Item 1. Financial Statements
Item 1.
FINANCIAL STATEMENTS
PRIMEENERGY RESOURCES CORPORATION
C ONDENSED
C ONSOLIDATED
B ALANCE
S HEETS
– Unaudited
(Thousands of dollars)
September 30,
2022
December 31,
2021
ASSETS
Current Assets
Cash and cash equivalents
$
24,059
$
10,347
Accounts receivable, net
16,943
14,208
Prepaid obligations
783
733
Other current assets
348
40
Total Current Assets
42,133
25,328
Property and Equipment
Oil and gas properties at cost
545,345
539,484
Less: Accumulated depletion and depreciation
( 380,287
)
( 359,742
)
165,058
179,742
Field and office equipment at cost
28,013
27,080
Less: Accumulated depreciation
( 23,041
)
( 22,159
)
4,972
4,921
Total Property and Equipment, Net
170,030
184,663
Derivative asset long-term and other assets
736
923
Total Assets
$
212,899
$
210,914
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
$
6,168
$
7,282
Accrued liabilities
10,526
7,821
Due to related parties
113
52
Current portion of asset retirement and other long-term obligations
1,438
1,630
Derivative liability short-term
3,975
4,935
Total Current Liabilities
22,220
21,720
Long-Term Bank Debt
—
36,000
Asset Retirement Obligations
12,460
13,222
Derivative Liability Long-Term
—
650
Deferred Income Taxes
47,518
38,743
Other Long-Term Obligations
1,323
1,488
Total Liabilities
83,521
111,823
Commitments and Contingencies
Equity
Common stock, $ .10 par value; 2022 and 2021: Authorized: 2,810,000 shares, outstanding 2022: 1,930,700 shares; outstanding 2021: 1,992,077 shares.
281
281
Additional paid-in
capital
7,555
7,555
Retained earnings
164,181
128,902
Treasury stock, at cost; 2022: 879,300 shares; 2021: 817,923 shares
( 42,639
)
( 37,647
)
Total Equity
129,378
99,091
Total Liabilities and Equity
$
212,899
$
210,914
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements
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PRIMEENERGY RESOURCES CORPORATION
C ONDENSED
C ONSOLIDATED
S TATEMENTS
OF
O PERATIONS
– Unaudited
Three and nine months ended September 30, 2022 and 2021
(Thousands of dollars, except per share amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Revenues
Oil sales
$
23,403
$
10,442
$
75,546
$
30,376
Natural gas sales
6,359
3,998
14,762
7,948
Natural gas liquids sales
4,204
3,632
12,477
7,781
Realized (loss) on derivative instruments, net
( 4,285
)
( 1,983
)
( 13,992
)
( 2,896
)
Field service income
3,846
2,415
10,822
6,215
Unrealized gain (loss) on derivative instruments, net
6,124
( 1,194
)
1,918
( 7,162
)
Other income
—
1
29
30
Total Revenues
39,651
17,311
101,562
42,292
Costs and Expenses
Lease operating expense
8,679
6,396
26,613
15,298
Field service expense
3,005
2,925
9,545
6,180
Depreciation, depletion, amortization and accretion on discounted liabilities
7,732
6,883
21,931
19,990
General and administrative expense
2,453
1,984
11,543
6,183
Total Costs and Expenses
21,869
18,188
69,632
47,651
Gain on Sale and Exchange of Assets
494
5
15,330
111
Income (Loss) from Operations
18,276
( 872
)
47,260
( 5,248
)
Other Income (Expense)
Interest Income
8
—
8
—
Interest Expense
( 253
)
( 462
)
( 752
)
( 1,469
)
Income (Loss) Before Income Taxes
18,031
( 1,334
)
46,516
( 6,717
)
Income Taxes Expense (Benefit)
4,877
( 186
)
11,237
( 1,700
)
Net Income (Loss)
13,154
( 1,148
)
35,279
( 5,017
)
Less: Net Income Attributable to Non-Controlling
Interests
—
15
—
4
Net Income (Loss) Attributable to PrimeEnergy
$
13,154
$
( 1,163
)
$
35,279
$
( 5,021
)
Basic Income (Loss) Per Common Share
$
6.79
$
( 0.58
)
$
17.95
$
( 2.52
)
Diluted Income (Loss) Per Common Share
$
4.88
$
( 0.58
)
$
12.96
$
( 2.52
)
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements
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PRIMEENERGY RESOURCES CORPORATION
C ONDENSED
C ONSOLIDATED
S TATEMENTS
OF
E QUITY
– Unaudited
Nine months Ended September 30, 2022 and 2021
(Thousands of dollars)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Total
Stockholders’
Equity –
PrimeEnergy
Non-
Controlling
Interest
Total
Equity
Balance at December 31, 2021
1,992,077
$
281
$
7,555
$
128,902
$
( 37,647
)
$
99,091
$
—
$
99,091
Purchase 61,377 shares of Common stock
( 61,377
)
—
—
—
( 4,992
)
( 4,992
)
—
( 4,992
)
Net Income
—
—
—
35,279
—
35,279
—
35,279
Balance at September 30, 2022
1,930,700
$
281
$
7,555
$
164,181
$
( 42,639
)
$
129,378
$
—
$
129,378
Balance at December 31, 2020
1,994,177
$
281
$
7,541
$
126,804
$
( 37,502
)
$
97,124
$
874
$
97,998
Net (Loss) Income
( 5,021
)
( 5,021
)
4
( 5,017
)
Purchase of non-
controlling interest
—
—
19
—
—
19
( 25
)
( 6
)
Balance at September 30, 2021
1,994,177
$
281
$
7,560
$
121,783
$
( 37,502
)
$
92,122
$
853
$
92,975
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements
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PRIMEENERGY RESOURCES CORPORATION
C ONDENSED
C ONSOLIDATED
S TATEMENTS
OF
C ASH
F LOWS
–
Unaudited
Nine months ended September 30, 2022 and 2021
(Thousands of dollars)
2022
2021
Cash Flows from Operating Activities:
Net Income (Loss)
$
35,279
$
( 5,017
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion on discounted liabilities
21,931
19,990
Gain on sale of properties
( 15,330
)
( 111
)
Unrealized (gain) loss on derivative instruments, net
( 1,918
)
7,162
Provision for deferred income taxes
8,775
( 1,700
)
Changes in operating assets and liabilities:
Accounts receivable
( 2,735
)
( 7,120
)
Due to related parties
61
( 4
)
Other assets
( 308
)
( 655
)
Accounts payable
( 1,114
)
6,170
Accrued liabilities
2,705
109
Net Cash Provided by Operating Activities
47,346
18,824
Cash Flows from Investing Activities:
Capital expenditures
( 7,972
)
( 11,301
)
Proceeds from sale of properties and equipment
15,330
111
Net Cash Provided by (Used in) Investing Activities
7,358
( 11,190
)
Cash Flows from Financing Activities:
Purchase of stock for treasury
( 4,992
)
—
Purchase of non-controlling
interests
—
( 6
)
Proceeds from long-term bank debt and other long-term obligations
—
3,000
Repayment of long-term bank debt and other long-term obligations
( 36,000
)
( 8,000
)
Net Cash (Used in) Financing Activities
( 40,992
)
( 5,006
)
Net Increase in Cash and Cash Equivalents
13,712
2,628
Cash and Cash Equivalents at the Beginning of the Period
10,347
996
Cash and Cash Equivalents at the End of the Period
$
24,059
$
3,624
Supplemental Disclosures:
Income taxes paid
$
61
$
—
Interest paid
$
714
$
1,384
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements
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PRIMEENERGY RESOURCES CORPORATION
N OTES
TO
C ONDENSED
C ONSOLIDATED
F INANCIAL
S TATEMENTS
September 30, 2022
(1) Basis of Presentation:
The accompanying condensed consolidated financial statements of PrimeEnergy Resources Corporation (“PrimeEnergy” or the “Company”) have not been audited by independent public accountants. Pursuant to applicable Securities and Exchange Commission (“SEC”) rules and regulations, the accompanying interim financial statements do not include all disclosures presented in annual financial statements and the reader should refer to the Company’s Form 10-K
for the year ended December 31, 2021. 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 Company’s condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, and the condensed consolidated statements of operations, equity and cash flows for the nine months ended September 30, 2022 and 2021.
As of September 30, 2022, PrimeEnergy’s significant accounting policies are consistent with those discussed in Note 1—Description of Operations and Significant Accounting Policies of its consolidated financial statements contained in PrimeEnergy’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2021. 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 and included in Footnote 2.
(2) Acquisitions and Dispositions:
In
the first quarter of 2022, the Company sold
1,809 net leasehold acres in Reagan and Midland Counties, Texas through two separate transactions receiving gross proceeds of $
14.0 million.
In
the second quarter of 2022, the Company sold
241 net acres in Canadian County, Oklahoma for $
845,000 .
In
the third quarter of 2022, the Company sold an additional
113 net acres in Canadian County, Oklahoma for $
423,700 .
On
November 14, 2022, the Company completed an acreage exchange of approximately 725 net acres in the Midland Basin creating a block of
1,200
contiguous acres. The Company entered into an agreement, including this acreage, to create a
2,560
-acre
AMI for the joint development of horizontal wells. As part of the agreement, the Company sold a portion of its interest in this acreage to the joint development partner for proceeds of $
16.1
million.
(3) Additional Balance Sheet Information:
Certain balance sheet amounts are comprised of the following:
(Thousands of dollars)
September 30,
2022
December 31,
2021
Accounts Receivable:
Joint interest billing
$
2,338
$
1,902
Trade receivables
1,780
1,429
Oil and gas sales
13,095
11,154
Other
101
94
17,314
14,579
Less: Allowance for doubtful accounts
( 371
)
( 371
)
Total
$
16,943
$
14,208
Accounts Payable:
Trade
$
1,428
$
2,390
Royalty and other owners
3,605
2,802
Partner advances
1,062
1,209
Other
73
881
Total
$
6,168
$
7,282
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(Thousands of dollars)
September 30,
2022
December 31,
2021
Accrued Liabilities:
Compensation and related expenses
$
4,211
$
3,919
Property costs
3,011
2,901
Taxes
3,213
893
Other
91
108
Total
$
10,526
$
7,821
(4) Long-Term Debt:
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.
On December 20, 2021 the company entered into a Seventh Amendment to the 2017 Credit Agreement and Citibank N.A was appointed as successor administrative agent replacing PNC Bank. 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 a rate equal to the secured overnight financing rate (SOFR rate) as administered by the SOFR Administrator, in this case the Federal Reserve Bank of New York, plus an applicable margin ranging from 3.00 % to 4.00 %. The 2017 Credit Agreement matures February 11, 2023 . The current borrowing base review and maturity extension was completed on July 5, 2022. The Company’s borrowings under this credit facility approximates fair value because the interest rates are variable and reflective of market rates.
On July 5, 2022 , the Company and its lenders entered into a Fourth Amended and Restated Credit Agreement (the “2022 Credit Agreement”) with a maturity date of June 1, 2026. Under the 2022 Credit Agreement, the Company has a revolving line of credit and letter of credit facility of up to $ 300 million subject to a borrowing base that is determined semi-annually by the lenders based upon the Company’s financial statements and the estimated value of the Company’s oil and gas properties, in accordance with the Lenders’ customary practices for oil and gas loans. The initial borrowing base of the agreement is $ 75 million. The credit facility is secured by substantially all of the Company’s oil and gas properties. The 2022 Credit Agreement includes terms and covenants that require the Company to maintain a minimum current ratio and total indebtedness to EBITDAX (earnings before depreciation, depletion, amortization, taxes, interest expense and exploration costs) ratio, as defined, and restrictions are placed on the payment of dividends, the amount of treasury stock the Company may purchase, and commodity hedge agreements.
As of September 30, 2022 the Company had
no borrowings outstanding under its current revolving credit facility.
(5) Other Long-Term Obligations and Commitments:
Operating Leases:
The Company leases office facilities under operating leases and recognizes lease expense on a straight-line basis over the lease term. 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.
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Operating
lease costs for the nine months ended September 30, 2022 were $
468 thousand. Cash payments included in the operating lease costs for the nine months ended September 30, 2022 were $
499 thousand. The remaining operating lease terms range between
6 to
30 months.
The Company amended certain leases for office space in Texas providing for remaining payments of $ 174,000 in 2022, $ 251,000 in 2023, $ 107,000 in 2024 and $ 27,000 in 2025.
Office
space rent expense for the nine months ended September 30, 2022 and 2021 was $ 563,000 and $ 441,000 , respectively.
The payment schedule for the Company’s operating lease obligations as of September 30, 2022 is as follows:
(Thousands of dollars)
Operating Leases
2022
174
2023
251
2024
107
2025
27
Total undiscounted lease payments
$
559
Less: Amount associated with discounting
( 54
)
Net operating lease liabilities
$
505
Asset Retirement Obligation:
A reconciliation of the liability for plugging and abandonment costs for the nine months ended September 30, 2022 is as follows:
(Thousands of dollars)
September 30,
2022
Asset retirement obligation at December 31, 2021
$
14,295
Liabilities incurred
11
Liabilities settled
( 1,276
)
Accretion expense
503
Asset retirement obligation at September 30, 2022
$
13,533
(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 September 30, 2022 and 2021, remaining options held by two key executive officers on 767,500 shares were outstanding and exercisable at prices ranging from $ 1.00 to $ 1.25 . According to their terms, the options have no expiration date.
(8) Related Party Transactions:
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, for oil and gas sales net of expenses.
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(9) Financial Instruments
Fair Value Measurements:
Authoritative
guidance on fair value measurements defines fair value, establishes a framework for measuring fair value and stipulates the related disclosure requirements. The Company follows a three-level hierarchy, prioritizing and defining the types of inputs used to measure fair value. The fair values of the Company’s interest rate swaps, natural gas and crude oil price collars and swaps are designated as Level 3.
The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021:
September 30, 2022
Quoted Prices in
Active Markets
For Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Balance at
September 30,
2022
(Thousands of dollars)
Assets
Commodity derivative contracts
$
—
$
—
$
308
$
308
Total assets
$
—
$
—
$
308
$
308
Liabilities
Commodity derivative contracts
$
—
$
—
$
( 3,975
)
$
( 3,975
)
Total liabilities
$
—
$
—
$
( 3,975
)
$
( 3,975
)
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
Total liabilities
$
—
$
—
$
( 5,585
)
$
( 5,585
)
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.
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 nine months ended September 30, 2022.
(Thousands of dollars)
Net Liabilities – December 31, 2021
$
( 5,585
)
Total realized and unrealized (gains) losses:
Included in earnings (a)
( 12,074
)
Purchases, sales, issuances and settlements
13,992
Net Liabilities - September 30, 2022
$
( 3,667
)
(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.
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Table of Contents
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 September 30, 2022 and December 31, 2021:
Fair Value
(Thousands of dollars)
Balance Sheet Location
September 30,
2022
December 31,
2021
Asset Derivatives:
Derivatives not designated as cash-flow hedging instruments:
Crude oil commodity contracts
Derivative asset short-term
$
308
$
—
Total
$
308
$
—
Liability Derivatives:
Derivatives not designated as cash-flow hedging instruments:
Crude oil commodity contracts
Derivative liability short-term
$
( 2,072
)
$
( 3,992
)
Natural gas commodity contracts
Derivative liability short-term
( 1,903
)
( 943
)
Crude oil commodity contracts
Derivative liability long-term
—
( 490
)
Natural gas commodity contracts
Derivative liability long-term
—
( 160
)
Total derivative instruments
$
( 3,975
)
$
( 5,585
)
Total derivative instruments
$
( 3,667
)
$
( 5,585
)
The following table sets forth the effect of derivative instruments on the consolidated statements of operations for the nine months ended September 30, 2022 and 2021:
Amount of gain/loss
recognized in income
(Thousands of dollars)
Location of gain/loss recognized in income
2022
2021
Derivatives not designated as cash-flow hedge instruments:
Natural gas commodity contracts
Unrealized (loss) on derivative instruments, net
$
( 800
)
$
( 2,418
)
Crude oil commodity contracts
Unrealized gain (loss) on derivative instruments, net
2,718
( 4,744
)
Natural gas commodity contracts
Realized (loss) on derivative instruments, net
( 3,603
)
( 1,009
)
Crude oil commodity contracts
Realized (loss) on derivative instruments, net
( 10,389
)
( 1,887
)
$
( 12,074
)
$
( 10,058
)
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(10) Earnings Per Share:
Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common stock had been converted to common stock in gain periods. The following reconciles amounts reported in the financial statements:
Nine Months Ended September 30,
2022
2021
Net Income
(In 000’s)
Weighted
Average
Number of
Shares
Outstanding
Per
Share
Amount
Net
Loss
(In 000’s)
Weighted
Average
Number of
Shares
Outstanding
Per
Share
Amount
Basic
$
35,279
1,965,334
$
17.95
$
( 5,021
)
1,994,177
$
( 2.52
)
Effect of dilutive securities:
Options (a)
—
757,218
—
Diluted
$
35,279
2,722,522
$
12.96
$
( 5,021
)
1,994,177
$
( 2.52
)
Three Months Ended September 30,
2022
2021
Net Income
(In 000’s)
Weighted
Average
Number of
Shares
Outstanding
Per
Share
Amount
Net
Loss
(In 000’s)
Weighted
Average
Number of
Shares
Outstanding
Per
Share
Amount
Basic
$
13,154
1,937,091
$
6.79
$
( 1,163
)
1,994,177
$
( 0.58
)
Effect of dilutive securities:
Options (a)
—
757,815
—
—
—
—
Diluted
$
13,154
2,694,906
$
4.88
$
( 1,163
)
1,994,177
$
( 0.58
)
(a)
The effect of the 767,500 outstanding stock options is antidilutive for the nine and three months ended September 30, 2021 due to net loss for these periods.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.