PRIMEENERGY RESOURCES CORP 10-K

Item 9A. CONTROLS AND PROCEDURES. As of the end of the period covered by this Annual Report on Form 10-K, our principal executive officer and principal financial officer have evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management, including the chief executive officer and chief financial officer, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Members of our management, including our chief executive officer and chief financial officer, have evaluated the effectiveness of our disclosure controls and procedures, as defined by paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, as of December 31, 2021 the end of the period covered by this Report. Based upon that evaluation, these officers concluded that our disclosure controls and procedures were effective as of December 31, 2021. 43 Table of Contents Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, transactions are executed in accordance with appropriate management authorization and accounting records are reliable for the preparation of financial statements in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. Management based this assessment on criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of our Board of Directors. Based on this assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2021. This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report. There have been no changes in our internal controls over financial reporting during the fourth fiscal quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Item 9B. OTHER INFORMATION. None. 44 Table of Contents PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. Information relating to the Company’s Directors, nominees for Directors and executive officers will be included in the Company’s definitive proxy statement relating the Company’s Annual Meeting of Stockholders to be held in June, 2022, and which is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION. Information relating to executive compensation will be included in the Company’s definitive proxy statement relating to the Company’s Annual Meeting of Stockholders to be held in June, 2022, and which is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Information relating to security ownership of certain beneficial owners and management will be included in the Company’s definitive proxy statement relating to the Company’s Annual Meeting of Stockholders to be held in June, 2022, and which is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. Information relating to certain transactions by Directors and executive officers of the Company will be included in the Company’s definitive proxy statement relating to the Company’s Annual Meeting of Stockholders to be held in June, 2022, and which is incorporated herein by reference. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Information relating to principal accountant fees and services will be included in the Company’s definitive proxy statement relating to the Company’s Annual Meeting of Stockholders to be held in June, 2022, and which is incorporated herein by reference. 45 Table of Contents PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The following documents are filed as part of this Report: 1. Financial statements (Index to Consolidated Financial Statements at page F-1 of this Report) 2. Financial Statement Schedules (Index to Consolidated Financial Statements – Supplementary Information at page F-1 of this Report) 3. Exhibits: 3.1 Certificate of Incorporation of PrimeEnergy Resources Corporation, as amended and restated of December 21, 2018, (filed as Exhibit 3.1 of PrimeEnergy Resources Corporation Form 8-K on December 27, 2018, and incorporated herein by reference). 3.2 Bylaws of PrimeEnergy Resources Corporation as amended and restated as of April 24, 2020 (filed as Exhibit 3.2 of PrimeEnergy Resources Corporation Form 8-K on April 27, 2020 and incorporated herein by reference). 10.18 Composite copy of Non-Statutory Option Agreements (Incorporated by reference to Exhibit 10.18 of PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2004). 10.22.5.10 Third Amended and Restated Credit Agreement dated as of February 15, 2017 among PrimeEnergy Resources Corporation, as Borrower, Compass Bank, as Administrative Agent and Lender, Wells Fargo, National Association, as Document Agent, the Lenders Party Hereto (Compass Bank, Wells Fargo, National Association, Citibank, N.A.) and BBVA Compass Bank, as Letter of Credit Issuer and Sole Lead Arranger and Sole Bookrunner (Incorporated by reference to Exhibit 10.22.5.10 to PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2016). 10.22.5.10.1 FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 22, 2017 among PRIMEENERGY CORPORATION, as Borrower, THE LENDERS PARTY HERETO, COMPASS BANK, as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA COMPASS, as Sole Lead Arranger and Sole Book Runner, (Incorporated by reference to Exhibit 10.22.5.10.1 to PrimeEnergy Corporation Form 10-K for the year ended December 31, 2017). 10.22.5.10.2 SECOND AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of July 17, 2018 among PRIMEENERGY CORPORATION, as Borrower, THE LENDERS PARTY HERETO, COMPASS BANK, as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA COMPASS, as Sole Lead Arranger and Sole Book Runner, (Incorporated by reference to Exhibit 10.22.5.10.2 to PrimeEnergy Corporation Form 10-Q for the quarter ended June 30, 2018). 10.22.5.10.3 THIRD AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 27, 2018, among PRIMEENERGY RESOURCES CORPORATION, as Borrower, THE LENDERS PARTY HERETO, COMPASS BANK, as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA COMPASS, as Sole Lead Arranger and Sole Book Runner (Incorporated by reference to Exhibit 10.22.5.10.3 to PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2018). 46 Table of Contents Exhibit No. 10.22.5.10.4 FOURTH AMENDMENT TO THE THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 8, 2020 among PRIMEENERGY RESOURCES CORPORATION, as Borrower, THE LENDERS PARTY HERETO, BBVA USA (f/k/a COMPASS BANK), as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA USA, as Sole Lead Arranger and Sole Book Runner (Incorporated by reference to 10.22.5.4 to PrimeEnergy Resources Corporation Form 10-Q for the quarter ended September 30, 2020). 10.22.5.10.5 FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of September 4, 2020, among PRIMEENERGY RESOURCES CORPORATION, as Borrower, THE LENDERS PARTY HERETO, BBVA USA (f/k/a COMPASS BANK,) as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA USA, as Sole Lead Arranger and Sole Book Runner (Incorporated by reference to 10.22.5.5 to PrimeEnergy Resources Corporation Form 10-Q for the quarter ended September 30, 2020). 10.22.5.10.6 SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of FEBRUARY 11, 2021, among PRIMEENERGY RESOURCES CORPORATION, as Borrower, THE GUARANTORS PARTY HERETO, THE LENDERS PARTY, HERETO, BBVA USA, as Administrative Agent and BBVA USA, as Sole Lead Arranger and Sole Book Runner (Incorporated by reference to Exhibit 10.22.5.10.6 to PrimeEnergy Resources Corporation Form 8-K dated February 16, 2021). 10.22.5.10.7 SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 20, 2021 among PRIMEENERGY RESOURCES CORPORATION, as Borrower, THE GUARANTORS PARTY HERETO, THE LENDERS PARTY HERETO, CITIBANK, N.A., as Administrative Agent, and CITIBANK, N.A., as Sole Lead Arranger and Sole Book Runner (filed herewith). 10.22.5.11 Amended, Restated and Consolidated Guaranty dated as of February 15, 2017, among PrimeEnergy Management Corporation, Prime Operating Company, Eastern Oil Well Service Company, Southwest Oilfield Construction Company, EOWS Midland Company and Prime Offshore L.L.C. in favor of Compass Bank, as Administrative Agent for the Lenders (Incorporated by reference to Exhibit 10.22.5.11 to PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2016). 10.22.5.12 Amended, Restated and Consolidated Pledge and Security Agreement dated as of February 15, 2017, among PrimeEnergy Resources Corporation, PrimeEnergy Management Corporation, Prime Operating Company, Eastern Oil Well Service Company, Southwest Oilfield Construction Company, EOWS Midland Company and Prime Offshore L.L.C. and Compass Bank, as Administrative Agent for the Secured Parties (Incorporated by reference to Exhibit 10.22.5.12 to PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2016). 10.22.5.13 Amended, Restated and Consolidated Deed of Trust, Mortgage, Security Agreement, Assignment of Production and Financing Statement Dated as of May 5, 2017 (Incorporated by reference to Exhibit 10.22.5.13 to PrimeEnergy Resources Corporation Form 10-Q for the quarter ended March 31, 2017). 47 Table of Contents Exhibit No. 10.22.5.13.1 THIS FIRST AMENDMENT TO AMENDED, RESTATED AND CONSOLIDATED DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT (this “ Amendment ”) is made and entered into as of December 20, 2021, by PRIMEENERGY RESOURCES CORPORATION , a Delaware corporation, formerly known as PrimeEnergy Corporation (“ Prime ”) and PRIMEENERGY MANAGEMENT CORPORATION , a New York corporation (“ PEMC, ” and Prime and PEMC herein, individually and collectively, “ Grantor ”), and CITIBANK, N.A. , as Administrative Agent for the benefit of the Secured Parties (in such capacity and together with its successors and assigns in such capacity, “ Beneficiary ”). 10.22.5.14 Deed of Trust, Mortgage, Security Agreement, Assignment of Production and Financing Statement Dated as of May 5, 2017 (Incorporated by reference to Exhibit 10.22.5.14 to PrimeEnergy Resources Corporation Form 10-Q for the quarter ended March 31, 2017). 10.22.5.14.1 FIRST AMENDMENT TO DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT (this “ Amendment ”) is made and entered into as of December 20, 2021, by PRIMEENERGY RESOURCES CORPORATION , a Delaware corporation, formerly known as PrimeEnergy Corporation (“ Prime ”) and PRIMEENERGY MANAGEMENT CORPORATION , a New York corporation (“ PEMC, ” and Prime and PEMC herein, individually and collectively, “ Grantor ”), and CITIBANK, N.A. , as Administrative Agent for the benefit of the Secured Parties (in such capacity and together with its successors and assigns in such capacity, “ Beneficiary ”) 10.22.5.14.2 THIS SECOND AMENDMENT TO AMENDED, RESTATED AND CONSOLIDATED MORTGAGE OF OIL AND GAS PROPERTY, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT (this “ Amendment ”) is made and entered into as of December 20, 2021, between PRIMEENERGY RESOURCES CORPORATION , a Delaware corporation, formerly known as PrimeEnergy Corporation (“ Prime ”) and PRIMEENERGY MANAGEMENT CORPORATION , a New York corporation (“ PEMC, ” and Prime and PEMC herein, individually and collectively, “ Mortgagor ”), and CITIBANK, N.A. , as Administrative Agent for the benefit of the Secured Parties (in such capacity and together with its successors and assigns in such capacity, “ Mortgagee ”). 14 PrimeEnergy Resources Corporation Code of Business Conduct and Ethics, as amended December 16, 2011 (Incorporated by reference to Exhibit 14 of PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2011). 21 Subsidiaries (filed herewith). 23 Consent of Ryder Scott Company, L.P. (filed herewith). 31.1 Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith). 31.2 Certification of Chief Financial Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith). 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). 99.1 Summary Reserve Report dated March 3, 2022, of Ryder Scott Company, L.P. (filed herewith). 48 Table of Contents Exhibit No. 101.INS Inline XBRL (eXtensible Business Reporting Language) Instance Document (filed herewith) 101.SCH Inline XBRL Taxonomy Extension Schema Document (filed herewith) 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith) 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith) 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith) 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 49 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 21st day of April, 2022. PrimeEnergy Resources Corporation By: /s/ Charles E. Drimal, Jr. Charles E. Drimal, Jr. Chairman, Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated and on the 12st, day of April 2022 /s/ Charles E. Drimal, Jr. Charles E. Drimal, Jr. Chairman, Chief Executive Officer and President; The Principal Executive Officer /s/ Beverly A. Cummings Beverly A. Cummings Director, Executive Vice President and Treasurer; The Principal Financial Officer /s/ Clint Hurt Clint Hurt Director /s/ Thomas S. T. Gimbel Thomas S. T. Gimbel Director /s/ H. Gifford Fong H. Gifford Fong Director 50 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-2 Financial Statements Consolidated Balance Sheet – As of December 31, 2021 and 2020 F-5 Consolidated Statement of Operations – For the years ended December 31, 2021 and 2020 F-6 Consolidated Statement of Equity – For the years ended December 31, 2021 and 2020 F-7 Consolidated Statement of Cash Flows – For the years ended December 31, 2021 and 2020 F-8 Notes to Consolidated Financial Statements F-9 Supplementary Information: Capitalized Costs Relating to Oil and Gas Producing Activities, years ended December 31, 2021 and 2020 F-22 Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities, years ended December 31, 2021 and 2020 F-22 Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves, years ended December 31, 2021 and 2020 F-22 Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil and Gas Reserves, years ended December 31, 2021 and 2020 F-23 Reserve Quantity Information, years ended December 31, 2021 and 2020 F-24 Results of Operations from Oil and Gas Producing Activities, years ended December 31, 2021 and 2020 F-24 Notes to Supplementary Information F-25 F-1 Table of Contents INDEPENDENT AUDITORS’ REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of PrimeEnergy Resources Corporation and Subsidiaries: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of PrimeEnergy Resources Corporation and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F-2 Table of Contents Depreciation, Depletion and Amortization and Impairment of Property and Equipment Description of the Matter At December 31, 2021, the carrying value of the Company’s property and equipment was $184.7 million, and depreciation, depletion and amortization (DD&A) expense was $26.3 million for the year then ended. As described in Note 1, the Company follows the “successful efforts” method of accounting for its oil and gas properties. Under the “successful efforts” method, costs of acquiring undeveloped oil and gas leasehold acreage, including lease bonuses, brokers’ fees and other related costs, are capitalized. Provisions for impairment of undeveloped oil and gas leases are based on periodic evaluations. Annual lease rentals and exploration expenses, including geological and geophysical expenses and exploratory dry hole costs, are charged against income as incurred. Costs of drilling and equipping productive wells, including development of dry holes and related production facilities, are capitalized. All other property and equipment are carried at cost. Depreciation and depletion of oil and gas production equipment and properties are determined under the unit-of-production method based on estimated proved developed recoverable oil and gas reserves. Depreciation of all other equipment is determined under the straight-line method using various rates based on useful lives generally ranging from 5 to 10 years. The cost of assets and related accumulated depreciation is removed from the accounts when such assets are disposed of, and any related gains or losses are reflected in current earnings. Interest costs related to financing major oil and gas projects in progress are capitalized until the projects are evaluated or until the projects are substantially complete and ready for their intended use if the projects are evaluated and successful. The Company reviews long-lived assets, including oil and gas properties, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recovered. If the carrying amounts are not expected to be recovered by undiscounted cash flows, the assets are impaired, and an impairment loss is recorded. The amount of impairment is based on the estimated fair value of the assets determined by discounting anticipated future net cash flows. Proved oil and gas reserves directly impact financial accounting estimates, including depreciation, depletion and amortization. Proved reserves represent estimated quantities of natural gas, crude oil, condensate, and natural gas liquids that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimates were made. The process of estimating quantities of proved oil and gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions (upward or downward) to existing reserve estimates may occur from time to time. Estimates of oil and gas reserves, as determined by independent petroleum engineers, are continually subject to revision based on price, production history and other factors. Depletion expense, which is computed based on the units of production method, could be significantly impacted by changes in such estimates. Additionally, U.S. generally accepted accounting principles require that if the expected future undiscounted cash flows from an asset are less than its carrying cost, that asset must be written down to its fair market value. As the fair market value of an oil and gas property will usually be significantly less than the total undiscounted future net revenues expected from that asset, slight changes in the estimates used to determine future net revenues from an asset could lead to the necessity of recording a significant impairment of that asset. Auditing the Company’s DD&A and impairment calculations is complex because of the use of independent petroleum engineers and the evaluation of management’s determination of the inputs described above used by the engineers in estimating oil and gas reserves. F-3 Table of Contents How We Addressed the Matter in Our Audit We obtained an understanding and evaluated the design of the Company’s controls over its process to calculate DD&A and impairment, including management’s controls over the completeness and accuracy of the financial data utilized by the engineers in estimating oil and gas reserves. Our audit procedures included, among others, evaluating the professional qualifications and objectivity of the Company’s independent petroleum engineers responsible for the preparation of the proved oil and gas reserve estimates for select properties. In addition, we compared the Company’s recent production with its reserve estimates for properties that have significant production or significant reserve quantities and inquired of disproportionate ratios that did not align with our expectations. We also tested the mathematical accuracy of the DD&A and impairment calculations, including comparing the oil and gas reserve amounts used in the calculations to the Company’s reserve reports. Accounting for Asset Retirement Obligations Description of the Matter At December 31, 2021, the asset retirement obligation (ARO) balance totaled $14.3 million. As further described in Note 1, the Company’s ARO primarily represents the estimated present value of the amount the Company will incur to plug, abandon, and remediate producing properties at the end of their productive lives, in accordance with applicable state laws. The Company determined its asset retirement obligation by calculating the present value of estimated cash flows related to the liability. The asset retirement obligation is recorded as a liability at its estimated present value at its inception, with an offsetting increase to producing properties. Periodic accretion of discount of the estimated liability is recorded as an expense in the statement of operations. The Company’s liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive life of wells and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligation. Revisions to the asset retirement obligation are recorded with an offsetting change to producing properties, resulting in prospective changes to depreciation, depletion and amortization expense and accretion of discount. Because of the subjectivity of assumptions and the relatively long life of most of the Company’s wells, the costs to ultimately retire the wells may vary significantly from previous estimates. Auditing the Company’s ARO is complex and highly judgmental because of the significant estimation by management in determining the obligation. In particular, the estimate was sensitive to significant subjective assumptions such as retirement cost estimates and the estimated timing of settlements, which are both affected by expectations about future market and economic conditions. How We Addressed the Matter in Our Audit We obtained an understanding and evaluated the design of the Company’s internal controls over its ARO estimation process, including management’s review of the significant assumptions that have a material effect on the determination of the obligations. To test the ARO for the Company, our audit procedures included, among others, assessing the significant assumptions and inputs used in the valuation, such as retirement cost estimates and timing of settlement assumptions. Additionally, we compared the ARO against historical results, reviewed the reasonableness of the discount rate utilized in the estimate, considered the reasonableness of the current and long-term portion of the obligation by comparing the accretion expense trends, and considered the completeness of the properties included in the estimate by comparing to the Company’s reserve reports. GRASSI & CO., CPAs, P.C. We have served as the Company’s auditor since 1989. New York, New York April 21, 2022 F-4 Table of Contents PRIMEENERGY RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Thousands of dollars) As of December 31, 2021 2020 ASSETS Current Assets Cash and cash equivalents $ 10,347 $ 996 Accounts receivable, net 14,208 7,221 Prepaid obligations 733 590 Other current assets 40 104 Total Current Assets 25,328 8,911 Property and Equipment Oil and gas properties at cost 539,484 520,488 Less: Accumulated depletion and depreciation ( 359,742 ) ( 335,390 ) 179,742 185,098 Field and office equipment at cost 27,080 26,797 Less: Accumulated depreciation ( 22,159 ) ( 20,842 ) 4,921 5,955 Total Property and Equipment, Net 184,663 191,053 Derivative asset long-term and other assets 923 520 Total Assets $ 210,914 $ 200,484 LIABILITIES AND EQUITY Current Liabilities Accounts payable $ 7,282 $ 5,217 Accrued liabilities 7,821 6,787 Due to related parties 52 38 Current portion of long-term debt — 487 Current portion of asset retirement and other long-term obligations 1,630 867 Derivative liability short-term 4,935 724 Total Current Liabilities 21,720 14,120 Long-Term Bank Debt 36,000 38,267 Asset Retirement Obligations 13,222 12,891 Derivative Liability Long-Term 650 44 Deferred Income Taxes 38,743 36,367 Other Long-Term Obligations 1,488 797 Total Liabilities 111,823 102,486 Commitments and Contingencies Equity Common stock, $. 10 par value; 2021 and 2020: Authorized: 2,810,000 shares, outstanding 2021: 1,992,077 shares; outstanding 2020: 1,994,177 shares . 281 281 Paid-in capital 7,555 7,541 Retained earnings 128,902 126,804 Treasury stock, at cost; 2021: 817,923 shares; 2020: 815,823 ( 37,647 ) ( 37,502 ) Total Stockholders’ Equity – PrimeEnergy 99,091 97,124 Non-controlling interest — 874 Total Equity 99,091 97,998 Total Liabilities and Equity $ 210,914 $ 200,484 The accompanying Notes are an integral part of these Consolidated Financial Statements F- 5 Table of Contents PRIMEENERGY RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Thousands of dollars, except per share amounts) For the Year Ended December 31, 2021 2020 Revenues Oil sales $ 50,474 $ 27,865 Natural gas sales 11,432 4,202 Natural gas liquids sales 11,220 4,906 Realized gain (loss) on derivative instruments, net ( 5,045 ) 6,173 Field service income 11,806 11,120 Administrative overhead fees 4,611 4,163 Unrealized (loss) on derivative instruments ( 4,914 ) ( 190 ) Other income 29 182 Total Revenues 79,613 58,421 Costs and Expenses Lease operating expense 27,804 23,028 Field service expense 11,580 9,006 Depreciation, depletion, amortization and accretion on discounted liabilities 26,325 28,176 General and administrative expense 10,426 15,027 Total Costs and Expenses 76,135 75,237 Gain on Sale and Exchange of Assets 1,478 15,836 Income (Loss) from Operations 4,956 ( 980 ) Other Income and Expenses Less: Interest expense ( 2,007 ) ( 1,902 ) Add: Other income — 2 Add: PPP Loan Forgiveness 1,693 — Income (Loss) Before Provision for (Benefit from) Income Taxes 4,642 ( 2,880 ) Provision (Benefit from) Income Taxes 2,516 ( 517 ) Net Income (Loss) 2,126 ( 2,363 ) Less: Net Income (Loss) Attributable to Non-Controlling Interest 28 ( 47 ) Net Income (Loss) Attributable to PrimeEnergy $ 2,098 $ ( 2,316 ) Basic Income (Loss) Per Common Share $ 1.05 $ ( 1.16 ) Diluted Income (Loss) Per Common Share $ 0.76 $ ( 1.16 ) The accompanying Notes are an integral part of these Consolidated Financial Statements F- 6 Table of Contents PRIMEENERGY RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EQUITY (Thousands of dollars, except share amounts) Shares Outstanding Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Stockholders’ Equity – PrimeEnergy Non- Controlling Interest Total Equity Balance at December 31, 2019 1,998,978 $ 281 $ 7,505 $ 129,120 $ ( 36,792 ) $ 100,114 $ 3,249 $ 103,363 Purchase 4,801 shares of common stock ( 4,801 ) — — — ( 710 ) ( 710 ) — ( 710 ) Net loss — — — ( 2,316 ) — ( 2,316 ) ( 47 ) ( 2,363 ) Purchase of non-controlling interest — — 36 — — 36 ( 58 ) ( 22 ) Distributions to non-controlling interest — — — — — — ( 2,270 ) ( 2,270 ) Balance at December 31, 2020 1,994,177 $ 281 $ 7,541 $ 126,804 $ ( 37,502 ) $ 97,124 $ 874 $ 97,998 Purchase 2,100 shares of common stock ( 2,100 ) — — — ( 145 ) ( 145 ) — ( 145 ) Net Income — — — 2,098 — 2,098 28 2,126 Purchase of non-controlling interest — — 14 — — 14 ( 58 ) ( 44 ) Distributions to non-controlling interest — — — — — — ( 844 ) ( 844 ) Balance at December 31, 2021 1,992,077 $ 281 $ 7,555 $ 128,902 $ ( 37,647 ) $ 99,091 $ — $ 99,091 The accompanying Notes are an integral part of these Consolidated Financial Statements F- 7 Table of Contents PRIMEENERGY RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of dollars) For the Year Ended December 31, 2021 2020 Cash Flows from Operating Activities: Net Income (Loss) $ 2,126 $ ( 2,363 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion, amortization and accretion on discounted liabilities 26,325 28,176 Gain on sale of properties ( 1,478 ) ( 15,836 ) Unrealized loss (gain) on derivative instruments 4,914 190 PPP Loan forgiveness ( 1.693 ) — Provision for deferred income taxes 2,376 443 Changes in assets and liabilities: Accounts receivable ( 6,987 ) 7,139 Due to related parties 14 38 Prepaid expenses and other assets ( 79 ) 58 Accounts payable 2,065 ( 1,417 ) Accrued liabilities 1,034 ( 49 ) Net Cash Provided by Operating Activities 28,617 16,379 Cash Flows from Investing Activities: Capital expenditures, including exploration expense ( 20,726 ) ( 10,523 ) Proceeds from sale of properties and equipment 1,478 10,862 Net Cash (Used in) provided by Investing Activities ( 19,248 ) 339 Cash Flows from Financing Activities: Purchase of stock for treasury ( 145 ) ( 710 ) Purchase of non-controlling interests ( 676 ) ( 742 ) Increase in long-term bank debt and other long-term obligations 11,209 6,755 Repayment of long-term bank debt and other long-term obligations ( 10,209 ) ( 21,983 ) Distribution to non-controlling interest ( 197 ) ( 57 ) Net Cash (used in) Financing Activities ( 18 ) ( 16,737 ) Net Increase (Decrease) in Cash and Cash Equivalents 9,351 ( 19 ) Cash and Cash Equivalents at the Beginning of the Year 996 1,015 Cash and Cash Equivalents at the End of the Year $ 10,347 $ 996 Supplemental Disclosures: Income taxes paid during the year $ 343 $ 1 Interest paid during the year $ 1,957 $ 2,052 Non-Cash Disclosures: Purchase of non-controlling interest $ 14 $ 36 Distribution of non-controlling interest in liquidated partnerships $ 647 $ 1,550 The accompanying Notes are an integral part of these Consolidated Financial Statements F- 8 Table of Contents PRIMEENERGY RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Operations and Significant Accounting Policies Nature of Operations: PrimeEnergy Resources Corporation (“PERC”), a Delaware corporation, was organized in March 1973 and is engaged in the development, acquisition and production of oil and natural gas properties. PrimeEnergy Resources Corporation and its subsidiaries are herein referred to as the “Company.” The Company owns leasehold, mineral and royalty interests in producing and non-producing oil and gas properties across the United States, primarily in Oklahoma, and Texas. The Company operates approximately 710 active wells and owns non-operating interests and royalties in approximately 822 additional wells. Additionally, the Company provides well-servicing support operations, site-preparation and construction services for oil and gas drilling and reworking operations, both in connection with the Company’s activities and providing contract services for third parties. The Company is publicly traded on the NASDAQ under the symbol “PNRG.” PERC owns Eastern Oil Well Service Company (“EOWSC”) and EOWS Midland Company (“EMID”) which perform oil and gas field servicing. PERC also owns Prime Operating Company (“POC”), which serves as operator for most of the producing oil and gas properties owned by the Company and affiliated entities. The markets for the Company’s products are highly competitive, as oil and gas are commodity products and prices depend upon numerous factors beyond the control of the Company, such as economic, political and regulatory developments and competition from alternative energy sources. Effects of Coronavirus on Business: The COVID-19 pandemic resulted in a severe worldwide economic downturn, significantly disrupting the demand for oil, throughout the world, and created significant volatility, uncertainty and turmoil in the oil and gas industry. The decrease in demand for oil combined with pressures on the global supply-demand balance for oil and related products, resulted in oil prices declining significantly beginning in late February 2020. Since mid-2020, oil prices improved, with demand steadily increasing despite the uncertainties surrounding the COVID-19 variants, which have continued to inhibit a full global demand recovery. In addition, worldwide oil inventories are, from a historical perspective, very low and supply increases from OPEC, Russia and other oil producing nations are not expected to be sufficient to meet forecasted oil demand growth in 2022 and 2023, with many OPEC countries not able to produce at their OPEC agreed upon quota levels due to their lack of capital investments over the past few years in developing incremental oil supplies. Global oil price levels will ultimately depend on various factors and consequences beyond the Company’s control, such as (i) the effectiveness of responses to combat the COVID-19 virus and their impact on domestic and worldwide demand, (ii) the ability of OPEC, Russia and other oil producing nations to manage the global oil supply, (iii) the timing and supply impact of any Iranian sanction relief on Iran’s ability to export oil, (iv) additional actions by businesses and governments in response to the pandemic, (v) the global supply chain constraints associated with manufacturing delays, and (vi) political stability of oil consuming countries. The Company continues to assess the impact of the COVID-19 pandemic on the Company and may modify its response as the impact of COVID-19 continues to evolve. Effects of the Russian invasion of Ukraine: The invasion of Ukraine by Russian forces at the end of February 2022 has created increased volatility in both natural gas and oil markets, resulting in increased prices and supply demands. Changes in these markets will ultimately depend on various factors and consequences beyond the Company’s control. The Company continues to assess the impact of these changes on the Company and may modify its response as these changes continue to evolve. F-9 Table of Contents Consolidation and Presentation: The consolidated financial statements include the accounts of PrimeEnergy Resources Corporation, its subsidiaries and the Partnerships, using the full consolidation method for those partnerships which are controlled by the Company. The Company’s reserve estimates are based on the full consolidation method. DD&A expense and evaluation of impairment may differ from the Partnership as the Company’s cost basis for the Partnership interests acquired may be different than the cost basis at the Partnership level for properties acquired by the Partnership. All significant intercompany balances and transactions are eliminated in preparing the consolidated financial statements. Reclassifications: Certain reclassifications have been made to prior year statements to conform with the current year presentation. These reclassifications have no impact on net income and no material impact on any other financial statement captions. Subsequent Events: Subsequent events have been evaluated through the date that the consolidated financial statements were issued. During this period, there were no material subsequent items requiring disclosure other than as stated in footnotes 2 and 4 to these financial statements. Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates of oil and gas reserves, as determined by independent petroleum engineers, are continually subject to revision based on price, production history and other factors. Depletion expense, which is computed based on the units of production method, could be significantly impacted by changes in such estimates. Additionally, U.S. generally accepted accounting principles require that if the expected future undiscounted cash flows from an asset are less than its carrying cost, that asset must be written down to its fair market value. As the fair market value of an oil and gas property will usually be significantly less than the total undiscounted future net revenues expected from that asset, slight changes in the estimates used to determine future net revenues from an asset could lead to the necessity of recording a significant impairment of that asset. Property and Equipment: The Company follows the “successful efforts” method of accounting for its oil and gas properties. Under the successful efforts method, costs of acquiring undeveloped oil and gas leasehold acreage, including lease bonuses, brokers’ fees and other related costs are capitalized. Provisions for impairment of undeveloped oil and gas leases are based on periodic evaluations. Annual lease rentals and exploration expenses, including geological and geophysical expenses and exploratory dry hole costs, are charged against income as incurred. Costs of drilling and equipping productive wells, including development dry holes and related production facilities, are capitalized. All other property and equipment are carried at cost. Depreciation and depletion of oil and gas production equipment and properties are determined under the unit-of-production method based on estimated proved developed recoverable oil and gas reserves. Depreciation of all other equipment is determined under the straight-line method using various rates based on useful lives generally ranging from 5 to 10 years. The cost of assets and related accumulated depreciation is removed from the accounts when such assets are disposed of, and any related gains or losses are reflected in current earnings. F-10 Table of Contents Capitalization of Interest: Interest costs related to financing major oil and gas projects in progress are capitalized until the projects are evaluated or until the projects are substantially complete and ready for their intended use if the projects are evaluated and successful. Impairment of Long-Lived Assets: The Company reviews long-lived assets, including oil and gas properties, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recovered. If the carrying amounts are not expected to be recovered by undiscounted cash flows, the assets are impaired, and an impairment loss is recorded. The amount of impairment is based on the estimated fair value of the assets determined by discounting anticipated future net cash flows. Fair Value: The Company follows the authoritative guidance that establishes a formal framework for measuring fair values of assets and liabilities in financial statements that are already required by U.S. generally accepted accounting principles to be measured at fair value. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The transaction is based on a hypothetical transaction in the principal or most advantageous market considered from the perspective of the market participant that holds the asset or owes the liability. The Company utilizes market data or assumptions that market participants who are independent, knowledgeable and willing and able to transact would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company attempts to utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs. The guidance establishes a formal fair value hierarchy based on the inputs used to measure fair value. The hierarchy gives the highest priority to Level 1 inputs, which consist of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3 valuations are derived from inputs that are significant and unobservable; hence, these valuations have the lowest priority. Asset Retirement Obligation: The asset retirement obligation primarily represents the estimated present value of the amount the Company will incur to plug, abandon and remediate producing properties at the end of their productive lives, in accordance with applicable state laws. The Company determined its asset retirement obligation by calculating the present value of estimated cash flows related to the liability. The asset retirement obligation is recorded as a liability at its estimated present value at its inception, with an offsetting increase to producing properties. Periodic accretion of discount of the estimated liability is recorded as an expense in the statement of operations. Income Taxes: The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the tax rate in effect for the year in which those temporary differences are expected to turn around. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized. As of December 31, 2021, and 2020, The Compan y had no valuation allowance. F-11 Table of Contents The Company is required to make judgments, including estimating reserves for potential adverse outcomes regarding tax positions that the Company has taken. The Company accounts for uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return. The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties.​​​​​​​ General and Administrative Expenses: General and administrative expenses represent cost and expenses associated with the operation of the Company. Earnings Per Common Share: Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common stock had been converted to common stock in gain periods. Statements of Cash Flows: For purposes of the consolidated statements of cash flows, the Company considers short-term, highly liquid investments with original maturities of less than ninety days to be cash equivalents. Concentration of Credit Risk: The Company maintains significant banking relationships with financial institutions in the State of Texas. The Company limits its risk by periodically evaluating the relative credit standing of these financial institutions. The Company’s oil and gas production purchasers consist primarily of independent marketers and major gas pipeline companies. Hedging: The Company periodically enters into oil and gas financial instruments to manage its exposure to oil and gas price volatility. The oil and gas reference prices upon which the price hedging instruments are based reflect various market indices that have a high degree of historical correlation with actual prices received by the Company. The financial instruments are accounted for in accordance with applicable accounting standards for derivative instruments and hedging activities. Such standards require that applicable derivative instruments be measured at fair market value and recognized as assets or liabilities in the balance sheet. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation is generally established at the inception of a derivative. For derivatives designated as cash flow hedges and meeting applicable effectiveness guidelines, changes in fair value, to the extent effective, are recognized in other comprehensive income until the hedged item is recognized in earnings. Hedge effectiveness is measured at least quarterly based on the relative changes in fair value between the derivative contract and the hedged item over time. Any change in fair value of a derivative resulting from ineffectiveness or an excluded component of the gain/loss is recognized immediately in the statement of operations. Pronouncements Issued But Not Yet Adopted: In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by F-12 Table of Contents requiring earlier recognition of credit losses on financing receivables and other financial assets in scope. This guidance is effective for Smaller Reporting Companies for fiscal years beginning after December 15, 2022 , including interim periods within those fiscal periods. The adoption and implementation of this ASU will not have a material impact on the Company’s financial statements. 2. Acquisitions and Dispositions Historically, the Company has repurchased the non-controlling interests of the partners and trust unit holders in certain of the Partnerships, w hich consist primarily of oil and gas interests. The Company purchased such non-controlling interests in an amount totaling $ 44,000 in 2021 and $ 22,000 in 2020. Such purchases resulted in the non-cash acquisition of non-controlling equity interests of $ 14,000 and $ 36,000 respectively. During 2021 and 2020 the Company liquidated partnerships for total cash payments of $ 632,000 and $ 720,000 respectively, resulting in the non-cash distribution of non-controlling interest of $ 647,000 and $ 1,550 million, respectively . Effective December 31, 2021, all managed partnerships and trusts have been liquidated. During 2020 the Company acquired 232 net acres, along with 15 % to 16.6 % working interest ownership in 53 oil and gas wells and one commercial salt water disposal well operated by the Company, all located in Reagan County, Texas, for $ 343,000 . In addition, we acquired 9.36 net acre in Upton County, Texas at a cost of $ 5,100 . During 2021 the Company acquired 5.9 net acres, located in Midland county, Texas, for approximately $ 29,500 and sold or farmed out interests in certain non-core undeveloped and developed oil and natural gas properties in Oklahoma. In Texas, the Company divested approximately 116 net mineral acres (NMA) located in Martin County, Texas for proceeds of $ 1.45 million. In the first quarter of 2022, the Company has sold 1809 net leasehold acres in Reagan and Midland Counties, Texas through two separate transactions receiving gross proceeds of $ 14.1 million. 3. Additional Balance Sheet Information Accounts receivable at December 31, 2021 and 2020 consisted of the following: December 31, (Thousands of dollars) 2021 2020 Joint interest billings $ 1,902 $ 2,475 Trade receivables 1,429 1,073 Oil and gas sales 11,154 3,469 Other 94 802 14,579 7,819 Less: Allowance for doubtful accounts ( 371 ) ( 598 ) Total $ 14,208 $ 7,221 Accounts payable at December 31, 2021 and 2020 consisted of the following: December 31, (Thousands of dollars) 2021 2020 Trade $ 2,390 $ 876 Royalty and other owners 2,802 3,569 Partner advances 1,209 193 Other 881 579 Total $ 7,282 $ 5,217 F-13 Table of Contents Accrued liabilities at December 31, 2021 and 2020 consisted of the following: December 31, (Thousands of dollars) 2021 2020 Compensation and related expenses $ 3,919 $ 3,331 Property costs 2,901 2,056 Taxes 893 1,016 Other 108 384 Total $ 7,821 $ 6,787 4. Long-Term Deb t Bank Debt: On 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 . Under the 2017 Credit Agreement, the Company has a revolving line of credit and letter of credit facility of up to $ 300 million subject to a borrowing base that is determined semi-annually by the lenders based upon the Company’s financial statements and the estimated value of the Company’s oil and gas properties, in accordance with the Lenders’ customary practices for oil and gas loans. The credit facility is secured by substantially all of the Company’s oil and gas properties. The 2017 Credit Agreement includes terms and covenants that require the Company to maintain a minimum current ratio and total indebtedness to EBITDAX (earnings before depreciation, depletion, amortization, taxes, interest expense and exploration costs) ratio, as defined, and restrictions are placed on the payment of dividends, the amount of treasury stock the Company may purchase, commodity hedge agreements, and loans and investments in its consolidated subsidiaries and limited partnerships. During 2020, the 2017 Credit Agreement was amended to add loans under the Paycheck Protection Program to the Permitted loans, as defined in the agreement. On February 11, 2021, the Company and its lenders entered into a Sixth Amendment to the 2017 Credit Agreement. Under this amendment the Company’s borrowing base is $ 40 million. Borrowings under the 2017 Credit Agreement will bear interest at a base rate plus an applicable margin ranging from 2.00 % to 3.00 % or at the Company’s option, at LIBOR plus an applicable margin ranging from 3.00 % to 4.00 %. The 2017 Credit Agreement will mature on February 11, 2023 . The Company’s borrowings under this credit facility approximates fair value because the interest rates are variable and reflective of market rates. On December 20, 2021 the company entered into a Seventh Amendment to the 2017 Credit Agreement. At this time , Citibank N.A agreed to accept appointment as successor administrative agent from PNC Bank which was the successor to BBVA USA effective October 12, 2021. Under this amendment the Company’s borrowing base is $ 50 million. Borrowings under the 2017 . Credit Agreement will bear interest at alternate base rate(ABR) plus an applicable margin ranging from 2.00 % to 3.00 % or at the Company’s option, at SOFR rate plus an applicable margin ranging from 3.00 % to 4.00 %. SOFR means a rate equal to the secured overnight financing rate as administered by the SOFR Administrator, in this case the Federal Reserve Bank of New York The 2017 Credit Agreement maturity date remains at February 11, 2023 . The Company’s borrowings under this credit facility approximates fair value because the interest rates are variable and reflective of market rates. On December 31, 2021, the Company had a total of $ 36 million of borrowings outstanding under its revolving credit facility at a weighted-average interest rate of 5.38 % and $ 14 million was available for future borrowings. The combined weighted average interest rate paid on outstanding bank borrowings subject to ABR base rate and SOFR interest was 5.29 % for the year ended December 31, 2021 as compared to 3.95 % for the year ended December 31, 2020. F-14 Table of Contents On March 31, 2022, the outstanding borrowings under the Company’s revolving credit facility were $ 9,000,000 . 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”). 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. The Company utilized the PPP Loan proceeds exclusively for Qualifying Expenses during the 24-week coverage period and has submit ted its application for forgiveness in accordance with the terms of the CARES Act and related guidance. In the event the PPP Loan or any portion thereof is forgiven, the amount forgiven is applied to the outstanding principal and accrued interest. The PPP loans have been approved for forgiveness by the Small Business Administration ( SBA) in conjunction with our lender PNC Bank. The effective date of February 18 , 2022 for Eastern Oil Well Service Company in the amount of $ 481 thousand in principal and interest paid to our lender PNC Bank. The effective date of March 16, 2022 for Prime Operating Company in the amount of $ 1.2 million in principal and interest to our lender PNC Bank. Effective December 31, 2021 , PPP debt and any accrued interest were reclassed from the consolidated balance sheet and recorded in other income on the consolidated statement of operations. 5. Commitments Operating Leases: 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 Company’s lease contracts do not provide an implicit discount rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The weighted average discount rate used was 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 Company’s 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 year ended December 31, 2021 was $ 577 thousand. Cash payments included in the operating lease cost for year ended December 31, 2021 was $ 599 thousand. The weighted-average remaining operating lease terms is 15 months. The Company amended certain leases for office space in Texas providing for payments of $ 599,000 in 2021, $ 601,000 in 2022 and $ 150,000 in 2023. Rent expense for office space the year s ended December 31, 2021 and 2020 was $ 653,000 and $ 663,000 , respectively. F-15 Table of Contents The payment schedule for the Company’s operating lease obligations as of December 31, 2021 is as follows: (Thousands of dollars) Operating Leases 2022 $ 601 2023 150 Total undiscounted lease payments $ 751 Less: Amount associated with discounting ( 59 ) Net operating lease liabilities $ 692 Asset Retirement Obligation: A reconciliation of the liability for plugging and abandonment costs for the years ended December 31, 2021 and 2020 is as follows: Year Ended December 31, (Thousands of dollars) 2021 2020 Asset retirement obligation at beginning of period $ 13,660 $ 21,118 Liabilities incurred 724 4 Liabilities settled ( 1,047 ) ( 1,286 ) Liabilities divested ( 52 ) ( 5,731 ) Accretion expense 642 856 Revisions in estimated liabilities 368 ( 1,301 ) Asset retirement obligation at end of period $ 14,295 $ 13,660 The Company’s liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive life of wells and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligation. Revisions to the asset retirement obligation are recorded with an offsetting change to producing properties, resulting in prospective changes to depreciation, depletion and amortization expense and accretion of discount. Because of the subjectivity of assumptions and the relatively long life of most of the Company’s wells, the costs to ultimately retire the wells may vary significantly from previous estimates. 6. Contingent Liabilities​​​​​​​​​​​​​​ The Company is subject to environmental laws and regulations. Management believes that future expenses, before recoveries from third parties, if any, will not have a material effect on the Company’s financial condition. This opinion is based on expenses incurred to date for remediation and compliance with laws and regulations, which have not been material to the Company’s results of operations. From time to time, the Company is party to certain legal actions arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, management does not expect these matters to have a materially adverse effect on the financial position or results of operations of the Company. 7. Stock Options and Other Compensation In May 1989, non-statutory stock options were granted by the Company to four key executive officers for the purchase of shares of common stock. At December 31, 2021 and 2020, options 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. F-16 Table of Contents 8. Income Taxes The components of the provision (benefit) for income taxes for the years ended December 31, 2021 and 2020 are as follows: Year Ended December 31, (Thousands of dollars) 2021 2020 Current: Federal $ 81 $ 950 State 59 80 Total current 140 1,030 Deferred: Federal 1,802 ( 1,491 ) State 574 ( 56 ) Total deferred 2,376 ( 1,547 ) Total income tax provision $ 2,516 $ ( 517 ) At December 31, (Thousands of dollars) 2021 2020 Deferred Tax Assets: Accrued liabilities $ 80 $ ( 584 ) Allowance for doubtful accounts 85 136 Derivative Contracts 1,272 153 State Net operating loss carry-forwards 470 760 Total deferred tax assets 1,907 465 Deferred Tax Liabilities: Partnership basis difference ( 98 ) 544 Depletion and depreciation 40,748 36,288 Total deferred tax liabilities 40,650 36,832 Net deferred tax liabilities $ 38,743 $ 36,367 The total provision (benefit) for income taxes for the years ended December 31, 2021 and 2020 varies from the federal statutory tax rate as a result of the following: Year Ended December 31, (Thousands of dollars) 2021 2020 Expected tax expense $ 975 $ ( 595 ) Net changes in deferred assets and liabilities 2,376 ( 1,547 ) Permanent differences ( 677 ) 521 State income tax, net of federal benefit 47 63 Provision to return adjustment 744 1,547 Tax Credits ( 948 ) ( 502 ) Other, net ( 1 ) ( 4 ) Total income tax provision (benefit) $ 2,516 $ ( 517 ) Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. On December 22, 2017, the U.S. enacted into legislation the Tax Cuts and Jobs Act (2017 Tax Act). Under the 2017 Tax Act, the company may use alternative minimum tax (AMT) credits to fully offset any regular tax F-17 Table of Contents l iability. In addition, a portion of the AMT credit which exceeds the regular tax liability is refundable in future years. The refundable portion was 50 % of any excess credit in the years 2019 through 2020 and 100 % in 2021. The Company expected to receive a refund of $ 1.720 million in 2020 based on refundable credits claimed on the 2019 return, and additional $ 1.720 million refunds of previously paid taxes on its tax returns for the years 2020 and 2021. On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, AMT credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Under the CARES Act the refundable portion of AMT credits was increased to 100 % therefore the Company received a full refund of such credits in 2020. The Company is entitled to percentage depletion on certain of its wells, which is calculated without reference to the basis of the property. To the extent that such depletion exceeds a property’s basis, it creates a permanent difference, which lowers the Company’s effective rate. The availability of the percentage depletion deduction is phased out as an entity’s production exceeds certain levels, and based on the Company’s increasing production the percentage depletion deduction is becoming less significant. The Company is allowed a credit against the Texas Franchise Tax based on net operating losses incurred in prior periods. The credits allowed are $ 89 thousand in the years 2020 through 2026. Any credits not utilized in a given year due to the allowable credit exceeding the tax liability may be carried forward. No credit may be carried forward past 2026 . The value of the credit is calculated net of the federal income tax effect. The Company has not recorded any provision for uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. The 2004, 2005, 2006, 2009 and 2017 federal income tax returns have been audited by the Internal Revenue Service. Returns for unexamined earlier years may be examined and adjustments made to the amount of percentage depletion and AMT credit carryforwards flowing from those years into an open tax year, although in general no assessment of income tax may be made for those years on which the statute has closed. State returns for the years 201 9 through 202 1 remain open for examination by the relevant taxing authorities 9. Segment Information and Major Customers The Company operates in one industry – oil and gas exploration, development, operation and servicing. The Company’s oil and gas activities are entirely in the United States. The Company sells its oil and natural gas and liquids production to a number of direct purchasers under direct contracts or through other operators under joint operating agreements. Listed below are the purchasers of the Company’s production which represented more than 10 % of the Company’s sales in the year 2021. Oil: Apache Corporation 48 % Plains All American Inc. 18 % Natural gas and liquids: Apache Corporation 52 % Targa Pipeline Mid-Continent West Tex, LLC 19 % Although there are no long-term oil and gas purchasing agreements with these purchasers, the Company believes that they will continue to purchase its oil and gas products and, if not, could be replaced by other purchasers. F-18 Table of Contents 10. Financial Instruments Fair Value Measurements: Authoritative guidance on fair value measurements defines fair value, establishes a framework for measuring fair value and stipulates the related disclosure requirements. The Company follows a three-level hierarchy, prioritizing and defining the types of inputs used to measure fair value. The fair values of the Company’s interest rate swaps, natural gas and crude oil price collars and swaps are designated as Level 3. The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2021 and December 31, 2020: December 31, 2021 Quoted Prices in Active Markets For Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance at December 31, 2021 (Thousands of dollars) Assets Commodity derivative contracts $ — $ — $ — $ — Total assets $ — $ — $ — $ — Liabilities Commodity derivative contracts $ — $ — $ ( 5,585 ) $ ( 5,585 ) Total liabilities $ — $ — $ ( 5,585 ) $ ( 5,585 ) December 31, 2020 Quoted Prices in Active Markets For Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance at December 31, 2020 (Thousands of dollars) Assets Commodity derivative contracts $ — $ — $ 97 $ 97 Total assets $ — $ — $ 97 $ 97 Liabilities Commodity derivative contract $ — $ — $ ( 768 ) $ ( 768 ) To tal liabilities $ — $ — $ ( 768 ) $ ( 768 ) The derivative contracts were measured based on quotes from the Company’s counterparties. Such quotes have been derived using valuation models that consider various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for natural gas and crude oil, volatility factors and interest rates, such as a LIBOR curve for a similar length of time as the derivative contract term as applicable. These estimates are verified using comparable NYMEX futures contracts or are compared to multiple quotes obtained from counterparties for reasonableness. The significant unobservable inputs for Level 3 derivative contracts include basis differentials and volatility factors. An increase (decrease) in these unobservable inputs would result in an increase (decrease) in fair value, respectively. The Company does not have access to the specific assumptions used in its counterparties’ valuation models. Consequently, additional disclosures regarding significant Level 3 unobservable inputs were not provided. F-19 Table of Contents 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 year ended December 2021. ​​​​​​​ (Thousands of dollars) Net Liabilities – December 31, 2020 $ ( 671 ) Total realized and unrealized gains (losses): Included in earnings (a) ( 9,959 ) Purchases, sales, issuances and settlements 5,045 Net Liabilities — December 31, 2021 $ ( 5,585 ) (a) Derivative instruments are reported in revenues as realized gain/loss and on a separately reported line item captioned unrealized gain/loss on derivative instruments. Derivative Instruments: The Company is exposed to commodity price and interest rate risk, and management considers periodically the Company’s exposure to cash flow variability resulting from the commodity price changes and interest rate fluctuations. Futures, swaps and options are used to manage the Company’s exposure to commodity price risk inherent in the Company’s oil and gas production operations. The Company does not apply hedge accounting to any of its commodity-based derivatives. Both realized and unrealized gains and losses associated with commodity derivative instruments are recognized in earnings. The following table sets forth the effect of derivative instruments on the consolidated balance sheets at December 31, 2021 and 2020: Fair Value (Thousands of dollars) Balance Sheet Location December 31, 2021 December 31, 2020 Asset Derivatives: Derivatives not designated as cash-flow hedging instruments: Natural gas commodity contracts Derivative asset long-term and other assets $ — $ 97 Total $ — $ 97 Liability Derivatives: Derivatives not designated as cash-flow hedging instruments: Crude oil commodity contracts Derivative liability short-term $ ( 3,992 ) $ ( 428 ) Natural gas commodity contracts Derivative liability short-term ( 943 ) ( 296 ) Crude oil commodity contracts Derivative liability long-term ( 490 ) — Natural gas commodity contracts Derivative liability long-term ( 160 ) ( 44 ) Total $ ( 5,585 ) $ ( 768 ) Total derivative instruments $ ( 5,585 ) $ ( 671 ) F-20 Table of Contents The following table sets forth the effect of derivative instruments on the consolidated statements of operations for the years ended December 31, 2021 and 2020: (Thousands of dollars) Location of gain/loss recognized in income Amount of gain/loss recognized in income 2021 2020 Derivatives not designated as cash-flow hedge instruments: Natural gas commodity contracts Unrealized (loss) gain on derivative instruments, net ( 859 ) ( 351 ) Crude oil commodity contracts Unrealized (loss) gain on derivative instruments, net ( 4,055 ) 161 Natural gas commodity contracts Realized (loss) on derivative instruments, net ( 1,833 ) 476 Crude oil commodity contracts Realized (loss) gain on derivative instruments, net ( 3,212 ) 5,697 $ ( 9,959 ) $ 5,983 11. Related Party Transactions The Company, as managing general partner or managing trustee, makes an annual offer to repurchase the interests of the partners and trust unit holders in certain of the Partnerships or Trusts. The Company purchased such interests in an amount totaling $ 676,000 during 2021 and $ 742,000 during 2020. Payables owed to related parties primarily represent receipts collected by the Company as agent for the joint venture partners, which may include members of the Company’s Board of Directors, during a specific reporting year, for oil and gas sales net of expenses. 12. Salary Deferral Plan The Company maintains a salary deferral plan (the “Plan”) in accordance with Internal Revenue Code Section 401(k), as amended. The Plan provides for matching contributions, of which $ 304,955 and $ 341,000 were made in 2021 and 2020, respectively 13. Earnings per Share Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common stock had been converted to common stock in gain periods. The following reconciles amounts reported in the financial statements: Year Ended December 31, 2021 2020 Net Income (In 000’s) Weighted Average Number of Shares Outstanding Per Share Amount Net Income (In 000’s) Weighted Average Number of Shares Outstanding Per Share Amount Basic $ 2,098 1,992,077 $ 1.05 $ ( 2,316 ) 1,994,425 $ ( 1.16 ) Effect of dilutive securities: Options (a) — 752,085 — Diluted $ 2,098 2,744,162 $ 0.76 $ ( 2,316 ) 1,994,425 $ ( 1.16 ) (a) The effect of the 767,000 outstanding stock options is antidilutive for the year ended December 31, 202 0 , due to net loss for this period. F- 21 Table of Contents PRIMEENERGY RESOURCES CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES (Unaudited) As of December 31, (Thousands of dollars) 2021 2020 Proved Developed oil and gas properties $ 539,484 $ 520,488 Proved Undeveloped oil and gas properties — — Total Capitalized Costs 539,484 520,488 Accumulated depreciation, depletion and valuation allowance ( 359,742 ) ( 335,390 ) Net Capitalized Costs $ 179,742 $ 185,098 COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES (Unaudited) cash flow sched Year Ended December 31, (Thousands of dollars) 2021 2020 Development Costs $ 18,678 $ 9,339 STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES (Unaudited) As of December 31, (Thousands of dollars) 2021 2020 Future cash inflows $ 501,431 $ 221,090 Future production costs ( 207,697 ) ( 100,691 ) Future development costs ( 18,507 ) ( 39,167 ) Future income tax expenses ( 57,798 ) ( 15,135 ) Future Net Cash Flows 217,429 66,097 10% annual discount for estimated timing of cash flows ( 81,623 ) ( 24,479 ) Standardized Measure of Discounted Future Net Cash Flows $ 135,806 $ 41,619 See accompanying Notes to Supplementary Information F-22 Table of Contents STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES (Unaudited) The following are the principal sources of change in the standardized measure of discounted future net cash flows during 2021 and 2020: Year Ended December 31, (Thousands of dollars) 2021 2020 Sales of oil and gas produced, net of production costs $ ( 45,322 ) $ ( 13,945 ) Net changes in prices and production costs 143,750 ( 16,578 ) Extensions, discoveries and improved recovery 6,440 314 Revisions of previous quantity estimates 18,991 ( 36,919 ) Net change in development costs ( 12,904 ) 20,724 Reserves sold ( 136 ) ( 874 ) Reserves purchased — 218 Accretion of discount 4,162 8,161 Net change in income taxes ( 21,180 ) 5,386 Changes in production rates (timing) and other 386 ( 6,480 ) Net change 94,187 ( 39,993 ) Standardized measure of discounted future net cash flow: Beginning of year 41,619 81,612 End of year $ 135,806 $ 41,619 See accompanying Notes to Supplementary Information F-23 Table of Contents PRIMEENERGY RESOURCES CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION RESERVE QUANTITY INFORMATION Years Ended December 31, 2021 and 2020 (Unaudited) As of December 31, 2021 2020 Oil (MBbls) NGL’s (MBbls) Gas (MMcf) Oil (MBbls) NGLs (MBbls) Gas (MMcf) Proved Developed Reserves: Beginning of year 2,684 2,258 13,633 4,381 2,914 19,995 Extensions, discoveries and improved recovery 69 1 628 11 7 36 Revisions of previous estimates 133 ( 29 ) 5,312 ( 995 ) ( 239 ) ( 1,721 ) Converted from undeveloped reserves 1,747 231 1,067 25 5 66 Reserves sold 15 5 26 ( 29 ) 0 ( 1,400 ) Reserve purchased — — — 24 8 38 Production 738 416 3,236 ( 733 ) ( 437 ) ( 3,381 ) End of year 5,386 2,882 23,902 2,684 2,258 13,633 Proved Undeveloped Reserves: Beginning of year 1,784 787 3,897 1,833 1,017 4,547 Extensions, discoveries and improved recovery ( 61 ) ( 557 ) ( 2,726 ) — — — Revisions of previous estimates 31 4 386 ( 24 ) ( 224 ( 584 ) Converted to developed reserves ( 1,747 ) ( 231 ) ( 1,067 ) ( 25 ) ( 5 ) ( 66 ) Reserves Sold ( 7 ) ( 4 ) ( 489 ) — — — End of year — — — 1,784 787 3,897 Total Proved Reserves at the End of the Year 5,386 2,882 23,902 4,468 3,045 17,530 RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES Years Ended December 31, 2021 and 2020 (Unaudited) Year Ended December 31, (Thousands of dollars) 2021 2020 Revenue: Oil and gas sales $ 73,126 $ 36,973 Costs and Expenses: Lease operating expenses 27,804 23,028 Depreciation, depletion and accretion 26,325 25,921 Income tax expense 3,989 ( 2,515 ) Total Costs and Expenses 58,118 46,434 Results of Operations from Producing Activities (excluding corporate overhead and interest costs) $ 15,008 $ ( 9,461 ) See accompanying Notes to Supplementary Information F-24 Table of Contents PRIMEENERGY RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO SUPPLEMENTARY INFORMATION (Unaudited) 1. Presentation of Reserve Disclosure Information Reserve disclosure information is presented in accordance with U.S. generally accepted accounting principles. The Company’s reserves include amounts attributable to non-controlling interests in the Partnerships. These interests represent less than 10 % of the Company’s reserves. 2. Determination of Proved Reserves The estimates of the Company’s proved reserves were determined by an independent petroleum engineer in accordance with U.S. generally accepted accounting principles. The estimates of proved reserves are inherently imprecise and are continually subject to revision based on production history, results of additional exploration and development and other factors. Estimated future net revenues were computed by reserves, less estimated future development and production costs based on current costs. Proved reserve quantity estimates are subject to numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. The accuracy of such estimates is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of subsequent drilling, testing and production may cause either upward or downward revision of previous estimates. Further, the volumes considered to be commercially recoverable fluctuate with changes in prices and operating costs. The Company emphasizes that proved reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of currently producing oil and gas properties. Accordingly, these estimates are expected to change as additional information becomes available in the future. 3. Results of Operations from Oil and Gas Producing Activities The results of operations from oil and gas producing activities were prepared in accordance with U.S. generally accepted accounting principles. General and administrative expenses, interest costs and other unrelated costs are not deducted in computing results of operations from oil and gas activities. 4. Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil and Gas Reserves The standardized measure of discounted future net cash flows relating to proved oil and gas reserves and the changes of standardized measure of discounted future net cash flows relating to proved oil and gas reserves were prepared in accordance with U.S. generally accepted accounting principles. Future cash inflows are computed as described in Note 2 by applying current prices to year-end quantities of proved reserves. Future production and development costs are computed estimating the expenditures to be incurred in developing and producing the oil and gas reserves at year-end, based on year-end costs and assuming continuation of existing economic conditions. Future income tax expenses are calculated by applying the U.S. tax rate to future pre-tax cash inflows relating to proved oil and gas reserves, less the tax basis of properties involved. Future income tax expenses give effect to permanent differences and tax credits and allowances relating to the proved oil and gas reserves. F-25 Table of Contents Future net cash flows are discounted at a rate of 10 % annually (pursuant to applicable guidance) to derive the standardized measure of discounted future net cash flows. This calculation does not necessarily represent an estimate of fair market value or the present value of such cash flows since future prices and costs can vary substantially from year-end and the use of a 10 % discount figure is arbitrary. 5. Changes in Reserves The 2021 and 2020 extensions and discoveries reflect the drilling activity in the Company’s West Texas and Mid-Continent areas. The Company is employing technologies to establish proved reserves that have been demonstrated to provide consistent results capable of repetition. The technologies and economic data being used in the estimation of its proved reserves include, but are not limited to, electrical logs, radioactivity logs, geologic maps, production data and well test data. The estimated reserves of wells with sufficient production history are estimated using appropriate decline curves. Estimated reserves of producing wells with limited production history and for undeveloped locations are estimated using performance data from analogous wells in the area. These wells are considered analogous based on production performance from the same formation and with similar completion techniques. Future development plans are reflective of the current commodity prices and have been established based on an expectation of available cash flows from operations and availability under our revolving credit facility. F-26