Investment in Laramie Energy, LLC

12 Months Ended

Dec. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

As of December 31, 2019, we owned a 46.0% ownership interest in Laramie Energy, a joint venture entity focused on developing and producing natural gas in Garfield, Mesa, and Rio Blanco Counties, Colorado. Laramie Energy has a $400 million revolving credit facility secured by a lien on its natural gas and crude oil properties and related assets with a borrowing base currently set at $220 million. As of December 31, 2019 and 2018, the balance outstanding on the revolving credit facility was approximately $201.2 million and $210.8 million, respectively. We are guarantors of Laramie Energy’s credit facility, with recourse limited to the pledge of our equity interest in our wholly owned subsidiary, Par Piceance Energy Equity, LLC. Under the terms of its credit facility, Laramie Energy is generally prohibited from making future cash distributions to its owners, including us. Laramie Energy’s credit facility matures on December 15, 2020.

During the fourth quarter of 2019, Laramie Energy recorded an impairment loss of $355.2 million associated with the carrying value of proved reserves. As a result of Laramie Energy’s impairment loss and the liquidity impact associated with the maturity of the revolving credit facility in December 2020, we updated the impairment evaluation of our investment in Laramie Energy as of December 31, 2019. The fair value estimate was determined using a discounted cash flow analysis based on reserves volumes and natural gas forward strip prices as of December 31, 2019. Based on our evaluation, we determined that the estimated fair value of our investment in Laramie Energy approximates carrying value as of December 31, 2019.

At September 30, 2019, we conducted an impairment evaluation of our investment in Laramie Energy because of the significant decline in natural gas prices over the second quarter of 2019 and continued deterioration in the third quarter of 2019. Based on our evaluation, we determined that the estimated fair value of our investment in Laramie Energy was $51.8 million, compared to a carrying value of $133.3 million at September 30, 2019. The fair value estimate was determined using a discounted cash flow analysis based on natural gas forward strip prices as of September 30, 2019 for two years through December 31, 2021. A blend of 2021 forward strip pricing and third-party analyst pricing was used for years after 2021 through December 31, 2028. Other significant inputs used in the discounted cash flow analysis included proved and unproved reserves information, forecasts of operating expenditures, and the applicable discount rate. As part of our evaluation, we considered the likelihood that Colorado Interstate Gas (CIG) prices, which have declined from an average spot price of $2.48 ($/MMBtu) in the first quarter of 2019, to $1.84 ($/MMBtu) in the second quarter of 2019 and $1.77 ($/MMBtu) in the third quarter of 2019, will recover in the near term. Based on this significant decline in natural gas prices and the reduced likelihood that natural gas prices would recover in the near term, we concluded that the decline in the fair value of our investment in Laramie Energy was other than temporary. As a result, we recorded an impairment charge of $81.5 million in Equity earnings (losses) from Laramie Energy, LLC on our statement of operations for the year ended December 31, 2019.

On March 4, 2019, Laramie entered into a binding agreement to divest an insignificant amount of producing property for approximately $17.5 million. This divestiture did not result in a change in our ownership percentage.

On October 18, 2018, Laramie Energy repurchased 138,795 of its Class A Units from certain unitholders for an aggregate purchase price of $14.8 million. As a result of this transaction, our ownership interest in Laramie Energy increased from 39.1% to 46.0%.

On February 28, 2018, Laramie Energy closed on a purchase and contribution agreement with an unaffiliated third party that contributed all of its oil and gas properties located in the Piceance Basin and a $20.0 million cash payment, collectively with a fair market value of $28.1 million, into Laramie Energy in exchange for 70,227 of Laramie Energy’s newly issued Class A Units. The unaffiliated third party also contributed a $3.5 million cash payment for asset reclamation liabilities related to the properties conveyed. As a result of this transaction, our ownership interest in Laramie Energy decreased from 42.3% to 39.1%.

The change in our equity investment in Laramie Energy is as follows (in thousands):



	Year Ended December 31,
	2019			2018		2017
Beginning balance	$	136,656		$	127,192	$	108,823
Equity earnings (losses) from Laramie Energy	(175,018		)	4,487		13,043
Accretion of basis difference	5,018			4,977		5,326
Adjustment of basis difference (1)	161,764			—		—
Impairment of our investment in Laramie Energy	(81,515		)	—		—
Ending balance	$	46,905		$	136,656	$	127,192

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(1)	Represents the reduction in our basis difference resulting from the asset impairment loss recorded by Laramie Energy for the year ended December 31, 2019.

Summarized financial information for Laramie Energy is as follows (in thousands):



	December 31,
	2019		2018
Current assets	$	23,367	$	28,569
Non-current assets	393,575		788,515
Current liabilities	229,687		41,681
Non-current liabilities	85,287		293,084



	Year Ended December 31,
	2019			2018		2017
Natural gas and oil revenues	$	193,906		$	226,974	$	157,879
Income (loss) from operations	(360,967		)	34,206		6,019
Net income (loss)	(380,473		)	6,347		30,837

Laramie Energy’s net loss for the year ended December 31, 2019 includes an asset impairment loss of $355.2 million. Laramie Energy’s net loss for the year ended December 31, 2019 also includes $82.6 million and $4.3 million of DD&A expense and unrealized gains on derivative instruments, respectively. Laramie Energy’s net loss for the year ended December 31, 2019 also includes an asset impairment loss of $355.2 million. Laramie Energy’s net income for the year ended December 31, 2018 includes $66.6 million and $4.1 million of DD&A expense and unrealized losses on derivative instruments, respectively. Laramie Energy’s net income for the year ended December 31, 2017 includes $50.3 million and $46.2 million of DD&A expense and unrealized gains on derivative instruments, respectively.

At September 30, 2019, our equity in the underlying net assets of Laramie Energy exceeded the carrying value of our investment by approximately $161.8 million. This difference arose primarily due to other-than-temporary impairments of our equity investment in Laramie Energy. As a result of Laramie Energy’s $355.2 million impairment loss associated with the carrying value of proved reserves, there was no difference between our equity in the underlying net assets of Laramie Energy and the carrying value of our investment at December 31, 2019.