0001214659-18-005478.txt : 20180814 0001214659-18-005478.hdr.sgml : 20180814 20180814143114 ACCESSION NUMBER: 0001214659-18-005478 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 34 CONFORMED PERIOD OF REPORT: 20180630 FILED AS OF DATE: 20180814 DATE AS OF CHANGE: 20180814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIDGEWOOD ENERGY Q FUND LLC CENTRAL INDEX KEY: 0001338474 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-51927 FILM NUMBER: 181016383 BUSINESS ADDRESS: STREET 1: 14 PHILIPS PARKWAY CITY: MONTVALE STATE: NJ ZIP: 07645 BUSINESS PHONE: 2014479000 MAIL ADDRESS: STREET 1: 14 PHILIPS PARKWAY CITY: MONTVALE STATE: NJ ZIP: 07645 10-Q 1 q8318010q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

ý

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

For the quarterly period ended June 30, 2018

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the transition period from _______________________to____________________________

 

Commission File No. 000-51927

 

Ridgewood Energy Q Fund, LLC

(Exact name of registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

84-1689138

(I.R.S. Employer

Identification No.)

 

14 Philips Parkway, Montvale, NJ  07645

(Address of principal executive offices) (Zip code)

 

(800) 942-5550

(Registrant’s telephone number, including area code)

 

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 x     No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).   Yes x     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

(Do not check if a smaller reporting company)

¨

Smaller reporting company

Emerging growth company

x

¨

 

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 x

 

As of August 14, 2018 there were 830.5577 shares of LLC Membership Interest outstanding. 

  

 

   

 

 

Table of Contents

 

   PAGE
PART I - FINANCIAL INFORMATION  
Item 1. Financial Statements 1
      Unaudited Condensed Balance Sheets as of June 30, 2018 and December 31, 2017 1
      Unaudited Condensed Statements of Operations for the three and six months ended June 30,
2018 and 2017
2
     

Unaudited Condensed Statements of Cash Flows for the six months ended
June 30, 2018 and 2017

3
      Notes to Unaudited Condensed Financial Statements 4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
    
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 1A. Risk Factors 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 17
Item 4. Mine Safety Disclosures 17
Item 5. Other Information 17
Item 6. Exhibits 17
     
   SIGNATURES 18

 

   

 

 PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

RIDGEWOOD ENERGY Q FUND, LLC

UNAUDITED CONDENSED BALANCE SHEETS

(in thousands, except share data)

 

   June 30, 2018   December 31, 2017 
Assets        
Current assets:        
Cash and cash equivalents  $1,355   $1,026 
Salvage fund   263    588 
Production receivable   501    532 
Other current assets   -    60 
Total current assets   2,119    2,206 
Salvage fund   838    435 
Oil and gas properties:          
Proved properties   23,887    22,433 
Less:  accumulated depletion and amortization   (10,122)   (7,921)
Total oil and gas properties, net   13,765    14,512 
Total assets  $16,722   $17,153 
           
Liabilities and Members' Capital          
Current liabilities:          
Due to operators  $850   $682 
Accrued expenses   41    54 
Current portion of long-term borrowings   1,655    1,620 
Asset retirement obligations   263    588 
Other current liabilities   45    45 
Total current liabilities   2,854    2,989 
Long-term borrowings   2,568    3,218 
Asset retirement obligations   545    236 
Total liabilities   5,967    6,443 
Commitments and contingencies (Note 5)          
Members' capital:          
Manager:          
Distributions   (7,081)   (7,081)
Retained earnings   5,437    5,093 
Manager's total   (1,644)   (1,988)
Shareholders:          
Capital contributions (1,335 shares authorized;          
   830.5577 issued and outstanding)   123,037    123,037 
Syndication costs   (14,070)   (14,070)
Distributions   (40,120)   (40,120)
Accumulated deficit   (56,448)   (56,149)
Shareholders' total   12,399    12,698 
Total members' capital   10,755    10,710 
Total liabilities and members' capital  $16,722   $17,153 

 

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

 

 1  

 

RIDGEWOOD ENERGY Q FUND, LLC

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except per share data) 

 

   Three months ended June 30,   Six months ended June 30, 
   2018   2017   2018   2017 
Revenue                
Oil and gas revenue  $1,400   $1,121   $2,903   $2,127 
Expenses                    
Depletion and amortization   1,129    1,360    2,201    2,450 
Operating expenses   174    178    323    373 
General and administrative expenses   71    70    141    131 
Total expenses   1,374    1,608    2,665    2,954 
Income (loss) from operations   26    (487)   238    (827)
Interest expense, net   (97)   (133)   (193)   (265)
Net (loss) income  $(71)  $(620)  $45   $(1,092)
                     
Manager Interest                    
Net income  $162   $118   $344   $220 
Shareholder Interest                    
                     
Net loss  $(233)  $(738)  $(299)  $(1,312)
Net loss per share  $(280)  $(888)  $(360)  $(1,579)

 

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

 

 2  

 

RIDGEWOOD ENERGY Q FUND, LLC

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

 

   Six months ended June 30, 
   2018   2017 
Cash flows from operating activities          
Net income (loss)  $45   $(1,092)

Adjustments to reconcile net income (loss) to net cash

   provided by operating activities:

          
Depletion and amortization   2,201    2,450 
Accretion expense   11    16 
Amortization of debt discounts and deferred financing costs   -    40 
Changes in assets and liabilities:          
Decrease in production receivable   31    33 
Decrease in other current assets   60    131 
(Decrease) increase in due to operators   (38)   25 
Decrease in accrued expenses   (13)   (159)
Settlement of asset retirement obligations   (28)   (81)
Net cash provided by operating activities   2,269    1,363 
           
Cash flows from investing activities          
Capital expenditures for oil and gas properties   (1,247)   (1,706)
(Increase) decrease in salvage fund   (78)   52 
Net cash used in investing activities   (1,325)   (1,654)
           
Cash flows from financing activities          
Repayment of long-term borrowings   (615)   - 
Net cash used in financing activities   (615)   - 
           
Net increase (decrease) in cash and cash equivalents   329    (291)
Cash and cash equivalents, beginning of period   1,026    1,780 
Cash and cash equivalents, end of period  $1,355   $1,489 
           
Supplemental disclosure of cash flow information          
Cash paid for interest, net of amounts capitalized  $195   $377 
           
Supplemental disclosure of non-cash investing activities          
Due to operators for accrued capital expenditures for
oil and gas properties
  $768   $178 

 

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

 

 3  

 

RIDGEWOOD ENERGY Q FUND, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

1.Organization and Summary of Significant Accounting Policies

 

Organization

The Ridgewood Energy Q Fund, LLC (the “Fund”), a Delaware limited liability company, was formed on August 16, 2005 and operates pursuant to a limited liability company agreement (the “LLC Agreement”) dated as of September 6, 2005 by and among Ridgewood Energy Corporation (the “Manager”) and the shareholders of the Fund, which addresses matters such as the authority and voting rights of the Manager and shareholders, capitalization, transferability of membership interests, participation in costs and revenues, distribution of assets and dissolution and winding up. The Fund was organized to primarily acquire interests in oil and gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of Mexico.

 

The Manager has direct and exclusive control over the management of the Fund’s operations. The Manager performs, or arranges for the performance of, the management, advisory and administrative services required for the Fund’s operations. Such services include, without limitation, the administration of shareholder accounts, shareholder relations, the preparation, review and dissemination of tax and other financial information and the management of the Fund’s investments in projects. In addition, the Manager provides office space, equipment and facilities and other services necessary for the Fund’s operations. The Manager also engages and manages contractual relations with unaffiliated custodians, depositories, accountants, attorneys, corporate fiduciaries, insurers, banks and others as required. See Notes 3, 4 and 5.

 

Basis of Presentation

These unaudited interim condensed financial statements have been prepared by the Fund’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Fund’s financial position, results of operations and cash flows for the periods presented. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in these unaudited interim condensed financial statements. The results of operations, financial position, and cash flows for the periods presented herein are not necessarily indicative of future financial results. These unaudited interim condensed financial statements should be read in conjunction with the Fund’s December 31, 2017 financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K (“2017 Annual Report”) filed with the Securities and Exchange Commission (“SEC”). The year-end condensed balance sheet data was derived from audited financial statements for the year ended December 31, 2017, but does not include all annual disclosures required by GAAP.

 

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an ongoing basis, the Manager reviews its estimates, including those related to the fair value of financial instruments, depletion and amortization, determination of proved reserves, impairment of long-lived assets and asset retirement obligations. Actual results may differ from those estimates.

 

Summary of Significant Accounting Policies

The Fund has provided discussion of significant accounting policies in Note 1 of “Notes to Financial Statements” – “Organization and Summary of Significant Accounting Policies” contained in Item 8. “Financial Statements and Supplementary Data” within its 2017 Annual Report. There have been no significant changes to the Fund’s significant accounting policies during the three and six months ended June 30, 2018, except as noted below for revenue recognition. See Note 2. “Revenue Recognition” for discussion of the Fund’s updated accounting policies related to revenue recognition for revenue from contracts with customers.

 

 4  

 

Asset Retirement Obligations

For oil and gas properties, there are obligations to perform removal and remediation activities when the properties are retired. Upon the determination that a property is either proved or dry, a retirement obligation is incurred. The Fund recognizes the fair value of a liability for an asset retirement obligation in the period incurred. Plug and abandonment costs associated with unsuccessful projects are expensed as dry-hole costs. Annually, or more frequently if an event occurs that would dictate a change in assumptions or estimates underlying the obligations, the Fund reassesses its asset retirement obligations to determine whether any revisions to the obligations are necessary. The Fund maintains a salvage fund to provide for the funding of future asset retirement obligations. The following table presents changes in asset retirement obligations for the following periods: 

   Six months ended June 30, 
   2018   2017 
   (in thousands) 
Balance, beginning of period  $824   $1,106 
Liabilities incurred   1    1 
Liabilities settled   (28)   (81)
Accretion expense   11    16 
Revision of estimates   -    (121)
Balance, end of period  $808   $921 

 

During the six months ended June 30, 2017, the Fund recorded credits to depletion expense totaling $0.1 million related to an adjustment to the asset retirement obligation for a fully depleted property.

 

Impairment of Long-Lived Assets

The Fund reviews the carrying value of its oil and gas properties for impairment whenever events and circumstances indicate that the recorded carrying value of the assets may not be recoverable. Impairments are determined by comparing estimated future net undiscounted cash flows to the carrying value of the assets at the time of the review. If the carrying value exceeds the estimated future net undiscounted cash flows, the carrying value of the asset is written down to estimated fair value, which is determined using a valuation technique that considers both market and income approaches and using Level 3 inputs. The fair value determinations require considerable judgment and are sensitive to change. Different pricing assumptions, reserve estimates or discount rates could result in a different calculated impairment.

 

There were no impairments of oil and gas properties during each of the three and six months ended June 30, 2018 and 2017. Fluctuations in oil and natural gas prices may impact the fair value of the Fund’s oil and gas properties. If oil and natural gas prices decline, even if only for a short period of time, it is possible that impairments of oil and gas properties will occur.

 

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance on revenue recognition (“New Revenue Standard”), which provides for a single five-step model to be applied to all revenue contracts with customers. In July 2015, the FASB issued a deferral of the effective date of the New Revenue Standard to 2018, with early adoption permitted in 2017. In March 2016, the FASB issued accounting guidance, which clarifies the implementation guidance on principal versus agent considerations in the New Revenue Standard. In April 2016, the FASB issued guidance on identifying performance obligations and licensing and in May 2016, the FASB issued final amendments which provided narrow scope improvements and practical expedients related to the implementation of the New Revenue Standard. The New Revenue Standard may be applied either retrospectively or through the use of a modified-retrospective method. Under the New Revenue Standard, the revenue associated with the Fund’s existing contracts will be recognized in the period that control of the related commodity is transferred to the customer, which is generally consistent with the Fund’s previous revenue recognition model. The Fund adopted the New Revenue Standard using the modified retrospective method on January 1, 2018. See Note 2. “Revenue Recognition” for the required disclosures related to the impact of adopting this guidance and a discussion of the Fund’s updated policies related to revenue recognition for revenue from contracts with customers.

  

2.Revenue Recognition

 

The Fund adopted the New Revenue Standard on January 1, 2018 using the modified retrospective method for all new contracts entered into after January 1, 2018 and all existing contracts for which revenues have not been recognized under the previous revenue guidance as of December 31, 2017. Although the Fund did not identify changes to its revenue recognition that resulted in a cumulative adjustment to retained earnings on January 1, 2018, the adoption of the accounting guidance resulted in enhanced disclosures related to revenue recognition policies, the Fund’s performance obligations and significant judgments used in applying the New Revenue Standard.

 5  

  

Revenue from Contracts with Customers

Oil and gas revenues are recognized at the point when control of oil and natural gas is transferred to the customers. Natural gas liquid (“NGL”) sales are included within gas sales. The Fund’s oil and natural gas generally is sold to its customers at prevailing market prices based on an index in which the prices are published, adjusted for pricing differentials, quality of the oil and pipeline allowances.

 

Oil and Gas Revenue

Generally, the Fund sells oil and natural gas under two types of agreements, which are common in the oil and gas industry. In the first type of agreement, or a netback agreement, the Fund receives a price, net of pricing differentials as well as transportation expense incurred by the customer, and the Fund records revenue at the wellhead at the net price received where control transfers to the customer. In the second type of agreement, the Fund delivers oil and natural gas to the customer at a contractually agreed-upon delivery point where the customer takes control. The Fund pays a third-party to transport the oil and natural gas and receives a specific market price from the customer net of pricing adjustments. The Fund records the transportation expense within operating expenses in the statements of operations.

 

Under the Fund’s natural gas processing contracts, the Fund delivers natural gas to a midstream processing company at the inlet of the midstream processing company’s facility. The midstream processing company gathers and processes the natural gas and remits the proceeds to the Fund for the sale of NGLs. In this type of arrangement, the Fund evaluates whether it is the principal or agent in the transaction. For those contracts where the Fund concluded that it is the principal and the ultimate third-party purchaser is the customer, the Fund recognizes revenue on a gross basis, with transportation, gathering and processing fees recorded as an expense within operating expenses in the statements of operations.

 

In certain instances, the Fund may elect to take its residue gas and NGLs in-kind at the tailgate of the midstream company’s processing plant and subsequently market such volumes. Through its marketing process, the Fund delivers the residue gas and NGLs to the ultimate third-party customer at a contractually agreed-upon delivery point and receives a specified market price from the customer. In this arrangement, the Fund recognizes revenue when control transfers to the customer at the delivery point based on the market price received from the customer. The transportation, gathering and processing fees are recorded as expense within operating expenses in the statements of operations.

 

The Fund assesses the performance obligations promised in its oil and natural gas contracts based on each unit of oil and natural gas that will be transferred to its customer because each unit is capable of being distinct. The Fund satisfies its performance obligation when control transfers at a point in time when its customer is able to direct the use of, and obtain substantially all of the benefits from, the oil and natural gas delivered. Under each of the Fund’s oil and natural gas contracts, contract prices are variable and based on an index in which the prices are published, which fluctuate as a result of related industry variables, adjusted for pricing differentials, quality of the oil and pipeline allowances. The use of index-based pricing with predictable differentials reduces the level of uncertainty related to oil and gas prices. Additionally, any variable consideration is not constrained. Payments are received in the month following the oil and natural gas production month. Adjustments that occur after delivery, such as quality bank adjustments, are reflected in revenue in the month payments are received.

 

Transaction price allocated to remaining performance obligations

Under the Fund’s oil and natural gas contracts, each unit of oil and natural gas represents a separate performance obligation, therefore, future volumes are wholly unsatisfied and the transaction price related to the remaining performance obligations is the variable index-based price attributable to each unit of oil and natural gas that is transferred to the customer.

 

Contract balances

The Fund invoices customers once its performance obligations have been satisfied, at which point the payment is unconditional. Accordingly, the Fund’s oil and natural gas contracts do not give rise to contract assets or liabilities under the New Revenue Standard. The receivables related to the Fund’s oil and gas revenue are included within “Production receivable” on the balance sheets.

 

 6  

 

Prior period performance obligations

The Fund records oil and gas revenue in the month production is delivered to its customers. However, settlement statements for residue gas and NGLs sales may not be received for 30 to 60 days after the date of production is delivered. As a result, the Fund is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the residue gas and NGLs. The Fund records the differences between its estimates and the actual amounts received in the month that the payment is received from the customer. The Fund has an estimation process for revenue and related accruals, and any identified difference between its revenue estimates and actual revenue historically have not been significant. There was no material revenue recognized in the current period from performance obligations satisfied in previous periods.

 

3.Related Parties

 

Pursuant to the terms of the LLC Agreement, the Manager is entitled to receive an annual management fee, payable monthly, of 2.5% of total capital contributions, net of cumulative dry-hole and related well costs incurred by the Fund. During 2009, the Manager waived its management fee for the remaining life of the Fund. Upon the waiver of the management fee, the Fund began recording costs, totaling $20 thousand per quarter, representing reimbursements to the Manager, related to services provided by the Manager for accounting and investor relations. Such costs are included within general and administrative expenses. Management reimbursement costs during each of the three and six months ended June 30, 2018 and 2017 were $20 thousand and $40 thousand, respectively.

 

The Manager is also entitled to receive 15% of the cash distributions from operations made by the Fund. The Fund did not pay distributions during the three and six months ended June 30, 2018 and 2017.

 

The Fund utilizes Beta Sales and Transport, LLC, a wholly-owned subsidiary of the Manager, to facilitate the transportation and sale of oil and natural gas produced from the Beta Project.

 

At times, short-term payables and receivables, which do not bear interest, arise from transactions with affiliates in the ordinary course of business.

 

The Fund has working interest ownership in certain oil and natural gas projects, which are also owned by other entities that are likewise managed by the Manager.

 

4.Credit Agreement – Beta Project Financing

 

On June 1, 2018, the Fund and other participating funds managed by the Manager, Rahr Energy Investments LLC, as administrative agent and lender (and other lenders that may become a party thereto, collectively “Lenders”), entered into a third amendment (the “Third Amendment”), effective as of September 1, 2018 (“Third Amendment Effective Date”), to the certain credit agreement, dated as of November 27, 2012 (as amended by the first amendment to credit agreement, dated September 30, 2016, and the second amendment to credit agreement and reaffirmation of waiver, dated September 15, 2017, the “Existing Credit Agreement”, and as amended by the Third Amendment, the “Credit Agreement”).

 

The Third Amendment extends the loan maturity from December 31, 2020 to December 31, 2022, revises the interest rate and requires a monthly payment amount based on a fixed percentage of the Fund’s Net Revenue, as defined in the Credit Agreement, derived from the Beta Project. The fixed percentage and interest rate will be determined based on the Fund’s ratio of outstanding debt to working interest ownership in the Beta Project. Beginning on September 1, 2018 up to and including March 31, 2019, the Fund’s fixed percentage will be at a rate that is based on the ratio of outstanding debt to working interest determined at that time, as scheduled in the Credit Agreement. Beginning on April 1, 2019 and each April 1st thereafter, the Fund’s fixed percentage will be the greater of (i) the rate determined on September 1, 2018 or (ii) the Fixed Reassessment Percentage, as defined in the Credit Agreement. The Fixed Reassessment Percentage is determined annually and will be based on the Fund’s ratio of its outstanding debt as of the reassessment date relative to 80% of third-party reserve engineers’ proved plus probable future undiscounted cash flows attributable to the Beta Project through the maturity of the loan. Beginning on the Third Amendment Effective Date and thereafter until the loan is repaid in full, in no event later than December 31, 2022, the loan will bear interest at a rate that is based on the ratio of outstanding debt to working interest determined at that time, as scheduled in the Credit Agreement.

 

The Fund reviewed the terms of the Third Amendment and determined that the conditions have been met, pursuant to Accounting Standard Codification 470-50 Debt: Modification and Extinguishments (“ASC 470-50”) guidance, to treat the Third Amendment as a debt modification in a non-troubled debt restructuring. Pursuant to ASC 470-50 guidance, debt modifications are accounted for prospectively, new fees paid to the creditor and unamortized debt discounts and deferred financing costs are capitalized and amortized over the term of the amended debt and any third party fees that are directly related to the modification of the debt are expensed as incurred.

 

 7  

 

As of June 30, 2018 and December 31, 2017, the Fund had borrowings of $4.2 million and $4.8 million, respectively, under the Existing Credit Agreement. The loan may be prepaid by the Fund without premium or penalty.

 

There were no unamortized debt discounts and deferred financing costs as of June 30, 2018 and December 31, 2017. Amortization expense during the three and six months ended June 30, 2017 of $20 thousand and $40 thousand, respectively, were expensed and included on the statements of operations within “Interest expense, net”. There were no such amounts recorded during the three and six months ended June 30, 2018.

 

As of June 30, 2018 and December 31, 2017, there were no accrued interest costs outstanding. Interest costs incurred during each of the three and six months ended June 30, 2018 and 2017 of $0.1 million and $0.2 million, respectively, were expensed and included on the statements of operations within “Interest expense, net”.

 

As additional consideration to the Lenders, the Fund has agreed to convey an overriding royalty interest (“ORRI”) in its working interest in the Beta Project to the Lenders. The Third Amendment fixes the Fund’s ORRI assigned to the Lenders at 6.25%. Such ORRI will not become payable to the Lenders until January 1, 2023. The Existing Credit Agreement contains customary covenants, with which the Fund was in compliance as of June 30, 2018 and December 31, 2017.

 

5.Commitments and Contingencies

 

Capital Commitments

As of June 30, 2018, the Fund’s estimated capital commitments related to its oil and gas properties were $3.4 million (which include asset retirement obligations for the Fund’s projects of $1.6 million), of which $1.3 million is expected to be spent during the next twelve months, primarily related to the continued development of the Beta Project. Additionally, current liabilities exceed current assets as of June 30, 2018. Future results of operations and cash flows are dependent on the continued successful development and the related production of oil and gas revenues from the Beta Project.

 

Based upon its current cash position and its current reserve estimates, the Fund expects cash flow from operations to be sufficient to cover its commitments, borrowing repayments and ongoing operations. Reserve estimates are projections based on engineering data that cannot be measured with precision, require substantial judgment, and are subject to frequent revision. However, if cash flow from operations is not sufficient to meet the Fund’s commitments, the Manager will provide short-term financing to accommodate the Fund’s short-term commitments if needed.

 

Environmental and Governmental Regulations

Many aspects of the oil and gas industry are subject to federal, state and local environmental laws and regulations. The Manager and operators of the Fund’s properties are continually taking action they believe appropriate to satisfy applicable federal, state and local environmental regulations. However, due to the significant public and governmental interest in environmental matters related to those activities, the Manager cannot predict the effects of possible future legislation, rule changes, or governmental or private claims. As of June 30, 2018 and December 31, 2017, there were no known environmental contingencies that required adjustment to, or disclosure in, the Fund’s financial statements.

 

Oil and gas industry legislation and administrative regulations are periodically changed for a variety of political, economic, and other reasons. Any such future laws and regulations could result in increased compliance costs or additional operating restrictions, which could have a material adverse effect on the Fund’s operating results and cash flows. It is not possible at this time to predict whether such legislation or regulation, if proposed, will be adopted as initially written, if at all, or how legislation or new regulation that may be adopted would impact the Fund’s business.

 

 8  

 

BOEM Notice to Lessees on Supplemental Bonding

On July 14, 2016, the Bureau of Ocean Energy Management (“BOEM”) issued a Notice to Lessees (“NTL”) that discontinued and materially replaced existing policies and procedures regarding financial security (i.e. supplemental bonding) for decommissioning obligations of lessees of federal oil and gas leases and owners of pipeline rights-of-way, rights-of use and easements on the Outer Continental Shelf (“Lessees”).  Generally, the new NTL (i) ended the practice of excusing Lessees from providing such additional security where co-lessees had sufficient financial strength to meet such decommissioning obligations, (ii) established new criteria for determining financial strength and additional security requirements of such Lessees,  (iii) provided acceptable forms of such additional security and (iv) replaced the waiver system with one of self-insurance. The new rule became effective as of September 12, 2016; however on January 6, 2017, the BOEM announced that it was suspending the implementation timeline for six months in certain circumstances. On June 22, 2017, the BOEM announced that the implementation timeline extension will remain in effect pending the completion of its review of the new NTL. The Fund, as well as other industry participants, are working with the BOEM, its operators and working interest partners to determine and agree upon the correct level of decommissioning obligations to which they may be liable and the manner in which such obligations will be secured.  The impact of the NTL, if enforced without change or amendment, may require the Fund to fully secure all of its potential abandonment liabilities to the BOEM’s satisfaction using one or more of the enumerated methods for doing so.  Potentially this could increase costs to the Fund if the Fund is required to obtain additional supplemental bonding, fund escrow accounts or obtain letters of credit.

 

Insurance Coverage

The Fund is subject to all risks inherent in the oil and natural gas business. Insurance coverage as is customary for entities engaged in similar operations is maintained, but losses may occur from uninsurable risks or amounts in excess of existing insurance coverage. The occurrence of an event that is not insured or not fully insured could have a material adverse impact upon earnings and financial position. Moreover, insurance is obtained as a package covering all of the entities managed by the Manager. Depending on the extent, nature and payment of claims made by the Fund or other entities managed by the Manager, yearly insurance coverage may be exhausted and become insufficient to cover a claim by the Fund in a given year.

 

6.Subsequent Events

 

On August 10, 2018, the Fund and other participating funds managed by the Manager, entered into a fourth amendment (the “Fourth Amendment”) effective as of September 1, 2018 (“Fourth Amendment Effective Date”), to the Credit Agreement. The Fourth Amendment principally reduces the schedule of fixed percentage depending on the Fund’s ratio of outstanding debt to working interest ownership, which is the basis for the calculation of the monthly payment amount, and amends the interest calculation. The Fund is currently evaluating the impact of the Fourth Amendment on its financial statements.

 

 9  

 

ITEM 2.              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Cautionary Statement Regarding Forward-Looking Statements

 

Certain statements in this Quarterly Report on Form 10-Q (“Quarterly Report”) and the documents Ridgewood Energy Q Fund, LLC (the “Fund”) has incorporated by reference into this Quarterly Report, other than purely historical information, including estimates, projections, statements relating to the Fund’s business plans, strategies, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. You are therefore cautioned against relying on any such forward-looking statements. Forward-looking statements can generally be identified by words such as “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “target,” “pursue,” “may,” “will,” “will likely result,” and similar expressions and references to future periods. Examples of events that could cause actual results to differ materially from historical results or those anticipated include weather conditions, such as hurricanes, changes in market and other conditions affecting the pricing, production and demand of oil and natural gas, the cost and availability of equipment, and changes in domestic and foreign governmental regulations. Examples of forward-looking statements made herein include statements regarding projects, investments, insurance, capital expenditures and liquidity. Forward-looking statements made in this document speak only as of the date on which they are made. The Fund undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

Critical Accounting Policies and Estimates

 

There were no changes to the Fund’s critical accounting policies and estimates from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2017, except for the revenue recognition for revenue from contracts with customers. See Note 2 of “Notes to Unaudited Condensed Financial Statements” - “Revenue Recognition” contained in Item 1. “Financial Statements” within Part I of this Quarterly Report for a discussion of the Fund’s updated accounting policies on revenue recognition upon adoption of the related new standard.

 

Overview of the Fund’s Business

 

The Fund was organized primarily to acquire interests in oil and natural gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of Mexico. The Fund’s primary investment objective is to generate cash flow for distribution to its shareholders by generating returns across a portfolio of oil and natural gas projects. Distributions to shareholders are made in accordance with the Fund’s limited liability company agreement (the “LLC Agreement”).

 

Ridgewood Energy Corporation (the “Manager”) is the Manager, and as such, has direct and exclusive control over the management of the Fund’s operations. The Manager performs, or arranges for the performance of, the management, advisory and administrative services required for the Fund’s operations. During 2009, the Manager waived its management fee for the remaining life of the Fund. Upon the waiver of the management fee, the Fund began recording costs related to services provided by the Manager for accounting and investor relations. The Fund does not currently, nor is there any plan to, operate any project in which the Fund participates. The Manager enters into operating agreements with third-party operators for the management of all exploration, development and producing operations, as appropriate. The Manager also participates in distributions.

 

Subsequent Events

 

On August 10, 2018, the Fund and other participating funds managed by the Manager, entered into a fourth amendment (the “Fourth Amendment”) effective as of September 1, 2018 (“Fourth Amendment Effective Date”), to the credit agreement. The Fourth Amendment principally reduces the schedule of fixed percentage depending on the Fund’s ratio of outstanding debt to working interest ownership, which is the basis for the calculation of the monthly payment amount, and amends the interest calculation. The Fund is currently evaluating the impact of the Fourth Amendment on its financial statements.

  

 10  

 

Commodity Price Changes

 

Changes in oil and natural gas commodity prices may significantly affect liquidity and expected operating results. Declines in oil and natural gas commodity prices not only reduce revenues and profits, but could also reduce the quantities of reserves that are commercially recoverable and result in non-cash charges to earnings due to impairment.

 

Oil and natural gas commodity prices have been subject to significant fluctuations during the past several years. The Fund anticipates price cyclicality in its planning and believes it is well positioned to withstand price volatility. Despite operating in a volatile oil and natural gas commodity price environment, the Fund continued to advance the development of the Beta Project, which commenced production in 2016. The Fund has suspended distributions and continues to conserve cash to provide for the continued development of the Beta Project.  See “Results of Operations” under this Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report for more information on the average oil and natural gas prices received by the Fund during the three and six months ended June 30, 2018 and 2017 and the effect of such average prices on the Fund’s results of operations. If oil and natural gas commodity prices decline, even if only for a short period of time, the Fund’s results of operations and liquidity will be adversely impacted.

 

Market pricing for oil and natural gas is volatile, and is likely to continue to be volatile in the future. This volatility is caused by numerous factors and market conditions that the Fund cannot control or influence. Therefore, it is impossible to predict the future price of oil and natural gas with any certainty. Factors affecting market pricing for oil and natural gas include:

 

·weather conditions;

·economic conditions, including demand for petroleum-based products;

·actions by OPEC, the Organization of Petroleum Exporting Countries;

·political instability in the Middle East and other major oil and gas producing regions;

·governmental regulations, both domestic and foreign;

·domestic and foreign tax policy;

·the pace adopted by foreign governments for the exploration, development, and production of their national reserves;

·the supply and price of foreign oil and gas;

·the cost of exploring for, producing and delivering oil and gas;

·the discovery rate of new oil and gas reserves;

·the rate of decline of existing and new oil and gas reserves;

·available pipeline and other oil and gas transportation capacity;

·the ability of oil and gas companies to raise capital;

·the overall supply and demand for oil and gas; and

·the price and availability of alternate fuel sources.

 

Business Update

 

Information regarding the Fund’s current projects, all of which are located in the United States offshore waters in the Gulf of Mexico, is provided in the following table. See “Liquidity Needs” under this Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report for information regarding the funding of the Fund’s capital commitments.

 

 11  

 

      Total Spent   Total    
   Working  through   Fund    
Project  Interest  June 30, 2018   Budget   Status
      (in thousands)    
Producing Properties              
      Beta Project  2.25%  $20,618   $23,431   The Beta Project is expected to include the development of six wells.  Wells #1 and #2 commenced production in 2016.  Wells #3  and #4 commenced production in second  quarter 2017 and  third quarter 2017, respectively. Well #5 commenced production in first quarter 2018. Well #6, which began drilling in second quarter 2018, is expected to commence production in third quarter 2018. The Fund expects to spend $1.8 million for additional development costs and $1.0 million for asset retirement obligations.
      Liberty Project  2.0%  $3,004   $3,268   The Liberty Project, a single-well project, commenced production in 2010.  The Fund expects to spend $0.3 million for asset retirement obligations.

 

Results of Operations

 

The following table summarizes the Fund’s results of operations during the three and six months ended June 30, 2018 and 2017, and should be read in conjunction with the Fund’s financial statements and notes thereto included within Item 1. “Financial Statements” in Part I of this Quarterly Report.

 

   Three months ended June 30,   Six months ended June 30, 
   2018   2017   2018   2017 
   (in thousands) 
Revenue                
Oil and gas revenue  $1,400   $1,121   $2,903   $2,127 
Expenses                    
Depletion and amortization   1,129    1,360    2,201    2,450 
Operating expenses   174    178    323    373 
General and administrative expenses   71    70    141    131 
Total expenses   1,374    1,608    2,665    2,954 
Income (loss) from operations   26    (487)   238    (827)
Interest expense, net   (97)   (133)   (193)   (265)
Net (loss) income  $(71)  $(620)  $45   $(1,092)

 

 12  

 

Overview. The following table provides information related to the Fund’s oil and natural gas production and oil and gas revenue during the three and six months ended June 30, 2018 and 2017. Natural gas liquid (“NGL”) sales are included within gas sales.

 

   Three months ended June 30,   Six months ended June 30, 
   2018   2017   2018   2017 
Number of wells producing   6    4    6    4 
Total number of production days   419    319    851    579 
Oil sales (in thousands of barrels)   22    24    45    44 
Average oil price per barrel  $64   $42   $61   $43 
Gas sales (in thousands of mcfs)   29    32    63    59 
Average gas price per mcf  $3.60   $3.23   $3.48   $3.30 

 

The increases in the number of wells producing and production days primarily related to the commencement of production of two additional wells in the Beta Project. The increases in sales volume during the six months ended June 30, 2018 primarily related to the Liberty Project, which experienced increased production as a result of recompletion work in third quarter 2017. See additional discussion in “Business Update” section above.

 

Oil and Gas Revenue. Oil and gas revenue during the three months ended June 30, 2018 was $1.4 million, an increase of $0.3 million from the three months ended June 30, 2017. The increase was attributable to increased oil and gas prices totaling $0.5 million, partially offset by decreased sales volume totaling $0.1 million.

 

Oil and gas revenue during the six months ended June 30, 2018 was $2.9 million, an increase of $0.8 million from the six months ended June 30, 2017. The increase was attributable to increased oil and gas prices totaling $0.8 million coupled with increased sales volume totaling $0.1 million.

 

See “Overview” above for factors that impact the oil and gas revenue volume and rate variances.

 

Depletion and Amortization. Depletion and amortization during the three months ended June 30, 2018 was $1.1 million, a decrease of $0.2 million from the three months ended June 30, 2017. The decrease was attributable to a decrease in production volumes totaling $0.1 million coupled with a decrease in the average depletion rate totaling $0.1 million.

 

Depletion and amortization during the six months ended June 30, 2018 was $2.2 million, a decrease of $0.2 million from the six months ended June 30, 2017. The decrease was attributable to a decrease in the average depletion rate totaling $0.5 million, partially offset by an increase in production volumes totaling $0.1 million and an adjustment to the asset retirement obligation related to a fully depleted property totaling $0.1 million, which was recorded in first quarter 2017.

 

The decreases in the average depletion rates were primarily attributable to lower cost of reserves from the Beta Project. See “Overview” above for certain factors that impact the depletion and amortization volume and rate variances. Depletion and amortization rates may also be impacted by changes in reserve estimates provided annually by the Fund’s independent petroleum engineers.

 

Operating Expenses. Operating expenses represent costs specifically identifiable or allocable to the Fund’s wells, as detailed in the following table.

 

   Three months ended June 30,   Six months ended June 30, 
   2018   2017   2018   2017 
   (in thousands) 
Lease operating expense  $122   $113   $226   $243 
Insurance expense   33    43    59    70 
Transportation and processing expense   12    11    21    17 
Accretion expense   6    8    11    16 
Workover expense and other   1    3    6    27 
   $174   $178   $323   $373 

 

Lease operating expense and transportation and processing expense, relate to the Fund’s producing properties. Insurance expense represents premiums related to the Fund’s properties, which vary depending upon the number of wells producing or drilling. Accretion expense relates to the asset retirement obligations established for the Fund’s oil and gas properties. Workover expense represents costs to restore or stimulate production of existing reserves.

 

 13  

 

The average production cost, which includes lease operating expense, transportation and processing expense and insurance expense, was $6.33 per barrel of oil equivalent (“BOE”) and $5.50 per BOE during the three and six months ended June 30, 2018, respectively, compared to $5.73 per BOE and $6.11 per BOE during the three and six months ended June 30, 2017, respectively. The average production cost per BOE remained relatively consistent.

 

General and Administrative Expenses. General and administrative expenses represent costs specifically identifiable or allocable to the Fund, such as accounting and professional fees and insurance expenses.

 

Interest Expense, Net. Interest expense, net is comprised of interest expense and amortization of debt discounts and deferred financing costs related to the Fund’s long-term borrowings (see “Liquidity Needs” below for additional information), and interest income earned on cash and cash equivalents and salvage fund.

 

Capital Resources and Liquidity

 

Operating Cash Flows

Cash flows provided by operating activities during the six months ended June 30, 2018 were $2.3 million, primarily related to revenue received of $2.9 million, partially offset by operating expenses of $0.3 million, interest payments of $0.2 million and general and administrative expenses of $0.2 million.

 

Cash flows provided by operating activities during the six months ended June 30, 2017 were $1.4 million, primarily related to revenue received of $2.2 million, partially offset by interest payments of $0.4 million, operating expenses of $0.2 million, general and administrative expenses of $0.1 million and the settlement of an asset retirement obligation of $0.1 million.

 

Investing Cash Flows

Cash flows used in investing activities during the six months ended June 30, 2018 were $1.3 million, related to capital expenditures for oil and gas properties of $1.2 million and investments in salvage fund of $0.1 million.

 

Cash flows used in investing activities during the six months ended June 30, 2017 were $1.7 million, related to capital expenditures for oil and gas properties of $1.7 million, partially offset by proceeds from salvage fund of $0.1 million.

 

Financing Cash Flows

Cash flows used in financing activities during the six months ended June 30, 2018 were $0.6 million, related to the repayment of long-term borrowings.

 

There were no cash flows from financing activities during the six months ended June 30, 2017.

 

Estimated Capital Expenditures

 

Capital expenditures for oil and gas properties have been funded with the capital raised by the Fund in its private placement offering and through debt financing. The Fund’s remaining capital has been fully allocated to its projects. As a result, the Fund will not invest in any new projects and will limit its investment activities, if any, to those projects in which it currently has a working interest. See “Business Update” under this Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report for information regarding the Fund’s current projects. See “Liquidity Needs” below for additional information.

 

 14  

 

Liquidity Needs

 

The Fund’s primary short-term liquidity needs are to fund its operations, capital expenditures for its oil and gas properties and borrowing repayments. Such needs are funded utilizing operating income and existing cash on-hand.

 

As of June 30, 2018, the Fund’s estimated capital commitments related to its oil and gas properties were $3.4 million (which include asset retirement obligations for the Fund’s projects of $1.6 million), of which $1.3 million is expected to be spent during the next twelve months, primarily related to the continued development of the Beta Project. Additionally, current liabilities exceed current assets as of June 30, 2018. Future results of operations and cash flows are dependent on the continued successful development and the related production of oil and gas revenues from the Beta Project.

 

Based upon its current cash position and its current reserve estimates, the Fund expects cash flow from operations to be sufficient to cover its commitments, borrowing repayments and ongoing operations. Reserve estimates are projections based on engineering data that cannot be measured with precision, require substantial judgment, and are subject to frequent revision. However, if cash flow from operations is not sufficient to meet the Fund’s commitments, the Manager will provide short-term financing to accommodate the Fund’s short-term commitments if needed.

 

Distributions, if any, are funded from available cash from operations, as defined in the LLC Agreement, and the frequency and amount are within the Manager’s discretion. Due to the significant capital required to develop the Beta Project, distributions have been impacted, and may be impacted in the future, by amounts reserved to provide for its ongoing development costs, borrowing repayments and funding its estimated asset retirement obligations.

 

Credit Agreement

On June 1, 2018, the Fund and other participating funds managed by the Manager, Rahr Energy Investments LLC, as administrative agent and lender (and other lenders that may become a party thereto, collectively “Lenders”), entered into a third amendment (the “Third Amendment”), effective as of September 1, 2018 (“Third Amendment Effective Date”), to the certain credit agreement, dated as of November 27, 2012 (as amended by the first amendment to credit agreement, dated September 30, 2016, and the second amendment to credit agreement and reaffirmation of waiver, dated September 15, 2017, the “Existing Credit Agreement”, and as amended by the Third Amendment, the “Credit Agreement”). The Existing Credit Agreement provided for an aggregate loan commitment to the Fund of approximately $5.4 million to provide capital towards the funding of the Fund’s share of development costs on the Beta Project. As of June 30, 2018 and December 31, 2017, the Fund had borrowings of $4.2 million and $4.8 million, respectively, under the Existing Credit Agreement.

 

The Third Amendment extends the loan maturity from December 31, 2020 to December 31, 2022, revises the interest rate and requires a monthly payment amount based on a fixed percentage of the Fund’s Net Revenue, as defined in the Credit Agreement, derived from the Beta Project. The fixed percentage and interest rate will be determined based on the Fund’s ratio of outstanding debt to working interest ownership in the Beta Project. Beginning on September 1, 2018 up to and including March 31, 2019, the Fund’s fixed percentage will be at a rate that is based on the ratio of outstanding debt to working interest determined at that time, as scheduled in the Credit Agreement. Beginning on April 1, 2019 and each April 1st thereafter, the Fund’s fixed percentage will be the greater of (i) the rate determined on September 1, 2018 or (ii) the Fixed Reassessment Percentage, as defined in the Credit Agreement. The Fixed Reassessment Percentage is determined annually and will be based on the Fund’s ratio of its outstanding debt as of the reassessment date relative to 80% of third-party reserve engineers’ proved plus probable future undiscounted cash flows attributable to the Beta Project through the maturity of the loan. Beginning on the Third Amendment Effective Date and thereafter until the loan is repaid in full, in no event later than December 31, 2022, the loan will bear interest at a rate that is based on the ratio of outstanding debt to working interest determined at that time, as scheduled in the Credit Agreement. See “Subsequent Events” under this Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report for additional information.

  

The loan may be prepaid by the Fund without premium or penalty. As additional consideration to the Lenders, the Fund has agreed to convey an overriding royalty interest (“ORRI”) in its working interest in the Beta Project to the Lenders. The Third Amendment fixes the Fund’s ORRI assigned to the Lenders at 6.25%. Such ORRI will not become payable to the Lenders until January 1, 2023.

 

 15  

 

The Existing Credit Agreement contains customary negative covenants including covenants that limit the Fund’s ability to, among other things, grant liens, change the nature of its business, or merge into or consolidate with other persons. The events which constitute events of default are also customary for credit facilities of this nature and include payment defaults, breaches of representations, warrants and covenants, insolvency and change of control. Upon the occurrence of a default, in some cases following a notice and cure period, the Lenders under the Existing Credit Agreement may accelerate the maturity of the loan and require full and immediate repayment of all borrowings under the Existing Credit Agreement. The Fund believes it is in compliance with all covenants under the Existing Credit Agreement as of June 30, 2018 and December 31, 2017.

 

Off-Balance Sheet Arrangements

 

The Fund had no off-balance sheet arrangements as of June 30, 2018 and December 31, 2017 and does not anticipate the use of such arrangements in the future.

 

Contractual Obligations

 

The Fund enters into participation and joint operating agreements with operators. On behalf of the Fund, an operator enters into various contractual commitments pertaining to exploration, development and production activities. The Fund does not negotiate such contracts. No contractual obligations exist as of June 30, 2018 and December 31, 2017, other than those discussed in “Estimated Capital Expenditures” and “Liquidity Needs – Credit Agreement” above.

 

Recent Accounting Pronouncements

 

See Note 1 of “Notes to Unaudited Condensed Financial Statements” - “Organization and Summary of Significant Accounting Policies” contained in Item 1. “Financial Statements” within Part I of this Quarterly Report for a discussion of recent accounting pronouncements.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required.

 

ITEM 4.CONTROLS AND PROCEDURES

 

In accordance with Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Fund’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Fund’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Fund’s disclosure controls and procedures were effective as of June 30, 2018.

 

There has been no change in the Fund’s internal control over financial reporting that occurred during the three months ended June 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

None.

 

ITEM 1A.RISK FACTORS

 

Not required.

 

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

 16  

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5.OTHER INFORMATION

 

None.

 

 

ITEM 6.EXHIBITS

 

EXHIBIT

NUMBER

TITLE OF EXHIBIT   METHOD OF FILING
       
31.1

Certification of Robert E. Swanson, Chief Executive Officer of
the Fund, pursuant to Exchange Act Rule 13a-14(a)

  Filed herewith
       
31.2 Certification of Kathleen P. McSherry, Executive Vice President
and Chief Financial Officer of the Fund, pursuant to Exchange
Act Rule 13a-14(a)
Filed herewith
       
32 Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
signed by Robert E. Swanson, Chief Executive Officer of the
Fund and Kathleen P. McSherry, Executive Vice President and
Chief Financial Officer of the Fund
  Filed herewith
       
10.4 Third Amendment to Credit Agreement dated June 1, 2018 by and among Ridgewood Energy O Fund, LLC, Ridgewood Energy Q Fund, LLC, Ridgewood Energy S Fund, LLC, Ridgewood Energy T Fund, LLC, Ridgewood Energy V Fund, LLC, Ridgewood Energy W Fund, LLC, Ridgewood Energy A-1 Fund, LLC, Ridgewood Energy B-1 Fund, LLC, Rahr Energy Investments LLC, as Administrative Agent, and certain Lenders party thereto   Incorporated by reference to the Fund’s Form 8-K filed on June 7, 2018
       
10.5 Fourth Amendment to Credit Agreement dated August 10, 2018 by and among Ridgewood Energy O Fund, LLC, Ridgewood Energy Q Fund, LLC, Ridgewood Energy S Fund, LLC, Ridgewood Energy T Fund, LLC, Ridgewood Energy V Fund, LLC, Ridgewood Energy W Fund, LLC, Ridgewood Energy A-1 Fund, LLC, Ridgewood Energy B-1 Fund, LLC, Rahr Energy Investments LLC, as Administrative Agent, and certain Lenders party thereto   Filed herewith
       
101.INS XBRL Instance Document   Filed herewith
       
101.SCH XBRL Taxonomy Extension Schema   Filed herewith
       
101.CAL XBRL Taxonomy Extension Calculation Linkbase   Filed herewith
       
101.DEF XBRL Taxonomy Extension Definition Linkbase Document   Filed herewith
       
101.LAB XBRL Taxonomy Extension Label Linkbase   Filed herewith
       
101.PRE XBRL Taxonomy Extension Presentation Linkbase   Filed herewith

 

 17  

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

           

RIDGEWOOD ENERGY Q FUND, LLC

 

Dated: August 14, 2018 By: /s/     ROBERT E. SWANSON
      Name:     Robert E. Swanson
      Title:     Chief Executive Officer
            (Principal Executive Officer)
             
             
Dated: August 14, 2018 By: /s/     KATHLEEN P. MCSHERRY
      Name:     Kathleen P. McSherry
      Title:     Executive Vice President and Chief Financial Officer
            (Principal Financial and Accounting Officer)

 

 

18

 

EX-10.5 2 ex10_5.htm EXHIBIT 10.5

Exhibit 10.5 

 

FOURTH AMENDMENT TO CREDIT AGREEMENT

 

This Fourth Amendment to Credit Agreement (this “Amendment”) is entered into on August 10th, 2018, by and among the following entities, as borrowers (each, a “Borrower” and, collectively, the “Borrowers”):

 

Ridgewood Energy O Fund, LLC a Delaware limited liability company

Ridgewood Energy Q Fund, LLC a Delaware limited liability company

Ridgewood Energy S Fund, LLC a Delaware limited liability company

Ridgewood Energy T Fund, LLC a Delaware limited liability company

Ridgewood Energy V Fund, LLC a Delaware limited liability company

Ridgewood Energy W Fund, LLC a Delaware limited liability company

Ridgewood Energy A-1 Fund, LLC a Delaware limited liability company

Ridgewood Energy B-1 Fund, LLC a Delaware limited liability company

 

and Rahr Energy Investments, LLC a Delaware limited liability company, as Administrative Agent (“Administrative Agent”), and each of the Lenders party hereto.

 

RECITALS

 

A.The Borrowers, the Administrative Agent, and the Lenders have entered into that certain Credit Agreement, dated as of November 27, 2012, as amended by that certain First Amendment to Credit Agreement, dated as of September 30, 2016, that certain Second Amendment to Credit Agreement and Reaffirmation of Waiver, dated as of September 15, 2017, and that certain Third Amendment to Credit Agreement, dated as of June 1, 2018 (as may be further amended, supplemented, or otherwise modified prior to the date hereof, the “Credit Agreement”).

 

B.Pursuant to the Credit Agreement, the Lenders have made loans to the Borrowers.

 

C.The Borrowers have requested that the Lenders enter into this Amendment to make certain amendments to the Credit Agreement.

 

D.Subject to the terms and conditions set forth herein, the parties hereto have agreed to enter into this Amendment.

 

E.NOW THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrowers, Administrative Agent, and the Lenders party hereto hereby agree as follows:

 

Section 1.      Definitions

 

1.1         Unless otherwise defined herein, all capitalized terms used herein will have the meaning given such terms in the Credit Agreement.

 

Section 2.     Amendments to Credit Agreement. In reliance on the representations, warranties, covenants and agreements contained in this Amendment, and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, the parties hereto hereby agree to amend the Credit Agreement as follows:

 

2.1         Amendment to Section 1.02. Section 1.02 of the Credit Agreement is hereby amended by amending and restating the definition of “Capital Expenditure Offsets” in its entirety to read as follows:

 

1
 

 

Capital Expenditure Offsets” means an amount equal to the product of (i) Borrower’s working interest share of Exploratory Costs or Development Costs pursuant to an AFE issued by the operator and (ii) such Borrower’s Fixed Percentage; provided that (y) Capital Expenditure Offsets shall not apply to any Exploratory Costs or Development Costs in excess of $1.8 million per each point of working interest (pre-offset) in the Project Properties owned by such Borrower and (z) no Capital Expenditure Offsets shall be made by Borrower unless and until the Administrative Agent and the Lenders have received from Borrower (A) a schedule describing Borrower’s proposed Capital Expenditure Offset, (B) a copy of the applicable AFE and (C) any other documentation or information reasonably requested by the Administrative Agent and the Lenders. For purposes of this definition, all Exploratory and Development Costs will be deemed to have been incurred for each Borrower on a pro-rata basis evenly for each day during the period beginning on the day on which the AFE for such costs is received by Borrowers and ending on the final day of the period of activity for such costs set forth in the AFE (or, if no period of activity is specified, the date that is ninety (90) days after receipt of such AFE). Any AFE received between June 1, 2018 and September 1, 2018 will be deemed to have been received on September 1, 2018.

 

2.2         Amendment to Section 3.02(a). Section 3.02(a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

 

Base Interest Rate. The total outstanding balance of each Borrower’s Loan shall bear interest at a rate equal to the amount set forth on Schedule 3.02 based on such Borrower’s Debt to WI Ratio as of the Third Amendment Effective Date compounded monthly. For the avoidance of doubt, interest will accrue on each Borrower’s Loans hereunder only on the total outstanding loan balance of such Borrower’s for such month.

 

2.3         Amendment to Schedule 1.01(a). Schedule 1.01(a) of the Credit Agreement is hereby replaced in its entirety with Schedule 1.01(a) attached hereto.

 

2.4         Amendment to Schedule 1.01(i). Schedule 1.01(i) of the Credit Agreement is hereby replaced in its entirety with Schedule 1.01(i) attached hereto.

 

Section 3.     Conditions Precedent. The amendment to the Credit Agreement contained in Section 2 of this Amendment will become effective on September 1, 2018 (the “Fourth Amendment Effective Date”) if each of the conditions precedent contained in this Section 3 are satisfied on or before such date:

 

3.1         Third Amendment Effective. The Third Amendment to Credit Agreement dated June 1, 2018, must have become effective pursuant to the terms thereof.

 

3.2         Signature Pages. The Administrative Agent must have received counterparts of this Amendment executed on behalf of each Borrower, the Administrative Agent and each of the Lenders.

 

3.3         Other Documents. The Administrative Agent must have been provided with any other documents, instruments, and agreements, and each Borrower must have taken such actions, in each case, as the Administrative Agent may reasonably require in connection with this Amendment and the transactions contemplated hereby.

 

2
 

 

Section 4.     Representations and Warranties of Borrower. To induce the Lenders and the Administrative Agent to enter into this Amendment, each Borrower hereby represents and warrants to the Lenders and Administrative Agent as follows:

 

4.1         Reaffirm Existing Representations and Warranties. Each representation and warranty of such Borrower contained in the Credit Agreement, and the other Loan Documents is true and correct on the date hereof and will be true and correct after giving effect to this Amendment, except to the extent any such representation and warranty is expressly limited to an earlier date, in which case, such representation and warranty is true and correct as of such specified earlier date.

 

4.2         Due Authorization; No Conflict. The execution, delivery and performance by such Borrower of this Amendment are within such Borrower’s corporate powers, have been duly authorized by all necessary action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not violate or constitute a default under any provision of applicable law or any material agreement binding upon such Borrower or result in the creation or imposition of any Lien upon any of the assets of such Borrower.

 

4.3         Validity and Enforceability. This Amendment constitutes the valid and binding obligation of such Borrower enforceable in accordance with its terms, except as (a) the enforceability thereof may be limited by bankruptcy, insolvency, or similar laws affecting creditor’s rights generally and (b) the availability of equitable remedies may be limited by equitable principles of general application.

 

4.4         No Material Adverse Effect. Since September 30, 2017, there has been no event or circumstance, either individually or in the aggregate, that has had, or could be reasonably expected to have, a Material Adverse Effect.

 

4.5         No Default or Event of Default. After giving effect to this Amendment, no Default or Event of Default has occurred which is continuing.

 

Section 5.     Miscellaneous.

 

5.1         Reaffirmation of Loan Documents; Extension of Liens. Any and all of the terms and provisions of the Credit Agreement and the Loan Documents will, except as modified hereby, remain in full force and effect. The amendment contemplated hereby will not limit or impair any Liens securing the Obligations, each of which are hereby ratified, affirmed, and extended to secure the Obligations after giving effect to this Amendment.

 

5.2         Payment of Legal Fees. The Borrowers acknowledge and agree that they must, and hereby agree to, pay all fees, expenses, and other amounts of Vinson & Elkins LLP, counsel to the Administrative Agent in connection with the execution and delivery of this Amendment and the transactions related hereto, including any real property filing fees incurred by the Administrative Agent and the Holders in connection with such transactions.

 

5.3         Parties in Interest. All of the terms and provisions of this Amendment will bind and inure to the benefit of the parties hereto and their respective successors and assigns.

 

5.4         Counterparts. This Amendment may be executed in counterparts and all parties need not execute the same counterpart. No party will be bound by this Amendment until each Borrower, the Administrative Agent, and each of the Lenders have executed a counterpart. Facsimiles or other electronic transmission (e.g. .pdf) will be effective as originals.

 

3
 

 

5.5         Complete Agreement. This Amendment, the Credit Agreement and the other Loan Documents represent the final agreement among the parties and may not be contradicted by evidence of prior, contemporaneous or oral agreements of the parties. There are no unwritten oral agreements between or among the parties.

 

5.6         Headings. The headings, captions, and arrangements used in this Amendment are, unless otherwise specified, for convenience only and will not be deemed to limit, amplify or modify the terms of this Amendment, nor affect the meaning thereof.

 

5.7         Effectiveness. This Amendment will be effective automatically and without necessity of any further action by Borrower, Administrative Agent, or the Lenders when counterparts hereof have been executed by Borrower, Administrative Agent, and each of the Lenders and all conditions to the effectiveness hereof set forth herein have been satisfied.

 

5.8         Governing Law. This Amendment will be governed by, and construed in accordance with, the laws of the State of New York.

 

5.9         Release. As part of the consideration for each Lender’s and the Administrative Agent’s execution of this Amendment, each Borrower, on behalf of itself and its successors, assigns, parents, subsidiaries, affiliates, officers, directors, employees, agents and attorneys hereby forever, fully, unconditionally and irrevocably waives and releases the Lenders, the Administrative Agent and each of their successors, assigns, parents, subsidiaries, limited partners, shareholder(s), affiliates, officers, directors, employees, attorneys and agents (collectively, the “Releasees”) from any and all claims, liabilities, obligations, debts, causes of action (whether at law or in equity or otherwise), defenses, counterclaims, setoffs, of any kind, whether known or unknown, whether liquidated or unliquidated, matured or unmatured, fixed or contingent, directly or indirectly arising out of, connected with, resulting from or related to any act or omission by any Lender or the Administrative Agent or any other Releasee prior to the date hereof (collectively, the “Claims”). Each Borrower further agrees that it may not commence, institute, or prosecute any lawsuit, action or other proceeding, whether judicial, administrative or otherwise, to collect or enforce any Claim.

 

[Signature Pages Follow]

 

4
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed on the date and year first above written.

 

BORROWERS: RIDGEWOOD ENERGY O FUND, LLC  
         
  By:   /s/ Daniel V. Gulino  
      Daniel V. Gulino  
      Senior Vice President – Legal  

 

RIDGEWOOD ENERGY Q FUND, LLC  
         
  By:   /s/ Daniel V. Gulino  
      Daniel V. Gulino  
      Senior Vice President – Legal  

 

RIDGEWOOD ENERGY S FUND, LLC  
         
  By:   /s/ Daniel V. Gulino  
      Daniel V. Gulino  
      Senior Vice President – Legal  

 

RIDGEWOOD ENERGY T FUND, LLC  
         
  By:   /s/ Daniel V. Gulino  
      Daniel V. Gulino  
      Senior Vice President – Legal  

 

RIDGEWOOD ENERGY V FUND, LLC  
         
  By:   /s/ Daniel V. Gulino  
      Daniel V. Gulino  
      Senior Vice President – Legal  

 

RIDGEWOOD ENERGY W FUND, LLC  
         
  By:   /s/ Daniel V. Gulino  
      Daniel V. Gulino  
      Senior Vice President – Legal  

 

RIDGEWOOD ENERGY A-1 FUND, LLC  
         
  By:   /s/ Daniel V. Gulino  
      Daniel V. Gulino  
      Senior Vice President – Legal  

 

RIDGEWOOD ENERGY B-1 FUND, LLC  
         
  By:   /s/ Daniel V. Gulino  
      Daniel V. Gulino  
      Senior Vice President – Legal  

 

 Signature Page to Fourth Amendment 
 

 

ADMINISTRATIVE AGENT: RAHR ENERGY INVESTMENTS, LLC,  
  as Administrative Agent  
         
  By:   /s/ Lawrence J. Fossi  
      Lawrence J. Fossi  
      Manager  

 

LENDER: RAHR ENERGY INVESTMENTS, LLC,  
  as a Lender  
         
  By:   /s/ Lawrence J. Fossi  
      Lawrence J. Fossi  
      Manager  

 

Signature Page to Fourth Amendment
 

 

Schedule 1.01(a) – Borrower Net Revenue Interests

 

 

EWING BANK

BLOCK 834

 

EWING BANK

BLOCK 835

FUND WI NRI   WI NRI
           
O 2.93000% 2.40846%   2.93000% 2.325568%
Q 2.25000% 1.80000%   2.25000% 1.74085%
S 1.77800% 1.46152%   1.77800% 1.411221%
T 1.65600% 1.32480%   1.65600% 1.28126%
V 1.94000% 1.59468%   1.94000% 1.539796%
W 2.89000% 2.37558%   2.89000% 2.293822%
A-1 1.63600% 1.30880%   1.63600% 1.26579%
B-1 2.17000% 1.78374%   2.17000% 1.72235%
TOTALS: 17.25000% 14.05758%   17.25000% 13.580657%
           
           
  EWING BANK
BLOCK 790
  MISSISSIPPI CANYON
BLOCK 793
FUND WI NRI   WI NRI
           
O 2.93000% 2.225335%   2.93000% 2.32558%
Q 2.25000% 1.65938%   2.25000% 1.78585%
S 1.77800% 1.350391%   1.77800% 1.41122%
T 1.65600% 1.22130%   1.65600% 1.31438%
V 1.94000% 1.47343%   1.94000% 1.539800%
W 2.89000% 2.194955%   2.89000% 2.29382%
A-1 1.63600% 1.20655%   1.63600% 1.29851%
B-1 2.17000% 1.648115%   2.17000% 1.72235%
TOTALS: 17.25000% 12.979456%   17.25000% 13.69151%

 

 Schedule 1.01(a) 
 Page 1 of 2 
 

 

Schedule 1.01(a) – Borrower Net Revenue Interests

 

  EWING BANK
BLOCK 789
FUND WI NRI
     
O 2.93000% 2.38062%
Q 2.25000% 1.82813%
S 1.77800% 1.444620%
T 1.65600% 1.34550%
V 1.94000% 1.57625%
W 2.89000% 2.34812%
A-1 1.63600% 1.32925%
B-1 2.17000% 1.76312%
TOTALS: 17.25000% 14.01561%

 

 Schedule 1.01(a) 
 Page 2 of 2 
 

 

Schedule 1.01(i)

 

Borrower’s Debt to WI Ratio
(as of Third Amendment Effective Date)
Fixed Percentage
< 2,000,000 to 1.00 30.0%
≥ 2,000,000 to 1.00 < 2,250,000 to 1.00 33.0%
≥ 2,250,000 to 1.00 < 2,500,000 to 1.00 42.0%
≥ 2,500,000 to 1.00 < 3,000,000 to 1.00 50.0%
≥ 3,000,000 to 1.00 < 3,500,000 to 1.00 55.0%
≥ 3,500,000 to 1.00 < 4,250,000 to 1.00 70.0%
≥ 4,250,000 to 1.00 75.0%

  

 

Schedule 1.01(i)

 

EX-31.1 3 ex31_1.htm EXHIBIT 31.1

EXHIBIT 31.1

CERTIFICATION

 

I, Robert E. Swanson, certify that:

 

1.            I have reviewed this Quarterly Report on Form 10-Q of Ridgewood Energy Q Fund, LLC;

 

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.            The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Dated:     August 14, 2018  
         
/s/     ROBERT E. SWANSON  
Name:     Robert E. Swanson  
         
Title:     Chief Executive Officer  
      (Principal Executive Officer)  

 

 

 

 

EX-31.2 4 ex31_2.htm EXHIBIT 31.2

EXHIBIT 31.2

CERTIFICATION

 

I, Kathleen P. McSherry, certify that:

 

1.            I have reviewed this Quarterly Report on Form 10-Q of Ridgewood Energy Q Fund, LLC;

 

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.            The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Dated:     August 14, 2018  
         
/s/     KATHLEEN P. MCSHERRY  
Name:     Kathleen P. McSherry  
         
Title:     Executive Vice President and Chief Financial Officer  
      (Principal Financial and Accounting Officer)  

 

 

 

 

EX-32 5 ex32.htm EXHIBIT 32

EXHIBIT 32

 

 

 

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

In connection with this Quarterly Report on Form 10-Q of the Ridgewood Energy Q Fund, LLC (the “Fund”) for the period ended June 30, 2018, as filed with the Securities and Exchange Commission on the date hereof, (the “Report”), each of the undersigned officers of the Fund hereby certifies, pursuant to 18 U.S.C. (section) 1350, as adopted pursuant to (section) 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

 

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund.

 

 

Dated: August 14, 2018        
        /s/ ROBERT E. SWANSON
        Name: Robert E. Swanson
        Title: Chief Executive Officer
          (Principal Executive Officer)
           
Dated: August 14, 2018        
        /s/ KATHLEEN P. MCSHERRY
        Name: Kathleen P. McSherry
        Title: Executive Vice President and Chief Financial Officer
          (Principal Financial and Accounting Officer)

 

 

 

A signed original of this written statement or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Fund and will be retained by the Fund and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of this report or as a separate disclosure document.

 

 

 

 

 

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In addition, the Manager provides office space, equipment and facilities and other services necessary for the Fund&#8217;s operations. The Manager also engages and manages contractual relations with unaffiliated custodians, depositories, accountants, attorneys, corporate fiduciaries, insurers, banks and others as required. 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Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in these unaudited interim condensed financial statements. The results of operations, financial position, and cash flows for the periods presented herein are not necessarily indicative of future financial results. These unaudited interim condensed financial statements should be read in conjunction with the Fund&#8217;s December 31, 2017 financial statements and notes thereto included in the Fund&#8217;s Annual Report on Form 10-K (&#8220;2017 Annual Report&#8221;) filed with the Securities and Exchange Commission (&#8220;SEC&#8221;). The year-end condensed balance sheet data was derived from audited financial statements for the year ended December 31, 2017, but does not include all annual disclosures required by GAAP.</p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Use of Estimates</i></b></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. 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Document and Entity Information - shares
6 Months Ended
Jun. 30, 2018
Aug. 14, 2018
Document And Entity Information Abstract    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2018  
Entity Registrant Name RIDGEWOOD ENERGY Q FUND LLC  
Entity Central Index Key 0001338474  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   830.5577
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UNAUDITED CONDENSED BALANCE SHEETS - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 1,355 $ 1,026
Salvage fund 263 588
Production receivable 501 532
Other current assets 60
Total current assets 2,119 2,206
Salvage fund 838 435
Oil and gas properties:    
Proved properties 23,887 22,433
Less: accumulated depletion and amortization (10,122) (7,921)
Total oil and gas properties, net 13,765 14,512
Total assets 16,722 17,153
Current liabilities:    
Due to operators 850 682
Accrued expenses 41 54
Current portion of long-term borrowings 1,655 1,620
Asset retirement obligations 263 588
Other current liabilities 45 45
Total current liabilities 2,854 2,989
Long-term borrowings 2,568 3,218
Asset retirement obligations 545 236
Total liabilities 5,967 6,443
Commitments and contingencies (Note 5)
Members' capital:    
Distributions (7,081) (7,081)
Retained earnings 5,437 5,093
Manager's total (1,644) (1,988)
Capital contributions (1,335 shares authorized; 830.5577 issued and outstanding) 123,037 123,037
Syndication costs (14,070) (14,070)
Distributions (40,120) (40,120)
Accumulated deficit (56,448) (56,149)
Shareholders' total 12,399 12,698
Total members' capital 10,755 10,710
Total liabilities and members' capital $ 16,722 $ 17,153
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UNAUDITED CONDENSED BALANCE SHEETS (Parenthetical) - shares
Jun. 30, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Shares authorized 1,335 1,335
Shares issued 830.5577 830.5577
Shares outstanding 830.5577 830.5577
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UNAUDITED CONDENSED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Revenue        
Oil and gas revenue $ 1,400 $ 1,121 $ 2,903 $ 2,127
Expenses        
Depletion and amortization 1,129 1,360 2,201 2,450
Operating expenses 174 178 323 373
General and administrative expenses 71 70 141 131
Total expenses 1,374 1,608 2,665 2,954
Income (loss) from operations 26 (487) 238 (827)
Interest expense, net (97) (133) (193) (265)
Net (loss) income (71) (620) 45 (1,092)
Manager Interest        
Net income 162 118 344 220
Shareholder Interest        
Net loss $ (233) $ (738) $ (299) $ (1,312)
Net loss per share $ (280) $ (888) $ (360) $ (1,579)
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UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Cash flows from operating activities    
Net income (loss) $ 45 $ (1,092)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depletion and amortization 2,201 2,450
Accretion expense 11 16
Amortization of debt discounts and deferred financing costs 40
Changes in assets and liabilities:    
Decrease in production receivable 31 33
Decrease in other current assets 60 131
(Decrease) increase in due to operators (38) 25
Decrease in accrued expenses (13) (159)
Settlement of asset retirement obligations (28) (81)
Net cash provided by operating activities 2,269 1,363
Cash flows from investing activities    
Capital expenditures for oil and gas properties (1,247) (1,706)
(Increase) decrease in salvage fund (78) 52
Net cash used in investing activities (1,325) (1,654)
Cash flows from financing activities    
Repayment of long-term borrowings (615)
Net cash used in financing activities (615)
Net increase (decrease) in cash and cash equivalents 329 (291)
Cash and cash equivalents, beginning of period 1,026 1,780
Cash and cash equivalents, end of period 1,355 1,489
Supplemental disclosure of cash flow information    
Cash paid for interest, net of amounts capitalized 195 377
Supplemental disclosure of non-cash investing activities    
Due to operators for accrued capital expenditures for oil and gas properties $ 768 $ 178
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Organization and Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Summary of Significant Accounting Policies

1.Organization and Summary of Significant Accounting Policies

 

Organization

The Ridgewood Energy Q Fund, LLC (the “Fund”), a Delaware limited liability company, was formed on August 16, 2005 and operates pursuant to a limited liability company agreement (the “LLC Agreement”) dated as of September 6, 2005 by and among Ridgewood Energy Corporation (the “Manager”) and the shareholders of the Fund, which addresses matters such as the authority and voting rights of the Manager and shareholders, capitalization, transferability of membership interests, participation in costs and revenues, distribution of assets and dissolution and winding up. The Fund was organized to primarily acquire interests in oil and gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of Mexico.

 

The Manager has direct and exclusive control over the management of the Fund’s operations. The Manager performs, or arranges for the performance of, the management, advisory and administrative services required for the Fund’s operations. Such services include, without limitation, the administration of shareholder accounts, shareholder relations, the preparation, review and dissemination of tax and other financial information and the management of the Fund’s investments in projects. In addition, the Manager provides office space, equipment and facilities and other services necessary for the Fund’s operations. The Manager also engages and manages contractual relations with unaffiliated custodians, depositories, accountants, attorneys, corporate fiduciaries, insurers, banks and others as required. See Notes 3, 4 and 5.

 

Basis of Presentation

These unaudited interim condensed financial statements have been prepared by the Fund’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Fund’s financial position, results of operations and cash flows for the periods presented. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in these unaudited interim condensed financial statements. The results of operations, financial position, and cash flows for the periods presented herein are not necessarily indicative of future financial results. These unaudited interim condensed financial statements should be read in conjunction with the Fund’s December 31, 2017 financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K (“2017 Annual Report”) filed with the Securities and Exchange Commission (“SEC”). The year-end condensed balance sheet data was derived from audited financial statements for the year ended December 31, 2017, but does not include all annual disclosures required by GAAP.

 

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an ongoing basis, the Manager reviews its estimates, including those related to the fair value of financial instruments, depletion and amortization, determination of proved reserves, impairment of long-lived assets and asset retirement obligations. Actual results may differ from those estimates.

 

Summary of Significant Accounting Policies

The Fund has provided discussion of significant accounting policies in Note 1 of “Notes to Financial Statements” – “Organization and Summary of Significant Accounting Policies” contained in Item 8. “Financial Statements and Supplementary Data” within its 2017 Annual Report. There have been no significant changes to the Fund’s significant accounting policies during the three and six months ended June 30, 2018, except as noted below for revenue recognition. See Note 2. “Revenue Recognition” for discussion of the Fund’s updated accounting policies related to revenue recognition for revenue from contracts with customers.

 

 

Asset Retirement Obligations

For oil and gas properties, there are obligations to perform removal and remediation activities when the properties are retired. Upon the determination that a property is either proved or dry, a retirement obligation is incurred. The Fund recognizes the fair value of a liability for an asset retirement obligation in the period incurred. Plug and abandonment costs associated with unsuccessful projects are expensed as dry-hole costs. Annually, or more frequently if an event occurs that would dictate a change in assumptions or estimates underlying the obligations, the Fund reassesses its asset retirement obligations to determine whether any revisions to the obligations are necessary. The Fund maintains a salvage fund to provide for the funding of future asset retirement obligations. The following table presents changes in asset retirement obligations for the following periods: 

   Six months ended June 30, 
   2018   2017 
   (in thousands) 
Balance, beginning of period  $824   $1,106 
Liabilities incurred   1    1 
Liabilities settled   (28)   (81)
Accretion expense   11    16 
Revision of estimates   -    (121)
Balance, end of period  $808   $921 

 

During the six months ended June 30, 2017, the Fund recorded credits to depletion expense totaling $0.1 million related to an adjustment to the asset retirement obligation for a fully depleted property.

 

Impairment of Long-Lived Assets

The Fund reviews the carrying value of its oil and gas properties for impairment whenever events and circumstances indicate that the recorded carrying value of the assets may not be recoverable. Impairments are determined by comparing estimated future net undiscounted cash flows to the carrying value of the assets at the time of the review. If the carrying value exceeds the estimated future net undiscounted cash flows, the carrying value of the asset is written down to estimated fair value, which is determined using a valuation technique that considers both market and income approaches and using Level 3 inputs. The fair value determinations require considerable judgment and are sensitive to change. Different pricing assumptions, reserve estimates or discount rates could result in a different calculated impairment.

 

There were no impairments of oil and gas properties during each of the three and six months ended June 30, 2018 and 2017. Fluctuations in oil and natural gas prices may impact the fair value of the Fund’s oil and gas properties. If oil and natural gas prices decline, even if only for a short period of time, it is possible that impairments of oil and gas properties will occur.

 

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance on revenue recognition (“New Revenue Standard”), which provides for a single five-step model to be applied to all revenue contracts with customers. In July 2015, the FASB issued a deferral of the effective date of the New Revenue Standard to 2018, with early adoption permitted in 2017. In March 2016, the FASB issued accounting guidance, which clarifies the implementation guidance on principal versus agent considerations in the New Revenue Standard. In April 2016, the FASB issued guidance on identifying performance obligations and licensing and in May 2016, the FASB issued final amendments which provided narrow scope improvements and practical expedients related to the implementation of the New Revenue Standard. The New Revenue Standard may be applied either retrospectively or through the use of a modified-retrospective method. Under the New Revenue Standard, the revenue associated with the Fund’s existing contracts will be recognized in the period that control of the related commodity is transferred to the customer, which is generally consistent with the Fund’s previous revenue recognition model. The Fund adopted the New Revenue Standard using the modified retrospective method on January 1, 2018. See Note 2. “Revenue Recognition” for the required disclosures related to the impact of adopting this guidance and a discussion of the Fund’s updated policies related to revenue recognition for revenue from contracts with customers.

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Revenue Recognition
6 Months Ended
Jun. 30, 2018
Revenue Recognition  
Revenue Recognition

2.Revenue Recognition

 

The Fund adopted the New Revenue Standard on January 1, 2018 using the modified retrospective method for all new contracts entered into after January 1, 2018 and all existing contracts for which revenues have not been recognized under the previous revenue guidance as of December 31, 2017. Although the Fund did not identify changes to its revenue recognition that resulted in a cumulative adjustment to retained earnings on January 1, 2018, the adoption of the accounting guidance resulted in enhanced disclosures related to revenue recognition policies, the Fund’s performance obligations and significant judgments used in applying the New Revenue Standard.

  

Revenue from Contracts with Customers

Oil and gas revenues are recognized at the point when control of oil and natural gas is transferred to the customers. Natural gas liquid (“NGL”) sales are included within gas sales. The Fund’s oil and natural gas generally is sold to its customers at prevailing market prices based on an index in which the prices are published, adjusted for pricing differentials, quality of the oil and pipeline allowances.

 

Oil and Gas Revenue

Generally, the Fund sells oil and natural gas under two types of agreements, which are common in the oil and gas industry. In the first type of agreement, or a netback agreement, the Fund receives a price, net of pricing differentials as well as transportation expense incurred by the customer, and the Fund records revenue at the wellhead at the net price received where control transfers to the customer. In the second type of agreement, the Fund delivers oil and natural gas to the customer at a contractually agreed-upon delivery point where the customer takes control. The Fund pays a third-party to transport the oil and natural gas and receives a specific market price from the customer net of pricing adjustments. The Fund records the transportation expense within operating expenses in the statements of operations.

 

Under the Fund’s natural gas processing contracts, the Fund delivers natural gas to a midstream processing company at the inlet of the midstream processing company’s facility. The midstream processing company gathers and processes the natural gas and remits the proceeds to the Fund for the sale of NGLs. In this type of arrangement, the Fund evaluates whether it is the principal or agent in the transaction. For those contracts where the Fund concluded that it is the principal and the ultimate third-party purchaser is the customer, the Fund recognizes revenue on a gross basis, with transportation, gathering and processing fees recorded as an expense within operating expenses in the statements of operations.

 

In certain instances, the Fund may elect to take its residue gas and NGLs in-kind at the tailgate of the midstream company’s processing plant and subsequently market such volumes. Through its marketing process, the Fund delivers the residue gas and NGLs to the ultimate third-party customer at a contractually agreed-upon delivery point and receives a specified market price from the customer. In this arrangement, the Fund recognizes revenue when control transfers to the customer at the delivery point based on the market price received from the customer. The transportation, gathering and processing fees are recorded as expense within operating expenses in the statements of operations.

 

The Fund assesses the performance obligations promised in its oil and natural gas contracts based on each unit of oil and natural gas that will be transferred to its customer because each unit is capable of being distinct. The Fund satisfies its performance obligation when control transfers at a point in time when its customer is able to direct the use of, and obtain substantially all of the benefits from, the oil and natural gas delivered. Under each of the Fund’s oil and natural gas contracts, contract prices are variable and based on an index in which the prices are published, which fluctuate as a result of related industry variables, adjusted for pricing differentials, quality of the oil and pipeline allowances. The use of index-based pricing with predictable differentials reduces the level of uncertainty related to oil and gas prices. Additionally, any variable consideration is not constrained. Payments are received in the month following the oil and natural gas production month. Adjustments that occur after delivery, such as quality bank adjustments, are reflected in revenue in the month payments are received.

 

Transaction price allocated to remaining performance obligations

Under the Fund’s oil and natural gas contracts, each unit of oil and natural gas represents a separate performance obligation, therefore, future volumes are wholly unsatisfied and the transaction price related to the remaining performance obligations is the variable index-based price attributable to each unit of oil and natural gas that is transferred to the customer.

 

Contract balances

The Fund invoices customers once its performance obligations have been satisfied, at which point the payment is unconditional. Accordingly, the Fund’s oil and natural gas contracts do not give rise to contract assets or liabilities under the New Revenue Standard. The receivables related to the Fund’s oil and gas revenue are included within “Production receivable” on the balance sheets.

 

 

Prior period performance obligations

The Fund records oil and gas revenue in the month production is delivered to its customers. However, settlement statements for residue gas and NGLs sales may not be received for 30 to 60 days after the date of production is delivered. As a result, the Fund is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the residue gas and NGLs. The Fund records the differences between its estimates and the actual amounts received in the month that the payment is received from the customer. The Fund has an estimation process for revenue and related accruals, and any identified difference between its revenue estimates and actual revenue historically have not been significant. There was no material revenue recognized in the current period from performance obligations satisfied in previous periods.

XML 19 R8.htm IDEA: XBRL DOCUMENT v3.10.0.1
Related Parties
6 Months Ended
Jun. 30, 2018
Related Party Transactions [Abstract]  
Related Parties

3.Related Parties

 

Pursuant to the terms of the LLC Agreement, the Manager is entitled to receive an annual management fee, payable monthly, of 2.5% of total capital contributions, net of cumulative dry-hole and related well costs incurred by the Fund. During 2009, the Manager waived its management fee for the remaining life of the Fund. Upon the waiver of the management fee, the Fund began recording costs, totaling $20 thousand per quarter, representing reimbursements to the Manager, related to services provided by the Manager for accounting and investor relations. Such costs are included within general and administrative expenses. Management reimbursement costs during each of the three and six months ended June 30, 2018 and 2017 were $20 thousand and $40 thousand, respectively.

 

The Manager is also entitled to receive 15% of the cash distributions from operations made by the Fund. The Fund did not pay distributions during the three and six months ended June 30, 2018 and 2017.

 

The Fund utilizes Beta Sales and Transport, LLC, a wholly-owned subsidiary of the Manager, to facilitate the transportation and sale of oil and natural gas produced from the Beta Project.

 

At times, short-term payables and receivables, which do not bear interest, arise from transactions with affiliates in the ordinary course of business.

 

The Fund has working interest ownership in certain oil and natural gas projects, which are also owned by other entities that are likewise managed by the Manager.

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.10.0.1
Credit Agreement - Beta Project Financing
6 Months Ended
Jun. 30, 2018
Debt Disclosure [Abstract]  
Credit Agreement - Beta Project Financing

4.Credit Agreement – Beta Project Financing

 

On June 1, 2018, the Fund and other participating funds managed by the Manager, Rahr Energy Investments LLC, as administrative agent and lender (and other lenders that may become a party thereto, collectively “Lenders”), entered into a third amendment (the “Third Amendment”), effective as of September 1, 2018 (“Third Amendment Effective Date”), to the certain credit agreement, dated as of November 27, 2012 (as amended by the first amendment to credit agreement, dated September 30, 2016, and the second amendment to credit agreement and reaffirmation of waiver, dated September 15, 2017, the “Existing Credit Agreement”, and as amended by the Third Amendment, the “Credit Agreement”).

 

The Third Amendment extends the loan maturity from December 31, 2020 to December 31, 2022, revises the interest rate and requires a monthly payment amount based on a fixed percentage of the Fund’s Net Revenue, as defined in the Credit Agreement, derived from the Beta Project. The fixed percentage and interest rate will be determined based on the Fund’s ratio of outstanding debt to working interest ownership in the Beta Project. Beginning on September 1, 2018 up to and including March 31, 2019, the Fund’s fixed percentage will be at a rate that is based on the ratio of outstanding debt to working interest determined at that time, as scheduled in the Credit Agreement. Beginning on April 1, 2019 and each April 1st thereafter, the Fund’s fixed percentage will be the greater of (i) the rate determined on September 1, 2018 or (ii) the Fixed Reassessment Percentage, as defined in the Credit Agreement. The Fixed Reassessment Percentage is determined annually and will be based on the Fund’s ratio of its outstanding debt as of the reassessment date relative to 80% of third-party reserve engineers’ proved plus probable future undiscounted cash flows attributable to the Beta Project through the maturity of the loan. Beginning on the Third Amendment Effective Date and thereafter until the loan is repaid in full, in no event later than December 31, 2022, the loan will bear interest at a rate that is based on the ratio of outstanding debt to working interest determined at that time, as scheduled in the Credit Agreement.

 

The Fund reviewed the terms of the Third Amendment and determined that the conditions have been met, pursuant to Accounting Standard Codification 470-50 Debt: Modification and Extinguishments (“ASC 470-50”) guidance, to treat the Third Amendment as a debt modification in a non-troubled debt restructuring. Pursuant to ASC 470-50 guidance, debt modifications are accounted for prospectively, new fees paid to the creditor and unamortized debt discounts and deferred financing costs are capitalized and amortized over the term of the amended debt and any third party fees that are directly related to the modification of the debt are expensed as incurred.

 

 

As of June 30, 2018 and December 31, 2017, the Fund had borrowings of $4.2 million and $4.8 million, respectively, under the Existing Credit Agreement. The loan may be prepaid by the Fund without premium or penalty.

 

There were no unamortized debt discounts and deferred financing costs as of June 30, 2018 and December 31, 2017. Amortization expense during the three and six months ended June 30, 2017 of $20 thousand and $40 thousand, respectively, were expensed and included on the statements of operations within “Interest expense, net”. There were no such amounts recorded during the three and six months ended June 30, 2018.

 

As of June 30, 2018 and December 31, 2017, there were no accrued interest costs outstanding. Interest costs incurred during each of the three and six months ended June 30, 2018 and 2017 of $0.1 million and $0.2 million, respectively, were expensed and included on the statements of operations within “Interest expense, net”.

 

As additional consideration to the Lenders, the Fund has agreed to convey an overriding royalty interest (“ORRI”) in its working interest in the Beta Project to the Lenders. The Third Amendment fixes the Fund’s ORRI assigned to the Lenders at 6.25%. Such ORRI will not become payable to the Lenders until January 1, 2023. The Existing Credit Agreement contains customary covenants, with which the Fund was in compliance as of June 30, 2018 and December 31, 2017.

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.10.0.1
Commitments and Contingencies
6 Months Ended
Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

5.Commitments and Contingencies

 

Capital Commitments

As of June 30, 2018, the Fund’s estimated capital commitments related to its oil and gas properties were $3.4 million (which include asset retirement obligations for the Fund’s projects of $1.6 million), of which $1.3 million is expected to be spent during the next twelve months, primarily related to the continued development of the Beta Project. Additionally, current liabilities exceed current assets as of June 30, 2018. Future results of operations and cash flows are dependent on the continued successful development and the related production of oil and gas revenues from the Beta Project.

 

Based upon its current cash position and its current reserve estimates, the Fund expects cash flow from operations to be sufficient to cover its commitments, borrowing repayments and ongoing operations. Reserve estimates are projections based on engineering data that cannot be measured with precision, require substantial judgment, and are subject to frequent revision. However, if cash flow from operations is not sufficient to meet the Fund’s commitments, the Manager will provide short-term financing to accommodate the Fund’s short-term commitments if needed.

 

Environmental and Governmental Regulations

Many aspects of the oil and gas industry are subject to federal, state and local environmental laws and regulations. The Manager and operators of the Fund’s properties are continually taking action they believe appropriate to satisfy applicable federal, state and local environmental regulations. However, due to the significant public and governmental interest in environmental matters related to those activities, the Manager cannot predict the effects of possible future legislation, rule changes, or governmental or private claims. As of June 30, 2018 and December 31, 2017, there were no known environmental contingencies that required adjustment to, or disclosure in, the Fund’s financial statements.

 

Oil and gas industry legislation and administrative regulations are periodically changed for a variety of political, economic, and other reasons. Any such future laws and regulations could result in increased compliance costs or additional operating restrictions, which could have a material adverse effect on the Fund’s operating results and cash flows. It is not possible at this time to predict whether such legislation or regulation, if proposed, will be adopted as initially written, if at all, or how legislation or new regulation that may be adopted would impact the Fund’s business.

 

 

BOEM Notice to Lessees on Supplemental Bonding

On July 14, 2016, the Bureau of Ocean Energy Management (“BOEM”) issued a Notice to Lessees (“NTL”) that discontinued and materially replaced existing policies and procedures regarding financial security (i.e. supplemental bonding) for decommissioning obligations of lessees of federal oil and gas leases and owners of pipeline rights-of-way, rights-of use and easements on the Outer Continental Shelf (“Lessees”).  Generally, the new NTL (i) ended the practice of excusing Lessees from providing such additional security where co-lessees had sufficient financial strength to meet such decommissioning obligations, (ii) established new criteria for determining financial strength and additional security requirements of such Lessees,  (iii) provided acceptable forms of such additional security and (iv) replaced the waiver system with one of self-insurance. The new rule became effective as of September 12, 2016; however on January 6, 2017, the BOEM announced that it was suspending the implementation timeline for six months in certain circumstances. On June 22, 2017, the BOEM announced that the implementation timeline extension will remain in effect pending the completion of its review of the new NTL. The Fund, as well as other industry participants, are working with the BOEM, its operators and working interest partners to determine and agree upon the correct level of decommissioning obligations to which they may be liable and the manner in which such obligations will be secured.  The impact of the NTL, if enforced without change or amendment, may require the Fund to fully secure all of its potential abandonment liabilities to the BOEM’s satisfaction using one or more of the enumerated methods for doing so.  Potentially this could increase costs to the Fund if the Fund is required to obtain additional supplemental bonding, fund escrow accounts or obtain letters of credit.

 

Insurance Coverage

The Fund is subject to all risks inherent in the oil and natural gas business. Insurance coverage as is customary for entities engaged in similar operations is maintained, but losses may occur from uninsurable risks or amounts in excess of existing insurance coverage. The occurrence of an event that is not insured or not fully insured could have a material adverse impact upon earnings and financial position. Moreover, insurance is obtained as a package covering all of the entities managed by the Manager. Depending on the extent, nature and payment of claims made by the Fund or other entities managed by the Manager, yearly insurance coverage may be exhausted and become insufficient to cover a claim by the Fund in a given year.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.10.0.1
Subsequent Events
6 Months Ended
Jun. 30, 2018
Subsequent Events [Abstract]  
Subsequent Events

6.Subsequent Events

 

On August 10, 2018, the Fund and other participating funds managed by the Manager, entered into a fourth amendment (the “Fourth Amendment”) effective as of September 1, 2018 (“Fourth Amendment Effective Date”), to the Credit Agreement. The Fourth Amendment principally reduces the schedule of fixed percentage depending on the Fund’s ratio of outstanding debt to working interest ownership, which is the basis for the calculation of the monthly payment amount, and amends the interest calculation. The Fund is currently evaluating the impact of the Fourth Amendment on its financial statements.

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.10.0.1
Organization and Summary of Significant Accounting Policies (Policy)
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation

Basis of Presentation

These unaudited interim condensed financial statements have been prepared by the Fund’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Fund’s financial position, results of operations and cash flows for the periods presented. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in these unaudited interim condensed financial statements. The results of operations, financial position, and cash flows for the periods presented herein are not necessarily indicative of future financial results. These unaudited interim condensed financial statements should be read in conjunction with the Fund’s December 31, 2017 financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K (“2017 Annual Report”) filed with the Securities and Exchange Commission (“SEC”). The year-end condensed balance sheet data was derived from audited financial statements for the year ended December 31, 2017, but does not include all annual disclosures required by GAAP.

Use of Estimates

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an ongoing basis, the Manager reviews its estimates, including those related to the fair value of financial instruments, depletion and amortization, determination of proved reserves, impairment of long-lived assets and asset retirement obligations. Actual results may differ from those estimates.

Asset Retirement Obligations

Asset Retirement Obligations

For oil and gas properties, there are obligations to perform removal and remediation activities when the properties are retired. Upon the determination that a property is either proved or dry, a retirement obligation is incurred. The Fund recognizes the fair value of a liability for an asset retirement obligation in the period incurred. Plug and abandonment costs associated with unsuccessful projects are expensed as dry-hole costs. Annually, or more frequently if an event occurs that would dictate a change in assumptions or estimates underlying the obligations, the Fund reassesses its asset retirement obligations to determine whether any revisions to the obligations are necessary. The Fund maintains a salvage fund to provide for the funding of future asset retirement obligations. The following table presents changes in asset retirement obligations for the following periods: 

   Six months ended June 30, 
   2018   2017 
   (in thousands) 
Balance, beginning of period  $824   $1,106 
Liabilities incurred   1    1 
Liabilities settled   (28)   (81)
Accretion expense   11    16 
Revision of estimates   -    (121)
Balance, end of period  $808   $921 

 

During the six months ended June 30, 2017, the Fund recorded credits to depletion expense totaling $0.1 million related to an adjustment to the asset retirement obligation for a fully depleted property.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Fund reviews the carrying value of its oil and gas properties for impairment whenever events and circumstances indicate that the recorded carrying value of the assets may not be recoverable. Impairments are determined by comparing estimated future net undiscounted cash flows to the carrying value of the assets at the time of the review. If the carrying value exceeds the estimated future net undiscounted cash flows, the carrying value of the asset is written down to estimated fair value, which is determined using a valuation technique that considers both market and income approaches and using Level 3 inputs. The fair value determinations require considerable judgment and are sensitive to change. Different pricing assumptions, reserve estimates or discount rates could result in a different calculated impairment.

 

There were no impairments of oil and gas properties during each of the three and six months ended June 30, 2018 and 2017. Fluctuations in oil and natural gas prices may impact the fair value of the Fund’s oil and gas properties. If oil and natural gas prices decline, even if only for a short period of time, it is possible that impairments of oil and gas properties will occur.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance on revenue recognition (“New Revenue Standard”), which provides for a single five-step model to be applied to all revenue contracts with customers. In July 2015, the FASB issued a deferral of the effective date of the New Revenue Standard to 2018, with early adoption permitted in 2017. In March 2016, the FASB issued accounting guidance, which clarifies the implementation guidance on principal versus agent considerations in the New Revenue Standard. In April 2016, the FASB issued guidance on identifying performance obligations and licensing and in May 2016, the FASB issued final amendments which provided narrow scope improvements and practical expedients related to the implementation of the New Revenue Standard. The New Revenue Standard may be applied either retrospectively or through the use of a modified-retrospective method. Under the New Revenue Standard, the revenue associated with the Fund’s existing contracts will be recognized in the period that control of the related commodity is transferred to the customer, which is generally consistent with the Fund’s previous revenue recognition model. The Fund adopted the New Revenue Standard using the modified retrospective method on January 1, 2018. See Note 2. “Revenue Recognition” for the required disclosures related to the impact of adopting this guidance and a discussion of the Fund’s updated policies related to revenue recognition for revenue from contracts with customers.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.10.0.1
Organization and Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2018
Organization And Summary Of Significant Accounting Policies Tables  
Schedule of Changes in Asset Retirement Obligations
   Six months ended June 30, 
   2018   2017 
   (in thousands) 
Balance, beginning of period  $824   $1,106 
Liabilities incurred   1    1 
Liabilities settled   (28)   (81)
Accretion expense   11    16 
Revision of estimates   -    (121)
Balance, end of period  $808   $921 

 

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.10.0.1
Organization and Summary of Significant Accounting Policies (Narrative) (Details)
$ in Thousands
6 Months Ended
Jun. 30, 2017
USD ($)
Organization And Summary Of Significant Accounting Policies Narrative Details  
Credits to depletion $ (100)
XML 26 R15.htm IDEA: XBRL DOCUMENT v3.10.0.1
Organization and Summary of Significant Accounting Policies (Schedule of Changes in Asset Retirement Obligations) (Details) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Organization And Summary Of Significant Accounting Policies Schedule Of Changes In Asset Retirement Obligations Details    
Balance, beginning of period $ 824 $ 1,106
Liabilities incurred 1 1
Liabilities settled (28) (81)
Accretion expense 11 16
Revision of estimates (121)
Balance, end of period $ 808 $ 921
XML 27 R16.htm IDEA: XBRL DOCUMENT v3.10.0.1
Related Parties (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Related Party Transactions [Abstract]        
Annual management fee percentage rate 2.50%   2.50%  
Cost of services provided by Manager, quarterly amount $ 20   $ 20  
Cost of services provided by Manager $ 20 $ 20 $ 40 $ 40
Percentage of total distributions allocated to Fund Manager 15.00%   15.00%  
XML 28 R17.htm IDEA: XBRL DOCUMENT v3.10.0.1
Credit Agreement - Beta Project Financing (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Dec. 31, 2017
Debt Disclosure [Abstract]          
Credit agreement, maturity date     Dec. 31, 2022    
Long-term borrowings $ 4,200   $ 4,200   $ 4,800
Unamortized debt discounts and deferred financing costs    
Amortization of financing costs $ 20 $ 40  
Accrued interest    
Interest expense $ 100 $ 100 $ 200 $ 200  
Overriding royalty interest 6.25%   6.25%    
XML 29 R18.htm IDEA: XBRL DOCUMENT v3.10.0.1
Commitments and Contingencies (Details)
$ in Thousands
6 Months Ended
Jun. 30, 2018
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
Commitments for the drilling and development of investment properties $ 3,400
Commitments for asset retirement obligations included in estimated capital commitments 1,600
Commitments for the drilling and development of investment properties expected to be incurred in the next 12 months $ 1,300
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