Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32.2 - Bonanza Creek Energy, Inc. | ex32263017.htm |
| EX-32.1 - EXHIBIT 32.1 - Bonanza Creek Energy, Inc. | ex32163017.htm |
| EX-31.2 - EXHIBIT 31.2 - Bonanza Creek Energy, Inc. | ex31263017.htm |
| EX-31.1 - EXHIBIT 31.1 - Bonanza Creek Energy, Inc. | ex31163017.htm |
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 June 30, 2017
Commission File Number: 001-35371
Bonanza Creek Energy, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 61-1630631 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
410 17th Street, Suite 1400 | ||
Denver, Colorado | 80202 | |
(Address of principal executive offices) | (Zip Code) | |
(720) 440-6100
(Registrant’s telephone number, including area code)
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. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). x 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 x | |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | ||
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 7(a)(2)(B) of the Securities Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. x Yes ¨ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 1, 2017, the registrant had 20,429,691 shares of common stock outstanding.
1
BONANZA CREEK ENERGY, INC.
INDEX
PAGE | ||||
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share amounts)
Successor | Predecessor | |||||||
June 30, 2017 | December 31, 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 54,212 | $ | 80,565 | ||||
Accounts receivable: | ||||||||
Oil and gas sales | 18,410 | 14,479 | ||||||
Joint interest and other | 3,073 | 6,784 | ||||||
Prepaid expenses and other | 4,682 | 5,915 | ||||||
Inventory of oilfield equipment | 3,942 | 4,685 | ||||||
Total current assets | 84,319 | 112,428 | ||||||
Property and equipment (successful efforts method): | ||||||||
Proved properties | 498,229 | 2,525,587 | ||||||
Less: accumulated depreciation, depletion and amortization | (4,266 | ) | (1,694,483 | ) | ||||
Total proved properties, net | 493,963 | 831,104 | ||||||
Unproved properties | 183,443 | 163,369 | ||||||
Wells in progress | 16,100 | 18,250 | ||||||
Other property and equipment, net of accumulated depreciation of $238 in 2017 and $11,206 in 2016 | 5,980 | 6,245 | ||||||
Total property and equipment, net | 699,486 | 1,018,968 | ||||||
Other noncurrent assets | 2,739 | 3,082 | ||||||
Total assets | $ | 786,544 | $ | 1,134,478 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses (note 5) | $ | 28,586 | $ | 61,328 | ||||
Oil and gas revenue distribution payable | 22,321 | 23,773 | ||||||
Revolving credit facility - current portion (note 6) | — | 191,667 | ||||||
Senior Notes - current portion (note 6) | — | 793,698 | ||||||
Total current liabilities | 50,907 | 1,070,466 | ||||||
Long-term liabilities: | ||||||||
Ad valorem taxes | 20,288 | 14,118 | ||||||
Asset retirement obligations for oil and gas properties | 28,938 | 30,833 | ||||||
Total liabilities | 100,133 | 1,115,417 | ||||||
Commitments and contingencies (note 7) | ||||||||
Stockholders’ equity: | ||||||||
Predecessor preferred stock, $.001 par value, 25,000,000 shares authorized, none outstanding as of December 31, 2016 | — | — | ||||||
Predecessor common stock, $.001 par value, 225,000,000 shares authorized, 49,660,683 issued and outstanding as of December 31, 2016 | — | 49 | ||||||
Successor preferred stock, $.01 par value, 25,000,000 shares authorized, none outstanding as of June 30, 2017 | — | — | ||||||
Successor common stock, $.01 par value, 225,000,000 shares authorized, 20,429,691 issued and outstanding as of June 30, 2017 | 4,286 | — | ||||||
Additional paid-in capital | 685,705 | 814,990 | ||||||
Accumulated deficit | (3,580 | ) | (795,978 | ) | ||||
Total stockholders’ equity | 686,411 | 19,061 | ||||||
Total liabilities and stockholders’ equity | $ | 786,544 | $ | 1,134,478 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands, except per share amounts)
Successor | Predecessor | Predecessor | |||||||||
April 29, 2017 through June 30, 2017 | April 1, 2017 through April 28, 2017 | Three Months Ended June 30, 2016 | |||||||||
Operating net revenues: | |||||||||||
Oil and gas sales | $ | 28,114 | $ | 16,030 | $ | 54,530 | |||||
Operating expenses: | |||||||||||
Lease operating expense | 6,153 | 3,203 | 10,737 | ||||||||
Gas plant and midstream operating expense | 1,762 | 836 | 3,535 | ||||||||
Severance and ad valorem taxes | 2,408 | 1,352 | 4,277 | ||||||||
Exploration | 359 | 292 | 677 | ||||||||
Depreciation, depletion and amortization | 4,836 | 6,853 | 30,927 | ||||||||
Abandonment and impairment of unproved properties | — | — | 9,875 | ||||||||
General and administrative (including $7,949, $391 and $2,380, respectively, of stock-based compensation) | 16,139 | 2,998 | 13,235 | ||||||||
Total operating expenses | 31,657 | 15,534 | 73,263 | ||||||||
Income (loss) from operations | (3,543 | ) | 496 | (18,733 | ) | ||||||
Other income (expense): | |||||||||||
Derivative loss | — | — | (12,923 | ) | |||||||
Interest expense | (195 | ) | (1,088 | ) | (16,527 | ) | |||||
Reorganization items, net (note 4) | — | 97,811 | — | ||||||||
Other income (loss) | 158 | (283 | ) | (1,294 | ) | ||||||
Total other income (expense) | (37 | ) | 96,440 | (30,744 | ) | ||||||
Income (loss) from operations before taxes | (3,580 | ) | 96,936 | (49,477 | ) | ||||||
Income tax benefit (expense) | — | — | — | ||||||||
Net income (loss) | $ | (3,580 | ) | $ | 96,936 | $ | (49,477 | ) | |||
Comprehensive income (loss) | $ | (3,580 | ) | $ | 96,936 | $ | (49,477 | ) | |||
Basic net income (loss) per common share | $ | (0.18 | ) | $ | 1.88 | $ | (1.00 | ) | |||
Diluted net income (loss) per common share | $ | (0.18 | ) | $ | 1.85 | $ | (1.00 | ) | |||
Basic weighted-average common shares outstanding | 20,369 | 49,902 | 49,277 | ||||||||
Diluted weighted-average common shares outstanding | 20,369 | 50,486 | 49,277 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands, except per share amounts)
Successor | Predecessor | Predecessor | |||||||||
April 29, 2017 through June 30, 2017 | January 1, 2017 through April 28, 2017 | Six Months Ended June 30, 2016 | |||||||||
Operating net revenues: | |||||||||||
Oil and gas sales | $ | 28,114 | $ | 68,589 | $ | 98,704 | |||||
Operating expenses: | |||||||||||
Lease operating expense | 6,153 | 13,128 | 24,035 | ||||||||
Gas plant and midstream operating expense | 1,762 | 3,541 | 7,324 | ||||||||
Severance and ad valorem taxes | 2,408 | 5,671 | 7,431 | ||||||||
Exploration | 359 | 3,699 | 943 | ||||||||
Depreciation, depletion and amortization | 4,836 | 28,065 | 57,306 | ||||||||
Impairment of oil and gas properties | — | — | 10,000 | ||||||||
Abandonment and impairment of unproved properties | — | — | 16,781 | ||||||||
Unused commitments | — | 993 | — | ||||||||
General and administrative (including $7,949, $2,116, $5,384, respectively, of stock-based compensation) | 16,139 | 15,092 | 30,920 | ||||||||
Total operating expenses | 31,657 | 70,189 | 154,740 | ||||||||
Loss from operations | (3,543 | ) | (1,600 | ) | (56,036 | ) | |||||
Other income (expense): | |||||||||||
Derivative loss | — | — | (13,930 | ) | |||||||
Interest expense | (195 | ) | (5,656 | ) | (31,074 | ) | |||||
Reorganization items, net (note 4) | — | 8,808 | — | ||||||||
Gain on termination fee (note 2) | — | — | 6,000 | ||||||||
Other income (loss) | 158 | 1,108 | (1,674 | ) | |||||||
Total other income (expense) | (37 | ) | 4,260 | (40,678 | ) | ||||||
Income (loss) from operations before taxes | (3,580 | ) | 2,660 | (96,714 | ) | ||||||
Income tax benefit (expense) | — | — | — | ||||||||
Net income (loss) | $ | (3,580 | ) | $ | 2,660 | $ | (96,714 | ) | |||
Comprehensive income (loss) | $ | (3,580 | ) | $ | 2,660 | $ | (96,714 | ) | |||
Basic net income (loss) per common share | $ | (0.18 | ) | $ | 0.05 | $ | (1.97 | ) | |||
Diluted net income (loss) per common share | $ | (0.18 | ) | $ | 0.05 | $ | (1.97 | ) | |||
Basic weighted-average common shares outstanding | 20,369 | 49,559 | 49,204 | ||||||||
Diluted weighted-average common shares outstanding | 20,369 | 50,971 | 49,204 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands, except share amounts)
Additional | |||||||||||||||||||
Common Stock | Paid-In | Accumulated | |||||||||||||||||
Shares | Amount | Capital | Deficit | Total | |||||||||||||||
Balances, December 31, 2016 | 49,660,683 | $ | 49 | $ | 814,990 | $ | (795,978 | ) | $ | 19,061 | |||||||||
Restricted common stock issued | 767,848 | 1 | — | — | 1 | ||||||||||||||
Restricted common stock forfeited | (5,134 | ) | — | — | — | — | |||||||||||||
Restricted stock used for tax withholdings | (318,180 | ) | (1 | ) | (427 | ) | — | (428 | ) | ||||||||||
Fair value of equity issued to existing common stockholders | — | — | (23,410 | ) | — | (23,410 | ) | ||||||||||||
Stock-based compensation | — | — | 2,116 | — | 2,116 | ||||||||||||||
Net Income | — | — | — | 2,660 | 2,660 | ||||||||||||||
Balances, April 28, 2017 (Predecessor) | 50,105,217 | $ | 49 | $ | 793,269 | $ | (793,318 | ) | $ | — | |||||||||
Cancellation of Predecessor equity | (50,105,217 | ) | (49 | ) | (793,269 | ) | 793,318 | — | |||||||||||
Balances, April 28, 2017 (Predecessor) | — | — | — | — | — | ||||||||||||||
Issuance of Successor equity | 20,356,071 | 4,285 | 679,836 | — | 684,121 | ||||||||||||||
Balances, April 28, 2017 (Successor) | 20,356,071 | 4,285 | 679,836 | — | 684,121 | ||||||||||||||
Restricted common stock issued | 137,814 | 1 | — | — | 1 | ||||||||||||||
Restricted stock used for tax withholdings | (64,194 | ) | — | (2,080 | ) | — | (2,080 | ) | |||||||||||
Stock-based compensation | — | — | 7,949 | — | 7,949 | ||||||||||||||
Net Loss | — | — | — | (3,580 | ) | (3,580 | ) | ||||||||||||
Balances, June 30, 2017 | 20,429,691 | $ | 4,286 | $ | 685,705 | $ | (3,580 | ) | $ | 686,411 | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Successor | Predecessor | Predecessor | |||||||||
April 29, 2017 through June 30, 2017 | January 1, 2017 through April 28, 2017 | Six Months Ended June 30, 2016 | |||||||||
Cash flows from operating activities: | |||||||||||
Net income (loss) | $ | (3,580 | ) | $ | 2,660 | $ | (96,714 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
Depreciation, depletion and amortization | 4,836 | 28,065 | 57,306 | ||||||||
Non-cash reorganization items | — | (44,160 | ) | — | |||||||
Impairment of oil and gas properties | — | — | 10,000 | ||||||||
Abandonment and impairment of unproved properties | — | — | 16,781 | ||||||||
Well abandonment costs and dry hole expense | 64 | 2,931 | 966 | ||||||||
Stock-based compensation | 7,949 | 2,116 | 5,384 | ||||||||
Amortization of deferred financing costs and debt premium | — | 374 | 2,279 | ||||||||
Derivative loss | — | — | 13,930 | ||||||||
Derivative cash settlements | — | — | 11,401 | ||||||||
Other | 5 | 18 | (112 | ) | |||||||
Changes in current assets and liabilities: | |||||||||||
Accounts receivable | 6,420 | (6,640 | ) | 23,415 | |||||||
Prepaid expenses and other assets | 270 | 963 | (1,348 | ) | |||||||
Accounts payable and accrued liabilities | (19,338 | ) | (5,880 | ) | (28,457 | ) | |||||
Settlement of asset retirement obligations | (459 | ) | (331 | ) | (75 | ) | |||||
Net cash (used in) provided by operating activities | (3,833 | ) | (19,884 | ) | 14,756 | ||||||
Cash flows from investing activities: | |||||||||||
Acquisition of oil and gas properties | (4,982 | ) | (445 | ) | (816 | ) | |||||
Exploration and development of oil and gas properties | (4,913 | ) | (5,123 | ) | (42,753 | ) | |||||
Payments of contractual obligation | — | — | (12,000 | ) | |||||||
(Increase) decrease in restricted cash | (2 | ) | 118 | (2,535 | ) | ||||||
(Additions) deletions to property and equipment - non oil and gas | (161 | ) | (454 | ) | 39 | ||||||
Net cash used in investing activities | (10,058 | ) | (5,904 | ) | (58,065 | ) | |||||
Cash flows from financing activities: | |||||||||||
Proceeds from credit facility | — | — | 209,000 | ||||||||
Payments to credit facility | — | (191,667 | ) | (14,667 | ) | ||||||
Proceeds from sale of common stock | — | 207,500 | — | ||||||||
Deferred restructuring charges | — | — | (1,684 | ) | |||||||
Payment of employee tax withholdings in exchange for the return of common stock | (2,080 | ) | (427 | ) | (273 | ) | |||||
Deferred financing costs | — | — | (237 | ) | |||||||
Net cash (used in) provided by financing activities | (2,080 | ) | 15,406 | 192,139 | |||||||
Net change in cash and cash equivalents | (15,971 | ) | (10,382 | ) | 148,830 | ||||||
Cash and cash equivalents: | |||||||||||
Beginning of period | 70,183 | 80,565 | 21,341 | ||||||||
End of period | $ | 54,212 | $ | 70,183 | $ | 170,171 | |||||
Supplemental cash flow disclosure: | |||||||||||
Cash paid for interest | $ | 193 | $ | 3,509 | $ | 28,553 | |||||
Cash paid for reorganization items | $ | 918 | $ | 52,968 | $ | — | |||||
Changes in working capital related to drilling expenditures | $ | 8,742 | $ | 3,360 | $ | (25,462 | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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BONANZA CREEK ENERGY, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - ORGANIZATION AND BUSINESS
Bonanza Creek Energy, Inc. (“BCEI” or, together with our consolidated subsidiaries, the “Company”) is engaged primarily in acquiring, developing, exploiting and producing oil and gas properties. As of June 30, 2017, the Company's assets and operations were concentrated primarily in the Wattenberg Field in Colorado and in the Dorcheat Macedonia Field in southern Arkansas.
NOTE 2 - BASIS OF PRESENTATION
These statements have been prepared in accordance with the Securities and Exchange Commission and accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information with the condensed consolidated balance sheets (“balance sheets”) and the condensed consolidated statements of cash flows (“statements of cash flows”) as of and for the period ended December 31, 2016, being derived from audited financial statements. The quarterly financial statements included herein do not necessarily include all of the disclosures as may be required under generally accepted accounting principles for complete financial statements. Except as disclosed herein, and with the exception of information in this report related to our emergence from Chapter 11 and fresh-start accounting, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”). These consolidated financial statements include all of the adjustments, which, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations. All such adjustments are of a normal recurring nature only. As described below, however, such prior financial statements are not comparable to our interim financial statements due to the adoption of fresh-start accounting. The results of operations for the quarter are not necessarily indicative of the results to be expected for the full fiscal year. The Company evaluated events subsequent to the balance sheet date of June 30, 2017, and through the filing date of this report.
On January 4, 2017, the Company and certain of its subsidiaries (collectively with the Company, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions,” and the cases commenced thereby, the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to pursue the Debtors’ Joint Prepackaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (as proposed, the “Plan”). The Bankruptcy Court granted the Debtors' motion seeking to administer all of the Debtors' Chapter 11 Cases jointly under the caption In re Bonanza Creek Energy, Inc., et al (Case No. 17-10015). The Debtors received bankruptcy court confirmation of their Plan on April 7, 2017, and emerged from bankruptcy on April 28, 2017 (the “Effective Date”). Although the Company is no longer a debtor-in-possession, the Company was a debtor-in-possession during a portion of the quarter ended June 30, 2017. As such, certain aspects of the bankruptcy proceedings of the Company and related matters are described below in order to provide context and explain part of our financial condition and results of operations for the period presented.
Upon emergence from bankruptcy, the Company adopted fresh-start accounting and became a new entity for financial reporting purposes. As a result of the application of fresh-start accounting and the effects of the implementation of the Plan, the Company’s condensed consolidated financial statements after April 28, 2017 are not comparable with the financial statements on or prior to April 28, 2017. The Company's condensed consolidated financial statements and related footnotes are presented with a black line division which delineates the lack of comparability between amounts presented after April 28, 2017 and dates prior thereto. See Note 4 - Fresh-Start Accounting for additional discussion.
Subsequent to January 4, 2017, all expenses, gains and losses directly associated with the reorganization are reported as reorganization items, net in the accompanying condensed consolidated statements of operations and comprehensive income (loss) (“statements of operations”).
References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to April 28, 2017. References to “Predecessor” or “Predecessor Company” relate to the financial position and results of operations of the Company on or prior to April 28, 2017. References to “Current Successor Quarter” relates to the period of April 29, 2017 through June 30, 2017 and “Current Predecessor Quarter” relates to the period of April 1, 2017 through April 28, 2017. References to “Current Predecessor Period” relate to the period of January 1, 2017 through April 28, 2017, and “Prior Predecessor Quarter” and “Prior Predecessor Period” relate to the three and six months ended June 30, 2016, respectively.
8
Principles of Consolidation
The balance sheets include the accounts of the Company and its wholly owned subsidiaries, Bonanza Creek Energy Operating Company, LLC, Bonanza Creek Energy Resources, LLC, Bonanza Creek Energy Upstream LLC, Bonanza Creek Energy Midstream, LLC, Holmes Eastern Company, LLC and Rocky Mountain Infrastructure, LLC. All significant intercompany accounts and transactions have been eliminated.
Rocky Mountain Infrastructure, LLC
In 2015, the Company’s wholly owned subsidiary, Bonanza Creek Energy Operating Company, LLC, formed a wholly owned subsidiary, Rocky Mountain Infrastructure, LLC (“RMI”), to hold gathering systems, central production facilities and related infrastructure that service the Wattenberg Field.
Assets Held for Sale
The Company had its ownership interests in RMI and all assets within the Mid-Continent region as held for sale during the six months ended June 30, 2016. Upon the termination of the previously reported purchase and sale agreement of its RMI interest in the first quarter of 2016, the Company received $6.0 million as shown in the gain on termination fee line item in the accompanying statements of operations. During the six months ended June 30, 2016, the Company recorded an impairment of oil and gas properties of $10.0 million based on the latest received bid at the time for its Mid-Continent assets. The Company moved these assets back into held for use during the second quarter of 2016.
Significant Accounting Policies
The significant accounting policies followed by the Company were set forth in Note 1 to the 2016 Form 10-K and are supplemented by the notes throughout this report. These unaudited condensed consolidated financial statements should be read in conjunction with the 2016 Form 10-K.
Going Concern Presumption
Our unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets, and the satisfaction of liabilities and other commitments in the normal course of business.
Recently Issued Accounting Standards
Effective January 1, 2017, the Company adopted Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“Update”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The objective of this update is to simplify the current guidance for stock compensation. The areas for simplification involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This update is effective for the annual periods beginning after December 15, 2016, and interim periods within those annual periods. As of January 1, 2017, and thereafter, the Company did not have excess tax benefits associated with its stock compensation, and therefore, there was no tax impact upon adoption of this standard. In addition, the employee taxes paid on the statement of cash flows when shares were withheld for taxes have already been classified as a financing activity, therefore, there was no cash flow statement impact upon adoption of this standard. This standard allowed Company's to elect to account for forfeitures as they occurred or estimate the number of awards that will vest. The Company elected to account for forfeitures as they occur, resulting in a minimal impact upon adoption of this standard.
In January 2017, the FASB issued Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is to be applied using a prospective method and is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company will apply this guidance to any future acquisitions or disposals of assets or business.
In February 2017, the FASB issued Update No. 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. This update is meant to clarify existing guidance and to add guidance for partial sales of nonfinancial assets. This guidance is to be applied using a full retrospective method or a modified retrospective method as outlined in the guidance and is effective at the same time as Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is
9
effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company is currently evaluating the provisions of this guidance and assessing its potential impact on the Company’s financial statements and disclosures.
In November 2016, the FASB issued Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This update clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. This guidance is to be applied using a retrospective method and is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company has evaluated the provisions of this guidance and has determined that it will not have a material effect on the Company’s financial statements or disclosures.
In August 2016, the FASB issued Update No. 2016-15 – Classification of Certain Cash Receipts and Cash Payments, which clarifies the presentation of specific cash receipts and cash payments within the statement of cash flows. This authoritative accounting guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company has evaluated the provisions of this guidance and has determined that it will not have a material effect on the Company’s financial statements or disclosures.
In February 2016, the FASB issued Update No. 2016-02 – Leases 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. This authoritative guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The Company has begun the identification process of all leases and is evaluating the provisions of this guidance and assessing its impact.
In May 2014, the FASB issued Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) for the recognition of revenue from contracts with customers. Several additional related updates have been issued. The Company is in the process of evaluating the provisions of each of these standards, analyzing their impact on the Company’s contract portfolio, reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements of these standards to the Company’s revenue contracts, and assessing their potential impact on the Company’s financial statements and disclosures. The Company currently plans to apply the modified retrospective method upon adoption and plans to adopt the guidance on the effective date of January 1, 2018.
NOTE 3 - CHAPTER 11 PROCEEDINGS AND EMERGENCE
On December 23, 2016, Bonanza Creek Energy, Inc. and its subsidiaries entered into a Restructuring Support Agreement with (i) holders of approximately 51% in aggregate principal amount of the Company's 5.75% Senior Notes due 2023 (“5.75% Senior Notes”) and 6.75% Senior Notes due 2021 (“6.75% Senior Notes”), collectively (the “Senior Notes”) and (ii) NGL Energy Partners, LP and NGL Crude Logistics, LLC (collectively “NGL”).
On January 4, 2017, the Company filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code The Debtors received bankruptcy court confirmation of their Plan on April 7, 2017, and emerged from bankruptcy on April 28, 2017.
During the bankruptcy proceedings, the Company conducted normal business activities and was authorized to pay and did pay pre-petition liabilities.
In addition, subject to specific exceptions under the Bankruptcy Code, the Chapter 11 filings automatically stayed most judicial or administrative actions against the Company and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. As a result, we did not record interest expense on the Company’s Senior Notes from January 6, 2017, the agreed-upon date, through April 28, 2017. For that period, contractual interest on the Senior Notes totaled $16.0 million.
Plan of Reorganization
On the Effective Date, the Senior Notes and existing common shares of the Company (“existing common shares”) were canceled, and the reorganized Company issued (i) new common stock, (ii) three year warrants (“warrants”), and (iii) rights (the “subscription rights”) to acquire the new common shares offered in connection with the rights offering (the “rights offering”), each of which will be distributed as set forth below;
• | the Senior Notes aggregate principal amount of $800.0 million, plus $14.9 million of accrued and unpaid pre-petition interest and $51.2 million of prepayment premiums was settled for 46.6% or 9,481,610 shares of the of the Company's new common stock; |
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• | the Company issued 803,083 or 3.9% of the new common stock to holders of our existing common stock, of which 1.75% is for the ad hoc equity committee settlement in exchange for $7.5 million, on terms equivalent to the rights offering; |
• | the Company issued 10,071,378 shares of new common stock in exchange for $200.0 million relating to the rights offering; |
• | the Company issued 1,650,510 of warrants entitling their holders upon exercise thereof, on a pro rata basis, to 7.5% of the total outstanding new common shares at a per share price of $71.23 per warrant; and |
• | the Company reserved 2,467,430 shares of the new common stock for issuance under its 2017 Long Term Incentive Plan (“LTIP”). |
Pursuant to the terms of the approved Plan the following transactions were completed on the Effective Date;
• | the Company paid Silo Energy, LLC (“Silo”) the contract settlement amount of $7.2 million in full; |
• | with respect to the predecessor revolving credit facility, dated March 29, 2011 (the “predecessor revolving credit facility”), principal, accrued interest and fees of $193.7 million were paid in full; |
• | the Company paid $1.6 million for the 2016 Short Term Incentive Plan (“2016 STIP”) to various employees; |
• | the Company funded an escrow account in the amount of $17.2 million for professional service fees attributable to its advisers; |
• | the Company paid $13.8 million for professional services attributable to advisers of third parties involved in the bankruptcy proceedings; |
• | the Company emerged with cash on hand of $70.2 million for operations; and |
• | the Company amended articles of incorporation and bylaws for the authorization of the new common stock. |
Board of Directors
Upon emergence from bankruptcy the Company's board of directors was made up of seven individuals, two of which were existing board members, Richard J. Carty and Jeffrey E. Wojahn, and five new board members consisting of Paul Keglevic, Brian Steck, Thomas B. Tyree, Jr., Jack E. Vaughn, and Scott D. Vogel were appointed.
Executive Departure
On June 11, 2017, Richard J. Carty resigned as a member of the board of directors and left his role as President and Chief Executive Officer of the Company. In connection with the departure of Mr. Carty, the board of directors appointed R. Seth Bullock, a managing director of Alvarez & Marsal, LLC, interim Chief Executive Officer, and is currently conducting a search for a new Chief Executive Officer.
NOTE 4 - FRESH-START ACCOUNTING
Upon the Company's emergence from Chapter 11 bankruptcy, the Company adopted fresh-start accounting, pursuant to FASB Accounting Standards Codification (“ASC”) 852, Reorganizations, and applied the provisions thereof to its financial statements. The Company qualified for fresh-start accounting because (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company and (ii) the reorganization value of the Company's assets immediately prior to confirmation was less than the post-petition liabilities and allowed claims. The Company applied fresh-start accounting as of April 28, 2017, when it emerged from bankruptcy protection. Adopting fresh-start accounting results in a new reporting entity for financial reporting purposes with no beginning retained earnings or deficit as of the fresh-start reporting date. The cancellation of all existing shares outstanding on the Effective Date and issuance of new shares of the Successor Company caused a related change of control of the Company under ASC 852.
Reorganization Value
Under fresh-start accounting, reorganization value represents the fair value of the Successor Company’s total assets and is intended to approximate the amount a willing buyer would pay for the assets immediately after restructuring. Under application of fresh-start accounting, the Company allocated the reorganization value to its individual assets based on their estimated fair values.
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The Company's reorganization value is derived from an estimate of enterprise value. Enterprise value represents the estimated fair value of an entity’s long-term debt, other interest bearing liabilities and shareholders’ equity. In support of the Plan, the enterprise value of the Successor Company was estimated and approved by the Bankruptcy Court to be in the range of $570.0 million to $680.0 million. Based on the estimates and assumptions used in determining the enterprise value, as further discussed below, the Company estimated the enterprise value to be approximately $643.0 million. This valuation analysis was prepared with the assistance of an independent third-party consultant utilizing reserve information prepared by the Company's internal reserve engineers, internal development plans and schedules, other internal financial information and projections and the application of standard valuation techniques including risked net asset value analysis and comparable public company metrics.
The Company's principal assets are its oil and gas properties. The Company determined the fair value of its oil and gas properties based on the discounted cash flows expected to be generated from these assets segregated into geographic regions. The computations were based on market conditions and reserves in place as of the Effective Date. Discounted cash flow models were generated using the estimated future revenues and development and operating costs for all developed wells and undeveloped locations comprising our proved reserves. The proved locations were limited to wells expected to be drilled in the Company's five year plan. Future cash flows before application of risk factors were estimated by using the New York Mercantile Exchange five year forward prices for West Texas Intermediate oil and Henry Hub natural gas with inflation adjustments applied to periods beyond five years. The prices were further adjusted for typical differentials realized by the Company for the location and product quality. Wattenberg Field oil differential estimates were based on the new NGL purchase agreement that was confirmed as part of the Plan. Development costs were based on recent bids received by the Company and the operating costs were based on actual costs, and both were adjusted by the same inflation rate used for revenues. The discounted cash flow models also included estimates not typically included in proved reserves, such as an industry standard general and administrative expense and income tax expense. Due to the limited drilling plans that we had in place, proved undeveloped locations were risked within industry standards.
The risk-adjusted after-tax cash flows were discounted at a rate of 11.0%. This rate was determined from a weighted-average cost of capital computation which utilized a blended expected cost of debt and expected returns on equity for similar industry participants.
From this analysis the Company concluded the fair value of its proved, probable and possible reserves was $397.3 million, $146.8 million and $31.7 million, respectively, as of the Effective Date. The Company also reviewed its undeveloped leasehold acreage and determined that the fair value of its probable and possible reserves appropriately capture the fair value of its undeveloped leasehold acreage.
The Company performed an analysis of the RMI assets using a replacement cost method which estimated the assets' replacement cost (for new assets), less any depreciation, physical deterioration or obsolescence resulting, in a fair value of $103.1 million.
The Company follows the lower of cost or net realizable value when valuing inventory of oilfield equipment. The valuation of the inventory of oilfield equipment as of the Effective Date did not yield a material difference from the Company's carrying value immediately prior to emergence from bankruptcy; as such there was no valuation adjustment recorded.
The valuation of the Company's other property and equipment as of the Effective Date did not yield a material difference from the Predecessor Company's net book value; as such there was no valuation adjustment recorded.
Our liabilities on the Effective Date include working capital liabilities and asset retirement obligations. Our working capital liabilities are ordinary course obligations, and their carrying amounts approximate their fair values. The asset retirement obligation was reset using a revised credit-adjusted risk-free rate and known attributes as of the Effective Date, resulting in a $29.1 million obligation.
In conjunction with the Company's emergence from bankruptcy, the Company issued 1,650,510 warrants to existing equity holders. The fair value of $4.1 million was estimated using a Black-Scholes pricing model. The model used the following assumptions; an expected volatility of 40%, a risk-free interest rate of 1.44%, a stock price of $34.36, a strike price of $71.23, and an expiration date of 3 years.
The following table reconciles the enterprise value to the estimated fair value of Successor Company's common stock as of the Effective Date (in thousands, except per share amounts):
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Enterprise Value | $ | 642,999 | |
Plus: Cash and cash equivalents | 70,183 | ||
Less: Interest bearing liabilities | (29,061 | ) | |
Less: Fair value of warrants | (4,081 | ) | |
Fair value of Successor common stock | $ | 680,040 | |
Shares outstanding at April 28, 2017 | 20,356 | ||
Per share value | $ | 33.41 | |
The following table reconciles the enterprise value to the estimated reorganization value as of the Effective Date (in thousands):
Enterprise Value | $ | 642,999 | |
Plus: Cash and cash equivalents | 70,183 | ||
Plus: Working capital liabilities | 63,871 | ||
Plus: Other long-term liabilities | 17,919 | ||
Reorganization value of Successor assets | $ | 794,972 | |
Successor Condensed Consolidated Balance Sheet
The adjustments set forth in the following condensed consolidated balance sheet reflect the effect of the consummation of the transactions contemplated by the Plan (reflected in the column “Reorganization Adjustments”) as well as estimated fair value adjustments as a result of the adoption of fresh-start accounting (reflected in the column “Fresh-Start Adjustments”). The explanatory notes highlight methods used to determine estimated fair values or other amounts of assets and liabilities, as well as significant assumptions.
Predecessor Company | Reorganization Adjustments | Fresh-Start Adjustments | Successor Company | ||||||||||||
(in thousands, except share amounts) | |||||||||||||||
ASSETS | |||||||||||||||
Current Assets: | |||||||||||||||
Cash and cash equivalents | $ | 96,286 | $ | (26,103 | ) | (1) | $ | — | $ | 70,183 | |||||
Accounts receivable: | |||||||||||||||
Oil and gas sales | 24,876 | — | — | 24,876 | |||||||||||
Joint interest and other | 3,028 | — | — | 3,028 | |||||||||||
Prepaid expenses and other | 4,952 | — | — | 4,952 | |||||||||||
Inventory of oilfield equipment | 4,218 | — | — | 4,218 | |||||||||||
Total current assets | 133,360 | (26,103 | ) | — | 107,257 | ||||||||||
Property and equipment (successful efforts method): | |||||||||||||||
Proved properties | 2,531,834 | — | (2,031,373 | ) | (6) | 500,461 | |||||||||
Less: accumulated depreciation, depletion and amortization | (1,720,736 | ) | — | 1,720,736 | (6) | — | |||||||||
Total proved properties, net | 811,098 | — | (310,637 | ) | 500,461 | ||||||||||
Unproved properties | 163,781 | — | 14,679 | (6) | 178,460 | ||||||||||
Wells in progress | 18,002 | — | (18,002 | ) | (7) | — | |||||||||
Other property and equipment, net | 6,056 | — | — | 6,056 | |||||||||||
Total property and equipment, net | 998,937 | — | (313,960 | ) | 684,977 | ||||||||||
Other noncurrent assets | 2,738 | — | — | 2,738 | |||||||||||
Total assets | $ | 1,135,035 | $ | (26,103 | ) | $ | (313,960 | ) | $ | 794,972 | |||||
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LIABILITIES AND STOCKHOLDERS'S EQUITY | |||||||||||||||
Current liabilities: | |||||||||||||||
Accounts payable and accrued expenses | $ | 72,635 | $ | (33,701 | ) | (2) | $ | — | $ | 38,934 | |||||
Oil and gas revenue distribution payable | 24,937 | — | — | 24,937 | |||||||||||
Revolving credit facility - current portion | 191,667 | (191,667 | ) | (3) | — | — | |||||||||
Total current liabilities | 289,239 | (225,368 | ) | — | 63,871 | ||||||||||
Long-term liabilities: | |||||||||||||||
Ad valorem taxes | 17,919 | — | — | 17,919 | |||||||||||
Asset retirement obligations for oil and gas properties | 31,660 | — | (2,599 | ) | (8) | 29,061 | |||||||||
Liabilities subject to compromise | 873,292 | (873,292 | ) | (4) | — | — | |||||||||
Total liabilities | $ | 1,212,110 | $ | (1,098,660 | ) | $ | (2,599 | ) | $ | 110,851 | |||||
Stockholders' equity: | |||||||||||||||
Predecessor preferred stock | — | — | — | — | |||||||||||
Predecessor common stock | 49 | — | (49 | ) | (9) | — | |||||||||
Additional paid in capital | 816,679 | — | (816,679 | ) | (9) | — | |||||||||
Successor common stock | — | 204 | (5) | — | 204 | ||||||||||
Successor warrants | — | 4,081 | (5) | — | 4,081 | ||||||||||
Additional paid-in capital | — | 679,836 | (5) | — | 679,836 | ||||||||||
Retained deficit | (893,803 | ) | 388,436 | (4) | 505,367 | (10) | — | ||||||||
Total stockholders' equity | (77,075 | ) | 1,072,557 | (311,361 | ) | 684,121 | |||||||||
Total liabilities and stockholders' equity | $ | 1,135,035 | $ | (26,103 | ) | $ | (313,960 | ) | $ | 794,972 | |||||
Reorganization Adjustments
(1) The following table reflects the net cash payments made upon emergence on the Effective Date (in thousands):
Sources: | |||
Proceeds from rights offering | $ | 200,000 | |
Proceeds from ad hoc equity committee | 7,500 | ||
Total sources | $ | 207,500 | |
Uses and transfers: | |||
Payment on revolving credit facility (principal, interest and fees) | $ | (193,729 | ) |
Payment and funding of escrow account related to professional fees | (17,193 | ) | |
Payment of professional fees and other | (13,831 | ) | |
Payment of Silo contract settlement and other | (7,228 | ) | |
Payment of remaining 2016 STIP | (1,622 | ) | |
Total uses and transfers | $ | (233,603 | ) |
Total net sources, uses and transfers | $ | (26,103 | ) |
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(2) The following table shows the decrease of accounts payable and accrued liabilities attributable to reorganization items settled or paid upon emergence (in thousands):
Accounts payable and accrued expenses: | |||
Accrued 2016 STIP payment | $ | (1,574 | ) |
Escrow account funding | (17,193 | ) | |
Professional fees and other | (13,831 | ) | |
Accrued unpaid interest on revolving credit facility | (1,103 | ) | |
Total accounts payable and accrued expenses settled | $ | (33,701 | ) |
(3) Represents the payment in full of the predecessor revolving credit facility on the Effective Date.
(4) On the Effective Date, the obligations of the Company with respect to the Senior Notes were canceled. Liabilities subject to compromise were settled as follows in accordance with the Plan (in thousands):
Senior Notes | $ | 800,000 | |
Accrued interest on Senior Notes (pre-petition) | 14,879 | ||
Make-whole payment on Senior Notes | 51,185 | ||
Silo contract settlement accrual | 7,228 | ||
Total liabilities subject to compromise of the predecessor | $ | 873,292 | |
Rights offering | $ | 200,000 | |
Fair value of equity issued to creditors, excluding equity issued to existing equity holders | (653,212 | ) | |
Payment of Silo contract settlement | (7,228 | ) | |
Gain on settlement of liabilities subject to compromise | $ | 412,852 | |
Payment on revolving credit facility fees and remaining unaccrued 2016 STIP | $ | (1,007 | ) |
Total reorganization items at emergence | $ | 411,845 | |
Issuance of warrants to existing shareholders | $ | (4,081 | ) |
Proceeds from ad hoc equity committee | 7,500 | ||
Issuance of shares to existing shareholders | (26,828 | ) | |
Total reorganization adjustments to retained deficit | $ | 388,436 | |
(5) Represents the fair value of 20,356,071 shares of new common stock and 1,650,510 warrants issued upon emergence from bankruptcy on the Effective Date.
Fresh-Start Adjustments
(6) Fair value adjustments to proved and unproved oil and natural gas properties. A combination of the market and income approach were utilized to perform valuations. Included in this line items were adjustments to the fully-owned subsidiary, Rocky Mountain Infrastructure, LLC. Lastly, the accumulated depreciation was reset to zero in accordance with fresh-start accounting.
(7) Represents the reset of wells in progress with fair valuation of the associated reserves in proved property.
(8) Upon application of fresh-start accounting and due to the Company’s emergence with no debt, the Company revalued its asset retirement obligations based upon comparable companies’ credit-adjusted risk-free rates in accordance with ASC 410 - Asset Retirement and Environmental Obligations.
(9) Cancellation of Predecessor Company’s common stock and additional paid-in capital.
(10) Adjustment to reset retained deficit to zero.
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Reorganization Items, Net
Reorganization items represent liabilities settled, net of amounts incurred subsequent to the Chapter 11 filing as a direct result of the Plan and are classified as Reorganization items, net in our statements of operations. The following table summarizes reorganization items (in thousands):
Fresh-start related: | |||
Gain on settlement of liabilities subject to compromise | $ | 412,852 | |
Payment on revolving credit facility fees and remaining unaccrued 2016 STIP | (1,007 | ) | |
Fresh-start valuation adjustments | (311,361 | ) | |
Total fresh-start reorganization items, net | $ | 100,484 | |
Current predecessor quarter professional fees and other | (2,673 | ) | |
Current predecessor quarter reorganization items, net | 97,811 | ||
Prior period reorganization: | |||
Legal and professional fees and expenses | (31,662 | ) | |
Write-off of debt issuance and premium costs | (6,156 | ) | |
Make-whole payment on Senior Notes | (51,185 | ) | |
Total prior-period reorganization items, net | $ | (89,003 | ) |
Total reorganization items, net | $ | 8,808 | |
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses contain the following (in thousands):
Successor | Predecessor | |||||||
As of June 30, 2017 | As of December 31, 2016 | |||||||
Drilling and completion costs | $ | 14,517 | $ | 2,415 | ||||
Accounts payable trade | 2,915 | 1,140 | ||||||
Accrued general and administrative cost | 5,216 | 17,539 | ||||||
Lease operating expense | 3,250 | 2,895 | ||||||
Accrued interest | — | 14,209 | ||||||
Silo contract settlement accrual | — | 7,228 | ||||||
Production and ad valorem taxes and other | 2,688 | 15,902 | ||||||
Total accounts payable and accrued expenses | $ | 28,586 | $ | 61,328 | ||||
NOTE 6 - LONG-TERM DEBT
The Company filing for Chapter 11 constituted an event of default with respect to its existing debt obligations. As a result, the Company's Senior Notes and predecessor revolving credit facility became immediately due and payable, but any efforts to enforce such payment obligations were automatically stayed as a result of the Chapter 11 filing. On April 28, 2017, upon the Company's emergence from bankruptcy, the Senior Notes were exchanged for new common stock of the reorganized entity. Please refer to Note 3 - Chapter 11 Proceedings and Emergence for additional discussion.
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Long-term debt consisted of the following (in thousands):
Successor | Predecessor | |||||||
As of June 30, 2017 | December 31, 2016(1) | |||||||
Revolving credit facility | $ | — | $ | 191,667 | ||||
6.75% Senior Notes due 2021 | — | 500,000 | ||||||
Unamortized premium on 6.75% Senior Notes | — | 5,165 | ||||||
5.75% Senior Notes due 2023 | — | 300,000 | ||||||
Less debt issuance costs - Senior Notes | — | (11,467 | ) | |||||
Total debt, net | — | 985,365 | ||||||
Less current portion | — | (985,365 | ) | |||||
Total long-term debt | $ | — | $ | — | ||||
_____________________________________
(1) Due to covenant violations, the Company classified the predecessor revolving credit facility and Senior Notes as current liabilities on the accompanying balance sheets.
Predecessor Revolving Credit Facility
The borrowing base on the predecessor revolving credit facility at the time the Company entered bankruptcy and throughout the bankruptcy proceedings was $150.0 million. As of December 31, 2016, the Company had $191.7 million outstanding under the predecessor revolving credit facility and had a borrowing base deficiency of $41.7 million, which was required to be paid back in monthly installments, with no available borrowing capacity. The Company filed for bankruptcy on January 4, 2017, granting the Company a stay from making any further deficiency payments. During the bankruptcy proceedings, the Company paid interest on the predecessor revolving credit facility in the normal course. On the Effective Date, the predecessor revolving credit facility was terminated and the outstanding principal balance of $191.7 million, accrued interest of $1.1 million, and fees of $0.9 million were paid in full. The obligations were funded with proceeds from the rights offering.
New Revolving Credit Facility
On the Effective Date, the Company entered into a new revolving credit facility, as the borrower, with KeyBank National Association, as the administrative agent, and certain lenders party thereto (the “new revolving credit facility”). The new borrowing base of $191.7 million is redetermined semiannually, as early as April and October of each year, with the first redetermination set to occur in April of 2018. The new revolving credit facility matures on March 31, 2021.
The new revolving credit facility restricts, among other items, certain dividend payments, additional indebtedness, asset sales, loans, investments and mergers. The new revolving credit facility also contains certain financial covenants, which require the maintenance of certain financial and leverage ratios, as defined by the revolving credit facility. The new credit facility states that beginning with the fiscal quarter ending September 30, 2017, and each following fiscal quarter through the maturity of the new revolving credit facility, the Company's leverage ratio of indebtedness to EBITDAX is not to exceed 3.50 to 1.00. Beginning also with the fiscal quarter ending September 30, 2017, and each following fiscal quarter, the Company must maintain a minimum current ratio of 1.00 to 1.00 and a minimum interest coverage ratio of 2.50 to 1.00 as of the end of the respective fiscal quarter. The new revolving credit facility also requires the Company maintain a minimum asset coverage ratio of 1.35 to 1.00 as of the fiscal quarters ending September 30, 2017 and December 31, 2017. The minimum asset coverage ratio is only applicable until the first redetermination in April of 2018.
The new revolving credit facility provides for interest rates plus an applicable margin to be determined based on LIBOR or a base rate, at the Company’s election. LIBOR borrowings bear interest at LIBOR, subject to a 0% LIBOR floor, plus a margin of 3.00% to 4.00% depending on the utilization level, and the base rate borrowings bear interest at the “Bank Prime Rate,” as defined in the new revolving credit facility, plus a margin of 2.00% to 3.00% depending on the utilization level.
Senior Unsecured Notes
The $500.0 million aggregate principal amount of 6.75% Senior Notes that mature on April 15, 2021 and the $300.0 million aggregate principal amount of 5.75% Senior Notes that mature on February 1, 2023 were unsecured senior obligations.
The Senior Notes were included in liabilities subject to compromise on the condensed consolidated balance sheets of the Predecessor Company as of April 28, 2017, as presented in Note 4 - Fresh-Start Accounting, and in current liabilities as of
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December 31, 2016 within the accompanying balance sheets. On the Effective Date, by operation of the Plan, all outstanding obligations under the Senior Notes were canceled and 9,481,610 shares of the Company's new common stock was issued.
Please refer to Note 3 - Chapter 11 Proceedings and Emergence and Note 4 - Fresh-Start Accounting for additional discussion about the Company's emergence from bankruptcy.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, the Company is involved in various commercial and regulatory claims, litigation and other legal proceedings that arise in the ordinary course of its business. The Company assesses these claims in an effort to determine the degree of probability and range of possible loss for potential accrual in its condensed consolidated financial statements. In accordance with accounting authoritative guidance, an accrual is recorded for a loss contingency when its occurrence is probable and damages can be reasonably estimated based on the most likely anticipated outcome or the minimum amount within a range of possible outcomes. Because legal proceedings are inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about uncertain future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. The Company regularly reviews contingencies to determine the adequacy of its accruals and related disclosures. Other than matters disclosed in the Company's 2016 Annual Report on Form 10-K, no claims have been made, nor is the Company aware of any material uninsured liability which the Company may have, as it relates to any environmental cleanup, restoration or the violation of any rules or regulations. As of the filing date of this report, there were no material pending or overtly threatened legal actions against the Company of which it is aware.
Commitments
Upon emergence from bankruptcy, the new purchase agreement to deliver fixed determinable quantities of crude oil with NGL (the “new NGL agreement”) became effective and the original purchase agreement with NGL was canceled. The terms of the new NGL agreement consists of defined volume commitments over an initial seven-year term. Under terms of the new NGL agreement, the Company will be required to make periodic deficiency payments for any shortfalls in delivering minimum volume commitments, which are set in six-month periods beginning in January 2018. There are no minimum volume commitments for the year ending December 31, 2017. During 2018, the average minimum volume commitment will be approximately 10,100 barrels per day and increases by approximately 41% from 2018 to 2019 and approximately 3% each year for the remainder of the contract, to a maximum of approximately 16,000 barrels per day. The aggregate financial commitment fee over the seven-year term, based on the minimum volume commitment schedule (as defined in the agreement) and the applicable differential fee, is $154.5 million as of June 30, 2017. Upon notifying NGL at least twelve months prior to the expiration date of the new NGL agreement, the Company may elect to extend the term of the new NGL agreement for up to three additional years.
In October 2014, the Company entered into a purchase agreement to deliver fixed determinable quantities of crude oil to Silo. This agreement went into effect during the second quarter of 2015 for 12,580 barrels per day over an initial five-year term. While the volume commitment could be met with Company volumes or third-party volumes, delegated by the Company, the Company was required to make periodic deficiency payments for any shortfalls in delivering the minimum volume commitments. As confirmed in the Plan, the Company terminated its purchase agreement with Silo on February 1, 2017, and entered into a settlement agreement pursuant to which Silo received $21.0 million. Specifically, the settlement allowed Silo (i) to retain the $5.0 million adequate assurance deposit it maintained, (ii) to retain the Company's $8.7 million crude oil revenue receivable due to the Company for December 2016 production, and (iii) to receive additional cash payment of $7.2 million, which was paid on the Effective Date. The $21.0 million settlement was expensed during 2016.
The Company rejected its Denver office lease, which was confirmed in the Plan. On April 29, 2017, the Company entered into a new office lease agreement to rent office facilities. The lease is non-cancelable and expires in February 2022.
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The annual minimum commitment payments on the new NGL agreement and the new office lease for the next five years as of June 30, 2017 are presented below (in thousands):
NGL Commitments(1) | Office Lease Commitments | Total | ||||||||
2017 | $ | — | $ | 499 | $ | 499 | ||||
2018 | 15,692 | 1,078 | 16,770 | |||||||
2019 | 22,176 | 1,224 | 23,400 | |||||||
2020 | 27,949 | 1,335 | 29,284 | |||||||
2021 | 28,791 | 1,423 | 30,214 | |||||||
2022 and thereafter | 59,933 | 240 | 60,173 | |||||||
Total | $ | 154,541 | $ | 5,799 | $ | 160,340 | ||||
_______________________________
(1) The above calculation is based on the minimum volume commitment schedule (as defined in the new NGL agreement) and applicable differential fees.
There are no purchase commitments post emergence, except for the new NGL agreement, as discussed above.
There have been no other material changes from the commitments disclosed in the notes to the Company’s consolidated financial statements included in its 2016 Form 10-K.
NOTE 8 - STOCK-BASED COMPENSATION
Predecessor Long Term Incentive Plan
Upon emergence from bankruptcy, the Company's existing restricted stock, performance stock units and LTIP units (“predecessor awards”) were canceled. Stock compensation expense for predecessor awards was $0.4 million, $2.1 million, $2.4 million, and $5.4 million for the Current Predecessor Quarter, Current Predecessor Period, Prior Predecessor Quarter and Prior Predecessor Period, respectively. Compensation expense associated with predecessor awards was recognized as general and administrative expense.
2017 Long Term Incentive Plan
Upon emergence from bankruptcy, the Company adopted a new Long Term Incentive Plan and issued new grants to employees consisting of options with a ten-year term and strike price of $34.36 and restricted stock units. These awards vest over a three-year period in equal installments each year from the grant date. See below for further discussion of awards under the LTIP.
Restricted Stock Units
The new LTIP allows for the issuance of restricted stock units (“RSU”) to employees of the Company at the discretion of the board of directors. Each RSU represents one share of the Company's new common stock to be released from restriction upon completion of the vesting period. The RSUs are valued at the grant date share price and are recognized as general and administrative expense over the vesting period of the award.
During June 2017, the Company granted 63,894 RSUs to non-executive members of the board of directors, with a fair value of $2.3 million. This grant is intended to cover a three-year period, and the RSUs will vest in equal installments on each of the first three anniversaries. The vested shares will be released upon the earlier of the third anniversary of the grant date, a change of control or separation from the Company.
The Company granted 389,102 RSUs with a fair value $13.4 million during the Current Successor Period. Total expense recorded for RSUs, inclusive of the board of director grants, for the Current Successor Period was $5.3 million. As of June 30, 2017, unrecognized compensation cost was $10.4 million and will be amortized through 2020.
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A summary of the status and activity of non-vested restricted stock units for the Current Successor Period is presented below.
Restricted Stock Units | Weighted- Average Grant-Date Fair Value | |||||
Non-vested at beginning of Current Successor Period | — | $ | — | |||
Granted | 452,996 | $ | 34.69 | |||
Vested | (137,814 | ) | $ | 34.36 | ||
Forfeited | (3,117 | ) | $ | 34.36 | ||
Non-vested at end of Current Successor Period | 312,065 | $ | 34.84 | |||
Stock Options
The new LTIP allows the issuance of stock options to the Company's employees at the sole discretion of the board of directors. Options expire ten years from the grant date unless otherwise determined by the board of directors. Compensation expense on the stock options are recognized as general and administrative expense over the vesting period of the award.
The Company granted 389,102 stock options with a fair value $6.8 million during the Current Successor Period. Total expense recorded for stock options for the Current Successor Period was $2.6 million. As of June 30, 2017, unrecognized compensation cost was $4.2 million and will be amortized through 2020.
The options were valued using a Black-Scholes Model using the following assumptions:
Current Successor Period Ended June 30, 2017 | ||
Expected volatility | 52.1 | % |
Expected dividends | — | % |
Expected term (years) | 6.0 | |
Risk-free interest rate | 1.96 | % |
Expected volatility is based on an average historical volatility of a peer group selected by management over a period consistent with the expected life assumption on the grant date. The risk-free rate of return is based on the U.S. Treasury constant maturity yield on the grant date with a remaining term equal to the expected term of the awards. The Company’s expected life of stock option awards is derived from the midpoint of the average vesting time and contractual term of the awards.
A summary of the status and activity of non-vested stock options for the Current Successor Period is presented below:
Stock Options | Weighted- Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | ||||||||||
Outstanding at beginning of Current Successor Period | — | $ | — | — | $ | — | |||||||
Granted | 389,102 | 34.36 | — | $ | — | ||||||||
Exercised | — | — | — | — | |||||||||
Forfeited | (3,117 | ) | 34.36 | 6.0 | $ | — | |||||||
Outstanding at end of Current Successor Period | 385,985 | $ | 34.36 | 6.0 | $ | — | |||||||
A summary of additional information related to options outstanding as of June 30, 2017 is presented below:
Exercise Price | Number of Options Outstanding and Exercisable | Weighted-Average Remaining Contractual Life (in days) |
$34.36 | 137,814 | 79 |
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NOTE 9 - FAIR VALUE MEASUREMENTS
The Company follows fair value measurement authoritative guidance, which defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The authoritative accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The statement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
Level 1: Quoted prices are available in active markets for identical assets or liabilities
Level 2: Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable
Level 3: Significant inputs to the valuation model are unobservable
Financial and non-financial assets and liabilities are to be classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
There were no financial or non-financial assets or liabilities recorded at fair value as of June 30, 2017. The following table presents the Company’s financial and non-financial assets and liabilities that were accounted for at fair value as of December 31, 2016 and their classification within the fair value hierarchy (in thousands):
Predecessor | |||||||||||
As of December 31, 2016 | |||||||||||
Level 1 | Level 2 | Level 3 | |||||||||
Unproved properties(1) | $ | — | $ | — | $ | 162,682 | |||||
Asset retirement obligations(2) | $ | — | $ | — | $ | 3,145 | |||||
(1) | This represents non-financial assets that are measured at fair value on a nonrecurring basis. Please refer to the Unproved Oil and Gas Properties sections below for additional discussion. |
(2) | This represents the revision to estimates of the asset retirement obligation, which is a non-financial liability that is measured at fair value on a nonrecurring basis. Please refer to the Asset Retirement Obligation section below for additional discussion. |
Proved Oil and Gas Properties
Proved oil and gas property costs are evaluated for impairment and reduced to fair value when there is an indication that the carrying costs exceed the sum of the undiscounted cash flows. Depending on the availability of data, the Company uses Level 3 inputs and either the income valuation technique, which converts future amounts to a single present value amount, to measure the fair value of proved properties through an application of risk-adjusted discount rates and price forecasts selected by the Company’s management, or the market valuation approach. The calculation of the risk-adjusted discount rate is a significant management estimate based on the best information available. Management believes that the risk-adjusted discount rate is representative of current market conditions and reflects the following factors: estimates of future cash payments, expectations of possible variations in the amount and/or timing of cash flows, the risk premium and nonperformance risk. The price forecast is based on the Company's internal budgeting model derived from the NYMEX strip pricing, adjusted for management estimates and basis differentials. Future operating costs are also adjusted as deemed appropriate for these estimates. Proved properties classified as held for sale are valued using a market approach, based on an estimated selling price, as evidenced by the most current bid prices received from third parties. If a relevant estimated selling price is not available, the Company utilizes the income valuation technique discussed above. There were no proved property impairments during the six months ended June 30, 2017. The Company impaired its oil and gas properties in the Mid-Continent region, which had a
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carrying value of $110.0 million to its fair value of $100.0 million, and recognized an impairment of $10.0 million for the year ended December 31, 2016.
Upon emergence from bankruptcy, the Company valued its proved oil and gas properties at $500.5 million, which has subsequently been depleted.
Unproved Oil and Gas Properties
Unproved oil and gas property costs are evaluated for impairment and reduced to fair value when there is an indication that the carrying costs may not be fully recoverable. To measure the fair value of unproved properties, the Company uses Level 3 inputs and the income valuation technique, which takes into account the following significant assumptions: future development plans, risk weighted potential resource recovery, remaining lease life and estimated reserve values. There were no unproved oil and gas property impairments during the six months ended June 30, 2017. The Company impaired non-core acreage in the Wattenberg Field due to leases expiring, which had a carrying value of $187.4 million to their fair value of $162.7 million, and recognized an impairment of unproved properties for the year ended December 31, 2016 of $24.7 million.
Upon emergence from bankruptcy, the Company valued its unproved oil and gas properties at $178.5 million, which has subsequently increased due to acquired acreage in the Current Successor Quarter.
Asset Retirement Obligation
The Company utilizes the income valuation technique to determine the fair value of the asset retirement obligation liability at the point of inception by applying a credit-adjusted risk-free rate, which takes into account the Company’s credit risk, the time value of money, and the current economic state, to the undiscounted expected abandonment cash flows. Upon completion of wells and natural gas plants, the Company records an asset retirement obligation at fair value using Level 3 assumptions. Given the unobservable nature of the inputs, the initial measurement of the asset retirement obligation liability is deemed to use Level 3 inputs. There were no asset retirement obligations measured at fair value as of June 30, 2017. The Company had $3.1 million of asset retirement obligations recorded at fair value as of December 31, 2016.
Upon emergence from bankruptcy, the Company valued its asset retirement obligations at $29.1 million, which has subsequently been accreted.
Long-term Debt
Upon emergence from bankruptcy, the Company's Senior Notes were canceled and the predecessor revolving credit facility was paid in full.
The fair value of the 6.75% Senior Notes and 5.75% Senior Notes as of December 31, 2016 was $371.9 million and $222.0 million, respectively. The Senior Notes were measured using Level 1 inputs based on a secondary market trading price. The outstanding balance under the predecessor revolving credit facility as of December 31, 2016 was $191.7 million, which approximates fair value as the applicable interest rates are floating.
NOTE 10 - ASSET RETIREMENT OBLIGATIONS
The Company recognizes an estimated liability for future costs to abandon its oil and gas properties. The fair value of the asset retirement obligation is recorded as a liability when incurred, which is typically at the time the asset is acquired or placed in service. There is a corresponding increase to the carrying value of the asset which is included in the proved properties line item in the accompanying balance sheets. The Company depletes the amount added to proved properties and recognizes expense in connection with accretion of the discounted liability over the remaining estimated economic lives of the properties.
The Company’s estimated asset retirement obligation liability is based on historical experience in abandoning wells, estimated economic lives, estimated costs to abandon the wells and regulatory requirements. The liability is discounted using the credit-adjusted risk-free rate estimated at the time the liability is incurred; the rate ranges from 8% to 18% for the Predecessor Company and is 7.29% for the Successor Company.
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Upon the Company's emergence from bankruptcy, as discussed in Note 3 - Chapter 11 Proceedings and Emergence and Note 4 - Fresh-Start Accounting, the Company applied fresh-start accounting. This included adjusting the asset retirement obligations based on the estimated fair values at April 28, 2017. The following provides a roll-forward of our asset retirement obligations (in thousands):
Beginning balance as of December 31, 2016 (Predecessor) | $ | 30,833 | |
Liabilities settled | (218 | ) | |
Accretion expense | 1,045 | ||
Ending balance as of April 28, 2017 (Predecessor) | $ | 31,660 | |
Fair value fresh-start adjustment | $ | (2,599 | ) |
Beginning balance as of April 29, 2017 (Successor) | $ | 29,061 | |
Liabilities settled | (459 | ) | |
Accretion expense | 336 | ||
Ending balance as of June 30, 2017 (Successor) | $ | 28,938 | |
Revisions to the liability could occur due to changes in the estimated economic lives, abandonment costs of the wells, inflation rates, credit-adjusted risk-free rates, and newly enacted regulatory requirements.
NOTE 11 - DERIVATIVES
Due to the Company being in default on its revolving credit facility, all of the Company's existing derivative contracts were terminated during the fourth quarter of 2016, and the Company had not entered into any derivative contracts as of June 30, 2017.
The following table summarizes the components of the derivative loss presented on the accompanying statements of operations for the three and six months ended June 30, 2016 (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||
2016 | 2016 | |||||
Derivative cash settlement gain: | ||||||
Oil contracts | $ | 3,893 | $ | 11,401 | ||
Gas contracts | — | — | ||||
Total derivative cash settlement gain(1) | $ | 3,893 | $ | 11,401 | ||
Change in fair value loss | $ | (16,816 | ) | $ | (25,331 | ) |
Total derivative loss(1) | $ | (12,923 | ) | $ | (13,930 | ) |
_______________________________
(1) | Total derivative loss and total derivative cash settlement gain for the six months ended June 30, 2016 is reported in the derivative loss line item and derivative cash settlements line item on the accompanying statements of cash flows within the net cash provided by operating activities. |
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Subsequent to June 30, 2017, the Company entered into commodity derivative contracts including swaps and cashless collars covering both oil and gas as detailed in the following table:
Crude Oil (NYMEX WTI) | Natural Gas (NYMEX Henry Hub) | |||||||||
Bbls/day | Weighted Avg. Price per Bbl | MMBtu/day | Weighted Avg. Price per MMBTU | |||||||
4Q17 | ||||||||||
Cashless Collar | 2,000 | $41.50/$51.00 | 2,600 | $3.00/$3.30 | ||||||
1Q18 | ||||||||||
Swap | — | — | 3,000 | $3.35 | ||||||
Cashless Collar | 2,000 | $42.00/$52.50 | 2,600 | $2.75/$3.35 | ||||||
2Q18 | ||||||||||
Cashless Collar | 2,000 | $42.00/$52.50 | 2,600 | $2.75/$3.35 | ||||||
3Q18 | ||||||||||
Cashless Collar | 1,000 | $41.00/$52.00 | 2,600 | $2.75/$3.35 | ||||||
4Q18 | ||||||||||
Cashless Collar | 1,000 | $41.00/$52.00 | 2,600 | $2.75/$3.35 | ||||||
1Q19 | ||||||||||
Cashless Collar | 1,000 | $41.00/$54.00 | — | — | ||||||
April 2019 | ||||||||||
Cashless Collar | 1,000 | $41.00/$54.00 | — | — | ||||||
NOTE 12 - EARNINGS PER SHARE
The Predecessor Company issued shares of restricted stock, which were participating securities, and performance stock units (“PSUs”). The dilutive impact of the restricted stock and PSUs were included in the Current Predecessor Quarter, Current Predecessor Period, Prior Predecessor Quarter and Prior Predecessor Period.
The Successor Company issued restricted stock units which represent the right to receive, upon vesting, one share of the Company's new common stock. The Successor Company issued stock options and warrants, which both represent the right to purchase the Company's new common stock at a specified price. The number of potentially dilutive shares related to the stock options is based on the number of shares, if any, that would be exercised at the end of the respective reporting period, assuming that date was the end of such stock options term. The number of potentially dilutive shares related to the warrants is based on the number of shares, if any, that would be exercisable at the end of the respective reporting period.
Please refer to Note 8 - Stock-Based Compensation for additional discussion.
The RSUs, stock options and warrants of the Successor Company are all non-participating securities, and therefore, the Company used the treasury stock method to calculate earnings per share as shown in the following table (in thousands, except per share amounts):
Successor | |||
April 29, 2017 through June 30, 2017 | |||
Net loss | $ | (3,580 | ) |
Basic net loss per common share | $ | (0.18 | ) |
Diluted net loss per common share | $ | (0.18 | ) |
Weighted-average shares outstanding - basic | 20,369 | ||
Add: dilutive effect of contingent stock awards | — | ||
Weighted-average shares outstanding - diluted | 20,369 | ||
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The Company was in a net loss position for the Current Successor Quarter, which made any potentially dilutive shares anti-dilutive. There were 717,201 anti-dilutive shares in the Current Successor Quarter.
The Predecessor Company issued restricted stock, which are participating securities, and PSUs, and therefore, the Company used the two-class method to calculate earnings per share as shown in the following table (in thousands, except per share amounts):
Predecessor | ||||||||||||
April 1, 2017 through April 28, 2017 | January 1, 2017 through April 28, 2017 | Three Months Ended June 30, 2016 | Six Months Ended June 30, 2016 | |||||||||
Net income (loss) | $ | 96,936 | $ | 2,660 | $ | (49,477 | ) | $ | (96,714 | ) | ||
Less: undistributed income to unvested restricted stock | 3,346 | 120 | — | — | ||||||||
Undistributed income (loss) to common shareholders | 93,590 | 2,540 | (49,477 | ) | (96,714 | ) | ||||||
Basic net income (loss) per common share | $ | 1.88 | $ | 0.05 | $ | (1.00 | ) | $ | (1.97 | ) | ||
Diluted net income (loss) per common share | $ | 1.85 | $ | 0.05 | $ | (1.00 | ) | $ | (1.97 | ) | ||
Weighted-average shares outstanding - basic | 49,902 | 49,559 | 49,277 | 49,204 | ||||||||
Add: dilutive effect of contingent stock awards | 584 | 1,412 | — | — | ||||||||
Weighted-average shares outstanding - diluted | 50,486 | 50,971 | 49,277 | 49,204 | ||||||||
The Company was in a net loss position for the Prior Predecessor Quarter and Prior Predecessor Period, which made any potentially dilutive shares anti-dilutive. There were 188,278, 258,126, 80,906 and 106,644 anti-dilutive shares in the Current Predecessor Quarter, Current Predecessor Period, Prior Predecessor Quarter and Prior Predecessor Period, respectively. The participating shareholders are not contractually obligated to share in the losses of the Company, and therefore, the entire net loss is allocated to the outstanding common shareholders.
NOTE 13 - INCOME TAXES
The Company uses the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities. Deferred tax assets or liabilities at the end of each period are determined using the tax rate in effect at that time. During the periods presented within this report for 2017 and 2016, the effective tax rate was zero percent. As of December 31, 2015, and thereafter, a full valuation allowance was placed against the net deferred tax assets causing the Company’s current rate to differ from the U.S. statutory income tax rate.
As of June 30, 2017, the Company had no unrecognized tax benefits. The Company’s management does not believe that there are any new items or changes in facts or judgments that would impact the Company's tax position taken thus far in 2017.
As described in Note 3 - Chapter 11 Proceedings and Emergence above, in accordance with the Plan, our Senior Notes were canceled and exchanged for new common stock. Absent an exception, a debtor recognizes cancellation of indebtedness income (“CODI”) upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The Internal Revenue Service Code of 1986, as amended (“IRC”), provides that a debtor in a Chapter 11 bankruptcy case may exclude CODI from taxable income but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is determined based on the fair market value of the consideration received by the creditors in settlement of outstanding indebtedness. Upon emergence from Chapter 11 bankruptcy proceedings, the CODI may reduce some or all of the amount of prior tax attributes, which can include net operating losses, capital losses, alternative minimum tax credits and tax basis in assets. The actual reduction in tax attributes does not occur until January 1, 2018.
The Company has evaluated the impact of the reorganization, including the change in control, resulting from its emergence from bankruptcy. From an income tax perspective, the most significant impact is attributable to our carryover tax
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attributes associated with our net operating losses (“NOLs”). The Company believes that the Successor Company will be able to fully absorb the cancellation of debt income realized by the Predecessor Company in connection with the reorganization with its adjusted NOL carryovers. The amount of the remaining NOL carryovers will be limited under Section 382 of the Internal Revenue Code due to the change in control as referenced in Note 4 - Fresh-Start Accounting. As the tax basis of the Company's assets, primarily our oil and gas properties, is in excess of the carrying value, as adjusted in the fresh-start accounting process, the Successor Company is in a net deferred tax asset position. Per authoritative guidance, historical results along with expected market conditions known on the date of measurement, it is more likely than not that the Company will not realize future income tax benefits from the additional tax basis and its remaining NOL carryovers. This is periodically reassessed and could change. Accordingly, the Company has provided for a full valuation allowance of the underlying deferred tax assets.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2016, as well as the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
Executive Summary
We are a Denver-based exploration and production company focused on the extraction of oil and associated liquids-rich natural gas in the United States. Our oil and liquids-weighted assets are concentrated primarily in the Wattenberg Field in Colorado and the Dorcheat Macedonia Field in southern Arkansas.
Bankruptcy Proceedings under Chapter 11
On January 4, 2017, the Debtors filed voluntary petitions under Chapter 11 in the Bankruptcy Court. The Debtors received bankruptcy court confirmation of their Plan on April 7, 2017, and emerged from bankruptcy on April 28, 2017, the Effective Date. For additional information about our bankruptcy proceedings and emergence, see Note 3 - Chapter 11 Proceedings and Emergence.
Upon emergence from bankruptcy, the Company adopted fresh-start accounting and became a new entity for financial reporting purposes. Upon adoption of fresh-start accounting, our assets and liabilities were recorded at their fair values as of the Effective Date, which differed materially from the recorded values of those same assets and liabilities in the Predecessor Company. As a result, our balance sheets and statement of operations subsequent to the Effective Date are not comparable to our balance sheets and statements of operations prior to the Effective Date. For additional information about our application of fresh-start accounting, see Note 4 - Fresh-Start Accounting.
Employment Modifications
On May 5, 2017 the board approved and the Company adopted the Fourth Amended and Restated Executive Change in Control and Severance Benefit Plan (the “Severance Plan”). The Severance Plan entitles certain executives and key employees to specific severance benefits and accelerated vesting of stock awards upon a qualifying termination from the Company. These benefits are subject to certain limitations including a reduction of the cash severance payment by the intrinsic value of the individual's Management Incentive Plan awards on a dollar-for-dollar basis.
On June 11, 2017, Richard J. Carty resigned as a member of the board of directors and left his role as President and Chief Executive Officer of the Company. Mr. Carty received accelerated vesting of the equity awards he was granted upon the Company's emergence from bankruptcy, which awards were in accordance with the Plan and approved by the prior Board of Directors. The accelerated awards consisted of 137,814 non-qualified stock options with a $34.36 strike price, which have to be exercised within 90 days of the termination effective date or they are forfeited, and 137,814 restricted stock units. The grant-date fair value of the options and restricted stock units was $17.42 and $34.36, respectively, resulting in a one-time non-cash stock-based compensation charge of $7.1 million. The exercisable value of the equity grants on the effective date of termination was $4.3 million. There was no cash severance provided in accordance with the terms of the Severance Plan.
Subsequent to quarter end, the Company implemented a reduction in workforce resulting in a one-time cash severance charge of approximately $2.0 million. The anticipated annualized impact of this action is a reduction of salaries and benefits of $11.3 million. The Company continues to review its costs to better align its cost structure with the current commodity price environment.
Outlook for 2017
As a part of the restructuring, the Company received $207.5 million in new capital from a rights offering. The new capital provided liquidity for the Company to resume its drilling and completion activities. During July 2017, the Company commenced drilling operations and completed four previously drilled, but uncompleted wells. The new board of directors approved a capital program of $120.0 million to 130.0 million. We anticipate investing $96.0 million to $106.0 million on drilling and completion and $24.0 million on infrastructure. We anticipate dedicating $117.0 million to $127.0 million in the Rocky Mountain region, inclusive of infrastructure, and $3.0 million to the Mid-Continent region.
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Results of Operations
The Company conducted standard business operations throughout the bankruptcy proceedings and during the application of fresh-start accounting resulting in specific financial statement line items following normal course of business trends. The trends associated with the non-impacted financial statement line items are explained throughout the results of operations and include revenues, lease operating expense, gas plant and midstream operating expense, severance and ad valorem taxes, and exploration expense. The financial statement line items that were specifically impacted by the bankruptcy proceedings and application of fresh-start accounting were discussed within the confines of the presented periods and include depreciation, depletion and amortization, general and administrative expense, interest expense and reorganization items, net.
The following table summarizes our revenues, sales volumes, and average sales prices for the periods indicated.
Successor | Predecessor | Predecessor | ||||||||||
April 29, 2017 through June 30, 2017 | April 1, 2017 through April 28, 2017 | Three Months Ended June 30, 2016 | ||||||||||
Revenues: | ||||||||||||
Crude oil sales(1) | $ | 21,059 | $ | 11,760 | $ | 45,154 | ||||||
Natural gas sales(2) | 3,818 | 2,187 | 4,710 | |||||||||
Natural gas liquids sales | 3,237 | 2,082 | 4,666 | |||||||||
Product revenue | $ | 28,114 | $ | 16,029 | $ | 54,530 | ||||||
Sales Volumes: | ||||||||||||
Crude oil (MBbls) | 484.3 | 246.7 | 1,181.7 | |||||||||
Natural gas (MMcf) | 1,557.2 | 828.0 | 3,175.3 | |||||||||
Natural gas liquids (MBbls) | 209.5 | 108.8 | 404.7 | |||||||||
Crude oil equivalent (MBoe)(3) | 953.4 | 493.5 | 2,115.5 | |||||||||
Average Sales Prices (before derivatives)(4): | ||||||||||||
Crude oil (per Bbl) | $ | 43.48 | $ | 47.67 | $ | 38.21 | ||||||
Natural gas (per Mcf) | $ | 2.45 | $ | 2.64 | $ | 1.48 | ||||||
Natural gas liquids (per Bbl) | $ | 15.45 | $ | 19.14 | $ | 11.53 | ||||||
Crude oil equivalent (per Boe)(3) | $ | 29.49 | $ | 32.48 | $ | 25.78 | ||||||
Average Sales Prices (after derivatives)(4): | ||||||||||||
Crude oil (per Bbl) | $ | 43.48 | $ | 47.67 | $ | 41.51 | ||||||
Natural gas (per Mcf) | $ | 2.45 | $ | 2.64 | $ | 1.48 | ||||||
Natural gas liquids (per Bbl) | $ | 15.45 | $ | 19.13 | $ | 11.53 | ||||||
Crude oil equivalent (per Boe)(3) | $ | 29.49 | $ | 32.48 | $ | 27.62 | ||||||
_____________________________
(1) | There was no transportation revenues from third parties included in crude oil sales for the Current Successor Quarter and Current Predecessor Quarter. Crude oil sales includes $0.1 million of oil transportation revenues from third parties, which do not have associated sales volumes, for the Prior Predecessor Quarter. |
(2) | Natural gas sales includes $0.2 million, $0.1 million and $0.4 million of gas gathering revenues from third parties, which do not have associated sales volumes, for the Current Successor Quarter, Current Predecessor Quarter and Prior Predecessor Quarter, respectively. |
(3) | Determined using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil. |
(4) | The derivatives economically hedge the price we receive for crude oil. For the three months ended June 30, 2016, the derivative cash settlement gain for oil contracts was $3.9 million. Please refer to Note 11 - Derivatives of Part I, Item 1 of this report for additional disclosures. |
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Revenues decreased for the Current Successor and Predecessor Quarter by 19%, to $44.1 million, compared to $54.5 million for the comparable period, largely due to a 32% decrease in sales volumes, offset by a 18% increase in oil equivalent pricing. The decreased volumes are a direct result of less capital spent for drilling and completion during the last two quarters of 2016 and the first two quarters of 2017. During the period from June 30, 2016 through June 30, 2017, we drilled and completed one gross well and participated in drilling and completing eight gross wells in the Rocky Mountain region as compared to the period from June 30, 2015 through June 30, 2016, where we drilled 44 and completed 59 gross wells in the Rocky Mountain region and drilled and completed 8 gross wells in the Mid-Continent region.
The following table summarizes our operating expenses for the periods indicated.
Successor | Predecessor | Predecessor | ||||||||||
April 29, 2017 through June 30, 2017 | April 1, 2017 through April 28, 2017 | Three Months Ended June 30, 2016 | ||||||||||
Expenses: | ||||||||||||
Lease operating expense | $ | 6,153 | $ | 3,203 | $ | 10,737 | ||||||
Gas plant and midstream operating expense | 1,762 | 836 | 3,535 | |||||||||
Severance and ad valorem taxes | 2,408 | 1,352 | 4,277 | |||||||||
Exploration | 359 | 292 | 677 | |||||||||
Depreciation, depletion and amortization | 4,836 | 6,853 | 30,927 | |||||||||
Abandonment and impairment of unproved properties | — | — | 9,875 | |||||||||
General and administrative | 16,139 | 2,998 | 13,235 | |||||||||
Operating Expenses | $ | 31,657 | $ | 15,534 | $ | 73,263 | ||||||
Selected Costs ($ per Boe): | ||||||||||||
Lease operating expense | $ | 6.45 | $ | 6.49 | $ | 5.08 | ||||||
Gas plant and midstream operating expense | 1.85 | 1.69 | 1.67 | |||||||||
Severance and ad valorem taxes | 2.53 | 2.74 | 2.02 | |||||||||
Exploration | 0.38 | 0.59 | 0.32 | |||||||||
Depreciation, depletion and amortization | 5.07 | 13.89 | 14.62 | |||||||||
Abandonment and impairment of unproved properties | — | — | 4.67 | |||||||||
General and administrative | 16.93 | 6.07 | 6.26 | |||||||||
Operating Expenses | $ | 33.21 | $ | 31.47 | $ | 34.64 | ||||||
Lease operating expense. Our lease operating expense decreased $1.3 million, or 12%, to $9.4 million for the Current Successor and Predecessor Quarter from $10.7 million from the Prior Predecessor Quarter and increased on an equivalent basis from $5.08 per Boe to $6.47 per Boe. The Company eliminated significant amounts of compression and reduced well services activities, resulting in decreased compression costs of $1.3 million and well servicing costs of $0.9 million during the Current Successor and Predecessor Quarter when compared to same period in 2016.
Gas plant and midstream operating expense. Our gas plant and midstream operating expense decreased $0.9 million, or 27%, to $2.6 million for the Current Successor and Predecessor Quarter from $3.5 million for the Prior Predecessor Quarter. Gas plant and midstream operating expense per Boe increased 8% during the comparative periods due to a portion of facility costs that were fixed taken against the 32% decrease in sales volumes.
Severance and ad valorem taxes. Our severance and ad valorem taxes decreased 12% to $3.8 million for the Current Successor and Predecessor Quarter from $4.3 million for the Prior Predecessor Quarter. Severance and ad valorem taxes primarily correlate to revenue. Revenues decreased by 19% over the comparable periods causing the severance and ad valorem taxes to decrease.
Exploration. Our exploration expense was commensurate during the Current Successor and Predecessor Quarter when compared to the Prior Predecessor Quarter. The Current Successor and Predecessor Quarter exploration expense consisted primarily of delay lease rental payments, and the Prior Predecessor Quarter exploration expense consisted of $0.6 million of charges for exploratory wells for which we were unable to assign economic proved reserves.
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Depreciation, depletion and amortization. Our depreciation, depletion and amortization expense per Boe was $5.07, $13.89 and $14.62 for the Current Successor Quarter, Current Predecessor Quarter and Prior Predecessor Quarter, respectively. The Current Successor Quarter reflects the $310.6 million fair value downward adjustment to the depletable asset base upon adoption of fresh-start accounting.
Abandonment and impairment of unproved properties. There were no abandonment and impairment of unproved properties during the Current Successor and Predecessor Quarters. The Company incurred $9.9 million of impairment charges relating to non-core leases expiring within the Wattenberg Field during the Prior Predecessor Quarter.
General and administrative. Our general and administrative expense per Boe was $16.93, $6.07 and $6.26 for the Current Successor Quarter, Current Predecessor Quarter and Prior Predecessor Quarter, respectively. The Current Successor Quarter reflects a one-time $7.1 million non-cash stock-based compensation charge from the vesting of the Company's former Chief Executive Officer's stock awards upon separation from the Company. Excluding this stock-based compensation charge results in the per Boe metrics being commensurate between the presented periods.
Interest expense. Our interest expense for the Current Successor Quarter, Current Predecessor Quarter and Prior Predecessor Quarter was $0.2 million, $1.0 million and $16.5 million, respectively. Upon filing its petition for Chapter 11, the Company ceased accruing interest expense on its Senior Notes. The Company incurred $0.2 in commitment fees on the available borrowing base under the new revolving credit facility during the Current Successor Quarter. There was no interest expense on the Senior Notes during the Current Predecessor Quarter. Interest expense on the Senior Notes was $13.1 million for the Prior Predecessor Quarter, respectively. The Company had no outstanding debt for the Current Successor Period. Average debt outstanding for the Current Predecessor Quarter and Prior Predecessor Quarter was $305.1 million and $1.1 billion, respectively.
Reorganization items, net. Our reorganization income was $97.8 million for the Current Predecessor Quarter. Upon adoption of fresh-start accounting, the Company incurred a $412.9 million gain on settlement of liabilities subject to compromise, a $311.4 million loss on fresh-start valuation adjustments and a $3.7 million for professional fees and other charges. Please refer to Note 4 - Fresh-Start Accounting for additional discussion.
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The following table summarizes our revenues, sales volumes, and average sales prices for the periods indicated.
Successor | Predecessor | Predecessor | ||||||||||
April 29, 2017 through June 30, 2017 | January 1, 2017 through April 28, 2017 | Six Months Ended June 30, 2016 | ||||||||||
Revenues: | ||||||||||||
Crude oil sales(1) | $ | 21,059 | $ | 51,693 | $ | 79,827 | ||||||
Natural gas sales(2) | 3,818 | 9,028 | 9,324 | |||||||||
Natural gas liquids sales | 3,237 | 7,867 | 9,553 | |||||||||
Product revenue | $ | 28,114 | $ | 68,588 | $ | 98,704 | ||||||
Sales Volumes: | ||||||||||||
Crude oil (MBbls) | 484.3 | 1,068.5 | 2,465.0 | |||||||||
Natural gas (MMcf) | 1,557.2 | 3,336.1 | 6,496.0 | |||||||||
Natural gas liquids (MBbls) | 209.5 | 449.0 | 781.0 | |||||||||
Crude oil equivalent (MBoe)(3) | 953.4 | 2,073.5 | 4,328.7 | |||||||||
Average Sales Prices (before derivatives)(4): | ||||||||||||
Crude oil (per Bbl) | $ | 43.48 | $ | 48.38 | $ | 32.38 | ||||||
Natural gas (per Mcf) | $ | 2.45 | $ | 2.71 | $ | 1.44 | ||||||
Natural gas liquids (per Bbl) | $ | 15.45 | $ | 17.52 | $ | 12.23 | ||||||
Crude oil equivalent (per Boe)(3) | $ | 29.49 | $ | 33.08 | $ | 22.80 | ||||||
Average Sales Prices (after derivatives)(4): | ||||||||||||
Crude oil (per Bbl) | $ | 43.48 | $ | 48.38 | $ | 37.01 | ||||||
Natural gas (per Mcf) | $ | 2.45 | $ | 2.71 | $ | 1.44 | ||||||
Natural gas liquids (per Bbl) | $ | 15.45 | $ | 17.52 | $ | 12.23 | ||||||
Crude oil equivalent (per Boe)(3) | $ | 29.49 | $ | 33.08 | $ | 25.44 | ||||||
_____________________________
(1) | There were no transportation revenues from third parties included in crude oil sales for the Current Successor Quarter. Crude oil sales includes $0.1 million and $0.3 million of oil transportation revenues from third parties, which do not have associated sales volumes, for the Current Predecessor Period and Prior Predecessor Period, respectively. |
(2) | Natural gas sales includes $0.2 million, $0.4 million and $0.7 million of gas gathering revenues from third parties, which do not have associated sales volumes, for the Current Successor Period, Current Predecessor Period and Prior Predecessor Period, respectively. |
(3) | Determined using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil. |
(4) | The derivatives economically hedge the price we receive for crude oil. For the six months ended June 30, 2016, the derivative cash settlement gain for oil contracts was $11.4 million. Please refer to Note 11 - Derivatives of Part I, Item 1 of this report for additional disclosures. |
Revenues decreased for the Current Successor and Predecessor Period by 2%, to $96.7 million, compared to $98.7 million for the Prior Predecessor Period due to a combination of a 40% increase in oil equivalent pricing, offset by a 30% decrease in sales volumes. The decreased volumes are a direct result of less capital spent for drilling and completion during the last two quarters of 2016 and the first two quarters of 2017. During the period from June 30, 2016 through June 30, 2017, we drilled and completed one gross well and participated in drilling and completing eight gross wells in the Rocky Mountain region as compared to the period from June 30, 2015 through June 30, 2016, where we drilled 44 and completed 59 gross wells in the Rocky Mountain region and drilled and completed eight gross wells in the Mid-Continent region.
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The following table summarizes our operating expenses for the periods indicated.
Successor | Predecessor | Predecessor | ||||||||||
April 29, 2017 through June 30, 2017 | January 1, 2017 through April 28, 2017 | Six Months Ended June 30, 2016 | ||||||||||
Expenses: | ||||||||||||
Lease operating expense | $ | 6,153 | $ | 13,128 | $ | 24,035 | ||||||
Gas plant and midstream operating expense | 1,762 | 3,541 | 7,324 | |||||||||
Severance and ad valorem taxes | 2,408 | 5,671 | 7,431 | |||||||||
Exploration | 359 | 3,699 | 943 | |||||||||
Depreciation, depletion and amortization | 4,836 | 28,065 | 57,306 | |||||||||
Impairment of oil and gas properties | — | — | 10,000 | |||||||||
Abandonment and impairment of unproved properties | — | — | 16,781 | |||||||||
Unused commitments | — | 993 | — | |||||||||
General and administrative | 16,139 | 15,092 | 30,920 | |||||||||
Operating Expenses | $ | 31,657 | $ | 70,189 | $ | 154,740 | ||||||
Selected Costs ($ per Boe): | ||||||||||||
Lease operating expense | $ | 6.45 | $ | 6.33 | $ | 5.55 | ||||||
Gas plant and midstream operating expense | 1.85 | 1.71 | 1.69 | |||||||||
Severance and ad valorem taxes | 2.53 | 2.73 | 1.72 | |||||||||
Exploration | 0.38 | 1.78 | 0.22 | |||||||||
Depreciation, depletion and amortization | 5.07 | 13.54 | 13.24 | |||||||||
Impairment of oil and gas properties | — | — | 2.31 | |||||||||
Abandonment and impairment of unproved properties | — | — | 3.88 | |||||||||
Unused commitments | — | 0.48 | — | |||||||||
General and administrative | 16.93 | 7.28 | 7.14 | |||||||||
Operating Expenses | $ | 33.21 | $ | 33.85 | $ | 35.75 | ||||||
Lease operating expense. Our lease operating expense decreased $4.7 million, or 20%, to $19.3 million for the Current Successor and Predecessor Period from $24.0 million from the Prior Predecessor Period and increased on an equivalent basis from $5.55 per Boe to $6.37 per Boe. The Company eliminated significant amounts of compression and reduced well services activities, resulting in decreased compression costs of $3.2 million and well servicing costs of $2.7 million during the Current Successor Quarter and Current Predecessor Quarter when compared to same period in 2016.
Gas plant and midstream operating expense. Our gas plant and midstream operating expense decreased $2.0 million, or 27%, to $5.3 million for the Current Successor and Predecessor Period from $7.3 million for the Prior Predecessor Period. Gas plant and midstream operating expense per Boe was commensurate between the comparable periods.
Severance and ad valorem taxes. Our severance and ad valorem taxes increased 9% to $8.1 million for the Current Successor and Predecessor Period from $7.4 million for the Prior Predecessor Period. Severance and ad valorem taxes primarily correlate to revenue. There was a refund received during the six months ended June 30, 2016 causing the severance and ad valorem taxes to be abnormally low during that time period.
Exploration. During the Current Successor and Predecessor Period, we incurred $0.7 million of seismic charges for data within our Wattenberg Field, wrote off $3.0 million for abandoned location costs within our Dorcheat Macedonia and Wattenberg Fields and incurred $0.4 million in delay lease rental payments. During the six month period ended June 30, 2016, we incurred $0.8 million of charges for exploratory wells for which we were unable to assign economic proved reserves and $0.1 million in delay lease rental payments.
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Depreciation, depletion and amortization. Our depreciation, depletion and amortization expense per Boe was $5.07, $13.54 and $13.24 for the Current Successor Period, Current Predecessor Period and Prior Predecessor Period, respectively. The Current Successor Period reflects the $310.6 million fair value downward adjustment to the depletable asset base upon adoption of fresh-start accounting.
Impairment of oil and gas properties. There were no impairment of oil and gas properties during the Current Successor and Predecessor Periods. The Company impaired its Dorcheat Macedonia Field by $10.0 million to the latest received bid price, while the assets were held for sale, during the Prior Predecessor Period.
Abandonment and impairment of unproved properties. There were no abandonment and impairment of unproved properties during the Current Successor and Predecessor Periods. The Company incurred $16.8 million of impairment charges relating to non-core leases expiring within the Wattenberg Field during the Prior Predecessor Period.
Unused commitments. There were no unused commitments during the Current Successor or Prior Predecessor Periods. During the Current Predecessor Period, we incurred $1.0 million in unused commitment fees on a water supply contract in the Wattenberg Field.
General and administrative. Our general and administrative expense per Boe was $16.93, $7.28 and $7.14 for the for the Current Successor Period, Current Predecessor Period and Prior Predecessor Period, respectively. The Current Successor Period reflects a one-time $7.1 million non-cash stock-based compensation charge from the vesting of the Company's former Chief Executive Officer's stock awards upon separation from the Company. Excluding this stock-based compensation charge results in the per Boe metrics being commensurate between the presented periods.
Interest expense. Our interest expense for the Current Successor Period, Current Predecessor Period and Prior Predecessor Period was $0.2 million, $5.7 million and $31.1 million, respectively. Upon filing its petition for Chapter 11, the Company ceased accruing interest expense on its Senior Notes. The Company incurred $0.2 in commitment fees on the available borrowing base under the new revolving credit facility during the Current Successor Period. Interest expense on the Senior Notes was $1.0 million and $26.1 million for the Current Predecessor Quarter and Prior Predecessor Quarter, respectively, with the remaining interest expense relating to the predecessor revolving credit facility. The Company had no outstanding debt as of June 30, 2017. Average debt outstanding for the Current Predecessor Period and Prior Predecessor Period was $657.5 million and $1.0 billion, respectively.
Reorganization items, net. Our reorganization income was $8.8 million for the Current Predecessor Period. Upon filing its petition for Chapter 11, the Company incurred a $51.2 million make-whole payment on the Senior Notes, incurred $31.7 million in legal and professional fees and wrote-off $6.2 million of debt issuance and premium costs on the Senior Notes. Upon adoption of fresh-start accounting, the Company incurred a $412.9 million gain on settlement of liabilities subject to compromise, a $311.4 million loss on fresh-start valuation adjustments and $3.7 million for professional fees and other charges. Please refer to Note 4 - Fresh-Start Accounting for additional discussion.
Liquidity and Capital Resources
Our primary sources of liquidity have historically included cash from operating activities, borrowings under our revolving credit facility, proceeds from sales of assets and, from time to time, proceeds from capital market transactions, including the offering of debt and equity securities. Our cash flows from operating activities are subject to significant volatility due to changes in commodity prices for our crude oil, NGL and natural gas products, as well as variations in our production. The prices for these commodities are driven by a number of factors beyond our control, including global and regional product supply and demand, weather, product distribution, refining and processing capacity and other supply chain dynamics, among other factors.
As of June 30, 2017, our liquidity was $245.9 million, consisting of cash on hand of $54.2 million and $191.7 million of available borrowing capacity on the new revolving credit facility. Please refer to Note 6 - Long-term Debt in Part I, Item 1 above for additional discussion.
On April 7, 2017, the Company's Plan was confirmed by the Bankruptcy Court, and the Plan became effective on April 28, 2017. Upon emergence from bankruptcy, we (i) executed the new revolving credit facility with an initial borrowing base of $191.7 million and with a March 31, 2021 maturity date and (ii) issued new common stock as part of the $200.0 million rights offering and the $7.5 million transaction with the ad hoc equity committee. Please refer to Note 3 - Chapter 11 Proceedings and Emergence for additional discussion.
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The new board of directors approved a capital program of $120.0 million to 130.0 million. We anticipate investing $96.0 million to $106.0 million on drilling and completion and $24.0 million on infrastructure.
Our weighted-average interest rates (excluding amortization of deferred financing costs) on borrowings from our revolving credit facility were 0.50% and 2.54%, respectively, for the six months ended June 30, 2017 and 2016. The Company incurred commitment fees during the six months ended June 30, 2017 and 2016 of $0.2 million and $0.5 million, respectively.
The following table summarizes our cash flows and other financial measures for the periods indicated (in thousands).
Successor | Predecessor | Predecessor | ||||||||||
April 29, 2017 through June 30, 2017 | January 1, 2017 through April 28, 2017 | Six Months Ended June 30, 2016 | ||||||||||
Net cash (used in) provided by operating activities | $ | (3,833 | ) | $ | (19,884 | ) | $ | 14,756 | ||||
Net cash used in investing activities | (10,058 | ) | (5,904 | ) | (58,065 | ) | ||||||
Net cash (used in) provided by financing activities | (2,080 | ) | 15,406 | 192,139 | ||||||||
Cash and cash equivalents | 54,212 | 70,183 | 170,171 | |||||||||
Acquisition of oil and gas properties | 4,982 | 445 | 816 | |||||||||
Exploration and development of oil and gas properties | 4,913 | 5,123 | 42,753 | |||||||||
Cash flows (used in) provided by operating activities
The Current Successor Period included cash receipts and disbursements attributable to our normal operating cycle. The Current Predecessor Period contained the reorganization costs along with our normal operating receipts and disbursements. The increase in cash flows expended from operating activities resulted primarily from reorganization costs. See Results of Operations above for more information on the factors driving these changes.
Cash flows used in investing activities
Expenditures for development of oil and natural gas properties are the primary use of our capital resources. Net cash used in investing activities for the Current Successor and Predecessor Periods decreased as compared to the Prior Predecessor Period. The Company spent $9.9 million, $5.6 million and $43.6 million, respectively, in the Current Successor and Predecessor Periods and the Prior Predecessor Period on the exploration, development and acquisition of oil and gas properties.
Cash flows (used in) provided by financing activities
Net cash used by financing activities for the Current Successor Period consisted of employee tax withholdings in exchange for the return of common stock. Net cash provided by financing activities for the Current Predecessor Period consisted of proceeds from the rights offering of $207.5 million net of the $191.7 million repayment to the predecessor revolving credit facility. Net cash provided by financing activities for the Prior Predecessor Period consisted of borrowings of $209.0 million on the predecessor revolving credit facility.
New Accounting Pronouncements
Please refer to Note 2 — Basis of Presentation under Part I, Item 1 of this report for any recently issued or adopted accounting standards.
Critical Accounting Policies and Estimates
Information regarding our critical accounting policies and estimates is contained in Part II, Item 7 of our 2016 Form 10-K.
Effects of Inflation and Pricing
Inflation in the United States increased slightly over the past few years, which did not have a material impact on
our results of operations for any of the periods presented within this report. Although the impact of inflation has been relatively insignificant in recent years, it is still a factor in the United States economy and we tend to experience inflationary pressure on the cost of oilfield services and equipment as increasing oil and gas prices increase drilling activity in our areas of operations.
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Material changes in prices also impact the current revenue stream, estimates of future reserves, borrowing base calculations, depletion expense, impairment assessments of oil and gas properties, ARO, and values of properties in purchase and sale transactions. Material changes in prices can impact the value of oil and gas companies and their ability to raise capital, borrow money and retain personnel.
Off-Balance Sheet Arrangements
Currently, we do not have any off-balance sheet arrangements.
Contractual Obligations
The table below reflects contractual obligations and commitments as of June 30, 2017:
Less than | More than | |||||||||||||||||||
Total | 1 Year | 1 - 3 Years | 3 - 5 Years | 5 Years | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Contractual Obligation | ||||||||||||||||||||
Delivery commitments(1) | 154,541 | 4,848 | 47,000 | 57,258 | 45,435 | |||||||||||||||
Office lease | 5,799 | 999 | 2,444 | 2,356 | — | |||||||||||||||
Asset retirement obligation | 81,581 | 2,110 | 12,795 | 4,360 | 62,316 | |||||||||||||||
Total | $ | 241,921 | $ | 7,957 | $ | 62,239 | $ | 63,974 | $ | 107,751 | ||||||||||
(1) The above calculation is based on the minimum volume commitment schedule (as defined in the new NGL agreement) and applicable differential fees.
There were no material changes in our contractual obligations and other commitments as disclosed in our 2016 Form 10-K other than the termination and modification of our two oil purchase agreements, the new office lease and the reset of our asset retirement obligation, which went into effect upon emergence from bankruptcy. Please refer to Note 7 - Commitments and Contingencies under Part I, Item 1 of this report for additional discussion.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains various statements, including those that express belief, expectation or intention, as well as those that are not statements of historic fact, that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). When used in this Quarterly Report on Form 10-Q, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” “plan,” “will,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management's current belief, based on currently available information, as to the outcome and timing of future events.
Forward‑looking statements include statements related to, among other things:
• | the Company's business strategies and intent to maximize liquidity; |
• | reserves estimates; |
• | estimated sales volumes; |
• | amount and allocation of forecasted capital expenditures and plans for funding capital expenditures and operating expenses; |
• | ability to modify future capital expenditures; |
• | the Wattenberg Field being a premier oil and resource play in the United States; |
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• | anticipated costs; |
• | compliance with debt covenants; |
• | ability to fund and satisfy obligations related to ongoing operations; |
• | compliance with government regulations, including environmental, health and safety regulations and liabilities thereunder; |
• | adequacy of gathering systems and continuous improvement of such gathering systems; |
• | impact from the lack of available gathering systems and processing facilities in certain areas; |
• | natural gas, oil and natural gas liquid prices and factors affecting the volatility of such prices; |
• | impact of lower commodity prices; |
• | sufficiency of impairments; |
• | the ability to use derivative instruments to manage commodity price risk and ability to use such instruments in the future; |
• | our drilling inventory and drilling intentions; |
• | our estimated revenues and losses; |
• | the timing and success of specific projects; |
• | our implementation of long reach laterals in the Wattenberg Field; |
• | our use of multi-well pads to develop the Niobrara and Codell formations; |
• | intention to continue to optimize enhanced completion techniques and well design changes; |
• | stated working interest percentages; |
• | management and technical team; |
• | outcomes and effects of litigation, claims and disputes; |
• | primary sources of future production growth; |
• | full delineation of the Niobrara B and C benches in our legacy acreage; |
• | our ability to replace oil and natural gas reserves; |
• | our ability to convert PUDs to producing properties within five years of their initial proved booking; |
• | impact of recently issued accounting pronouncements; |
• | impact of the loss a single customer or any purchaser of our products; |
• | timing and ability to meet certain volume commitments related to purchase and transportation agreements; |
• | the impact of customary royalty interests, overriding royalty interests, obligations incident to operating agreements, liens for current taxes and other industry-related constraints; |
• | our financial position; |
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• | our cash flow and liquidity; |
• | the adequacy of our insurance; and |
• | other statements concerning our operations, economic performance and financial condition. |
We have based these forward-looking statements on certain assumptions and analyses we have made in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining actual future results. The actual results or developments anticipated by these forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, and may not be realized or, even if substantially realized, may not have the expected consequences. Actual results could differ materially from those expressed or implied in the forward-looking statements.
Factors that could cause actual results to differ materially include, but are not limited to, the following:
• | the risk factors discussed in Part I, Item 1A of our 2016 Form 10-K; |
• | further declines or volatility in the prices we receive for our oil, natural gas liquids and natural gas; |
• | general economic conditions, whether internationally, nationally or in the regional and local market areas in which we do business; |
• | ability of our customers to meet their obligations to us; |
• | our access to capital; |
• | our ability to generate sufficient cash flow from operations, borrowings or other sources to enable us to fully develop our undeveloped acreage positions; |
• | the presence or recoverability of estimated oil and natural gas reserves and the actual future sales volume rates and associated costs; |
• | uncertainties associated with estimates of proved oil and gas reserves; |
• | the possibility that the industry may be subject to future local, state, and federal regulatory or legislative actions (including additional taxes and changes in environmental regulation); |
• | environmental risks; |
• | seasonal weather conditions; |
• | lease stipulations; |
• | drilling and operating risks, including the risks associated with the employment of horizontal drilling techniques; |
• | our ability to acquire adequate supplies of water for drilling and completion operations; |
• | availability of oilfield equipment, services and personnel; |
• | exploration and development risks; |
• | competition in the oil and natural gas industry; |
• | management’s ability to execute our plans to meet our goals; |
• | our ability to attract and retain key members of our senior management and key technical employees; |
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• | our ability to maintain effective internal controls; |
• | access to adequate gathering systems and pipeline take-away capacity to provide adequate infrastructure for the products of our drilling program; |
• | our ability to secure firm transportation for oil and natural gas we produce and to sell the oil and natural gas at market prices; |
• | costs and other risks associated with perfecting title for mineral rights in some of our properties; |
• | continued hostilities in the Middle East and other sustained military campaigns or acts of terrorism or sabotage; and |
• | other economic, competitive, governmental, legislative, regulatory, geopolitical and technological factors that may negatively impact our businesses, operations or pricing. |
All forward-looking statements speak only as of the date of this report. We disclaim any obligation to update or revise these statements unless required by law, and you should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under Part II, Item 1A. Risk Factors and Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Oil and Natural Gas Price Risk
Our financial condition, results of operations and capital resources are highly dependent upon the prevailing market prices of oil and natural gas. These commodity prices are subject to wide fluctuations and market uncertainties due to a variety of factors that are beyond our control. Factors influencing oil and natural gas prices include the level of global demand for oil and natural gas, the global supply of oil and natural gas, the establishment of and compliance with production quotas by oil exporting countries, weather conditions which determine the demand for natural gas, the price and availability of alternative fuels, local and global politics, and overall economic conditions. It is impossible to predict future oil and natural gas prices with any degree of certainty. Sustained weakness in oil and natural gas prices may adversely affect our financial condition and results of operations, and may also reduce the amount of oil and natural gas reserves that we can produce economically. Any reduction in our oil and natural gas reserves, including reductions due to price fluctuations, can have an adverse effect on our ability to obtain capital for our exploration and development activities. Similarly, any improvements in oil and natural gas prices can have a favorable impact on our financial condition, results of operations and capital resources.
In the past, we have entered into various types of derivative instruments, including commodity price swaps, costless collars, put options, and basis protection swaps to mitigate a portion of our exposure to fluctuations in commodity prices. Our debt defaults and the commencement of our Chapter 11 Cases were events of default under our derivative master agreements thereby providing our derivative counterparties the right to terminate all our derivative positions. As a result, then-existing derivative positions were terminated in the fourth quarter of 2016.
Interest Rates
As of June 30, 2017, we had no borrowings outstanding under our new revolving credit facility. Borrowings under our new revolving credit facility bear interest at a fluctuating rate that is tied to an adjusted bank base rate or London Interbank Offered Rate, at our option. Any increases in these interest rates can have an adverse impact on our results of operations and cash flow. As of the Effective Date of our restructuring, April 28, 2017, all principal and accrued interest related to the revolving credit facility was paid in full.
Counterparty and Customer Credit Risk
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As of June 30, 2017, we did not have any derivative contracts in place. Subsequent to June 30, 2017, we entered into commodity derivative contracts with two lenders under our new revolving credit facility who have an investment grade credit rating. In connection with our derivatives activity, we have exposure to financial institutions in the form of derivative transactions.
We are also subject to credit risk due to concentration of our oil and natural gas receivables with certain significant customers. The inability or failure of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results. We review the credit rating, payment history and financial resources of our customers, but we do not require our customers to post collateral.
Marketability of Our Production
The marketability of our production from the Mid-Continent and Rocky Mountain regions depends in part upon the availability, proximity and capacity of third-party refineries, access to regional trucking, pipeline and rail infrastructure, natural gas gathering systems and processing facilities. We deliver crude oil and natural gas produced from these areas through trucking services, pipelines and rail facilities that we do not own. The lack of availability or capacity on these systems and facilities could reduce the price offered for our production or result in the shut-in of producing wells or the delay or discontinuance of development plans for properties.
A portion of our production may also be interrupted, or shut-in, from time to time for numerous other reasons, including as a result of accidents, field labor issues or strikes, or we might voluntarily curtail production in response to market conditions. If a substantial amount of our production is interrupted at the same time, it could adversely affect our cash flow.
There have not been material changes to the interest rate risk analysis or oil and gas price sensitivity analysis disclosed in our 2016 Form 10-K.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2017. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of June 30, 2017, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. To assist management, we have established an internal audit function to verify and monitor our internal controls and procedures. The Company’s internal control system is supported by written policies and procedures, contains self-monitoring mechanisms and is audited by the internal audit function. Appropriate actions are taken by management to correct deficiencies as they are identified.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended June 30, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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From time to time, we are subject to legal proceedings and claims that arise in the ordinary course of business. Like other oil and gas producers and marketers, our operations are subject to extensive and rapidly changing federal and state environmental, health and safety and other laws and regulations governing air emissions, wastewater discharges, and solid and hazardous waste management activities. As of the date of this filing, there are no material pending or overtly threatened legal actions against us of which we are aware.
The Company filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code on January 4, 2017. The Company's Plan as contemplated within the Bankruptcy Court was confirmed on April 7, 2017, and the Company's Plan became effective on April 28, 2017.
Pursuant to Chapter 11, the filing of the Bankruptcy petitions automatically stayed most actions against the Company, including actions to collect indebtedness incurred prior to the filing of the Bankruptcy petitions or to exercise control over the Company's property.
There have been no other material changes to our legal proceedings factors from those described in our 2016 Form 10-K.
Item 1A. Risk Factors.
Our business faces many risks. Any of the risk factors discussed in this report or our other SEC filings could have a material impact on our business, financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operation. For a discussion of our potential risks and uncertainties, see the risk factors in Part I, Item 1A in our 2016 Form 10-K, together with other information in this report and other reports and materials we file with the SEC. We have identified these risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by us or on our behalf.
We recently emerged from bankruptcy, which could adversely affect our business and relationships.
It is possible that our having filed for bankruptcy and our recent emergence from the Chapter 11 bankruptcy proceedings could adversely affect our business and relationships with customers, employees and suppliers. Due to uncertainties, many risks exist, including the following:
• | key suppliers could terminate their relationship or require financial assurances or enhanced performance; |
• | the ability to renew existing contracts and compete for new business may be adversely affected; |
• | the ability to attract, motivate and/or retain key executives and employees may be adversely affected; |
• | employees may be distracted from performance of their duties or more easily attracted to other employment opportunities; |
• | competitors may take business away from us, and our ability to attract and retain customers may be negatively impacted; and |
• | we will have 5 new directors on our board that have no prior experience with the Company or the management team, and as a result go-forward operations plans and strategy may differ materially from past practice. |
The occurrence of one or more of these events could have a material and adverse effect on our operations, financial condition and reputation. We cannot assure you that having been subject to bankruptcy protection will not adversely affect our operations in the future.
Our actual financial results after emergence from bankruptcy may not be comparable to our historical financial information as a result of the implementation of the Plan and the transactions contemplated thereby and our adoption of fresh-start accounting.
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In connection with the disclosure statement we filed with the Bankruptcy Court, and the hearing to consider confirmation of the Plan, we prepared projected financial information to demonstrate to the Bankruptcy Court the feasibility of the Plan and our ability to continue operations upon our emergence from bankruptcy. Those projections were prepared solely for the purpose of the bankruptcy proceedings and have not been, and will not be, updated on an ongoing basis and should not be relied upon by investors. At the time they were prepared, the projections reflected numerous assumptions concerning our anticipated future performance and with respect to prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not materialize. Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks and the assumptions underlying the projections and/or valuation estimates may prove to be wrong in material respects. Actual results will likely vary significantly from those contemplated by the projections. As a result, investors should not rely on these projections.
In addition, upon our emergence from bankruptcy, we adopted fresh-start accounting, as a consequence of which our assets and liabilities were adjusted to fair value and our accumulated deficit was restated to zero. Accordingly, our future financial conditions and results of operations following our emergence are not be comparable to the financial condition or results of operations reflected in the Company’s historical financial statements. The lack of comparable historical financial information may discourage investors from purchasing our common stock.
There is a limited trading market for our securities and the market price of our securities is subject to volatility.
Upon our emergence from bankruptcy, our old common stock was canceled and we issued new common stock. The market price of our new common stock could be subject to wide fluctuations in response to, and the level of trading that develops with our new common stock may be affected by, numerous factors, many of which are beyond our control. These factors include, among other things, our new capital structure as a result of the transactions contemplated by the plan of reorganization, our limited trading history subsequent to our emergence from bankruptcy, our limited trading volume, the concentration of holdings of our new common stock, the lack of comparable historical financial information due to our adoption of fresh-start accounting, actual or anticipated variations in our operating results and cash flow, the nature and content of our earnings releases, announcements or events that impact our products, customers, competitors or markets, business conditions in our markets and the general state of the securities markets and the market for energy-related stocks, as well as general economic and market conditions and other factors that may affect our future results, including those described in this Part II, Item 1A of this Report.
The ability to attract and retain key personnel, including a permanent Chief Executive Officer, is critical to the success of our business and may be affected by our emergence from bankruptcy.
The success of our business depends on key personnel. The ability to attract and retain these key personnel may be difficult in light of our emergence from bankruptcy, the uncertainties currently facing the business and changes we may make to the organizational structure to adjust to changing circumstances. We may need to enter into retention or other arrangements that could be costly to maintain. If executives, managers or other key personnel resign, retire or are terminated, or their service is otherwise interrupted, we may not be able to replace them in a timely manner and we could experience significant declines in productivity.
On June 11, 2017, Richard J. Carty resigned from his role as President and Chief Executive Officer of the Company. The Company's board of directors is currently conducting a search for a new Chief Executive Officer. There is no guarantee as to how quickly a new Chief Executive Officer will be selected, and we could experience significant declines in productivity during the period of time prior to that selection.
Upon our emergence from bankruptcy, the composition of our board of directors changed significantly.
Pursuant to the Plan, the composition of our board of directors changed significantly. Our current Board is made up of six directors, of which five had not previously served on the Board. The new directors have different backgrounds, experiences and perspectives from those individuals who previously served on the Board and, thus, may have different views on the issues that will determine the future of the Company. As a result, the future strategy and plans of the Company may differ materially from those of the past.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered sales of securities. There were no sales of unregistered equity securities during the three month period ended June 30, 2017.
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Issuer purchases of equity securities. The following table contains information about acquisitions of our equity securities during the three month period ended June 30, 2017.
Maximum | ||||||||||||
Total Number of | Number of | |||||||||||
Total | Shares | Shares that May | ||||||||||
Number of | Average Price | Purchased as Part of | Be Purchased | |||||||||
Shares | Paid per | Publicly Announced | Under Plans or | |||||||||
Purchased(1) | Share | Plans or Programs | Programs | |||||||||
April 1, 2017 - April 28, 2017 (Predecessor) | 665 | $ | 0.87 | — | — | |||||||
April 29, 2017 - May 31, 2017 (Successor) | — | $ | — | — | — | |||||||
June 1, 2017 - June 30, 2017 (Successor) | 64,194 | $ | 31.28 | — | — | |||||||
Total | 64,859 | $ | 30.97 | — | — | |||||||
____________________________________________________________________________
(1) | Represents shares that employees surrendered back to us that equaled in value the amount of taxes required for payroll tax withholding obligations upon the vesting of equity awards under the Predecessor and Successor LTIP. These repurchases were not part of a publicly announced plan or program to repurchase shares of our common stock, nor do we have a publicly announced plan or program to repurchase shares of our common stock. |
Our new revolving credit facility provides for restrictions on the payment of dividends.
Item 3. Defaults Upon Senior Securities.
As previously disclosed, the filing of the voluntary petitions seeking relief under Chapter 11 of the Bankruptcy Code constituted an event of default that accelerated the Company’s obligations under the following debt instruments:
• | 5.75% Senior Notes due 2023 issued in the aggregate principal amount of $300.0 million pursuant to that certain indenture dated July 18, 2014, by and among the Company, Delaware Trust Company, as trustee (as successor to Wells Fargo Bank, National Association); |
• | 6.75% Senior Notes due 2021 issued in the aggregate principal amount of $500.0 million pursuant to that certain indenture, dated as of April 9, 2013, by and among the Company, each of the guarantors party thereto, Delaware Trust Company, as trustee (as successor to Wells Fargo Bank, National Association). |
As previously disclosed, subject to certain specific exceptions under the Bankruptcy Code, the Chapter 11 filings automatically stayed most judicial or administrative actions against the Company and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. On April 28, 2017, the obligations of the Company and its subsidiaries with respect to these notes were canceled.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
Exhibit No. | Description of Exhibit | |
31.1† | Certification of the Principal Executive Officer pursuant to Rule 13a-14(a). | |
31.2† | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a). | |
32.1† | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). | |
32.2† | Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). | |
† Filed or furnished herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BONANZA CREEK ENERGY, INC. | ||||
Date: | August 8, 2017 | By: | /s/ R. Seth Bullock | |
R. Seth Bullock | ||||
Interim Chief Executive Officer | ||||
(principal executive officer) | ||||
By: | /s/ Scott A. Fenoglio | |||
Scott A. Fenoglio | ||||
Senior Vice President, Finance & Planning | ||||
(principal financial officer) | ||||
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