PRIMEENERGY RESOURCES CORP

For the period ended Sep 30, 2024. Filed Nov 14, 2024.

About this filing

A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.

Sep 30, 2024 · Filed Nov 14, 2024

PNRG$185.64+2.7%Stored close · as of Nov 6, 2026

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Contents

Item 1. Financial Statements

Part II - Other Information
Consolidated Balance Sheets – September 30, 2024 and December 31, 2023	1
Consolidated Statements of Income – For the three and nine months ended September 30, 2024 and 2023	2
Consolidated Statements of Equity – For the three and nine months ended September 30, 2024 and 2023	3
Consolidated Statements of Cash Flows – For the nine months ended September 30, 2024 and 2023	4
Notes to Consolidated Financial Statements – September 30, 2024	5-9
Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operation	10-19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	19
Item 4. Controls and Procedures	19
Item 1. Legal Proceedings	20
Item 1A. Risk Factors	20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3. Defaults Upon Senior Securities	20
Item 4. Reserved	20
Item 5. Other Information	20
Item 6. Exhibits	21
Signatures	23

Definitions of Certain Terms and Conventions Used Herein

Within this Report, the following terms and conventions have specific meanings:

Measurements.

●	“Bbl” means a standard barrel containing 42 United States gallons.

●

“BOE” means a barrel of oil equivalent and is a standard convention used to express oil and gas volumes on a comparable oil equivalent basis. Gas equivalents are determined under the relative energy content method by using the ratio of six thousand cubic feet of gas to one Bbl of oil or natural gas liquid.

●	“BOEPD” means BOE per day.

●	“Btu” means British thermal unit, which is a measure of the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit.

●	“MBbl” means one thousand Bbls.

●	“MBOE” means one thousand BOEs.

●	“Mcf” means one thousand cubic feet and is a measure of gas volume.

●	“MMcf” means one million cubic feet.

Indices.

●	“Brent” means Brent oil price, a major trading classification of light sweet oil that serves as a benchmark price for oil worldwide.

●	“WAHA” is a benchmark pricing hub for West Texas gas.

●	“WTI” means West Texas Intermediate, a light sweet blend of oil produced from fields in western Texas and is a grade of oil used as a benchmark in oil pricing. General terms and conventions.

●	“DD&A” means depletion, depreciation and amortization.

●	“ESG” means environmental, social and governance.

●	“GAAP” means accounting principles generally accepted in the United States of America.

●	“GHG” means greenhouse gases.

●	“LNG” means liquefied natural gas.

●	“NGLs” means natural gas liquids, which are the heavier hydrocarbon liquids that are separated from the gas stream; such liquids include ethane, propane, isobutane, normal butane and natural gasoline.

●	“NYMEX” means the New York Mercantile Exchange.

●	“OPEC” means the Organization of Petroleum Exporting Countries.

●	“PrimeEnergy” or the “Company” means PrimeEnergy Resources Corporation and its subsidiaries.

●	“Proved developed reserves” means reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well.

●

“Proved reserves” means those quantities of oil and gas, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations – prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i)

The area of the reservoir considered as proved includes: (A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

(ii)	In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons as seen in a well penetration unless geoscience, engineering or performance data and reliable technology establishes a lower contact with reasonable certainty.

(iii)

Where direct observation from well penetrations has defined a highest known oil elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering or performance data and reliable technology establish the higher contact with reasonable certainty.

(iv)

Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when: (A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including governmental entities.

(v)

Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

●	“Proved undeveloped reserves” means reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

(i)	Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

(ii)	Undrilled locations can be classified as having proved undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.

(iii)

Under no circumstances shall estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.

●	“SEC” means the United States Securities and Exchange Commission.

●	“Standardized Measure” means the after-tax present value of estimated future net cash flows of proved reserves, determined in accordance with the rules and regulations of the SEC, using prices and costs employed in the determination of proved reserves and a 10 percent discount rate.

●	“U.S.” means United States.

●

With respect to information on the working interest in wells, drilling locations and acreage, “net” wells, drilling locations and acres are determined by multiplying “gross” wells, drilling locations and acres by the Company’s working interest in such wells, drilling locations or acres. Unless otherwise specified, wells, drilling locations and acreage statistics quoted herein represent gross wells, drilling locations or acres.

●	“WASP” means weighted average sales price.

●	All currency amounts are expressed in U.S. dollars.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This information in this Quarterly Report on Form 10-Q (this“Report”) contains forward-looking statements that involve risks and uncertainties. When used in this document, the words“believes,”* “plans,” “expects,” “anticipates,” “forecasts,” “models,” “intends,” “continue,” “may,” “will,” “could,” “should,” “future,” “potential,” “estimate,” or the negative of such terms and similar expressions as they relate to the Company are intended to identify forward-looking statements, which are generally not historical in nature. The forward-looking statements are based on PrimeEnergy Resources Corporation*“The Company”* current expectations, assumptions, estimates and projections about the Company and the industry in which the Company operates. Although the Company believes that the expectations and assumptions reflected in the forward-looking statements are reasonable as and when made, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond the Company*’s control. In addition, the Company may be subject to currently unforeseen risks that may have a material adverse effect on it.

These risks and uncertainties include, among other things, volatility of commodity prices; product supply and demand; the impact of armed conflict (including the conflicts in Ukraine and the Middle East) or political instability on economic activity and oil and gas supply and demand; competition; the ability to obtain drilling, environmental and other permits and the timing thereof; the effect of future regulatory or legislative actions on The Company or the industry in which it operates, including potential changes to tax rates or laws, new restrictions on development activities or potential changes in regulations limiting produced water disposal; the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms; potential liability resulting from pending or future litigation; the costs, including the potential impact of cost increases due to inflation and supply chain disruptions, and results of development and operating activities; the impact of a widespread outbreak of an illness on global and U.S. economic activity, oil and gas demand, and global and U.S. supply chains; availability of equipment, services, resources and personnel required to perform the Company’s development and operating activities; access to and availability of transportation, processing, fractionation, refining, storage and export facilities; The Company’s ability to replace reserves, implement its business plans or complete its development activities as scheduled; the Company’s ability to achieve its emissions reductions, flaring and other ESG goals; access to and cost of capital; the financial strength of (i) counterparties to The Company’s credit facility and derivative contracts, (ii) issuers of The Company’s investment securities and (iii) purchasers of The Company’s oil, NGL and gas production and downstream sales of purchased commodities; uncertainties about estimates of reserves, identification of drilling locations and the ability to add proved reserves in the future; the assumptions underlying forecasts, including forecasts of production, operating cash flow, well costs, capital expenditures, rates of return, expenses, and cash flow from downstream purchases and sales of oil and gas, net of firm transportation commitments; quality of technical data; environmental and weather risks, including the possible impacts of climate change on the Company’s operations and demand for its products; cybersecurity risks; the risks associated with the ownership and operation of the Company’s well services business and acts of war or terrorism. In addition, the Company may be subject to currently unforeseen risks that may have a materially adverse effect on it.

Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no duty to publicly update these statements except as required by law.

PART I—FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Thousands of dollars, except share data)

	September 30, 2024	December 31, 2023
Unaudited
ASSETS
Current Assets
Cash and cash equivalents	$1,582	$11,061
Accounts receivable, net	34,304	20,301
Prepaid obligations	1,133	376
Other current assets	5	38
Total Current Assets	37,024	31,776
Property and Equipment
Oil and gas properties at cost	754,703	659,792
Less: Accumulated depletion and depreciation	(448,881)	(406,913)
	305,822	252,879
Field and office equipment at cost	14,642	26,955
Less: Accumulated depreciation	(12,603)	(23,715)
	2,039	3,240
Total Property and Equipment, Net	307,861	256,119
Other Assets	703	673
Total Assets	$345,588	$288,568
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$42,177	$15,424
Accrued property cost	7,133	33,264
Accrued liabilities	18,057	15,349
Due to related parties	28	80
Current portion of asset retirement and other long-term obligations	630	692
Total Current Liabilities	68,025	64,809
Long-Term Bank Debt	3,000	0
Asset Retirement Obligations	14,578	14,707
Deferred Income Taxes	55,313	47,236
Other Long-Term Obligations	834	866
Total Liabilities	141,750	127,618
Commitments and Contingencies
Equity
Common stock, $.10 par value; 2024 and 2023: Authorized: 2,810,000 shares, outstanding 2024: 1,726,970; shares outstanding 2023: 1,820,100 shares	281	281
Paid-in capital	7,555	7,555
Retained earnings	258,796	205,669
Treasury stock, at cost; 2024: 1,083,030 shares; 2023: 989,900 shares	(62,794)	(52,555)
Total Equity	203,838	160,950
Total Liabilities and Equity	$345,588	$288,568

CONSOLIDATED STATEMENTS OFINCOME–** Unaudited **

Three and Nine Months Ended September 30, 2024 and 2023

(Thousands of dollars, except per share amounts)

	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
Revenues:
Oil	$56,194	$26,402	$145,727	$61,948
Natural gas	638	2,472	2,078	5,452
Natural gas liquids	7,176	3,149	16,915	8,323
Field service income	2,657	3,337	8,967	11,442
Interests and other income, net	15	113	172	324
Gain on derivative instruments, net	0	0	0	414
Gain on disposition of assets, net	2,775	2,102	3,411	8,206
Total revenues	69,455	37,575	177,270	96,109
Costs and expenses:
Oil and gas production	12,878	7,898	34,424	21,171
Production and ad valorem taxes	2,650	1,445	9,301	5,308
Field service	3,103	3,166	8,376	9,700
Depreciation, depletion and amortization	18,231	8,924	45,845	22,857
Accretion of discount on asset retirement obligations	172	183	514	550
General and administrative	3,943	2,714	10,863	8,086
Interest	414	133	865	428
Total costs and expenses	41,391	24,463	110,188	68,100
Income before taxes	28,064	13,112	67,082	28,009
Income tax provision	5,988	2,392	13,955	5,789
Net income	$22,076	$10,720	$53,127	$22,220
Net income per share attributable to common stockholders:
Basic	$12.63	$5.84	$29.88	$11.95
Diluted	$8.80	$4.13	$20.93	$8.49
Weighted average shares outstanding:
Basic	1,747,727	1,834,709	1,778,224	1,859,084
Diluted	2,508,631	2,593,924	2,538,268	2,617,758

CONSOLIDATED STATEMENTS OF EQUITY–** Unaudited **

Three and Nine Months Ended September 30, 2024 and 2023

(Thousands of dollars, except share amounts)

Common Stock · Additional
	Shares Outstanding	Common Stock	Paid-In Capital	Retained Earnings	Treasury Stock	Total Equity
Balance at December 31, 2023	1,820,100	$281	$7,555	$205,669	$(52,555)	$160,950
Purchase of treasury stock	(29,855)	0	0	0	(2,849)	(2,849)
Net income	0	0	0	11,319	0	11,319
Balance at March 31, 2024	1,790,245	$281	$7,555	$216,988	$(55,404)	$169,420
Purchase of treasury stock	(28,191)	0	0	0	(2,857)	(2,857)
Net income	0	0	0	19,732	0	19,732
Balance at June 30, 2024	1,762,054	$281	$7,555	$236,720	$(58,261)	$186,295
Purchase of treasury stock	(35,084)	0	0	0	(4,533)	(4,533)
Net income	0	0	0	22,076	0	22,076
Balance at September 30, 2024	1,726,970	$281	$7,555	$258,796	$(62,794)	$203,838

Common Stock · Additional
	Shares Outstanding	Common Stock	Paid-In Capital	Retained Earnings	Treasury Stock	Total Equity
Balance at December 31, 2022	1,901,000	$281	$7,555	$177,566	$(45,049)	$140,353
Purchase of treasury stock	(31,440)			0	(2,748)	(2,748)
Net income	0	0	0	1,410	0	1,410
Balance at March 31, 2023	1,869,560	$281	$7,555	$178,976	$(47,797)	$139,015
Purchase of treasury stock	(29,060)	0	0	0	(2,616)	(2,616)
Net income	0	0	0	10,090	0	10,090
Balance at June 30, 2023	1,840,500	$281	$7,555	$189,066	$(50,413)	$146,489
Purchase of treasury stock	(12,000)	0	0	0	(1,208)	(1,208)
Net income	0	0	0	10,720	0	10,720
Balance at September 30, 2023	1,828,500	$281	$7,555	$199,786	$(51,621)	$156,001

CONSOLIDATED STATEMENTS OF CASH FLOWS–** Unaudited **

Nine Months Ended September 30, 2024 and 2023

(Thousands of dollars)

	2024	2023
Cash Flows from Operating Activities:
Net Income	$53,127	$22,220
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	45,845	22,857
Accretion of discount on asset retirement obligations	514	550
Gain on sale and exchange of assets	(3,411)	(8,206)
Unrealized gain on derivative instruments, net	0	(980)
Provision for deferred income taxes	8,077	3,320
Changes in assets and liabilities:
Accounts receivable	(14,003)	(5,225)
Due from related parties	0	388
Due to related parties	(52)	398
Prepaids obligations	(757)	32,426
Other current assets	33	0
Accounts payable	26,753	449
Accrued property costs	(26,131)	0
Accrued liabilities	2,708	2,700
Right of use and other assets	(701)	0
Other long-term liabilities	0	(173)
Net Cash Provided by Operating Activities	92,002	70,724
Cash Flows from Investing Activities:
Capital expenditures, including exploration expense	(98,395)	(67,069)
Proceeds from sale of properties and equipment	4,153	7,434
Net Cash Used in Investing Activities	(94,242)	(59,635)
Cash Flows from Financing Activities:
Purchase of stock for treasury	(10,239)	(6,572)
Proceeds from long-term bank debt	57,500	0
Repayment of long-term bank debt and other long-term obligations	(54,500)	(11,270)
Net Cash Used in Financing Activities	(7,239)	(17,842)
Net Decrease in Cash and Cash Equivalents	(9,479)	(6,753)
Cash and Cash Equivalents at the Beginning of the Period	11,061	26,543
Cash and Cash Equivalents at the End of the Period	$1,582	$19,790
Supplemental Disclosures:
Income taxes paid	$101	$9,288
Interest paid	$782	$450

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024

(1)	Basis of Presentation:

The accompanying condensed consolidated financial statements of PrimeEnergy Resources Corporation (“PrimeEnergy” or the “Company”) have not been audited by independent public accountants. Pursuant to applicable Securities and Exchange Commission (“SEC”) rules and regulations, the accompanying interim financial statements do not include all disclosures presented in annual financial statements and the reader should refer to the Company’s Form 10-K for the year ended December 31, 2023. In the opinion of management, the accompanying interim consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s consolidated balance sheets as of September 30, 2024, and December 31, 2023, the consolidated results of operations, cash flows and equity for the nine months ended September 30, 2024, and 2023.

As of September 30, 2024, PrimeEnergy’s significant accounting policies are consistent with those discussed in Note 1—Description of Operations and Significant Accounting Policies of its consolidated financial statements contained in PrimeEnergy’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The results for interim periods are not necessarily indicative of annual results. For purposes of disclosure in the consolidated financial statements, subsequent events have been evaluated through the date the statements were issued.

New Pronouncements Issued But Not Yet Adopted:

In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40),” which expands disclosures around a public entity’s costs and expenses of specific items (i.e. employee compensation, DD&A), requires the inclusion of amounts that are required to be disclosed under GAAP in the same disclosure as other disaggregation requirements, requires qualitative descriptions of amounts remaining in expense captions that are not separately disaggregated quantitatively, and requires disclosure of total selling expenses, and in annual periods, the definition of selling expenses. The amendment does not change or remove existing disclosure requirements. The amendment is effective for fiscal years beginning after December 15, 2026, and interim periods with fiscal years beginning after December 15, 2027. Early adoption is permitted, and the amendment can be adopted prospectively or retrospectively to any or all periods presented in the financial statements. The Company is currently assessing the impact of adopting this standard.

(2)	Acquisitions and Dispositions

2024 Transactions:

In the first quarter of 2024, the Company 48 net acres in Lea County, New Mexico, along with minor working interest in 23 non-operated wells, receiving gross proceeds of $375,600, and in the second quarter of 2024, sold an additional 12 net acres in Lea County for proceeds of $150,600. Also in the second quarter of 2024, we farmed out certain acreage in east Texas for $55,000.

In the third quarter of 2024, acreage transactions included the acquisition of 100.27 net acres in Reagan County for a purchase price of $1,109,785, the sale of 7.8 surface acres in Midland County, Texas for proceeds of $427,760 and the sale of 44.58 net acres of leasehold interest in Roger Mills County Oklahoma for proceeds of $89,159. In New Mexico we sold our working interests in seven properties in Lea and Eddy Counties $220,000. Effective September 1, 2024 the Company sold its interest in Eastern Oil Well Service Company, a south Texas well-servicing business, for net proceeds of $2,800,000, regonizing a gain of $1,921,000.

2023 Transactions:

In the first quarter of 2023, the Company sold 7.8 surface acres in Midland County, Texas receiving gross proceeds of $436,050 and recognizing a gain of $47,000.

In the second quarter of 2023, the Company acquired 55 net acres in the South Stiles area of Reagan County, Texas for $605,000, and in a separate agreement also in Reagan County, the Company sold 320 non-core acres for proceeds of $6,000,000. In addition, the Company sold 36.51% interest in one well in Midland County, Texas for proceeds of $60,000.

In the third quarter of 2023, the Company sold a non-core 38.25-acre leasehold tract in Martin County, Texas for proceeds of $899,000 and sold 3 surface acres in Liberty County, Texas for net proceeds of $37,053. Also in the third quarter, in various counties of Oklahoma, the Company divested its interest in 39 wells, reducing its future plugging liability by approximately $1.5 million. Effective July 1, 2023, the Company acquired the operations of 36 wells from DE Permian and 50% of DE Permian’s original

ownership in such wells. In addition, in Reagan County, Texas, the Company acquired 114.52 net acres from DE Permian for $1,700,853 and assigned to them 203.23 net acres.

(3)	Additional Balance Sheet Information:

Certain balance sheet amounts are comprised of the following:

(Thousands of dollars)	September 30, 2024	December 31, 2023
Accounts Receivable:
Joint interest billing	$3,340	$2,560
Trade receivables	1,483	2,345
Oil and gas sales	28,970	14,457
Taxes	1,078	1,458
Other	452	155
	35,323	20,975
Less: Allowance for credit losses	(1,019)	(674)
Total	$34,304	$20,301
Accounts Payable:
Trade	$36,574	$9,847
Royalty and other owners	4,391	4,405
Partner advances	976	946
Other	236	226
Total	$42,177	$15,424
Accrued Liabilities:
Compensation and related expenses	$5,890	$10,324
Taxes	7,246	929
Lease operating costs	4,540	3,898
Other	381	198
Total	$18,057	$15,349

(4)	Long-Term Debt:

Bank Debt:

On July 5,* 2022,* the Company and its lenders entered into aFourth Amended and Restated Credit Agreement (the “2022 Credit Agreement”) with a maturity date of June 1, 2026*.* Under the 2022 Credit Agreement, the Company has a revolving line of credit and letter of credit facility of up to $300 million* subject to a borrowing base that is determined semi-annually by the lenders based upon the Company’s consolidated financial statements and the estimated value of the Company’s oil and gas properties, in accordance with the Lenders’ customary practices for oil and gas loans. The initial borrowing base of the agreement was$75 million. The credit facility is secured by substantially all of the Company’s oil and gas properties. The 2022 *Credit Agreement includes terms and covenants that require the Company to maintain a minimum current ratio and total indebtedness to EBITDAX (earnings before depreciation, depletion, amortization, taxes, interest expense and exploration costs) ratio, as defined, and restrictions are placed on the payment of dividends, the amount of treasury stock the Company may purchase, and commodity hedge agreements.

Effective January 20,* 2023,* in lieu of a formal amendment, a borrowing base letter authorized by all lenders and the Company of the 2022* Credit Agreement resulted in an adjustment to decrease the amount of the Borrowing Base available from $75 million to $60 million *until such time as the next redetermination date as required by the agreement.

Effective July 24,* 2023,* in lieu of a formal amendment, a borrowing base letter authorized by all lenders and the Company of the 2022* Credit Agreement resulted in an adjustment to increase the amount of the Borrowing Base available from $60 million *to $65 million until such time as the next redetermination date as required by the agreement.

As of December 31,* 2023,* the borrowing base was $65 million and the Company hadno outstanding borrowings under the Credit Facility.

Effective February 9,* 2024,* the Company and its lenders entered into the Second* Amendment to the 2022 Credit Agreement. This amendment included an increase of the Borrowing Base from $65 million to *$85 million.

Effective July 29, 2024*,* the Company and its lenders entered into the Third* *Amendment to the 2022 Credit Agreement. This amendment included an increase of the Borrowing Base from $85 million to $115 million and will remain in effect until the next scheduled redetermination date in accordance with the Credit Agreement.

As of September 30, 2024, the Company had $3 million in outstanding borrowings and $112 million in available under the credit facility.

(5)	Other Long-Term Obligations and Commitments:

Operating Leases:

The Company leases office facilities under operating leases and recognizes lease expense on a straight-line basis over the lease term. Lease assets and liabilities are initially recorded at commencement date based on the present value of lease payments over the lease term. As most of the Company’s lease contracts do not provide an implicit discount rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The weighted average discount rate used was 8.97%. Certain leases may contain variable costs above the minimum required payments and are not included in the right-of-use assets or liabilities. Leases may include renewal, purchase or termination options that can extend or shorten the term of the lease. The exercise of those options is at the Company’s sole discretion and is evaluated at inception and throughout the contract to determine if a modification of the lease term is required.

Operating lease costs for the nine months ended September 30, 2024 and 2023 were $557 thousand and $525 thousand, respectively. Cash payments included in the operating lease cost for the nine months ended September 30, 2024 and 2023 were $592 thousand and $552 thousand, respectively. The weighted-average remaining operating lease terms as of September 2024 and 2023 were 3.0 months and 7.88 months, respectively. The Company acquired and amended certain leases for office space in Texas providing for future payments of $200 thousand in 2024, and $149 thousand in 2025.

Rent expense for office space for the nine months ended September 30, 2024 and 2023 was $668 thousand and $522 thousand, respectively.

The payment schedule for the Company’s operating lease obligations as of September 30, 2024 is as follows:

(Thousands of dollars)	Operating Leases
2024	$200
2025	149
Total undiscounted lease payments	$349
Less: Amount associated with discounting	(35)
Total net operating lease liabilities	$314
Less: Current portion asset retirement and other long-term obligations	(314)
Non-current portion included in Other long-term obligations	$0

Asset Retirement Obligation:

A reconciliation of the liability for plugging and abandonment costs for the nine months ended September 30, 2024 is as follows:

(Thousands of dollars)	September 30, 2024
Asset retirement obligation at December 31, 2023	$15,153
Net wells placed on production	70
Liabilities settled	(706)
Liabilities divested	(137)
Accretion of discount	514
Asset retirement obligation at September 30, 2024	$14,894
Less current portion of asset retirement obligations	(316)
Asset retirement obligations, long-term	$14,578

The Company’s liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive life of wells and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligation. Revisions to the asset retirement obligation are recorded with an offsetting change to producing properties, resulting in prospective changes to depreciation, depletion and amortization expense and accretion of discount. Because of the subjectivity of assumptions and the relatively long life of most of the Company’s wells, the costs to ultimately retire the wells may vary significantly from previous estimates.

(6)	Contingent Liabilities:

The Company is subject to environmental laws and regulations. Management believes that future expenses, before recoveries from third parties, if any, will not have a material effect on the Company’s financial condition. This opinion is based on expenses incurred to date for remediation and compliance with laws and regulations, which have not been material to the Company’s results of operations.

From time to time, the Company is party to certain legal actions arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, management does not expect these matters to have a materially adverse effect on the financial position or results of operations of the Company.

(7)	Stock Options and Other Compensation:

In May 1989, non-statutory stock options were granted by the Company tofour key executive officers for the purchase of shares of common stock. At September 30, 2024 and 2023, remaining options held by two key executive officers on 767,500 shares were outstanding and exercisable at prices ranging from $1.00 to $1.25. According to their terms, the options have no expiration date.

(8)	Related Party Transactions:

Amounts due to or from related parties primarily represent receipts or expenses, related to oil and gas properties, collected or paid by the Company as agent for the joint venture partners, which may include members of the Company’s Board of Directors.

(9)	Financial Instruments

Fair Value Measurements:

Authoritative guidance on fair value measurements defines fair value, establishes a framework for measuring fair value and stipulates the related disclosure requirements. The Company follows a three-level hierarchy, prioritizing and defining the types of inputs used to measure fair value. The fair values of the Company’s interest rate swaps, natural gas and crude oil price collars and swaps are designated as Level 3.

The derivative contracts were measured based on quotes from the Company’s counterparties. Such quotes have been derived using valuation models that consider various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for natural gas and crude oil, volatility factors and interest rates, such as a curve for a similar length of time as the derivative contract term as applicable. These estimates are verified using comparable NYMEX futures contracts or are compared to multiple quotes obtained from counterparties for reasonableness.

The significant unobservable inputs for Level 3 derivative contracts include basis differentials and volatility factors. An increase (decrease) in these unobservable inputs would result in an increase (decrease) in fair value, respectively. The Company does not have access to the specific assumptions used in its counterparties’ valuation models. Consequently, additional disclosures regarding significant Level 3 unobservable inputs would not be provided. As of the balance sheet reporting dates of September 30, 2024 and December 31, 2023, the Company had no active derivative instruments.

Derivative Instruments:

The Company is exposed to commodity price and interest rate risk, and management considers periodically the Company’s exposure to cash flow variability resulting from the commodity price changes and interest rate fluctuations. Futures, swaps and options are used to manage the Company’s exposure to commodity price risk inherent in the Company’s oil and gas production operations. The Company does not apply hedge accounting to any of its commodity-based derivatives. Both realized and unrealized gains and losses associated with commodity derivative instruments are recognized in earnings.

The following table sets forth the effect of derivative instruments on the consolidated statements of income for the nine months ended September 30, 2024 and 2023:

	Amount of gain/loss recognized in income
(Thousands of dollars)	Location of gain/loss recognized in income	2024	2023
Derivatives not designated as cash-flow hedge instruments:
Natural gas commodity contracts	Gain on derivative instruments, net	0	235
Crude oil commodity contracts	Gain on derivative instruments, net	0	179
		$0	$414

(10)	Earnings Per Share:

Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common stock had been converted to common stock in gain periods. The following reconciles amounts reported in the consolidated financial statements:

	Nine Months Ended September 30,
2024 · 2023
	Net Income (In 000’s)	Weighted Average Number of Shares Outstanding	Per Share Amount	Net Loss (In 000’s)	Weighted Average Number of Shares Outstanding	Per Share Amount
Basic	$53,127	1,778,224	$29.88	$22,220	1,859,084	$11.95
Effect of dilutive securities:
Options (a)	0	760,044		0	758,674
Diluted	$53,127	2,538,268	$20.93	$22,220	2,617,758	$8.49

	Three Months Ended September 30,
2024 · 2023
	Net Income (In 000’s)	Weighted Average Number of Shares Outstanding	Per Share Amount	Net Loss (In 000’s)	Weighted Average Number of Shares Outstanding	Per Share Amount
Basic	$22,076	1,747,727	$12.63	$10,720	1,834,709	$5.84
Effect of dilutive securities:
Options (a)	0	760,904			759,215
Diluted	$22,076	2,508,631	$8.80	$10,720	2,593,924	$4.13

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The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.