What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-01 compared with 2022-08-03 · 123 added, 108 removed, 227 unchanged (50% of the section changed)

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As vaccines have become widely available, social distancing guidelines, travel restrictions and stay-at-home orders have eased, activity in the global economy has increased and demand for oil, natural gas and NGLs and related commodity pricing, has improved.

Additionally, oil, natural gas and NGLs prices increased in the first half of 2022 when compared to the same period of 2021 and, as a result, we experienced a significant increase in revenues.

We continue to monitor the impact of the actions of the Organization of the Petroleum Exporting Countries and other large producing nations, the Russia-Ukraine conflict, global inventories of oil and gas and the uncertainty associated with recovering oil demand, future monetary policy and governmental policies aimed at transitioning towards lower carbon energy.

Additionally, oil, natural gas and NGLs prices increased in 2022 when compared to the same period of 2021 and, as a result, we experienced an increase in revenues.

We continue to monitor the impact of the actions of the Organization of the Petroleum Exporting Countries and other large producing nations, the Russia-Ukraine conflict, global inventories of oil and gas and the uncertainty associated with recovering oil demand, inflation and future monetary policy, and governmental policies aimed at transitioning towards lower carbon energy.

We expect prices for some or all of the commodities to remain volatile.

Other factors such as the duration of the COVID-19 pandemic and the speed and effectiveness of vaccine distributions or other medical advances to combat the virus may impact the recovery of world economic growth and the demand for oil, natural gas and NGLs.

The COVID-19 pandemic and the Russia-Ukraine conflict continue to evolve, and the extent to which these events may impact our business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

Recent Developments

Borrowing Base Redetermination and Sixth Amendment

On June 21, 2022, OLLC entered into the Sixth Amendment.

The Sixth Amendment amends the Revolving Credit Facility to, among other things:

● terminate the automatic monthly reductions of the borrowing base;

● reaffirm the borrowing base under the Revolving Credit Facility at $225.0 million;

● modify the affirmative hedging covenant.

Special Case Royalty Relief

On June 8, 2022, the Special Case Royalty Relief for our interest in the Beta Unit was terminated.

Appointment of Certain Directors

On April 7, 2022, the board of directors of the Company appointed Deborah G.

Adams and Eric T.

Greager to the board of directors, effective April 7, 2022.

Adams has also been appointed to the nominating and governance committee of the board of directors, and Mr.

Greager has also been appointed to the compensation committee of the board of directors.

Settlement Terms In Southern California Pipeline Civil Litigation

On August 25, 2022, we reached an agreement in principle with plaintiffs in the class action to resolve all civil claims against us and our subsidiaries.

The settlement of $50.0 million, which also includes certain injunctive relief, will be funded under our insurance policies, and the final agreement will be subject to court approval.

On October 17, 2022, counsel to the putative class filed a motion for preliminary approval of the final settlement agreement;

that motion is noticed for a hearing with the Court on November 16, 2022.

Agreement with Prosecutors to Resolve Matters Associated with Southern California Pipeline incident

On August 26, 2022, we reached an agreement with the United States government, which the court has approved, to resolve all federal criminal matters involving us and our subsidiaries stemming from the Incident.

As part of the resolution with the United States, we have agreed to plead guilty to one count of misdemeanor negligent discharge of oil in violation of the Clean Water Act.

We will pay a fine of approximately $7.1 million in installments over a period of three years, serve a term of four years’ probation and reimburse governmental agencies approximately $5.8 million for their response to this event.

We also have agreed to implement certain compliance measures including installation of a new leak detection system and increased Remote Operated Vehicle inspections of the pipeline.

On September 8, 2022, we reached an agreement with the state of California to resolve all related state criminal matters.

As part of the resolution with the state of California, which also has court approval, we agreed to enter a plea of No Contest to six misdemeanor charges.

We will pay a fine in the amount of $4.9 million to be distributed among the state of California, including the State’s Fish and Game Preservation Fund, and Orange County.

We will also serve a one-year term of probation and have agreed to certain compliance enhancements to its operations.

Business Environment and Operational Focus

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Results of Operations

The results of operations for the three and six months ended June 30, 2022 and 2021 have been derived from our unaudited condensed consolidated financial statements.

The results of operations for the three and nine months ended September 30, 2022 and 2021 have been derived from our unaudited condensed consolidated financial statements.

The comparability of the results of operations among the periods presented below is impacted by the Incident and suspension of operations at our Beta properties.

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

($ In thousands except per unit amounts)

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Pipeline incident loss

Pipeline incident settlement

Interest expense, net

Gain on extinguishment of debt

Net income (loss)

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Depletion, depreciation and amortization

For the Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021

Net income of $29.2 million and a net loss of $35.0 million were recorded for the three months ended June 30, 2022 and 2021, respectively.

Oil, natural gas and NGL revenues were $112.9 million and $80.3 million for the three months ended June 30, 2022 and 2021, respectively.

Average net production volumes were approximately 20.4 MBoe/d and 25.3 MBoe/d for the three months ended June 30, 2022 and 2021, respectively.

For the Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

Net income of $47.2 million and a net loss of $13.5 million were recorded for the three months ended September 30, 2022 and 2021, respectively.

Oil, natural gas and NGL revenues were $112.8 million and $96.8 million for the three months ended September 30, 2022 and 2021, respectively.

Average net production volumes were approximately 21.0 MBoe/d and 25.1 MBoe/d for the three months ended September 30, 2022 and 2021, respectively.

The change in production volumes was primarily due to the suspension of operations at our Beta properties and natural declines.

For the three months ended June 30, 2021, production from our Beta properties was 3.6 MBoe/d.

The average realized sales price was $60.74 per Boe and $34.93 per Boe for the three months ended June 30, 2022 and 2021, respectively.

For the three months ended September 30, 2021, production from our Beta properties was 3.7 MBoe/d.

The average realized sales price was $58.31 per Boe and $41.89 per Boe for the three months ended September 30, 2022 and 2021, respectively.

The increase in average realized sales price was primarily due to the increase in commodity prices.

Other revenues were $8.9 million and less than $0.1 million for the three months ended June 30, 2022 and 2021, respectively.

For the three months ended June 30, 2022, we recognized $8.8 million of LOPI proceeds related to the suspension of operations at our Beta properties resulting from the Incident which includes two months of LOPI.

Lease operating expense was $33.3 million and $28.7 million for the three months ended June 30, 2022 and 2021, respectively.

The change in lease operating expense was primarily related to a $2.8 million increase in workover expense and an increase of $2.1 million in lease operating expenses, offset by the natural decline in production.

The increase was primarily attributable to increased expense workover projects in Oklahoma and the Rockies.

On a per Boe basis, lease operating expense was $17.91 and $12.46 for the three months ended June 30, 2022 and 2021, respectively.

The change in lease operating expense on a per Boe basis was due mainly to higher costs and lower production.

Gathering, processing and transportation was $7.3 million and $5.1 million for the three months ended June 30, 2022 and 2021, respectively.

The increase was primarily attributable to marketing our own natural gas in Oklahoma, resulting in a reclassification of certain revenue deductions to gathering, processing and transportation expenses.

On a per Boe basis, gathering, processing and transportation was $3.92 and $2.20 for the three months ended June 30, 2022 and 2021, respectively.

The change on a per BOE basis primarily related to higher commodity prices and the accounting reclassification discussed above.

Taxes other than income were $8.6 million and $5.1 million for the three months ended June 30, 2022 and 2021, respectively.

Other revenues were $13.5 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively.

For the three months ended September 30, 2022, we recognized $13.3 million of LOPI proceeds related to the suspension of operations at our Beta properties resulting from the Incident which includes three months of LOPI.

Lease operating expense was $32.0 million and $34.5 million for the three months ended September 30, 2022 and 2021, respectively.

The change in lease operating expense was primarily related to a decrease of $5.4 million at our Beta properties, mainly due to the suspension of operations, offset by an increase of $2.9 million related to inflation across our other assets.

On a per Boe basis, lease operating expense was $16.56 and $14.92 for the three months ended September 30, 2022 and 2021, respectively.

The change in lease operating expense on a per Boe basis was mainly due to the higher aggregate costs noted above and lower production.

Gathering, processing and transportation was $7.5 million and $5.0 million for the three months ended September 30, 2022 and 2021, respectively.

The increase was primarily attributable to marketing our own natural gas in Oklahoma starting in October 2021.

Marketing our own natural gas in Oklahoma has greatly improved our natural gas differentials, but we must now recognize certain revenue deductions as gathering, processing and transportation expenses on a go-forward basis.

On a per Boe basis, gathering, processing and transportation was $3.87 and $2.18 for the three months ended September 30, 2022 and 2021, respectively.

The change on a per BOE basis is primarily related to the marketing changes discussed above.

Taxes other than income were $9.2 million and $6.0 million for the three months ended September 30, 2022 and 2021, respectively.

The increase in taxes other than income is due to an increase in production taxes as a result of the increase in commodity prices.

On a per Boe basis, taxes other than income were $4.64 and $2.20 for the three months ended June 30, 2022 and 2021, respectively.

On a per Boe basis, taxes other than income were $4.73 and $2.61 for the three months ended September 30, 2022 and 2021, respectively.

The change in taxes other than income on a per Boe basis was primarily due to the increase in commodity prices.

DD&A expense was $5.9 million and $7.4 million for the three months ended June 30, 2022 and 2021, respectively.

The change in DD&A expense was primarily due to a decrease in production of 442 MBoe, which equates to a decrease of approximately $1.4 million.

General and administrative expense was $8.6 million and $6.0 million for the three months ended June 30, 2022 and 2021, respectively.

The change in general and administrative expense was primarily related to (1) an increase of $1.4 million in salaries and other payroll benefits;

(2) an increase of $0.6 million in legal expenses, and (3) an increase of $0.7 million in professional services.

Net loss on commodity derivative instruments of $18.6 million were recognized for the three months ended June 30, 2022, consisting of a $30.0 million increase in the fair value of open positions and $48.6 million of cash settlements paid on expired positions.

Net loss on commodity derivative instruments of $63.9 million was recognized for the three months ended June 30, 2021, consisting of a $47.0 million decrease in the fair value of open positions and $16.9 million of cash settlements paid on expired positions.

Pipeline incident loss was $5.1 million for the three months ended June 30, 2022.

The $5.1 million reflects legal expenses that the Company has determined will not be reimbursed through the insurance claims process.

No expense was recorded for the three months ended June 30, 2021.

Depreciation, depletion & amortization (“DD&A expense”) was $6.3 million and $7.0 million for the three months ended September 30, 2022 and 2021, respectively.

The change in DD&A expense was primarily due to a decrease in production of 376 MBoe, which equates to a decrease of approximately $1.1 million offset by an increase of $0.4 million in our depletion rate.

General and administrative expense was $7.0 million and $6.4 million for the three months ended September 30, 2022 and 2021, respectively.

The change in general and administrative expense was primarily related to an increase of $0.5 million in salaries and other payroll benefits and an increase of $0.2 million in stock compensation expense offset with a decrease of $0.1 million in legal expense.

Net gain on commodity derivative instruments of $3.3 million were recognized for the three months ended September 30, 2022, consisting of a $44.1 million increase in the fair value of open positions and $40.8 million of cash settlements paid on expired positions.

Net loss on commodity derivative instruments of $46.7 million was recognized for the three months ended September 30, 2021, consisting of a $24.1 million decrease in the fair value of open positions and $22.6 million of cash settlements paid on expired positions.

The change in commodity derivative instruments is primarily related to the rolling off of out-of-the-money commodity hedges and increased commodity prices.

Pipeline incident loss was $2.6 million for the three months ended September 30, 2022.

The $2.6 million reflects certain legal expenses that are not expected to be recovered under an insurance policy.

No expense was recorded for the three months ended September 30, 2021.

See Note 16 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report for additional information.

Interest expense, net was $3.1 million and $3.1 million for the three months ended June 30, 2022 and 2021, respectively.

Interest expense included a gain position on our interest rate swaps of $0.3 million for the three months ended June 30, 2022, compared to a loss position on interest rate swaps of less than $0.1 million for the three months ended June 30, 2021.

In addition, we had an increase of $0.3 million in interest expense due to higher rates on our Revolving Credit Facility.

Average outstanding borrowings under our Revolving Credit Facility were $219.4 million and $242.8 million for the three months ended June 30, 2022 and 2021, respectively.

For the Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

Net losses of $19.4 million and $54.4 million were recorded for the six months ended June 30, 2022 and 2021, respectively.

Oil, natural gas and NGL revenues were $206.8 million and $152.7 million for the six months ended June 30, 2022 and 2021, respectively.

Average net production volumes were approximately 20.4 MBoe/d and 25.0 MBoe/d for the six months ended June 30, 2022 and 2021, respectively.

Pipeline incident settlement was $12.0 million for the three months ended September 30, 2022, related to the resolution of the federal and state of California matters discussed in Note 16 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

No expense was recorded for the three months ended September 30, 2021.

Interest expense, net was $4.0 million and $3.1 million for the three months ended September 30, 2022 and 2021, respectively.

We had an increase of $1.1 million in interest expense due to higher interest rates on our Revolving Credit Facility offset by a decrease of $0.2 million in the change of our interest rate swaps.

Average outstanding borrowings under our Revolving Credit Facility were $214.9 million and $234.9 million for the three months ended September 30, 2022 and 2021, respectively.

For the Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Net income of $27.8 million and a net loss of $67.8 million were recorded for the nine months ended September 30, 2022 and 2021, respectively.

Oil, natural gas and NGL revenues were $319.6 million and $249.5 million for the nine months ended September 30, 2022 and 2021, respectively.

Average net production volumes were approximately 20.6 MBoe/d and 25.0 MBoe/d for the nine months ended September 30, 2022 and 2021, respectively.

The change in production volumes was primarily due to the suspension of operations at our Beta properties and natural declines.

During the first half of 2021, production from our Beta properties was 3.6 MBoe/d.

The average realized sales price was $55.95 per Boe and $33.76 per Boe for the six months ended June 30, 2022 and 2021, respectively.

For the nine months ended September 30, 2021, production from our Beta properties was 3.6 MBoe/d.

The average realized sales price was $56.76 per Boe and $36.51 per Boe for the nine months ended September 30, 2022 and 2021, respectively.

The increase in average realized sales price was primarily due to the increase in commodity prices.

Other revenues were $26.5 million and $0.2 million for the six months ended June 30, 2022 and 2021, respectively.

During the first half of 2022, we recognized $26.2 million of LOPI proceeds related to the suspension of operations at our Beta properties resulting from the Incident which includes six months of LOPI.

Lease operating expense was $66.2 million and $57.6 million for the six months ended June 30, 2022 and 2021, respectively.

The change in lease operating expense was primarily related to a $5.5 million increase in workover expense and $4.7 million increase in lease operating expense, offset by the natural decline in production.

The increase was primarily attributable to increased expense workover projects in Oklahoma and the Rockies.

On a per Boe basis, lease operating expense was $17.92 and $12.73 for the six months ended June 30, 2022 and 2021, respectively.

The change in lease operating expense on a per Boe basis was due mainly to higher costs and lower production.

Gathering, processing and transportation was $15.3 million and $9.6 million for the six months ended June 30, 2022 and 2021, respectively.

On a per Boe basis, gathering, processing and transportation was $4.14 and $2.13 for the six months ended June 30, 2022 and 2021, respectively.

The change on a per BOE basis primarily related to higher commodity prices and the accounting reclassification discussed above.

Taxes other than income were $16.2 million and $9.7 million for the six months ended June 30, 2022 and 2021, respectively.

Other revenues were $39.9 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively.

For the nine months ended September 30, 2022, we recognized $39.6 million of LOPI proceeds related to the suspension of operations at our Beta properties resulting from the Incident which includes nine months of LOPI.

Lease operating expense was $98.3 million and $92.0 million for the nine months ended September 30, 2022 and 2021, respectively.

The change in lease operating expenses was primarily related to a $7.3 million increase in lease operating expenses due to inflation and a $5.9 million increase in our workover expenses primarily in Wyoming and Oklahoma.

The increase was offset by a decrease of $6.9 million in lease operating expense at our Beta properties, mainly due to the suspension of operations.

On a per Boe basis, lease operating expense was $17.45 and $13.47 for the nine months ended September 30, 2022 and 2021, respectively.

The change in lease operating expense on a per Boe basis was due to the higher aggregate costs noted above and lower production.

Gathering, processing and transportation was $22.8 million and $14.7 million for the nine months ended September 30, 2022 and 2021, respectively.

The increase was primarily attributable to marketing our own natural gas in Oklahoma starting in October 2021.

On a per Boe basis, gathering, processing and transportation was $4.05 and $2.15 for the nine months ended September 30, 2022 and 2021, respectively.

The change on a per BOE basis primarily related to the marketing changes discussed above.

Taxes other than income were $25.3 million and $15.7 million for the nine months ended September 30, 2022 and 2021, respectively.

The increase in taxes other than income is due to an increase in production taxes as a result of the increase in commodity prices.

On a per Boe basis, taxes other than income were $4.38 and $2.14 for the six months ended June 30, 2022 and 2021, respectively.

On a per Boe basis, taxes other than income were $4.50 and $2.30 for the nine months ended September 30, 2022 and 2021, respectively.

The change in taxes other than income on a per Boe basis was primarily due to the increase in commodity prices.

DD&A expense was $11.5 million and $14.7 million for the six months ended June 30, 2022 and 2021, respectively.

The change in DD&A expense was primarily due to a decrease in production of 826 MBoe, which equates to a decrease of approximately $2.7 million.

General and administrative expense was $16.4 million and $13.0 million for the six months ended June 30, 2022 and 2021, respectively.

The change in general and administrative expense was primarily related to (1) an increase of $1.6 million in salaries and other payroll benefits, (2) an increase of $0.7 million in stock compensation expense, (3) an increase of $0.7 million in legal expenses, and (4) an increase of $0.4 million in professional services.

Net loss on commodity derivative instruments of $112.0 million were recognized for the six months ended June 30, 2022, consisting of a $32.4 million decrease in the fair value of open positions and $79.5 million of cash settlements paid on expired positions.

Net losses on commodity derivative instruments of $98.5 million was recognized for the six months ended June 30, 2021, consisting of a $71.0 million decrease in the fair value of open positions and $27.5 million of cash settlements paid on expired positions.

Pipeline incident loss was $5.7 million for the six months ended June 30, 2022.

The $5.7 million reflects legal expenses that the Company has determined will not be reimbursed through the insurance claims process.

No expense was recorded for the six months ended June 30, 2021.

DD&A expense was $17.8 million and $21.7 million for the nine months ended September 30, 2022 and 2021, respectively.

The change in DD&A expense was primarily due to a decrease in production of 1,201 MBoe, which equates to a decrease of approximately $3.8 million and a decrease of $0.1 million in our depletion rate.

General and administrative expense was $23.4 million and $19.4 million for the nine months ended September 30, 2022 and 2021, respectively.

The change in general and administrative expense was primarily related to (i) an increase of $2.2 million in salaries and other payroll benefits, (ii) an increase of $0.6 million in legal expenses, (iii) an increase of $0.5 million in professional services and (iv) an increase of $0.4 million in stock compensation expense,.

Net loss on commodity derivative instruments of $108.7 million were recognized for the nine months ended September 30, 2022, consisting of a $11.6 million increase in the fair value of open positions and $120.3 million of cash settlements paid on expired positions.

Net loss on commodity derivative instruments of $145.1 million was recognized for the nine months ended September 30, 2021, consisting of a $95.0 million decrease in the fair value of open positions and $50.1 million of cash settlements paid on expired positions.

The change in commodity derivative instruments is primarily related to the rolling off of out-of-the-money commodity hedges and increased commodity prices.

Pipeline incident loss was $8.3 million for the nine months ended September 30, 2022.

The $8.3 million reflects certain legal expenses that are not expected to be recovered under an insurance policy.

No expense was recorded for the nine months ended September 30, 2021.

See Note 16 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report for additional information.

Interest expense, net was $5.5 million and $6.2 million for the six months ended June 30, 2022 and 2021, respectively.

Interest expense included a gain position on our interest rate swaps of $0.8 million for the six months ended June 30, 2022, compared to a gain position on interest rate swaps of less than $0.1 million for the six months ended June 30, 2021.

In addition, we had an increase of $0.1 million in interest expense due to higher rates on our Revolving Credit Facility.

Average outstanding borrowings under our Revolving Credit Facility were $223.7 million and $248.0 million for the six months ended June 30, 2022 and 2021, respectively.

Pipeline incident settlement was $12.0 million for the nine months ended September 30, 2022, related to the resolution of the federal and state of California matters discussed in Note 16 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

No expense was recorded for the nine months ended September 30, 2021.

Interest expense, net was $9.5 million and $9.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Interest expense included a gain position on our interest rate swaps of $0.9 million for the nine months ended September 30, 2022, compared to a loss position on interest rate swaps of less than $0.1 million for the nine months ended September 30, 2021.

In addition, we had an increase of $1.2 million in interest expense due to higher interest rates on our Revolving Credit Facility.

Average outstanding borrowings under our Revolving Credit Facility were $220.7 million and $243.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Adjusted EBITDA

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

(In thousands)

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Pipeline incident loss

Acquisition and divestiture related expenses

Pipeline incident settlement

Share-based compensation expense

Gain on extinguishment of debt

Exploration costs

Loss on settlement of AROs

Exploration costs

Acquisition and divestiture related expenses

Bad debt expense

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

(In thousands)

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Pipeline incident loss

Pipeline incident settlement

Amortization and write-off of deferred financing fees

Acquisition and divestiture related expenses

Income tax expense - current portion

Exploration costs

Plugging and abandonment cost

Exploration costs

Reorganization items, net

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Capital Expenditures.

Our total capital expenditures were approximately $20.4 million for the six months ended June 30, 2022, which were primarily related to capital workovers, maintenance and facilities located in Oklahoma, East Texas, the Rockies and non-operated drilling and completion activities in East Texas and the Eagle Ford.

Our total capital expenditures were approximately $30.3 million for the nine months ended September 30, 2022, which were primarily related to capital workovers, maintenance and facilities located in Oklahoma, East Texas, the Rockies and non-operated drilling and completion activities in East Texas and the Eagle Ford.

Working Capital.

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We expect that our future working capital requirements will be impacted by these same factors.

As of June 30, 2022, we had a working capital deficit of $78.1 million primarily due to short-term derivatives of $80.0 million, accrued liabilities of $48.9 million, revenues payable of $24.5 million, and accounts payable of $35.0 million offset by accounts receivable of $77.8 million, cash on hand of $16.7 million and prepaid expenses of $15.2 million.

As of September 30, 2022, we had a working capital deficit of $48.9 million primarily due to short-term derivatives of $44.9 million, accrued liabilities of $59.9 million, revenues payable of $25.4 million, and accounts payable of $25.0 million offset by accounts receivable of $78.9 million, prepaid expenses of $16.1 million and cash on hand of $10.9 million.

Debt Agreement

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Our borrowing base under our Revolving Credit Facility is subject to redetermination on at least a semi-annual basis primarily based on a reserve engineering report.

As of June 30, 2022, we had approximately $10.0 million of available borrowings under our Revolving Credit Facility.

As of June 30, 2022, we were in compliance with all the financial (current ratio and total leverage ratio) and non-financial covenants associated with our Revolving Credit Facility.

On June 20, 2022, OLLC entered into the Sixth Amendment.

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● modify the affirmative hedging covenant.

As of September 30, 2022, we had approximately $20.0 million of available borrowings under our Revolving Credit Facility.

As of September 30, 2022, we were in compliance with all the financial (current ratio and total leverage ratio) and non-financial covenants associated with our Revolving Credit Facility.

For additional information regarding our Revolving Credit Facility, see Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

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We have a funding requirement to fund a trust account to comply with supplemental regulatory bonding requirements related to our decommissioning obligations for our offshore Southern California production facilities.

As of June 30, 2022, our future commitment under this agreement were $2.7 million for the remaining of 2022.

As of September 30, 2022, our future commitment under this agreement were $1.3 million for the remaining of 2022, $8.0 million for 2023, $15.8 million a year for years 2024 through 2026 and $110.5 million thereafter.

See Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

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The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated.

The cash flows for the six months ended June 30, 2022 and 2021 have been derived from our Unaudited Condensed Consolidated Financial Statements.

The cash flows for the nine months ended September 30, 2022 and 2021 have been derived from our Unaudited Condensed Consolidated Financial Statements.

For information regarding the individual components of our cash flow amounts, see our Unaudited Condensed Consolidated Statements of Cash Flows included under “Item 1.

Financial Statements” of this quarterly report.

For the Six Months Ended

For the Nine Months Ended

September 30,

(In thousands)

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Key drivers of net operating cash flows are commodity prices, production volumes and operating costs.

Net cash provided by operating activities was $30.4 million and $36.4 million for the six months ended June 30, 2022 and 2021, respectively.

Production volumes were approximately 20.4 MBoe/d and 25.0 MBoe/d for the six months ended June 30, 2022 and 2021, respectively.

The average realized sales price was $55.95 per Boe and $33.76 per Boe for the six months ended June 30, 2022 and 2021, respectively.

Net cash provided by operating activities was $49.3 million and $55.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Production volumes were approximately 20.6 MBoe/d and 25.0 MBoe/d for the nine months ended September 30, 2022 and 2021, respectively.

The average realized sales price was $56.76 per Boe and $36.51 per Boe for the nine months ended September 30, 2022 and 2021, respectively.

The change in average realized sales price was primarily due to the increase in commodity prices.

Net cash provided by operating activities for the six months ended June 30, 2022 included $79.5 million of cash paid on expired commodity derivative instruments compared to $27.5 million of cash paid on expired commodity derivatives for the six months ended June 30, 2021.

For the six months ended June 30, 2022, we had net losses on commodity derivative instruments of $112.0 million compared to net losses of $98.5 million for the six months ended June 30, 2021.

Net cash provided by operating activities for the nine months ended September 30, 2022 included $120.3 million of cash paid on expired commodity derivative instruments compared to $50.1 million of cash paid on expired commodity derivatives for the nine months ended September 30, 2021.

For the nine months ended September 30, 2022, we had net losses on commodity derivative instruments of $108.7 million compared to net losses of $145.1 million for the nine months ended September 30, 2021.

Investing Activities.

Net cash used in investing activities for the six months ended June 30, 2022 was $16.9 million, of which $12.9 million was used for additions to oil and natural gas properties.

Net cash provided by investing activities for the six months ended June 30, 2021 was $11.6 million, of which $11.5 million was used for additions to oil and natural gas properties.

Net cash used in investing activities for the nine months ended September 30, 2022 was $31.6 million, of which $26.2 million was used for additions to oil and natural gas properties.

Net cash provided by investing activities for the nine months ended September 30, 2021 was $23.3 million, of which $23.1 million was used for additions to oil and natural gas properties.

Various restricted investment accounts fund certain long-term contractual and regulatory asset retirement obligations and collateralize certain regulatory bonds associated with our offshore Southern California properties.

Additions to restricted investments were $4.0 million during the six months ended June 30, 2022.

Additions to restricted investments were $5.4 million during the nine months ended September 30, 2022.

Financing Activities .

We had net repayments of $15.0 million and $20.0 million for the six months ended June 30, 2022 and 2021, respectively, related to our Revolving Credit Facility.

We had net repayments of $25.0 million and $25.0 million for the nine months ended September 30, 2022 and 2021, respectively, related to our Revolving Credit Facility.

Off–Balance Sheet Arrangements

As of June 30, 2022, we had no off–balance sheet arrangements.

As of September 30, 2022, we had no off–balance sheet arrangements.

Recently Issued Accounting Pronouncements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis