Company: ACTG
Filing Date: 2025-03-17
Form Type: 10-K
Source: 0000934549-25-000004
Chunk: 13

Company: ACACIA RESEARCH CORP
Filing Date: 2025-03-17
Form: 10-K
Item: Item 8
Chunk 13
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 communicated to the audit committee and that: (1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 

The estimation of proved reserves used in the calculation of depletion, depreciation and amortization (“DD&A”) expense under the successful efforts method of accounting

As described further in Note 2 to the consolidated financial statements, the Company accounts for its oil and gas properties using the successful efforts method of accounting, which requires management to make estimates of proved reserve volumes and future net revenues to record DD&A expense. To estimate the volume of proved reserves and future net revenue, management makes significant estimates and assumptions including forecasting the production decline rate of producing properties. In addition, the estimation of proved reserves is also impacted by management’s judgments and estimates regarding the financial performance of wells associated with proved reserves to determine if wells are expected with reasonable certainty to be economical under the appropriate pricing assumptions required in the estimation of DD&A expense. We identified the estimation of proved reserves of oil and natural gas properties as a critical audit matter.

F-1

The principal consideration for our determination that the estimation of proved reserves is a critical audit matter is that changes in certain inputs and assumptions necessary to estimate the volumes and future net revenues of the Company’s proved reserves requires a high degree of subjectivity necessary to estimate the volume and future revenues of the Company’s reserves, and could have a significant impact on the measurement of DD&A expense. In turn, auditing those inputs and assumptions required subjective and complex auditor judgment. Our audit procedures related to the estimation of proved reserves included the following, among others.

•We evaluated the level of knowledge, skill and ability of the Company’s reservoir engineering specialists and independent petroleum engineering specialists, made inquiries of those specialists regarding the process followed and judgments made to estimate the Company’s proved reserve volumes, and read the reserve report prepared by the Company’s specialists.

•Identified inputs and assumptions that were significant to the period end determination of proved reserve volumes and tested management’s process for determining the significant inputs and assumptions, as follows:

•We compared the estimated pricing differentials used in the reserve report to realized prices related to revenue transactions recorded in the current year and examined contractual support for the pricing differentials;