Debt |
6 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Jun. 30, 2025 | |||||||
| Debt Disclosure [Abstract] | |||||||
| Debt Disclosure [Text Block] | Note 4. Debt
On May 2, 2024, the Partnership and its wholly-owned subsidiary, as borrowers, entered into a loan agreement (“Loan Agreement”) with BancFirst (the “Lender”), which provides for a revolving credit facility (“Credit Facility”) with an approved maximum credit amount (“Maximum Credit Amount”) of $20 million, subject to borrowing base restrictions. The Partnership paid one-time commitment and setup fees totaling $100,000 at closing. Total loan costs were approximately $146,000, which were capitalized and will be amortized through the maturity date. The maturity date was March 1, 2026. The Partnership is also subject to an additional fee of 0.50% on any incremental increase to the borrowing base. The Partnership is required to pay an unused facility fee of 0.25% on the unused portion of the Credit Facility, based on borrowings outstanding during a quarter.
Under the Loan Agreement, the initial, and current, borrowing base is $10 million. The borrowing base is subject to redetermination semi-annually, on March 1 and September 1, based upon the Lender’s analysis of the Partnership’s proven oil and natural gas reserves. The Lender is also permitted to cause the borrowing base to be redetermined up to two times during a 12-month period. Outstanding borrowings under the Credit Facility cannot exceed the lesser of the borrowing base or the Maximum Credit Amount at any time. The interest rate is equal to the Wall Street Journal Prime Rate plus 0.50%, with a floor of 4.50%.
Any further advances under the Credit Facility are to be used to fund capital expenditures for the development of the Partnership’s undrilled acreage. Under the terms of the Loan Agreement, the Partnership may make voluntary prepayments, in whole or in part, at any time with no penalty. The Credit Facility is secured by a mortgage and first lien position on at least 80% of the Partnership’s producing wells. In addition, the Partnership is not required to maintain a risk management program to manage the commodity price risk of the Partnership’s future oil and natural gas production. However, if the Partnership does elect to speculatively trade and hedge future oil and natural gas production, hedged volumes may not exceed 85% of the Partnership’s anticipated future production. The Credit Facility contains prepayment requirements, customary affirmative and negative covenants and events of default. Certain of the financial covenants include:
The Partnership is permitted to make distributions to its limited partners so long as the Partnership is in compliance with its debt service coverage ratio and no other event of default has occurred. The Partnership was not in compliance with its debt service coverage ratio as defined within the BF Loan Agreement at December 31, 2024, March 31, 2025 and June 30, 2025. The Lender waived this covenant calculation for the quarters ended December 31, 2024, March 31, 2025 and June 30, 2025, and the Partnership was in compliance with its other covenants at June 30, 2025.
At June 30, 2025 and December 31, 2024, the outstanding balance on the Credit Facility was approximately $6.4 million, and the interest rate was 8.00%. At June 30, 2025 and December 31, 2024, the outstanding balance on the Credit Facility approximated the fair market value of the Credit Facility. The Partnership estimated the fair value of its credit facility by discounting the future cash flows of the instrument at estimated market rates consistent with the maturity of a debt obligation with similar credit terms and credit characteristics, which are Level 3 inputs under the fair value hierarchy. Market rates take into consideration general market conditions and maturity.
See Note 8. Subsequent Events for additional information about the first amendment to the Loan Agreement, which was executed in August 2025. |