Annual report pursuant to Section 13 and 15(d)

SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)

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SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
12 Months Ended
Dec. 31, 2020
Extractive Industries [Abstract]  
SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
SUPPLEMENTAL OIL AND GAS INFORMATION
(UNAUDITED)

Oil and Natural Gas Exploration and Production Activities

Oil and gas sales reflect the market prices of net production sold or transferred with appropriate adjustments for royalties, net profits interest, and other contractual provisions.  Production expenses include lifting costs incurred to operate and maintain productive wells and related equipment including such costs as operating labor, repairs and maintenance, materials, supplies and fuel consumed.  Production taxes include production and severance taxes. Depletion of crude oil and natural gas properties relates to capitalized costs incurred in acquisition, exploration, and development activities.  Results of operations do not include interest expense and general corporate amounts.  The results of operations for the Company’s crude oil and natural gas production activities are provided in the Company’s related statements of income.

Costs Incurred and Capitalized Costs

The costs incurred in crude oil and natural gas acquisition, exploration and development activities are highlighted in the table below.

  December 31,
 (In thousands) 2020 2019 2018
Costs Incurred for the Year:
Proved Property Acquisition and Other $ 50,345  $ 375,145  $ 582,697 
Unproved Property Acquisition 770  9,540  4,903 
Development 162,797  369,233  260,945 
Total $ 213,912  $ 753,918  $ 848,545 

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 

Oil and Natural Gas Reserves and Related Financial Data

Information with respect to the Company’s crude oil and natural gas producing activities is presented in the following tables.  Reserve quantities, as well as certain information regarding future production and discounted cash flows, were determined by Cawley, Gillespie & Associates, Inc., third-party independent reserve engineers based on information provided by the Company.
Oil and Natural Gas Reserve Data

The following tables present the Company’s third-party independent reserve engineers estimates of its proved crude oil and natural gas reserves.  The Company emphasizes that reserves are approximations and are expected to change as additional information becomes available.  Reservoir engineering is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment.

(In thousands) Natural Gas
(MCF)
Oil
(BBLS)
BOE
Proved Developed and Undeveloped Reserves at December 31, 2017 78,121  62,812  75,832 
  Revisions of Previous Estimates 426  3,470  3,541 
  Extensions, Discoveries and Other Additions 28,348  28,516  33,241 
  Purchases of Minerals in Place 37,397  25,965  32,198 
  Production (9,225) (7,790) (9,328)
Proved Developed and Undeveloped Reserves at December 31, 2018 135,066  112,973  135,484 
Revisions of Previous Estimates (5,146) (15,497) (16,355)
Extensions, Discoveries and Other Additions 22,019  19,992  23,662 
Purchases of Minerals in Place 53,969  25,611  34,606 
Production (16,591) (11,325) (14,091)
Proved Developed and Undeveloped Reserves at December 31, 2019 189,318  131,754  163,307 
Revisions of Previous Estimates (21,512) (33,289) (36,874)
Extensions, Discoveries and Other Additions 8,308  6,921  8,306 
Production (16,473) (9,361) (12,107)
Proved Developed and Undeveloped Reserves at December 31, 2020 159,641  96,025  122,632 
Proved Developed Reserves:    
December 31, 2017 46,518  38,593  46,346 
December 31, 2018 82,315  62,497  76,216 
December 31, 2019 116,846  77,160  96,634 
December 31, 2020 114,060  65,135  84,145 
Proved Undeveloped Reserves:    
December 31, 2017 31,603  24,220  29,487 
December 31, 2018 52,752  50,476  59,268 
December 31, 2019 72,473  54,594  66,673 
December 31, 2020 45,581  30,890  38,487 

Proved reserves are estimated quantities of crude oil and natural gas, which geological and engineering data indicate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.  Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.  Proved undeveloped reserves are included for reserves for which there is a high degree of confidence in their recoverability and they are scheduled to be drilled within the next five years.
Notable changes in proved reserves for the year ended December 31, 2020 included the following:

Extensions and discoveries. In 2020, total extensions and discoveries of 8.3 MMBOE were primarily attributable to successful drilling in the Williston Basin as well as the addition of proved undeveloped locations. Included in these extensions and discoveries were 3.1 MMBOE as a result of successful drilling in the Williston Basin and 5.2 MMBOE as a result of additional proved undeveloped locations.

Revisions to previous estimates. In 2020, revisions to previous estimates decreased proved developed and undeveloped reserves by a net amount of 36.9 MMBOE. Included in these revisions were 33.8 MMBOE of downward adjustments caused by lower crude oil and natural gas prices, a 0.7 MMBOE downward adjustment attributable to well performance when comparing the Company’s reserve estimates at December 31, 2020 to December 31, 2019 and 2.3 MMBOE of downward adjustments related to the removal of undeveloped drilling locations related to the 5 year rule.

Notable changes in proved reserves for the year ended December 31, 2019 included the following:

Extensions and discoveries. In 2019, total extensions and discoveries of 23.7 MMBOE were primarily attributable to successful drilling in the Williston Basin as well as the addition of proved undeveloped locations. Included in these extensions and discoveries were 11.3 MMBOE as a result of successful drilling in the Williston Basin and 12.3 MMBOE as a result of additional proved undeveloped locations.

Purchases of minerals in place. In 2019, total purchases of minerals in place of 34.6 MMBOE were primarily attributable to acquisitions of oil and natural gas properties (see Note 3).

Revisions to previous estimates. In 2019, revisions to previous estimates decreased proved developed and undeveloped reserves by a net amount of 16.4 MMBOE. Included in these revisions were 9.8 MMBOE of downward adjustments caused by lower crude oil and natural gas prices, a 2.0 MMBOE downward adjustment attributable to well performance when comparing the Company’s reserve estimates at December 31, 2019 to December 31, 2018 and 4.6 MMBOE of downward adjustments related to the removal of undeveloped drilling locations related to the 5 year rule.

Notable changes in proved reserves for the year ended December 31, 2018 included the following:

Extensions and discoveries. In 2018, total extensions and discoveries of 33.2 MMBOE were primarily attributable to successful drilling in the Williston Basin as well as the addition of proved undeveloped locations. Included in these extensions and discoveries were 27.6 MMBOE as a result of successful drilling in the Williston Basin and 5.6 MMBOE as a result of additional proved undeveloped locations.

Purchases of minerals in place. In 2018, total purchases of minerals in place of 32.2 MMBOE were primarily attributable to acquisitions of oil and natural gas properties (see Note 3).

Revisions to previous estimates. In 2018, revisions to previous estimates increased proved developed and undeveloped reserves by a net amount of 3.5 MMBOE. Included in these revisions were 1.4 MMBOE of upward adjustments caused by higher crude oil and natural gas prices and a 3.9 MMBOE upward adjustment attributable to well performance when comparing the Company’s reserve estimates at December 31, 2018 to December 31, 2017 which was partially offset by 2.8 MMBOE of downward adjustments related to the removal of undeveloped drilling locations related to the 5 year rule.
Standardized Measure of Discounted Future Net Cash Inflows and Changes Therein

The following table presents a standardized measure of discounted future net cash flows relating to proved crude oil and natural gas reserves and the changes in standardized measure of discounted future net cash flows relating to proved crude oil and natural gas were prepared in accordance with the provisions of ASC 932 Extractive Activities - Oil and Gas. Future cash inflows were computed by applying average prices of crude oil and natural gas for the last 12 months to estimated future production. Future production and development costs were computed by estimating the expenditures to be incurred in developing and producing the proved crude oil and natural gas reserves at the end of the year, based on year end costs and assuming continuation of existing economic conditions.  Future income tax expenses were calculated by applying appropriate year end tax rates to future pretax cash flows relating to proved crude oil and natural gas reserves, less the tax basis of properties involved and tax credits and loss carry forwards relating to crude oil and natural gas producing activities.  Future net cash flows are discounted at the rate of 10% annually to derive the standardized measure of discounted future cash flows. Actual future cash inflows may vary considerably, and the standardized measure does not necessarily represent the fair value of the Company’s crude oil and natural gas reserves.
  December 31,
(In thousands) 2020 2019 2018
Future Cash Inflows $ 3,395,670  $ 7,059,586  $ 7,524,587 
Future Production Costs (1,747,325) (2,868,762) (2,605,279)
Future Development Costs (416,507) (855,041) (784,615)
Future Income Tax Expense (3,273) (320,528) (611,989)
Future Net Cash Inflows $ 1,228,565  $ 3,015,255  $ 3,522,704 
10% Annual Discount for Estimated Timing of Cash Flows (516,554) (1,337,194) (1,643,061)
Standardized Measure of Discounted Future Net Cash Flows $ 712,011  $ 1,678,061  $ 1,879,643 

The twelve month average prices were adjusted to reflect applicable transportation and quality differentials on a well-by-well basis to arrive at realized sales prices used to estimate the Company’s reserves.  The price of other liquids is included in natural gas.  The prices for the Company’s reserve estimates were as follows:
Natural Gas
MCF
Oil
Bbl
December 31, 2020 $ 1.61  $ 32.69 
December 31, 2019 $ 2.12  $ 50.53 
December 31, 2018 $ 4.50  $ 61.23 

The expected tax benefits to be realized from utilization of the net operating loss and tax credit carryforwards are used in the computation of future income tax cash flows.  As a result of available net operating loss carryforwards and the remaining tax basis of its assets at December 31, 2020, the Company’s future income taxes were significantly reduced.
Changes in the Standardized Measure of Discounted Future Net Cash Flows at 10% per annum follow:
  December 31,
(In thousands) 2020 2019 2018
Beginning of Period $ 1,678,061  $ 1,879,643  $ 753,986 
Sales of Oil and Natural Gas Produced, Net of Production Costs (177,932) (424,548) (381,961)
Extensions and Discoveries 52,232  282,528  549,353 
Previously Estimated Development Cost Incurred During the Period
78,633  100,987  115,542 
Net Change of Prices and Production Costs (815,278) (680,119) 484,122 
Change in Future Development Costs (150,991) (174,729) (91,829)
Revisions of Quantity and Timing Estimates (280,481) (226,721) 66,185 
Accretion of Discount 182,202  218,023  75,800 
Change in Income Taxes 143,438  156,621  (296,571)
Purchases of Minerals in Place —  338,289  502,193 
Other 2,127  208,087  19,902 
End of Period $ 712,011  $ 1,678,061  $ 1,879,643