0001185185-18-001904.txt : 20181102 0001185185-18-001904.hdr.sgml : 20181102 20181102134201 ACCESSION NUMBER: 0001185185-18-001904 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 49 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181102 DATE AS OF CHANGE: 20181102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Energy 11, L.P. CENTRAL INDEX KEY: 0001581552 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 463070515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-55615 FILM NUMBER: 181156394 BUSINESS ADDRESS: STREET 1: 814 EAST MAIN STREET CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 804-344-8121 MAIL ADDRESS: STREET 1: 814 EAST MAIN STREET CITY: RICHMOND STATE: VA ZIP: 23219 FORMER COMPANY: FORMER CONFORMED NAME: American Energy XI, L.P. DATE OF NAME CHANGE: 20130715 10-Q 1 energy1120180930_10q.htm FORM 10-Q energy1120180930_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

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

 

 

For the quarterly period ended September 30, 2018

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                  TO                   

 

Commission File Number 000-55615

 

Energy 11, L.P.

(Exact name of registrant as specified in its charter)

 

Delaware

46-3070515

(State or other jurisdiction

of incorporation or organization)

(IRS Employer

Identification No.)

 

 

120 W 3rd Street, Suite 220

Fort Worth, Texas

76102

(Address of principal executive offices)

(Zip Code)

 

(817) 882-9192

(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 ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ 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 ☐ 

 

 

 

Smaller reporting company ☑

Emerging growth company ☑

 

 

 

 

 

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 ☑

 

As of October 31, 2018, the Partnership had 18,973,474 common units outstanding.

 

 

 

Energy 11, L.P.

Form 10-Q

Index

 

 

Page Number

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

 

 

Consolidated Balance Sheets – September 30, 2018 and December 31, 2017

3

 

 

 

 

 

 

Consolidated Statements of Operations – Three and nine months ended September 30, 2018 and 2017

4

 

 

 

 

 

 

Consolidated Statements of Cash Flows – Nine months ended September 30, 2018 and 2017

5

 

 

 

 

 

 

Notes to Consolidated Financial Statements

6

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21

 

 

 

 

 

Item 4.

Controls and Procedures

21

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

22

 

 

 

 

 

Item 1A.

Risk Factors

22

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

 

 

 

 

 

Item 3.

Defaults upon Senior Securities

22

 

 

 

 

 

Item 4.

Mine Safety Disclosures

22

 

 

 

 

 

Item 5.

Other Information

22

 

 

 

 

 

Item 6.

Exhibits

22

 

 

 

 

Signatures

23

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Energy 11, L.P.

Consolidated Balance Sheets

(Unaudited)

 

   

September 30,

   

December 31,

 
   

2018

   

2017

 
                 

Assets

               

Cash and cash equivalents

  $ 1,067,725     $ 11,090,846  

Oil, natural gas and natural gas liquids revenue receivable

    8,857,375       6,219,193  

Other current assets

    239,644       162,930  

Total Current Assets

    10,164,744       17,472,969  
                 

Oil and natural gas properties, successful efforts method, net of accumulated depreciation,

depletion and amortization of $37,589,707 and $24,934,190, respectively

    316,315,999       321,766,616  

Total Assets

  $ 326,480,743     $ 339,239,585  
                 

Liabilities

               

Accounts payable and accrued expenses

  $ 3,515,177     $ 2,733,131  

Derivative liability

    1,437,732       1,026,965  

Total Current Liabilities

    4,952,909       3,760,096  
                 

Revolving credit facility

    13,800,000       20,000,000  

Asset retirement obligations

    1,277,270       1,226,879  

Total Liabilities

    20,030,179       24,986,975  
                 

Partners’ Equity

               

Limited partners' interest (18,973,474 common units issued and outstanding, respectively)

    306,452,291       314,254,337  

General partner's interest

    (1,727 )     (1,727 )

Class B Units (62,500 units issued and outstanding, respectively)

    -       -  

Total Partners’ Equity

    306,450,564       314,252,610  
                 

Total Liabilities and Partners’ Equity

  $ 326,480,743     $ 339,239,585  

 

See notes to consolidated financial statements.

 

3

 

Energy 11, L.P.

Consolidated Statements of Operations

(Unaudited)

 

   

 

Three Months Ended

September 30, 2018

   

 

Three Months Ended

September 30, 2017

   

 

Nine Months Ended

September 30, 2018

   

 

Nine Months Ended

September 30, 2017

 
                                 

Revenues

                               

Oil

  $ 13,600,381     $ 8,044,196     $ 36,403,912     $ 25,027,671  

Natural gas

    748,818       701,681       2,233,675       2,212,921  

Natural gas liquids

    1,339,689       972,119       3,542,357       2,827,410  

Total revenue

    15,688,888       9,717,996       42,179,944       30,068,002  
                                 

Operating costs and expenses

                               

Production expenses

    2,914,785       3,163,269       8,536,265       8,730,586  

Production taxes

    1,365,925       818,455       3,657,937       2,549,454  

General and administrative expenses

    343,955       290,094       1,042,228       1,123,992  

Depreciation, depletion, amortization and accretion

    4,481,712       4,058,852       12,705,908       11,295,441  

Total operating costs and expenses

    9,106,377       8,330,670       25,942,338       23,699,473  
                                 

Operating income

    6,582,511       1,387,326       16,237,606       6,368,529  
                                 

Loss on derivatives

    (38,921 )     -       (2,943,000 )     -  

Interest expense, net

    (183,480 )     (106,767 )     (574,127 )     (480,495 )

Total other expense, net

    (222,401 )     (106,767 )     (3,517,127 )     (480,495 )
                                 

Net income

  $ 6,360,110     $ 1,280,559     $ 12,720,479     $ 5,888,034  
                                 

Basic and diluted net income per common unit

  $ 0.34     $ 0.07     $ 0.67     $ 0.33  
                                 

Weighted average common units outstanding - basic and diluted

    18,973,474       18,973,474       18,973,474       17,822,804  

 

See notes to consolidated financial statements.

 

4

 

Energy 11, L.P.

Consolidated Statements of Cash Flows

(Unaudited)

 

   

 

Nine Months Ended

September 30, 2018

   

 

Nine Months Ended

September 30, 2017

 
                 

Cash flow from operating activities:

               

Net income

  $ 12,720,479     $ 5,888,034  
                 

Adjustments to reconcile net income to cash from operating activities:

               

Depreciation, depletion, amortization and accretion

    12,705,908       11,295,441  

Loss on mark-to-market of derivatives

    410,768       -  

Non-cash expenses, net

    33,749       71,128  
                 

Changes in operating assets and liabilities:

               

Oil, natural gas and natural gas liquids revenue receivable

    (2,638,182 )     (2,752,079 )

Other current assets

    (108,618 )     (85,529 )

Accounts payable and accrued expenses

    837,721       1,178,839  
                 

Net cash flow provided by operating activities

    23,961,825       15,595,834  
                 

Cash flow from investing activities:

               

Cash paid for acquisition of oil and natural gas properties

    -       (98,250,130 )

Additions to oil and natural gas properties

    (7,260,576 )     (1,301,065 )
                 

Net cash flow used in investing activities

    (7,260,576 )     (99,551,195 )
                 

Cash flow from financing activities:

               

Cash paid for loan costs

    (1,845 )     -  

Net payments on revolving credit facility

    (6,200,000 )     -  

Net proceeds related to issuance of units

    -       82,510,325  

Distributions paid to limited partners

    (20,522,525 )     (18,610,687 )

Payments on note payable

    -       (66,700,000 )
                 

Net cash flow used in financing activities

    (26,724,370 )     (2,800,362 )
                 

Decrease in cash and cash equivalents

    (10,023,121 )     (86,755,723 )

Cash and cash equivalents, beginning of period

    11,090,846       86,800,596  
                 

Cash and cash equivalents, end of period

  $ 1,067,725     $ 44,873  
                 

Interest paid

  $ 564,701     $ 433,013  
                 

Supplemental non-cash information:

               

Note payable assumed in Acquisition No. 2

    -       40,000,000  

Note payable assumed in Acquisition No. 3

    -       33,000,000  

Decrease in note payable, settlement of pre-close activity

    -       292,644  

 

See notes to consolidated financial statements.

 

5

 

Energy 11, L.P.

Notes to Consolidated Financial Statements

September 30, 2018

(Unaudited)

 

Note 1. Partnership Organization

 

Energy 11, L.P. (the “Partnership”) is a Delaware limited partnership formed to acquire producing and non-producing oil and natural gas properties onshore in the United States and to develop those properties. The initial capitalization of the Partnership of $1,000 occurred on July 9, 2013. The Partnership completed its best-efforts offering on April 24, 2017 with a total of approximately 19.0 million common units sold for gross proceeds of $374.2 million and proceeds net of offering costs of $349.6 million.

 

As of September 30, 2018, the Partnership owned an approximate 25-26% non-operated working interest in 221 currently producing wells and approximately 247 future development sites in the Sanish field located in Mountrail County, North Dakota (collectively, the “Sanish Field Assets”), which is part of the Bakken shale formation in the Greater Williston Basin. Whiting Petroleum Corporation (“Whiting”) and Oasis Petroleum North America, LLC (“Oasis”), two of the largest producers in the basin, operate substantially all of the Sanish Field Assets.

 

The general partner of the Partnership is Energy 11 GP, LLC (the “General Partner”). The General Partner manages and controls the business affairs of the Partnership.

 

The Partnership’s fiscal year ends on December 31.

 

Note 2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited financial statements have been prepared in accordance with the instructions for Article 10 of SEC Regulation S-X. Accordingly, they do not include all of the information required by generally accepted accounting principles (“GAAP”) in the United States. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements included in its 2017 Annual Report on Form 10-K. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the twelve-month period ending December 31, 2018.

 

Use of Estimates

 

The preparation of financial statements in conformity with United States GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

Net Income Per Common Unit

 

Basic net income per common unit is computed as net income divided by the weighted average number of common units outstanding during the period. Diluted net income per common unit is calculated after giving effect to all potential common units that were dilutive and outstanding for the period. There were no common units with a dilutive effect for the three and nine months ended September 30, 2018 and 2017. As a result, basic and diluted outstanding common units were the same. The Class B units and Incentive Distribution Rights, as defined below, are not included in net income per common unit until such time that it is probable Payout (as discussed in Note 8) will occur.

 

Recently Adopted Accounting Standards

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), that amends the former revenue recognition guidance and provides a revised comprehensive revenue recognition model with customers that contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017. The Partnership adopted this standard on January 1, 2018 using the modified retrospective approach.

 

6

 

Impact of Topic 606 Adoption

 

In accordance with Topic 606, the Partnership completed a detailed review of its revenue contracts, which represent all of the Partnership’s revenue, including oil, natural gas and natural gas liquids sales, to determine the effect of the new standard for the three and nine months ended September 30, 2018. The Partnership did not record a change to its opening retained earnings as of January 1, 2018, as there was no material change to the timing or pattern of revenue recognition due to the adoption of Topic 606. The Partnership is bound by a joint operating agreement with the operator of each of its producing wells. Under the joint operating agreement, the Partnership’s proportionate share of production is marketed at the discretion of the operators. Virtually all of the Partnership’s contracts’ pricing provisions are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, quality of oil, natural gas and natural gas liquids and prevailing supply and demand conditions, so that prices fluctuate to remain competitive with other available suppliers. The Partnership typically satisfies its performance obligations upon transfer of control of its products and records the related revenue in the month production is delivered to the purchaser. Settlement receipts for sales of oil, natural gas and natural gas liquids may not be received for two to three months after the date production is delivered by the operator, and as a result, the Partnership is required to estimate the amount of production delivered by the operator and the price that will be received for the sale of the product. The Partnership records the differences between estimates and the actual amounts received for product sales in the month that payment is received from the operator. Historically, differences between the Partnership’s revenue estimates and actual revenue received have not been significant.

 

The Partnership disaggregates its revenue on the face of the consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017.

 

Recently Issued Accounting Standards

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets as right-of-use assets and lease liabilities. The standard is effective for annual and interim periods beginning after December 15, 2018 with early adoption permitted. The Partnership expects to adopt this standard as of January 1, 2019. Although the Partnership has not yet identified any material impact, the Partnership is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.

 

Note 3. Oil and Natural Gas Investments

 

On December 18, 2015, the Partnership completed its purchase (“Acquisition No. 1”) of an approximate 11% non-operated working interest in the Sanish Field Assets for approximately $159.6 million. The Partnership accounted for Acquisition No. 1 as a business combination, and therefore expensed, as incurred, transaction costs associated with this acquisition. These costs included, but were not limited to, due diligence, reserve reports, legal and engineering services and site visits.

 

On January 11, 2017, the Partnership completed its purchase (“Acquisition No. 2”) of an additional approximate 11% non-operated working interest in the Sanish Field Assets for approximately $128.5 million. The Partnership accounted for Acquisition No. 2 as a purchase of a group of similar assets, and therefore capitalized transaction costs associated with this acquisition. Total transaction costs incurred for Acquisition No. 2 were approximately $43,000. The Partnership also recorded an asset retirement obligation liability of approximately $0.8 million in conjunction with this acquisition. Acquisition No. 2 increased the Partnership’s non-operated working interest in the Sanish Field Assets to approximately 22-23%.

 

On March 31, 2017, the Partnership completed its purchase (“Acquisition No. 3”) of an additional approximate average 10.5% non-operated working interest in 82 of the Partnership’s then 216 existing producing wells and 150 of the Partnership’s then 253 future development locations in the Sanish Field Assets for approximately $52.4 million. The Partnership accounted for Acquisition No. 3 as a purchase of a group of similar assets, and therefore capitalized transaction costs associated with this acquisition. Total transaction costs incurred for Acquisition No. 3 were approximately $80,000. The Partnership also recorded an asset retirement obligation liability of approximately $0.3 million in conjunction with this acquisition. Acquisition No. 3 increased the Partnership’s total non-operated working interest in the Sanish Field Assets to approximately 26-27%.

 

7

 

The following unaudited pro forma financial information for the three- and nine-month periods ended September 30, 2017 has been prepared as if Acquisitions No. 2 and No. 3 of the Sanish Field Assets had occurred on January 1, 2017. The unaudited pro forma financial information was derived from the historical Statements of Operations of the Partnership and the historical information provided by the sellers. The unaudited pro forma financial information does not purport to be indicative of the results of operations that would have occurred had the acquisitions of the Sanish Field Assets and related financings occurred on the basis assumed above, nor is such information indicative of the Partnership’s expected future results of operations.

 

   

Three Months Ended
September 30, 2017

   

Nine Months Ended
September 30, 2017

 
   

(Unaudited)

   

(Unaudited)

 

Revenues

  $ 9,717,996     $ 32,413,448  

Net income

  $ 1,517,198     $ 6,210,488  

 

In October and November 2017, the Partnership elected to participate in the drilling and completion of six new wells. Two wells were completed in March 2018 and are being operated by Whiting. The Partnership has an estimated approximate 29% non-operated working interest in these two wells. The other four wells were completed in April, June and July of 2018 and are operated by Oasis. The Partnership has an estimated approximate 8% non-operated working interest in these four wells. In total, the Partnership’s capital expenditures for the drilling and completion of the six wells discussed above were approximately $7.8 million, including approximately $0.5 million and $6.5 million in the three and nine months ended September 30, 2018, respectively.

 

Note 4. Debt

 

On November 21, 2017, the Partnership, as the borrower, entered into a loan agreement (the “Loan Agreement”) with Bank SNB (the “Lender”), which provides for a revolving credit facility (the “Credit Facility”) with an approved initial commitment amount of $20 million (the “Revolver Commitment Amount”), subject to borrowing base restrictions. The commitment amount may be increased up to $75 million with Lender approval. The Partnership paid an origination fee of 0.30% of the Revolver Commitment Amount, or $60,000, and is subject to additional origination fees of 0.30% for any borrowings made in excess of the Revolver Commitment Amount. The Partnership is also required to pay an unused facility fee of 0.50% on the unused portion of the Revolver Commitment Amount, based on the amount of borrowings outstanding during a quarter. The maturity date is November 21, 2019.

 

The interest rate, subject to certain exceptions, is equal to the London Inter-Bank Offered Rate (LIBOR) plus a margin ranging from 2.50% to 3.50%, depending upon the Partnership’s borrowing base utilization, as calculated under the terms of the Loan Agreement. At September 30, 2018, the borrowing base was $30 million and the interest rate for the Credit Facility was 5.07%.

 

The Credit Facility is available to provide additional liquidity for capital investments and other corporate working capital requirements. Under the terms of the Loan Agreement, the Partnership may make voluntary prepayments, in whole or in part, at any time with no penalty. The Credit Facility is secured by a mortgage and first lien position on at least 80% of the Partnership’s producing wells.

 

The Credit Facility contains mandatory prepayment requirements, customary affirmative and negative covenants and events of default. The financial covenants include:

 

● a maximum leverage ratio

● a minimum current ratio

● maximum distributions

 

8

 

The Partnership was in compliance with the applicable covenants at September 30, 2018.

 

As of September 30, 2018, the outstanding balance on the Credit Facility was $13.8 million, which approximates its fair market value. The Partnership estimated the fair value of its Credit Facility by discounting the future cash flows of the instrument at estimated market rates consistent with the maturity of a debt obligation with similar credit terms and credit characteristics, which are Level 3 inputs under the fair value hierarchy. Market rates take into consideration general market conditions and maturity.

 

Note 5. Asset Retirement Obligations

 

The Partnership records an asset retirement obligation (“ARO”) and capitalizes the asset retirement costs in oil and natural gas properties in the period in which the asset retirement obligation is incurred based upon the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon wells. After recording these amounts, the ARO is accreted to its future estimated value using an assumed cost of funds and the additional capitalized costs are depreciated on a unit-of-production basis. Inherent in the present value calculation are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments. To the extent future revisions of these assumptions impact the present value of the existing asset retirement obligation, a corresponding adjustment is made to the oil and natural gas property balance. The changes in the aggregate ARO are as follows:

 

   

2018

   

2017

 

Balance as of January 1

  $ 1,226,879     $ 70,623  

Liabilities incurred - Acquisition No. 2

    -       781,628  

Liabilities incurred - Acquisition No. 3

    -       289,827  

Revisions

    -       28,866  

Accretion expense

    50,391       43,104  

Balance as of September 30

  $ 1,277,270     $ 1,214,048  

 

Note 6. Fair Value of Financial Instruments

 

The Partnership follows authoritative guidance related to fair value measurement and disclosure, which establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement using market participant assumptions at the measurement date. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

 

Level 1: Quoted prices in active markets for identical assets

 

Level 2: Significant other observable inputs – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, either directly or indirectly, for substantially the full term of the financial instrument

Level 3: Significant unobservable inputs

 

The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and the consideration of factors specific to the asset or liability. The Partnership’s policy is to recognize transfers in or out of a fair value hierarchy as of the end of the reporting period for which the event or change in circumstances caused the transfer. The Partnership has consistently applied the valuation techniques discussed above for all periods presented. During the three and nine months ended September 30, 2018 and 2017, there were no transfers in or out of Level 1, Level 2, or Level 3 assets and liabilities measured on a recurring basis.

 

9

 

As required, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Partnership did not have any financial assets and liabilities that were accounted for at fair value as of September 30, 2017, except for those instruments discussed below in “Fair Value of Other Financial Instruments.” The following table sets forth by level within the fair value hierarchy the Partnership’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2018.

 

   

Fair Value Measurements at September 30, 2018

 
   

Quoted Prices in
Active Markets for Identical Assets
(Level 1)

   

Significant Other Observable Inputs
(Level 2)

   

Significant Unobservable Inputs
(Level 3)

 

Commodity derivatives - current assets

  $ -     $ -     $ -  

Commodity derivatives - current liabilities

    -       (1,437,732 )     -  

Total

  $ -     $ (1,437,732 )   $ -  

 

The Level 2 instruments presented in the table above consist of Partnership’s costless collar commodity derivative instruments. The fair value of the Partnership’s derivative financial instruments is determined based upon future prices, volatility and time to maturity, among other things. Counterparty statements are utilized to determine the value of the commodity derivative instruments and are reviewed and corroborated using various methodologies and significant observable inputs. The fair value of the commodity derivatives noted above are included in the Partnership’s consolidated balance sheet in Derivative liability at September 30, 2018. See additional detail in Note 7. Risk Management.

 

Fair Value of Other Financial Instruments

 

The carrying value of the Partnership’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities reflect these items’ cost, which approximates fair value based on the timing of the anticipated cash flows, current market conditions and short-term maturity of these instruments. In addition, see Note 4. Debt for the fair value discussion on the Partnership’s debt.

 

Note 7. Risk Management

 

Participation in the oil and gas industry exposes the Partnership to risks associated with potentially volatile changes in energy commodity prices, and therefore, the Partnership’s future earnings are subject to these risks. In December 2017, the Partnership began to utilize derivative contracts to manage the commodity price risk on the Partnership’s future oil production it will produce and sell and to reduce the effect of volatility in commodity price changes to provide a base level of cash flow from operations. All derivative instruments are recorded on the Partnership’s balance sheet as assets or liabilities measured at fair value.

 

At September 30, 2018 and December 31, 2017, the Partnership’s costless collar derivative instruments were in a net loss position; therefore, the current Derivative liability on the consolidated balance sheets was approximately $1.4 million and $1.0 million, respectively, which approximated fair value. The Partnership has not designated its derivative instruments as hedges for accounting purposes and has not entered into such instruments for speculative trading purposes. As a result, when derivatives do not qualify or are not designated as a hedge, the changes in the fair value are recognized on the Partnership’s consolidated statements of operations as a gain or loss on derivative instruments. The Partnership recognized a total net loss on its derivative instruments of approximately $40,000 for the three months ended September 30, 2018, which was recorded in the consolidated statements of operations as Loss on derivatives. The loss was comprised of (i) $1.10 million of losses the Partnerships recognized on settled derivatives during the period, offset by (ii) $1.06 million of a mark-to-market gain on derivative instruments outstanding at period end. The Partnership recognized a total net loss on its derivative instruments of approximately $2.9 million for the nine months ended September 30, 2018, which was recorded in the consolidated statements of operations as Loss on derivatives. The loss was comprised of (i) $2.5 million of losses the Partnerships recognized on settled derivatives during the period and (ii) $0.4 million of a mark-to-market loss incurred on derivative instruments outstanding at period end.

 

The Partnership determines the estimated fair value of derivative instruments using a market approach based on several factors, including quoted market prices in active markets and quotes from third parties, among other things. The Partnership also performs an internal valuation to ensure the reasonableness of third-party quotes. In consideration of counterparty credit risk, the Partnership assessed the possibility of whether the counterparty to the derivative would default by failing to make any contractually-required payments. Additionally, the Partnership considers that it is of substantial credit quality and has the financial resources and willingness to meet its potential repayment obligations associated with the derivative transactions. See additional discussion above in Note 6. Fair Value of Financial Instruments.

 

10

 

The following table presents settlements on matured derivative instruments and non-cash losses on open derivative instruments for the periods presented. Settlements on matured derivatives below reflect losses on derivative contracts which matured during the period, calculated as the difference between the contract price and the market settlement price. Non-cash losses below represent the change in fair value of derivative instruments which were held at period-end.

 

   

Three Months Ended
September 30, 2018

   

Nine Months Ended
September 30, 2018

 

Settlements on matured derivatives

  $ (1,100,682 )   $ (2,532,232 )

Gain (loss) on mark-to-market of derivatives

    1,061,761       (410,768 )

Loss on derivatives

  $ (38,921 )   $ (2,943,000 )

 

The Partnership’s derivative contracts are costless collars, which are used to establish floor and ceiling prices on future anticipated oil production. The Partnership did not pay or receive a premium related to the costless collar agreements. The contracts are settled monthly. The following table reflects the open costless collar agreements as of September 30, 2018.

 

Settlement Period

 

Basis

 

Oil (Barrels)

 

Floor / Ceiling Prices ($)

 

Fair Value of Asset / (Liability) at
September 30, 2018

 

10/01/18 - 12/31/18

 

NYMEX

    69,000  

52.00 / 57.05

  $ (1,098,657 )

10/01/18 - 12/31/18

 

NYMEX

    9,000  

55.00 / 61.35

  $ (105,620 )

10/01/18 - 12/31/18

 

NYMEX

    9,000  

55.00 / 62.25

  $ (97,966 )

10/01/18 - 12/31/18

 

NYMEX

    9,000  

56.00 / 65.25

  $ (72,819 )

10/01/18 - 12/31/18

 

NYMEX

    9,000  

58.00 / 66.50

  $ (62,670 )
                  $ (1,437,732 )

 

All of the Partnership’s outstanding derivative instruments are covered by an International Swap Dealers Association Master Agreement (“ISDA”) entered into with the counterparty. The ISDA may provide that as a result of certain circumstances, such as cross-defaults, a counterparty may require all outstanding derivative instruments under an ISDA to be settled immediately. The Partnership has netting arrangements with the counterparty that provide for offsetting payables against receivables from separate derivative instruments.

 

Note 8. Capital Contribution and Partners’ Equity

 

At inception, the General Partner and organizational limited partner made initial capital contributions totaling $1,000 to the Partnership. Upon closing of the minimum offering, the organizational limited partner withdrew its initial capital contribution of $990, and the General Partner received Incentive Distribution Rights (defined below).

 

The Partnership completed its best-efforts offering of common units on April 24, 2017. As of the conclusion of the offering on April 24, 2017, the Partnership had completed the sale of approximately 19.0 million common units for total gross proceeds of $374.2 million and proceeds net of offerings costs of $349.6 million.

 

Under the agreement with David Lerner Associates, Inc. (the “Dealer Manager”), the Dealer Manager received a total of 6% in selling commissions and a marketing expense allowance based on gross proceeds of the common units sold. The Dealer Manager will also be paid a contingent incentive fee, which is a cash payment of up to an amount equal to 4% of gross proceeds of the common units sold based on the performance of the Partnership. Based on the common units sold through the best-efforts offering, the total contingent fee is a maximum of approximately $15.0 million.

 

Prior to “Payout,” which is defined below, all of the distributions made by the Partnership, if any, will be paid to the holders of common units. Accordingly, the Partnership will not make any distributions with respect to the Incentive Distribution Rights or with respect to Class B units and will not make the contingent incentive payments to the Dealer Manager, until Payout occurs.

 

11

 

The Partnership Agreement provides that Payout occurs on the day when the aggregate amount distributed with respect to each of the common units equals $20.00 plus the Payout Accrual. The Partnership Agreement defines “Payout Accrual” as 7% per annum simple interest accrued monthly until paid on the Net Investment Amount outstanding from time to time. The Partnership Agreement defines Net Investment Amount initially as $20.00 per unit, regardless of the amount paid for the unit. If at any time the Partnership distributes to holders of common units more than the Payout Accrual, the amount the Partnership distributes in excess of the Payout Accrual will reduce the Net Investment Amount.

 

All distributions made by the Partnership after Payout, which may include all or a portion of the proceeds of the sale of all or substantially all of the Partnership’s assets, will be made as follows:

 

First, (i) to the Record Holders of the Incentive Distribution Rights, 35%; (ii) to the Record Holders of the Outstanding Class B units, pro rata based on the number of Class B units owned, 35% multiplied by a fraction, the numerator of which is the number of Class B units outstanding and the denominator of which is 100,000 (currently, there are 62,500 Class B units outstanding; therefore, Class B units could receive 21.875%); (iii) to the Dealer Manager, as the Dealer Manager contingent incentive fee paid under the Dealer Manager Agreement, 30%, and (iv) the remaining amount, if any (currently 13.125%), to the Record Holders of outstanding common units, pro rata based on their percentage interest until such time as the Dealer Manager receives the full amount of the Dealer Manager contingent incentive fee under the Dealer Manager Agreement;

 

Thereafter, (i) to the Record Holders of the Incentive Distribution Rights, 35%; (ii) to the Record Holders of the Outstanding Class B units, pro rata based on the number of Class B units owned, 35% multiplied by a fraction, the numerator of which is the number of Class B units outstanding and the denominator of which is 100,000 (currently, there are 62,500 Class B units outstanding; therefore, Class B units could receive 21.875%); (iii) the remaining amount to the Record Holders of outstanding common units, pro rata based on their percentage interest (currently 43.125%).

 

For the three and nine months ended September 30, 2018, the Partnership paid distributions of $0.413424 and $1.081643 per common unit, or $7.8 million and $20.5 million, respectively. For the three and nine months ended September 30, 2017, the Partnership paid distributions of $0.349041 and $1.047123 per common unit, or $6.6 million and $18.6 million, respectively.

 

In the fourth quarter of 2017, the General Partner approved an adjustment to the annualized distribution rate to an annualized return of six percent based on a limited partner’s Net Investment Amount of $20.00 per common unit. The six percent distribution rate was effective with the November 29, 2017 distribution. In March 2018, the General Partner approved an increase to the annualized distribution rate back to seven percent based on a limited partner’s Net Investment Amount. The seven percent distribution rate was effective with the April 26, 2018 distribution. The accumulated unpaid distributions, measured as the difference between an annualized return of six percent (starting with the November 29, 2017 distribution) and the restoration of the annualized return of seven percent (starting with the April 26, 2018 distribution), totaled $0.084383 per common unit, or approximately $1.6 million. As of September 30, 2018, the Partnership has paid the $1.6 million in accumulated unpaid distributions.

 

Note 9. Related Parties

 

The Partnership has, and is expected to continue to engage in, significant transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Partnership’s operations may be different than if conducted with non-related parties. The General Partner’s Board of Directors oversees and reviews the Partnership’s related party relationships and is required to approve any significant modifications to any existing related party transactions, as well as any new significant related party transactions.

 

For the three and nine months ended September 30, 2018, approximately $58,000 and $188,000 of general and administrative costs were incurred by a member of the General Partner and have been or will be reimbursed by the Partnership. At September 30, 2018, approximately $58,000 was due to a member of the General Partner and is included in Accounts payable and accrued expenses on the consolidated balance sheets. For the three and nine months ended September 30, 2017, approximately $72,000 and $242,000 of general and administrative costs were incurred by a member of the General Partner and have been reimbursed by the Partnership.

 

12

 

The members of the General Partner are affiliates of Glade M. Knight, Chairman and Chief Executive Officer, David S. McKenney, Chief Financial Officer, Anthony F. Keating, III, Co-Chief Operating Officer and Michael J. Mallick, Co-Chief Operating Officer. Mr. Knight and Mr. McKenney are also the Chief Executive Officer and Chief Financial Officer of Energy Resources 12 GP, LLC, the general partner of Energy Resources 12, L.P. (“ER12”), a limited partnership that also invests in producing and non-producing oil and gas properties on-shore in the United States. On January 31, 2018, the Partnership entered into a cost sharing agreement with ER12 that gives ER12 access to the Partnership’s personnel and administrative resources, including accounting, asset management and other day-to-day management support. The shared day-to-day costs are split evenly between the two partnerships and any direct third-party costs are paid by the party receiving the services. The shared costs are based on actual costs incurred with no mark-up or profit to the Partnership. The agreement may be terminated at any time by either party upon 60 days written notice.

 

The Partnership leases office space in Oklahoma City, Oklahoma on a month-to-month basis from an affiliate of the General Partner. For the three and nine months ended September 30, 2018 and 2017, the Partnership paid $25,611 and $76,833 to the affiliate of the General Partner.

 

The office space is shared between the Partnership and ER12; therefore, under the cost sharing agreement, the monthly payment of $8,537 is split between the two partnerships. In addition to the office space, the cost sharing agreement reduces the costs to the Partnership for accounting and asset management services provided through a member of the General Partner noted above. The compensation due to Clifford J. Merritt, President of the General Partner, is also a shared cost between the Partnership and ER12. For the three and nine months ended September 30, 2018, approximately $64,000 and $175,000 of expenses subject to the cost sharing agreement were incurred by the Partnership and have been or will be reimbursed by ER12. At September 30, 2018, the approximately $64,000 due to the Partnership from ER12 is included in Other current assets in the consolidated balance sheets.

 

In November 2017, ER12 engaged Regional Energy Investors, LP (“REI”) to perform advisory and consulting services, including supporting ER12 through closing and post-closing on ER12’s first purchase of certain oil and gas properties in North Dakota. In June 2018, ER12 re-engaged REI to perform advisory and consulting services, including supporting ER12 through closing, financing and post-closing of ER12’s second purchase of certain oil and gas properties in North Dakota. REI is owned by entities that are controlled by Mr. Keating and Mr. Mallick and has engaged Mr. Merritt to support its operations. With the fees received from ER12 for advisory and consulting services, REI paid certain personnel utilized by the Partnership, including Mr. Merritt, an aggregate total of $500,000.

 

Note 10. Subsequent Events

 

In October 2018, the Partnership declared and paid $2.0 million, or $0.107397 per outstanding common unit, in distributions to its holders of common units.

 

 

 

13

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Certain statements within this report may constitute forward-looking statements. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words such as “may,” “will,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “continue,” “further,” “seek,” “plan” or “project” and variations of these words or comparable words or phrases of similar meaning.

 

These forward-looking statements include such things as:

 

references to future success in the Partnership’s drilling and marketing activities;

the Partnership’s business strategy;

estimated future distributions;

estimated future capital expenditures;

sales of the Partnership’s properties and other liquidity events;

competitive strengths and goals; and

other similar matters.

 

These forward-looking statements reflect the Partnership’s current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside the Partnership’s control that may cause actual results to differ materially from those projected. Such factors include, but are not limited to, those described under “Risk Factors” in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017 and the following:

 

that the Partnership’s strategy of acquiring oil and gas properties on attractive terms and developing those properties may not be successful or that the Partnership’s operations on properties acquired may not be successful;

general economic, market, or business conditions;

changes in laws or regulations;

the risk that the wells in which the Partnership acquires an interest are productive, but do not produce enough revenue to return the investment made;

the risk that the wells the Partnership drills do not find hydrocarbons in commercial quantities or, even if commercial quantities are encountered, that actual production is lower than expected on the productive life of wells is shorter than expected;

current credit market conditions and the Partnership’s ability to obtain long-term financing or refinancing debt for the Partnership’s drilling activities in a timely manner and on terms that are consistent with what the Partnership projects;

uncertainties concerning the price of oil and natural gas, which may decrease and remain low for prolonged periods; and

the risk that any hedging policy the Partnership employs to reduce the effects of changes in the prices of the Partnership’s production will not be effective.

 

Although the Partnership believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Partnership cannot assure investors that its expectations will be attained or that any deviations will not be material. Investors are cautioned that forward-looking statements speak only as of the date they are made and that, except as required by law, the Partnership undertakes no obligation to update these forward-looking statements to reflect any future events or circumstances. All subsequent written or oral forward-looking statements attributable to the Partnership or to individuals acting on its behalf are expressly qualified in their entirety by this section.

 

14

 

The following discussion and analysis should be read in conjunction with the Partnership’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the information contained in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

Overview

 

The Partnership was formed as a Delaware limited partnership. The general partner is Energy 11 GP, LLC (the “General Partner”). The initial capitalization of the Partnership of $1,000 occurred on July 9, 2013. The Partnership began offering common units of limited partner interest (the “common units”) on a best-efforts basis on January 22, 2015, the date the Partnership’s initial Registration Statement on Form S-1 (File No. 333-197476) was declared effective by the SEC. The Partnership completed its best-efforts offering on April 24, 2017. Total common units sold were approximately 19.0 million for gross proceeds of $374.2 million and proceeds net of offering costs of $349.6 million.

 

As of September 30, 2018, the Partnership owned an approximate 25-26% non-operated working interest in 221 currently producing wells and approximately 247 future development sites in the Sanish field located in Mountrail County, North Dakota (collectively, the “Sanish Field Assets”). Substantially all of the Sanish Field Assets are operated by Whiting Petroleum Corporation (“Whiting”) (NYSE: WLL) and Oasis Petroleum North America, LLC (“Oasis”) (NYSE: OAS), two publicly traded oil and gas companies and two of the largest producers in the basin.

 

The Partnership has no officers, directors or employees. Instead, the General Partner manages the day-to-day affairs of the Partnership. All decisions regarding the management of the Partnership made by the General Partner are made by the Board of Directors of the General Partner and its officers.

 

The Partnership was formed to acquire and develop oil and gas properties located onshore in the United States. On December 18, 2015, the Partnership completed its first purchase (“Acquisition No. 1”) in the Sanish field, acquiring an approximate 11% non-operated working interest in the Sanish Field Assets for approximately $159.6 million. On January 11, 2017, the Partnership closed on its second purchase (“Acquisition No. 2”) in the Sanish field, acquiring an additional approximate 11% non-operated working interest in the Sanish Field Assets for approximately $128.5 million. On March 31, 2017, the Partnership closed on its third purchase (“Acquisition No. 3”) in the Sanish field, acquiring an additional approximate average 10.5% non-operated working interest in 82 of the Partnership’s then 216 existing producing wells and 150 of the Partnership’s then 253 future development locations in the Sanish Field Assets for approximately $52.4 million.

 

In October and November 2017, the Partnership elected to participate in the drilling and completion of six new wells. Two wells were completed in March 2018 and are being operated by Whiting. The Partnership has an estimated approximate 29% non-operated working interest in these two wells. The other four wells were completed in April, June and July of 2018 and are operated by Oasis. The Partnership has an estimated approximate 8% non-operated working interest in these four wells. In total, the Partnership’s capital expenditures for the drilling and completion of the six wells discussed above were approximately $7.8 million, including approximately $0.8 million and $6.5 million in the three and nine months ended September 30, 2018, respectively.

 

Current Price Environment

 

Oil, natural gas and natural gas liquids (“NGL”) prices are determined by many factors outside of the Partnership’s control. Historically, world-wide oil and natural gas prices and markets have been subject to significant change, and may continue to be in the future. In 2017, monthly average oil prices (based on daily settlements of monthly contracts traded on the NYMEX) ranged from a low of $45.18 per barrel in June 2017 to a high of $57.88 in December 2017. The monthly average of $70.98 per barrel of oil in July 2018 represented the highest monthly average since November 2014.

 

From January 1, 2017 through December 31, 2017, monthly averages for natural gas prices stabilized between approximately $2.81 per MMBtu (December 2017) and $3.30 per MMBtu (January 2017). For the three and nine months ended September 30, 2018, the average daily price for natural gas was $2.93 and $2.94.

 

Factors contributing to world-wide commodity pricing volatility include real or perceived geopolitical risks in oil-producing regions of the world, particularly the Middle East; forecasted levels of global economic growth combined with forecasted global supply; supply levels of oil and natural gas due to exploration and development activities in the United States; actions taken by the Organization of Petroleum Exporting Countries; and the strength of the U.S. dollar in international currency markets. In addition to commodity price fluctuations, the Partnership faces the challenge of natural production volume declines. As reservoirs are depleted, oil and natural gas production from Partnership wells will decrease.

 

15

 

The following table lists average NYMEX prices for oil and natural gas for the three and nine months ended September 30, 2018 and 2017.

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2018

   

2017

   

2018

   

2017

 

Average market closing prices (1)

                               

Oil (per Bbl)

  $ 69.57     $ 48.20     $ 66.85     $ 49.36  

Natural gas (per MMBtu)

  $ 2.93     $ 2.95     $ 2.94     $ 3.01  

 

(1)

Based on average NYMEX futures closing prices (oil) and NYMEX/Henry Hub spot prices (natural gas)

 

The Partnership’s revenues are highly sensitive to changes in oil and natural gas prices and to levels of production. Future growth is dependent on the Partnership’s ability to add reserves in excess of production. Dependent on available cash flow, the Partnership intends to seek opportunities to invest in its existing producing wells, drill new wells on existing leasehold sites like the six wells discussed above and/or acquire additional reserves.

 

Results of Operations

 

In evaluating financial condition and operating performance, the most important indicators on which the Partnership focuses are (1) total quarterly sold production in barrel of oil equivalent (“BOE”) units, (2) average sales price per unit for oil, natural gas and natural gas liquids, (3) production costs per BOE and (4) capital expenditures.

 

The Partnership closed on its first purchase (original approximate 11% working interest) of the Sanish Field Assets in December 2015, then completed its second purchase (approximate additional 11% working interest) and its third purchase (additional approximate 4-5% working interest) of the Sanish Field Assets on January 11, 2017 and March 31, 2017, respectively. The comparability of operating results for the nine months ended September 30, 2018 and 2017 are impacted by these transactions. The following is a summary of the results from operations, including production, of the Partnership’s non-operated working interest for the three and nine months ended September 30, 2018 and 2017.

 

   

Three Months Ended September 30,

           

Nine Months Ended September 30,

         
   

2018

   

Percent of

Revenue

   

2017

   

Percent of

Revenue

   

Percent
Change

   

2018

   

Percent of

Revenue

   

2017

   

Percent of Revenue

   

Percent
Change

 

Total revenues

  $ 15,688,888       100.0 %   $ 9,717,996       100.0 %     61.4 %   $ 42,179,944       100.0 %   $ 30,068,002       100.0 %     40.3 %

Production expenses

    2,914,785       18.6 %     3,163,269       32.6 %     -7.9 %     8,536,265       20.2 %     8,730,586       29.0 %     -2.2 %

Production taxes

    1,365,925       8.7 %     818,455       8.4 %     66.9 %     3,657,937       8.7 %     2,549,454       8.5 %     43.5 %

Depreciation, depletion, amortization and accretion

    4,481,712       28.6 %     4,058,852       41.8 %     10.4 %     12,705,908       30.1 %     11,295,441       37.6 %     12.5 %

General, administration and other expense

    343,955       2.2 %     290,094       3.0 %     18.6 %     1,042,228       2.5 %     1,123,992       3.7 %     -7.3 %
                                                                                 

Sold production (BOE):

                                                                               

Oil

    218,368               198,298               10.1 %     612,220               581,762               5.2 %

Natural gas

    39,889               40,050               -0.4 %     109,669               114,729               -4.4 %

Natural gas liquids

    40,293               46,326               -13.0 %     109,383               116,477               -6.1 %

Total

    298,550               284,674               4.9 %     831,272               812,968               2.3 %
                                                                                 

Average sales price per unit:

                                                                               

Oil (per Bbl)

  $ 62.28             $ 40.57               53.5 %   $ 59.46             $ 43.02               38.2 %

Natural gas (per Mcf)

    3.13               2.92               7.2 %     3.39               3.21               5.6 %

Natural gas liquids (per Bbl)

    33.25               20.98               58.5 %     32.38               24.27               33.4 %

Combined (per BOE)

    52.55               34.14               53.9 %     50.74               36.99               37.2 %
                                                                                 

Average unit cost per BOE:

                                                                               

Production expenses

    9.76               11.11               -12.1 %     10.27               10.74               -4.4 %

Production taxes

    4.58               2.88               59.0 %     4.40               3.14               40.1 %

Depreciation, depletion, amortization and accretion

    15.01               14.26               5.3 %     15.28               13.89               10.0 %
                                                                                 

Capital expenditures

  $ 440,618             $ 946,947                     $ 7,204,900             $ 1,679,644                  

 

 

16

 

Oil, Natural Gas and NGL Revenues

 

For the three months ended September 30, 2018, revenues for oil, natural gas and NGL sales were $15.7 million. Revenues for the sale of crude oil were $13.6 million, which resulted in a realized price of $62.28 per barrel. Revenues for the sale of natural gas were $0.7 million, which resulted in a realized price of $3.13 per Mcf. Revenues for the sale of NGLs were $1.3 million, which resulted in a realized price of $33.25 per BOE of sold production. For the three months ended September 30, 2017, revenues for oil, natural gas and NGL sales were $9.7 million. Revenues for the sale of crude oil were $8.0 million, which resulted in a realized price of $40.57 per barrel. Revenues for the sale of natural gas were $0.7 million, which resulted in a realized price of $2.92 per Mcf. Revenues for the sale of NGLs were $1.0 million, which resulted in a realized price of $20.98 per BOE of production.

 

For the nine months ended September 30, 2018, revenues for oil, natural gas and NGL sales were $42.2 million. Revenues for the sale of crude oil were $36.4 million, which resulted in a realized price of $59.46 per barrel. Revenues for the sale of natural gas were $2.2 million, which resulted in a realized price of $3.39 per Mcf. Revenues for the sale of NGLs were $3.5 million, which resulted in a realized price of $32.38 per BOE of sold production. For the nine months ended September 30, 2017, revenues for oil, natural gas and NGL sales were $30.1 million. Revenues for the sale of crude oil were $25.0 million, which resulted in a realized price of $43.02 per barrel. Revenues for the sale of natural gas were $2.2 million, which resulted in a realized price of $3.21 per Mcf. Revenues for the sale of NGLs were $2.8 million, which resulted in a realized price of $24.27 per BOE of production.

 

The Partnership benefited from increases in commodity prices for oil and NGLs during the first three quarters of 2018, as market prices during the first nine months of 2018 were higher than prices in the first nine months of 2017. The Partnership offset a portion of the natural decline in its production volumes in the third quarter of 2018 as the six new wells discussed above were all producing by July 2018. Production for the Sanish Field Assets was approximately 3,245 BOE and 3,103 BOE per day for the three and nine months ended September 30, 2018. Production for the Sanish Field Assets was approximately 3,094 BOE per day for the three months ended September 30, 2017. If the Partnership had completed Acquisitions 2 and 3 effective January 1, 2017, the Partnership estimates production for the Sanish Field Assets would have been approximately 3,184 BOE per day for the nine months ended September 30, 2017.

 

Production is dependent on the investment in existing wells and the development of new wells. As noted above, the Partnership was able to partially offset natural production declines with the completion of the six wells discussed above. However, if the Partnership or its operators are unable or it is not cost beneficial to invest in existing wells or develop new wells, production will decline.

 

Operating Costs and Expenses

 

Production Expenses

 

Production expenses are daily costs incurred by the Partnership to bring oil and natural gas out of the ground and to market, along with the daily costs incurred to maintain producing properties. Such costs include field personnel compensation, salt water disposal, utilities, maintenance, repairs and servicing expenses related to the Partnership’s oil and natural gas properties, along with the gathering and processing contract in effect for the extraction, transportation and treatment of natural gas.

 

For the three months ended September 30, 2018 and 2017, production expenses were $2.9 million and $3.2 million, respectively, and production expenses per BOE of sold production were $9.76 and $11.11, respectively. For the nine months ended September 30, 2018 and 2017, production expenses were $8.5 million and $8.7 million, respectively, and production expenses per BOE of sold production were $10.27 and $10.74, respectively. In the third quarter of 2017, a portion of the Partnership’s wells required significant rework in an effort to increase production. Comparable workover expenses were lower in the third quarter of 2018. The Partnership also benefitted from lower lease operating expenses during the third quarter of 2018 as compared to the third quarter of 2017, and as a result combined with an increase in production, production expenses per BOE of sold production for the three and nine months ended September 30, 2018 declined in comparison to the same periods of 2017.

 

Production Taxes

 

Taxes on the production and extraction of oil and gas are regulated and set by North Dakota tax authorities. Taxes on the sale of gas and NGL products are less than taxes levied on the sale of oil. Production taxes for the three months ended September 30, 2018 and 2017 were $1.4 million (8.7% of revenue) and $0.8 million (8.4% of revenue), respectively. Production taxes for the nine months ended September 30, 2018 and 2017 were $3.7 million (8.7% of revenue) and $2.5 million (8.5% of revenue), respectively.

 

17

 

Depreciation, Depletion, Amortization and Accretion (“DD&A”)

 

DD&A of capitalized drilling and development costs of producing oil, natural gas and NGL properties are computed using the unit-of-production method on a field basis based on total estimated proved developed oil, natural gas and NGL reserves. Costs of acquiring proved properties are depleted using the unit-of-production method on a field basis based on total estimated proved developed and undeveloped reserves. DD&A for the three months ended September 30, 2018 and 2017 was $4.5 million and $4.1 million, and DD&A per BOE of sold production was $15.01 and $14.26, respectively. DD&A for the nine months ended September 30, 2018 and 2017 was $12.7 million and $11.3 million, and DD&A per BOE of sold production was $15.28 and $13.89, respectively. Sold production of the Partnership’s natural gas and NGLs declined in the second quarter of 2018 due to a customer’s gas plant being temporarily shut down for maintenance. As a result of the facility shutdown, a portion of the Partnership’s produced natural gas and NGL was flared. DD&A per BOE of production, including the flared natural gas and NGL, for the nine months ended September 30, 2018 was $15.00.

 

The increase in 2018 DD&A expense per BOE of production compared to 2017 DD&A expense per BOE of production is primarily due to the decrease of the Partnership’s estimated proved undeveloped reserves resulting from changes in the future drill schedule along with the Partnership’s investment in new wells, partially offset by production volume increases in the third quarter of 2018.

 

General and Administrative Costs

 

General and administrative costs for the three months ended September 30, 2018 and 2017 was $0.3 million for both periods, respectively. General and administrative costs for the nine months ended September 30, 2018 and 2017 were $1.0 million and $1.1 million, respectively. The principal components of general and administrative expense are accounting, legal and consulting fees. The year-to-date decline is primarily due to the cost sharing agreement discussed below.

 

Loss on Derivatives

 

In December 2017, January 2018 and March 2018, the Partnership entered into derivative contracts (costless collars) with the objective to manage the commodity price risk on a portion of anticipated 2018 oil production. The Partnership’s loss on derivative instruments for the three months ended September 30, 2018 was approximately $40,000. The loss is comprised of (i) $1.10 million of losses on settled derivatives during the period, offset by (ii) $1.06 million of a mark-to-market gain on derivative instruments outstanding at period end. The Partnership’s recognized losses on settled derivatives of $1.1 million represented 108,000 barrels of produced oil, resulting in a loss of $10.19 per barrel of oil.

 

The Partnership’s loss on derivative instruments for the nine months ended September 30, 2018 was $2.9 million. The loss is comprised of (i) $2.5 million of losses on settled derivatives during the period, and (ii) $0.4 million of a mark-to-market loss incurred on derivative instruments outstanding at period end. The Partnership’s recognized losses on settled derivatives of $2.5 million represented 324,000 barrels of produced oil, resulting in a loss of $7.82 per barrel of oil.

 

The table below summarizes the Partnership’s outstanding derivative contracts (costless collars – purchased put options and written call options) on the Partnership’s 2018 oil production.

 

   

Costless Collar Volumes
(Bbl)

 

Weighted Average

Floor / Ceiling Prices ($)

2018

    105,000  

53.37 / 59.38

 

Interest Expense

 

Interest expense, net, for the three months ended September 30, 2018 and 2017 was $0.2 million and $0.1 million, respectively. Interest expense, net, for the nine months ended September 30, 2018 and 2017 was $0.6 million and $0.5 million, respectively. The primary component of Interest expense, net, during the three- and nine-month periods ended September 30, 2018 was interest expense on the Credit Facility, described below, while the primary component during the three- and nine-month periods ended September 30, 2017 was interest expense on the notes payable executed in conjunction with Acquisitions No. 2 and No. 3.

 

18

 

Supplemental Non-GAAP Measure

 

The Partnership uses “Adjusted EBITDAX”, defined as earnings before (i) interest expense, net; (ii) income taxes; (iii) depreciation, depletion, amortization and accretion; (iv) exploration expenses; and (v) (gain)/loss on the mark-to-market of derivative instruments, as a key supplemental measure of its operating performance. This non-GAAP financial measure should be considered along with, but not as alternatives to, net income, operating income, cash flow from operating activities or other measures of financial performance presented in accordance with GAAP. Adjusted EBITDAX is not necessarily indicative of funds available to fund the Company’s cash needs, including its ability to make cash distributions. Although Adjusted EBITDAX, as calculated by the Partnership, may not be comparable to Adjusted EBITDAX as reported by other companies that do not define such terms exactly as the Partnership defines such terms, the Partnership believes this supplemental measure is useful to investors when comparing the Partnership’s results between periods and with other energy companies.

 

The Partnership believes that the presentation of Adjusted EBITDAX is important to provide investors with additional information (i) to provide an important supplemental indicator of the operational performance of the Partnership’s business without regard to financing methods and capital structure, and (ii) to measure the operational performance of the Partnership’s operator.

 

The following table reconciles the Partnership’s GAAP net income to Adjusted EBITDAX for the three and nine months ended September 30, 2018 and 2017.

 

   

Three Months Ended
September 30, 2018

   

Three Months Ended
September 30, 2017

   

Nine Months Ended
September 30, 2018

   

Nine Months Ended
September 30, 2017

 

Net income

  $ 6,360,110     $ 1,280,559     $ 12,720,479     $ 5,888,034  

Interest expense, net

    183,480       106,767       574,127       480,495  

Depreciation, depletion, amortization and accretion

    4,481,712       4,058,852       12,705,908       11,295,441  

Exploration expenses

    -       -       -       -  

Non-cash (gain) loss on mark-to-market of derivatives

    (1,061,761 )     -       410,768       -  

Adjusted EBITDAX

  $ 9,963,541     $ 5,446,178     $ 26,411,282     $ 17,663,970  

 

Liquidity and Capital Resources

 

With the completion of the Partnership’s best-efforts offering in April 2017, the Partnership’s principal sources of liquidity are cash on hand, the cash flow generated from properties the Partnership has acquired and availability under the Partnership’s revolving credit facility, discussed below. The Partnership anticipates that cash on hand, cash flow from operations and availability under the credit facility will be adequate to meet its anticipated liquidity requirements for at least the next 12 months, including completing the funding of the capital expenditures discussed above.

 

Financing

 

On November 21, 2017, the Partnership, as the borrower, entered into a loan agreement (the “Loan Agreement”) with Bank SNB (the “Lender”), which provides for a revolving credit facility (the “Credit Facility”) with an approved initial commitment amount of $20 million (the “Revolver Commitment Amount”), subject to borrowing base restrictions. The commitment amount may be increased up to $75 million with Lender approval. The Partnership paid an origination fee of 0.30% of the Revolver Commitment Amount, or $60,000, and is subject to additional origination fees of 0.30% for any borrowings made in excess of the Revolver Commitment Amount. The Partnership is also required to pay an unused facility fee of 0.50% on the unused portion of the Revolver Commitment Amount, based on the amount of borrowings outstanding during a quarter. The maturity date is November 21, 2019.

 

The interest rate, subject to certain exceptions, is equal to the London Inter-Bank Offered Rate (LIBOR) plus a margin ranging from 2.50% to 3.50%, depending upon the Partnership’s borrowing base utilization, as calculated under the terms of the Loan Agreement. At September 30, 2018, the borrowing base was $30 million and the interest rate for the Credit Facility was 5.07%.

 

The Credit Facility is available to provide additional liquidity for capital investments and other corporate working capital requirements. Under the terms of the Loan Agreement, the Partnership may make voluntary prepayments, in whole or in part, at any time with no penalty. The Credit Facility is secured by a mortgage and first lien position on at least 80% of the Partnership’s producing wells.

 

19

 

The Credit Facility contains mandatory prepayment requirements, customary affirmative and negative covenants and events of default. The financial covenants include:

 

● a maximum leverage ratio

● a minimum current ratio

● maximum distributions

 

The Partnership was in compliance with the applicable covenants at September 30, 2018.

 

At September 30, 2018, the outstanding balance on the Credit Facility was $13.8 million.

 

Partners Equity

 

The Partnership completed its best-efforts offering of common units on April 24, 2017. As of the conclusion of the offering on April 24, 2017, the Partnership sold approximately 19.0 million common units for total gross proceeds of $374.2 million and proceeds net of offering costs of $349.6 million.

 

Under the agreement with the Dealer Manager, the Dealer Manager received a total of 6% in selling commissions and a marketing expense allowance based on gross proceeds of the common units sold. The Dealer Manager will also be paid a contingent incentive fee, which is a cash payment of up to an amount equal to 4% of gross proceeds of the common units sold based on the performance of the Partnership. Based on the common units sold in the offering, the total contingent fee is a maximum of approximately $15.0 million, which will only be paid if Payout occurs, as defined in “Note 8. Capital Contribution and Partners’ Equity” in Part I, Item 1 of this Form 10-Q.

 

Distributions

 

For the three and nine months ended September 30, 2018, the Partnership paid distributions of $0.413424 and $1.081643 per common unit, or $7.8 million and $20.5 million, respectively. For the three and nine months ended September 30, 2017, the Partnership paid distributions of $0.349041 and $1.047123 per common unit, or $6.6 million and $18.6 million, respectively. The Partnership generated $24.0 million and $15.6 million, respectively, in cash flow from operations for the nine months ended September 30, 2018 and 2017.

 

In the fourth quarter of 2017, the General Partner approved an adjustment to the annualized distribution rate to an annualized return of six percent based on a limited partner’s Net Investment Amount of $20.00 per common unit. The six percent distribution rate was effective with the November 29, 2017 distribution. In March 2018, the General Partner approved an increase to the annualized distribution rate back to seven percent based on a limited partner’s Net Investment Amount. The seven percent distribution rate was effective with the April 26, 2018 distribution. The accumulated unpaid distributions, measured as the difference between an annualized return of six percent (starting with the November 29, 2017 distribution) and the restoration of the annualized return of seven percent (starting with the April 26, 2018 distribution), totaled $0.084383 per common unit, or approximately $1.6 million. As of September 30, 2018, the Partnership has paid the $1.6 million in accumulated unpaid distributions.

 

While the Partnership’s goal is to maintain a relatively stable distribution rate over the life of its program, the General Partner monitors monthly Partnership distributions in conjunction with the Partnership’s projected cash requirements for operations, capital expenditures for new wells and debt service.

 

Oil and Natural Gas Properties

 

The Partnership incurred approximately $0.4 million and $7.2 million in capital expenditures for the three and nine months ended September 30, 2018, respectively. The Partnership incurred approximately $0.9 million and $1.7 million in capital expenditures for the three and nine months ended September 30, 2017, respectively. The Partnership expects to invest approximately $0.5 to $1.0 million in capital expenditures during the remainder of 2018.

 

Since the Partnership is not the operator of any of its oil and natural gas properties, it is difficult to predict levels of future participation in the drilling and completion of new wells and their associated capital expenditures. This makes capital expenditures for drilling and completion projects difficult to forecast for the remainder of 2018 and 2019. Current estimated capital expenditures could be significantly different from amounts actually invested.

 

20

 

The Partnership expects to fund overhead costs and capital additions related to the drilling and completion of wells primarily from cash provided by operating activities, cash on hand and availability under the Credit Facility. If an operator elects to complete drilling or other significant capital expenditure activity and the Partnership is unable to fund the capital expenditures, the General Partner may decide to farmout the well. Also, if a well is proposed under the operating agreement for one of the properties the Partnership owns, the General Partner may elect to “non-consent” the well. Non-consenting a well will generally cause the Partnership not to be obligated to pay the costs of the well, but the Partnership will not be entitled to the proceeds of production from the well until a penalty is received by the parties that drilled the well.

 

Transactions with Related Parties

 

The Partnership has, and is expected to continue to engage in, significant transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Partnership’s operations may be different than if conducted with non-related parties. The General Partner’s Board of Directors oversees and reviews the Partnership’s related party relationships and is required to approve any significant modifications to existing related party transactions, as well as any new significant related party transactions.

 

See further discussion in “Note 9. Related Parties” in Part I, Item 1 of this Form 10-Q.

 

Subsequent Events

 

In October 2018, the Partnership declared and paid $2.0 million, or $0.107397 per outstanding common unit, in distributions to its holders of common units.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Information regarding the Partnership’s hedging programs to mitigate commodity risks is contained in Item 1 – Financial Statements (Unaudited) and Notes to Consolidated Financial Statements: Note 7. Risk Management and Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, appearing elsewhere within this Quarterly Report on Form 10-Q.

 

The Partnership also has a variable interest rate on its Credit Facility that is subject to market changes in interest rates. Information regarding the Partnership’s Credit Facility is contained in Item 1 – Financial Statements (Unaudited) and Notes to Consolidated Financial Statements: Note 4. Debt and Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, appearing elsewhere within this Quarterly Report on Form 10-Q.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

In accordance with Exchange Act Rule 13a–15 and 15d–15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Partnership carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer of the General Partner, of the effectiveness of the Partnership’s disclosure controls and procedures 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 Partnership’s disclosure controls and procedures were effective as of September 30, 2018 to provide reasonable assurance that information required to be disclosed in the Partnership’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Partnership’s disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer of the General Partner, as appropriate, to allow timely decisions regarding required disclosure.

 

Change in Internal Controls Over Financial Reporting

 

There have not been any changes in the Partnership’s internal controls over financial reporting that occurred during the quarterly period ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal controls over financial reporting.

 

21

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

At the end of the period covered by this Quarterly Report on Form 10-Q, the Partnership was not a party to any material, pending legal proceedings.

 

Item 1A. Risk Factors

 

For a discussion of the Partnership’s potential risks and uncertainties, see the section titled “Risk Factors” in the 2017 Form 10-K. There have been no material changes to the risk factors previously disclosed in the 2017 Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Not applicable.

 

Item 3. Defaults upon Senior Securities.

 

Not applicable.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

Not applicable.

 

Item 6. Exhibits.

 

Exhibit No.

 

Description

31.1

 

Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002*

31.2

 

Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002*

32.1

 

Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2

 

Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101

 

The following materials from Energy 11, L.P.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows, and (iv) related notes to these financial statements, tagged as blocks of text and in detail*

 

 

 

 

*Filed herewith.

 

22

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

Energy 11, L.P.

 

 

 

 

By: Energy 11 G.P., LLC, its General Partner

 

 

 

 

By:

/s/ Glade M. Knight

 

 

 

Glade M. Knight

 

 

Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

 

 

 

By:

/s/ David S. McKenney

 

 

 

David S. McKenney

 

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

Date: November 2, 2018

 

 

 

 

 

23

 

 

 

EX-31.1 2 ex_126052.htm EXHIBIT 31.1 ex_126052.htm

 

 

EXHIBIT 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)/15D-14(a)

 

I, Glade M. Knight, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of Energy 11, L.P. (the “registrant”);

 

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 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)) 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 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.

 

  

Date:  November 2, 2018

By:

/s/ Glade M. Knight

 

 

Name:

Glade M. Knight

 

Title:

General Partner, Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

EX-31.2 3 ex_126053.htm EXHIBIT 31.2 ex_126053.htm

 

 

EXHIBIT 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a)/15D-14(a)

  

I, David McKenney, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of Energy 11, L.P. (the “registrant”);

 

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 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)) 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 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.

 

 

Date:  November 2, 2018

By:

/s/ David S. McKenney

 

 

Name:

David S. McKenney

 

Title:

General Partner, Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

 

EX-32.1 4 ex_126054.htm EXHIBIT 32.1 ex_126054.htm

 

 

EXHIBIT 32.1

 

CERTIFICATION FURNISHED PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”) for the three months ended September 30, 2018 of Energy 11, L.P. (the “Partnership”).  I, Glade M. Knight, the Chief Executive Officer of the Partnership, certify that, based on my knowledge:

 

(1)  

The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

 

(2)  

The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Partnership as of and for the periods covered in this report.

 

 

 

 

Date:  November 2, 2018

By:

/s/ Glade M. Knight

 

 

Name:

Glade M. Knight

 

Title:

General Partner, Chief Executive Officer (Principal Executive Officer)

 

 

 

 

EX-32.2 5 ex_126055.htm EXHIBIT 32.2 ex_126055.htm

 

 

EXHIBIT 32.2

 

CERTIFICATION FURNISHED PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”) for the three months ended September 30, 2018 of Energy 11, L.P. (the “Partnership”).  I, David McKenney, the Chief Financial Officer of the Partnership, certify that, based on my knowledge:

 

(1)  

The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

 

(2)  

The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Partnership as of and for the periods covered in this report.

 

 

 

 

Date: November 2, 2018

By:

/s/ David S. McKenney

 

 

Name:

David S. McKenney

 

Title:

General Partner, Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

 

 

 

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(the &#x201c;Partnership&#x201d;) is a Delaware limited partnership formed to acquire producing and non-producing oil and natural gas properties onshore in the United States and to develop those properties. The initial capitalization of the Partnership of $1,000 occurred on July 9, 2013. The Partnership completed its best-efforts offering on April 24, 2017 with a total of approximately 19.0 million common units sold for gross proceeds of $374.2 million and proceeds net of offering costs of $349.6 million.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">As of September 30, 2018, the Partnership owned an approximate 25-26% non-operated working interest in 221 currently producing wells and approximately 247 future development sites in the Sanish field located in Mountrail County, North Dakota (collectively, the &#x201c;Sanish Field Assets&#x201d;), which is part of the Bakken shale formation in the Greater Williston Basin. Whiting Petroleum Corporation (&#x201c;Whiting&#x201d;) and Oasis Petroleum North America, LLC (&#x201c;Oasis&#x201d;), two of the largest producers in the basin, operate substantially all of the Sanish Field Assets.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The general partner of the Partnership is Energy 11 GP, LLC (the &#x201c;General Partner&#x201d;). The General Partner manages and controls the business affairs of the Partnership.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Partnership&#x2019;s fiscal year ends on December 31.</p><br/></div> Delaware 1000 19000000 374200000 349600000 0.25 0.26 221 247 <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><b>Note</b><b> </b><b>2.</b><b> </b><b>Summary</b><b> </b><b>of</b><b> </b><b>Significant</b><b> </b><b>Accounting</b><b> </b><b>Policies</b></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><i>Basis</i><i> </i><i>of</i><i> </i><i>Presentation</i></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The accompanying unaudited financial statements have been prepared in accordance with the instructions for Article 10 of SEC Regulation S-X. Accordingly, they do not include all of the information required by generally accepted accounting principles (&#x201c;GAAP&#x201d;) in the United States. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the Partnership&#x2019;s audited consolidated financial statements included in its 2017 Annual Report on Form 10-K. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the twelve-month period ending December 31, 2018.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><i>Use</i><i> </i><i>of</i><i> </i><i>Estimates</i></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The preparation of financial statements in conformity with United States GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><i>Net</i><i> </i><i>Income</i><i> </i><i>Per</i><i> </i><i>Common</i><i> </i><i>Unit</i></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">Basic net income per common unit is computed as net income divided by the weighted average number of common units outstanding during the period. Diluted net income per common unit is calculated after giving effect to all potential common units that were dilutive and outstanding for the period. There were no common units with a dilutive effect for the three and nine months ended September 30, 2018 and 2017. As a result, basic and diluted outstanding common units were the same. The Class B units and Incentive Distribution Rights, as defined below, are not included in net income per common unit until such time that it is probable Payout (as discussed in Note 8) will occur.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><i>Recently</i><i> </i><i>Adopted</i><i> </i><i>Accounting</i><i> </i><i>Standards</i></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">In May 2014, the Financial Accounting Standards Board (&#x201c;FASB&#x201d;) issued Accounting Standard Update (&#x201c;ASU&#x201d;) 2014-09, <i>Revenue</i><i> </i><i>from</i><i> </i><i>Contracts</i><i> </i><i>with</i><i> </i><i>Customers</i><i> </i><i>(Topic</i><i> </i><i>606)</i>, that amends the former revenue recognition guidance and provides a revised comprehensive revenue recognition model with customers that contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017. The Partnership adopted this standard on January 1, 2018 using the modified retrospective approach.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><i>Impact</i><i> </i><i>of</i><i> </i><i>Topic</i><i> </i><i>606</i><i> </i><i>Adoption</i></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">In accordance with Topic 606, the Partnership completed a detailed review of its revenue contracts, which represent all of the Partnership&#x2019;s revenue, including oil, natural gas and natural gas liquids sales, to determine the effect of the new standard for the three and nine months ended September 30, 2018. The Partnership did not record a change to its opening retained earnings as of January 1, 2018, as there was no material change to the timing or pattern of revenue recognition due to the adoption of Topic 606. The Partnership is bound by a joint operating agreement with the operator of each of its producing wells. Under the joint operating agreement, the Partnership&#x2019;s proportionate share of production is marketed at the discretion of the operators. Virtually all of the Partnership&#x2019;s contracts&#x2019; pricing provisions are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, quality of oil, natural gas and natural gas liquids and prevailing supply and demand conditions, so that prices fluctuate to remain competitive with other available suppliers. The Partnership typically satisfies its performance obligations upon transfer of control of its products and records the related revenue in the month production is delivered to the purchaser. Settlement receipts for sales of oil, natural gas and natural gas liquids may not be received for two to three months after the date production is delivered by the operator, and as a result, the Partnership is required to estimate the amount of production delivered by the operator and the price that will be received for the sale of the product. The Partnership records the differences between estimates and the actual amounts received for product sales in the month that payment is received from the operator. Historically, differences between the Partnership&#x2019;s revenue estimates and actual revenue received have not been significant.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Partnership disaggregates its revenue on the face of the consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><i>Recently</i><i> </i><i>Issued</i><i> </i><i>Accounting</i><i> </i><i>Standards</i></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">In February 2016, the FASB issued ASU No. 2016-02, <i>Leases</i><i> </i><i>(Topic</i><i> </i><i>842)</i>, which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets as right-of-use assets and lease liabilities. The standard is effective for annual and interim periods beginning after December 15, 2018 with early adoption permitted. The Partnership expects to adopt this standard as of January 1, 2019. Although the Partnership has not yet identified any material impact, the Partnership is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.</p><br/></div> <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><i>Basis</i><i> </i><i>of</i><i> </i><i>Presentation</i></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The accompanying unaudited financial statements have been prepared in accordance with the instructions for Article 10 of SEC Regulation S-X. Accordingly, they do not include all of the information required by generally accepted accounting principles (&#x201c;GAAP&#x201d;) in the United States. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the Partnership&#x2019;s audited consolidated financial statements included in its 2017 Annual Report on Form 10-K. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the twelve-month period ending December 31, 2018.</p></div> <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><i>Use</i><i> </i><i>of</i><i> </i><i>Estimates</i></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The preparation of financial statements in conformity with United States GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.</p></div> <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><i>Net</i><i> </i><i>Income</i><i> </i><i>Per</i><i> </i><i>Common</i><i> </i><i>Unit</i></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">Basic net income per common unit is computed as net income divided by the weighted average number of common units outstanding during the period. Diluted net income per common unit is calculated after giving effect to all potential common units that were dilutive and outstanding for the period. There were no common units with a dilutive effect for the three and nine months ended September 30, 2018 and 2017. As a result, basic and diluted outstanding common units were the same. The Class B units and Incentive Distribution Rights, as defined below, are not included in net income per common unit until such time that it is probable Payout (as discussed in Note 8) will occur.</p></div> 0 0 0 0 <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><i>Recently</i><i> </i><i>Adopted</i><i> </i><i>Accounting</i><i> </i><i>Standards</i></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">In May 2014, the Financial Accounting Standards Board (&#x201c;FASB&#x201d;) issued Accounting Standard Update (&#x201c;ASU&#x201d;) 2014-09, <i>Revenue</i><i> </i><i>from</i><i> </i><i>Contracts</i><i> </i><i>with</i><i> </i><i>Customers</i><i> </i><i>(Topic</i><i> </i><i>606)</i>, that amends the former revenue recognition guidance and provides a revised comprehensive revenue recognition model with customers that contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017. The Partnership adopted this standard on January 1, 2018 using the modified retrospective approach.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><i>Impact</i><i> </i><i>of</i><i> </i><i>Topic</i><i> </i><i>606</i><i> </i><i>Adoption</i></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">In accordance with Topic 606, the Partnership completed a detailed review of its revenue contracts, which represent all of the Partnership&#x2019;s revenue, including oil, natural gas and natural gas liquids sales, to determine the effect of the new standard for the three and nine months ended September 30, 2018. The Partnership did not record a change to its opening retained earnings as of January 1, 2018, as there was no material change to the timing or pattern of revenue recognition due to the adoption of Topic 606. The Partnership is bound by a joint operating agreement with the operator of each of its producing wells. Under the joint operating agreement, the Partnership&#x2019;s proportionate share of production is marketed at the discretion of the operators. Virtually all of the Partnership&#x2019;s contracts&#x2019; pricing provisions are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, quality of oil, natural gas and natural gas liquids and prevailing supply and demand conditions, so that prices fluctuate to remain competitive with other available suppliers. The Partnership typically satisfies its performance obligations upon transfer of control of its products and records the related revenue in the month production is delivered to the purchaser. Settlement receipts for sales of oil, natural gas and natural gas liquids may not be received for two to three months after the date production is delivered by the operator, and as a result, the Partnership is required to estimate the amount of production delivered by the operator and the price that will be received for the sale of the product. The Partnership records the differences between estimates and the actual amounts received for product sales in the month that payment is received from the operator. Historically, differences between the Partnership&#x2019;s revenue estimates and actual revenue received have not been significant.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Partnership disaggregates its revenue on the face of the consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><i>Recently</i><i> </i><i>Issued</i><i> </i><i>Accounting</i><i> </i><i>Standards</i></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">In February 2016, the FASB issued ASU No. 2016-02, <i>Leases</i><i> </i><i>(Topic</i><i> </i><i>842)</i>, which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets as right-of-use assets and lease liabilities. The standard is effective for annual and interim periods beginning after December 15, 2018 with early adoption permitted. The Partnership expects to adopt this standard as of January 1, 2019. Although the Partnership has not yet identified any material impact, the Partnership is still evaluating the impact this standard will have on its consolidated financial statements and related disclosures.</p></div> <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><b>Note</b><b> </b><b>3.</b><b> </b><b>Oil</b><b> </b><b>and</b><b> </b><b>Natural</b><b> </b><b>Gas</b><b> </b><b>Investments</b></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">On December 18, 2015, the Partnership completed its purchase (&#x201c;Acquisition No. 1&#x201d;) of an approximate 11% non-operated working interest in the Sanish Field Assets for approximately $159.6 million. The Partnership accounted for Acquisition No. 1 as a business combination, and therefore expensed, as incurred, transaction costs associated with this acquisition. These costs included, but were not limited to, due diligence, reserve reports, legal and engineering services and site visits.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">On January 11, 2017, the Partnership completed its purchase (&#x201c;Acquisition No. 2&#x201d;) of an additional approximate 11% non-operated working interest in the Sanish Field Assets for approximately $128.5 million. The Partnership accounted for Acquisition No. 2 as a purchase of a group of similar assets, and therefore capitalized transaction costs associated with this acquisition. Total transaction costs incurred for Acquisition No. 2 were approximately $43,000. The Partnership also recorded an asset retirement obligation liability of approximately $0.8 million in conjunction with this acquisition. Acquisition No. 2 increased the Partnership&#x2019;s non-operated working interest in the Sanish Field Assets to approximately 22-23%.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">On March 31, 2017, the Partnership completed its purchase (&#x201c;Acquisition No. 3&#x201d;) of an additional approximate average 10.5% non-operated working interest in 82 of the Partnership&#x2019;s then 216 existing producing wells and 150 of the Partnership&#x2019;s then 253 future development locations in the Sanish Field Assets for approximately $52.4 million. The Partnership accounted for Acquisition No. 3 as a purchase of a group of similar assets, and therefore capitalized transaction costs associated with this acquisition. Total transaction costs incurred for Acquisition No. 3 were approximately $80,000. The Partnership also recorded an asset retirement obligation liability of approximately $0.3 million in conjunction with this acquisition. Acquisition No. 3 increased the Partnership&#x2019;s total non-operated working interest in the Sanish Field Assets to approximately 26-27%.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The following unaudited pro forma financial information for the three- and nine-month periods ended September 30, 2017 has been prepared as if Acquisitions No. 2 and No. 3 of the Sanish Field Assets had occurred on January 1, 2017. The unaudited pro forma financial information was derived from the historical Statements of Operations of the Partnership and the historical information provided by the sellers. The unaudited pro forma financial information does not purport to be indicative of the results of operations that would have occurred had the acquisitions of the Sanish Field Assets and related financings occurred on the basis assumed above, nor is such information indicative of the Partnership&#x2019;s expected future results of operations.</p><br/><table border="0" cellpadding="0" cellspacing="0" class="finTable" style="margin-right: 10%; margin-left: 10%; width: 80%; font-size: 10pt; font-family: &quot;Times New Roman&quot;, Times, serif; text-indent: 0px;"> <tr style="vertical-align: bottom;"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-974" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-975" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Three Months Ended<br /> September 30, 2017</b></b></b></p> </td> <td id="new_id-976" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> <td id="new_id-977" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-978" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Nine Months Ended<br /> September 30, 2017</b></b></b></p> </td> <td id="new_id-979" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> </tr> <tr style="vertical-align: bottom;"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-980" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-981" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">(Unaudited)</p> </td> <td id="new_id-982" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-983" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-984" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">(Unaudited)</p> </td> <td id="new_id-985" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 62%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">Revenues</p> </td> <td id="new_id-986" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-987" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-988" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">9,717,996</td> <td id="new_id-989" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-990" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-991" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-992" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">32,413,448</td> <td id="new_id-993" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">Net income</p> </td> <td id="new_id-994" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-995" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-996" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">1,517,198</td> <td id="new_id-997" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-998" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-999" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1000" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">6,210,488</td> <td id="new_id-1001" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> </table><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">In October and November 2017, the Partnership elected to participate in the drilling and completion of six new wells. Two wells were completed in March 2018 and are being operated by Whiting. The Partnership has an estimated approximate 29% non-operated working interest in these two wells. The other four wells were completed in April, June and July of 2018 and are operated by Oasis. The Partnership has an estimated approximate 8% non-operated working interest in these four wells. In total, the Partnership&#x2019;s capital expenditures for the drilling and completion of the six wells discussed above were approximately $7.8 million, including approximately $0.5 million and $6.5 million in the three and nine months ended September 30, 2018, respectively.</p><br/></div> 0.11 159600000 0.11 128500000 43000 800000 0.22 0.23 0.105 82 216 150 253 52400000 80000 300000 0.26 0.27 6 2 0.29 2 0.08 4 7800000 500000 6500000 <div style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; "> The following unaudited pro forma financial information for the three- and nine-month periods ended September 30, 2017 has been prepared as if Acquisitions No. 2 and No. 3 of the Sanish Field Assets had occurred on January 1, 2017. The unaudited pro forma financial information was derived from the historical Statements of Operations of the Partnership and the historical information provided by the sellers. The unaudited pro forma financial information does not purport to be indicative of the results of operations that would have occurred had the acquisitions of the Sanish Field Assets and related financings occurred on the basis assumed above, nor is such information indicative of the Partnership&#x2019;s expected future results of operations.<br /><br /><table border="0" cellpadding="0" cellspacing="0" class="finTable" style="margin-right: 10%; margin-left: 10%; width: 80%; font-size: 10pt; font-family: &quot;Times New Roman&quot;, Times, serif; text-indent: 0px;"> <tr style="vertical-align: bottom;"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-974" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-975" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Three Months Ended<br /> September 30, 2017</b></b></b></p> </td> <td id="new_id-976" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> <td id="new_id-977" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-978" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Nine Months Ended<br /> September 30, 2017</b></b></b></p> </td> <td id="new_id-979" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> </tr> <tr style="vertical-align: bottom;"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-980" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-981" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">(Unaudited)</p> </td> <td id="new_id-982" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-983" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-984" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">(Unaudited)</p> </td> <td id="new_id-985" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 62%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">Revenues</p> </td> <td id="new_id-986" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-987" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-988" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">9,717,996</td> <td id="new_id-989" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-990" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-991" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-992" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">32,413,448</td> <td id="new_id-993" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">Net income</p> </td> <td id="new_id-994" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-995" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-996" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">1,517,198</td> <td id="new_id-997" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-998" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-999" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1000" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">6,210,488</td> <td id="new_id-1001" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> </table></div> 9717996 32413448 1517198 6210488 <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><b>Note</b><b> </b><b>4.</b><b> </b><b>Debt</b></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">On November 21, 2017, the Partnership, as the borrower, entered into a loan agreement (the &#x201c;Loan Agreement&#x201d;) with Bank SNB (the &#x201c;Lender&#x201d;), which provides for a revolving credit facility (the &#x201c;Credit Facility&#x201d;) with an approved initial commitment amount of $20 million (the &#x201c;Revolver Commitment Amount&#x201d;), subject to borrowing base restrictions. The commitment amount may be increased up to $75 million with Lender approval. The Partnership paid an origination fee of 0.30% of the Revolver Commitment Amount, or $60,000, and is subject to additional origination fees of 0.30% for any borrowings made in excess of the Revolver Commitment Amount. The Partnership is also required to pay an unused facility fee of 0.50% on the unused portion of the Revolver Commitment Amount, based on the amount of borrowings outstanding during a quarter. The maturity date is November 21, 2019.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The interest rate, subject to certain exceptions, is equal to the London Inter-Bank Offered Rate (LIBOR) plus a margin ranging from 2.50% to 3.50%, depending upon the Partnership&#x2019;s borrowing base utilization, as calculated under the terms of the Loan Agreement. At September 30, 2018, the borrowing base was $30 million and the interest rate for the Credit Facility was 5.07%.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Credit Facility is available to provide additional liquidity for capital investments and other corporate working capital requirements. Under the terms of the Loan Agreement, the Partnership may make voluntary prepayments, in whole or in part, at any time with no penalty. The Credit Facility is secured by a mortgage and first lien position on at least 80% of the Partnership&#x2019;s producing wells.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Credit Facility contains mandatory prepayment requirements, customary affirmative and negative covenants and events of default. The financial covenants include:</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">&#x25cf; a maximum leverage ratio</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">&#x25cf; a minimum current ratio</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">&#x25cf; maximum distributions</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Partnership was in compliance with the applicable covenants at September 30, 2018.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">As of September 30, 2018, the outstanding balance on the Credit Facility was $13.8 million, which approximates its fair market value. The Partnership estimated the fair value of its Credit Facility by discounting the future cash flows of the instrument at estimated market rates consistent with the maturity of a debt obligation with similar credit terms and credit characteristics, which are Level 3 inputs under the fair value hierarchy. Market rates take into consideration general market conditions and maturity.</p><br/></div> 20000000 The commitment amount may be increased up to $75 million 0.0030 60000 0.0030 0.0050 2019-11-21 0.0250 0.0350 30000000 0.0507 The Credit Facility is secured by a mortgage and first lien position on at least 80% of the Partnership&#x2019;s producing wells. The Credit Facility contains mandatory prepayment requirements, customary affirmative and negative covenants and events of default. The financial covenants include:&#x25cf; a maximum leverage ratio&#x25cf; a minimum current ratio&#x25cf; maximum distributions The Partnership was in compliance with the applicable covenants at September 30, 2018. <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><b>Note</b><b> </b><b>5.</b><b> </b><b>Asset</b><b> </b><b>Retirement</b><b> </b><b>Obligations</b></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Partnership records an asset retirement obligation (&#x201c;ARO&#x201d;) and capitalizes the asset retirement costs in oil and natural gas properties in the period in which the asset retirement obligation is incurred based upon the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon wells. After recording these amounts, the ARO is accreted to its future estimated value using an assumed cost of funds and the additional capitalized costs are depreciated on a unit-of-production basis. Inherent in the present value calculation are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments. To the extent future revisions of these assumptions impact the present value of the existing asset retirement obligation, a corresponding adjustment is made to the oil and natural gas property balance. The changes in the aggregate ARO are as follows:</p><br/><table border="0" cellpadding="0" cellspacing="0" class="finTable" style="margin-right: 10%; margin-left: 10%; width: 80%; font-size: 10pt; font-family: &quot;Times New Roman&quot;, Times, serif; text-indent: 0px;"> <tr style="vertical-align: bottom;"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1002" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1003" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>2018</b></b></b></p> </td> <td id="new_id-1004" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> <td id="new_id-1005" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1006" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>2017</b></b></b></p> </td> <td id="new_id-1007" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 62%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">Balance as of January 1</p> </td> <td id="new_id-1008" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1009" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1010" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">1,226,879</td> <td id="new_id-1011" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1012" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1013" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1014" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">70,623</td> <td id="new_id-1015" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">Liabilities incurred - Acquisition No. 2</p> </td> <td id="new_id-1016" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1017" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1018" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">-</td> <td id="new_id-1019" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1020" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1021" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1022" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">781,628</td> <td id="new_id-1023" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">Liabilities incurred - Acquisition No. 3</p> </td> <td id="new_id-1024" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1025" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1026" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">-</td> <td id="new_id-1027" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1028" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1029" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1030" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">289,827</td> <td id="new_id-1031" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">Revisions</p> </td> <td id="new_id-1032" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1033" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1034" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">-</td> <td id="new_id-1035" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1036" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1037" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1038" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">28,866</td> <td id="new_id-1039" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">Accretion expense</p> </td> <td id="new_id-1040" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1041" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1042" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">50,391</td> <td id="new_id-1043" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1044" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1045" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1046" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">43,104</td> <td id="new_id-1047" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">Balance as of September 30</p> </td> <td id="new_id-1048" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1049" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1050" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">1,277,270</td> <td id="new_id-1051" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 3px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1052" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1053" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1054" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">1,214,048</td> <td id="new_id-1055" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 3px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> </table><br/></div> <div style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; "> The changes in the aggregate ARO are as follows:<br /><br /><table border="0" cellpadding="0" cellspacing="0" class="finTable" style="margin-right: 10%; margin-left: 10%; width: 80%; font-size: 10pt; font-family: &quot;Times New Roman&quot;, Times, serif; text-indent: 0px;"> <tr style="vertical-align: bottom;"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1002" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1003" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>2018</b></b></b></p> </td> <td id="new_id-1004" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> <td id="new_id-1005" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1006" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>2017</b></b></b></p> </td> <td id="new_id-1007" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 62%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">Balance as of January 1</p> </td> <td id="new_id-1008" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1009" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1010" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">1,226,879</td> <td id="new_id-1011" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1012" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1013" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1014" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">70,623</td> <td id="new_id-1015" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">Liabilities incurred - Acquisition No. 2</p> </td> <td id="new_id-1016" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1017" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1018" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">-</td> <td id="new_id-1019" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1020" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1021" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1022" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">781,628</td> <td id="new_id-1023" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">Liabilities incurred - Acquisition No. 3</p> </td> <td id="new_id-1024" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1025" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1026" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">-</td> <td id="new_id-1027" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1028" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1029" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1030" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">289,827</td> <td id="new_id-1031" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">Revisions</p> </td> <td id="new_id-1032" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1033" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1034" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">-</td> <td id="new_id-1035" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1036" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1037" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1038" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">28,866</td> <td id="new_id-1039" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">Accretion expense</p> </td> <td id="new_id-1040" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1041" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1042" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">50,391</td> <td id="new_id-1043" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1044" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1045" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1046" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">43,104</td> <td id="new_id-1047" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">Balance as of September 30</p> </td> <td id="new_id-1048" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1049" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1050" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">1,277,270</td> <td id="new_id-1051" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 3px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1052" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1053" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1054" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">1,214,048</td> <td id="new_id-1055" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 3px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> </table></div> 1226879 70623 0 781628 0 289827 0 28866 50391 43104 1277270 1214048 <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><b>Note</b><b> </b><b>6.</b><b> </b><b>Fair</b><b> </b><b>Value</b><b> </b><b>of</b><b> </b><b>Financial</b><b> </b><b>Instruments</b></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Partnership follows authoritative guidance related to fair value measurement and disclosure, which establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement using market participant assumptions at the measurement date. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:</p><br/><table border="0" cellpadding="0" cellspacing="0" style="width:100%;text-indent:0;font-family:'Times New Roman', Times, serif;font-size:10pt;"> <tr> <td style="vertical-align:top;width:5.3%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&#x25cf;</p> </td> <td style="vertical-align:top;width:94.6%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">Level 1: Quoted prices in active markets for identical assets</p> </td> </tr> </table><br/><table border="0" cellpadding="0" cellspacing="0" style="width:100%;text-indent:0;font-family:'Times New Roman', Times, serif;font-size:10pt;"> <tr> <td style="vertical-align:top;width:5.3%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&#x25cf;</p> </td> <td style="vertical-align:top;width:94.6%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">Level 2: Significant other observable inputs &#x2013; inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, either directly or indirectly, for substantially the full term of the financial instrument</p> </td> </tr> </table><br/><table border="0" cellpadding="0" cellspacing="0" style="width:100%;text-indent:0;font-family:'Times New Roman', Times, serif;font-size:10pt;"> <tr> <td style="vertical-align:top;width:5.3%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&#x25cf;</p> </td> <td style="vertical-align:top;width:94.6%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">Level 3: Significant unobservable inputs</p> </td> </tr> </table><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Partnership&#x2019;s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and the consideration of factors specific to the asset or liability. The Partnership&#x2019;s policy is to recognize transfers in or out of a fair value hierarchy as of the end of the reporting period for which the event or change in circumstances caused the transfer. The Partnership has consistently applied the valuation techniques discussed above for all periods presented. During the three and nine months ended September 30, 2018 and 2017, there were no transfers in or out of Level 1, Level 2, or Level 3 assets and liabilities measured on a recurring basis.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">As required, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Partnership did not have any financial assets and liabilities that were accounted for at fair value as of September 30, 2017, except for those instruments discussed below in &#x201c;Fair Value of Other Financial Instruments.&#x201d; The following table sets forth by level within the fair value hierarchy the Partnership&#x2019;s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2018.</p><br/><table border="0" cellpadding="0" cellspacing="0" class="finTable" style="margin-right: 10%; margin-left: 10%; width: 80%; font-size: 10pt; font-family: &quot;Times New Roman&quot;, Times, serif; text-indent: 0px;"> <tr style="vertical-align: bottom;"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1056" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="10" id="new_id-1057" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Fair Value Measurements at September 30, 2018</b></b></b></p> </td> <td id="new_id-1058" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> </tr> <tr style="vertical-align: bottom;"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1059" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1060" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Quoted Prices in<br /> Active Markets for Identical Assets<br /> (Level 1)</b></b></b></p> </td> <td id="new_id-1061" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> <td id="new_id-1062" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1063" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Significant Other Observable Inputs<br /> (Level 2)</b></b></b></p> </td> <td id="new_id-1064" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> <td id="new_id-1065" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1066" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Significant Unobservable Inputs<br /> (Level 3)</b></b></b></p> </td> <td id="new_id-1067" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 43%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:10pt;">Commodity derivatives - current assets</p> </td> <td id="new_id-1068" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1069" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1070" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">-</td> <td id="new_id-1071" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1072" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1073" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1074" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">-</td> <td id="new_id-1075" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1076" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1077" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1078" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">-</td> <td id="new_id-1079" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:10pt;">Commodity derivatives - current liabilities</p> </td> <td id="new_id-1080" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1081" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1082" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">-</td> <td id="new_id-1083" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1084" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1085" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1086" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">(1,437,732</td> <td id="new_id-1087" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 1px; white-space: nowrap;">)</td> <td id="new_id-1088" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1089" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1090" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">-</td> <td id="new_id-1091" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:10pt;">Total</p> </td> <td id="new_id-1092" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1093" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1094" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">-</td> <td id="new_id-1095" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 3px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1096" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1097" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1098" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">(1,437,732</td> <td id="new_id-1099" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 3px; white-space: nowrap;">)</td> <td id="new_id-1100" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1101" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1102" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">-</td> <td id="new_id-1103" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 3px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> </table><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Level 2 instruments presented in the table above consist of Partnership&#x2019;s costless collar commodity derivative instruments. The fair value of the Partnership&#x2019;s derivative financial instruments is determined based upon future prices, volatility and time to maturity, among other things. Counterparty statements are utilized to determine the value of the commodity derivative instruments and are reviewed and corroborated using various methodologies and significant observable inputs. The fair value of the commodity derivatives noted above are included in the Partnership&#x2019;s consolidated balance sheet in Derivative liability at September 30, 2018. See additional detail in Note 7. Risk Management.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><i>Fair</i><i> </i><i>Value</i><i> </i><i>of</i><i> </i><i>Other</i><i> </i><i>Financial</i><i> </i><i>Instruments</i></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The carrying value of the Partnership&#x2019;s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities reflect these items&#x2019; cost, which approximates fair value based on the timing of the anticipated cash flows, current market conditions and short-term maturity of these instruments. In addition, see Note 4. Debt for the fair value discussion on the Partnership&#x2019;s debt.</p><br/></div> <div style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; "> The following table sets forth by level within the fair value hierarchy the Partnership&#x2019;s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2018.<br /><br /><table border="0" cellpadding="0" cellspacing="0" class="finTable" style="margin-right: 10%; margin-left: 10%; width: 80%; font-size: 10pt; font-family: &quot;Times New Roman&quot;, Times, serif; text-indent: 0px;"> <tr style="vertical-align: bottom;"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1056" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="10" id="new_id-1057" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Fair Value Measurements at September 30, 2018</b></b></b></p> </td> <td id="new_id-1058" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> </tr> <tr style="vertical-align: bottom;"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1059" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1060" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Quoted Prices in<br /> Active Markets for Identical Assets<br /> (Level 1)</b></b></b></p> </td> <td id="new_id-1061" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> <td id="new_id-1062" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1063" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Significant Other Observable Inputs<br /> (Level 2)</b></b></b></p> </td> <td id="new_id-1064" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> <td id="new_id-1065" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1066" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Significant Unobservable Inputs<br /> (Level 3)</b></b></b></p> </td> <td id="new_id-1067" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 43%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:10pt;">Commodity derivatives - current assets</p> </td> <td id="new_id-1068" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1069" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1070" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">-</td> <td id="new_id-1071" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1072" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1073" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1074" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">-</td> <td id="new_id-1075" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1076" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1077" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1078" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">-</td> <td id="new_id-1079" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:10pt;">Commodity derivatives - current liabilities</p> </td> <td id="new_id-1080" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1081" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1082" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">-</td> <td id="new_id-1083" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1084" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1085" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1086" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">(1,437,732</td> <td id="new_id-1087" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 1px; white-space: nowrap;">)</td> <td id="new_id-1088" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1089" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1090" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">-</td> <td id="new_id-1091" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:10pt;">Total</p> </td> <td id="new_id-1092" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1093" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1094" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">-</td> <td id="new_id-1095" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 3px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1096" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1097" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1098" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">(1,437,732</td> <td id="new_id-1099" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 3px; white-space: nowrap;">)</td> <td id="new_id-1100" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1101" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1102" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">-</td> <td id="new_id-1103" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 3px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> </tr> </table></div> 0 0 0 0 1437732 0 0 -1437732 0 <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><b>Note</b><b> </b><b>7.</b><b> </b><b>Risk</b><b> </b><b>Management</b></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">Participation in the oil and gas industry exposes the Partnership to risks associated with potentially volatile changes in energy commodity prices, and therefore, the Partnership&#x2019;s future earnings are subject to these risks. In December 2017, the Partnership began to utilize derivative contracts to manage the commodity price risk on the Partnership&#x2019;s future oil production it will produce and sell and to reduce the effect of volatility in commodity price changes to provide a base level of cash flow from operations. All derivative instruments are recorded on the Partnership&#x2019;s balance sheet as assets or liabilities measured at fair value.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">At September 30, 2018 and December 31, 2017, the Partnership&#x2019;s costless collar derivative instruments were in a net loss position; therefore, the current Derivative liability on the consolidated balance sheets was approximately $1.4 million and $1.0 million, respectively, which approximated fair value. The Partnership has not designated its derivative instruments as hedges for accounting purposes and has not entered into such instruments for speculative trading purposes. As a result, when derivatives do not qualify or are not designated as a hedge, the changes in the fair value are recognized on the Partnership&#x2019;s consolidated statements of operations as a gain or loss on derivative instruments. The Partnership recognized a total net loss on its derivative instruments of approximately $40,000 for the three months ended September 30, 2018, which was recorded in the consolidated statements of operations as Loss on derivatives. The loss was comprised of (i) $1.10 million of losses the Partnerships recognized on settled derivatives during the period, offset by (ii) $1.06 million of a mark-to-market gain on derivative instruments outstanding at period end. The Partnership recognized a total net loss on its derivative instruments of approximately $2.9 million for the nine months ended September 30, 2018, which was recorded in the consolidated statements of operations as Loss on derivatives. The loss was comprised of (i) $2.5 million of losses the Partnerships recognized on settled derivatives during the period and (ii) $0.4 million of a mark-to-market loss incurred on derivative instruments outstanding at period end.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Partnership determines the estimated fair value of derivative instruments using a market approach based on several factors, including quoted market prices in active markets and quotes from third parties, among other things. The Partnership also performs an internal valuation to ensure the reasonableness of third-party quotes. In consideration of counterparty credit risk, the Partnership assessed the possibility of whether the counterparty to the derivative would default by failing to make any contractually-required payments. Additionally, the Partnership considers that it is of substantial credit quality and has the financial resources and willingness to meet its potential repayment obligations associated with the derivative transactions. See additional discussion above in Note 6. Fair Value of Financial Instruments.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The following table presents settlements on matured derivative instruments and non-cash losses on open derivative instruments for the periods presented. Settlements on matured derivatives below reflect losses on derivative contracts which matured during the period, calculated as the difference between the contract price and the market settlement price. Non-cash losses below represent the change in fair value of derivative instruments which were held at period-end.</p><br/><table border="0" cellpadding="0" cellspacing="0" class="finTable" style="margin-right: 10%; margin-left: 10%; width: 80%; font-size: 10pt; font-family: &quot;Times New Roman&quot;, Times, serif; text-indent: 0px;"> <tr style="vertical-align: bottom;"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1104" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1105" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Three Months Ended<br /> September 30, 2018</b></b></b></p> </td> <td id="new_id-1106" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> <td id="new_id-1107" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1108" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Nine Months Ended<br /> September 30, 2018</b></b></b></p> </td> <td id="new_id-1109" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 62%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:10pt;">Settlements on matured derivatives</p> </td> <td id="new_id-1110" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1111" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1112" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">(1,100,682</td> <td id="new_id-1113" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">)</td> <td id="new_id-1114" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1115" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1116" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">(2,532,232</td> <td id="new_id-1117" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:10pt;">Gain (loss) on mark-to-market of derivatives</p> </td> <td id="new_id-1118" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1119" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1120" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">1,061,761</td> <td id="new_id-1121" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1122" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1123" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1124" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">(410,768</td> <td id="new_id-1125" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 1px; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:10pt;">Loss on derivatives</p> </td> <td id="new_id-1126" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1127" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1128" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">(38,921</td> <td id="new_id-1129" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 3px; white-space: nowrap;">)</td> <td id="new_id-1130" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1131" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1132" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">(2,943,000</td> <td id="new_id-1133" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 3px; white-space: nowrap;">)</td> </tr> </table><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Partnership&#x2019;s derivative contracts are costless collars, which are used to establish floor and ceiling prices on future anticipated oil production. The Partnership did not pay or receive a premium related to the costless collar agreements. The contracts are settled monthly. The following table reflects the open costless collar agreements as of September 30, 2018.</p><br/><table border="0" cellpadding="0" cellspacing="0" class="finTable" style="margin-right: 10%; margin-left: 10%; width: 80%; font-size: 10pt; font-family: &quot;Times New Roman&quot;, Times, serif; text-indent: 0px;"> <tr style="vertical-align: bottom;"> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 21%; border-bottom: thin solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b>Settlement Period</b></p> </td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%; border-bottom: thin solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b>Basis</b></p> </td> <td id="new_id-1134" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 1%;">&#xa0;</td> <td colspan="2" id="new_id-1135" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0); width: 1%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b><b>Oil (Barrels)</b></b></b></b></p> </td> <td id="new_id-1136" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%; border-bottom: thin solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Floor / Ceiling Prices ($)</b></b></b></p> </td> <td id="new_id-1137" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 1%;">&#xa0;</td> <td colspan="2" id="new_id-1138" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0); width: 1%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b><b>Fair Value of Asset / (Liability) at<br /> September 30, 2018</b></b></b></b></p> </td> <td id="new_id-1139" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; width: 1%;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 21%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">10/01/18 - 12/31/18</p> </td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">NYMEX</p> </td> <td id="new_id-1140" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1141" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1142" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">69,000</td> <td id="new_id-1143" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">52.00 / 57.05</p> </td> <td id="new_id-1144" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1145" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1146" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">(1,098,657</td> <td id="new_id-1147" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 21%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">10/01/18 - 12/31/18</p> </td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">NYMEX</p> </td> <td id="new_id-1148" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1149" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1150" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">9,000</td> <td id="new_id-1151" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">55.00 / 61.35</p> </td> <td id="new_id-1152" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1153" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1154" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">(105,620</td> <td id="new_id-1155" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 21%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">10/01/18 - 12/31/18</p> </td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">NYMEX</p> </td> <td id="new_id-1156" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1157" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1158" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">9,000</td> <td id="new_id-1159" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">55.00 / 62.25</p> </td> <td id="new_id-1160" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1161" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1162" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">(97,966</td> <td id="new_id-1163" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 21%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">10/01/18 - 12/31/18</p> </td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">NYMEX</p> </td> <td id="new_id-1164" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1165" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1166" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">9,000</td> <td id="new_id-1167" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">56.00 / 65.25</p> </td> <td id="new_id-1168" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1169" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1170" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">(72,819</td> <td id="new_id-1171" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 21%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">10/01/18 - 12/31/18</p> </td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">NYMEX</p> </td> <td id="new_id-1172" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1173" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1174" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">9,000</td> <td id="new_id-1175" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">58.00 / 66.50</p> </td> <td id="new_id-1176" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1177" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">$</td> <td id="new_id-1178" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">(62,670</td> <td id="new_id-1179" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 1px; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 21%;">&#xa0;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 1%;">&#xa0;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 18%;">&#xa0;</td> <td id="new_id-1180" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 1%;">&#xa0;</td> <td id="new_id-1181" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 1%;">&#xa0;</td> <td id="new_id-1182" style="text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 18%;">&#xa0;</td> <td id="new_id-1183" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 1%;">&#xa0;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 18%;">&#xa0;</td> <td id="new_id-1184" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1185" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1186" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">(1,437,732</td> <td id="new_id-1187" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 3px; white-space: nowrap;">)</td> </tr> </table><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">All of the Partnership&#x2019;s outstanding derivative instruments are covered by an International Swap Dealers Association Master Agreement (&#x201c;ISDA&#x201d;) entered into with the counterparty. The ISDA may provide that as a result of certain circumstances, such as cross-defaults, a counterparty may require all outstanding derivative instruments under an ISDA to be settled immediately. The Partnership has netting arrangements with the counterparty that provide for offsetting payables against receivables from separate derivative instruments.</p><br/></div> 1400000 1000000 <div style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; "> The following table presents settlements on matured derivative instruments and non-cash losses on open derivative instruments for the periods presented. Settlements on matured derivatives below reflect losses on derivative contracts which matured during the period, calculated as the difference between the contract price and the market settlement price. Non-cash losses below represent the change in fair value of derivative instruments which were held at period-end.<br /><br /><table border="0" cellpadding="0" cellspacing="0" class="finTable" style="margin-right: 10%; margin-left: 10%; width: 80%; font-size: 10pt; font-family: &quot;Times New Roman&quot;, Times, serif; text-indent: 0px;"> <tr style="vertical-align: bottom;"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1104" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1105" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Three Months Ended<br /> September 30, 2018</b></b></b></p> </td> <td id="new_id-1106" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> <td id="new_id-1107" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td colspan="2" id="new_id-1108" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Nine Months Ended<br /> September 30, 2018</b></b></b></p> </td> <td id="new_id-1109" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 62%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:10pt;">Settlements on matured derivatives</p> </td> <td id="new_id-1110" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1111" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1112" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">(1,100,682</td> <td id="new_id-1113" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">)</td> <td id="new_id-1114" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1115" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1116" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">(2,532,232</td> <td id="new_id-1117" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:10pt;">Gain (loss) on mark-to-market of derivatives</p> </td> <td id="new_id-1118" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1119" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1120" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">1,061,761</td> <td id="new_id-1121" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td id="new_id-1122" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1123" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; border-bottom: 1px solid rgb(0, 0, 0);">&#xa0;</td> <td id="new_id-1124" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">(410,768</td> <td id="new_id-1125" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 1px; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:10pt;">Loss on derivatives</p> </td> <td id="new_id-1126" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1127" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1128" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">(38,921</td> <td id="new_id-1129" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 3px; white-space: nowrap;">)</td> <td id="new_id-1130" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1131" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1132" style="width: 16%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">(2,943,000</td> <td id="new_id-1133" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 3px; white-space: nowrap;">)</td> </tr> </table></div> 1100682 2532232 1061761 <div style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; "> The following table reflects the open costless collar agreements as of September 30, 2018.<br /><br /><table border="0" cellpadding="0" cellspacing="0" class="finTable" style="margin-right: 10%; margin-left: 10%; width: 80%; font-size: 10pt; font-family: &quot;Times New Roman&quot;, Times, serif; text-indent: 0px;"> <tr style="vertical-align: bottom;"> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 21%; border-bottom: thin solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b>Settlement Period</b></p> </td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%; border-bottom: thin solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b>Basis</b></p> </td> <td id="new_id-1134" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 1%;">&#xa0;</td> <td colspan="2" id="new_id-1135" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0); width: 1%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b><b>Oil (Barrels)</b></b></b></b></p> </td> <td id="new_id-1136" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%; border-bottom: thin solid rgb(0, 0, 0);"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b>Floor / Ceiling Prices ($)</b></b></b></p> </td> <td id="new_id-1137" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 1%;">&#xa0;</td> <td colspan="2" id="new_id-1138" style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0); width: 1%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;"><b><b><b><b>Fair Value of Asset / (Liability) at<br /> September 30, 2018</b></b></b></b></p> </td> <td id="new_id-1139" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; padding-bottom: 1px; width: 1%;">&#xa0;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 21%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">10/01/18 - 12/31/18</p> </td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">NYMEX</p> </td> <td id="new_id-1140" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1141" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1142" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">69,000</td> <td id="new_id-1143" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">52.00 / 57.05</p> </td> <td id="new_id-1144" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1145" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1146" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">(1,098,657</td> <td id="new_id-1147" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 21%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">10/01/18 - 12/31/18</p> </td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">NYMEX</p> </td> <td id="new_id-1148" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1149" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1150" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">9,000</td> <td id="new_id-1151" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">55.00 / 61.35</p> </td> <td id="new_id-1152" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1153" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1154" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">(105,620</td> <td id="new_id-1155" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 21%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">10/01/18 - 12/31/18</p> </td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">NYMEX</p> </td> <td id="new_id-1156" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1157" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1158" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">9,000</td> <td id="new_id-1159" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">55.00 / 62.25</p> </td> <td id="new_id-1160" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1161" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1162" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">(97,966</td> <td id="new_id-1163" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 21%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">10/01/18 - 12/31/18</p> </td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">NYMEX</p> </td> <td id="new_id-1164" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1165" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1166" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">9,000</td> <td id="new_id-1167" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">56.00 / 65.25</p> </td> <td id="new_id-1168" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1169" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td id="new_id-1170" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">(72,819</td> <td id="new_id-1171" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 21%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">10/01/18 - 12/31/18</p> </td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 1%;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">NYMEX</p> </td> <td id="new_id-1172" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1173" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1174" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">9,000</td> <td id="new_id-1175" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; white-space: nowrap;">&#xa0;</td> <td style="text-align: center; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; width: 18%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:center;">58.00 / 66.50</p> </td> <td id="new_id-1176" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1177" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">$</td> <td id="new_id-1178" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 1px solid rgb(0, 0, 0);">(62,670</td> <td id="new_id-1179" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 1px; white-space: nowrap;">)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 21%;">&#xa0;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 1%;">&#xa0;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 18%;">&#xa0;</td> <td id="new_id-1180" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 1%;">&#xa0;</td> <td id="new_id-1181" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 1%;">&#xa0;</td> <td id="new_id-1182" style="text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 18%;">&#xa0;</td> <td id="new_id-1183" style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 1%;">&#xa0;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; width: 18%;">&#xa0;</td> <td id="new_id-1184" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&#xa0;</td> <td id="new_id-1185" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">$</td> <td id="new_id-1186" style="width: 18%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; border-bottom: 3px double rgb(0, 0, 0);">(1,437,732</td> <td id="new_id-1187" style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt; padding-bottom: 3px; white-space: nowrap;">)</td> </tr> </table></div> NYMEX 69000 52.00 57.05 1098657 NYMEX 9000 55.00 61.35 105620 NYMEX 9000 55.00 62.25 97966 NYMEX 9000 56.00 65.25 72819 NYMEX 9000 58.00 66.50 62670 1437732 <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><b>Note</b><b> </b><b>8.</b><b> </b><b>Capital</b><b> </b><b>Contribution</b><b> </b><b>and</b><b> </b><b>Partners&#x2019;</b><b> </b><b>Equity</b></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">At inception, the General Partner and organizational limited partner made initial capital contributions totaling $1,000 to the Partnership. Upon closing of the minimum offering, the organizational limited partner withdrew its initial capital contribution of $990, and the General Partner received Incentive Distribution Rights (defined below).</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Partnership completed its best-efforts offering of common units on April 24, 2017. As of the conclusion of the offering on April 24, 2017, the Partnership had completed the sale of approximately 19.0 million common units for total gross proceeds of $374.2 million and proceeds net of offerings costs of $349.6 million.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">Under the agreement with David Lerner Associates, Inc. (the &#x201c;Dealer Manager&#x201d;), the Dealer Manager received a total of 6% in selling commissions and a marketing expense allowance based on gross proceeds of the common units sold. The Dealer Manager will also be paid a contingent incentive fee, which is a cash payment of up to an amount equal to 4% of gross proceeds of the common units sold based on the performance of the Partnership. Based on the common units sold through the best-efforts offering, the total contingent fee is a maximum of approximately $15.0 million.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">Prior to &#x201c;Payout,&#x201d; which is defined below, all of the distributions made by the Partnership, if any, will be paid to the holders of common units. Accordingly, the Partnership will not make any distributions with respect to the Incentive Distribution Rights or with respect to Class B units and will not make the contingent incentive payments to the Dealer Manager, until Payout occurs.</p><br/><p style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin: 0pt; text-align: left; text-indent: 36pt;">The Partnership Agreement provides that Payout occurs on the day when the aggregate amount distributed with respect to each of the common units equals $20.00 plus the Payout Accrual. The Partnership Agreement defines &#x201c;Payout Accrual&#x201d; as 7% per annum simple interest accrued monthly until paid on the Net Investment Amount outstanding from time to time. The Partnership Agreement defines Net Investment Amount initially as $20.00 per unit, regardless of the amount paid for the unit. If at any time the Partnership distributes to holders of common units more than the Payout Accrual, the amount the Partnership distributes in excess of the Payout Accrual will reduce the Net Investment Amount.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">All distributions made by the Partnership after Payout, which may include all or a portion of the proceeds of the sale of all or substantially all of the Partnership&#x2019;s assets, will be made as follows:</p><br/><table border="0" cellpadding="0" cellspacing="0" style="width:100%;text-indent:0;font-family:'Times New Roman', Times, serif;font-size:10pt;"> <tr> <td style="vertical-align:top;width:5.3%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&#x25cf;</p> </td> <td style="vertical-align:top;width:94.6%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">First, (i) to the Record Holders of the Incentive Distribution Rights, 35%; (ii) to the Record Holders of the Outstanding Class B units, pro rata based on the number of Class B units owned, 35% multiplied by a fraction, the numerator of which is the number of Class B units outstanding and the denominator of which is 100,000 (currently, there are 62,500 Class B units outstanding; therefore, Class B units could receive 21.875%); (iii) to the Dealer Manager, as the Dealer Manager contingent incentive fee paid under the Dealer Manager Agreement, 30%, and (iv) the remaining amount, if any (currently 13.125%), to the Record Holders of outstanding common units, pro rata based on their percentage interest until such time as the Dealer Manager receives the full amount of the Dealer Manager contingent incentive fee under the Dealer Manager Agreement;</p> </td> </tr> </table><br/><table border="0" cellpadding="0" cellspacing="0" style="width:100%;text-indent:0;font-family:'Times New Roman', Times, serif;font-size:10pt;"> <tr> <td style="vertical-align:top;width:5.3%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&#x25cf;</p> </td> <td style="vertical-align:top;width:94.6%;"> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">Thereafter, (i) to the Record Holders of the Incentive Distribution Rights, 35%; (ii) to the Record Holders of the Outstanding Class B units, pro rata based on the number of Class B units owned, 35% multiplied by a fraction, the numerator of which is the number of Class B units outstanding and the denominator of which is 100,000 (currently, there are 62,500 Class B units outstanding; therefore, Class B units could receive 21.875%); (iii) the remaining amount to the Record Holders of outstanding common units, pro rata based on their percentage interest (currently 43.125%).</p> </td> </tr> </table><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">For the three and nine months ended September 30, 2018, the Partnership paid distributions of $0.413424 and $1.081643 per common unit, or $7.8 million and $20.5 million, respectively. For the three and nine months ended September 30, 2017, the Partnership paid distributions of $0.349041 and $1.047123 per common unit, or $6.6 million and $18.6 million, respectively.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">In the fourth quarter of 2017, the General Partner approved an adjustment to the annualized distribution rate to an annualized return of six percent based on a limited partner&#x2019;s Net Investment Amount of $20.00 per common unit. The six percent distribution rate was effective with the November 29, 2017 distribution. In March 2018, the General Partner approved an increase to the annualized distribution rate back to seven percent based on a limited partner&#x2019;s Net Investment Amount. The seven percent distribution rate was effective with the April 26, 2018 distribution. The accumulated unpaid distributions, measured as the difference between an annualized return of six percent (starting with the November 29, 2017 distribution) and the restoration of the annualized return of seven percent (starting with the April 26, 2018 distribution), totaled $0.084383 per common unit, or approximately $1.6 million. As of September 30, 2018, the Partnership has paid the $1.6 million in accumulated unpaid distributions.</p><br/></div> 990 0.06 0.04 15000000 The Partnership Agreement provides that Payout occurs on the day when the aggregate amount distributed with respect to each of the common units equals $20.00 plus the Payout Accrual. The Partnership Agreement defines &#x201c;Payout Accrual&#x201d; as 7% per annum simple interest accrued monthly until paid on the Net Investment Amount outstanding from time to time. The Partnership Agreement defines Net Investment Amount initially as $20.00 per unit, regardless of the amount paid for the unit. If at any time the Partnership distributes to holders of common units more than the Payout Accrual, the amount the Partnership distributes in excess of the Payout Accrual will reduce the Net Investment Amount.All distributions made by the Partnership after Payout, which may include all or a portion of the proceeds of the sale of all or substantially all of the Partnership&#x2019;s assets, will be made as follows:&#x25cf;First, (i) to the Record Holders of the Incentive Distribution Rights, 35%; (ii) to the Record Holders of the Outstanding Class B units, pro rata based on the number of Class B units owned, 35% multiplied by a fraction, the numerator of which is the number of Class B units outstanding and the denominator of which is 100,000 (currently, there are 62,500 Class B units outstanding; therefore, Class B units could receive 21.875%); (iii) to the Dealer Manager, as the Dealer Manager contingent incentive fee paid under the Dealer Manager Agreement, 30%, and (iv) the remaining amount, if any (currently 13.125%), to the Record Holders of outstanding common units, pro rata based on their percentage interest until such time as the Dealer Manager receives the full amount of the Dealer Manager contingent incentive fee under the Dealer Manager Agreement;&#x25cf;Thereafter, (i) to the Record Holders of the Incentive Distribution Rights, 35%; (ii) to the Record Holders of the Outstanding Class B units, pro rata based on the number of Class B units owned, 35% multiplied by a fraction, the numerator of which is the number of Class B units outstanding and the denominator of which is 100,000 (currently, there are 62,500 Class B units outstanding; therefore, Class B units could receive 21.875%); (iii) the remaining amount to the Record Holders of outstanding common units, pro rata based on their percentage interest (currently 43.125%). 0.413424 1.081643 7800000 0.349041 1.047123 6600000 0.06 20.00 0.06 0.07 0.07 0.07 0.084383 1600000 <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><b>Note</b><b> </b><b>9.</b><b> </b><b>Related</b><b> </b><b>Parties</b></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Partnership has, and is expected to continue to engage in, significant transactions with related parties. These transactions cannot be construed to be at arm&#x2019;s length and the results of the Partnership&#x2019;s operations may be different than if conducted with non-related parties. The General Partner&#x2019;s Board of Directors oversees and reviews the Partnership&#x2019;s related party relationships and is required to approve any significant modifications to any existing related party transactions, as well as any new significant related party transactions.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">For the three and nine months ended September 30, 2018, approximately $58,000 and $188,000 of general and administrative costs were incurred by a member of the General Partner and have been or will be reimbursed by the Partnership. At September 30, 2018, approximately $58,000 was due to a member of the General Partner and is included in Accounts payable and accrued expenses on the consolidated balance sheets. For the three and nine months ended September 30, 2017, approximately $72,000 and $242,000 of general and administrative costs were incurred by a member of the General Partner and have been reimbursed by the Partnership.</p><br/><p style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin: 0pt; text-align: left; text-indent: 36pt;">The members of the General Partner are affiliates of Glade M. Knight, Chairman and Chief Executive Officer, David S. McKenney, Chief Financial Officer, Anthony F. Keating, III, Co-Chief Operating Officer and Michael J. Mallick, Co-Chief Operating Officer. Mr. Knight and Mr. McKenney are also the Chief Executive Officer and Chief Financial Officer of Energy Resources 12 GP, LLC, the general partner of Energy Resources 12, L.P. (&#x201c;ER12&#x201d;), a limited partnership that also invests in producing and non-producing oil and gas properties on-shore in the United States. On January 31, 2018, the Partnership entered into a cost sharing agreement with ER12 that gives ER12 access to the Partnership&#x2019;s personnel and administrative resources, including accounting, asset management and other day-to-day management support. The shared day-to-day costs are split evenly between the two partnerships and any direct third-party costs are paid by the party receiving the services. The shared costs are based on actual costs incurred with no mark-up or profit to the Partnership. The agreement may be terminated at any time by either party upon 60 days written notice.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The Partnership leases office space in Oklahoma City, Oklahoma on a month-to-month basis from an affiliate of the General Partner. For the three and nine months ended September 30, 2018 and 2017, the Partnership paid $25,611 and $76,833 to the affiliate of the General Partner.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">The office space is shared between the Partnership and ER12; therefore, under the cost sharing agreement, the monthly payment of $8,537 is split between the two partnerships. In addition to the office space, the cost sharing agreement reduces the costs to the Partnership for accounting and asset management services provided through a member of the General Partner noted above. The compensation due to Clifford J. Merritt, President of the General Partner, is also a shared cost between the Partnership and ER12. For the three and nine months ended September 30, 2018, approximately $64,000 and $175,000 of expenses subject to the cost sharing agreement were incurred by the Partnership and have been or will be reimbursed by ER12. At September 30, 2018, the approximately $64,000 due to the Partnership from ER12 is included in Other current assets in the consolidated balance sheets.</p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">In November 2017, ER12 engaged Regional Energy Investors, LP (&#x201c;REI&#x201d;) to perform advisory and consulting services, including supporting ER12 through closing and post-closing on ER12&#x2019;s first purchase of certain oil and gas properties in North Dakota. In June 2018, ER12 re-engaged REI to perform advisory and consulting services, including supporting ER12 through closing, financing and post-closing of ER12&#x2019;s second purchase of certain oil and gas properties in North Dakota. REI is owned by entities that are controlled by Mr. Keating and Mr. Mallick and has engaged Mr. Merritt to support its operations. With the fees received from ER12 for advisory and consulting services, REI paid certain personnel utilized by the Partnership, including Mr. Merritt, an aggregate total of $500,000.</p><br/></div> 58000 188000 58000 72000 242000 25611 25611 76833 76833 8537 64000 175000 64000 500000 <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; "> <p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><b>Note</b><b> </b><b>10.</b><b> </b><b>Subsequent</b><b> </b><b>Events</b></p><br/><p style="font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:36pt;">In October 2018, the Partnership declared and paid $2.0 million, or $0.107397 per outstanding common unit, in distributions to its holders of common units.</p><br/></div> 2000000 0.107397 EX-101.SCH 7 energy11-20180930.xsd XBRL TAXONOMY EXTENSION SCHEMA 001 - Statement - Consolidated Balance Sheets link:presentationLink link:definitionLink link:calculationLink 002 - 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