Quarterly report pursuant to Section 13 or 15(d)

Transactions with Related Parties

v3.20.2
Transactions with Related Parties
3 Months Ended
Mar. 31, 2020
Related Party Transactions [Abstract]  
Transactions with Related Parties
Transactions with Related Parties

The Company is not entitled to compensation for its services as managing member of Rosehill Operating. The Company is entitled to reimbursement by Rosehill Operating for any costs, fees or expenses incurred on behalf of Rosehill Operating (including costs of securities offerings not borne directly by members, board of directors’ compensation and meeting costs, cost of periodic reports to its stockholders, litigation costs and damages arising from litigation, accounting and legal costs); provided that the Company will not be reimbursed for any of its income tax obligations.

Gateway Gathering and Marketing - Crude oil gathering and transportation. Rosehill Operating has a Crude Oil Gathering Agreement with Gateway Gathering and Marketing (“Gateway”), a subsidiary of Rosemore Holdings, Inc., for a portion of its oil production. There were no costs incurred under the Crude Oil Gathering Agreement for the three months ended March 31, 2020 because Gateway bills the purchasers of the Company’s oil production directly for the transportation services. For the three months ended March 31, 2019, the Company incurred approximately $0.6 million of transportation costs under the Crude Oil Gathering Agreement. 

Gateway Gathering and Marketing - Natural gas gathering and transportation. Rosehill Operating has a Gas Gathering Agreement with Gateway for a portion of its liquids-rich natural gas production (the “Gas Gathering Agreement”). Costs incurred under the Gas Gathering Agreement for the three months ended March 31, 2020 and 2019, were approximately $2.0 million and $1.3 million, respectively, As of March 31, 2020 and December 31, 2019, there was no amount in Accounts payable due to Gateway related to the Gas Gathering Agreement. As of March 31, 2020 and December 31, 2019, there was approximately $0.7 million and $0.6 million, respectively, in Accrued liabilities and other related to the Gas Gathering Agreement.

KLR Sponsor. In October 2018, Rosehill Operating entered into a Water Purchase Agreement with Seawolf Water Resources, LP (“Seawolf”), an affiliate of KLR Sponsor, to purchase water from Seawolf’s water wells for use in well completion operations. For the three months ended March 31, 2020 and 2019, Rosehill Operating incurred costs of $1.1 million and $0.2 million, respectively, related to this agreement. As of March 31, 2020 and December 31, 2019, there was $0.5 million and $0.2 million, respectively, in Accounts payable due to Seawolf and as of March 31, 2020 and December 31, 2019 there was $0.2 million included in accrued capital expenditures due to Seawolf.

Distributions. The LLC Agreement requires Rosehill Operating to make a corresponding cash distribution to the Company at any time a dividend is to be paid by the Company to the holders of its Series A Preferred Stock and Series B Preferred Stock. The LLC Agreement allows for distributions to be made by Rosehill Operating to its members on a pro rata basis in accordance with the number of Rosehill Operating Common Units owned by each member out of funds legally available therefor. The Company expects Rosehill Operating may make distributions out of distributable cash periodically to the extent permitted by the Amended and Restated Credit Agreement as necessary to enable the Company to cover its operating expenses and other obligations, as well as to make dividend payments, if any, to the holders of its Class A Common Stock. In addition, the LLC Agreement generally requires Rosehill Operating to make (i) pro rata distributions (in accordance with the number of Rosehill Operating Common Units owned by each member) to its members, including the Company, in an amount at least sufficient to allow the Company to pay its taxes and satisfy its obligations under the Tax Receivable Agreement and (ii) tax advances, which will be repaid upon a redemption, in an amount sufficient to allow each of the members of Rosehill Operating to pay its respective taxes on such holder’s allocable share of Rosehill Operating’s taxable income after taking into account certain other distributions or payments received by the unitholder from Rosehill Operating or the Company.