Annual report pursuant to Section 13 and 15(d)

CRUDE OIL AND NATURAL GAS PROPERTIES

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CRUDE OIL AND NATURAL GAS PROPERTIES
12 Months Ended
Dec. 31, 2020
Oil and Gas Exploration and Production Industries Disclosures [Abstract]  
CRUDE OIL AND NATURAL GAS PROPERTIES CRUDE OIL AND NATURAL GAS PROPERTIES
The book value of the Company’s crude oil and natural gas properties consists of all acquisition costs (including cash expenditures and the value of stock consideration), drilling costs and other associated capitalized costs.  Acquisitions are accounted for as purchases and, accordingly, the results of operations are included in the accompanying statements of operations from the closing date of the acquisition. Acquired assets and liabilities assumed are recorded based on their estimated fair value at the time of the acquisition.  Acquisitions have been funded with internal cash flow, bank borrowings and the issuance of debt and equity securities.  Development capital expenditures and purchases of properties that were in accounts payable and not yet paid in cash at December 31, 2020 and 2019 were approximately $88.6 million and $161.7 million, respectively.

2020 Acquisitions

During 2020, the Company acquired oil and natural gas properties, through a number of independent transactions, for a total of $21.6 million, excluding the associated development costs.

2019 Acquisitions

During 2019, excluding the VEN Bakken Acquisition described below, the Company acquired oil and natural gas properties through a number of independent transactions for a total of $53.4 million. This amount includes $22.6 million of development costs that occurred prior to the closings of the acquisitions.

VEN Bakken Acquisition

On July 1, 2019, the Company completed its acquisition (the “VEN Bakken Acquisition”) of certain oil and gas properties and interests from VEN Bakken, LLC (“VEN Bakken”), effective as of July 1, 2019. VEN Bakken is a wholly-owned subsidiary of Flywheel Bakken, LLC. At closing the acquired assets consisted of approximately 90.1 net producing wells and 3.3 net wells in process, as well as approximately 18,000 net acres substantially all in North Dakota. The Company also assumed certain crude oil derivative contracts from VEN Bakken as part of the acquisition. The VEN Bakken Acquisition was completed pursuant to the purchase and sale agreement between the Company and VEN Bakken, dated as of April 18, 2019.
The total estimated consideration paid by the Company was $315.3 million, consisting of (i) $174.9 million in cash, (ii) shares of Company common stock valued at $11.7 million, and (iii) $128.7 million of value attributable to a 6.0% unsecured promissory note due July 1, 2022 issued by the Company to VEN Bakken in the aggregate principal amount of $130.0 million (the “Unsecured VEN Bakken Note”). The Company incurred $1.8 million of transactions costs in connection with the acquisition, which are included in general and administrative expense in the statement of operations. The following table reflects the fair values of the net assets and liabilities as of the date of acquisition:

(In thousands)
Fair value of net assets:
Proved oil and natural gas properties $ 324,974 
Asset retirement cost 2,680 
Total assets acquired 327,654 
Asset retirement obligations (2,680)
Derivative instruments (9,694)
Net assets acquired $ 315,280 
Fair value of consideration paid for net assets:
Cash consideration $ 174,912 
Issuance of common stock (5.6 million shares at $2.09 per share)
11,708 
Unsecured VEN Bakken Note 128,660 
Total fair value of consideration transferred $ 315,280 

Pro Forma Information

The following summarized unaudited pro forma statement of operations information for the year ended December 31, 2019 assumes that the VEN Bakken Acquisition occurred as of January 1, 2019. There is no pro forma information included for the year ended December 31, 2020, because the Company’s actual financial results for such period fully reflect this acquisition. The Company prepared the following summarized unaudited pro forma financial results for comparative purposes only. The summarized unaudited pro forma information may not be indicative of the results that would have occurred had the Company completed this acquisition on the date indicated, or that would be attained in the future.

Year Ended December 31,
(In thousands) 2019
Revenues $ 500,728 
Net Loss $ (95,812)

Divestitures

From time-to-time the Company may divest assets. In addition, the Company may trade leasehold interests with operators to balance working interests in spacing units to facilitate and encourage a more expedited development of the Company’s acreage.

Unproved Properties

Unproved properties not being amortized comprise approximately 16,531 net acres and 16,464 net acres of undeveloped leasehold interests at December 31, 2020 and 2019, respectively.  The Company believes that the majority of its unproved costs will become subject to depletion within the next five years by proving up reserves relating to the acreage through exploration and development activities, by impairing the acreage that will expire before the Company can explore or develop it further or by determining that further exploration and development activity will not occur.  The timing by which all other properties will become subject to depletion will be dependent upon the timing of future drilling activities and delineation of its reserves.
Excluded costs for unproved properties are accumulated by year.  Costs are reflected in the full cost pool as the drilling costs are incurred or as costs are evaluated and deemed impaired.  The Company anticipates these excluded costs will be included in the depletion computation over the next five years.  The Company is unable to predict the future impact on depletion rates.   The following is a summary of capitalized costs excluded from depletion at December 31, 2020 by year incurred.

  December 31,
(In thousands) 2020 2019 2018 Prior Years
Property Acquisition $ 308  $ 4,302  $ 4,487  $ 934 
Development —  —  —  — 
Total $ 308  $ 4,302  $ 4,487  $ 934 

The Company historically has acquired unproved properties by purchasing individual or small groups of leases directly from mineral owners, landmen or lease brokers, which leases historically have not been subject to specified drilling projects, and by purchasing lease packages in identified project areas controlled by specific operators.  The Company generally participates in drilling activities on a heads up basis by electing whether to participate in each well on a well-by-well basis at the time wells are proposed for drilling.
The Company assesses all items classified as unproved property on an annual basis, or if certain circumstances exist, more frequently, for possible impairment or reduction in value.  The assessment includes consideration of the following factors, among others:  intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, the assignment of proved reserves, and the economic viability of development if proved reserves are assigned.  During any period in which these factors indicate an impairment, the cumulative costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and amortization.