NOTE 5. REVENUE

On January 1, 2018, the Partnership adopted ASU No. 2014–09, Revenue from Contracts with Customers (“Topic 606”), using the modified retrospective method applied to contracts that were not completed as of January 1, 2018. Accordingly, the comparative information for the year ended December 31, 2017, has not been adjusted and continues to be reported under the previous revenue standard. The adoption of this ASU did not have a material impact on the consolidated financial statements, and the primary impacts of this change in accounting policy for revenue recognition effective January 1, 2018, are detailed below.

There were no significant changes to the timing of revenue recognized for sales of production. However, as a result of management’s evaluation under new considerations within Topic 606, the adoption did result in certain contracts being recorded on a net basis instead of a gross basis, as well as some contracts being recorded on a gross basis instead of a net basis, as a result of the determined delivery point. These presentation changes did not have an impact on income or loss from operations, earnings per share/unit or cash flows, but did increase oil, natural gas and natural gas liquids revenues and lease operating expenses in the consolidated financial statements as compared to what would have been recognized using the revenue recognition guidance that was in effect before the adoption of Topic 606.

The following table summarizes the impact of adopting Topic 606 on the consolidated financial statements (in thousands):


	Without		Impact of
	Adoption of		Change in
	Topic 606		Accounting Policy		As Reported
Successor
For the Year Ended December 31, 2019:
Oil, natural gas and natural gas liquids revenues	$	112,868	$	(449)	$	112,419
Lease operating expenses	$	78,247	$	(449)	$	77,798

For the Seven Months Ended December 31, 2018:
Oil, natural gas and natural gas liquids revenues	$	134,232	$	2,937	$	137,169
Lease operating expenses	$	61,163	$	2,937	$	64,100


Predecessor
For the Five Months Ended May 31, 2018:
Oil, natural gas and natural gas liquids revenues	$	108,253	$	2,054	$	110,307
Lease operating expenses	$	43,318	$	2,054	$	45,372

Revenue from contracts with customers includes the sale of oil, natural gas and natural gas liquids production (recorded in “Oil, natural gas and natural gas liquids revenues” in the consolidated statements of operations) and gathering and transportation revenues (recorded in “Transportation and marketing-related revenues” in the consolidated statements of operations). There was no impact to gathering and transportation revenues as a result of adopting Topic 606.

The following table disaggregates revenue by significant product and service type (in thousands):


	Successor				Predecessor
			Seven Months		Five Months
	Year Ended		Ended		Ended
	December 31, 2019		December 31, 2018		May 31, 2018
Oil	$	32,004	$	41,411	$	42,460
Natural gas (1)		60,035		63,460		40,951
Natural gas liquids (1) (2)		20,380		32,298		26,896
Oil, natural gas and natural gas liquids revenues (2)		112,419		137,169		110,307
Transportation and marketing–related revenues		1,401		1,431		724
Total revenues (2)	$	113,820	$	138,600	$	111,031

_____________

(1)The Company recognizes wet gas revenues, which are recorded net of transportation, gathering and processing expenses, partially as natural gas revenues and partially as natural gas liquids revenues based on the end products after processing occurs. For the year ended December 31, 2019, wet gas revenues were $4.4 million which were recognized as $1.5 million of natural gas revenues and $2.9 million of natural gas liquids revenues. For the Successor period of the seven months ended December 31, 2018, wet gas revenues were $13.4 million which were recognized as $4.4 million of natural gas revenues and $9.0 million of natural gas liquids revenues. For the Predecessor period of the five months ended May 31, 2018, wet gas revenues were $8.4 million which were recognized as $3.2 million of natural gas revenues and $5.2 million of natural gas liquids revenues.

(2)Includes a royalty adjustment of $5.0 million during the seven months ended December 31, 2018. Excluding this royalty adjustment, revenues from natural gas liquids would have been $37.3 million; oil, natural gas and natural gas liquids revenues would have been $142.2 million; and total revenues would have been $143.6 million for the seven months ended December 31, 2018. See Note 14 for additional information.

Contract Balances

Customers are invoiced once the Company’s performance obligations have been satisfied. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 days. There are no significant judgments that significantly affect the amount or timing of revenue from contracts with customers. Accordingly, the Company’s product sales contacts do not give rise to material contract assets or contract liabilities.

Accounts receivable are primarily from purchasers of oil, natural gas and natural gas liquids. As of December 31, 2019 and 2018, the Company had receivables of $14.1 million and $38.3 million, respectively, due from purchasers of oil, natural gas and natural gas liquids. This industry concentration could affect overall exposure to credit risk, either positively or negatively, because the Company’s purchasers and joint working interest owners may be similarly affected by changes in economic, industry or other conditions. The Company routinely assesses the financial strength of its customers and bad debts are recorded based on an account-by-account review specifically identifying receivables that the Company believes may be uncollectible after all means of collection have been exhausted, and the potential recovery is considered remote. As of December 31, 2019 and 2018, the Company did not have any reserves for doubtful accounts.

Performance Obligations

The Company applies the optional exemptions in Topic 606 and does not disclose consideration for remaining performance obligations with an original expected duration of one year or less or for variable consideration related to unsatisfied performance obligations.