What changed in this filing

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Item 1. Financial Statements

2020-11-25 compared with 2020-08-19 · 427 added, 421 removed, 558 unchanged (60% of the section changed)

3 unchanged sentences

(Thousands of dollars)

September 30,

Current Assets

42 unchanged sentences

O PERATIONS Unaudited

Three and six months ended June 30, 2020 and 2019

Three and nine months ended September 30, 2020 and 2019

(Thousands of dollars, except per share amounts)

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Natural gas sales

Natural gas liquids sales

Realized loss on derivative instruments, net

Realized gain (loss) on derivative instruments, net

Field service income

5 unchanged sentences

Field service expense

Depreciation, depletion, amortization and accretion on discounted

Depreciation, depletion, amortization and accretion on discounted liabilities

General and administrative expense

1 unchanged sentence

Gain on Sale and Exchange of Assets

Income from Operations

Income (Loss) from Operations

Other Income (Expense)

5 unchanged sentences

Net Income (Loss) Attributable to Non-Controlling

Net Income (Loss) Attributable to PrimeEnergy

Basic Income (Loss) Per Common Share

Diluted Income (Loss) Per Common Share

Net Income Attributable to PrimeEnergy

Basic Income Per Common Share

Diluted Income Per Common Share

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements

PRIMEENERGY RESOURCES CORPORATION

C ONDENSED C ONSOLIDATED S TATEMENT OF E QUITY

Six months ended Ended June 30, 2020 and 2019

C ONDENSED C ONSOLIDATED S TATEMENT OF

E QUITY Unaudited

Nine months Ended September 30, 2020 and 2019

(Thousands of dollars)

2 unchanged sentences

Purchase 4,801 shares of common stock

Balance at June 30, 2020

Net Income (Loss)

Balance at September 30, 2020

Balance at December 31, 2018

Purchase 31,226 shares of common stock

Net income (loss)

Purchase of non-controlling interest

Balance at June 30, 2019

Balance at September 30, 2019

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements

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F LOWS Unaudited

Six Months Ended June 30, 2020 and 2019

Nine months ended September 30, 2020 and 2019

(Thousands of dollars)

Cash Flows from Operating Activities:

Net Income (loss)

Adjustments to reconcile net Income (loss) to net cash provided by operating activities:

Net (Loss) Income including non-controlling

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, depletion, amortization and accretion on discounted liabilities

Gain on sale and exchange of assets

Unrealized (gain) loss on derivative instruments, net

Deferred income taxes

Changes in assets and liabilities:

Gain on sale of properties

Unrealized loss on derivative instruments, net

Provision for deferred income taxes

Changes in operating assets and liabilities:

Accounts receivable

Due to related parties

Prepaids and other assets

Accounts payable

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Cash Flows from Investing Activities:

Capital expenditures, including exploration expense

Capital expenditures

Proceeds from sale of properties and equipment

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Repayment of long-term bank debt and other long-term obligations

Net Cash Provided by (Used in) Financing Activities

Net Increase (decrease) in Cash and Cash Equivalents

Net Cash Used in Financing Activities

Cash and Cash Equivalents Period Increase (Decrease)

Cash and Cash Equivalents at the Beginning of the Period

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N OTES TO C ONDENSED C ONSOLIDATED F INANCIAL

June 30, 2020

September 30, 2020

(1) Basis of Presentation:

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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 Companys Form 10-K for the year ended December 31, 2019.

In the opinion of management, the accompanying interim condensed consolidated financial statements contain all material adjustments, consisting only of normal

recurring adjustments, necessary for a fair presentation of the Companys condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019, the condensed consolidated results of operations, cash flows and equity for the

six months ended June 30, 2020 and 2019.

As of June 30, 2020, PrimeEnergys significant accounting policies are consistent

with those discussed in Note 1Description of Operations and Significant Accounting Policies of its consolidated financial statements contained in PrimeEnergys Annual Report on Form 10-K for the

fiscal year ended December 31, 2019.

In the opinion of management, the accompanying interim condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring

adjustments, necessary for a fair presentation of the Companys condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, the condensed consolidated results of operations, cash flows and equity for the nine months

ended September 30, 2020 and 2019.

As of September 30, 2020, PrimeEnergys significant accounting policies are consistent with those

discussed in Note 1Description of Operations and Significant Accounting Policies of its consolidated financial statements contained in PrimeEnergys Annual Report on Form 10-K for the fiscal year

ended December 31, 2019.

Certain amounts presented in prior period financial statements have been reclassified for consistency with current period presentation.

The results for interim periods are not necessarily indicative of

annual results.

For purposes of disclosure in the condensed consolidated financial statements, subsequent events have been evaluated through the date the statements were issued.

The results for interim periods are not necessarily indicative of annual results.

purposes of disclosure in the condensed consolidated financial statements, subsequent events have been evaluated through the date the statements were issued.

( 2) Acquisitions and Dispositions:

Historically the Company has repurchased the interests of the partners and trust unit holders in the oil and gas limited partnerships (the

Partnerships) and the asset and business income trusts (the Trusts) managed by the Company as general partner and as managing trustee, respectively.

During the six months ending June 30, 2019 the Company purchased such

interest totaling $256,000.

The Company had no such repurchases during the six months ended June 30, 2020.

Subsequent to

June 30, 2020 the Company entered into an agreement to sell the Companys marginal properties in West Virginia effective August 1, 2020 for $200,000 and retaining an overriding royalty on approximately 31,000 undeveloped acres.

Company also entered an agreement to sell approximately 2,000 acres in West Texas in a transaction expected to close during August 2020 for approximately $10 million.

Partnerships) and the asset and business income trusts (the Trusts) managed by the Company as general partner and as managing trustee,

respectively.

During the nine months ended September 30, 2019 the Company purchased such interest totaling $306,000.

The Company had no such repurchases during the nine months ended September, 30 2020.

In the third quarter of 2020, the Company sold approximately 1,950 acres of undeveloped deep rights in central Reagan County, Texas, receiving

cash compensation of $10.7 million and in a separate transaction sold the Companys operated properties in West Virginia for future payments of $200,000 and a retained overriding royalty interest in future drilling on approximately 31,000

undeveloped acres.

(3) Additional Balance Sheet Information:

Certain balance sheet amounts are comprised of the following:

September 30,

(Thousands of dollars)

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(4) Property and Equipment:

Property and equipment at June 30, 2020 and December 31, 2019 consisted of the following:

Property and equipment at September 30, 2020 and December 31, 2019 consisted of the following:

(Thousands of dollars)

September 30,

Proved oil and gas properties, at cost

7 unchanged sentences

February 15, 2017, the Company and its lenders entered into a Third Amended and Restated Credit Agreement (the 2017 Credit Agreement) with a maturity date of February 15, 2021.

The Second Amended and Restated Credit Agreement

and subsequent amendments were amended and restated by the 2017 Credit Agreement.

The Second Amended and Restated Credit Agreement and

subsequent amendments were amended and restated by the 2017 Credit Agreement.

Pursuant to the terms and conditions of the 2017 Credit Agreement, the Company has a revolving line of credit and letter of credit facility of up to $300 million

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On July 17, 2018, the Company and its lenders entered into a Second Amendment to the Third Amended and Restated Credit Agreement.

credit agreement includes modifications for the borrowing base utilization margins and rates by type of borrowing, revises minimum quantifications for individual borrowings, reduces the overall percentage required for commodity hedge agreements,

modifies the requirements placed on the Companys ability to purchase equity interests and retains all other aspects of the original credit agreement.

agreement includes modifications for the borrowing base utilization margins and rates by type of borrowing, revises minimum quantifications for individual borrowings, reduces the overall percentage required for commodity hedge agreements, modifies

the requirements placed on the Companys ability to purchase equity interests and retains all other aspects of the original credit agreement.

As of the effective date of this amendment the Companys borrowing base was increased to

On January 8, 2019, the Company and its lenders entered into a Third Amendment to the Third Amended and Restated

Credit Agreement.

On January 8, 2019, the Company and its lenders entered into a Third Amendment to the Third Amended and Restated Credit

The credit agreement includes additions for a Beneficial Ownership Certification on the effective date of the amendment.

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As of the effective date of this amendment the Companys borrowing base was increased to $100 million.

Pursuant to borrowing base redeterminations on

June 26, 2019 and December 18, 2019, the borrowing base was set at $90, million and $72, million respectively.

2020, the Company had a total of $53.5 million of borrowings outstanding under its revolving credit facility at a weighted-average interest rate of 3.23 % and $18.5 million available for future borrowings.

The combined weighted

average interest rate paid on outstanding bank borrowings subject to base rate and LIBO interest was 4.22% for the six months ended June 30, 2020 as compared to 5.53% for six months ended June 30, 2019.

The Companys borrowings under

this credit facility approximates fair value because the interest rates are variable and reflective of market rates.

Paycheck Protection Program

During May 2020, Prime Operating Company and Eastern Oil Well Services Corporation, subsidiaries of the Company received

loan proceeds in the amount of $1.28 million and $0.47 million , respectively, under the PPP (the PPP) of the CARES Act, which was enacted March 27, 2020.

Pursuant to borrowing base redeterminations on June 26,

2019 and December 18, 2019, the borrowing base was set at $90, million and $72, million respectively.

On May 8 th 2020 , the Company and its lenders entered into a Fourth Amendment to the Third Amended and Restated Credit Agreement.

On September 4, 2020, the Company and its lenders entered into a Fifth Amendment to the Third Amended and Restated Credit Agreement.

of the effective date of this amendment the Companys borrowing base was decreased to $50 million.

The amendment includes an automatic reduction of $666,666.67 to the borrowing base on October 1, 2020, November 1, 2020 and

December 1, 2020.

The amendment also revised the applicable borrowing base utilization percentages for Eurodollar and ABR loans with a range of 2.5% to 3.5% and 1.5% to 2.5%, respectively.

The agreement also adjusted percentages of title and

mortgage guarantees supported by the oil and gas properties presented to the administrative agent at each borrowing redetermination as supported by the required reserve report.

At September 30, 2020, the Company had a total of $40 million of borrowings outstanding under its revolving credit facility at a

weighted-average interest rate of 3.99 % and $10 million was available for future borrowings.

The combined weighted average interest rate paid on outstanding bank borrowings subject to base rate and LIBO interest was 3.94% for the nine

months ended September 30, 2020 as compared to 5.44% for nine months ended September 30, 2019.

The Companys borrowings under this credit facility approximates fair value because the interest rates are variable and reflective of

market rates.

Paycheck Protection Program Loans

During May 2020, Prime Operating Company and Eastern Oil Well Services Corporation, subsidiaries of the Company received loan proceeds in the

amount of $1.28 million and $0.47 million , respectively, under the Paycheck Protection Program (the PPP) of the CARES Act, which was enacted March 27, 2020.

The PPP Loans are evidenced by a promissory note in favor of the

Lender, which bears interest at the rate of 1.00% per annum.

No payments of principal or interest are due under the note until the date on which the amount of loan

forgiveness (if any) under the CARES Act, which can be up to 10 months after the end of the related notes covered period (which is defined as 24 weeks after the date of the loan) (the

Deferral Period).

No payments of principal or interest are due under the note until the date on which the amount of loan forgiveness (if any) under the CARES Act, which can be up to 10 months after the end

of the related notes covered period (which is defined as 24 weeks after the date of the loan) (the Deferral Period).

The note may be prepaid at any time prior to maturity with no prepayment penalties.

Funds from the PPP Loans may be used only for payroll and related costs, costs used to continue group health care benefits, mortgage

payments, rent, utilities, and interest on other debt obligations that were incurred prior to February 15, 2020 (the Qualifying Expenses).

Under the terms of the PPP Loans, certain amounts thereunder may be forgiven if they are used

for Qualifying Expenses as described in and in compliance with the CARES Act.

While the Company intends to use the PPP Loan proceeds exclusively for Qualifying Expenses, it is unclear and uncertain whether the conditions for forgiveness of the PPP

Loans will be met under the current guidelines of the CARES Act.

Funds from the PPP Loans may be used

only for payroll and related costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations that were incurred prior to February 15, 2020 (the Qualifying Expenses).

Under the terms of the PPP Loans, certain amounts thereunder may be forgiven if they are used for

Qualifying Expenses as described in and in compliance with the CARES Act.

While the Company intends to use the PPP Loan proceeds exclusively for Qualifying Expenses, it is unclear and uncertain

whether the conditions for forgiveness of the PPP Loans will be met under the current guidelines of the CARES Act.

Accordingly, we cannot make any assurance that the Company will be eligible for forgiveness of the PPP Loans, in whole or in part.

To the extent, if any, that any or all of the PPP

loans are not forgiven, beginning one month following expiration of the Deferral Period, and continuing monthly until 24 months from the date of each applicable Note (the Maturity Date), the Company is obligated to make monthly payments

of principal and interest to the Lender with respect to any unforgiven portion of the Note, in such equal amounts required to fully amortize the principal amount outstanding on such Note as of the last day of the applicable Deferral Period by the

applicable Maturity Date.

the extent, if any, that any or all of the PPP loans are not forgiven, beginning one month following expiration of the Deferral Period, and continuing monthly until 24 months from the date of each applicable Note (the Maturity Date), the

Company is obligated to make monthly payments of principal and interest to the Lender with respect to any unforgiven portion of the Note, in such equal amounts required to fully amortize the principal amount outstanding on such Note as of the last

day of the applicable Deferral Period by the applicable Maturity Date.

The Company accounts for these loans as financial liabilities.

(6) Other Long-Term Obligations and Commitments:

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.

assets and liabilities are initially recorded at commencement date based on the present value of lease payments over the lease term.

A new finance lease for office equipment is included in property and equipment, other current liabilities and other

long-term liabilities this quarter.

As most of the Companys 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 Company leases office facilities under operating leases and recognizes lease expense on a

straight-line basis over the lease term.

Leases assets and liabilities are initially recorded at commencement date based on the present value of lease payments over the lease term.

A new finance lease for

office equipment is included in property and equipment, other current liabilities and other long-term liabilities this quarter.

As most of the Companys 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 5.5%.

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 Companys sole

discretion and is evaluated at inception and throughout the contract to determine if a modification of the lease term is required.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Operating lease costs for the six months ended June 30, 2020 were $290 thousand.

Cash payments included in the operating lease cost

for six months ended June 30, 2020 were $307 thousand.

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 Companys sole discretion and is evaluated at inception and throughout the contract to determine if a modification of the lease term is required.

Leases with an initial term of 12 months or

less are not recorded on the balance sheet.

Operating lease costs for the nine months ended September 30, 2020 were

$434 thousand.

Cash payments included in the operating lease cost for nine months ended September 30, 2020 were $462 thousand.

The weighted-average remaining operating lease terms is 10 months.

The amortization and interest expense for financing lease amounted to $3,632 and the cash payment for the lease was

$3,828 and the lease term remaining was for 10 months.

The Company amended certain leases for office space in Texas and Oklahoma

providing for payments of $461 thousand and $89 thousand in 2020 and 2021, respectively.

Rent expense for office space for the

six months ended June 30, 2020 and 2019 was $331,000 and $315,000, respectively.

The payment schedule for the Companys operating and financing

lease obligations as of June 30, 2020 is as follows:

The amortization and interest expense

for financing lease amounted to $1,778 and the cash payment for the lease was $1,913 and the lease term remaining was for 7 months.

payment schedule for the Companys operating and financing lease obligations as of September 30, 2020 is as follows:

(Thousands of dollars)

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Net operating lease liabilities

The Company amended certain leases for office space in Texas and Oklahoma providing for payments of

$461 thousand and $89 thousand in 2020 and 2021, respectively.

Rent expense for office space for the nine months ended

September 30, 2020 and 2019 was $496,000 and $484,000, respectively.

Asset Retirement Obligation:

A reconciliation of the liability for plugging and abandonment costs for the six months ended June 30, 2020 is as follows:

A reconciliation of the liability for plugging and abandonment costs for the nine months ended September 30, 2020 is as follows:

(Thousands of dollars)

1 unchanged sentence

Liabilities settled

Liabilities divested

Accretion expense

Asset retirement obligation at June 30, 2020

Asset retirement obligation at September 30, 2020

The Companys liability is determined using significant assumptions, including current

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the purchase of shares of common stock.

At March 31, 2020 and 2019, 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.

At June 30, 2020 and 2019, 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.

(9) Related Party Transactions:

1 unchanged sentence

holders in certain of the Partnerships or Trusts.

The Company purchased interests totaling $256,000 for the six months ended June 30, 2019.

The Company had no such repurchases during the six months ended June 30, 2020.

The Company purchased interests totaling $306,000 for the nine months ended June 30, 2019.

The Company had no such repurchases during the nine months ended September 30, 2020.

Payables owed to related parties primarily represent receipts collected by the Company as agent for the joint venture partners, which may

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designated as Level 3.

The following fair value hierarchy table presents information about the Companys assets and liabilities measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019:

June 30, 2020

The following fair value hierarchy table presents information about the Companys assets and liabilities measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019:

September 30, 2020

Quoted Prices in

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Active Markets

For Identical

Assets (Level 1)

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The following table sets

forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy for the period ended June 30, 2020.

forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy for the period ended September 30, 2020.

(Thousands of dollars)

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Purchases, sales, issuances and settlements

Net Asset June 30, 2020

Net Liability September 30, 2020

Derivative instruments are reported in revenues as realized gain (loss) and on a separately reported line item

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Both realized and unrealized gains and losses associated with commodity derivative instruments are recognized in earnings.

Interest rate swap derivatives are treated as cash-flow hedges and are used to fix our floating interest rates on existing debt.

interest rate swaps if applicable, would be recorded in accumulated other comprehensive loss, net of tax.

There are no current interest rate swaps for the periods ending June 30, 2020 and December 31, 2019.

Interest rate swap derivatives are treated as cash-flow hedges and are used to fix the Companys floating interest rates on existing

The value of interest rate swaps if applicable, would be recorded in accumulated other comprehensive loss, net of tax.

There are no current interest rate swaps for the periods ending September 30, 2020 and December 31, 2019.

The following table sets forth the effect of derivative instruments on the consolidated

balance sheets at June 30, 2020 and December 31, 2019:

balance sheets at September 30, 2020 and December 31, 2019:

(Thousands of dollars)

Balance Sheet Location

September 30,

Asset Derivatives:

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Derivative asset short-term

Natural gas commodity contracts

Derivative asset long-term

Liability Derivatives:

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Total derivative instruments

The following table sets forth the effect of derivative instruments on the consolidated statements of operations for the six-months ended June 30, 2020 and 2019:

Location of gain (loss) recognized

The following table sets forth the effect of derivative instruments on the consolidated statements of operations for the nine

months ended September 30, 2020 and 2019:

Location of gain (loss) recognized in income

Amount of gain/loss

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Natural gas commodity contracts

Unrealized gain (loss) on derivative instruments, net

Unrealized gain on derivative instruments, net

Crude oil commodity contracts

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Crude oil commodity contracts

Realized gain on derivative instruments, net

Realized gain (loss) on derivative instruments, net

Natural gas liquids contracts

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financial statements:

Six Months Ended June 30,

Nine Months Ended September 30,

Effect of dilutive securities:

Three Months Ended June 30,

Three Months Ended September 30,

Effect of dilutive securities:

The effect of the 767,500 outstanding stock option is anti-dilutive for the six and three months ended

June 30, 2020, due to net loss for the period.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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may receive for our oil, natural gas and NGLs.

The price of oil and natural gas has fallen significantly since the beginning of 2020, due in part to failed Organization of Petroleum Exporting

Countries (OPEC) negotiations as well as concerns about the COVID-19 pandemic and its impact on the worldwide economy and global demand for oil and gas.

The resulting precipitous decline in oil and

gas pricing experienced during March 2020, through the date of this report, if prolonged.

or a further deterioration of the market price for oil and natural gas, will negatively impact our cash flows.

We are the operator of the majority of our developed and undeveloped acreage which is nearly all held by production.

In the Permian Basin of

West Texas and eastern New Mexico the Company maintains an acreage position of approximately 20,400 gross (12,700 net) acres, 97% of which is located in Reagan, Upton, Martin, and Midland counties of Texas where our current horizontal drilling

activity is focused.

We believe this acreage has significant resource potential in the Spraberry and Wolfcamp intervals for additional horizontal drilling that could support the drilling of as many as 250 additional horizontal wells.

In Oklahoma we

maintain an acreage position of approximately 81,800 gross (10,900 net) acres.

The price of oil and natural gas has fallen significantly since the beginning of 2020, due in

part to failed Organization of Petroleum Exporting Countries (OPEC) negotiations as well as concerns about the COVID-19 pandemic and its impact on the worldwide economy and global demand for oil

The resulting precipitous decline in oil and gas pricing experienced during March 2020, through the date of this report, if prolonged.

or a further deterioration of the market price for oil and natural gas, will negatively impact our cash

We are the operator of the majority of our developed and undeveloped acreage which is nearly

all held by production.

In the Permian Basin of West Texas and eastern New Mexico the Company maintains an acreage position of approximately 19,680 gross (12,322 net) acres, 97% of which is located in Reagan, Upton, Martin, and Midland counties of

Texas where our current horizontal drilling activity is focused.

We believe this acreage has significant resource potential in the Spraberry and Wolfcamp intervals for additional horizontal drilling that could support the drilling of as many as 250

additional horizontal wells.

In Oklahoma we maintain an acreage position of approximately 56,360 gross (10,580 net) acres.

Our Oklahoma horizontal development is focused primarily in Canadian, Kingfisher, Grady, and Garvin counties.

We believe approximately 3,460 net acres in these counties

hold significant additional resource potential that could support the drilling of as many as 52 new horizontal wells based on an estimate of four to ten wells per section, depending on the reservoir target area.

Should we choose to participate with

a working interest in future development, our share of these future capital expenditures would be approximately $40 million at an average 10% ownership level.

approximately 3,460 net acres in these counties hold significant additional resource potential that could support the drilling of as many as 52 new horizontal wells based on an estimate of four to ten wells per section, depending on the reservoir

Should we choose to participate with a working interest in future development, our share of these future capital expenditures would be approximately $40 million at an average 10% ownership level.

Future development plans are established based on various factors, including the expectation of available cash flows from operations and

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The following table represents certain reserve and well information as of December 31, 2019.

Note, the Appalachian District properties,

described in the table below, were sold August 1, 2020.

Proved Reserves as of December 31, 2019 (MBoe)

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transport trucks, saltwater disposal facilities, various land excavating equipment and trucks we own and that are operated by our field employees.

Appalachian Region

Our Appalachian

activities are concentrated primarily in West Virginia.

This region is managed from our office in Charleston, West Virginia.

Our assets in this region include a large acreage position and a high concentration of wells.

At December 31, 2019, we

had interest in 481 wells (451 net), of which 438 wells are operated.

Multiple producing intervals here include the Big Lime, Injun, Blue Monday, Weir, Berea, Gordon and Devonian Shale formations at depths primarily ranging from 1,600 to 5,600 feet.

Average net daily production in 2019 was 240 Boe.

While natural gas production volumes from Appalachian reservoirs are relatively low on a per-well basis compared to other areas of the United States, the

productive life of Appalachian reserves is relatively long.

At December 31, 2019, we had 296 MBoe of proved developed reserves (substantially all natural gas) in the Appalachian region, constituting 2.1% of our total proved reserves.

maintain an acreage position of approximately 35,790 gross (35,350 net) acres in this region, primarily in Calhoun, Clay, and Roane counties.

We operate a small field service group in this region utilizing one swab rig, one paraffin truck, one

saltwater hauling truck and limited excavating equipment to primarily service our own operated wells and locations.

As of March 31, 2020, the Appalachian region has no wells in the process of being drilled, no waterfloods in the process of

being installed and no other related activities of material importance.

Effective August 1, 2020 the Company sold our Appalachian properties for $200,000 and retained an overriding royalty on approximately 31,000 undeveloped acres.

Gulf Coast Region

Our development, exploitation, exploration and production activities in the Gulf Coast region are primarily concentrated in southeast Texas.

This region is managed from our office in Houston, Texas.

Our development, exploration and production activities in the Gulf Coast region are primarily concentrated in southeast Texas.

This region is

managed from our office in Houston, Texas.

Principal producing intervals are in the Wilcox, San Miguel, Olmos, and Yegua formations at depths ranging from 3,000 to 12,500 feet.

We had 233 producing wells (143 net) in the Gulf Coast

region as of December 31, 2019, of which 125 wells are operated by us.

We had 233 producing wells (143 net) in the Gulf Coast region as of

December 31, 2019, of which 125 wells are operated by us.

Average net daily production in 2019 was 348 Boe.

At December 31, 2019, we had 726 MBoe of proved reserves in the Gulf Coast region, which represented 5.1% of our total

proved reserves.

We maintain an acreage position of over 12,700 gross (5,120 net) acres in this region, primarily in Dimmit and Polk counties.

We operate a field service group in this region from a field office in Carrizo Springs, Texas utilizing

four workover rigs, nineteen water transport trucks, two saltwater disposal wells and several trucks and excavating equipment.

Services including well service support, site preparation and construction services for drilling and workover operations

are provided to third-party operators as well as utilized in our own operated wells and locations.

As of March 31, 2020, the Gulf Coast region has no operated wells in the process of being drilled, no waterfloods in the process of being

installed and no other related activities of material importance.

At December 31, 2019, we had 726 MBoe of proved reserves in the Gulf Coast region, which represented 5.1% of our total proved reserves.

maintain an acreage position of over 12,700 gross (5,120 net) acres in this region, primarily in Dimmit and Polk counties.

We operate a field service group in this region from a field office in Carrizo Springs, Texas utilizing four workover rigs,

nineteen water transport trucks, two saltwater disposal wells and several trucks and excavating equipment.

Services including well service support, site preparation and construction services for drilling and workover operations are provided to

third-party operators as well as utilized in our own operated wells and locations.

As of September 30, 2020, the Gulf Coast region has no operated wells in the process of being drilled, no waterfloods in the process of being installed and no other

related activities of material importance.

Mid-Continent Region

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proved reserves in the Mid-Continent area, or 14.7% of our total proved reserves.

We maintain an acreage position of approximately 55,880 gross (10,690 net) acres in this region, primarily in Canadian,

Kingfisher, Grant, Major, and Garvin counties.

We maintain an acreage position of approximately 56,358 gross (10,580 net) acres in this region, primarily in Canadian, Kingfisher, Grant, Major, and Garvin counties.

We operate a field service group in this region from a field office in Elmore City, utilizing one workover rig and one saltwater hauling truck.

Our Mid-Continent

region is actively participating with third-party operators in the horizontal development of lands that include Company owned interest in several counties in the Stack and Scoop plays of Oklahoma where drilling is primarily targeting reservoirs of

the Mississippian, and Woodford formations.

As of March 31, 2020, in the Mid-Continent region, the Company was is participating in the drilling and/or completion of four wells, with overriding royalty

only in eight additional wells, all included as Proved Undeveloped in the 2019 year-end reserve report.

Our Mid-Continent region is actively participating with third-party operators in the horizontal

development of lands that include Company owned interest in several counties in the Stack and Scoop plays of Oklahoma where drilling is primarily targeting reservoirs of the Mississippian, and Woodford formations.

As of September 30, 2020, in the Mid-Continent region, the Company was is participating in the drilling and/or completion of four wells, with overriding royalty only in eight additional wells, all included as Proved Undeveloped in the 2019 year-end reserve report.

West Texas Region

Our West Texas activities are concentrated in the Permian Basin in Texas and New Mexico.

The Spraberry field was

discovered in 1949, encompasses eight counties in West Texas and the Company believes it is the largest oil field in the United States.

The Spraberry field was discovered in 1949,

encompasses eight counties in West Texas and the Company believes it is the largest oil field in the United States.

The field is approximately 150 miles long and 75 miles wide at its widest point.

The oil produced is West Texas

Intermediate Sweet, and the gas produced is casing-head gas with an average energy content of 1,400 Btu.

The oil produced is West Texas Intermediate Sweet,

and the gas produced is casing-head gas with an average energy content of 1,400 Btu.

The oil and gas are produced primarily from five intervals;

the Upper and Lower Spraberry, the Wolfcamp, the Strawn, and the Atoka, at depths

ranging from 6,700 feet to 11,300 feet.

the Upper and Lower Spraberry, the Wolfcamp, the Strawn, and the

Atoka, at depths ranging from 6,700 feet to 11,300 feet.

This region is managed from our office in Midland, Texas.

As of December 31, 2019, we had 522 wells (257 net) in the West Texas area, of which 298 wells are operated by us.

Principal producing intervals

are in the Spraberry, Wolfcamp, and San Andres formations at depths ranging from 4,200 to 12,500 feet.

Principal producing

intervals are in the Spraberry, Wolfcamp, and San Andres formations at depths ranging from 4,200 to 12,500 feet.

Average net daily production in 2019 was 3,703 Boe.

At December 31, 2019, we had 11,108 MBoe of proved reserves in the West Texas area, or

78% of our total proved reserves.

We maintain an acreage position of approximately 19,910 gross (12,560 net) acres in the Permian Basin in West Texas, primarily in Reagan, Upton, Martin and Midland counties and believe this acreage has significant

resource potential for horizontal drilling in the Spraberry, Jo Mill, and Wolfcamp intervals.

At December 31, 2019, we had 11,108 MBoe of proved reserves in the West Texas area,

or 78% of our total proved reserves.

significant resource potential for horizontal drilling in the Spraberry, Jo Mill, and Wolfcamp intervals.

We operate a field service group in this region utilizing nine workover rigs, four hot oiler trucks, one kill truck and two roustabout trucks.

including well service support, site preparation and construction services for drilling and workover operations are provided to third-party operators as well as utilized in our own operated wells and locations.

At December 31, 2019, the Company

had committed to participate in the drilling of ten Proved Undeveloped horizontal drilling locations.

Seven of the nine wells were drilled by April 15, 2020, but are not expected to be completed and producing until the fourth quarter of 2020.

Services including well service support, site preparation and construction services for drilling and workover operations are provided to third-party operators as well as utilized in our own operated wells and locations.

At December 31, 2019, the

Company had committed to participate in the drilling of ten Proved Undeveloped horizontal drilling locations.

Seven of the ten wells were drilled by April 15, 2020.

One well was put on production in July of this year and six other wells are expected

to be producing by May 2021.

Reserve Information:

Our interests

in proved developed and undeveloped oil and gas properties, including the interests held by the Partnerships, have been evaluated by Ryder Scott Company, L.P.

Our interests in proved developed and undeveloped oil and gas properties, including the interests held by the Partnerships, have been evaluated

by Ryder Scott Company, L.P.

for each of the three years ended December 31, 2019.

The professional qualifications

of the technical persons primarily responsible for overseeing the preparation of the reserve estimates can be found in Exhibit 99.1, the Ryder Scott Company, L.P.

The professional qualifications of the technical persons primarily responsible for overseeing the preparation of the reserve estimates can be found in Exhibit 99.1,

the Ryder Scott Company, L.P.

Report on Registrants Reserves Estimates.

In matters related to the preparation

of our reserve estimates, our district managers report to the Engineering Data manager, who maintains oversight and compliance responsibility for the internal reserve estimate process and provides oversight for the annual preparation of reserve

estimates of 100% of our year-end reserves by our independent third-party engineers, Ryder Scott Company, L.P.

The members of our district and central groups consist of degreed engineers and geologists with

between approximately twenty and thirty-five years of industry experience, and between eight and twenty-five years of experience managing our reserves.

Our Engineering Data manager, the technical person primarily responsible for overseeing the

preparation of reserves estimates, has over twenty-five years of experience, holds a Bachelor degree in Geology and an MBA in finance and is a member of the Society of Petroleum Engineers and American Association of Petroleum Geologist.

Item 8 Financial Statements and Supplementary Data, for additional discussions regarding proved reserves and their related cash flows.

In matters related to the preparation of our reserve estimates, our district managers report to the Engineering Data manager, who maintains oversight and compliance

responsibility for the internal reserve estimate process and provides oversight for the annual preparation of reserve estimates of 100% of our year-end reserves by our independent third-party engineers, Ryder

Scott Company, L.P.

The members of our district and central groups consist of degreed engineers and geologists with between approximately twenty and thirty-five years of industry experience, and between eight and twenty-five years of experience

managing our reserves.

Our Engineering Data manager, the technical person primarily responsible for overseeing the preparation of reserves estimates, has over twenty-five years of experience, holds a Bachelor degree in Geology and an MBA in finance

and is a member of the Society of Petroleum Engineers and American Association of Petroleum Geologist.

See Part II, Item 8 Financial Statements and Supplementary Data, for additional discussions regarding proved reserves and their

related cash flows.

All of our reserves are located within the continental United States.

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one barrel of natural gas liquids equals one barrel of oil.

At December 31, 2017 our reserve report included 779 MBoe of proved undeveloped reserves attributable to 22 horizontal wells that were

all completed in 2018, therefore, 100% of these reserves were converted to proved developed in the 2018 year-end reserves report.

At December 31, 2017 our reserve report included 779 MBoe of proved undeveloped reserves attributable to 22 horizontal wells that were all

completed in 2018, therefore, 100% of these reserves were converted to proved developed in the 2018 year-end reserves report.

In 2018, the Company drilled and completed seventeen horizontal wells in West Texas and eleven horizontal wells in Oklahoma.

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eight in our West Texas horizontal development program, which were brought on production in February, 2019, and five in our Oklahoma Scoop-Stack development program, which were brought on production in

At December 31, 2018, our reserve report included 43 MBoe of proved undeveloped reserves attributable to eight

horizontal wells that had been drilled but had not yet been completed:

three of these were completed in 2019, converting 24 Mboe of undeveloped reserves to proved developed, and five remained uncompleted as of December 31, 2019, which account

for 18 Mboe of the 43 Mboe.

At December 31, 2018, our reserve report included 43 MBoe of proved undeveloped reserves attributable to eight horizontal

wells that had been drilled but had not yet been completed:

three of these were completed in 2019, converting 24 Mboe of undeveloped reserves to proved developed, and five remained uncompleted as of December 31, 2019, which account for 18 Mboe of

The Company has 9% ownership in one of these five wells and less than 1% in four wells.

In 2019, in West

Texas, in addition to the eight wells classified as Shut-in at year-end 2018 that were brought on production in February, we participated in the drilling and completion

of three wells on our Kashmir tract:

In 2019, in West Texas, in addition

to the eight wells classified as Shut-in at year-end 2018 that were brought on production in February, we participated in the drilling and completion of three wells on

our Kashmir tract:

two wells with an average 49% interest, and a third well for 5.3% interest.

One of each of these wells was completed in the Wolfcamp A, Jo Mill, and Lower Spraberry.

All three wells were brought on

production in May of 2019.

In our Oklahoma, Scoop-Stack play, in 2019, we participated in the drilling and completion of six wells on our

WM Wallace tract for 7.67% interest, and nine wells, included on Slash, Osborn, and Leon tracts, with an average 1.34% interest.

In addition, three wells drilled in Oklahoma in 2018, designated as proved undeveloped at

year-end 2018, were completed in 2019 converting 24 Mboe of reserves to proved developed.

Also in Oklahoma, six wells designated as Shut-in on December 31, 2018,

were brought into production in 2019:

five located on our Ruthie tract, and one on our Braum tract.

All three wells were brought on production in May of

In our Oklahoma, Scoop-Stack play, in 2019, we participated in the drilling and completion of six wells on our WM Wallace tract for

7.67% interest, and nine wells, included on Slash, Osborn, and Leon tracts, with an average 1.34% interest.

In addition, three wells drilled in Oklahoma in 2018, designated as proved undeveloped at year-end

2018, were completed in 2019 converting 24 Mboe of reserves to proved developed.

Also in Oklahoma, six wells designated as Shut-in on December 31, 2018, were brought into production in 2019:

five located on

our Ruthie tract, and one on our Braum tract.

In the Gulf Coast region, we added production through the recompletion of three vertical wells in Polk County, Texas:

one operated by the Company in

which we have 72.5% interest, and two operated by Unit Petroleum in which the Company owns 2.81% working interest and 3.77% net revenue interest.

At December 31, 2019, the Company had 3,607 Mboe of undeveloped reserves attributable to 22 wells operated by others that are anticipated

to be drilled and completed primarily in 2020:

ten of these are located in our West Texas horizontal development program and account for 3,526 Mboe of the total, and 12 wells are located in our Oklahoma Scoop-Stack horizontal program and account for

81 Mboe of the total.

Nine of the ten wells in West Texas are located on our 1,300 acre Kashmir tract in Upton County, operated by Apache Corporation and, as of April 15, 2020, six of these have been drilled and are awaiting completion, which

is expected to occur in the fourth quarter of 2020.

one operated by the Company in which we have 72.5% interest, and two operated by Unit

Petroleum in which the Company owns 2.81% working interest and 3.77% net revenue interest.

At December 31, 2019, the Company had 3,607

Mboe of undeveloped reserves attributable to 22 wells operated by others that were anticipated to be drilled and completed primarily in 2020:

ten of these are located in our West Texas horizontal development program and account for 3,526 Mboe of the

total, and 12 wells are located in our Oklahoma Scoop-Stack horizontal program and account for 81 Mboe of the total.

Of the 12 locations in Oklahoma, six were drilled and are on production, four have been drilled but not yet completed and two are

not yet drilled.

Nine of the ten wells in West Texas are located on our 1,300 acre Kashmir tract in Upton County.

By April 15, of this year six of these had been drilled and are awaiting completion, which is now expected to occur the end of February

or beginning of March 2021.

Our average 47.76% share of the cost of these six horizontal wells will be approximately $19.4 million.

Drilling of the remaining three wells will likely occur in 2021.

Drilling of the remaining three wells is expected to occur the end of February or beginning of March 2021.

In the first half of 2020, the Company participated in a horizontal well for 8.36% interest operated by Pioneer Natural Resources completed

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Since the start of our

West Texas horizontal drilling program in 2015 and through the second quarter of 2020 the Company has participated in 74 horizontal wells in the Permian Basin, seven of which were drilled in the first half of 2020.

West Texas horizontal drilling program in 2015 and through the third quarter of 2020 the Company has participated in 74 horizontal wells in the Permian Basin, seven of which were drilled in the first half of 2020.

Through July 2020, the Company has

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production in early July 2020.

The six Apache operated wells are anticipated to be completed in the fourth quarter of 2020.

In Upton County, West Texas, we are developing a contiguous

3,260-acre block with our joint venture partner, Apache Corporation.

In this block the Company has 2,600 leasehold acres with interest between 14% and 56%, depending on the particular lease and depth being

In 2018, in this block, eight wells drilled horizontally in the Wolfcamp B, were participated in for 49% interest.

The six Apache operated wells are anticipated to be completed the end of February or beginning of March 2021.

In Upton County, West Texas, we are developing a contiguous 3,260-acre block with our joint venture

partner, Apache Corporation.

In this block the Company has 2,600 leasehold acres with interest between 14% and 56%, depending on the particular lease and depth being developed.

In 2018, in this block, eight wells drilled horizontally in the Wolfcamp

B, were participated in for 49% interest.

This is believed to be full development of the Wolfcamp B reservoir for this lease block.

will likely now set its sights on development of the Upper Wolfcamp, Jo Mill, and Lower Spraberry reservoirs for this block, following the recent successful testing in 2019 of these reservoirs on our offset

1,300-acre lease block.

Given the favorable results achieved by the initial three wells on the offset block, it is expected that as many as 54 additional horizontals will be slated for development on the 3,260-acre block in the near future.

The cost of such development would be approximately $370.6 million with the Companys share being approximately $170.8 million.

In addition, there is a fourth

target reservoir, the Middle Spraberry, that is also prospective for development.

The potential of the Middle Spraberry, on the 3,280-acre block, is for 18 horizontal wells to be drilled, with the Company

likely participating for approximately $61.8 million.

The actual number of wells that are eventually drilled as well as the cost and the timing of drilling will vary based upon many factors, including commodity market conditions.

In addition to the 3,260 acreage block under development, the Company is also developing an offsetting

1,300-acre block in Upton County, Texas with Apache Corporation as operator.

In the second quarter of 2019 three horizontal wells were completed and brought on production from reservoirs above the Middle

Apache will likely now set its sights on development of the Upper Wolfcamp, Jo Mill, and

Lower Spraberry reservoirs for this block, following the recent successful testing in 2019 of these reservoirs on our offset 1,300-acre lease block.

Given the favorable results achieved by the initial three

wells on the offset block, it is expected that as many as 54 additional horizontals will be slated for development on the 3,260-acre block in the near future.

The cost of such development would be

approximately $370.6 million with the Companys share being approximately $170.8 million.

In addition, there is a fourth target reservoir, the Middle Spraberry, that is also prospective for development.

The potential of the Middle

Spraberry, on the 3,280-acre block, is for 18 horizontal wells to be drilled, with the Company likely participating for approximately $61.8 million.

The actual number of wells that are eventually drilled

as well as the cost and the timing of drilling will vary based upon many factors, including commodity market conditions.

In addition to the 3,260 acreage block under development, the Company is also developing an

offsetting 1,300-acre block in Upton County, Texas with Apache Corporation as operator.

In the second quarter of 2019 three horizontal wells were completed and brought on production from reservoirs above the

Middle Wolfcamp:

one in the Wolfcamp A, one in the Jo Mill, and one in the Lower Spraberry, confirming the economic viability of these reservoirs on our acreage.

Prime holds between 5% and 48% working interest in various depths of this acreage,

and of the $26.7 million development cost for these three wells, our share was approximately $9.2 million.

As a result of the success of these three wells, six horizontals were drilled in the first half of 2020 on this acreage block.

have an average 47.76% share of these wells.

In addition to the six development locations in the Wolfcamp A, Jo Mill and Lower Sprayberry of our 1,300-acre block, there are four locations in the

Middle Spraberry that are likely to be considered for future development at an estimated gross cost of approximately $30.2 million, with the Companys share being approximately $14.2 million.

Prime holds between 5% and 48% working interest in various depths of this

acreage, and of the $26.7 million development cost for these three wells, our share was approximately $9.2 million.

As a result of the success of these three wells, six horizontals were drilled in the first half of 2020 on this acreage

We have an average 47.76% share of these wells.

In addition to the six development locations in the Wolfcamp A, Jo Mill and Lower Sprayberry of our 1,300-acre block, there are four locations

in the Middle Spraberry that are likely to be considered for future development at an estimated gross cost of approximately $30.2 million, with the Companys share being approximately $14.2 million.

Also in the first half of 2020, the

Company participated in a horizontal well for 8.36% interest operated by Pioneer Natural Resources completed and brought into production in July, 2020.

Our total net expenditure for this well will be approximately $630,000.

Company participated in a horizontal well for 8.36% interest operated by Pioneer Natural Resources that was completed and brought into production in July, 2020.

Our total net expenditure for this well has been approximately $630,000.

Also in the Permian Basin of West Texas, we are developing a 965-acre block with Concho Resources in

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drilling plans have been received from Concho Resources, however, offset operators have been actively drilling and their results are encouraging for the future development of multiple landing zones within this acreage block.

In Central Reagan County, of West Texas, the Company has entered into a contract to sell deep rights covering approximately 1,950 acres for a

purchase price of approximately $10.7 MM.

The sale is planned to close on or before September 01, 2020.

Since the start of our Oklahoma

Scoop-Stack horizontal development program, which began in 2013, the Company has participated in 41 horizontal wells for approximately $23.5 million through 2019 with an average of approximately 7% interest.

There have been no new wells

participated in through the second quarter of 2020.

During this same period the Company chose to retain an overriding royalty interest in an additional 62 horizontal wells.

In 2019, the Company participated for an average 5.78% interest in 20

horizontal wells in Canadian, Grady, and Kingfisher counties for a net cost of approximately $8.8 million.

All 20 wells were completed in 2019, and of these 20 wells, twelve are operated by Encana/Newfield.

In addition, the Company is also

participating in four wells in Grady County, Oklahoma spud in 2018 that have not yet been completed.

During 2019, the Company retained an overriding royalty interest in eighteen wells, nine of which were completed in 2019, and nine of which have yet

to be completed.

Our horizontal activity in Oklahoma is focused in Canadian, Grady, Kingfisher, Garfield, Major, and Garvin counties

where we have approximately 3,401 net acres.

We believe this acreage has significant additional resource potential that could support the drilling of as many as 49 new horizontals based on an estimate of six wells per section:

Mississippian and three in the Woodford Shale.

Should we choose to participate in future development, our share of the capital expenditures would be approximately $3.4 million at an average 10% ownership level;

the Company will otherwise sell

its rights for cash, or cash plus a royalty or working interest.

In 2019, in the Gulf Coast region of Texas, the Company participated

with Unit Petroleum in the successful recompletion of two wells in the Wilcox Formation of the Jazz field in Polk County, Texas.

The Company has a 2.8125% working interest and a 3.768% net revenue interest in these wells and participated for

approximately $45,000.

In Central Reagan County, of West Texas, during the third quarter of 2020, the Company has sold deep rights covering approximately 1,950 acres

for a purchase price of $10.3 million to-date, with a final total compensation expected to be $10.7 million.

Since the start of our Oklahoma Scoop-Stack horizontal development program, which began in 2013, the Company has participated in 41 horizontal

wells for approximately $23.5 million through 2019 with an average of approximately 7% interest.

There have been no new wells participated in through the third quarter of 2020.

During this same period the Company chose to retain an overriding

royalty interest in an additional 69 horizontal wells.

In 2019, the Company participated for an average 5.78% interest in 20 horizontal wells in Canadian, Grady, and Kingfisher counties for a net cost of approximately $8.8 million.

were completed in 2019, and of these 20 wells, twelve are operated by Encana/Newfield.

In addition, the Company is also participating in four wells in Grady County, Oklahoma spud in 2018 that have not yet been completed.

During 2019, in Oklahoma,

the Company retained an overriding royalty interest in eighteen wells, nine of which were completed in 2019, and nine of which have yet to be completed.

Through the third quarter of 2020, the Company has retained an interest in four wells located in

Canadian County, Oklahoma, completed in February of this year.

Our horizontal activity in Oklahoma is focused in Canadian, Grady,

Kingfisher, Garfield, Major, and Garvin counties where we have approximately 3,401 net acres.

We believe this acreage has significant additional resource potential that could support the drilling of as many as 49 new horizontals based on an estimate

of six wells per section:

three in the Mississippian and three in the Woodford Shale.

Should we choose to participate in future development, our share of the capital expenditures would be approximately $34 million at an average 10% ownership

the Company will otherwise sell its rights for cash, or cash plus a royalty or working interest.

In 2019, in the Gulf Coast region

of Texas, the Company participated with Unit Petroleum in the successful recompletion of two wells in the Wilcox Formation of the Jazz field in Polk County, Texas.

The Company has a 2.8125% working interest and a 3.768% net revenue interest in these

wells and participated for approximately $45,000.

Also in 2019, the Company successfully recompleted a shallow straight hole well in the Segno field of Polk County, Texas with a 72.5% working interest.

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along with approximately 35,000 leasehold acres, one salt water disposal well, and operating equipment.

The Company has retained an overriding royalty interest in most properties of up to 12.5% interest.

The Company has retained an overriding royalty interest, up to 12.5%, in any future drilling of these properties.

RESULTS OF OPERATIONS

2020 and 2019 Compared

net loss of $170 thousand, $0.09 per share, for the three months ended March 2020 compared with net loss of $3.04 million, $1.49 per share, for the same period of 2019.

The current year net loss reflects decreases in oil, gas and NGLs

sales due to lower commodity prices offset by an unrealized gain on derivatives.

net income of $6.5 million, or $3.26 per share and $65 thousand or $0.03 per share for the three and nine months ended September 30, 2020, respectively, as compared to net income of $2.5 million, or $1.25 per share and

$5.2 million, or $2.61 per share for the three and nine months ended September 30, 2019, respectively.

Current year net income reflects decreases in production combined with commodity price decreases over the three and nine months ended

September 30, 2019, increases in gains related to the sale of acreage and changes related to the valuation of derivative instruments.

The significant components of income and expense are discussed below.

Oil, gas and NGLs sales decreased $11.08 million, or 46.4% from $23.88 million for the three months ended

March 31, 2019 to $12.8 million for the three months ended March 31, 2020.

Sales vary due to changes in volumes of production sold and realized commodity prices.

Our realized prices decreased an average of $7.03 per barrel, or 13.3%

on crude oil, decreased an average of $1.46 per mcf, or 61.7% on natural gas and decreased an average of $10.24 per barrel, or 51.1% on NGLs, during the three months ended March 31, 2020 from the same period in 2019.

Our crude oil production decreased by 122,000 barrels, or 34.3% from 356,000 barrels for the first quarter 2019 to 234,000 barrels for the

first quarter 2020.

Our natural gas production decreased by 10,000 mcf, or 1.1% from 948,000 mcf for the first quarter 2019 to 938,000 mcf for the first quarter 2020.

Our natural gas liquids production decreased by 15,000 barrels, or 10.6% from

142,000 barrels for the first quarter 2019 to 127,000 barrels for the first quarter 2020.

The decrease in production volumes reflect the natural decline of our properties combined with the shut-in of high

lifting cost properties as commodity prices decreased during the quarter.

The following tables summarizes the primary components of

production volumes and average sales prices realized for the three and six months ended June 30, 2020 and 2019 (excluding realized gains and losses from derivatives).

Six months ended June 30,

Oil, gas and NGLs sales decreased $11.2 million, or 55.9% from $20.1 million for the three months ended September 30,

2019 to $8.9 million for the three months ended September 30, 2020 and $41.0 million, or 60.9% from $67.3 million for the nine months ended September 30, 2019 to $26.3 million for the nine months ended September 30, 2020.

The following table summarizes the primary components of production volumes and average sales prices

realized for the nine months ended September 30, 2020 and 2019 (excluding realized gains and losses from derivatives).

Nine months ended September 30,

Barrels of Oil Produced

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Total Oil & Gas Revenue (In 000s)

Three months ended June 30,

Three months ended September 30,

Barrels of Oil Produced

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Total Oil & Gas Revenue (In 000s)

Oil, Natural Gas and NGL Derivatives We do not apply hedge accounting to any of our

commodity based derivatives, thus changes in the fair market value of commodity contracts held at the end of a reported period, referred to as mark-to-market

adjustments, are recognized as unrealized gains and losses in the accompanying condensed consolidated statements of operations.

Oil, Natural Gas and NGL Derivatives We do not apply hedge accounting to any of our commodity

based derivatives, thus changes in the fair market value of commodity contracts held at the end of a reported period, referred to as mark-to-market adjustments, are

recognized as unrealized gains and losses in the accompanying condensed consolidated statements of operations.

As oil and natural gas prices remain volatile,

mark-to-market accounting treatment creates volatility in our revenues.

The following table summarizes the results of our derivative instruments for the three and six

months ended June 2020 and 2019:

Three Months Ended

Six Months Ended

($ in thousand)

Oil derivatives realized gains (losses)

Oil derivatives unrealized gains (losses)

Total gains (losses) on oil derivatives

Natural gas derivatives realized gains (losses)

Natural gas derivatives unrealized gains (losses)

Total gains (losses) on natural gas derivatives

NGL derivatives realized gain (losses)

NGL derivatives unrealized gains (losses)

Total gains (losses) on NGL derivatives

Total gains (losses) on oil, natural gas and NGL derivatives

Prices received for the six months ended June 30, 2020 and 2019, respectively, including the impact of

derivatives were:

Field service income decreased $2.4 million or 49.95% from $4.8 million for the second

quarter 2019 to $2.4 million for the second quarter 2020 and $2.8 million, or 29.60% from $9.5 million for the six months ended June 30, 2019 to $6.7 million for the six months ended June 30, 2020.

This decrease is a

combined result of decreased utilization and rates charged to customers as oil and gas prices declined during 2020.

Field service income decreased $2.3 million or 47.2% from $4.9 million for the third quarter 2019 to $2.6 million

for the third quarter 2020 and $5.1 million, or 35.6% from $14.4 million for the nine months ended September 30, 2019 to $9.2 million for the nine months ended September 30, 2020.

This decrease is a combined result of decreased

utilization and rates charged to customers as oil and gas prices declined during 2020.

Workover rig services, hot oil treatments, saltwater hauling and disposal represent the bulk of our field service operations.

Lease operating expense decreased $1.9 million or 23.55% from $8.1 million for the second quarter 2019 to

$6.2 million for the second quarter 2020, and decreased $3.6 million or 22.50% from $16.2 million for the six months ended June 30, 2019 to $12.6 million for the six months ended June 30, 2020.

Lease operating expense decreased $4.4 million or 53.6% from $8.2 million for the third quarter 2019 to

$3.8 million for the third quarter 2020, and decreased $8.1 million or 33.0% from $24.4 million for the nine months ended September 30, 2019 to $16.4 million for the nine months ended September 30, 2020.

This decrease is

primarily due to the shut-in of high lifting cost properties during 2020 combined with lower production taxes related to lower commodity prices.

Field service expense decreased $2.1 million or 1.92% from

$4.0 million for the second quarter 2019 to $1.9 million for the second quarter 2019 and decreased $2.2 million, or 28.39% from $7.6 million for the six months ended June 30, 2019 to $5.5 million for the six months

ended June 30, 2020.

Field service expenses primarily consist of salaries and vehicle operating expenses which have decreased during the three and six months ended June 30, 2020 over the same periods of 2019 related to decreased

utilization of the equipment as oil and gas prices declined during 2020.

Depreciation, depletion, amortization and accretion on

discounted liabilities increased $2.4 million, or 25.74% from $9.3 million for the second quarter 2019 to $6.9 million for the second quarter 2020 and $3.5 million, or 18.64% from $18.6 million for the six months

ended June 30, 2019 to $15.1 million for the six months ended June 30, 2020, reflecting the reduced production rates in the first half of 2020.

General and administrative expense increased $0.5 million, or 5.48% from $9.8 million for the six months ended

June 30, 2019 to $10.3 million for the six months ended June 30, 2020, and decreased $0.3 million, or 11.23% from $2.9 million for the three months ended June 30, 2019 to $2.6 million for the three months ended

June 30, 2020.

This overall increase in 2020 is primarily due to increases in employee wages and benefits during the first quarter offset by staff reductions reflected in the second quarter decrease.

Gain on sale and exchange of assets of $0.2 million and $1.7 million for the six months ended June 30, 2020 and

June 30, 2019, respectively consists of sales of non-essential oil and gas interests and field service equipment.

Interest expense decreased from $1.0 million for the second quarter 2019 to $0.5 million for the second quarter 2020

and from $2.0 million for the six months ended June 30, 2019 to $1.2 million for the six months ended June 30, 2020.

Field service expense decreased $2.0 million or 50.3% from $4.0 million for the third quarter 2019 to

$2.0 million for the third quarter 2020 and decreased $4.2 million, or 35.9% from $11.6 million for the nine months ended September 30, 2019 to $7.4 million for the nine months ended September 30, 2020.

Field service expenses

primarily consist of salaries and vehicle operating expenses which have decreased during the three and nine months ended September 30, 2020 over the same periods of 2019 related to decreased utilization of the equipment as oil and gas prices

declined during 2020.

Depreciation, depletion, amortization and accretion on discounted liabilities increased

$0.1 million, or 1.9% from $9.3 million for the third quarter 2019 to $9.4 million for the third quarter 2020 and decreased $3.3 million, or 9.9% from $27.8 million for the nine months ended September 30, 2019 to

$24.5 million for the nine months ended September 30, 2020, reflecting the reduced production rates in the nine months of 2020.

General and administrative expense decreased $0.3 million, or 9.9% from $2.9 million for the three months ended

September 30, 2019 to $2.6 million for the three months ended September 30, 2020, and increased $0.3 million, or 2.0% from $12.6 million for the nine months ended September 30, 2019 to $12.9 million for the nine months ended

September 30, 2020.

This overall increase in 2020 is primarily due to increases in employee wages and benefits during the first quarter offset by staff reductions reflected in the third quarter decrease.

Gain on sale and exchange of assets of $15.0 million for the nine months

ended September 30, 2020 consists of principally of sales of deep rights in undeveloped acreage in West Texas and marginal wells in West Virginia.

Interest expense decreased from $0.9 million for the third quarter 2019 to $0.5 million for the third quarter 2020 and

from $2.9 million for the nine months ended September 30, 2019 to $1.6 million for the nine months ended September 30, 2020.

This decrease reflects the decrease in rates and current borrowings under our revolving credit agreement.

Income tax expense or benefit for the June 30, 2020 and 2019 periods varied due to the change in net income or loss for

those periods.

The tax benefit recorded for the six months ended June 30, 2020 includes the benefits related to tax changes under the CARES Act.

Income tax expense or benefit for the September 30, 2020 and 2019 periods varied due to the change in net income or loss

for those periods.

The tax benefit recorded for the nine months ended September 30, 2020 includes the benefits related to tax changes under the CARES Act.

LIQUIDITY AND CAPITAL RESOURCES

primary sources of liquidity are cash generated from our operations, through our producing oil and gas properties, field services business and sales of acreage.

Net cash provided by operating activities for the six months ended June 30, 2020 was $8.8 million.

Net cash provided by operating activities for the nine months ended September 30, 2020 was $17.9 million.

Excluding the effects of

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$300 million, with a borrowing base of $48 million.

As of August 19, 2020, the Company has $53.5 million in outstanding borrowings and $18.5 million in availability under this facility.

As of November 25, 2020, the Company has $40.0 million in outstanding borrowings and $8.0 million in availability under this facility.

The bank reviews the borrowing base

semi-annually and, at their discretion, may decrease or propose an increase to the borrowing base relative to a re-determined estimate of proved oil and gas reserves.

The borrowing base review is in progress

and due to declines in commodity prices we expect our borrowing base to be set at an amount

substantially reducing our availability under the line and requiring paydowns of our current outstanding balance during the third and fourth quarters.

We expect cash flows from producing

properties combined with proceeds from the sale of acreage to fund these paydowns.

Our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial and operational covenants defined in the

Our oil and gas properties are pledged as collateral for the line of credit and we

are subject to certain financial and operational covenants defined in the agreement.

We are currently in compliance with these covenants and expect to be in compliance over the next twelve months.

If we do not comply with these covenants on a continuing basis, the lenders have the right to refuse to advance additional

funds under the facility and/or declare all principal and interest immediately due and payable.

Our credit agreement required us to hedge

a portion of our production as forecasted for the PDP reserves included in our borrowing base review engineering reports.

If we do not comply with these covenants on a

continuing basis, the lenders have the right to refuse to advance additional funds under the facility and/or declare all principal and interest immediately due and payable.

Our credit agreement required us to hedge a portion of our production as forecasted for the PDP reserves included in our borrowing base review

engineering reports.

Accordingly the Company has in place the following swap and put agreements for oil and natural gas.

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Natural Gas (MMBTU)

Oil (barrels)

Put Agreements

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Oil (barrels)

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act

(the CARES Act).

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the

CARES Act).

The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit

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restrictions have limited access to our corporate offices and required our corporate personnel, including our legal and accounting staff.

Protection Program Loans

During May 2020, Prime Operating Company and Eastern Oil Well Services Corporation, subsidiaries of the

Company received loan proceeds in the amount of $1.28 million and $0.47 million , respectively, under the Paycheck Protection Program (the PPP) of the CARES Act.

The PPP Loans are evidenced by a promissory note in favor of the

Lender, which bears interest at the rate of 1.00% per annum.

No payments of principal or interest are due under the note until the date on which the amount of loan forgiveness (if any) under the CARES Act, which can be up to 10 months after the end

of the related notes covered period (which is defined as 24 weeks after the date of the loan) (the Deferral Period).

Paycheck Protection Program Loans

During May 2020, Prime Operating Company and Eastern Oil Well Services Corporation, subsidiaries of the Company received loan proceeds in the

amount of $1.28 million and $0.47 million , respectively, under the Paycheck Protection Program (the PPP) of the CARES Act.

The PPP Loans are evidenced by a promissory note in favor of the Lender, which bears interest at the

rate of 1.00% per annum.

No payments of principal or interest are due under the note until the date on which the amount of loan forgiveness (if any) under the CARES Act, which can be up to 10 months after the end of the related notes covered period

(which is defined as 24 weeks after the date of the loan) (the Deferral Period).

The note may be prepaid at any time prior to maturity with no prepayment penalties.

Funds from the PPP Loans may be used

Under the terms of the PPP Loans, certain amounts thereunder may be forgiven if they are used for Qualifying Expenses as described in and in compliance with the CARES Act.

While the Company intends to use the PPP Loan proceeds

exclusively for Qualifying Expenses, it is unclear and uncertain whether the conditions for forgiveness of the PPP Loans will be met under the current guidelines of the CARES Act.

Accordingly, we cannot make any assurance that the Company will be

eligible for forgiveness of the PPP Loans, in whole or in part.

To the extent, if any, that any or all of the PPP loans are not forgiven, beginning one month following expiration of the Deferral Period, and continuing monthly until 24 months from

the date of each applicable Note (the Maturity Date), the Company is obligated to make monthly payments of principal and interest to the Lender with respect to any unforgiven portion of the Note, in such equal amounts required to fully

amortize the principal amount outstanding on such Note as of the last day of the applicable Deferral Period by the applicable Maturity Date.

The Companys activities include development and exploratory drilling.

Our strategy is to develop a balanced portfolio of drilling

prospects that includes lower risk wells with a high probability of success and higher risk wells with greater economic potential.

In 2016, based upon the results of horizontal wells and historical vertical well performance, we decided to reduce the

number of vertical wells in our drilling program and focus primarily on horizontal well drilling.

We believe horizontal development of our resource base provides superior returns relative to vertical development, due to the ability of horizontals to

come in contact with and drain from a greater volume of reservoir rock over more acreage, with less infrastructure, and thus at a lower cost of development per acre.

We participated in 18 gross (1.6 net) horizontal wells drilled and completed in 2019, all of

which were producing at year-end.

In addition, 14 gross (4.63 net) wells that had been completed at year-end 2018 and in which we had participated, were also brought on-line in 2019.

Of the total 18 wells completed in 2019, three are located in West Texas, while 13 are in our Oklahoma Scoop-Stack horizontal development program.

The three wells drilled in West Texas in 2019 added

significantly to our reserve base, as these probable undeveloped locations were the initial test wells in intervals above the Middle Wolfcamp:

one in the Wolfcamp A, one in the Jo Mill and one in the Lower Spraberry, and have proved up

these reservoirs for the 1,300 acre block in which they were drilled.

Our share of the cost of these three wells is approximately $9.2 million.

Not only did these wells add proved developed reserves, but as a result, nine additional locations

in these reservoirs were proven for horizontal development.

Six of the nine horizontals were drilled as of April 15, 2020.

The successful development of these reservoirs has also proved-up locations to be

drilled on our nearby 2,600-acre block in which the Company holds between 14% and 56% interest.

It is anticipated that development of as many as 54 additional horizontal wells on this 2,600-acre block will occur over the coming years.

Funds from the PPP Loans may be used only for payroll and related costs,

costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations that were incurred prior to February 15, 2020 (the Qualifying Expenses).

Under the terms of the PPP Loans,

certain amounts thereunder may be forgiven if they are used for Qualifying Expenses as described in and in compliance with the CARES Act.

While the Company intends to use the PPP Loan proceeds exclusively for Qualifying Expenses, it is unclear and

uncertain whether the conditions for forgiveness of the PPP Loans will be met under the current guidelines of the CARES Act.

Accordingly, we cannot make any assurance that the Company will be eligible for forgiveness of the PPP Loans, in whole or in

To the extent, if any, that any or all of the PPP loans are not forgiven, beginning one month following expiration of the Deferral Period, and continuing monthly until 24 months from the date of each applicable Note (the Maturity

Date), the Company is obligated to make monthly payments of principal and interest to the Lender with respect to any unforgiven portion of the Note, in such equal amounts required to fully amortize the principal amount outstanding on such Note

as of the last day of the applicable Deferral Period by the applicable Maturity Date.

The Companys activities include development

and exploratory drilling.

Our strategy is to develop a balanced portfolio of drilling prospects that includes lower risk wells with a high probability of success and higher risk wells with greater economic potential.

In 2016, based upon the results

of horizontal wells and historical vertical well performance, we decided to reduce the number of vertical wells in our drilling program and focus primarily on horizontal well drilling.

We believe horizontal development of our resource base provides

superior returns relative to vertical development, due to the ability of horizontals to come in contact with and drain from a greater volume of reservoir rock over more acreage, with less infrastructure, and thus at a lower cost of development per

Since the start of our West Texas horizontal drilling program in 2015 and through the third

quarter of 2020 the Company has participated in 74 horizontal wells in the Permian Basin, seven of which were drilled in the first half of 2020.

Through July 2020, the Company has invested approximately $112 MM in our West Texas horizontal drilling

Of the 74 total horizontal wells participated in, we have an average of 24% working interest.

In 2019, 11 wells were brought on production:

the Company has 49% interest in eight of these wells, all

one-mile in length, located on our CC-33 tract, and an average 48% interest in two horizontals and 5.3% interest in one additional horizontal, that are each two-miles in length, located on the Kashmir tract.

The Company invested approximately $31.5 million in these 11 wells brought on production in 2019.

Through the second quarter of 2020, the Company participated

in seven new horizontal wells, all located in Upton County, Texas.

Six of these are operated by Apache Corporation and one is operated by Pioneer Natural Resources.

The Pioneer well was completed in late June and came on production in early July

The six Apache operated wells are anticipated to be completed the end of February or beginning of March 2021.

In Upton County, West

Texas, we are developing a contiguous 3,260-acre block with our joint venture partner, Apache Corporation.

In this block the Company has 2,600 leasehold acres with interest between 14% and 56%, depending on

the particular lease and depth being developed.

In 2018, in this block, eight wells drilled horizontally in the Wolfcamp B, were participated in for 49% interest.

This is believed to be full development of the Wolfcamp B

reservoir for this lease block.

Apache will likely now set its sights on development of the Upper Wolfcamp, Jo Mill, and Lower Spraberry reservoirs for this block, following the recent successful testing in 2019 of these reservoirs on our offset 1,300-acre lease block.

The cost of such development would be approximately $370.6 million with the Companys share being approximately $170.8 million.

The actual number of

wells that will be drilled, the cost, and the timing of drilling will vary based upon many factors, including commodity market conditions.

In early 2020, the Company participated in the drilling of six wells in Upton County, Texas, operated by Apache Corporation.

These wells are

expected to be completed in the fourth quarter of 2020 with a total anticipated investment of $19.4 million.

Also in the first half of 2020, the Company participated in a horizontal well for 8.36% interest operated by Pioneer Natural Resources

completed and brought into production in July 2020.

Our total net expenditure for this well will be approximately $630,000.

Additional drilling and future development plans will be established based on an expectation of available cash flows from

operations and availability of funds under our revolving credit facility.

The focus of our future activity will be on the continued

development of our resources potential in the West Texas horizontal drilling program as well as our Scoop-Stack horizontal drilling program acreage in Oklahoma in order to maximize cash flow and return on investment.

The Company maintains an acreage position of 19,910 gross (12,560 net) acres in the Permian Basin in West Texas, primarily in Reagan, Upton,

Martin and Midland counties and we believe this acreage has significant resource potential in as many as 10 reservoirs, including benches of the Spraberry, Jo Mill, and Wolfcamp that support the potential drilling of as many as 180 additional

horizontal wells.

In Oklahoma, the Companys horizontal activity is primarily focused in Canadian, Grady, Kingfisher, Garfield,

Major, and Garvin counties where we have approximately 3,460 net leasehold acres.

We believe this acreage has significant additional resource potential that could support the drilling of as many as 52 new horizontal wells based on an estimate of six

wells per section: