RIDGEWOOD ENERGY S FUND LLC: Your Guide to Their Latest Annual Report

Considering an investment in RIDGEWOOD ENERGY S FUND LLC? This summary cuts through the complexity of their latest annual report (10-K) for the year ended December 31, 2025. We'll explore their operations, financial health, and future prospects, helping you understand if this fund aligns with your investment goals.

Business Overview: What RIDGEWOOD ENERGY S FUND LLC Does

RIDGEWOOD ENERGY S FUND LLC, a Delaware-based entity (likely a limited liability company or partnership with specific tax implications for investors), invests in oil and natural gas. Rather than drilling themselves, the Fund acquires "working interests" – ownership stakes that grant a share of production while also obligating them to pay a portion of operating and development costs. Their focus lies in offshore properties within the U.S. Gulf of Mexico, specifically near Texas, Louisiana, and Alabama.

Crucially, the Fund has fully invested its capital in existing projects. This means its strategy centers on generating cash flow from current assets and distributing it to shareholders, not acquiring new properties. All future growth will depend solely on optimizing the performance and extending the life of its existing portfolio.

Management Discussion & Analysis (MD&A) Highlights

Who Manages the Fund? Ridgewood Energy Corporation, established in 1982, manages the Fund. It oversees all aspects of the Fund's operations, from shareholder accounts to capital allocation decisions for existing investments and administrative duties.

While the Manager has waived its annual fee since 2020, it receives 15% of the cash the Fund distributes from its operations. In 2025, the Manager received $0.1 million, a notable decrease from $0.3 million in 2024. This suggests a significant reduction in the Fund's overall cash available for distribution.

How the Fund Earns Revenue (and the Challenges It Faced) The Fund generates revenue by selling oil and natural gas produced from its properties. It holds fractional working interests in 5 gross wells, representing a net ownership of approximately 0.09 wells.

The Big Picture: The Beta Project Takes Center Stage A substantial portion of the Fund's income and cash flow comes from one primary asset: the Beta Project. This seven-well offshore project in the Gulf of Mexico, which began initial production between 2016 and 2019, faced significant operational setbacks in 2025:

• Well Shut-ins: In the third quarter of 2025, the Fund shut down two wells (Well #3 and Well #4) due to pressure build-up, halting their production.
• Repair Work Underway: Recompletion work (a process to restore or improve a well's production) for Well #4 began in January 2026 and continues. The Fund plans similar work for Well #5 and Well #2 and is also working to return Well #3 to production.
• Anticipated Future Costs: These repairs and maintenance come with a price tag. The Fund anticipates spending an additional $1.2 million on development costs for these projects, plus $1.6 million for future asset retirement obligations (costs to safely close down wells).

Beta Project: Budget vs. Spending The Fund has spent approximately $18.05 million on the Beta Project to date, out of a total budget of $20.84 million. This indicates it is nearing completion of its planned capital investment in this asset.

Royalty Relief & Sales The Beta Project benefits from "Deepwater Royalty Relief," which reduces royalty payments to the U.S. Government when oil prices fall within certain thresholds (e.g., $48.48 to $62.95 per barrel). However, the Fund pays a 13.34% overriding royalty interest to a former lender. The Fund sells its oil and natural gas to third parties. Beta Sales and Transport, LLC, a subsidiary of the Manager, facilitates sales from the Beta Project. While the Fund has two main customers, the strong market for oil and gas suggests that losing one customer would likely not significantly impact sales.

Financial Performance

What's in the Ground? A Look at Their Oil & Gas Reserves An independent firm, Netherland, Sewell & Associates, Inc. (NSAI), estimated the Fund's proved oil and gas reserves as of December 31, 2025. "Proved reserves" are quantities of oil and gas that companies can economically recover with reasonable certainty.

For all of the Fund's properties (primarily the Beta Project), the estimates are:

• Total Proved Reserves: Approximately 69,400 barrels of oil, 7,900 barrels of natural gas liquids (NGL), and 39.7 million cubic feet of natural gas.
• Total Undiscounted Future Net Revenue: From these reserves, the Fund expects to generate approximately $363.9 million in revenue, after covering all operating costs and estimated abandonment costs.
• Total Discounted Future Net Revenue (PV-10): When accounting for the time value of money (discounted at 10%), the present value of this future net revenue (known as PV-10) is estimated at $665.3 million. This figure represents the total value of all future net cash flows from proved reserves, discounted to today.

A Closer Look: Current Production vs. Future Potential The reserve report further breaks down these estimates:

1. Proved Developed Producing (PDP): Reserves from wells currently producing.

   • A Major Concern: The report projects a negative future net revenue of -$1,005.6 million (or -$400.7 million when discounted at 10%) for these currently producing wells. This critical finding indicates that, under the report's assumptions, revenue from active wells is insufficient to cover their ongoing operating costs and eventual abandonment costs. This highlights the severe impact of the recent well shut-ins and operational issues.

2. Proved Undeveloped (PUD): Reserves from wells not yet producing but planned for development (like the recompletion work).

   • The Path to Profitability: These PUD reserves project a positive future net revenue of $1,369.5 million (or $1,066.0 million when discounted at 10%). This clearly shows that the Fund's overall profitability and future distributions depend heavily on successfully executing the planned recompletion work and bringing these wells into full production.

Key Assumptions in the Reserve Report: These projections rely on crucial assumptions:

• Constant Prices: The report assumes average oil prices of $62.00 per barrel and natural gas prices of $3.70 per MCF (from 2025) will remain constant for the entire life of the wells.
• No Inflation on Costs: The report does not assume operating, capital, and abandonment costs will increase with inflation.

Financial Health

Liquidity: The Fund has fully invested its capital. Its ability to generate cash flow directly ties to the production and sale of oil and gas from its existing assets. The projected negative future net revenue from Proved Developed Producing reserves indicates significant challenges to current operational cash generation. Future liquidity will heavily depend on the successful and timely recompletion of shut-in wells and favorable commodity prices.

Future Outlook

Given the Fund's fully invested capital and focus on existing assets, its future performance hinges on several critical factors:

• Successful Well Recompletions: The successful and timely recompletion of shut-in wells (Well #3, #4, #5, #2) is paramount. The Fund's overall profitability, as indicated by the reserve report, relies entirely on bringing these "Proved Undeveloped" reserves online.
• Oil and Gas Prices: The highly volatile nature of oil and natural gas markets means actual prices could deviate significantly from the constant prices assumed in the reserve report. Price fluctuations will directly impact revenue and profitability.
• Operational Efficiency & Cost Control: Effective management by the Manager and third-party operators will be crucial for controlling costs, especially since the reserve report does not factor in inflation for operating, capital, or abandonment expenses. Any cost overruns or inefficiencies could further erode profitability, particularly given the projected unprofitability of current production.

Competitive Position

The Fund operates in the highly competitive oil and natural gas exploration and production industry. Its competitive position primarily stems from:

• Asset Base: Its focus on offshore properties in the U.S. Gulf of Mexico, particularly the Beta Project, which represents its sole significant asset.
• Operational Expertise: The capabilities of its Manager, Ridgewood Energy Corporation, in overseeing offshore operations, managing existing wells, and executing recompletion projects.
• Cost Structure: Its ability to manage operating and development costs effectively, especially in a challenging offshore environment.
• Market Access: Its ability to efficiently sell its produced oil and natural gas to third parties.

Risk Factors (What Could Go Wrong for Investors)

Investing in RIDGEWOOD ENERGY S FUND LLC carries significant risks:

• Extreme Concentration Risk: The Fund's entire asset base and future profitability ties almost exclusively to the Beta Project. Any significant issues with this single asset – whether operational problems, infrastructure failures, reserve estimate inaccuracies, or natural disasters like hurricanes – could severely impact the Fund's cash flow and investor returns.
• Critical Operational Challenges: The independent reserve report's projection of negative future net revenue for currently producing wells (Proved Developed Producing) is a major red flag. This implies that the Fund's active production is currently unprofitable, even before considering inflation. The Fund's viability depends entirely on successfully fixing the shut-in wells and bringing the "Proved Undeveloped" reserves online. Failure to do so would likely lead to sustained losses.
• Volatile Commodity Prices: Oil and natural gas prices are highly unpredictable, influenced by global supply, demand, geopolitical events, and economic conditions. The reserve report's assumption of constant prices is unrealistic. If prices fall below the assumed $62/barrel for oil or $3.70/MCF for gas, the already negative outlook for current production would worsen, and the profitability of future projects could disappear.
• Rising Costs (Inflation Risk): The reserve report does not account for inflation on operating, capital, or abandonment costs. In reality, these costs will likely increase over time, which could significantly reduce projected future profits, especially for the "Proved Undeveloped" reserves that represent the Fund's main hope for profitability.
• Reserve Estimates are Not Guarantees: Reserve numbers are expert estimates based on specific assumptions. Actual production, costs, and prices could differ substantially, leading to actual returns that are higher or lower than projected. "Proved Undeveloped" reserves, in particular, carry higher uncertainty as they require future development and capital expenditure.
• High Abandonment Costs: The substantial costs associated with safely closing down wells represent a significant future liability, contributing to the projected unprofitability of currently producing wells.
• Illiquid Investment / No Public Market: This is a private investment with no public trading market. Investors should assume they will have extreme difficulty selling their shares, and no readily available price discovery mechanism exists. Restrictions on transfer mean this is a highly illiquid investment suitable only for those who do not need access to their capital for an extended period.
• Environmental and Regulatory Risks: The Fund's operations face evolving environmental regulations, climate policies, and potential legal challenges. Natural disasters common in the Gulf of Mexico, such as hurricanes, also pose significant risks to offshore infrastructure and production.
• Potential Conflicts of Interest: The Manager's subsidiary, Beta Sales and Transport, LLC, handles sales for the Beta Project. While common, this arrangement may present potential conflicts of interest that investors should be aware of.
• Complex Tax Implications: As an investment in oil and gas working interests, investors may receive complex K-1 tax forms and could be subject to Unrelated Business Taxable Income (UBTI), which can be particularly relevant for tax-exempt investors.

In summary, RIDGEWOOD ENERGY S FUND LLC faced significant operational challenges in 2025, particularly at its core Beta Project, leading to reduced distributions. The independent reserve report paints a stark picture: the Fund's currently producing wells project as unprofitable over their lifetime. This makes the successful recompletion of shut-in wells absolutely critical for the Fund's overall financial viability. With a strategy focused solely on optimizing existing assets rather than new acquisitions, the Fund's future hinges on successful recompletion efforts, favorable and stable commodity prices (a significant assumption in their projections), and stringent cost management, especially given the lack of inflation accounting in their reserve estimates. Investors must weigh these dependencies and the substantial risks, particularly the illiquidity and concentration risk, before considering an investment.