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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

_____________________________
Commission File Number:
001-39644
_____________________________
Archaea Energy Inc.
(Exact name of Registrant as specified in its charter)
_____________________________
Delaware
85-2867266
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
4444 Westheimer Road, Suite G450
Houston, Texas 77027
(Address of principal executive offices and zip code)
(346) 708-8272
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share
LFG
The New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No    
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No     
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No    
As of May 2, 2022, there were 80,396,431 shares of Class A common stock and 39,281,735 shares of Class B common stock issued and outstanding.

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TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Archaea Energy Inc.

Consolidated Balance Sheets – As of March 31, 2022 and December 31, 2021




Aria Energy LLC (Predecessor)
Consolidated Statement of Operations – Three months ended March 31, 2021

Consolidated Statement of Cash Flows – Three months ended March 31, 2021

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Commonly Used Terms and Definitions
Unless the context otherwise requires, the terms “Archaea” and the “Company” refer to Archaea Energy Inc. and its consolidated subsidiaries. In addition, the following company or industry-specific terms and abbreviations are used throughout this Quarterly Report on Form 10-Q (this “Report”):

Archaea Borrower: Archaea Energy Operating LLC, a Delaware limited liability company, which was formerly named LFG Buyer Co, LLC
Archaea Merger: The transactions executed pursuant to the Archaea Merger Agreement
Archaea Merger Agreement: The Business Combination Agreement, dated April 7, 2021, as subsequently amended, pursuant to which, among other things, RAC acquired Legacy Archaea
Aria: Aria Energy LLC, a Delaware limited liability company, and its subsidiaries
Aria Holders: The members of Aria immediately prior to the Closing
Aria Merger: The transactions executed pursuant to the Aria Merger Agreement
Aria Merger Agreement: The Business Combination Agreement, dated as of April 7, 2021, as subsequently amended, pursuant to which, among other things, RAC acquired Aria
Atlas: Atlas Point Energy Infrastructure Fund, LLC, a Delaware limited liability company
Business Combination Agreements: The Aria Merger Agreement and the Archaea Merger Agreement
Business Combinations: The transactions executed pursuant to the Business Combination Agreements
CARB: California Air Resource Board
Class A Common Stock: Class A Common Stock, par value $0.0001 per share, of the Company
Class A Opco Units: Class A Units of Opco
Class B Common Stock: Class B Common Stock, par value $0.0001 per share, of the Company
Class B Opco Units: Class B Units of Opco
Closing: The closing of the Business Combinations
Closing Date: The closing date of the Business Combinations, which was September 15, 2021
Common Stock: Class A Common Stock and the Class B Common Stock
Environmental Attributes: Federal, state and local government incentives in the United States, provided in the form of RINs, RECs, RTCs, LCFS credits, rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of renewable energy projects, that promote the use of renewable energy.
EPA: The U.S. Environmental Protection Agency
GAAP: Accounting principles generally accepted in the United States of America
Initial Public Offering: RAC’s initial public offering, which was consummated on October 26, 2020
Legacy Archaea: Archaea Energy LLC, a Delaware limited liability company, and its subsidiaries
Legacy Archaea Holders: The members of Legacy Archaea immediately prior to the Closing
LCFS: Low Carbon Fuel Standard
LFG: Landfill gas
MMBtu: One million British thermal units
MWh: Megawatt hour(s)
Opco: LFG Acquisition Holdings LLC, a Delaware limited liability company, which was formerly named Rice Acquisition Holdings LLC
PPA: Power Purchase Agreement

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Private Placement Warrants: The 6,771,000 warrants originally issued to Sponsor and Atlas in a private placement that closed simultaneously with the consummation of the Initial Public Offering
Public Warrants: The 11,862,492 warrants originally sold as part of the units issued in the Initial Public Offering
RAC: Rice Acquisition Corp., prior to the consummation of the Business Combination
RECs: Renewable Energy Credits
RINs: Renewable Identification Numbers
RNG: Renewable natural gas
RTC: Renewable thermal certificate
SEC: U.S. Securities and Exchange Commission
Sponsor: Rice Acquisition Sponsor LLC, a Delaware limited liability company
VIE: Variable interest entity



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Forward-Looking Statements
The information in this Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements that do not relate strictly to historical or current facts are forward-looking and usually identified by the use of words such as “anticipate,” “estimate,” “could,” “would,” “should,” “will,” “may,” “forecast,” “approximate,” “expect,” “project,” “intend,” “plan,” “believe” and other similar words. Forward-looking statements may relate to expectations for future financial performance, business strategies or expectations for the Company’s business. Specifically, forward-looking statements may include statements concerning market conditions and trends, earnings, performance, strategies, prospects and other aspects of the business of the Company, including pending acquisitions. Forward-looking statements are based on current expectations, estimates, projections, targets, opinions and/or beliefs of the Company, and such statements involve known and unknown risks, uncertainties and other factors.
The risks and uncertainties that could cause those actual results to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to:

the Company’s ability to complete the pending acquisition of NextGen Power Holdings LLC (together with its subsidiaries, “INGENCO”) and the timing of closing;
the Company’s ability to successfully integrate INGENCO and other future acquisitions;
the availability and timing of financings, including to, among other things, fund the acquisition of INGENCO and certain capital expenditures related to incremental development projects as a result of the acquisition of INGENCO and the joint venture with Republic Services, Inc. (“Republic”) in Lightning Renewables, LLC (the “Lightning JV”);
the Company’s ability to recognize the anticipated financial, strategic and operational benefits of the Business Combinations, the INGENCO acquisition, the Lightning JV, and other future acquisitions and strategic transactions, which may be affected by, among other things, competition and the ability of the Company to grow and manage growth profitably and retain its management and key employees;
the possibility that the Company may be adversely affected by other economic, business and/or competitive factors;
the Company’s ability to develop and operate new projects, including the projects contemplated from the INGENCO assets and the Lightning JV;
the reduction or elimination of government economic incentives to the renewable energy market;
the execution of the Company’s contracting strategy and exposure to natural gas and Environmental Attribute prices for uncontracted volumes;
delays in acquisition, financing, construction, and development of new projects;
the length of development cycles for new projects, including the design and construction processes for the Company’s projects;
the Company’s ability to identify suitable locations for new projects;
the Company’s dependence on landfill operators;
existing regulations and changes to regulations and policies that affect the Company’s operations;
decline in public acceptance and support of renewable energy development and projects;
demand for renewable energy not being sustained;
impacts of climate change, changing weather patterns and conditions, and natural disasters;
the ability to secure necessary governmental and regulatory approvals;
general economic and political conditions, including the armed conflict in Ukraine;
the Company’s expansion into new business lines; and
other risks and uncertainties are described in the section entitled “Risk Factors” in Part I, Item 1A in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”) or in the section entitled “Risk Factors” in Part II, Item 1A in this Report.
Accordingly, forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARCHAEA ENERGY INC.
Consolidated Balance Sheets
(Unaudited)
(in thousands, except shares and per share data)
March 31,
2022
December 31,
2021
ASSETS


Current Assets

Cash and cash equivalents
$30,816 $77,860 
Restricted cash
8,857 15,206 
Accounts receivable, net
37,812 37,010 
Inventory
10,565 9,164 
Prepaid expenses and other current assets34,897 21,225 
Total Current Assets
122,947 160,465 
Property, plant and equipment, net
394,203 350,583 
Intangible assets, net
637,233 638,471 
Goodwill
29,137 29,211 
Equity method investments264,622 262,738 
Operating lease right-of-use assets4,742  
Other non-current assets12,140 9,721 
Total Assets
$1,465,024 $1,451,189 
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable - trade
$23,565 $11,096 
Current portion of long-term debt, net
12,606 11,378 
Current portion of operating lease liabilities960  
Accrued and other current liabilities
55,774 46,279 
Total Current Liabilities
92,905 68,753 
Long-term debt, net
327,768 331,396 
Derivative liabilities
91,381 67,424 
Below-market contracts138,920 142,630 
Asset retirement obligations
4,745 4,677 
Long-term operating lease liabilities3,913  
Other long-term liabilities
2,604 5,316 
Total Liabilities
662,236 620,196 
Commitments and Contingencies
Redeemable Noncontrolling Interests861,448 993,301 
Stockholders’ Equity
Preferred stock, $0.0001 par value; 10,000,000 authorized; none issued and outstanding
  
Class A common stock, $0.0001 par value; 900,000,000 shares authorized; 80,281,754 shares issued and outstanding as of March 31, 2022 and 65,122,200 shares issued and outstanding as of December 31, 2021
8 7 
Class B common stock, $0.0001 par value; 190,000,000 shares authorized; 39,281,735 shares issued and outstanding as of March 31, 2022 and 54,338,114 shares issued and outstanding as of December 31, 2021
4 5 
Additional paid in capital
122,075  
Accumulated deficit
(180,747)(162,320)
Total Stockholders’ Equity
(58,660)(162,308)
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity
$1,465,024 $1,451,189 
The accompanying notes are an integral part of these consolidated financial statements.
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ARCHAEA ENERGY INC.
Consolidated Statements of Operations
(Unaudited)

Three Months Ended March 31,
(in thousands, except shares and per share data)
20222021
Revenues and Other Income


Energy revenue
$52,917 $ 
Other revenue
1,214 1,654 
Amortization of intangibles and below-market contracts
2,769  
Total Revenues and Other Income
56,900 1,654 
Equity Investment Income, Net
1,429  
Cost of Sales
Cost of energy
28,579  
Cost of other revenues
1,623 1,161 
Depreciation, amortization and accretion
12,490 49 
Total Cost of Sales
42,692 1,210 
General and administrative expenses
26,355 3,158 
Operating Income (Loss)
(10,718)(2,714)
Other Income (Expense)
Interest expense, net
(2,653)(6)
Gain (loss) on warrants and derivative contracts
(19,915) 
Other income (expense)
114 221 
Total Other Income (Expense)
(22,454)215 
Income (Loss) Before Income Taxes
(33,172)(2,499)
Income tax expense (benefit)
  
Net Income (Loss)
(33,172)(2,499)
Net income (loss) attributable to nonredeemable noncontrolling interests
 (86)
Net income (loss) attributable to Legacy Archaea (2,413)
Net income (loss) attributable to redeemable noncontrolling interests
(14,745) 
Net Income (Loss) Attributable to Class A Common Stock
$(18,427)$ 
Net income (loss) per Class A common share:
Net income (loss) – basic (1)
$(0.28)$ 
Net income (loss) – diluted (1)
$(0.28)$ 
Weighted average shares of Class A Common Stock outstanding:
Basic (1)
66,376,216  
Diluted (1)
66,376,216  
_________________________________________
(1) Class A Common Stock is outstanding beginning September 15, 2021 due to the reverse recapitalization transaction as described in “Note 4 - Business Combinations and Reverse Recapitalization.”
The accompanying notes are an integral part of these consolidated financial statements.

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ARCHAEA ENERGY INC.
Consolidated Statements of Equity
(Unaudited)

Total Equity


Total Stockholders’ Equity
(in thousands)
Redeemable Noncontrolling
Interests
Members’ Equity

Members’ Accumulated Deficit
Class A
Common
Stock

Class B
Common
Stock

Additional
Paid-in
Capital

Accumulated
Deficit

Nonredeemable Noncontrolling
Interests

Total
Equity
Balance - December 31, 2021
$993,301 $ 

$ $7 

$5 

$ 

$(162,320)

$ 

$(162,308)
Exchange of Class A Opco Units and Class B Common Stock for Class A Common Stock(314,692)— — 1 (1)314,692 — — 314,692 
Share-based compensation expense— — — — — 5,753 — — 5,753 
Shares withheld for taxes on net settled awards— — — — — (786)— — (786)
Net income (loss)(14,745)— — — — — (18,427)— (18,427)
Adjustment of redeemable noncontrolling interests to redemption amount197,584 — — — — (197,584)— — (197,584)
Balance - March 31, 2022
$861,448 $ 

$ $8 

$4 

$122,075 

$(180,747)

$ 

$(58,660)


Total Equity


Total Stockholders’ Equity
(in thousands)
Redeemable Noncontrolling
Interests
Members’ Equity

Members’ Accumulated Deficit
Class A
Common
Stock

Class B
Common
Stock

Additional
Paid-in
Capital

Accumulated
Deficit

Nonredeemable Noncontrolling
Interests
Total
Equity
Balance - December 31, 2020
$ $34,930 $(4,156)$ $ $ $ $717 $31,491 
Net income (loss)
— — (2,413)— — — — (86)(2,499)
Members’ equity contributions
— 70 — — — — — — 70 
Share-based compensation expense— 32 — — — — — — 32 
Balance - March 31, 2021
$ $35,032 $(6,569)$ $ $ $ $631 $29,094 
The accompanying notes are an integral part of these consolidated financial statements.

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ARCHAEA ENERGY INC.
Consolidated Statements of Cash Flows
(Unaudited)

Three Months Ended March 31,
(in thousands)
20222021
Cash flows from operating activities



Net income (loss)
$(33,172)

$(2,499)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities

Depreciation, amortization and accretion expense
12,490 

49 
Amortization of debt issuance costs
699 

 
Amortization of intangibles and below-market contracts
(1,103)

 
Return on investment in equity method investments
3,912 

 
Equity in earnings of equity method investments
(1,429)

 
Total (gains) losses on derivatives, net
19,915 

 
Net cash received (paid) in settlement of derivatives(229) 
Forgiveness of Paycheck Protection Loan
 

(200)
Stock-based compensation expense
5,753 

32 
Changes in operating assets and liabilities:

Accounts receivable
(768)

(8)
Inventory
(1,401)

 
Prepaid expenses and other current assets
(678)

(432)
Accounts payable - trade
8,612 

951 
Accrued and other liabilities
5,634 

(288)
Other non-current assets246  
Other long-term liabilities(12)37 
Net cash provided by (used in) operating activities
18,469 

(2,358)
Cash flows from investing activities

Acquisition of Aria, net of cash acquired
1,876 

 
Acquisition of assets and businesses
(7,013)

 
Additions to property, plant and equipment and progress payments
(61,446)

(32,346)
Contributions to equity method investments
(4,024)

 
Return of investment in equity method investments4,088 

 
Net cash used in investing activities
(66,519)

(32,346)
Cash flows from financing activities

Borrowings on line of credit agreement
 

1,512 
Proceeds from long-term debt, net of issuance costs
(113)

56,496 
Repayments of long-term debt
(2,794)

(3)
Payment of acquisition contingent consideration(1,650) 
Capital contributions
 

70 
Taxes paid on net share settled stock-based compensation awards(786) 
Net cash provided by (used in) financing activities
(5,343)

58,075 
Net increase (decrease) in cash, cash equivalents and restricted cash
(53,393)

23,371 
Cash, cash equivalents and restricted cash - beginning of period
93,066 

1,496 
Cash, cash equivalents and restricted cash - end of period
$39,673 

$24,867 
Supplemental cash flow information

Cash paid for interest
$3,720 

$1,110 
Non-cash investing activities

Accruals of property, plant and equipment and biogas rights incurred but not paid
$24,145 

$4,800 

The accompanying notes are an integral part of these consolidated financial statements.

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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Organization and Description of Business
Archaea Energy Inc. (“Archaea” or the "Company"), a Delaware corporation (formerly named Rice Acquisition Corp.), is one of the largest RNG producers in the U.S., with an industry-leading RNG platform primarily focused on capturing and converting waste emissions from landfills and anaerobic digesters into low-carbon RNG and electricity. As of March 31, 2022, Archaea owns, through wholly-owned entities or joint ventures, a diversified portfolio of 31 LFG recovery and processing facilities across 18 states, including 12 operated facilities that produce pipeline-quality RNG and 19 LFG to renewable electricity production facilities, including one non-operated facility and one facility that is not operational.
Archaea develops, designs, constructs, and operates RNG facilities. Archaea has entered into long-term agreements with biogas site hosts which grant the rights to utilize gas produced at their sites and to construct and operate facilities on their sites to produce RNG and renewable electricity.
On September 15, 2021, Archaea consummated the previously announced business combinations pursuant to (i) the Business Combination Agreement, dated April 7, 2021 (as amended, the “Aria Merger Agreement”), by and among Rice Acquisition Corp., a Delaware corporation (“RAC”), Rice Acquisition Holdings LLC, a Delaware limited liability company and direct subsidiary of RAC (“RAC Opco”), LFG Intermediate Co, LLC, a Delaware limited liability company and direct subsidiary of RAC Opco (“RAC Intermediate”), LFG Buyer Co, LLC, a Delaware limited liability company and direct subsidiary of RAC Intermediate (“RAC Buyer”), Inigo Merger Sub, LLC, a Delaware limited liability company and direct subsidiary of RAC Buyer (“Aria Merger Sub”), Aria Energy LLC, a Delaware limited liability company (“Aria”), and Aria Renewable Energy Systems LLC, a Delaware limited liability company, pursuant to which, among other things, Aria Merger Sub was merged with and into Aria, with Aria surviving the merger and becoming a direct subsidiary of RAC Buyer, on the terms and subject to the conditions set forth therein (the transactions contemplated by the Aria Merger Agreement, the “Aria Merger”), and (ii) the Business Combination Agreement, dated April 7, 2021 (as amended, the “Archaea Merger Agreement”), by and among RAC, RAC Opco, RAC Intermediate, RAC Buyer, Fezzik Merger Sub, LLC, a Delaware limited liability company and direct subsidiary of RAC Buyer (“Archaea Merger Sub”), Archaea Energy LLC, a Delaware limited liability company, and Archaea Energy II LLC, a Delaware limited liability company (“Legacy Archaea”), pursuant to which, among other things, Archaea Merger Sub was merged with and into Legacy Archaea, with Legacy Archaea surviving the merger and becoming a direct subsidiary of RAC Buyer, on the terms and subject to the conditions set forth therein (the transactions contemplated by the Archaea Merger Agreement, the “Archaea Merger” and, together with the Aria Merger, the “Business Combinations”). Legacy Archaea was determined to be the accounting acquirer of the Business Combinations, and Aria was determined to be the predecessor to the Company. Unless the context otherwise requires, “the Company,” “we,” “us,” and “our” refer, for periods prior to the completion of the Business Combinations, to Legacy Archaea and its subsidiaries and, for periods upon or after the completion of the Business Combinations, to Archaea Energy Inc. and its subsidiaries, including Legacy Archaea and Aria Energy LLC.
Archaea has retained its “up-C” structure, whereby (i) all of the equity interests in Aria and Legacy Archaea are held indirectly by Opco through RAC Buyer and RAC Intermediate, (ii) Archaea’s only assets are its equity interests in Opco, and (iii) Sponsor, Atlas, the RAC independent directors, the Legacy Archaea Holders and the Aria Holders own or owned economic interests directly in Opco. In connection with the consummation of the Business Combinations, Rice Acquisition Holdings LLC was renamed LFG Acquisition Holdings LLC. In accordance with ASC 810 - Consolidation, Opco is considered a VIE with Archaea as its sole managing member and primary beneficiary. As such, Archaea consolidates Opco, and the remaining unitholders that hold economic interests directly in Opco are presented as redeemable noncontrolling interests on the Company’s financial statements.
Subsequent to the Business Combinations, transactions impacting the ownership of Class A Opco Units resulted from Redeemable Warrant exercises, repurchases from Aria Renewable Energy Systems LLC, redemption of certain other Class A Opco Units in exchange for Class A Common Stock, and issuances related to vested RSUs. The ownership structure of Opco upon closing of the Business Combinations and as of March 31, 2022, which gives rise to the redeemable noncontrolling interest at Archaea, is as follows:
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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022September 15, 2021
Equity Holder
Class A Opco Units
% Interest
Class A Opco Units
% Interest
Archaea
80,281,754 67.1 %52,847,195 45.9 %
Total controlling interests
80,281,754 67.1 %52,847,195 45.9 %
Aria Holders
  %23,000,000 20.0 %
Legacy Archaea Holders
33,350,385 27.9 %33,350,385 29.0 %
Sponsor, Atlas and RAC independent directors
5,931,350 5.0 %5,931,350 5.2 %
Total redeemable noncontrolling interests
39,281,735 32.9 %62,281,735 54.1 %
Total
119,563,489 100.0 %115,128,930 100.0 %
Holders of Class A Opco Units other than Archaea have the right (a “redemption right”), subject to certain limitations, to redeem Class A Opco Units and a corresponding number of shares of Class B Common Stock for, at Opco’s option, (i) shares of Class A Common Stock on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, or (ii) a corresponding amount of cash.
NOTE 2 - Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
These unaudited, interim, consolidated financial statements and notes are prepared in accordance with GAAP for interim reporting and in accordance with the rules and regulations of the SEC. These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary to present fairly the results for the interim periods presented. The Company’s accounting policies conform to GAAP and have been consistently applied in the presentation of financial statements. The Company’s consolidated financial statements include all wholly-owned subsidiaries and all variable interest entities with respect to which the Company determined it is the primary beneficiary. Certain information and disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted. Accordingly, these unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the 2021 Annual Report.
The Archaea Merger with RAC was accounted for as a reverse recapitalization with Legacy Archaea deemed the accounting acquirer, and therefore, there was no step-up to fair value of any RAC assets or liabilities and no goodwill or other intangible assets were recorded. The Aria Merger was accounted for using the acquisition method of accounting with Aria deemed to be the acquiree for accounting purposes. The Company also determined that Aria is the Company’s predecessor and therefore has included the historical financial statements of Aria as predecessor beginning on page 28.
Principles of Consolidation
As the Company completed its Business Combinations on September 15, 2021, these unaudited consolidated financial statements for the three months ended March 31, 2022 and as of December 31, 2021 include the assets, liabilities and results of operations of the combined results of the businesses of Legacy Archaea and Aria as operated by the Company after the Business Combinations; whereas, the unaudited results of operations for the three months ended March 31, 2021 are those of Legacy Archaea, the accounting acquirer.
The Company has determined that Opco is a VIE and the Company is the primary beneficiary. Therefore, the Company consolidates Opco, and ownership interests of Opco not owned by the Company are reflected as redeemable noncontrolling interests due to certain features of the redemption right. See “Note 15 - Nonredeemable and Redeemable Noncontrolling Interest and Stockholders’ Equity.” Entities that are majority-owned by Opco are consolidated. Certain investments in entities are accounted for as equity method investments and included separately in the Company’s consolidated balance sheets.
All intercompany balances and transactions have been eliminated.
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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as contingent assets and liabilities. The estimates and assumptions used in the accompanying financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements.
Revenue Recognition
The Company generates revenues from the production and sales of RNG, Power, and associated Environmental Attributes, as well as from the performance of other landfill energy O&M services. The Company also manufactures and sells customized pollution control equipment and performs associated maintenance agreement services. Prior to the January 1, 2022 adoption of ASC 842 - Leases as discussed in “Note 3 - Recently Issued and Adopted Accounting Standards,” a portion of revenue was accounted for under ASC 840 - Leases and a portion under ASC 606 - Revenue from Contracts with Customers based on requirements of GAAP. Under ASC 840, lease revenue is recognized generally upon delivery of RNG and electricity. Under ASC 606, revenue is recognized when (or as) the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service either when (or as) its customer obtains control of the product or service, including RNG, electricity and their related Environmental Attributes. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring its products or services. Based on the terms of the related sales agreements, the amounts recorded under ASC 840 as lease revenue are generally consistent with revenue recognized under ASC 606. After the January 1, 2022 adoption of ASC 842, revenue is accounted for solely under ASC 606.
Business Combinations
For business combinations that meet the accounting definition of a business, the Company determines and allocates the purchase price of an acquired company to the tangible and intangible assets acquired, the liabilities assumed, and noncontrolling interest, if applicable, as of the date of acquisition at fair value. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two. In the discounted cash flow method, estimated future cash flows are based on management’s expectations for the future and can include estimates of future biogas production, commodity prices, operating and development costs, and a risk-adjusted discount rate. Revenues and costs of the acquired companies are included in the Company’s operating results from the date of acquisition.
The Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, and these estimates and assumptions are inherently uncertain and subject to refinement during the measurement period not to exceed one year from the acquisition date. As a result, any adjustment identified subsequent to the measurement period is included in operating results in the period in which the amount is determined. The Company’s acquisitions are discussed in “Note 4 - Business Combinations and Reverse Recapitalization.”
NOTE 3 – Recently Issued and Adopted Accounting Standards
In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between previous generally accepted accounting principles and the new requirements under Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases with a term greater than 12 months classified as operating leases under previous GAAP.
Upon adoption of Topic 842 as of January 1, 2022, the Company recognized $5.1 million of right-of-use ("ROU") assets and lease liabilities on its Consolidated Balance Sheet related to operating leases existing on the adoption date. Prior period financial statements were not adjusted. The adoption of Topic 842 did not have a material impact on the Company’s Consolidated Statement of Operations or Consolidated Statement of Cash Flows. See “Note 11 - Leases” for additional information.
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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance for a limited period of time to ease the transition from the London Inter-Bank Offered Rate (“LIBOR”) to an alternative reference rate. The guidance intends to address certain concerns relating to accounting for contract modifications and hedge accounting. These optional expedients and exceptions to applying GAAP, assuming certain criteria are met, are allowed through December 31, 2022. The Company is currently evaluating the provisions of this update and has not yet determined whether it will elect the optional expedients. The Company does not expect the transition to an alternative rate to have a material impact on its business, operations or liquidity.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires all entities to recognize and measure contract assets and liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The guidance aims to improve comparability for revenue contracts with customers by providing consistent recognition and measurement guidance for all revenue contracts with customers. ASU 2021-08 is effective for the Company for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company will adopt this ASU as of January 1, 2023, and does not expect the adoption to have a material impact on its financial condition, results of operations, or cash flows.
NOTE 4 – Business Combinations and Reverse Recapitalization
Reverse Recapitalization
Legacy Archaea is considered the accounting acquirer of the Business Combinations because Legacy Archaea Holders have the largest portion of the voting power of the Company and Legacy Archaea’s senior management comprise the majority of the executive management of the Company. Additionally, the Legacy Archaea Holders appointed the majority of board members exclusive of the independent board members. The Archaea Merger represents a reverse merger and is accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, RAC is treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Archaea Merger is treated as the equivalent of Legacy Archaea issuing shares for the net assets of RAC, accompanied by a recapitalization. The net assets of RAC were stated at historical cost, no goodwill or other intangible assets were recorded.
Aria Merger
As discussed in “Note 1 - Organization and Description of Business,” Aria was acquired as part of Business Combinations consummated on September 15, 2021 to complement the Company’s existing RNG assets and for its operational expertise in the renewable gas industry. The Aria Merger represented an acquisition of a business and was accounted for using the acquisition method, whereby all of the assets acquired and liabilities assumed were recognized at their fair value on the acquisition date, with any excess of the purchase price over the estimated fair value recorded as goodwill.
As of March 31, 2022, the Company has substantially completed the allocation of the consideration; however, the Company continues to gather information related to the evaluation of certain items due to ongoing appraisal efforts. Estimates were recorded as of the Acquisition date related to these items and the valuations could change as additional information is received. During the three months ended March 31, 2022, the final consideration adjustment of $1.9 million was determined and received from the Aria Holders which had the effect of reducing goodwill. In addition, other purchase price adjustments of $1.8 million in aggregate were recorded for the three months ended March 31, 2022 which had the effect of increasing goodwill.
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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – Revenues
Revenue by Product Type
The following table disaggregates revenue by significant product type for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
(in thousands)
20222021
RNG, including RINs and LCFS credits
$34,797 $ 
RNG O&M service
290  
Power, including RECs
16,866  
Power O&M service
898  
Equipment and associated services
1,214 1,654 
Other
66  
Total
$54,131 $1,654 
Contract Assets and Contract Liabilities
The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from equipment sales projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to customers, as the amounts cannot be billed under the terms of the contracts. There were no credit allowances for contract assets as of March 31, 2022 or December 31, 2021. Contract liabilities from contracts arise when amounts invoiced to customers exceed revenues from equipment sales recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from customers on certain equipment contracts. Contract liabilities decrease as revenue is recognized from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when such revenue is expected to be recognized.
Contract assets and liabilities consisted of the following as of March 31, 2022 and December 31, 2021:
(in thousands)March 31,
2022
December 31,
2021
Contract assets (included in Prepaid expenses and other current assets)
$33 $87 
Contract liabilities (included in Accrued and other current liabilities)
$(917)$(505)
The change in contract liabilities during three months ended March 31, 2022 was primarily due to an increase in new equipment sales billings in advance of revenue recognition, partially offset by $82 thousand of revenue recognized that was included in contract liabilities at December 31, 2021.
Transaction Price Allocated to Remaining Unsatisfied Performance Obligations
Remaining unsatisfied performance obligations as of March 31, 2022 relate to certain of the Company’s RNG and Environmental Attributes contracts. The Company applies the optional exemptions in ASC 606 and does not disclose consideration for remaining performance obligations with an original expected duration of one year or less or for variable consideration related to unsatisfied performance obligations. Firm contracts for fixed-price, fixed-quantity sales of RNG and Environmental Attributes based on minimum contractual volumes are reflected in the table below when their original expected term is in excess of one year. The following table summarizes the revenue the Company expects to recognize over next 20 years on these firm sales contracts as of March 31, 2022:

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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Remaining 2022 and 2023$136,617 
2024-2025266,350
2026-2027354,183
2028-2029343,474
2030-2031344,472
Thereafter1,590,384
Total$3,035,480 
NOTE 6 – Property, Plant and Equipment
Property, plant and equipment consist of the following as of March 31, 2022 and December 31, 2021:
(in thousands)
March 31,
2022
December 31,
2021
Machinery and equipment
$291,286 $285,718 
Buildings and improvements
16,998 16,039 
Furniture and fixtures
1,569 1,176 
Construction in progress
96,914 55,039 
Land
266 246 
Total cost
407,033 358,218 
Less accumulated depreciation
(12,830)(7,635)
Property, plant and equipment, net
$394,203 $350,583 
NOTE 7 – Equity Method Investments
As a result of the Aria Merger, the Company holds 50% interest in two joint ventures, Mavrix and Sunshine Gas Producers, LLC (“SGP”), which are accounted for using the equity method due to the joint control by both the Company and unrelated parties with ownership interest in each entity.
Under the terms of the original Mavrix, LLC Contribution Agreement dated September 30, 2017, the Company is required to make an earn-out payment to its joint venture partner holding the other 50% membership in Mavrix in an amount up to $9.55 million. The earn-out payment represents additional consideration for the Company’s equity interest in Mavrix and will be based on the performance of certain projects owned by Mavrix through the earn-out period which ends September 30, 2022. No earn-out payment is due until the completion of the earn-out period. In February 2022, the Mavrix, LLC Contribution Agreement was amended to exclude certain upgrade and optimization capital expenditures incurred for one specific project from the earn-out calculation and to add a maintenance expenditure cap. Based on the amended terms, the Company has estimated the earn-out payment to be $8.1 million at March 31, 2022, and this amount is reflected in the accompanying balance sheet in accrued and other current liabilities.

The summarized financial information for the Mavrix and SGP equity method investments is as follows: 
(in thousands)
March 31,
2022
December 31,
2021
Assets
$237,199 $203,864 
Liabilities
53,880 15,477 
Net assets
$183,319 $188,387 
Company’s share of equity in net assets
$91,660 $94,194 
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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Three Months Ended March 31, 2022
Total revenues
$25,229 
Net income
$8,018 
Company’s share of net income
$4,009 
The Company’s carrying values of the Mavrix and SGP investments also include basis differences totaling $154.4 million as of March 31, 2022 as a result of the fair value measurements recorded as part of the Aria Merger. Amortization of the basis differences reduced equity investment income by $2.6 million for the three months ended March 31, 2022.
On December 30, 2021, the Company entered into a new joint venture. The Company contributed $7.5 million in cash in 2021 into this newly created entity, Saturn Renewables LLC ("Saturn"), in exchange for a 50% interest, and the joint venture acquired gas rights at two landfill sites to develop RNG facilities. The Company is the operator of Saturn’s day to day operations and accounts for its investment in Saturn using the equity method. The Company has contributed an additional $4.0 million to the Saturn joint venture during the three months ended March 31, 2022, and the carrying value of Saturn was $11.5 million as of March 31, 2022.
In addition, the Company also owns several smaller investments accounted for using the equity method of accounting totaling $7.1 million as of March 31, 2022 and December 31, 2021.
NOTE 8 – Goodwill and Intangible Assets
Goodwill
At March 31, 2022, the Company had $29.1 million of goodwill, all of which is allocated to the RNG segment. The goodwill is primarily associated with the acquisition of Aria in the Business Combinations, as discussed in “Note 4 - Business Combinations and Reverse Recapitalization.” The Company performs its annual impairment testing on October 1 of each year or as circumstances change or necessitate. There have been no material changes related to the RNG segment's goodwill or the Company’s impairment assessments since its fiscal year ended December 31 2021.
Intangible Assets
Intangible assets consist of biogas rights agreements, off-take agreements, O&M contracts, an RNG purchase contract, customer relationships and trade names that were recognized as a result of the allocation of the purchase price under business acquisitions based on their future value to the Company, and such intangible assets will be amortized over their estimated useful lives. Biogas rights agreements also include the cost of agreements entered into with biogas site hosts. The biogas rights agreements have various renewal terms in their underlying contracts that are factored into the useful lives when amortizing the intangible asset.
Intangible assets consist of the following as of March 31, 2022 and December 31, 2021:
(in thousands)
March 31, 2022
Gross Carrying
Amount
Accumulated
Amortization
Net
Biogas rights agreements
$612,461 $15,437 $597,024 
Electricity off-take agreements26,512 1,547 24,965 
Operations and maintenance contracts
8,620 316 8,304 
RNG purchase contract10,290 3,642 6,648 
Customer relationships
350 146 204 
Trade names
150 62 88 
Total
$658,383 $21,150 $637,233 
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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
December 31, 2021
Gross Carrying
Amount
Accumulated
Amortization
Net
Biogas rights agreements
$603,868 $8,237 $595,631 
Electricity off-take agreements26,511 749 25,762 
Operations and maintenance contracts
8,620 173 8,447 
RNG purchase contract10,290 1,959 8,331 
Customer relationships
350 140 210 
Trade names
150 60 90 
Total
$649,789 $11,318 $638,471 
Total amortization expense was approximately $8.2 million and $0.03 million for three months ended March 31, 2022 and 2021, respectively, excluding the $1.7 million of amortization of the RNG purchase contract for the three months ended March 31, 2022 that is amortized to cost of energy.
Below-Market Contracts
As a result of the Aria Merger, the Company assumed certain fixed-price sales contracts that were below current and future market prices at the Closing Date. The contracts were recorded at fair value and are classified as other long-term liabilities on the Company’s consolidated balance sheets as of March 31, 2022 and December 31, 2021:
March 31, 2022
Gross Liability
Accumulated
Amortization
Net
Gas off-take agreements
$146,990 $8,070 $138,920 
December 31, 2021
Gross Liability
Accumulated
Amortization
Net
Gas off-take agreements
$146,990 $4,360 $142,630 
The below-market contract amortization was $3.7 million for the three months ended March 31, 2022 and was recognized as an increase to revenues since it relates to the sale of RNG and related Environmental Attributes.
NOTE 9 – Accrued and Other Current Liabilities
Accrued and other current liabilities consist of the following as of March 31, 2022 and December 31, 2021:

(in thousands)March 31,
2022
December 31,
2021
Accrued expenses$26,063 $16,638 
Accrued capital expenditures15,564 16,609 
Derivative liabilities 771 
Payroll and related costs9,228 7,683 
Accrued interest759 738 
Contract liabilities917 505 
Other current liabilities3,243 3,335 
Total$55,774 $46,279 
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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – Debt
The Company’s outstanding debt consists of the following as of March 31, 2022 and December 31, 2021:
(in thousands)
March 31,
2022
December 31,
2021
New Credit Agreement - Term Loan
$217,250 $218,625 
Wilmington Trust – 4.47% Term Note
60,828 60,828 
Wilmington Trust – 3.75% Term Note
71,123 72,542 

349,201 351,995 
Less unamortized debt issuance costs
(8,827)(9,221)
Long-term debt less debt issuance costs
340,374 342,774 
Less current maturities, net
(12,606)(11,378)
Total long-term debt
$327,768 $331,396 
Fair Value of Debt
The Company estimates the fair value of fixed-rate term loans based on quoted market yields for similarly rated debt instruments in an active market, which are considered a Level 2 input in the fair value hierarchy. As of March 31, 2022 and December 31, 2021, the estimated fair value of the Company’s outstanding debt was approximately $328.7 million and $353.1 million, respectively.
New Credit Facilities
On the Closing Date and upon consummation of the Business Combinations, Archaea Energy Operating LLC, a Delaware limited liability company (f/k/a LFG Buyer Co, LLC) (“Archaea Borrower”), entered into a $470 million Revolving Credit and Term Loan Agreement (the “New Credit Agreement”) with a syndicate of lenders co-arranged by Comerica Bank. The New Credit Agreement provides for a senior secured revolving credit facility (the “Revolver”) with an initial commitment of $250 million and a senior secured term loan credit facility (the “Term Loan” and, together with the Revolver, the “Facilities”) with an initial commitment of $220 million. Pursuant to the New Credit Agreement, Archaea Borrower has the ability, subject to certain conditions, to draw upon the Revolver on a revolving basis up to the amount of the Revolver then in effect. On the Closing Date, Archaea Borrower received total proceeds of $220 million under Term Loan. Archaea Borrower had outstanding borrowings under the Term Loan of $217.3 million at an interest rate of 3.48% as of March 31, 2022. As of March 31, 2022, the Company had issued letters of credit under the New Credit Agreement of $19.9 million and there were no borrowings under the Revolver, resulting in available borrowing capacity of $230.1 million under the Revolver.
NOTE 11 – Leases
The Company has entered into warehouse, facility, and various office leases with third parties for periods ranging from one to eleven years. As discussed in Note 3 - Recently Issued and Adopted Accounting Standards, the Company adopted ASC 842 - Leases on January 1, 2022 utilizing the modified retrospective approach. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain leases, (2) lease classification for any expired or existing leases as of the adoption date, and (3) initial direct costs for any existing leases as of the adoption date. The Company has elected not to recognize ROU assets and lease liabilities for leases with terms of 12 months or less.
The Company determines at the inception of a lease whether an arrangement that provides the Company control over the use of an asset is a lease. ROU assets and lease liabilities are initially measured at the lease commencement date based on the present value of the future lease payments over the lease term, discounted using an estimate of the Company’s incremental borrowing rate which approximates the rate to borrow funds on collateralized loans over a similar term of the lease. Renewal options are included in the calculation of ROU assets and lease liabilities when the Company determines that the option is reasonably certain of exercise based on an analysis of the relevant facts and circumstances. When
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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
operating leases contain provisions for maintenance services, which are considered non-lease components for accounting purposes, those non-lease components are excluded from the calculation of the ROU assets and lease liabilities.
Operating lease expense is generally recognized on a straight-line basis over the lease term unless another method better represents the pattern that benefit is expected to be derived from the right to use the underlying asset. For the three months ended March 31, 2022, the Company recognized $0.9 million in total lease costs, which was comprised of $0.3 million in operating lease expense and $0.1 million in capitalized lease costs for ROU assets, and $0.5 million of short-term operating lease expense. For the three months ended March 31, 2021, the Company recognized rent expense of $0.1 million.
The Company also entered into a related-party office lease as a result of its acquisition of interest Gulf Coast Environmental Services, LLC in 2020. During the three months ended March 31, 2022 and 2021, the Company paid approximately $70 thousand and $53 thousand, respectively, under this related-party lease which expires on May 1, 2022.
Supplemental information related to the Company's ROU assets and related operating lease liabilities were as follows:

(in thousands)Three Months Ended March 31, 2022
Operating cash outflows for operating leases$666
Weighted average remaining lease term (in years)9.0
Weighted average discount rate5.0 %
In 2021, the Company entered into a new corporate office lease with a commitment of approximately $8.3 million that has not commenced as of March 31, 2022 and, therefore, has not been recognized on the Company's Consolidated Balance Sheet. This operating lease is expected to commence in the fourth quarter of 2022 with a lease term of 11 years.
As of March 31, 2022, future lease payments under the Company’s operating leases that have commenced are as follows:
(in thousands)
Remainder of 2022$808 
2023609 
2024528 
2025520 
2026533
2027545
Thereafter
2,577
Total future lease payments
6,120 
Less portion representing imputed interest(1,247)
Total operating lease liabilities$4,873 
NOTE 12 – Commitments and Contingencies
Commitments
The Company has various long-term contractual commitments pertaining to its biogas rights agreements. Excluding the evergreen contracts, these agreements expire at various dates through 2045.
Contingencies
The Company is subject to certain claims, charges and litigation concerning matters arising in the ordinary course of business and that have not been fully resolved. The Company does not believe the ultimate outcome of any currently pending lawsuit will have a material adverse effect upon the Company’s financial statements, and the liability is believed to be only reasonably possible or remote.

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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – Derivative Instruments
Warrant Liabilities
As of March 31, 2022, 6,771,000 Private Placement Warrants remain outstanding, and each is exercisable to purchase one share of Class A Common Stock or, in certain circumstances, one Class A Opco Unit and corresponding share of Class B Common Stock. The Private Placement Warrants expire on September 15, 2026, or earlier upon redemption or liquidation. Private Placement Warrants are nonredeemable so long as they are held by the initial purchasers of the Private Placement Warrants or their permitted transferees. There were no Private Placement Warrants transfers as of March 31, 2022.
The Private Placement Warrants contain exercise and settlement features that preclude them from being classified within stockholders’ equity, and therefore are recognized as derivative liabilities. The Company recognizes the warrant instruments as liabilities at fair value with changes in fair value included within gain (loss) on derivative contracts in the Company’s consolidated statements of operations. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
The fair value of the Private Placement Warrants is estimated using the Black-Scholes option pricing model (a Level 3 measurement).
The Company used the following assumptions to estimate the fair value of the Private Placement Warrants:
March 31,
2022
December 31,
2021
Stock price
$21.93$18.28
Exercise price
$11.50$11.50
Volatility
48.0 %46.0 %
Expected term (years)
4.54.7
Risk-free interest rate
2.4 %1.2 %
The change in the fair value of the warrant liabilities is recognized in gain (loss) on derivative contracts in the consolidated statement of operations. The changes in the Private Placement Warrants liabilities for the three months ended March 31, 2022 are as follows:
(in thousands)

Warrant liabilities as of December 31, 2021
$67,290 
Change in fair value
24,013 
Warrant liabilities as of March 31, 2022
$91,303 
Natural Gas Swap
In conjunction with the Business Combinations, the Company assumed a natural gas variable to fixed priced swap agreement entered into by Aria. The Company is the fixed price payer under the swap agreement that provides for monthly net settlements through the termination date of June 30, 2023. The agreement was intended to manage the risk associated with changing commodity prices. The agreement has a remaining notional of 273,600 MMBtu as of March 31, 2022. The Company received net cash payments of $0.1 million for the natural gas swap for the three months ended March 31, 2022.
Changes in the fair values and realized gains (losses) for the natural gas swap are recognized in gain (loss) on derivative contracts in the consolidated statement of operations. Valuation of the natural gas swap was calculated by discounting future net cash flows that were based on a forward price curve for natural gas over the remaining life of the contract (a Level 2 measurement), with an adjustment for each counterparty’s credit rate risk.

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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Interest Rate Swap
In December 2021, the Company entered into an interest rate swap that locks in payments of a fixed interest rate of 1.094% in exchange for a floating interest rate that resets monthly based on LIBOR. The interest rate swap was not designated as a hedging instrument, and net gains and losses are recognized currently in gain (loss) on derivative contracts. The interest rate swap notional begins at $109.3 million and declines over the term of the swap ending at $94.9 million as of the December 2024 contract termination date. The Company made cash payments of $0.3 million for the interest rate swap for the three months ended March 31, 2022.
The following summarizes the balance sheet classification and fair value of the Company’s derivative instruments as of March 31, 2022 and December 31, 2021:
(in thousands)
March 31,
2022
December 31,
2021
Prepaid expenses and other current assets
Natural gas swap asset$271 $ 
Interest rate swap asset503  
Other non-current assets
Interest rate swap asset3,164 439 
Total derivative assets$3,938 $439 
Accrued and other current liabilities
Natural gas swap liability$ $44 
Interest rate swap liability 727 
Derivative liabilities
Natural gas swap liability
78 134 
Warrant liabilities
91,303 67,290 
Total derivative liabilities$91,381 $68,195 
The following table summarizes the income statement effect of gains and losses related to derivative instruments for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
(in thousands)
20222021
Gain (loss) on natural gas swap contract
$454 $ 
Gain (loss) on warrant liabilities
(24,013) </