fee rate for the two lowest utilization levels to 0.375%.

The 2017 Credit Facility contains representations, warranties, covenants, conditions and defaults customary for transactions of this type, including but not limited to: (i) limitations on liens and incurrence of debt covenants; (ii) limitations on the sale of property, mergers, consolidations and other similar transactions covenants; (iii) limitations on investments, loans and advances covenants; and (iv) limitations on dividends, distributions, redemptions and restricted payments covenants. Additionally, the Company is prohibited from hedging in excess of (a) 80% of reasonably anticipated projected production for the first thirty (30) month rolling period (based upon the Company’s internal projections) and (b) 80% of reasonably anticipated projected production from proved reserves for the second thirty (30) month rolling period of such sixty (60) month period (based on the most recently delivered reserve report). If the amount of borrowings outstanding exceed 50% of the borrowing base, the Company is required to hedge a minimum of 50% of the future production expected to be derived from proved developed reserves for the next eight quarters per its most recent reserve report.

For the period of September 1, 2017 through the date of the Reorganization, Roan LLC was governed by the Amended and Restated Limited Liability Company Agreement of Roan Resources LLC. In connection with the Contribution in August 2017, Roan LLC issued 1.5 billion membership units representing capital interests in Roan LLC (the ‘LLC Units’) for a 50% equity interest in Roan LLC, to Linn in exchange for the contribution of oil and natural gas properties. See Note 4 – Acquisitions for additional discussion of the Linn Acquisition. Additionally, Roan LLC issued 1.5 billion LLC Units, which represented a 50% equity interest in Roan LLC, to Citizen in exchange for the contribution of oil and natural gas properties. The fair value of the LLC Units issued to Citizen was the same as that of the LLC Units issued to Linn.

For the period January 1, 2017 through August 31, 2017, Citizen’s operations were governed by the provisions of the Citizen Amended and Restated Operating Agreement (the ‘Citizen Operating Agreement’), effective February 29, 2016, and Citizen had two classes of membership interests outstanding, Class A and Class B interests. Class A interests represented capital interests in Citizen and Class B interests represented interests in profits, losses and distributions. Distributions were made to the Class A interests and Class B interests members pro rata in accordance with their membership interests; however, once the Class A interests members received an internal rate of return threshold of 9% prior to distributions to any other class of interest, the Class B interests members received a percentage of distributions in excess of their membership interests based on the terms of the Citizen Operating Agreement.

Prior to the Reorganization, Roan LLC granted performance share units to certain of its employees under the Roan LLC Management Incentive Plan. The performance share units were converted into awards of performance share units under the Plan, hereafter referred to as the ‘PSUs,’ and are subject to the terms of the Plan and individual award agreements. The amount of PSUs that can be earned range from 0% to 200% based on the Company’s market value on December 31, 2020 (‘Performance Period End Date’). The Company’s market value on the Performance Period End Date will be determined by reference to the volume-weighted average price of the Company’s Class A common stock for the 30 consecutive trading days immediately preceding the Performance Period End Date. Each earned PSU will be settled through the issuance of one share of the Company’s Class A common stock. Other than the security in which the PSUs are settled, no terms of the PSUs were modified in connection with the conversion of the PSUs.

The Company’s effective combined U.S. federal and state income tax rate for the year ended December 31, 2018 excluding discrete items was 24.3%. During the year ended December 31, 2018, the Company recognized income tax expense of $356.9 million, including $304.5 million related to the initial recording of the deferred tax liability recognized by the Company as a result of the Reorganization.

(2)Income tax expense is calculated using results from the period after the Reorganization when the Company became a taxable entity and the Company’s effective tax rate of 24.3%.

Income tax expense is calculated using results from the period after the Reorganization when the Company became a taxable entity and the Company’s effective tax rate of 24.3%.

https://whatsonthorold.com/2019/04/01/roan-resources-inc-filed-on-mon-april-01-10-k/

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