Note 4 - Debt |
6 Months Ended | ||||||||||||||||||
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Jun. 30, 2026 | |||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||
| 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 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. 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 to be amortized through the original maturity date of March 1, 2026.
On August 8, 2025 ("Effective Date"), the Partnership and its Lender entered into an amendment ("First Amendment") to the Loan Agreement that renewed and extended the Credit Facility for an additional year to March 1, 2027 ("Revised Maturity Date"). Key terms and conditions of the First Amendment include:
Loan costs associated with the First Amendment, which totaled approximately $56,000, were capitalized. In addition, approximately $47,000 of the initial capitalized loan costs had yet to be amortized as of the Effective Date. The application of Accounting Standards Codification 470-50 Debt Modifications and Extinguishments requires the Partnership's unamortized loan costs of $47,000 to be added to the loan costs associated with the First Amendment, so the total of approximately $103,000 in loan costs will be amortized through the Revised Maturity Date.
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 March 2026, the Partnership and the Lender entered into an amendment ("Second Amendment") to the Loan Agreement that implemented a risk management program to manage the commodity price risk of the Partnership’s future oil and gas production under certain conditions. Under the Second Amendment, the Partnership is not required to enter into future hedging transactions as long as the Partnership maintains a Credit Facility utilization rate of less than or equal to 20% of the Partnership’s PV-9 (defined as the net present value, discounted at 9% per annum) of the Partnership's proved developed producing reserves, as calculated by the Lender during the Lender’s scheduled redeterminations. However, the Partnership must hedge at least 50% of its rolling 12-month projected future production if the Partnership’s utilization of the Credit Facility is greater than 20% but less than or equal to 30% of PV-9, and at least 50% of its rolling 24-month projected future production if the Partnership’s utilization of the Credit Facility is greater than 30% of PV-9. Based on the Partnership’s utilization of the Credit Facility and Lender’s current calculation of PV-9, the Partnership was not subject to any hedging requirements under the amended Loan Agreement as of June 30, 2026. The hedge transactions discussed in Note 7. Derivative Instruments were made at the discretion of the Partnership.
The Credit Facility contains prepayment requirements, customary affirmative and negative covenants and events of default. Certain of the financial covenants, inclusive of those within the First Amendment, are:
The Partnership was not in compliance with its debt service coverage ratio as defined within the Loan Agreement at March 31, 2025 and June 30, 2025; the Lender waived these covenant calculations for those quarters. The Partnership has been in compliance with its financial covenants for each quarter since. If the Partnership is not in compliance with its covenants in future periods, the Partnership cannot provide any assurance or guarantee that covenant compliance waivers will be granted in future periods. If the Partnership is not able to obtain waivers, either (a) the Credit Facility may not be available for the Partnership’s use or (b) an outstanding balance under the Credit Facility may become due on demand at that time.
The Partnership was in compliance with its financial covenants at June 30, 2026.
The outstanding balance on the Credit Facility was $5.8 million at both June 30, 2026 and December 31, 2025, and the interest rate was 7.25% for both periods. At June 30, 2026 and December 31, 2025, 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.
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