HALCON RESOURCES CORP (Form: 10-Q, Received: 11/08/2018 06:04:45)

HALCÓN RESOURCES CORPORATION

November 7, 2018

/s/ FLOYD C. WILSON

Floyd C. Wilson

Chairman of the Board, Chief Executive Officer and President

Use these links to rapidly review the document
TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 001-35467

Halcón Resources Corporation
(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		1311 (Primary Standard Industrial Classification Code Number)		20-0700684 (I.R.S. Employer Identification Number)

1000 Louisiana Street, Suite 1500, Houston, TX 77002
(Address of principal executive offices)

(832) 538-0300
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)

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 twelve months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 o		Accelerated filer ý		Non-accelerated filer o		Smaller reporting company o Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

At November 2, 2018, 160,669,329 shares of the Registrant's Common Stock were outstanding.

Table of Contents

TABLE OF CONTENTS

		Page

PART I—FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)	5
	Condensed Consolidated Statements of Operations (Unaudited) for the Three Months and Nine Months Ended September 30, 2018 and 2017	5
	Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2018 and December 31, 2017	6
	Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the Nine Months Ended September 30, 2018 and the Year Ended December 31, 2017	7
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2018 and 2017	9
	Notes to Unaudited Condensed Consolidated Financial Statements	10
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	40
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	56
ITEM 4.	Controls and Procedures	57
PART II—OTHER INFORMATION
ITEM 1.	Legal Proceedings	58
ITEM 1A.	Risk Factors	58
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
ITEM 3.	Defaults Upon Senior Securities	59
ITEM 4.	Mine Safety Disclosures	59
ITEM 5.	Other Information	59
ITEM 6.	Exhibits	59
Signatures		61

Table of Contents

Special note regarding forward-looking statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, concerning, among other things, planned capital expenditures, potential increases in oil and natural gas production, potential costs to be incurred, future cash flows and borrowings, business strategy and other plans and objectives for future operations, are forward-looking statements. These forward-looking statements are identified by their use of terms and phrases such as "may," "expect," "estimate," "project," "plan," "objective," "believe," "predict," "intend," "achievable," "anticipate," "will," "continue," "potential," "should," "could" and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. Readers should consider carefully the risks described under the "Risk Factors" section of our previously filed Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as well as the other disclosures contained herein and therein, which describe factors that could cause our actual results to differ from those anticipated in the forward-looking statements, including, but not limited to, the following factors:

•: volatility in commodity prices for oil, natural gas and natural gas liquids;
•: our ability to generate sufficient cash flow from operations, borrowings or other sources to enable us to fund our operations, satisfy our obligations and develop our undeveloped acreage positions;
•: our ability to replace our oil and natural gas reserves and production;
•: the possibility that acquisitions may involve unexpected costs or delays, and that acquisitions may not achieve intended benefits and may divert management's time and energy;
•: our ability to successfully integrate acquired oil and natural gas businesses and operations;
•: we have historically had substantial indebtedness and we may incur more debt in the future;
•: higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business;
•: the presence or recoverability of estimated oil and natural gas reserves attributable to our properties and the actual future production rates and associated costs of producing those oil and natural gas reserves;
•: our ability to successfully develop our large inventory of undeveloped acreage;
•: our ability to retain key members of senior management, the board of directors, and key technical employees;
•: access to and availability of water and other treatment materials to carry out fracture stimulations in our resource play;
•: access to adequate gathering systems, processing and treating facilities and transportation take-away capacity to move our production to market and marketing outlets to sell our production at market prices;
•: the cost and availability of goods and services, such as drilling rigs, fracture stimulation services and tubulars;
•: contractual limitations that affect our management's discretion in managing our business, including covenants that, among other things, limit our ability to incur debt, make investments and pay cash dividends;

Table of Contents

•: the potential for production decline rates for our wells to be greater than we expect;
•: competition, including competition for acreage in our resource play;
•: environmental risks;
•: drilling and operating risks;
•: exploration and development risks;
•: the possibility that the industry may be subject to future regulatory or legislative actions (including additional taxes and changes in environmental regulations);
•: general economic conditions, whether internationally, nationally or in the regional and local market areas in which we do business, may be less favorable than expected, including the possibility that economic conditions in the United States will worsen and that capital markets are disrupted, which could adversely affect demand for oil and natural gas and make it difficult to access capital;
•: social unrest, political instability or armed conflict in major oil and natural gas producing regions outside the United States, such as the Middle East, and armed conflict or acts of terrorism or sabotage;
•: other economic, competitive, governmental, regulatory, legislative, including federal and state regulations and laws, geopolitical and technological factors that may negatively impact our business, operations or oil and natural gas prices;
•: our insurance coverage may not adequately cover all losses that we may sustain;
•: title to the properties in which we have an interest may be impaired by title defects; and
•: senior management's ability to execute our plans to meet our goals.

All forward-looking statements are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this document. Other than as required under the securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

HALCÓN RESOURCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,

	2018			2017			2018			2017
Operating revenues:
Oil, natural gas and natural gas liquids sales:
Oil	$	53,918		$	88,256		$	145,743		$	319,472
Natural gas		1,407			2,886			5,286			15,051
Natural gas liquids		5,920			5,448			14,623			16,779

Total oil, natural gas and natural gas liquids sales		61,245			96,590			165,652			351,302
Other		350			363			613			1,386

Total operating revenues		61,595			96,953			166,265			352,688

Operating expenses:
Production:
Lease operating		5,275			17,798			15,504			58,822
Workover and other		1,478			3,644			4,795			22,213
Taxes other than income		3,557			6,846			9,812			29,149
Gathering and other		18,404			10,886			30,782			34,640
Restructuring		—			1,275			128			2,080
General and administrative		19,731			39,195			49,196			86,966
Depletion, depreciation and accretion		20,310			35,940			52,397			100,788
(Gain) loss on sale of oil and natural gas properties		1,331			(491,830	)		7,235			(727,520	)

Total operating expenses		70,086			(376,246	)		169,849			(392,862	)

Income (loss) from operations		(8,491	)		473,199			(3,584	)		745,550
Other income (expenses):
Net gain (loss) on derivative contracts		(60,406	)		(22,415	)		(66,603	)		28,139
Interest expense and other		(12,940	)		(19,330	)		(30,522	)		(63,808	)
Gain (loss) on extinguishment of debt		—			(29,167	)		—			(86,065	)

Total other income (expenses)		(73,346	)		(70,912	)		(97,125	)		(121,734	)

Income (loss) before income taxes		(81,837	)		402,287			(100,709	)		623,816
Income tax benefit (provision)		—			17,000			—			5,000

Net income (loss)		(81,837	)		419,287			(100,709	)		628,816
Non-cash preferred dividend		—			—			—			(48,007	)

Net income (loss) available to common stockholders	$	(81,837	)	$	419,287		$	(100,709	)	$	580,809



Net income (loss) per share of common stock:
Basic	$	(0.52	)	$	2.85		$	(0.64	)	$	4.56



Diluted	$	(0.52	)	$	2.82		$	(0.64	)	$	4.52



Weighted average common shares outstanding:
Basic		158,011			146,944			156,628			127,458



Diluted		158,011			148,490			156,628			128,410

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

Table of Contents

HALCÓN RESOURCES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share and per share amounts)

	September 30, 2018			December 31, 2017

Current assets:
Cash and cash equivalents	$	137		$	424,071
Accounts receivable		46,764			36,416
Receivables from derivative contracts		16,553			677
Prepaids and other		10,969			10,628

Total current assets		74,423			471,792

Oil and natural gas properties (full cost method):
Evaluated		1,362,136			877,316
Unevaluated		982,922			765,786

Gross oil and natural gas properties		2,345,058			1,643,102
Less—accumulated depletion		(617,075	)		(570,155	)

Net oil and natural gas properties		1,727,983			1,072,947

Other operating property and equipment:
Other operating property and equipment		188,321			101,282
Less—accumulated depreciation		(9,136	)		(4,092	)

Net other operating property and equipment		179,185			97,190

Other noncurrent assets:
Receivables from derivative contracts		2,794			—
Funds in escrow and other		1,915			1,691

Total assets	$	1,986,300		$	1,643,620



Current liabilities:
Accounts payable and accrued liabilities	$	141,377		$	131,087
Liabilities from derivative contracts		86,176			19,248
Current portion of asset retirement obligation		149			—

Total current liabilities		227,702			150,335

Long-term debt, net		667,726			409,168
Other noncurrent liabilities:
Liabilities from derivative contracts		37,459			7,751
Asset retirement obligations		6,963			4,368
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock: 1,000,000,000 shares of $0.0001 par value authorized; 160,676,356 and 149,379,491 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively		16			15
Additional paid-in capital		1,091,441			1,016,281
Retained earnings (accumulated deficit)		(45,007	)		55,702

Total stockholders' equity		1,046,450			1,071,998

Total liabilities and stockholders' equity	$	1,986,300		$	1,643,620

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

Table of Contents

HALCÓN RESOURCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

(In thousands)

	Common Stock								Retained Earnings (Accumulated Deficit)

	Common Stock					Additional Paid-In Capital						Stockholders' Equity
	Shares			Amount		Additional Paid-In Capital						Stockholders' Equity
Balances at December 31, 2017		149,379		$	15	$	1,016,281		$	55,702		$	1,071,998
Net income (loss)		—			—		—			(2,598	)		(2,598	)
Common stock issuance		9,200			1		63,479			—			63,480
Offering costs		—			—		(3,044	)		—			(3,044	)
Stock option exercises		42			—		323			—			323
Long-term incentive plan grants		1,922			—		—			—			—
Long-term incentive plan forfeitures		(74	)		—		—			—			—
Stock-based compensation		—			—		4,066			—			4,066

Balances at March 31, 2018		160,469			16		1,081,105			53,104			1,134,225
Net income (loss)		—			—		—			(16,274	)		(16,274	)
Long-term incentive plan grants		320			—		—			—			—
Long-term incentive plan forfeitures		(136	)		—		—			—			—
Reduction in shares to cover individuals' tax withholding		(53	)		—		(262	)		—			(262	)
Stock-based compensation		—			—		5,194			—			5,194

Balances at June 30, 2018		160,600			16		1,086,037			36,830			1,122,883
Net income (loss)		—			—		—			(81,837	)		(81,837	)
Long-term incentive plan grants		84			—		—			—			—
Long-term incentive plan forfeitures		(8	)		—		—			—			—
Stock-based compensation		—			—		5,404			—			5,404

Balances at September 30, 2018		160,676		$	16	$	1,091,441		$	(45,007	)	$	1,046,450

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

Table of Contents

HALCÓN RESOURCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (continued)

(In thousands)

	Preferred Stock					Common Stock								Retained Earnings (Accumulated Deficit)

	Preferred Stock					Common Stock					Additional Paid-In Capital						Stockholders' Equity
	Shares			Amount		Shares			Amount		Additional Paid-In Capital						Stockholders' Equity
Balances at December 31, 2016		—		$	—		92,991		$	9	$	592,663		$	(479,984	)	$	112,688
Net income (loss)		—			—		—			—		—			189,352			189,352
Sale of preferred stock		6			—		—			—		352,048			—			352,048
Preferred beneficial conversion feature		—			—		—			—		48,007			—			48,007
Offering costs		—			—		—			—		(11,829	)		—			(11,829	)
Long-term incentive plan forfeitures		—			—		(41	)		—		—			—			—
Reduction in shares to cover individuals' tax withholding		—			—		(2	)		—		(17	)		—			(17	)
Stock-based compensation		—			—		—			—		8,539			—			8,539

Balances at March 31, 2017		6			—		92,948			9		989,411			(290,632	)		698,788
Net income (loss)		—			—		—			—		—			20,177			20,177
Conversion of preferred stock		(6	)		—		55,180			6		(6	)		—			—
Offering costs		—			—		—			—		(90	)		—			(90	)
Long-term incentive plan grants		—			—		2,022			—		—			—			—
Long-term incentive plan forfeitures		—			—		(48	)		—		—			—			—
Stock-based compensation		—			—		—			—		13,154			—			13,154

Balances at June 30, 2017		—			—		150,102			15		1,002,469			(270,455	)		732,029
Net income (loss)		—			—		—			—		—			419,287			419,287
Long-term incentive plan forfeitures		—			—		(143	)		—		—			—			—
Reduction in shares to cover individuals' tax withholding		—			—		(293	)		—		(1,828	)		—			(1,828	)
Stock-based compensation		—			—		—			—		12,500			—			12,500

Balances at September 30, 2017		—			—		149,666			15		1,013,141			148,832			1,161,988
Net income (loss)		—			—		—			—		—			(93,130	)		(93,130	)
Long-term incentive plan forfeitures		—			—		(266	)		—		—			—			—
Reduction in shares to cover individuals' tax withholding		—			—		(21	)		—		(150	)		—			(150	)
Stock-based compensation		—			—		—			—		3,290			—			3,290

Balances at December 31, 2017		—		$	—		149,379		$	15	$	1,016,281		$	55,702		$	1,071,998

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

Table of Contents

HALCÓN RESOURCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Nine Months Ended September 30,

	2018			2017
Cash flows from operating activities:
Net income (loss)	$	(100,709	)	$	628,816
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depletion, depreciation and accretion		52,397			100,788
(Gain) loss on sale of oil and natural gas properties		7,235			(727,520	)
Stock-based compensation, net		12,241			33,548
Unrealized loss (gain) on derivative contracts		77,524			(11,010	)
Amortization of deferred loan costs		1,022			1,306
Amortization of discount and premium		235			2,358
Loss (gain) on extinguishment of debt		—			86,065
Accrued settlements on derivative contracts		3,292			(673	)
Other income (expense)		(1,978	)		(4,132	)
Change in assets and liabilities:
Accounts receivable		(7,498	)		37,950
Prepaids and other		(341	)		(5,231	)
Accounts payable and accrued liabilities		(6,711	)		(40,043	)

Net cash provided by (used in) operating activities		36,709			102,222

Cash flows from investing activities:
Oil and natural gas capital expenditures		(369,304	)		(218,880	)
Proceeds received from sale of oil and natural gas properties		1,647			1,901,578
Acquisition of oil and natural gas properties		(333,470	)		(916,676	)
Acquisition of other operating property and equipment		—			(25,538	)
Other operating property and equipment capital expenditures		(79,389	)		(25,474	)
Proceeds received from sale of other operating property and equipment		2,236			21,291
Funds held in escrow and other		153			1,459

Net cash provided by (used in) investing activities		(778,127	)		737,760

Cash flows from financing activities:
Proceeds from borrowings		293,000			1,349,000
Repayments of borrowings		(32,000	)		(1,497,826	)
Cash payments to Noteholders		—			(70,903	)
Debt issuance costs		(4,013	)		(17,220	)
Preferred stock issued		—			400,055
Common stock issued		63,480			—
Offering costs and other		(2,983	)		(13,765	)

Net cash provided by (used in) financing activities		317,484			149,341

Net increase (decrease) in cash and cash equivalents		(423,934	)		989,323
Cash and cash equivalents at beginning of period		424,071			24

Cash and cash equivalents at end of period	$	137		$	989,347



Disclosure of non-cash investing and financing activities:
Asset retirement obligations	$	2,519		$	(28,481	)
Accretion of non-cash preferred dividend		—			48,007

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

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. FINANCIAL STATEMENT PRESENTATION

Basis of Presentation and Principles of Consolidation

Halcón Resources Corporation (Halcón or the Company) is an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States. The unaudited condensed consolidated financial statements include the accounts of all majority-owned, controlled subsidiaries. The Company operates in one segment which focuses on oil and natural gas acquisition, production, exploration and development. Allocation of capital is made across the Company's entire portfolio without regard to operating area. All intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements reflect, in the opinion of the Company's management, all adjustments, consisting of normal and recurring adjustments, necessary to present fairly the financial position as of, and the results of operations for, the periods presented. During interim periods, Halcón follows the accounting policies disclosed in its Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission (SEC) on March 1, 2018. Please refer to the notes in the 2017 Annual Report on Form 10-K when reviewing interim financial results.

Use of Estimates

The preparation of the Company's unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Estimates and assumptions that, in the opinion of the Company's management, are significant include oil and natural gas revenue accruals, capital and operating expense accruals, oil and natural gas reserves, depletion relating to oil and natural gas properties, asset retirement obligations, fair value estimates, including estimates of the fair values of assets acquired and liabilities assumed in connection with the Pecos County Acquisition and the fair value of assets sold in connection with the Williston Divestiture and the El Halcón Divestiture (see Note 3, "Acquisitions and Divestitures, " for information on the Pecos County Acquisition, the Williston Divestiture and the El Halcón Divestiture), including the gains on sales recorded and income taxes. The Company bases its estimates and judgments on historical experience and on various other assumptions and information believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be predicted with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company's operating environment changes. Actual results may differ from the estimates and assumptions used in the preparation of the Company's unaudited condensed consolidated financial statements.

Interim period results are not necessarily indicative of results of operations or cash flows for the full year and, accordingly, certain information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States has been condensed or omitted. The Company has evaluated events or transactions through the date of issuance of these unaudited condensed consolidated financial statements.

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. FINANCIAL STATEMENT PRESENTATION (Continued)

Cash and Cash Equivalents

The Company considers all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value.

Accounts Receivable and Allowance for Doubtful Accounts

The Company's accounts receivable are primarily receivables from joint interest owners and oil and natural gas purchasers. Accounts receivable are recorded at the amount due, less an allowance for doubtful accounts, when applicable. The Company establishes provisions for losses on accounts receivable if it determines that collection of all or part of the outstanding balance is doubtful. The Company regularly reviews collectability and establishes or adjusts the allowance for doubtful accounts as necessary using the specific identification method. As of September 30, 2018 and December 31, 2017, allowances for doubtful accounts were approximately $0.1 million and $0.7 million, respectively.

Other Operating Property and Equipment

Other operating property and equipment additions are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives: gas and water gathering systems, thirty years; water disposal and recycling facilities, gas treating systems and buildings, twenty years; automobiles and computers, three years; computer software, fixtures, furniture and equipment, the lesser of the lease term or five years; trailers, seven years; heavy equipment, eight to ten years and leasehold improvements, lease term. Upon disposition, the cost and accumulated depreciation are removed and any gains or losses are reflected in current operations. Maintenance and repair costs are charged to operating expense as incurred. Material expenditures which increase the life or productive capacity of an asset are capitalized and depreciated over the estimated remaining useful life of the asset.

The Company reviews its other operating property and equipment for impairment in accordance with Accounting Standards Codification (ASC) No. 360, Property, Plant, and Equipment (ASC 360). ASC 360 requires the Company to evaluate other operating property and equipment for impairment as events occur or circumstances change that would more likely than not reduce the fair value below the carrying amount. If the carrying amount is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value. Further, the Company evaluates the remaining useful lives of its other operating property and equipment at each reporting period to determine whether events and circumstances warrant a revision to the remaining depreciation periods.

Income Taxes

On December 22, 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of accounting principles generally accepted in the United States in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts Job Act of 2017. In accordance with SAB 118, the Company has determined that the $280.9 million income tax provision and corresponding decrease in the Company's valuation allowance was a provisional amount and a reasonable estimate for the year ended December 31, 2017. Any

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. FINANCIAL STATEMENT PRESENTATION (Continued)

subsequent adjustments to these amounts will be recorded to current tax benefit (provision) in the fourth quarter of 2018, when the analysis is complete.

Related Party Transactions

Gas Purchase and Processing Agreement

On November 16, 2017, a subsidiary of the Company entered into a gas purchase and processing agreement with Salt Creek Midstream, LLC (Salt Creek) pursuant to which the Company agreed to dedicate, for a term of 15 years, all natural gas production from its acreage in Ward County, Texas (that is not otherwise previously dedicated) and certain sections in Winkler County, Texas to a natural gas gathering pipeline and processing facilities to be constructed by Salt Creek. The facilities were completed and placed in service in May 2018. For the three and nine months ended September 30, 2018, the Company received zero and $0.4 million from Salt Creek under the gas purchase and processing agreement.

Certain funds under the control of Ares Management LLC (Ares) are the majority owners and controlling parties of Salt Creek. Ares also controls other funds which own in excess of ten percent (10%) of the common stock of the Company. No Ares fund that is a stockholder of the Company has an interest in Salt Creek but one of the Company's directors, who is employed by Ares, also serves on the board of directors of Salt Creek's parent company.

Crude Oil Gathering Agreement

On July 27, 2018, a subsidiary of the Company entered into a crude oil gathering agreement with SCM Crude, LLC (SCM) pursuant to which the Company agreed to dedicate, for a term of 15 years, production of crude oil from its currently owned, or later acquired acreage in designated areas in Ward and Winkler Counties, Texas (excluding certain specific wells) for the receipt, gathering and transportation on a gathering system to be designed, engineered and constructed by SCM. The gathering system is expected to be operational by December 31, 2018.

The agreement with SCM was the culmination of a lengthy process during which the Company analyzed the most effective method of gathering and transportation of its future oil production in these areas. During the course of its investigation, the Company considered a variety of alternatives and solicited and received numerous third party proposals. The Company received and evaluated proposals from eleven companies covering some or all of its oil production in the region and determined that among the proposals it received, SCM's was superior for economic and strategic reasons.

Because certain funds under the control of Ares are the majority owners and controlling parties of SCM, the Audit Committee of the board of directors of the Company and the disinterested members of the Company's board of directors evaluated and approved (in a vote that excluded the Company director who is employed by Ares) the process by which the Company determined the SCM proposal to be superior to other alternatives, as well as the principal terms of the agreement, in accordance with applicable Company policies, including its Code of Conduct and Corporate Governance Guidelines (copies of which are available through the Company's website at www.halconresources.com ) and the Company's procedures for the review and approval of transactions with related parties. Ares also controls other funds which own in excess of ten percent (10%) of the common stock of the Company.

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. FINANCIAL STATEMENT PRESENTATION (Continued)

No Ares fund that is a stockholder of the Company has an interest in SCM but one of the Company's directors, who is employed by Ares, also serves on the board of directors of SCM's parent company.

Charter of Aircraft

In the ordinary course of its business, the Company occasionally charters a private aircraft for business use. Floyd C. Wilson, Halcón's Chairman, Chief Executive Officer and President, owns an aircraft which the Company has chartered from time to time. For a portion of 2017, Mr. Wilson's aircraft was managed by an independent air charter company unaffiliated with both Mr. Wilson and Halcón. The aircraft in the air charter company's fleet are available to the public for charter based upon a standard fee schedule established by the air charter company, with the fees dependent primarily upon the type and size of the aircraft utilized and the duration of the flight. Because the air charter company established fees for the use of the aircraft in its fleet, Mr. Wilson did not receive any greater benefit from Halcón's charter of the aircraft indirectly owned by him than he would have if any third party were to charter the aircraft. During the course of 2017, Mr. Wilson terminated the independent air charter company and removed his aircraft from the charter company's fleet, pending his search for a new charter company to manage his aircraft. During the search period for a new charter company, fees for the use of Mr. Wilson's aircraft by the Company were based upon comparable costs that the Company would have incurred in chartering the same type and size of aircraft from an independent third party utilizing data from several independent third party aircraft leasing companies. The terms for this use were evaluated and approved by the Audit Committee of the Company, and subsequently by the disinterested members of the Company's board of directors upon the recommendation of the Audit Committee, in accordance with the Company's procedures for the review and approval of transactions with related parties. During the three and nine months ended September 30, 2018, the Company paid approximately $0.2 million and $0.8 million, respectively, to Mr. Wilson for the Company use of the aircraft. As of September 30, 2018, the Company recorded a $0.1 million payable to Mr. Wilson. The payable is recorded in "Accounts payable and accrued liabilities," on the Company's unaudited condensed consolidated balance sheet.

Recently Issued Accounting Pronouncements

In January 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01). For public business entities, ASU 2017-01 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2017. The amendments in this ASU should be applied prospectively on or after the effective date. The ASU was issued to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The Company applied the provisions of ASU 2017-01 to the acquisition of the West Quito Draw Properties, which is discussed further in Note 3, " Acquisitions and Divestitures. "

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) (ASU 2016-15). For public business entities, ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 and early adoption is permitted. The areas for simplification in this ASU involve addressing eight specific classification issues in the statement of cash flows. An entity should apply the amendments in this ASU using a retrospective

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. FINANCIAL STATEMENT PRESENTATION (Continued)

transition method. The adoption of ASU 2016-15 did not have an impact on the Company's unaudited condensed consolidated statement of cash flows.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). For public business entities, ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and early adoption is permitted. The FASB issued ASU 2016-02 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. In January 2018, ASU 2016-02 was updated with ASU No. 2018-01, Lease (Topic 842)—Land Easement Practical Expedient for Transition to Topic 842 (ASU 2018-01), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under Topic 840, Leases . An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date that the entity adopts Topic 842. An entity that does not elect this practical expedient should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. In July 2018, ASU 2016-02 was updated with ASU No. 2018-11, Targeted Improvements to ASC 842 , which provides entities with relief from the costs of implementing certain aspects of the new leasing standard. Specifically, under the amendments in ASU 2018-11, (1) entities may elect not to recast the comparative periods presented when transitioning to ASC 842 and (2) lessors may elect not to separate lease and nonlease components when certain conditions are met. Before ASU 2018-11 was issued, transition to the new lease standard required application of the new guidance at the beginning of the earliest comparative period presented in the financial statements. As of September 30, 2018, the Company had approximately $18.5 million of contractual obligations related to its non-cancelable leases and drilling contracts, and it will evaluate those contracts as well as other existing arrangements to determine if they qualify for lease accounting under the new leasing standard. In addition, the Company is implementing an accounting software solution to facilitate compliance with the new lease accounting requirements, as well as continuing to analyze its processes and internal controls surrounding its leases. At this time, the Company cannot reasonably estimate the financial statement impact of the adoption of ASU 2016-02; however, the unaudited condensed consolidated balance sheets will be impacted due to the recognition of right-of-use assets and lease liabilities that are not recognized under the current lease accounting guidance. The Company will adopt ASU 2016-02 on January 1, 2019.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard provides five steps an entity should apply in determining its revenue recognition. In March 2016, ASU 2014-09 was updated with ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08, and collectively with ASU 2014-09, ASC 606), which provides further clarification on the principal versus agent evaluation. The Company adopted ASC 606 effective January 1, 2018 using the modified retrospective approach. See Note 2, " Operating Revenues ," for further details.

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. OPERATING REVENUES

Adoption of ASC 606, Revenue from Contracts with Customers

On January 1, 2018, the Company adopted ASC 606 using the modified retrospective approach applied to all contracts as of the date of adoption. Reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for those periods. The adoption of ASC 606 resulted in offsetting changes to revenues and expenses associated with certain natural gas gathering and processing agreements, and therefore there was no cumulative effect of applying ASC 606 to the opening balance of " Retained earnings (accumulated deficit) ." The net impact of adopting ASC 606 for the three and nine months ended September 30, 2018 was a decrease of $0.2 million and $0.6 million to " Natural gas " and an offsetting decrease of $0.2 million and $0.6 million to " Gathering and other, " respectively, on the unaudited condensed consolidated statements of operations.

These changes result from principal versus agent considerations under ASC 606 for the Company's natural gas gathering and processing arrangements in place with midstream companies. Under contracts where it is determined that control of the natural gas transfers at the wellhead, any fees incurred to gather or process the unprocessed natural gas are a reduction of the sales price of unprocessed natural gas, and therefore revenues from such transactions are presented on a net basis. Under contracts where it is determined that control of the natural gas transfers at the tailgate of the midstream entity's processing plant, the Company is the principal and the midstream entity is the agent in the sale transaction with the third party purchaser of processed commodities. In these instances, revenues are presented on a gross basis for amounts expected to be received from the midstream company or third party purchasers through the gathering and treating process and presented as " Natural gas " or " Natural gas liquids " and any fees incurred to gather or process the natural gas are presented as " Gathering and other ."

Revenue Recognition

Revenue is measured based on consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue. Revenues from the sale of crude oil, natural gas and natural gas liquids are recognized, at a point in time, when a performance obligation is satisfied by the transfer of control of the commodity to the customer. Because the Company's performance obligations have been satisfied and an unconditional right to consideration exists as of the balance sheet date, the Company recognized amounts due from contracts with customers of $37.1 million and $24.1 million as of September 30, 2018 and December 31, 2017, respectively, as "Accounts receivable" on the unaudited condensed consolidated balance sheets.

Substantially all of the Company's revenues are derived from its single basin operations, the Delaware Basin in Pecos, Reeves, Ward and Winkler Counties, Texas. The following table disaggregates the Company's revenues by major product, in order to depict how the nature, timing, and uncertainty

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. OPERATING REVENUES (Continued)

of revenue and cash flows are affected by economic factors in the Company's single basin operations, for the periods indicated (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,

	2018		2017 ⁽¹⁾		2018		2017 ⁽¹⁾
Operating revenues:
Oil, natural gas and natural gas liquids sales:
Oil	$	53,918	$	88,256	$	145,743	$	319,472
Natural gas		1,407		2,886		5,286		15,051
Natural gas liquids		5,920		5,448		14,623		16,779

Total oil, natural gas and natural gas liquids sales		61,245		96,590		165,652		351,302
Other		350		363		613		1,386

Total operating revenues	$	61,595	$	96,953	$	166,265	$	352,688

(1): As noted above, prior period amounts have not been adjusted under the modified retrospective method of adoption.

Oil Sales

The Company generally markets its crude oil production directly to the customer using two methods. Under the first method, crude oil is sold at the wellhead at an index price adjusted for pricing differentials and other deductions. Revenue is recognized at the wellhead, where control of the crude oil transfers to the customer, at the net price received. Under the second method, crude oil is delivered to the customer at a contractual delivery point at which the customer takes custody, title and risk of loss of the product. The Company receives a specified index price from the customer, net of transportation costs and other market-related adjustments. Revenue is recognized when control of the crude oil transfers at the delivery point at the net price received.

Settlement statements for the Company's crude oil production are typically received within the month following the date of production and therefore the amount of production delivered to the customer and the price that will be received for that production are known at the time the revenue is recorded. Payment under the Company's crude oil contracts is typically due on or before the 20 ^th of the month following the delivery month.

Natural Gas and Natural Gas Liquids Sales

The Company evaluates its natural gas gathering and processing arrangements in place with midstream companies to determine when control of the natural gas is transferred. Under contracts where it is determined that control of the natural gas transfers at the wellhead, any fees incurred to gather or process the unprocessed natural gas are treated as a reduction of the sales price of unprocessed natural gas, and therefore revenues from such transactions are presented on a net basis. Under contracts where it is determined that control of the natural gas transfers at the tailgate of the midstream entity's processing plant, revenues are presented on a gross basis for amounts expected to be received from the midstream company or third party purchasers, and therefore any fees incurred to gather or process the natural gas are presented separately as " Gathering and other ."

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. OPERATING REVENUES (Continued)

Under certain contracts, the Company may elect to take its residue gas and/or natural gas liquids in-kind at the tailgate of the midstream entity's processing plant. The Company then sells the products to a customer at contractual delivery points at prices based on an index. In these instances, revenues are presented on a gross basis and any fees incurred to gather, process or transport the commodities are presented separately as " Gathering and other ."

Settlement statements for the Company's natural gas and natural gas liquids production are typically received 30 days after the date of production and therefore the Company estimates the amount of production delivered to the customer and the price that will be received for that production. Historically, differences between the Company's estimates and the actual revenue received have not been material. Payment under the Company's natural gas gathering and processing contracts is typically due on or before the fifth day of the second month following the delivery month.

Concentrations of Credit Risk

The purchasers of the Company's oil and natural gas production consist primarily of independent marketers, major oil and natural gas companies and gas pipeline companies. Historically, the Company has not experienced any significant losses from uncollectible accounts. For the nine months ended September 30, 2018, two individual purchasers of the Company's production, Sunoco, Inc. and Western Refining, Inc., each accounted for more than 10% of total sales, collectively representing 81% of the Company's total sales for the period. In 2017, two individual purchasers of the Company's production, Crestwood Midstream Partners, formerly Arrow Field Services, LLC, and Suncor Energy Marketing, Inc., each accounted for more than 10% of total sales, collectively representing 58% of the Company's total sales for the year.

The Company operates a substantial portion of its oil and natural gas properties. As the operator of a property, the Company makes full payments for costs associated with the property and seeks reimbursement from the other working interest owners in the property for their share of those costs. The Company's joint interest partners consist primarily of independent oil and natural gas producers. If the oil and natural gas exploration and production industry in general was adversely affected, the ability of the Company's joint interest partners to reimburse the Company could be adversely affected.

Practical Expedients

The Company does not disclose the transaction price of unsatisfied performance obligations for i) contracts with an original expected duration of one year or less and ii) contracts where variable consideration is allocated entirely to a wholly unsatisfied performance obligation (each unit of product typically represents a separate performance obligation, and therefore, future volumes under the Company's long-term contracts are wholly unsatisfied).

3. ACQUISITIONS AND DIVESTITURES

Acquisitions

West Quito Draw Properties

On February 6, 2018, a wholly owned subsidiary of the Company entered into a Purchase and Sale Agreement (the Shell PSA) with SWEPI LP (Shell), an affiliate of Shell Oil Company, pursuant to which the Company purchased acreage and related assets in the Delaware Basin located in Ward

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. ACQUISITIONS AND DIVESTITURES (Continued)

County, Texas (the West Quito Draw Properties) for a total adjusted purchase price of $198.5 million. The effective date of the acquisition was February 1, 2018, and the Company closed the transaction on April 4, 2018. The Company funded the cash consideration for the acquisition of the West Quito Draw Properties with the net proceeds from the issuance of the Additional 2025 Notes and common stock, which are discussed in Note 5, " Long-term Debt ," and Note 10, " Stockholders' Equity ," respectively.

Monument Draw Assets (Ward and Winkler Counties, Texas)

On December 9, 2016, the Company entered into an agreement with a private company, pursuant to which the Company acquired the rights to purchase acreage in the Monument Draw area of the Delaware Basin, located in Ward and Winkler Counties, Texas (the Ward County Assets) prospective for the Wolfcamp and Bone Spring formations for an initial purchase price of $11,000 per acre. The Ward County Assets are divided into two tracts (the Southern Tract and the Northern Tract) with separate options for each tract. The agreement was subsequently amended on June 14, 2017 to increase the purchase price of the Southern Tract and the Northern Tract acreage, from $11,000 per acre to $13,000 per acre, for rights to additional depths in the acreage under option. Pursuant to the terms of the agreement, on June 15, 2017, the Company purchased the Southern Tract acreage for approximately $87.4 million and on January 9, 2018, the Company purchased the Northern Tract acreage for approximately $108.2 million.

Acquisition of Additional Properties in Monument Draw (Ward and Winkler Counties, Texas)

On December 13, 2017, the Company acquired undeveloped acreage and related assets in the Delaware Basin, in an area contiguous to the western and southern areas of the Company's existing Monument Draw properties in Ward County, Texas from a private company, for a total adjusted cash purchase price of $101.8 million. The effective date of the acquisition was September 1, 2017.

Hackberry Draw Assets (Pecos and Reeves Counties, Texas)

On January 18, 2017, Halcón Energy Properties, Inc., a wholly owned subsidiary of the Company, entered into a Purchase and Sale Agreement with Samson Exploration, LLC (Samson), pursuant to which it acquired acreage and related assets in the Hackberry Draw area of the Delaware Basin located in Pecos and Reeves Counties, Texas (collectively, the Pecos County Assets), for a total adjusted purchase price of $699.2 million (the Pecos County Acquisition). The Pecos County Acquisition closed on February 28, 2017. The transaction had an effective date of November 1, 2016. The Company funded the Pecos County Acquisition with the net proceeds from the private placement of new 8% automatically convertible preferred stock and borrowings under its Senior Credit Agreement. Refer to Note 10, "Stockholders' Equity," for further discussion of the Company's issuance of the preferred stock.

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. ACQUISITIONS AND DIVESTITURES (Continued)

Pro Forma Impact of Acquisition (Unaudited)

As disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, the acquisition of the Pecos County Assets was accounted for as a business combination in accordance with ASC No. 805, Business Combinations (ASC 805) which, among other things, requires assets acquired and liabilities assumed to be measured at their acquisition date fair values. Certain assets and liabilities may be adjusted as additional information is obtained, but no later than one year from the respective acquisition dates. During the nine months ended September 30, 2018, there were no adjustments to the purchase price of the Pecos County Assets. The purchase price allocation for the Pecos County Assets is complete.

The following unaudited pro forma combined results of operations are provided for the nine months ended September 30, 2017 as though the Pecos County Acquisition had been completed as of the beginning of the comparable prior annual reporting period, or January 1, 2016. The pro forma combined results of operations for the nine months ended September 30, 2017 have been prepared by adjusting the historical results of the Company to include the historical results of the Pecos County Assets. These supplemental pro forma results of operations are provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined company for the period presented or that may be achieved by the combined company in the future. The pro forma results of operations do not include any cost savings or other synergies that resulted, or may result, from the Pecos County Acquisition, or any estimated costs that will be incurred to integrate the Pecos County Assets. Future results may vary significantly from the results reflected in this unaudited pro forma financial information because of future events and transactions, as well as other factors.

The Company's historical financial information was adjusted to give effect to the pro forma events that were directly attributable to the Pecos County Acquisition and that were factually supportable. Adjustments and assumptions made for this pro forma calculation are consistent with those used in the Company's annual pro forma information, as more fully described in Item 8. Consolidated Financial Statements and Supplementary Data— Note 5, " Acquisitions and Divestitures ," to the Company's Annual Report on Form 10-K for the year ended December 31, 2017. Amounts included in the table below are rounded to thousands, except per share amounts.

	Nine Months Ended September 30, 2017

	(Unaudited)
Revenue	$	360,590
Net income (loss)		635,854
Net income (loss) available to common stockholders		587,847
Pro forma net income (loss) per share of common stock:
Basic	$	4.61
Diluted	$	4.58

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. ACQUISITIONS AND DIVESTITURES (Continued)

Divestitures

Williston Basin Non-Operated Assets

On September 19, 2017, certain wholly owned subsidiaries of the Company entered into an agreement with a privately-owned company pursuant to which the Company sold its non-operated properties and related assets located in the Williston Basin in North Dakota and Montana (the Non-Operated Williston Assets) for a total adjusted sales price of $103.4 million. The effective date of the transaction was April 1, 2017 and the transaction closed on November 9, 2017. Proceeds from the sale were recorded as a reduction to the carrying value of the Company's full cost pool with no gain or loss recorded.

Williston Basin Operated Assets

On July 10, 2017, the Company and certain of its subsidiaries entered into an agreement with Bruin Williston Holdings, LLC for the sale of all of the Company's operated oil and natural gas leases, oil and natural gas wells and related assets located in the Williston Basin in North Dakota, as well as 100% of the membership interests in two of its subsidiaries (the Williston Assets) for a total adjusted sales price of approximately $1.4 billion (the Williston Divestiture). The effective date of the sale was June 1, 2017 and the transaction closed on September 7, 2017. The Company used the net proceeds from the sale to repay borrowings outstanding under its Senior Credit Agreement, repurchase approximately $425.0 million principal amount of the then outstanding $850.0 million principal amount of its 6.75% senior notes, redeem all of its outstanding 12% senior secured second lien notes and for general corporate purposes.

The net proceeds from the sale were allocated between the Company's oil and natural gas properties, other operating property and equipment and liabilities transferred on a fair value basis. Approximately $1.39 billion was allocated to the Company's oil and natural gas properties and approximately $10.9 million was allocated to other operating property and equipment.

As discussed further in Note 4, " Oil and Natural Gas Properties ," the Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, sales of oil and gas properties are accounted for as adjustments to capitalized costs with no gain or loss recognized, unless the adjustment significantly alters the relationship between capitalized costs and proved reserves. If the Williston Divestiture was accounted for as an adjustment of capitalized costs with no gain or loss recognized, the adjustment would have significantly altered the relationship between capitalized costs and proved reserves. Accordingly, the Company recognized a gain on the sale of the Williston Assets of $485.9 million during the year ended December 31, 2017. This gain was reduced by $7.2 million during the nine months ended September 30, 2018 as the result of customary post-closing adjustments. The carrying value of the properties sold was determined by allocating total capitalized costs within the full cost pool between properties sold and properties retained based on their relative fair values. The gain (loss) was recorded in "Gain (loss) on sale of oil and natural gas properties," on the Company's unaudited condensed consolidated statements of operations.

East Texas Eagle Ford Assets

On January 24, 2017, certain of the Company's subsidiaries entered into an agreement with a subsidiary of Hawkwood Energy, LLC (Hawkwood) for the sale of all of its oil and natural gas

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. ACQUISITIONS AND DIVESTITURES (Continued)

properties and related assets located in the Eagle Ford formation of East Texas (the El Halcón Assets) for a total adjusted sales price of $491.1 million (the El Halcón Divestiture). The effective date of the sale was January 1, 2017 and the transaction closed on March 9, 2017. The Company used the net proceeds from the sale to repay borrowings outstanding under its Senior Credit Agreement and for general corporate purposes.

The net proceeds from the sale were allocated between the Company's oil and natural gas properties, other operating property and equipment and liabilities transferred on a fair value basis. Approximately $484.1 million was allocated to the Company's oil and natural gas properties and $10.2 million was allocated to other operating property and equipment.

Under the full cost method of accounting, sales of oil and gas properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless the adjustment significantly alters the relationship between capitalized costs and proved reserves. If the El Halcón Divestiture was accounted for as an adjustment of capitalized costs with no gain or loss recognized, the adjustment would have significantly altered the relationship between capitalized costs and proved reserves. Accordingly, the Company recognized a gain on the sale of $235.7 million during the year ended December 31, 2017. The carrying value of the properties sold was determined by allocating total capitalized costs within the full cost pool between properties sold and properties retained based on their relative fair values. The gain was recorded in "Gain (loss) on sale of oil and natural gas properties," on the Company's unaudited condensed consolidated statements of operations.

4. OIL AND NATURAL GAS PROPERTIES

The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas reserves (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred. To the extent capitalized costs of evaluated oil and natural gas properties, net of accumulated depletion, exceed the discounted future net revenues of proved oil and natural gas reserves, net of deferred taxes, such excess capitalized costs are charged to expense.

Additionally, the Company assesses all properties classified as unevaluated property on a quarterly basis for possible impairment or reduction in value. The Company assesses properties on an individual basis or as a group, if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and the full cost ceiling test limitation.

At September 30, 2018, the ceiling test value of the Company's reserves was calculated based on the first-day-of-the-month average for the 12-months ended September 30, 2018 of the West Texas Intermediate (WTI) crude oil spot price of $63.43 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for the 12-months ended September 30, 2018 of the Henry Hub natural gas price of $2.91 per million British

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. OIL AND NATURAL GAS PROPERTIES (Continued)

thermal units (MMBtu), adjusted by lease or field for energy content, transportation fees, and regional price differentials. Using these prices, the Company's net book value of oil and natural gas properties at September 30, 2018 did not exceed the ceiling amount.

At September 30, 2017, the ceiling test value of the Company's reserves was calculated based on the first-day-of-the-month average for the 12-months ended September 30, 2017 of the WTI crude oil spot price of $49.81 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for the 12-months ended September 30, 2017 of the Henry Hub natural gas price of $3.00 per MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials. Using these prices, the Company's net book value of oil and natural gas properties at September 30, 2017 did not exceed the ceiling amount.

Changes in commodity prices, production rates, levels of reserves, future development costs, transfers of unevaluated properties, capital spending, and other factors will determine the Company's ceiling test calculations and impairment analyses in future periods.

5. LONG-TERM DEBT

Long-term debt as of September 30, 2018 and December 31, 2017 consisted of the following (in thousands):

	September 30, 2018		December 31, 2017

Senior revolving credit facility	$	55,000	$	—
6.75% senior notes due 2025 ⁽¹⁾		612,726		409,168

	$	667,726	$	409,168

(1): On February 15, 2018, the Company issued an additional $200.0 million aggregate principal amount of its 2025 Notes at 103.0% of par. Amount includes a $7.4 million and $8.1 million unamortized discount at September 30, 2018 and December 31, 2017, respectively, associated with the 2025 Notes. Amount includes a $5.6 million unamortized premium at September 30, 2018, associated with the Additional 2025 Notes. Additionally, these amounts are net of $10.4 million and $7.7 million unamortized debt issuance costs at September 30, 2018 and December 31, 2017, respectively. Refer to "6.75% Senior Notes" below for further details.

Senior Revolving Credit Facility

On September 7, 2017, the Company entered into an Amended and Restated Senior Secured Revolving Credit Agreement (the Senior Credit Agreement) by and among the Company, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and certain other financial institutions party thereto, as lenders. Pursuant to the Senior Credit Agreement, the lenders party thereto have agreed to provide the Company with a $1.0 billion senior secured reserve-based revolving credit facility with a current borrowing base of $200.0 million. The maturity date of the Senior Credit Agreement is September 7, 2022. The borrowing base will be redetermined semi-annually, with the lenders and the Company each having the right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations. The borrowing base takes into account the estimated value of the Company's oil and natural gas properties, proved reserves, total indebtedness, and other relevant

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. LONG-TERM DEBT (Continued)

factors consistent with customary oil and natural gas lending criteria. Amounts outstanding under the Senior Credit Agreement bear interest at specified margins over the base rate of 1.25% to 2.25% for ABR-based loans or at specified margins over LIBOR of 2.25% to 3.25% for Eurodollar-based loans. These margins fluctuate based on the Company's utilization of the facility. The Company may elect, at its option, to prepay any borrowings outstanding under the Senior Credit Agreement without premium or penalty (except with respect to any break funding payments which may be payable pursuant to the terms of the Senior Credit Agreement). Amounts outstanding under the Senior Credit Agreement are guaranteed by certain of the Company's direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of the Company and its subsidiaries.

The Senior Credit Agreement also contains certain financial covenants, including the maintenance of (i) a Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit Agreement), which was recently revised by the Consent and Fifth Amendment, as discussed below, and (ii) a Current Ratio (as defined in the Senior Credit Agreement) not to be less than 1.00 to 1.00.

The Senior Credit Agreement also contains certain events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy.

At September 30, 2018, under the then effective borrowing base of $200.0 million, the Company had $55.0 million of indebtedness outstanding, approximately $1.6 million letters of credit outstanding and approximately $143.4 million of borrowing capacity available under the Senior Credit Agreement.

On November 7, 2018, the Company entered into the Fifth Amendment (the Fifth Amendment) to the Senior Credit Agreement which, among other things, provided for (i) the use of annualized financial data in determining EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarters ending September 30, 2018, December 31, 2018, March 31, 2019, June 30, 2019 and September 30, 2019 and (ii) amended the ratio of Consolidated Total Net Debt (as defined in the Senior Credit Agreement) to EBITDA of (a) 4.75 to 1.0 for the fiscal quarter ending September 30, 2018, (b) 4.25 to 1.0 for the fiscal quarter ending December 31, 2018 and (c) 4.0 to 1.0 for the fiscal quarter ending March 31, 2019 and any fiscal quarter thereafter.

On November 6, 2018, the lenders party to the Senior Credit Agreement issued a consent (the Consent) to the Company whereby H2S Expenses (as defined in the Consent) may exceed the maximum level allowed for adding back non-recurring expenses and charges in the definition of EBITDA (as defined in the Senior Credit Agreement) when calculating the ratio of Consolidated Total Net Debt to EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarters ending September 30, 2018, December 31, 2018 and March 31, 2019.

On July 12, 2018, the Company entered into the Fourth Amendment (the Fourth Amendment) to the Senior Credit Agreement which provided for an increase in the ratio of Consolidated Total Net Debt (as defined in the Senior Credit Agreement) to EBITDA (as defined in the Senior Credit Agreement) of (i) 4.75 to 1.0 for the fiscal quarter ending September 30, 2018, (ii) 5.0 to 1.0 for the fiscal quarters ending December 31, 2018, March 31, 2019 and June 30, 2019, (iii) 4.25 to 1.0 for the fiscal quarter ending September 30, 2019 and (iv) 4.0 to 1.0 for the fiscal quarter ending December 31, 2019 and any fiscal quarter thereafter; provided, however, that if the Company consummates a sale of all or a material portion of its midstream assets, then the ratio of Consolidated Total Net Debt to

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. LONG-TERM DEBT (Continued)

EBITDA shall be reduced to 4.0 to 1.0 for each fiscal quarter ending after the fiscal quarter in which such sale is consummated.

On May 1, 2018, the Company entered into the Third Amendment (the Third Amendment) to the Senior Credit Agreement which provided for an assignment and reallocation of the Maximum Credit Amounts (as defined in the Senior Credit Agreement) among certain of the lender financial institutions. The Third Amendment did not adjust the aggregate Maximum Credit Amounts, which remain at $1.0 billion.

On February 2, 2018, the Company entered into the Second Amendment (the Second Amendment) to the Senior Credit Agreement by and among the Company, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and certain other financial institutions party thereto, as lenders. The Second Amendment among other things, provided for (i) the use of annualized financial data in determining EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarters ending June 30, 2018, September 30, 2018 and December 31, 2018, (ii) an increase in the ratio of Consolidated Total Net Debt (as defined in the Senior Credit Agreement) to EBITDA of 4.50 to 1.00 for the fiscal quarter ending June 30, 2018, and a ratio of 4.00 to 1.00 for any fiscal quarter thereafter, (iii) a waiver of compliance with the covenant relating to the Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit Agreement) for the fiscal quarter ending March 31, 2018, and (iv) a waiver of the automatic reduction to the borrowing base that would otherwise result due to the issuance of the Additional 2025 Notes (defined below).

After giving effect to the Consent and the Fifth Amendment, at September 30, 2018, the Company was in compliance with the financial covenants under the Senior Credit Agreement.

6.75% Senior Notes

On February 16, 2017, the Company issued $850.0 million aggregate principal amount of new 6.75% senior unsecured notes due 2025 (the 2025 Notes) in a private placement exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (Securities Act), Rule 144A and Regulation S, and applicable state securities laws. The 2025 Notes were issued at par and bear interest at a rate of 6.75% per annum, payable semi-annually on February 15 and August 15 of each year. The 2025 Notes will mature on February 15, 2025. Proceeds from the private placement were approximately $834.1 million after deducting initial purchasers' discounts and commissions and offering expenses. The Company used a portion of the net proceeds from the private placement to fund the repurchase and redemption of the then outstanding 8.625% senior secured second lien notes due 2020 (the 2020 Second Lien Notes) and for general corporate purposes. Upon repurchase and redemption of the 2020 Second Lien Notes during the three months ended March 31, 2017, the Company recorded a loss on extinguishment of debt of approximately $56.9 million, representing a $30.9 million loss on the repurchase for the tender premium paid and a $26.0 million loss on the write-off of the discount on the notes.

The 2025 Notes are governed by an Indenture, dated as of February 16, 2017 (the February 2017 Indenture) by and among the Company, the Guarantors and U.S. Bank National Association, as Trustee, which contains affirmative and negative covenants that, among other things, limit the ability of the Company and the Guarantors to incur indebtedness; purchase or redeem stock or subordinated indebtedness; make investments; create liens; enter into transactions with affiliates; sell assets; refinance certain indebtedness; merge with or into other companies or transfer substantially all of their assets;

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. LONG-TERM DEBT (Continued)

and, in certain circumstances, to pay dividends or make other distributions on stock. The February 2017 Indenture also contains customary events of default. Upon the occurrence of certain events of default, the Trustee or the holders of the 2025 Notes may declare all outstanding 2025 Notes to be due and payable immediately. The 2025 Notes are jointly and severally, fully and unconditionally guaranteed on a senior unsecured basis by the Company's existing wholly-owned subsidiaries. Halcón, the issuer of the 2025 Notes, has no material independent assets or operations apart from the assets and operations of its subsidiaries.

In connection with the sale of the 2025 Notes, on February 16, 2017, the Company, the Guarantors and J.P. Morgan Securities LLC, on behalf of itself and as representative of the initial purchasers, entered into a Registration Rights Agreement (the 2017 Registration Rights Agreement) pursuant to which the Company agreed to, among other things, use reasonable best efforts to file a registration statement under the Securities Act and complete an exchange offer for the 2025 Notes within 365 days after closing. The Company filed the registration statement on November 1, 2017 and it was declared effective by the SEC on December 21, 2017. In addition, the Company completed the exchange offer for the 2025 Notes on February 1, 2018.

On July 25, 2017, the Company concluded a consent solicitation of the holders of the 2025 Notes (the Consent Solicitation) and obtained consents to amend the February 2017 Indenture from approximately 99% of the holders of the 2025 Notes. As supplemented, the February 2017 Indenture amends provisions in order to exempt, among other things, the Williston Divestiture from certain provisions therein triggered upon a sale of "all or substantially all of the assets" of the Company. Consenting holders of the 2025 Notes received a consent fee of 2.0% of principal, or $16.9 million. The Company recorded the $16.9 million consent fees paid as a discount on the 2025 Notes.

On September 7, 2017, the Company commenced an offer to purchase for cash up to $425.0 million of the $850.0 million outstanding aggregate principal amount of its 2025 Notes at 103.0% of principal plus accrued and unpaid interest. The consummation of the Williston Divestiture constituted a "Williston Sale" under the February 2017 Indenture, and the Company was required to make an offer to all holders of the 2025 Notes to purchase for cash an aggregate principal amount up to $425.0 million of the 2025 Notes. The offer to purchase expired on October 6, 2017, with notes representing in excess of $425.0 million of principal amount validly tendered. As a result, on October 10, 2017, the Company repurchased approximately $425.0 million principal amount of the 2025 Notes on a pro rata basis at 103.0% of par plus accrued and unpaid interest of approximately $4.1 million.

On February 15, 2018, the Company issued an additional $200.0 million aggregate principal amount of its 2025 Notes at a price to the initial purchasers of 103.0% of par (the Additional 2025 Notes). The Additional 2025 Notes were issued in a private placement exempt from registration under the Securities Act pursuant to Rule 144A and Regulation S under the Securities Act and applicable state securities laws. The net proceeds from the sale of the Additional 2025 Notes were approximately $202.4 million after initial purchasers' premiums and deducting commissions and offering expenses and were used to fund the cash consideration for the acquisition of the West Quito Draw Properties, discussed further in Note 3, "Acquisitions and Divestitures," and for general corporate purposes, including to fund the Company's 2018 drilling program. These notes were issued under the February 2017 Indenture.

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. LONG-TERM DEBT (Continued)

The Additional 2025 Notes are treated as a single class with, and have the same terms as, the 2025 Notes, except that the Additional 2025 Notes will initially be subject to transfer restrictions and have the benefit of certain registration rights and provisions for the payment of additional interest in the event of a breach with respect to such registration rights pursuant to the terms of a Registration Rights Agreement, entered into on February 15, 2018 (the 2018 Registration Rights Agreement). Pursuant to the 2018 Registration Rights Agreement the Company agreed to, among other things, use reasonable best efforts to file a registration statement under the Securities Act and complete an exchange offer for the 2025 Notes within 180 days after closing. The Company filed the registration statement on March 20, 2018 and it was declared effective by the SEC on April 9, 2018. In addition, the Company completed the exchange offer for the Additional 2025 Notes on May 17, 2018.

The remaining unamortized discount on the 2025 Notes was $7.4 million at September 30, 2018. The unamortized premium on the Additional 2025 Notes was $5.6 million at September 30, 2018.

Debt Issuance Costs

The Company capitalizes certain direct costs associated with the issuance of debt and amortizes such costs over the lives of the respective debt. During the nine months ended September 30, 2018, the Company capitalized approximately $3.9 million of debt issuance costs related to the Senior Credit Agreement and the Additional 2025 Notes. At September 30, 2018 and December 31, 2017, the Company had approximately $11.2 million and $8.3 million, respectively, of unamortized debt issuance costs. The debt issuance costs for the Company's Senior Credit Agreement are presented in "Funds in escrow and other " and the debt issuance costs for the Company's senior unsecured debt are presented in " Long-term debt, net" on the unaudited condensed consolidated balance sheets.

6. FAIR VALUE MEASUREMENTS

Pursuant to ASC 820, Fair Value Measurements (ASC 820), the Company's determination of fair value incorporates not only the credit standing of the counterparties involved in transactions with the Company resulting in receivables on the Company's unaudited condensed consolidated balance sheets, but also the impact of the Company's nonperformance risk on its own liabilities. ASC 820 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 (exit price). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs.

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. FAIR VALUE MEASUREMENTS (Continued)

As required by ASC 820, a financial instrument's level within the fair value hierarchy is 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 fair value assets and liabilities and their placement within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for any period presented. The following tables set forth by level within the fair value hierarchy the Company's financial assets and liabilities that were accounted for at fair value as of September 30, 2018 and December 31, 2017 (in thousands):

	September 30, 2018

	Level 1		Level 2		Level 3		Total
Assets
Receivables from derivative contracts	$	—	$	19,347	$	—	$	19,347



Liabilities
Liabilities from derivative contracts	$	—	$	123,635	$	—	$	123,635

	December 31, 2017

	Level 1		Level 2		Level 3		Total
Assets
Receivables from derivative contracts	$	—	$	677	$	—	$	677



Liabilities
Liabilities from derivative contracts	$	—	$	26,999	$	—	$	26,999

Derivative contracts listed above as Level 2 include collars, puts, calls, swaps and basis swaps that are carried at fair value. The Company records the net change in the fair value of these positions in "Net gain (loss) on derivative contracts" on the unaudited condensed consolidated statements of operations. The Company is able to value the assets and liabilities based on observable market data for similar instruments, which resulted in the Company reporting its derivatives as Level 2. This observable data includes the forward curves for commodity prices based on quoted market prices and implied volatility factors related to changes in the forward curves. See Note 7, "Derivative and Hedging Activities," for additional discussion of derivatives.

The Company's derivative contracts are with major financial institutions with investment grade credit ratings which are believed to have minimal credit risk. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts; however, the Company does not anticipate such nonperformance.

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of ASC 825, Financial Instruments . The estimated fair value amounts have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash and cash equivalents, accounts receivables and accounts payables approximate their carrying value due to their short-term nature. The estimated fair value of the Company's Senior Credit Agreement approximates carrying value because the interest rates approximate current market rates. The following table presents

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. FAIR VALUE MEASUREMENTS (Continued)

the estimated fair values of the Company's fixed interest rate debt instruments as of September 30, 2018 and December 31, 2017 (excluding discounts, premiums and debt issuance costs) (in thousands):

	September 30, 2018				December 31, 2017

Debt	Principal Amount		Estimated Fair Value		Principal Amount		Estimated Fair Value
6.75% senior notes	$	625,005	$	600,005	$	425,005	$	443,790

The fair value of the Company's fixed interest rate debt instruments was calculated using Level 1 criteria. The fair value of the Company's senior notes is based on quoted market prices from trades of such debt.

The Company follows the provisions of ASC 820 for nonfinancial assets and liabilities measured at fair value on a non-recurring basis. These provisions apply to the Company's initial recognition of asset retirement obligations for which fair value is used. The asset retirement obligation estimates are derived from historical costs and management's expectation of future cost environments; consequently, the Company has designated these liabilities as Level 3. See Note 8, " Asset Retirement Obligations ," for a reconciliation of the beginning and ending balances of the liability for the Company's asset retirement obligations.

7. DERIVATIVE AND HEDGING ACTIVITIES

The Company is exposed to certain risks relating to its ongoing business operations, such as commodity price risk and interest rate risk. Derivative contracts are utilized to hedge the Company's exposure to price fluctuations and reduce the variability in the Company's cash flows associated with anticipated sales of future oil, natural gas and natural gas liquids production. When derivative contracts are available at terms (or prices) acceptable to the Company, it generally hedges a substantial, but varying, portion of anticipated oil, natural gas and natural gas liquids production for future periods. Derivatives are carried at fair value on the unaudited condensed consolidated balance sheets as assets or liabilities, with changes in the fair value included in the unaudited condensed consolidated statements of operations for the period in which the change occurs. The Company's hedge policies and objectives may change significantly as its operational profile changes and/or commodities prices change. The Company does not enter into derivative contracts for speculative trading purposes.

It is the Company's policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions determined by management as competent and competitive market makers. The Company did not post collateral under any of its derivative contracts as they are secured under the Company's Senior Credit Agreement or are uncollateralized trades.

The Company's crude oil, natural gas and natural gas liquids derivative positions at any point in time generally consist of swaps, basis swaps and costless put/call "collars." Swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for crude oil and natural gas. Basis swaps effectively lock in a price differential between regional prices (i.e. Midland) and the relevant price index at which the oil production is sold (i.e. Cushing). A costless collar consists of a sold call, which establishes a maximum price the Company will receive for the volumes under contract and a purchased put that establishes a minimum price. The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, the Company

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. DERIVATIVE AND HEDGING ACTIVITIES (Continued)

records the net change in the mark-to-market valuation of these derivative contracts, as well as payments and receipts on settled derivative contracts, in "Net gain (loss) on derivative contracts" on the unaudited condensed consolidated statements of operations.

At September 30, 2018, the Company had 85 open commodity derivative contracts summarized in the following tables: eight natural gas collar arrangements, seven natural gas basis swaps, eight natural gas liquids swaps, 25 crude oil basis swaps, 31 crude oil collar arrangements two crude oil puts, three crude oil calls, and one crude oil WTI NYMEX roll.

At December 31, 2017, the Company had 34 open commodity derivative contracts summarized in the following tables: three natural gas collar arrangements, 12 crude oil basis swaps and 19 crude oil collar arrangements.

All derivative contracts are recorded at fair market value in accordance with ASC 815, Derivatives and Hedging (ASC 815) and ASC 820 and included in the unaudited condensed consolidated balance sheets as assets or liabilities. The following table summarizes the location and fair value amounts of all derivative contracts in the unaudited condensed consolidated balance sheets (in thousands):

		Asset derivative contracts					Liability derivative contracts

Derivatives not designated as hedging contracts under ASC 815	Balance sheet location	September 30, 2018 *⁽¹⁾*		December 31, 2017		Balance sheet location	September 30, 2018 *⁽²⁾*			December 31, 2017
Commodity contracts	Current assets—receivables from derivative contracts	$	16,553	$	677	Current liabilities—liabilities from derivative contracts	$	(86,176	)	$	(19,248	)
Commodity contracts	Other noncurrent assets—receivables from derivative contracts		2,794		—	Other noncurrent liabilities—liabilities from derivative contracts		(37,459	)		(7,751	)

Total derivatives not designated as hedging contracts under ASC 815		$	19,347	$	677		$	(123,635	)	$	(26,999	)

(1): Amount includes a $0.7 million deferred premium asset classified all as current as of September 30, 2018.
(2): Amount includes a $4.7 million deferred premium obligation of which $0.3 million was classified as current as of September 30, 2018.

The following table summarizes the location and amounts of the Company's realized and unrealized gains and losses on derivative contracts in the Company's unaudited condensed consolidated statements of operations (in thousands):

		Amount of gain or (loss) recognized in income on derivative contracts for the						Amount of gain or (loss) recognized in income on derivative contracts for the

		Three Months Ended September 30,						Nine Months Ended September 30,
	Location of gain or (loss) recognized in income on derivative contracts	Three Months Ended September 30,						Nine Months Ended September 30,
Derivatives not designated as hedging contracts under ASC 815		2018			2017			2018			2017
Commodity contracts:
Unrealized gain (loss) on commodity contracts	Other income (expenses)—net gain (loss) on derivative contracts	$	(50,763	)	$	(31,209	)	$	(77,524	)	$	11,010
Realized gain (loss) on commodity contracts	Other income (expenses)—net gain (loss) on derivative contracts		(9,643	)		8,794			10,921			17,129

Total net gain (loss) on derivative contracts		$	(60,406	)	$	(22,415	)	$	(66,603	)	$	28,139

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. DERIVATIVE AND HEDGING ACTIVITIES (Continued)

At September 30, 2018 and December 31, 2017, the Company had the following open crude oil, natural gas and natural gas liquids derivative contracts:

			September 30, 2018

						Floors			Ceilings			Basis Differential
Period	Instrument	Commodity	Volume in Mmbtu's/ Bbl's			Price / Price Range	Weighted Average Price		Price / Price Range	Weighted Average Price		Price / Price Range	Weighted Average Price
October 2018 - December 2018	Basis Swap	Crude Oil		1,012,000		$—	$	—	$—	$	—	$(6.90) - $(12.50)	$	(10.64	)
October 2018 - December 2018	Basis Swap	Natural Gas		1,380,000								(1.05) - (1.19)		(1.10	)
October 2018 - December 2018	Collars	Crude Oil		1,196,000		45.00 - 55.80		50.08	50.00 - 63.00		56.87
October 2018 - December 2018	Collars	Natural Gas		690,000		3.00 - 3.03		3.01	3.22 - 3.38		3.30
October 2018 - December 2018	Calls	Crude Oil		1,196,000					59.00 - 63.00		59.92
October 2018 - December 2018	Calls	Crude Oil		(1,196,000	)				50.00 - 63.00		56.87
October 2018 - December 2018	Swap	Natural Gas Liquids		92,000		32.50		32.50
October 2018 - December 2018	WTI NYMEX Roll	Crude Oil		460,000								0.35		0.35
January 2019 - March 2019	Collars	Crude Oil		90,000		46.75		46.75	51.75		51.75
January 2019 - June 2019	Basis Swap	Crude Oil		543,000								(1.15) - (1.33)		(1.22	)
January 2019 - September 2019	Basis Swap	Crude Oil		546,000								(6.20) - (7.60)		(6.90	)
January 2019 - December 2019	Basis Swap	Crude Oil		2,365,000								(0.98) - (6.50)		(3.73	)
January 2019 - December 2019	Basis Swap	Natural Gas		9,307,500								(1.05) - (1.40)		(1.18	)
January 2019 - December 2019	Collars	Crude Oil		5,110,000		50.00 - 58.00		53.12	55.00 - 63.00		58.98
January 2019 - December 2019	Collars	Natural Gas		8,395,000		2.52 - 2.65		2.60	3.00 - 3.03		3.01
January 2019 - December 2019	Swap	Natural Gas Liquids		1,460,000		29.08 - 30.15		29.33
January 2019 - December 2019	WTI NYMEX Roll	Crude Oil		1,825,000								0.35		0.35
April 2019 - December 2019	Collars	Crude Oil		275,000		55.00		55.00	62.85		62.85
July 2019 - December 2019	Collars	Crude Oil		184,000		55.00		55.00	69.00		69.00
October 2019 - December 2019	Basis Swap	Crude Oil		368,000								3.45 - 3.75		3.65
October 2019 - December 2019	Swap	Natural Gas Liquids		92,000		32.50		32.50
January 2020 - December 2020	Basis Swap	Crude Oil		2,928,000								2.00 - 3.75		2.82
January 2020 - December 2020	Collars	Crude Oil		549,000		50.00		50.00	70.00		70.00
January 2020 - December 2020	Calls	Crude Oil		1,464,000					70.00		70.00
January 2020 - December 2020	Puts	Crude Oil		915,000		55.00		55.00
January 2020 - December 2020	Swap	Natural Gas Liquids		732,000		31.00		31.00

			December 31, 2017

					Floors			Ceilings			Basis Differential
Period	Instrument	Commodity	Volume in Mmbtu's/ Bbl's		Price / Price Range	Weighted Average Price		Price / Price Range	Weighted Average Price		Price / Price Range	Weighted Average Price
January 2018 - December 2018	Basis Swap	Crude Oil		2,555,000	$—	$	—	$—	$	—	$(1.05) - $(1.50)	$	(1.29	)
January 2018 - December 2018	Collars	Crude Oil		2,920,000	45.00 - 53.00		49.29	50.00 - 60.00		56.82
January 2018 - December 2018	Collars	Natural Gas		2,737,500	3.00 - 3.03		3.01	3.22 - 3.38		3.30
April 2018 - December 2018	Basis Swap	Crude Oil		275,000							(1.15)		(1.15	)
April 2018 - December 2018	Collars	Crude Oil		275,000	46.75		46.75	51.75		51.75
July 2018 - December 2018	Basis Swap	Crude Oil		1,012,000							(0.98) - (1.18)		(1.12	)
July 2018 - December 2018	Collars	Crude Oil		184,000	48.50		48.50	53.50		53.50
October 2018 - December 2018	Collars	Crude Oil		92,000	50.65		50.65	55.65		55.65
January 2019 - March 2019	Collars	Crude Oil		90,000	46.75		46.75	51.75		51.75
January 2019 - December 2019	Basis Swap	Crude Oil		4,380,000							(0.50) - (1.33)		(1.02	)
January 2019 - December 2019	Collars	Crude Oil		1,825,000	50.00 - 51.00		50.24	55.00 - 57.30		55.70

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. DERIVATIVE AND HEDGING ACTIVITIES (Continued)

The Company presents the fair value of its derivative contracts at the gross amounts in the unaudited condensed consolidated balance sheets. The following table shows the potential effects of master netting arrangements on the fair value of the Company's derivative contracts (in thousands):

	Derivative Assets						Derivative Liabilities

Offsetting of Derivative Assets and Liabilities	September 30, 2018			December 31, 2017			September 30, 2018			December 31, 2017
Gross Amounts Presented in the Consolidated Balance Sheet	$	19,347		$	677		$	(123,635	)	$	(26,999	)
Amounts Not Offset in the Consolidated Balance Sheet		(18,040	)		(231	)		18,040			231

Net Amount	$	1,307		$	446		$	(105,595	)	$	(26,768	)

The Company enters into an International Swap Dealers Association Master Agreement (ISDA) with each counterparty prior to a derivative contract with such counterparty. The ISDA is a standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.

8. ASSET RETIREMENT OBLIGATIONS

The Company records an asset retirement obligation (ARO) on oil and natural gas properties when it can reasonably estimate the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon costs. For other operating property and equipment, the Company records an ARO when the system is placed in service and it can reasonably estimate the fair value of an obligation to perform site reclamation and other necessary work when it is required. The Company records the ARO liability on the unaudited condensed consolidated balance sheets and capitalizes a portion of the cost in " Oil and natural gas properties " or " Other operating property and equipment " during the period in which the obligation is incurred. The Company records the accretion of its ARO liabilities in " Depletion, depreciation and accretion " expense in the unaudited condensed consolidated statements of operations. The additional capitalized costs are depreciated on a unit-of-production basis or straight-line basis.

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. ASSET RETIREMENT OBLIGATIONS (Continued)

The Company recorded the following activity related to its ARO liability (in thousands, inclusive of the current portion):


Liability for asset retirement obligations as of December 31, 2017	$	4,368
Liabilities settled and divested		(110	)
Additions		796
Acquisitions ⁽¹⁾		2,465
Accretion expense		225
Revisions in estimated cash flows		(632	)

Liability for asset retirement obligations as of September 30, 2018	$	7,112

(1): See Note 3, "Acquisitions and Divestitures," for additional information on the Company's acquisition and divestiture activities.

9. COMMITMENTS AND CONTINGENCIES

Commitments

The Company leases corporate office space in Houston, Texas and Denver, Colorado. Rent expense was approximately $2.8 million and $3.0 million for the nine months ended September 30, 2018 and 2017, respectively. Future obligations associated with the Company's operating leases are presented in the table below (in thousands):


Remaining period in 2018	$	846
2019		2,990
2020		1,811
2021		1,497
2022		835
Thereafter		1,345

Total	$	9,324

As of September 30, 2018, the Company has the following active drilling rig commitments (in thousands):


Remaining period in 2018	$	4,419
2019		4,726
2020		—
2021		—
2022		—
Thereafter		—

Total	$	9,145

As of September 30, 2018, termination of the Company's active drilling rig commitments would require early termination penalties of $8.2 million, which would be in lieu of paying the remaining active commitments of $9.1 million.

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. COMMITMENTS AND CONTINGENCIES (Continued)

In past years, with the sustained decline in crude oil prices, the Company stacked certain drilling rigs and amended previously entered into drilling rig contracts. In connection with the early termination of a drilling contract from 2015, if certain requirements are not met by January 12, 2020, the Company may incur an additional $3.0 million. Rig stacking fees are expensed as incurred within "Gathering and other" on the unaudited condensed consolidated statements of operations and are not included in the table above.

In September 2018, the Company entered into a purchase agreement for certain natural gas treating equipment totaling approximately $13.3 million. As of September 30, 2018, the Company's remaining commitment is approximately $9.8 million and is expected to be incurred by March 31, 2019.

The Company has entered into various long-term gathering, transportation and sales contracts with respect to its oil and natural gas production from the Delaware Basin in West Texas. As of September 30, 2018, the Company had in place three long-term crude oil contracts and eleven long-term natural gas contracts in this area and the sales price under these contracts are based on posted market rates. Under the terms of these contracts, the Company has committed a substantial portion of its production from this area for periods ranging from one to twenty years from the date of first production.

Contingencies

From time to time, the Company may be a plaintiff or defendant in a pending or threatened legal proceeding arising in the normal course of its business. While the outcome and impact of currently pending legal proceedings cannot be determined, the Company's management and legal counsel believe that the resolution of these proceedings through settlement or adverse judgment will not have a material effect on the Company's unaudited condensed consolidated operating results, financial position or cash flows.

10. STOCKHOLDERS' EQUITY

Preferred Stock and Non-Cash Preferred Stock Dividend

On January 24, 2017 (the Commitment Date), the Company entered into a stock purchase agreement with certain accredited investors to sell, in a private placement exempt from registration requirements of the Securities Act pursuant to Section 4(a)(2), approximately 5,518 shares of 8% Automatically Convertible Preferred Stock, par value $0.0001 per share (the Preferred Stock), each share of which was convertible into 10,000 shares of common stock. Also on January 24, 2017, the Company received an executed written consent in lieu of a stockholders' meeting authorizing and approving the conversion of the Preferred Stock into common stock. On February 27, 2017, the Company filed with the Delaware Secretary of State a Certificate of Designation, Preferences, Rights and Limitations of the Preferred Stock (the Certificate of Designation), which created the series of preferred stock issued by the Company on that same date. The Company issued the Preferred Stock at $72,500 per share. Gross proceeds were approximately $400.1 million, or $7.25 per share of common stock. The Company incurred approximately $11.9 million in expenses associated with this offering, including placement agent fees. On March 16, 2017, the Company mailed a definitive information statement to its common stockholders notifying them that a majority of its stockholders had consented to the issuance of common stock, par value $0.0001 per share, upon the conversion of the Preferred Stock. The Preferred Stock automatically converted into 55.2 million shares of common stock on

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. STOCKHOLDERS' EQUITY (Continued)

April 6, 2017 in accordance with the terms of the Certificate of Designation. No cash dividends were paid on the Preferred Stock since, pursuant to the terms of the Certificate of Designation of the Preferred Stock, conversion occurred prior to June 1, 2017.

The Company agreed to file a registration statement to register the resale of shares of common stock issuable upon conversion of the Preferred Stock and to pay penalties in the event such registration was not effective by June 27, 2017. The Company filed such registration statement on March 3, 2017 and it was declared effective by the SEC on April 7, 2017.

In accordance with ASC Topic 470, Debt (ASC 470), the Company determined that the conversion feature in the Preferred Stock represented a beneficial conversion feature. The fair value of the Company's common stock of $8.12 per share on the Commitment Date was greater than the conversion price of $7.25 per share of common stock, representing a beneficial conversion feature of $0.87 per share of common stock, or approximately $48.0 million in aggregate. Under ASC 470, $48.0 million (the intrinsic value of the beneficial conversion feature) of the proceeds received from the issuance of the Preferred Stock was allocated to "Additional paid-in capital," creating a discount on the Preferred Stock (the Discount). The Discount was required to be amortized on a non-cash basis over the approximate 65-month period between the issuance date and the required redemption date of July 28, 2022, or fully amortized upon an accelerated date of redemption or conversion, and recorded as a preferred dividend. As a result, approximately $0.8 million of the Discount was amortized and a non-cash preferred dividend was recorded in the three months ended March 31, 2017 and due to the conversion date occurring on April 6, 2017, the remaining $47.2 million of the amortization of the Discount was accelerated to the conversion date and fully amortized in the three months ended June 30, 2017. The Discount amortization is reflected in "Non-cash preferred dividend" in the unaudited condensed consolidated statements of operations. The preferred dividend was charged against additional paid-in capital since no retained earnings were available.

Common Stock

On February 9, 2018, the Company sold 9.2 million shares of common stock, par value $0.0001 per share, in a public offering at a price of $6.90 per share. The net proceeds to the Company from the offering were approximately $60.4 million, after deducting the underwriters' discounts and offering expenses. The Company used the net proceeds, together with the net proceeds from the issuance of the Additional 2025 Notes, to fund the cash consideration for the acquisition of the West Quito Draw Properties, and for general corporate purposes, including funding the Company's 2018 drilling program.

Warrants

On September 9, 2016, the Company issued 4.7 million new warrants. The warrants can be exercised to purchase 4.7 million shares of the Company's common stock at an exercise price of $14.04 per share. The holders are entitled to exercise the warrants in whole or in part at any time prior to expiration on September 9, 2020.

Incentive Plans

On September 9, 2016, the Company's board of directors adopted the 2016 Long-Term Incentive Plan (the Plan). An aggregate of 10.0 million shares of the Company's common stock were available for grant pursuant to awards under the Plan. On April 6, 2017, Amendment No. 1 to the Plan to increase,

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. STOCKHOLDERS' EQUITY (Continued)

by 9.0 million shares, the maximum number of shares of common stock that may be issued thereunder, i.e., a maximum of 19.0 million shares, became effective, which was 20 calendar days following the date the Company mailed an information statement to all stockholders of record notifying them of approval of the amendment by written consent of holders of a majority of the Company's outstanding stock. As of September 30, 2018 and December 31, 2017, a maximum of 4.9 million and 7.7 million shares, respectively, of the Company's common stock remained reserved for issuance under the Plan.

The Company accounts for stock-based payment accruals under authoritative guidance on stock compensation. The guidance requires all stock-based payments to employees and directors, including grants of stock options and restricted stock, to be recognized in the financial statements based on their fair values. The Company has elected to not apply a forfeiture estimate and will recognize a credit in compensation expense to the extent awards are forfeited.

For the three and nine months ended September 30, 2018, the Company recognized $4.4 million and $12.2 million, respectively, of stock-based compensation expense. For the three and nine months ended September 30, 2017, the Company recognized $12.3 million and $33.5 million, respectively, of stock-based compensation expense. Stock-based compensation expense is recorded as a component of " General and administrative " on the unaudited condensed consolidated statements of operations.

Stock Options

From time to time, the Company grants stock options under the Plan covering shares of common stock to employees of the Company. Stock options, when exercised, are settled through the payment of the exercise price in exchange for new shares of stock underlying the option. These awards typically vest over a three year period at a rate of one-third on the annual anniversary date of the grant and expire ten years from the grant date.

During the nine months ended September 30, 2018, the Company granted stock options under the Plan covering 1.2 million shares of common stock to employees of the Company. These stock options have an exercise price of $5.65. During the nine months ended September 30, 2018, the Company received $0.3 million from the exercise of stock options. At September 30, 2018, the Company had $7.1 million of unrecognized compensation expense related to non-vested stock options to be recognized over a weighted-average period of 1.1 years.

During the nine months ended September 30, 2017, the Company granted stock options under the Plan covering 1.8 million shares of common stock to employees of the Company. These stock options have exercise prices ranging from $6.55 to $7.75 per share with a weighted average exercise price of $7.72 per share. At September 30, 2017, the Company had $17.3 million of unrecognized compensation expense related to non-vested stock options to be recognized over a weighted-average period of 1.5 years.

Restricted Stock

From time to time, the Company grants shares of restricted stock to employees and non-employee directors of the Company. Employee shares typically vest over a three year period at a rate of one-third on the annual anniversary date of the grant, and the non-employee directors' shares vest six months from the date of grant. Certain shares granted under the Plan specifically related to the Company's emergence from chapter 11 bankruptcy, vested on or before September 30, 2017.

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. STOCKHOLDERS' EQUITY (Continued)

During the nine months ended September 30, 2018, the Company granted 2.3 million shares of restricted stock under the Plan to employees and non-employee directors of the Company. These restricted shares were granted at prices ranging from $3.75 to $5.65 with a weighted average price of $5.47. At September 30, 2018, the Company had $8.6 million of unrecognized compensation expense related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.2 years.

During the nine months ended September 30, 2017, the Company granted 2.0 million shares of restricted stock under the Plan to employees and non-employee directors of the Company. These restricted shares were granted at prices ranging from $6.08 to $7.75 per share with a weighted average price of $7.07 per share. At September 30, 2017, the Company had $5.7 million of unrecognized compensation expense related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.3 years.

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. EARNINGS PER COMMON SHARE

The following represents the calculation of earnings (loss) per share (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,

	2018			2017		2018			2017
Basic:
Net income (loss) available to common stockholders	$	(81,837	)	$	419,287	$	(100,709	)	$	580,809



Weighted average basic number of common shares outstanding		158,011			146,944		156,628			127,458

Basic net income (loss) per share of common stock	$	(0.52	)	$	2.85	$	(0.64	)	$	4.56



Diluted:
Net income (loss) available to common stockholders	$	(81,837	)	$	419,287	$	(100,709	)	$	580,809



Weighted average basic number of common shares outstanding		158,011			146,944		156,628			127,458
Common stock equivalent shares representing shares issuable upon:
Exercise of stock options		Anti-dilutive			Anti-dilutive		Anti-dilutive			Anti-dilutive
Exercise of warrants		Anti-dilutive			Anti-dilutive		Anti-dilutive			Anti-dilutive
Vesting of restricted shares		Anti-dilutive			1,546		Anti-dilutive			952
Conversion of preferred stock		—			—		—			Anti-dilutive

Weighted average diluted number of common shares outstanding		158,011			148,490		156,628			128,410

Diluted net income (loss) per share of common stock	$	(0.52	)	$	2.82	$	(0.64	)	$	4.52

Common stock equivalents, including stock options, restricted shares, and warrants totaling 14.9 million and 14.3 million shares for the three and nine months ended September 30, 2018, respectively, were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive due to the net losses.

Common stock equivalents, including stock options, restricted shares, warrants, and preferred stock totaling 11.7 million and 19.0 million shares for the three and nine months ended September 30, 2017, respectively, were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive.

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. ADDITIONAL FINANCIAL STATEMENT INFORMATION

Certain balance sheet amounts are comprised of the following (in thousands):

	September 30, 2018		December 31, 2017

Accounts receivable:
Oil, natural gas and natural gas liquids revenues	$	37,085	$	24,110
Joint interest accounts		8,736		2,249
Other		943		10,057

	$	46,764	$	36,416



Prepaids and other:
Prepaids	$	4,684	$	4,324
Income tax receivable		6,250		6,250
Other		35		54

	$	10,969	$	10,628



Funds in escrow and other:
Funds in escrow	$	568	$	563
Other		1,347		1,128

	$	1,915	$	1,691



Accounts payable and accrued liabilities:
Trade payables	$	51,192	$	35,688
Accrued oil and natural gas capital costs		53,692		50,743
Revenues and royalties payable		20,587		20,256
Accrued interest expense		5,858		10,985
Accrued employee compensation		5,086		9,805
Accrued lease operating expenses		4,667		2,024
Other		295		1,586

	$	141,377	$	131,087

13. SUBSEQUENT EVENTS

Sale of Water Infrastructure Assets

On October 31, 2018, certain wholly owned subsidiaries of the Company entered into an Asset Purchase Agreement (the Agreement) with an affiliate of WaterBridge Resources LLC (the Purchaser) pursuant to which the Company agreed to sell its water infrastructure assets located in the Delaware Basin (the Water Assets) to Purchaser for a total purchase price of up to $325.0 million, consisting of $200.0 million payable in cash upon closing and additional incentive payments of up to $25.0 million per year for the next five years based on the Company's ability to meet certain annual incentive thresholds relating to the number of wells connected to the Water Assets per year. The ability of the Company to achieve the incentive thresholds will be driven by, among other things, its development program which will consider future market conditions and is subject to change. The purchase price is subject to adjustment for (i) operating expenses, capital expenditures and revenues between the effective date and the closing date and (ii) environmental defects, if any.

Table of Contents

HALCÓN RESOURCES CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. SUBSEQUENT EVENTS (Continued)

The effective date of the transaction is October 1, 2018 and the transaction is expected to close in late-December 2018, subject to satisfaction of customary closing conditions set forth in the Agreement. The Agreement also contains customary representations, warranties and covenants by the Company and Purchaser and contemplates a transition services period whereby the Company would operate the Water Assets for approximately two months following the closing and also operate the Water Assets in Monument Draw for approximately six months in order to install additional water service and treating infrastructure. In addition, the parties have agreed to negotiate in good faith prior to closing, a definitive agreement relating to certain water supply assets. While the parties have a non-binding agreement relating to the material business terms of such agreement, if they are unable to agree on a definitive agreement prior to closing, certain water supply assets will remain with the Company and $30.0 million of the cash purchase price will not be paid to the Company until such time as such definitive agreement is executed. At closing, the Company will dedicate all of the produced water from its oil and natural gas wells within the Company's Monument Draw, Hackberry Draw and West Quito Draw operating areas to Purchaser. Purchaser will be entitled to receive a current market price, subject to annual adjustments for inflation, in exchange for the transportation, disposal and treatment of such produced water, and assuming a definitive agreement related to the water supply assets is executed, Purchaser will be entitled to receive a market price for the supply of freshwater and recycled produced water to the Company.

Borrowing Base Redetermination

The Company recently completed the fall 2018 borrowing base redetermination for its Senior Credit Agreement. The Company received commitments to increase its borrowing base from $200.0 million to $275.0 million upon the closing of its water infrastructure assets sale in December 2018.

Table of Contents

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to assist in understanding our results of operations for the three and nine months ended September 30, 2018 and 2017 and should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and with the consolidated financial statements, notes and management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Statements in this discussion may be forward-looking. These forward-looking statements involve risks and uncertainties, including those discussed below, which could cause actual results to differ from those expressed. For more information, see " Special note regarding forward-looking statements ."

Overview

We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States. During 2017, we acquired certain properties in the Delaware Basin and divested our assets located in the Williston Basin in North Dakota (the Williston Divestiture) and in the El Halcón area of East Texas (the El Halcón Divestiture). As a result, our properties and drilling activities are currently focused in the Delaware Basin, where we have an extensive drilling inventory that we believe offers more attractive economics. The Williston Divestiture improved our liquidity and significantly reduced our debt, better enabling us to accelerate development of our Delaware Basin properties and execute our growth plans in the basin.

Our average daily oil and natural gas production decreased in the first nine months of 2018 when compared to the same period in the prior year primarily due to our divestitures in 2017. This decrease was partially mitigated by the production associated with our assets located in the Delaware Basin and our drilling activities since acquiring the assets. During the first nine months of 2018, production averaged 12,795 Boe/d compared to average daily production of 34,513 Boe/d during the first nine months of 2017. During the first nine months of 2018, we participated in the drilling of 22 gross (21.7 net) wells, none of which were dry holes.

Our financial results depend upon many factors, but are largely driven by the volume of our oil and natural gas production and the price that we receive for that production. Our production volumes will decline as reserves are depleted unless we expend capital in successful development and exploration activities or acquire properties with existing production. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, transportation take-away capacity constraints, inventory storage levels, basis differentials and other factors. Accordingly, finding and developing oil and natural gas reserves at economical costs is critical to our long-term success.

Oil and natural gas prices are inherently volatile and sustained lower commodity prices could have a material impact upon our full cost ceiling test calculation. The ceiling test calculation dictates that we use the unweighted arithmetic average price of crude oil and natural gas as of the first day of each month for the 12-month period ending at the balance sheet date. Using the crude oil price for October 1, 2018 of $75.30 per barrel, and holding it constant for two months to create a trailing 12-month period of average prices, that is more reflective of recent price trends, our ceiling test limitation would not have generated an impairment. In addition to commodity prices, our production rates, levels of proved reserves, future development costs, transfers of unevaluated properties, capital spending and other factors will determine our actual ceiling test calculation and impairment analyses in future periods.

Our 2018 capital budget has been revised to reflect changes in our drilling program. We have reduced our number of operated rigs running in the Delaware Basin from four to three rigs. We expect

Table of Contents

to spend approximately $75 million to $95 million on drilling and completion capital expenditures in the fourth quarter of 2018. In addition, we expect to spend approximately $20 million to $30 million on infrastructure, seismic and other in the fourth quarter of 2018. Our capital budget for the fourth quarter of 2018 is based on our current view of market conditions and current business plans, and is subject to change.

Recent Developments

Sale of Water Infrastructure Assets

On October 31, 2018, we entered into an Asset Purchase Agreement (the Agreement) with an affiliate of WaterBridge Resources LLC (the Purchaser) pursuant to which we agreed to sell our water infrastructure assets located in the Delaware Basin (the Water Assets) to Purchaser for a total purchase price of up to $325.0 million, consisting of $200.0 million payable in cash upon closing and additional incentive payments of up to $25.0 million per year for the next five years based on our ability to meet certain annual incentive thresholds relating to the number of wells connected to the Water Assets per year. Our ability to achieve the incentive thresholds will be driven by, among other things, our development program which will consider future market conditions and is subject to change. The purchase price is subject to adjustment for (i) operating expenses, capital expenditures and revenues between the effective date and the closing date and (ii) environmental defects, if any.

The effective date of the transaction is October 1, 2018 and the transaction is expected to close in late-December 2018, subject to satisfaction of customary closing conditions set forth in the Agreement. The Agreement also contains customary representations, warranties and covenants by us and Purchaser and contemplates a transition services period whereby we would operate the Water Assets for approximately two months following the closing and also operate the Water Assets in Monument Draw for approximately six months in order to install additional water service and treating infrastructure. In addition, the parties have agreed to negotiate in good faith prior to closing, a definitive agreement relating to certain water supply assets. While the parties have a non-binding agreement relating to the material business terms of such agreement, if they are unable to agree on a definitive agreement prior to closing, certain water supply assets will remain with us and $30.0 million of the cash purchase price will not be paid to us until such time as such definitive agreement is executed. At closing, we will dedicate all of the produced water from our oil and natural gas wells within our Monument Draw, Hackberry Draw and West Quito Draw operating areas to Purchaser. Purchaser will be entitled to receive a current market price, subject to annual adjustments for inflation, in exchange for the transportation, disposal and treatment of such produced water, and assuming a definitive agreement related to the water supply assets is executed, Purchaser will be entitled to receive a market price for the supply of freshwater and recycled produced water to us.

Borrowing Base Redetermination

We recently completed the fall 2018 borrowing base redetermination for our Senior Credit Agreement. We received commitments to increase our borrowing base from $200.0 million to $275.0 million upon the closing of our water infrastructure assets sale in December 2018.

Acquisition of West Quito Draw Properties

On February 6, 2018, one of our wholly owned subsidiaries entered into a Purchase and Sale Agreement (the Shell PSA) with SWEPI LP (Shell), an affiliate of Shell Oil Company, pursuant to which we agreed to purchase acreage and related assets in the Delaware Basin located in Ward County, Texas (the West Quito Draw Properties) for a total adjusted purchase price of $198.5 million. The effective date of the acquisition was February 1, 2018, and we closed the transaction on April 4, 2018. We funded the cash consideration of the acquisition of the West Quito Draw Properties with the net

Table of Contents

proceeds from our recent issuance of the Additional 2025 Notes (defined below) and common stock, both of which are discussed below.

Issuance of Additional 2025 Notes

On February 15, 2018, we issued an additional $200.0 million aggregate principal amount of our 6.75% senior notes due 2025 at a price to the initial purchasers of 103.0% of par (the Additional 2025 Notes). The Additional 2025 Notes were sold pursuant to the exemption from registration under the Securities Act and applicable state securities laws, including Rule 144A and Regulation S under the Securities Act. The net proceeds from the sale of the Additional 2025 Notes were approximately $202.4 million after initial purchasers' premiums and deducting commissions and offering expenses and a portion was used to fund the cash consideration for the acquisition of the West Quito Draw Properties and for general corporate purposes, including funding our 2018 drilling program. These notes were issued under the Indenture, dated as of February 16, 2017, among us, certain of our subsidiaries and U.S. Bank National Association, as trustee, which governs our 6.75% senior notes due 2025 that were issued on February 16, 2017 (the 2025 Notes). The Additional 2025 Notes are treated as a single class with, and have the same terms as the 2025 Notes, except that the Additional 2025 Notes will initially be subject to transfer restrictions and have the benefit of certain registration rights and provisions for the payment of additional interest in the event of a breach with respect to such registration rights.

In connection with the issuance of the Additional 2025 Notes, on February 15, 2018, we, our subsidiary guarantors and J.P. Morgan Securities, LLC, on behalf of itself and the initial purchasers, entered into a Registration Rights Agreement, pursuant to which we and our subsidiary guarantors agreed to, among other things, use reasonable best efforts to file a registration statement under the Securities Act and complete an exchange offer for the Additional 2025 Notes within 180 days after closing. We filed such registration statement on March 20, 2018 and it was declared effective by the Securities and Exchange Commission (SEC) on April 9, 2018. In addition, we completed the exchange offer for the Additional 2025 Notes on May 17, 2018.

Issuance of Common Stock

On February 9, 2018, we sold 9.2 million shares of common stock, par value $0.0001 per share, in a public offering at a price of $6.90 per share. The net proceeds to us from the offering were approximately $60.4 million, after deducting underwriters' discounts and offering expenses.

Amended and Restated Senior Secured Revolving Credit Agreement

On November 7, 2018, we entered into the Fifth Amendment (the Fifth Amendment) to the Senior Credit Agreement which, among other things, provided for (i) the use of annualized financial data in determining EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarters ending September 30, 2018, December 31, 2018, March 31, 2019, June 30, 2019 and September 30, 2019 and (ii) amended the ratio of Consolidated Total Net Debt (as defined in the Senior Credit Agreement) to EBITDA of (a) 4.75 to 1.0 for the fiscal quarter ending September 30, 2018, (b) 4.25 to 1.0 for the fiscal quarter ending December 31, 2018 and (c) 4.0 to 1.0 for the fiscal quarter ending March 31, 2019 and any fiscal quarter thereafter.

On November 6, 2018, the lenders party to our Senior Credit Agreement issued a consent (the Consent) to us whereby H2S Expenses (as defined in the Consent) may exceed the maximum level allowed for adding back non-recurring expenses and charges in the definition of EBITDA (as defined in the Senior Credit Agreement) when calculating the ratio of Consolidated Total Net Debt to EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarters ending September 30, 2018, December 31, 2018 and March 31, 2019.

Table of Contents

On July 12, 2018, we entered into the Fourth Amendment (the Fourth Amendment) to the Senior Credit Agreement which provided for an increase in the ratio of Consolidated Total Net Debt (as defined in the Senior Credit Agreement) to EBITDA (as defined in the Senior Credit Agreement) of (i) 4.75 to 1.0 for the fiscal quarter ending September 30, 2018, (ii) 5.0 to 1.0 for the fiscal quarters ending December 31, 2018, March 31, 2019 and June 30, 2019, (iii) 4.25 to 1.0 for the fiscal quarter ending September 30, 2019 and (iv) 4.0 to 1.0 for the fiscal quarter ending December 31, 2019 and any fiscal quarter thereafter; provided, however, that if we consummate a sale of all or a material portion of our midstream assets, then the ratio of Consolidated Total Net Debt to EBITDA shall be reduced to 4.0 to 1.0 for each fiscal quarter ending after the fiscal quarter in which such sale is consummated.

On May 1, 2018, we entered into the Third Amendment (the Third Amendment) to the Senior Credit Agreement which provided for an assignment and reallocation of the Maximum Credit Amounts (as defined in the Senior Credit Agreement) among certain of the lender financial institutions. The Third Amendment did not adjust the aggregate Maximum Credit Amounts, which remain at $1.0 billion, or the borrowing base, which is currently $200.0 million.

On February 2, 2018, we entered into the Second Amendment (the Second Amendment) to the Senior Credit Agreement which among other things, for certain fiscal quarters in 2018, provided flexibility with respect to certain financial covenants as specified in the Senior Credit Agreement. The Second Amendment provides for (i) the use of annualized financial data in determining EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarters ending June 30, 2018, September 30, 2018 and December 31, 2018, (ii) an increase in the ratio of our Consolidated Total Net Debt (as defined in the Senior Credit Agreement) to EBITDA of 4.50 to 1.00 for the fiscal quarter ending June 30, 2018, and a ratio of 4.00 to 1.00 for any fiscal quarter thereafter, (iii) a waiver of compliance with the covenant relating to the Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit Agreement) for the fiscal quarter ending March 31, 2018, and (iv) a waiver of the automatic reduction to the borrowing base that would otherwise have resulted from the issuance of the Additional 2025 Notes. The Senior Credit Agreement also contains a financial covenant to maintain a Current Ratio (as defined in the Senior Credit Agreement) not to be less than 1.00 to 1.00.

Option Agreement to Acquire Monument Draw Assets (Ward and Winkler Counties, Texas)

On December 9, 2016, one of our wholly owned subsidiaries entered into an agreement with a private company, pursuant to which it acquired the rights to purchase up to 15,040 net acres in the Monument Draw area of the Delaware Basin, located in Ward and Winkler Counties, Texas (the Ward County Assets) prospective for the Wolfcamp and Bone Spring formations. The Ward County Assets are divided into two tracts (the Southern Tract and the Northern Tract) with separate options for each tract. Pursuant to the terms of the agreement (as amended), on June 15, 2017, we purchased the Southern Tract for approximately $87.4 million and on January 9, 2018, we purchased the Northern Tract for approximately $108.2 million.

Capital Resources and Liquidity

Our near-term capital spending requirements are expected to be funded with cash and cash equivalents on hand, cash flows from operations, proceeds from recent debt and equity issuances and borrowings under our Senior Credit Agreement, which has a current borrowing base of $200.0 million. As of September 30, 2018, under the effective borrowing base of $200.0 million, we had $55.0 million of indebtedness outstanding, $1.6 million letters of credit outstanding, and approximately $143.4 million of borrowing capacity available under the Senior Credit Agreement. Amounts borrowed under the Senior Credit Agreement will mature on September 7, 2022. Our borrowing base is redetermined on a semi-annual basis (with us and the lenders each having the right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations) and adjusted based on the estimated value of our oil and natural gas reserves, the amount and cost of our other indebtedness and

Table of Contents

other relevant factors. We recently completed the fall 2018 borrowing base redetermination for our Senior Credit Agreement. We received commitments to increase our borrowing base from $200.0 million to $275.0 million upon the closing of our water infrastructure assets sale in December 2018, as discussed above in " Recent Developments ."

We have recently, and in the past, obtained amendments and consents to the covenants under our financing agreements under circumstances where we anticipated that it might be challenging for us to comply with our financial covenants for a particular period of time. Most recently, our strategic decision to transform into a pure-play, single basin company focused on the Delaware Basin in West Texas resulted in us divesting our producing properties located in other areas and acquiring primarily undeveloped acreage in the Delaware Basin. This, coupled with our current drilling plans, has impacted our ability to comply with our debt covenants by reducing our production and reserves on a current and, for purposes of covenant calculations, a pro forma historical basis, and drilling will take time to replace this lost production and related EBITDA. On November 7, 2018, we entered into the Fifth Amendment to the Senior Credit Agreement which, among other things, provided for (i) the use of annualized financial data in determining EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarters ending September 30, 2018, December 31, 2018, March 31, 2019, June 30, 2019 and September 30, 2019 and (ii) amended the ratio of Consolidated Total Net Debt (as defined in the Senior Credit Agreement) to EBITDA of (a) 4.75 to 1.0 for the fiscal quarter ending September 30, 2018, (b) 4.25 to 1.0 for the fiscal quarter ending December 31, 2018 and (c) 4.0 to 1.0 for the fiscal quarter ending March 31, 2019 and any fiscal quarter thereafter. On November 6, 2018, the lenders party to the Senior Credit Agreement issued the Consent to us whereby H2S Expenses (as defined in the Consent) may exceed the maximum level allowed for adding back non-recurring expenses and charges in the definition of EBITDA (as defined in the Senior Credit Agreement) when calculating the ratio of Consolidated Total Net Debt to EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarters ending September 30, 2018, December 31, 2018 and March 31, 2019. On July 12, 2018, we entered into the Fourth Amendment to the Senior Credit Agreement which provided for an increase in the ratio of Consolidated Total Net Debt (as defined in the Senior Credit Agreement) to EBITDA (as defined in the Senior Credit Agreement) of (i) 4.75 to 1.0 for the fiscal quarter ending September 30, 2018, (ii) 5.0 to 1.0 for the fiscal quarters ending December 31, 2018, March 31, 2019 and June 30, 2019, (iii) 4.25 to 1.0 for the fiscal quarter ending September 30, 2019 and (iv) 4.0 to 1.0 for the fiscal quarter ending December 31, 2019 and any fiscal quarter thereafter; provided, however, that if we consummate a sale of all or a material portion of our midstream assets, then the ratio of Consolidated Total Net Debt to EBITDA shall be reduced to 4.0 to 1.0 for each fiscal quarter ending after the fiscal quarter in which such sale is consummated. On February 2, 2018, we entered into the Second Amendment to our Senior Credit Agreement. The Second Amendment, among other things, provided for (i) the use of annualized financial data in determining EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarters ending June 30, 2018, September 30, 2018 and December 31, 2018, (ii) an increase in the ratio of Consolidated Total Net Debt (as defined in the Senior Credit Agreement) to EBITDA of 4.50 to 1.00 for the fiscal quarter ending June 30, 2018, and a ratio of 4.00 to 1.00 for any fiscal quarter thereafter, (iii) a waiver of compliance with the covenant relating to the Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit Agreement) for the fiscal quarter ending March 31, 2018, and (iv) a waiver of the automatic reduction to the borrowing base that would otherwise result due to the issuance of the Additional 2025 Notes.

The basis for these amendment and waiver requests was the potential for us to fall out of compliance as a result of our strategic decisions. Over the longer term, we expect that our strategy and

Table of Contents

our investments will result in increased production and reserves, lower lease operating costs and more abundant drilling opportunities. Shorter term, however, our strategy makes us more susceptible to fluctuations in performance and compliance with these covenants more challenging. Even relatively modest changes in the level and timing of our production, drilling and completion costs, the cost and availability of transportation for our production and other factors varying from our expectations can cause our EBITDA to change significantly, particularly in those quarters where it is annualized, and affect our ability to comply with the covenants under our Senior Credit Agreement. The Consent and the Fifth Amendment were intended to provide us with the covenant relief we believe is adequate under our currently projected business plan; however, as stated previously, even relatively modest variations from the assumptions underlying our business plan may cause significant changes to our EBITDA and/or our debt level, which could cause us to fall out of compliance with our covenants. As a consequence, we constantly monitor our liquidity and capital resources, anticipate and identify potential covenant compliance issues and work with the lenders under our Senior Credit Agreement to address any such issues ahead of time. While we have been successful to date in obtaining modifications of our covenants as needed, there can be no assurance that we will be successful in the future. After giving effect to the Consent and the Fifth Amendment, at September 30, 2018, we were in compliance with the financial covenants under the Senior Credit Agreement.

Our future capital resources and liquidity depend, in part, on our success in developing our leasehold interests, growing our reserves and production and finding additional reserves. Cash is required to fund capital expenditures necessary to offset inherent declines in our production and proven reserves, which is typical in the capital-intensive oil and natural gas industry. We therefore continuously monitor our liquidity and the capital markets and evaluate our development plans in light of a variety of factors, including, but not limited to, our cash flows, capital resources, acquisition opportunities and drilling successes.

We strive to maintain financial flexibility while pursuing our drilling plans and evaluating potential acquisitions, and will therefore likely continue to access capital markets (if on acceptable terms) as necessary to, among other things, maintain adequate borrowing capacity under our Senior Credit Agreement, facilitate drilling on our large undeveloped acreage position and permit us to selectively expand our acreage position and infrastructure projects while sustaining sufficient operating cash levels. Our ability to complete future debt and equity offerings and maintain or increase our borrowing base under our Senior Credit Agreement is subject to a number of variables, including our level of oil and natural gas production, reserves and commodity prices, the amount and cost of our other indebtedness, as well as various economic and market conditions that have historically affected the oil and natural gas industry. Even if we are otherwise successful in growing our reserves and production, if oil and natural gas prices decline for a sustained period of time, our ability to fund our capital expenditures, complete acquisitions, reduce debt, meet our financial obligations and become profitable may be materially impacted.

In the event that we are unable to access sufficient capital to fund our business and planned capital expenditures, we may be required to curtail our drilling, development, land acquisition and other activities, which could result in a decrease in our production of oil and natural gas, subject us to forfeitures of leasehold interests to the extent we are unable or unwilling to renew them, and force us to sell some of our assets on an untimely or unfavorable basis, each of which could adversely affect our results of operations and financial condition.

We are exposed to various risks including energy commodity price risk. When oil, natural gas, and natural gas liquids prices decline significantly, our ability to finance our capital budget and operations may be adversely impacted. While we use derivative instruments to provide partial protection against declines in oil and natural gas prices, the total volumes we hedge varies from period to period based on our view of current and future market conditions. Our hedge policies and objectives may change

Table of Contents

significantly as our operational profile changes and/or commodities prices change. We do not enter into derivative contracts for speculative trading purposes.

Cash Flow

Our primary sources of cash and cash equivalents for the nine months ended September 30, 2018 and 2017 were from operating and financing activities. In the first nine months of 2018, cash generated by financing activities was used to fund the acquisitions of the Northern Tract of the Ward County Assets and the West Quito Draw Properties, as well as our drilling and completion program. See " Results of Operations " for a review of the impact of prices and volumes on sales.

Net increase (decrease) in cash and cash equivalents is summarized as follows (in thousands):

	Nine Months Ended September 30,

	2018			2017
Cash flows provided by (used in) operating activities	$	36,709		$	102,222
Cash flows provided by (used in) investing activities		(778,127	)		737,760
Cash flows provided by (used in) financing activities		317,484			149,341

Net increase (decrease) in cash and cash equivalents	$	(423,934	)	$	989,323

Operating Activities. Net cash flows provided by operating activities for the nine months ended September 30, 2018 were $36.7 million compared to net cash flows provided by operating activities of $102.2 million for the nine months ended September 30, 2017. Key drivers of net operating cash flows are commodity prices, production volumes and operating costs.

Operating cash flows for the nine months ended September 30, 2018 decreased from the comparable prior year period primarily due to our divestitures in 2017, in which we divested non-core producing properties in other areas for primarily undeveloped acreage in the Delaware Basin. This decrease was partially offset by $30.8 million of proceeds related to a monetization of basis swaps that occurred in the nine months ended September 30, 2018.

The $102.2 million of operating cash flows for the nine months ended September 30, 2017 were lower than the prior year period primarily due to a decrease in realized settlements on our derivative contracts. This decrease was partially offset by the impact of increased commodity prices, which served to increase our realized operating revenues, as well as decreases in cash paid for interest and general and administrative expenses.

Investing Activities. Net cash flows used in investing activities for the nine months ended September 30, 2018 was approximately $778.1 million compared to net cash flows provided by investing activities of $737.8 million for the nine months ended September 30, 2017.

During the first nine months of 2018, we incurred cash expenditures of $333.5 million on acquisition activities, the majority of which related to the acquisition of the West Quito Draw Properties and the purchase of the Northern Tract of the Ward County Assets. Additionally, we spent $369.3 million on oil and natural gas capital expenditures, of which $342.8 million related to drilling and completion costs. We also spent approximately $79.4 million on capital expenditures related to our other operating property and equipment, primarily to develop our water recycling facilities and gas gathering and treating infrastructure.

During the first nine months of 2017, we incurred cash expenditures of $700.1 million to acquire acreage and related assets in the Hackberry Draw area of the Delaware Basin located in Pecos and Reeves Counties, Texas (collectively, the Pecos County Assets) of which $674.6 million related to the oil and natural gas properties and $25.5 million related to the other operating property and equipment. In

Table of Contents

addition to the acquisition of the Pecos County Assets, we spent $242.1 million on other acquisitions, primarily in the Delaware Basin to increase our position in the area. We spent $218.9 million on oil and natural gas capital expenditures, of which $206.1 million related to drilling and completion costs. These cash outflows for acquisitions and our drilling and completion activities were more than offset by cash inflows from our non-core asset sales. Approximately $1.39 billion of the proceeds from the Williston Divestiture were allocated to the oil and natural gas properties divested and $10.9 million of the proceeds were allocated to the other operating property and equipment divested. Proceeds from the El Halcón Divestiture were $494.3 million of which $484.1 million related to the oil and natural gas properties divested and $10.2 million related to the other operating property and equipment divested.

Financing Activities. Net cash flows provided by financing activities for the nine months ended September 30, 2018 were approximately $317.5 million compared to net cash flows provided by financing activities of $149.3 million for the nine months ended September 30, 2017.

During the first nine months of 2018, we issued an additional $200.0 million aggregate principal amount of our 6.75% senior notes due 2025. Proceeds from the private placement were approximately $202.4 million after initial purchasers' premiums and deducting commissions and offering expenses. Additionally, we sold 9.2 million shares of common stock in a public offering at a price of $6.90 per share. The net proceeds from the offering were approximately $60.4 million after deducting underwriters' discounts and offering expenses.

During the first nine months of 2017, we issued $850.0 million aggregate principal amount of our new 6.75% senior unsecured notes due 2025. Proceeds from the private placement were approximately $834.1 million after deducting initial purchasers' discounts and commissions and offering expenses. We utilized the majority of the net proceeds from the private placement to fund the repurchase and redemption of the then outstanding 8.625% senior secured second lien notes due 2020 (the 2020 Second Lien Notes). The net cash to make these repurchases and redemptions was approximately $736.8 million and we recognized a loss on the extinguishment of debt, representing a $30.9 million loss on the repurchase for the tender premium paid and a $26.0 million loss on the write-off of the discount on the notes. During the first nine months of 2017, we utilized a portion of the proceeds from the Williston Divestiture to redeem all of the then outstanding 12.0% senior secured second lien notes due 2022 (the 2022 Second Lien Notes). The net cash used to make the redemption was approximately $137.8 million and we recognized a loss on the extinguishment of debt, representing a $23.0 million loss on the redemption for the make whole premium paid and a $6.2 million loss on the write-off of the discount on the notes. We also paid a consent fee of approximately $16.9 million to the holders of our 2025 Notes. Additionally, we issued 5,518 shares of preferred stock at $72,500 per share. Gross proceeds from this issuance were approximately $400.1 million.

Table of Contents

Contractual Obligations

The following summarizes our contractual obligations and commitments by payment periods as of September 30, 2018 (in thousands):

	Payments Due by Period

Contractual Obligations	Total		Remaining period in 2018		Years 2019 - 2020		Years 2021 - 2022		Years 2023 and Beyond
Senior revolving credit facility	$	55,000	$	—	$	—	$	55,000	$	—
6.75% senior notes due 2025 ⁽¹⁾		625,005		—		—		—		625,005
Interest expense on long-term debt ⁽²⁾		286,263		11,655		93,236		91,840		89,532
Operating leases		9,324		846		4,801		2,332		1,345
Drilling rig commitments ⁽³⁾		9,145		4,419		4,726		—		—
Rig termination commitments		3,000		—		3,000		—		—

Total contractual obligations	$	987,737	$	16,920	$	105,763	$	149,172	$	715,882

(1): Amount excludes a $7.4 million unamortized discount, a $5.6 million unamortized premium, and $10.4 million unamortized debt issuance costs.
(2): Future interest expense was calculated based on interest rates and amounts outstanding at September 30, 2018 less required annual repayments.
(3): Early termination of our drilling rig commitments would result in termination penalties approximating $8.2 million, which would be in lieu of paying the remaining active commitments of approximately $9.1 million.

We lease corporate office space in Houston, Texas and Denver, Colorado. Rent expense was approximately $2.8 million and $3.0 million for the nine months ended September 30, 2018 and 2017, respectively. Future obligations associated with our operating leases are presented in the table above.

In September 2018, we entered into a purchase agreement for certain natural gas treating equipment totaling approximately $13.3 million. As of September 30, 2018, our remaining commitment is approximately $9.8 million and is expected to be incurred by March 31, 2019. This purchase commitment is not included in the table above.

We have entered into various long-term gathering, transportation and sales contracts with respect to production from the Delaware Basin in West Texas. As of September 30, 2018, we had in place three long-term crude oil contracts and eleven long-term natural gas contracts in this area, with sales prices based on posted market rates. Under the terms of these contracts, we have committed a substantial portion of our production from this area for periods ranging from one to twenty years from the date of first production.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon the unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. There have been no material changes to our critical accounting policies from those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Table of Contents

Results of Operations

Three Months Ended September 30, 2018 and 2017

We reported a net loss of $81.8 million and net income of $419.3 million for the three months ended September 30, 2018 and 2017, respectively. The table included below sets forth financial information for the periods presented.

	Three Months Ended September 30,

In thousands (except per unit and per Boe amounts)	2018			2017			Change
Net income (loss)	$	(81,837	)	$	419,287		$	(501,124	)
Operating revenues:
Oil		53,918			88,256			(34,338	)
Natural gas		1,407			2,886			(1,479	)
Natural gas liquids		5,920			5,448			472
Other		350			363			(13	)
Operating expenses:
Production:
Lease operating		5,275			17,798			(12,523	)
Workover and other		1,478			3,644			(2,166	)
Taxes other than income		3,557			6,846			(3,289	)
Gathering and other		18,404			10,886			7,518
Restructuring		—			1,275			(1,275	)
General and administrative:
General and administrative		15,308			26,937			(11,629	)
Stock-based compensation		4,423			12,258			(7,835	)
Depletion, depreciation and accretion:
Depletion—Full cost		18,170			34,336			(16,166	)
Depreciation—Other		2,046			1,230			816
Accretion expense		94			374			(280	)
(Gain) loss on sale of oil and natural gas properties		1,331			(491,830	)		493,161
Other income (expenses):
Net gain (loss) on derivative contracts		(60,406	)		(22,415	)		(37,991	)
Interest expense and other		(12,940	)		(19,330	)		6,390
Gain (loss) on extinguishment of debt		—			(29,167	)		29,167
Income tax benefit (provision)		—			17,000			(17,000	)
Production:
Oil—MBbls		980			2,007			(1,027	)
Natural Gas—Mmcf		1,040			1,874			(834	)
Natural gas liquids—MBbls		190			335			(145	)
Total MBoe ⁽¹⁾		1,344			2,655			(1,311	)
Average daily production—Boe/d ⁽¹⁾		14,609			28,859			(14,250	)
Average price per unit *⁽²⁾* :
Oil price—Bbl	$	55.02		$	43.97		$	11.05
Natural gas price—Mcf		1.35			1.54			(0.19	)
Natural gas liquids price—Bbl		31.16			16.26			14.90
Total per Boe ⁽¹⁾		45.57			36.38			9.19
Average cost per Boe:
Production:
Lease operating	$	3.92		$	6.70		$	(2.78	)
Workover and other		1.10			1.37			(0.27	)
Taxes other than income		2.65			2.58			0.07
Gathering and other		13.69			4.10			9.59
Restructuring		—			0.48			(0.48	)
General and administrative:
General and administrative		11.39			10.15			1.24
Stock-based compensation		3.29			4.62			(1.33	)
Depletion		13.52			12.93			0.59

(1): Natural gas reserves are converted to oil reserves using a ratio of six Mcf to one Bbl of oil. This ratio does not assume price equivalency and, given price differentials, the price for a barrel of oil equivalent for natural gas may differ significantly from the price for a barrel of oil.
(2): Amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting.

Table of Contents

Oil, natural gas and natural gas liquids revenues were $61.2 million and $96.6 million for three months ended September 30, 2018 and 2017, respectively. For the three months ended September 30, 2018 and 2017, production averaged 14,609 Boe/d and 28,859 Boe/d, respectively. Our average daily oil and natural gas production decreased in the three months ended September 30, 2018 when compared to the same period in the prior year due to our divestitures in 2017. This decrease was partially mitigated by the production associated with our Delaware Basin assets and our drilling activities since acquiring the assets. Average realized prices (excluding the effects of hedging arrangements) were $45.57 per Boe and $36.38 per Boe for the three months ended September 30, 2018 and 2017, respectively. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, transportation take-away capacity constraints, inventory storage levels, basis differentials and other factors.

Lease operating expenses were $5.3 million and $17.8 million for the three months ended September 30, 2018 and 2017, respectively. On a per unit basis, lease operating expenses were $3.92 per Boe and $6.70 per Boe for the three months ended September 30, 2018 and 2017, respectively. The decrease in lease operating expenses from the prior year period is primarily attributed to our El Halcón and Williston Divestitures in 2017 which greatly reduced our inventory of producing wells.

Workover and other expenses were $1.5 million and $3.6 million for the three months ended September 30, 2018 and 2017, respectively. On a per unit basis, workover and other expenses were $1.10 per Boe and $1.37 per Boe for the three months ended September 30, 2018 and 2017, respectively.

Taxes other than income were $3.6 million and $6.8 million for the three months ended September 30, 2018 and 2017, respectively. Most production taxes are based on realized prices at the wellhead. As revenues or volumes from oil and natural gas sales increase or decrease, production taxes on these sales also increase or decrease. On a per unit basis, taxes other than income were $2.65 per Boe and $2.58 per Boe for the three months ended September 30, 2018 and 2017, respectively.

Gathering and other expenses were $18.4 million and $10.9 million for the three months ended September 30, 2018 and 2017, respectively. Gathering and other expenses include gathering fees paid on our oil and natural gas production, operating expenses on our water recycling facilities and gas gathering infrastructure, gas treating fees, rig stacking charges and other. Approximately $1.4 million and $7.6 million of expenses incurred for the three months ended September 30, 2018 and 2017, respectively, relate to gathering and marketing fees paid on our oil and natural gas production. Approximately $17.4 million and $2.0 million of expenses for the three months ended September 30, 2018 and 2017, respectively, relate to operating expenses on our water recycling facilities and gas gathering infrastructure. Included in the current period is approximately $13.7 million of costs to remove hydrogen sulfide from natural gas produced from our Monument Draw properties as a consequence of a third party pipeline temporarily going out of service. We have secured capacity on another third party pipeline for a portion of the natural gas produced in this area and are progressing on solutions for the remaining natural gas produced, including the purchase of treating equipment which will alleviate reliance upon third party services for the removal of hydrogen sulfide from the natural gas produced. Therefore, we currently expect higher treating costs to continue into the fourth quarter of 2018, but to decrease slightly from the costs incurred in the third quarter of 2018 before decreasing substantially in early 2019. Also included are $0.9 million and $1.3 million of rig stacking charges for the three months ended September 30, 2018 and 2017, respectively.

Restructuring expense was zero and $1.3 million during the three months ended September 30, 2018 and 2017, respectively. The costs incurred in 2017 represent severance costs and accelerated stock-based compensation expense related to the termination of certain employees in conjunction with our divestitures.

Table of Contents

General and administrative expense was $15.3 million and $26.9 million for the three months ended September 30, 2018 and 2017, respectively. In the prior year period, we incurred approximately $8.4 million of transaction costs paid in conjunction with the Williston Divestiture. On a per unit basis, general and administrative expenses were $11.39 per Boe and $10.15 per Boe for the three months ended September 30, 2018 and 2017, respectively. General and administrative expense on a per Boe basis increased in the current period due to a decrease in our average daily production primarily as a result of our 2017 divestitures.

Stock-based compensation expense was $4.4 million and $12.3 million for the three months ended September 30, 2018 and 2017, respectively. Stock-based compensation expense decreased in the current period due to a reduction in our workforce and restricted stock granted in connection with our emergence from chapter 11 bankruptcy which vested on or before September 30, 2017.

Depletion for oil and natural gas properties is calculated using the unit of production method, which depletes the capitalized costs of evaluated properties plus future development costs based on the ratio of production for the current period to total reserve volumes of evaluated properties as of the beginning of the period. Depletion expense was $18.2 million and $34.3 million for the three months ended September 30, 2018 and 2017, respectively. On a per unit basis, depletion expense was $13.52 per Boe and $12.93 per Boe for the three months ended September 30, 2018 and 2017, respectively. The increase in the depletion rate per Boe from 2017 levels is primarily attributable to our shift in operations to the Delaware Basin.

Under the full cost method of accounting, sales of oil and gas properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless the adjustment significantly alters the relationship between capitalized costs and proved reserves. If the Williston Divestiture was accounted for as an adjustment of capitalized costs with no gain or loss recognized, the adjustment would have significantly altered the relationship between capitalized costs and proved reserves. Accordingly, we initially recognized a gain on the sale of the oil and natural gas properties associated with the Williston Divestiture of $491.8 million during the three months ended September 30, 2017. We reduced the gain on the sale of the oil and natural gas properties associated with the Williston Divestiture by approximately $1.3 million during the three months ended September 30, 2018, as the result of customary post-closing adjustments. The carrying value of the properties sold was determined by allocating total capitalized costs within the full cost pool between properties sold and properties retained based on their relative fair values.

We enter into derivative commodity instruments to economically hedge our exposure to price fluctuations on our anticipated oil, natural gas and natural gas liquids production. Consistent with prior years, we have elected not to designate any positions as cash flow hedges for accounting purposes, and accordingly, we record the net change in the mark-to-market value of these derivative contracts in our unaudited condensed consolidated statements of operations. At September 30, 2018, we had an $19.3 million derivative asset, $16.6 million of which was classified as current and we had a $123.6 million derivative liability, $86.2 million of which was classified as current associated with these contracts. We recorded a net derivative loss of $60.4 million ($50.8 million net unrealized loss and a $9.6 million net realized loss on settled contracts) for the three months ended September 30, 2018 compared to a net derivative loss of $22.4 million ($31.2 million net unrealized loss and $8.8 million net realized gain on settled contracts), in the same period in 2017.

Interest expense and other was $12.9 million and $19.3 million for the three months ended September 30, 2018 and 2017, respectively. We utilized a portion of the proceeds from our divestitures in 2017 to repurchase outstanding long-term debt, which drove a decrease in interest expense in the three months ended September 30, 2018 when compared to the same period in the prior year. This decrease was partially offset by interest expense on the Additional 2025 Notes which were issued in February 2018.

Table of Contents

On September 7, 2017, we issued an irrevocable notice to redeem the outstanding aggregate principal amount of our 2022 Second Lien Notes on October 7, 2017. On September 7, 2017, utilizing $137.8 million of the proceeds from the Williston Divestiture, we deposited with U.S. Bank National Association an amount of funds sufficient to fund the redemption, delivered instructions to apply the deposited funds toward the redemption, and received a written acknowledgment from U.S. Bank National Association of the satisfaction and discharge of the indenture governing the 2022 Second Lien Notes and the obligations of us and our subsidiary guarantors under the 2022 Second Lien Notes and related guarantees. We recognized a $29.2 million loss on the extinguishment of debt, representing a $23.0 million loss on the redemption for the make whole premium paid and a $6.2 million loss on the write-off of the discount on the notes.

For the three months ended September 30, 2017, we recorded an income tax benefit of $17.0 million resulting from the reversal of the $12.0 million alternative minimum tax generated primarily by the sale of the El Halcón Assets combined with the reversal of the $5.0 million alternative minimum tax liability recorded in 2016.

Table of Contents

Nine Months Ended September 30, 2018 and 2017

We reported a net loss of $100.7 million and net income of $628.8 million for the nine months ended September 30, 2018 and 2017, respectively. The table included below sets forth financial information for the periods presented.

	Nine Months Ended September 30,

In thousands (except per unit and per Boe amounts)	2018			2017			Change
Net income (loss)	$	(100,709	)	$	628,816		$	(729,525	)
Operating revenues:
Oil		145,743			319,472			(173,729	)
Natural gas		5,286			15,051			(9,765	)
Natural gas liquids		14,623			16,779			(2,156	)
Other		613			1,386			(773	)
Operating expenses:
Production:
Lease operating		15,504			58,822			(43,318	)
Workover and other		4,795			22,213			(17,418	)
Taxes other than income		9,812			29,149			(19,337	)
Gathering and other		30,782			34,640			(3,858	)
Restructuring		128			2,080			(1,952	)
General and administrative:
General and administrative		36,955			53,418			(16,463	)
Stock-based compensation		12,241			33,548			(21,307	)
Depletion, depreciation and accretion:
Depletion—Full cost		46,920			96,141			(49,221	)
Depreciation—Other		5,252			3,417			1,835
Accretion expense		225			1,230			(1,005	)
(Gain) loss on sale of oil and natural gas properties		7,235			(727,520	)		734,755
Other income (expenses):
Net gain (loss) on derivative contracts		(66,603	)		28,139			(94,742	)
Interest expense and other		(30,522	)		(63,808	)		33,286
Gain (loss) on extinguishment of debt		—			(86,065	)		86,065
Income tax benefit (provision)		—			5,000			(5,000	)
Production:
Oil—MBbls		2,468			7,108			(4,640	)
Natural Gas—Mmcf		3,009			6,892			(3,883	)
Natural gas liquids—MBbls		523			1,165			(642	)
Total MBoe ⁽¹⁾		3,493			9,422			(5,929	)
Average daily production—Boe ⁽¹⁾		12,795			34,513			(21,718	)
Average price per unit *(2)* :
Oil price—Bbl	$	59.05		$	44.95		$	14.10
Natural gas price—Mcf		1.76			2.18			(0.42	)
Natural gas liquids price—Bbl		27.96			14.40			13.56
Total per Boe ⁽¹⁾		47.42			37.29			10.13
Average cost per Boe:
Production:
Lease operating	$	4.44		$	6.24		$	(1.80	)
Workover and other		1.37			2.36			(0.99	)
Taxes other than income		2.81			3.09			(0.28	)
Gathering and other		8.81			3.68			5.13
Restructuring		0.04			0.22			(0.18	)
General and administrative:
General and administrative		10.58			5.67			4.91
Stock-based compensation		3.50			3.56			(0.06	)
Depletion		13.43			10.20			3.23

(1): Natural gas reserves are converted to oil reserves using a ratio of six Mcf to one Bbl of oil. This ratio does not assume price equivalency and, given price differentials, the price for a barrel of oil equivalent for natural gas may differ significantly from the price for a barrel of oil.
(2): Amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting.

Table of Contents

Oil, natural gas and natural gas liquids revenues were $165.7 million and $351.3 million for the nine months ended September 30, 2018 and 2017, respectively. For the nine months ended September 30, 2018 and 2017, production averaged 12,795 Boe/d and 34,513 Boe/d, respectively. Our average daily oil and natural gas production decreased in the nine months ended September 30, 2018 when compared to the same period in the prior year due to our divestitures in 2017. This decrease was partially mitigated by the production associated with our Delaware Basin assets and our drilling activities since acquiring the assets. Average realized prices (excluding the effects of hedging arrangements) were $47.42 per Boe and $37.29 per Boe for the nine months ended September 30, 2018 and 2017, respectively. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, transportation take-away capacity constraints, inventory storage levels, basis differentials and other factors.

Lease operating expenses were $15.5 million and $58.8 million for the nine months ended September 30, 2018 and 2017, respectively. On a per unit basis, lease operating expenses were $4.44 per Boe and $6.24 per Boe for the nine months ended September 30, 2018 and 2017, respectively. The decrease in lease operating expense from 2017 levels is primarily attributed to our El Halcón and Williston Divestitures in 2017 which greatly reduced our inventory of producing wells.

Workover and other expenses were $4.8 million and $22.2 million for the nine months ended September 30, 2018 and 2017, respectively. On a per unit basis, workover and other expenses were $1.37 per Boe and $2.36 per Boe for the nine months ended September 30, 2018 and 2017, respectively.

Taxes other than income were $9.8 million and $29.1 million for the nine months ended September 30, 2018 and 2017, respectively. Most production taxes are based on realized prices at the wellhead. As revenues or volumes from oil and natural gas sales increase or decrease, production taxes on these sales also increase or decrease. On a per unit basis, taxes other than income were $2.81 per Boe and $3.09 per Boe for the nine months ended September 30, 2018 and 2017, respectively.

Gathering and other expenses were $30.8 million and $34.6 million for the nine months ended September 30, 2018 and 2017, respectively. Gathering and other expenses include gathering fees paid on our oil and natural gas production, operating expenses on our water recycling facilities and gas gathering infrastructure, gas treating fees, rig stacking charges and other. Approximately $3.8 million and $25.6 million for the nine months ended September 30, 2018 and 2017, respectively, relate to gathering and marketing fees paid on our oil and natural gas production. Approximately $26.2 million and $3.1 million expenses for the nine months ended September 30, 2018 and 2017, respectively, relate to operating expenses on our water recycling facilities and gas gathering infrastructure. Included in the current period is approximately $14.0 million of costs to remove hydrogen sulfide from natural gas produced from our Monument Draw properties as a consequence of a third party pipeline temporarily going out of service. We have secured capacity on another third party pipeline for a portion of the natural gas produced in this area and are progressing on solutions for the remaining natural gas produced, including the purchase of treating equipment which will alleviate reliance upon third party services for the removal of hydrogen sulfide from the natural gas produced. Therefore, we currently expect higher treating costs to continue into the fourth quarter of 2018, but to decrease slightly from the costs incurred in the third quarter of 2018 before decreasing substantially in early 2019. Also included are $1.9 million and $5.9 million of rig stacking charges for the nine months ended September 30, 2018 and 2017, respectively.

Restructuring expense was approximately $0.1 million and $2.1 million during the nine months ended September 30, 2018 and 2017, respectively. This represents severance costs and accelerated stock-based compensation expense related to the termination of certain employees in conjunction with our divestitures.

Table of Contents

General and administrative expense was $37.0 million and $53.4 million for the nine months ended September 30, 2018 and 2017, respectively. In the prior year period, we incurred approximately $8.4 million of transaction costs paid in conjunction with the Williston Divestiture. On a per unit basis, general and administrative expenses were $10.58 per Boe and $5.67 per Boe for the nine months ended September 30, 2018 and 2017, respectively. General and administrative expense on a per Boe basis increased in the current period due to a decrease in our average daily production primarily as a result of our 2017 divestitures.

Stock-based compensation expense was $12.2 million and $33.5 million for the nine months ended September 30, 2018 and 2017, respectively. Stock-based compensation expense decreased in the current period due to a reduction in our workforce and restricted stock granted in connection with our emergence from chapter 11 bankruptcy which vested on or before September 30, 2017.

Depletion for oil and natural gas properties is calculated using the unit of production method, which depletes the capitalized costs of evaluated properties plus future development costs based on the ratio of production for the current period to total reserve volumes of evaluated properties as of the beginning of the period. Depletion expense was $46.9 million and $96.1 million for the nine months ended September 30, 2018 and 2017, respectively. On a per unit basis, depletion expense was $13.43 per Boe and $10.20 per Boe for the nine months ended September 30, 2018 and 2017, respectively. The increase in the depletion rate per Boe from 2017 levels is primarily attributable to our shift in operations to the Delaware Basin.

Under the full cost method of accounting, sales of oil and gas properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless the adjustment significantly alters the relationship between capitalized costs and proved reserves. If the El Halcón and Williston Divestitures were accounted for as an adjustment of capitalized costs with no gain or loss recognized, the adjustment would have significantly altered the relationship between capitalized costs and proved reserves. Accordingly, we recognized a gain on the sale of the oil and natural gas properties associated with the El Halcón Divestiture of $235.7 million during the nine months ended September 30, 2017. We also recognized an initial gain on the sale of the Williston Divestiture of $491.8 million during the nine months ended September 30, 2017. We reduced the gain on the sale of the oil and natural gas properties associated with the Williston Divestiture by approximately $7.2 million during the nine months ended September 30, 2018, as the result of customary post-closing adjustments. The carrying value of the properties sold was determined by allocating total capitalized costs within the full cost pool between properties sold and properties retained based on their relative fair values.

We enter into derivative commodity instruments to economically hedge our exposure to price fluctuations on our anticipated oil, natural gas and natural gas liquids production. Consistent with prior years, we have elected not to designate any positions as cash flow hedges for accounting purposes, and accordingly, we record the net change in the mark-to-market value of these derivative contracts in our unaudited condensed consolidated statements of operations. At September 30, 2018, we had an $19.3 million derivative asset, $16.6 million of which was classified as current and we had a $123.6 million derivative liability, $86.2 million of which was classified as current associated with these contracts. We recorded a net derivative loss of $66.6 million ($77.5 million net unrealized loss and $10.9 million net realized gain on settled and early terminated contracts) for the nine months ended September 30, 2018 compared to a net derivative gain of $28.1 million ($11.0 million net unrealized gain and $17.1 million net realized gain on settled contracts), in the same period in 2017.

Interest expense and other was $30.5 million and $63.8 million for the nine months ended September 30, 2018 and 2017, respectively. We utilized a portion of the proceeds from our divestitures in 2017 to repurchase outstanding long-term debt, which drove a decrease in interest expense in the nine months ended September 30, 2018 when compared to the same period in the prior year. This

Table of Contents

decrease was partially offset by interest expense on the Additional 2025 Notes which were issued in February 2018.

We recorded an income tax benefit of $5.0 million for the nine months ended September 30, 2017 resulting from the reversal of our estimated 2016 alternative minimum tax liability.

Recently Issued Accounting Pronouncements

We discuss recently adopted and issued accounting standards in Item 1. Condensed Consolidated Financial Statements (Unaudited) —Note 1, " Financial Statement Presentation ."

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Derivative Instruments and Hedging Activity

We are exposed to various risks, including energy commodity price risk. When oil, natural gas, and natural gas liquids prices decline significantly our ability to finance our capital budget and operations may be adversely impacted. We expect energy prices to remain volatile and unpredictable; therefore, we have designed a risk management policy which provides for the use of derivative instruments to provide partial protection against declines in oil and natural gas prices by reducing the risk of price volatility and the affect it could have on our operations. The types of derivative instruments that we typically utilize include costless collars, swaps, and basis swaps. The total volumes that we hedge through the use of derivative instruments varies from period to period, however, generally our objective is to hedge approximately 70% to 80% of our anticipated production for the next 18 to 24 months, when derivative contracts are available at terms (or prices) acceptable to us. Our hedge policies and objectives may change significantly as our operational profile changes and/or commodities prices change. We do not enter into derivative contracts for speculative trading purposes.

We are exposed to market risk on our open derivative contracts related to potential non-performance by our counterparties. It is our policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions deemed by management as competitive market makers. We did not post collateral under any of our derivative contracts as they are secured under our Senior Credit Agreement or are uncollateralized trades. We account for our derivative activities under the provisions of ASC 815, Derivatives and Hedging (ASC 815). ASC 815 establishes accounting and reporting that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at fair value. Please refer to Item 1. Condensed Consolidated Financial Statements (Unaudited) —Note 7, " Derivative and Hedging Activities, " for additional information.

Table of Contents

Fair Market Value of Financial Instruments

The estimated fair values for financial instruments under ASC 825, Financial Instruments (ASC 825) are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash and cash equivalents, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. See Item 1. Condensed Consolidated Financial Statements (Unaudited) —Note 6, " Fair Value Measurements, " for additional information.

Interest Rate Sensitivity

We are also exposed to market risk related to adverse changes in interest rates. Our interest rate risk exposure results primarily from fluctuations in short-term rates, which are LIBOR and ABR based and may result in reductions of earnings or cash flows due to increases in the interest rates we pay on these obligations.

At September 30, 2018, the principal amount of our debt was $680.0 million, of which approximately 92% bears interest at a weighted average fixed interest rate of 6.75% per year. The remaining 8% of our total debt at September 30, 2018 bears interest at floating and variable interest rates that, at our option, are tied to the prime rate or LIBOR. Fluctuations in market interest rates will cause our annual interest costs to fluctuate. At September 30, 2018, the weighted average interest rate on our variable rate debt was 6.75% per year. If the balance of our variable interest rate at September 30, 2018 were to remain constant, a 10% change in market interest rates would impact our cash flows by approximately $0.4 million per year.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the design and operation of our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act) as of September 30, 2018. On the basis of this review, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

We did not have any change in our internal controls over financial reporting during the three months ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be a plaintiff or defendant in a pending or threatened legal proceeding arising in the normal course of our business. While the outcome and impact of currently pending legal proceedings cannot be determined, our management and legal counsel believe that the resolution of these proceedings through settlement or adverse judgment will not have a material effect on our consolidated operating results, financial position or cash flows.

Under rules promulgated by the SEC, administrative or judicial proceedings arising under any federal, state or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment are disclosed if the governmental authority is party to such proceeding and the proceeding involves potential monetary sanctions of $100,000 or more. We are not party to any such proceedings, except as described below.

On September 17, 2018, the United States Environmental Protection Agency (EPA) approved a Consent Agreement entered into among us, one of our subsidiaries and the EPA (Region 8), resolving alleged failures by us to minimize leakage of natural gas emissions into the atmosphere as required by EPA regulations at certain oil and natural gas wells located in Fort Berthold, North Dakota. We sold all of the wells subject to the Consent Agreement, together with our other operated properties in North Dakota, in September 2017. The EPA provided us with notice of the alleged violations in January 2018, which we promptly contested. In entering into the Consent Agreement, neither we nor our subsidiary admitted the facts or violations alleged by the EPA. Pursuant to the terms of the Consent Agreement, we paid a civil penalty of $110,000 to the EPA in September 2018.

Item 1A. Risk Factors

There have been no changes to the risk factors described in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2017, except as described below.

We could experience periods of higher costs for various reasons, including due to higher commodity prices, increased drilling activity in the Delaware Basin and trade disputes that affect the costs of steel and other raw materials that we and our vendors rely upon, which could adversely affect our ability to execute our exploration and development plans on a timely basis and within our budget.

Our industry is cyclical and periods of increasing oil, natural gas and natural gas liquids prices may result in shortages of drilling rigs, equipment, supplies, water or qualified personnel. During these periods, the costs and delivery times of rigs, equipment and supplies are substantially greater. In addition, the demand for, and wage rates of, qualified drilling rig crews rise as the number of active rigs in service increases. Increasing levels of exploration and production, particularly in the Delaware Basin, may increase demand for oilfield services and equipment, and the costs of these services and equipment may increase, while the quality of these services and equipment may suffer. Cost increases may also result from a variety of factors beyond our control, such as increases in the cost of electricity, steel and other materials that we and our vendors rely upon and increases in the cost of services to process, treat and transport our production. Recently, for instance, the President exercised his authority to impose significant tariffs on imports of steel and aluminum from a number of countries. Steel is extensively used by us and those in oil and gas industry generally, including for such items as tubulars, flanges, fittings and tanks, among many other items. As a result of the imposition of such tariffs, we will pay significantly more for most or all of these items in the near term. Any escalation or expansion of tariffs could result in higher costs and affect a greater range of materials we rely upon in our business. The unavailability or high cost of drilling rigs, pressure pumping equipment, tubulars and other supplies, and of qualified personnel can materially and adversely affect our operations and

Table of Contents

profitability. In order to secure drilling rigs and pressure pumping equipment and related services, we may enter into certain contracts that extend over several months or years. If demand for drilling rigs and pressure pumping equipment subside during the period covered by these contracts, the price we are required to pay may be significantly more than the market rate for similar services.

Item 2. Unregistered Sales of Equity Securities and the Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following documents are included as exhibits to this Quarterly Report on Form 10-Q. Those exhibits incorporated by reference are so indicated by the information supplied with respect thereto. Those exhibits which are not incorporated by reference are attached hereto.


2.1	*	Asset Purchase Agreement, dated October 31, 2018, by and among Halcón Field Services, LLC, Halcón Operating Co., Inc., Halcón Energy Properties, Inc. and Water Bridge Texas Midstream LLC.
3.1		Amended and Restated Certificate of Incorporation of Halcón Resources Corporation dated September 9, 2016 (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed September 9, 2016).
3.2		Fifth Amended and Restated Bylaws of Halcón Resources Corporation (Incorporated by reference to Exhibit 3.2 of our Current Report on Form 8-K filed May 7, 2015).
3.2.1		Amendment No. 1 to the Fifth Amended and Restated Bylaws of Halcón Resources Corporation (Incorporated by reference to Exhibit 3.2 of our Current Report on Form 8-K filed September 9, 2016).
10.1		Amended and Restated Senior Secured Revolving Credit Agreement, dated as of September 7, 2017, by and among Halcón Resources Corporation, JPMorgan Chase Bank, N.A., as administrative agent, and certain other financial institutions party thereto as lenders (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed September 11, 2017).
10.1.1		Second Amendment to Amended and Restated Senior Secured Revolving Credit Agreement, dated as of February 2, 2018, by and among Halcón Resources Corporation, JPMorgan Chase Bank, N.A., as administrative agent, and certain other financial institutions party thereto, as lenders (Incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K filed February 8, 2018).

Table of Contents


10.1.2		Third Amendment to Amended and Restated Senior Secured Revolving Credit Agreement, dated as of May 1, 2018, by and among Halcón Resources Corporation, JPMorgan Chase Bank, N.A., as administrative agent, and certain other financial institutions party thereto, as lenders (Incorporated by reference to Exhibit 10.1.2 of our Quarterly Report on Form 10-Q filed May 2, 2018).
10.1.3		Fourth Amendment to Amended and Restated Senior Secured Revolving Credit Agreement, dated as of July 12, 2018, by and among Halcón Resources Corporation, JPMorgan Chase Bank, N.A., as administrative agent, and certain other financial institutions party thereto, as lenders (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed July 17, 2018).
12.1	*	Computation of Ratio of Earnings to Combined Fixed Charges and Preference Dividends
31.1	*	Sarbanes-Oxley Section 302 certification of Principal Executive Officer
31.2	*	Sarbanes-Oxley Section 302 certification of Principal Financial Officer
32	*	Sarbanes-Oxley Section 906 certification of Principal Executive Officer and Principal Financial Officer
101.INS	*	XBRL Instance Document
101.SCH	*	XBRL Taxonomy Extension Schema Document
101.CAL	*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	*	XBRL Taxonomy Extension Definition Document
101.LAB	*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	*	XBRL Taxonomy Extension Presentation Linkbase Document

*: Attached hereto.
†: Indicates management contract or compensatory plan or arrangement.

Table of Contents

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 hereunto duly authorized.


	HALCÓN RESOURCES CORPORATION
November 7, 2018	By:	/s/ FLOYD C. WILSON
		Name:	Floyd C. Wilson
		Title:	Chairman of the Board, Chief Executive Officer and President
November 7, 2018	By:	/s/ MARK J. MIZE
		Name:	Mark J. Mize
		Title:	Executive Vice President, Chief Financial Officer and Treasurer

Exhibit 2.1

Execution Version

ASSET PURCHASE AGREEMENT

BY AND AMONG

HALCÓN FIELD SERVICES, LLC,

HALCÓN OPERATING CO., INC.,

HALCÓN ENERGY PROPERTIES, INC.

(COLLECTIVELY, “SELLERS”)

and

WATERBRIDGE TEXAS MIDSTREAM LLC

(“BUYER”)

Dated October 31, 2018

TABLE OF CONTENTS

				Page

ARTICLE 1		DEFINITIONS		1

1.1	Definitions			1
1.2	Construction			16

ARTICLE 2		PURCHASE AND SALE		17

2.1	Purchase and Sale			17
2.2	Assumed Liabilities; Excluded Liabilities			17
2.3	Purchase Price			17
2.4	Guaranties			17
2.5	Closing Adjustment Amount			17

ARTICLE 3		CLOSING		19

3.1	Closing			19
3.2	Deliveries by the Sellers at Closing			19
3.3	Deliveries by Buyer at Closing			20
3.4	Sellers’ Representative			20

ARTICLE 4		REPRESENTATIONS AND WARRANTIES OF THE SELLERS		21

4.1	Organization			21
4.2	Authority and Approval; Enforceability			21
4.3	No Conflict; Consents			22
4.4	Assets			22
4.5	Taxes			23
4.6	Environmental Matters			23
4.7	Sufficiency of Assets			24
4.8	Permits			25
4.9	Contracts			25
4.10	Litigation; Compliance with Laws			26
4.11	Employees and Employee Benefits			26
4.12	Insurance			26
4.13	Intellectual Property			26
4.14	Reference Balance Sheets			27
4.15	Absence of Certain Changes			27
4.16	Brokerage Arrangements			27
4.17	Affiliate Transactions			27
4.18	Solvency			27
4.19	SWDs			27
4.20	Preferential Rights			28
4.21	Commitments			28
4.22	Disclaimer			28

ARTICLE 5			REPRESENTATIONS AND WARRANTIES OF BUYER	28

5.1	Organization			28

TABLE OF CONTENTS

(Continued)

			Page

5.2	Authority and Approval; Enforceability		29
5.3	No Conflict; Consents		29
5.4	Independent Investigation		29
5.5	Financing		30
5.6	Brokerage Arrangements		30
5.7	Litigation		30
5.8	Disclaimer		30

ARTICLE 6		ADDITIONAL AGREEMENTS, COVENANTS, RIGHTS AND OBLIGATIONS	31

6.1	Operation of the Water Business		31
6.2	Access to Records; Confidentiality		32
6.3	Regulatory Filings; Consents		33
6.4	Further Assurances		34
6.5	Publicity		34
6.6	HFS Marks		35
6.7	Nonassignable Contracts, Surface Use Agreements and Permits; Pending Permits		35
6.8	Amendment of Schedules		37
6.9	Termination of Affiliate Contracts		38
6.10	Insurance		38
6.11	Exclusivity		38
6.12	Financial Records and Access to Information		38
6.13	Environmental Defects		39
6.14	Water Services Agreement		43
6.15	Cooperation Related to Monument Draw Water		44
6.16	Covenant to Satisfy Closing Conditions		44

ARTICLE 7		CONDITIONS TO CLOSING	44

7.1	Conditions to the Obligation of Buyer		44
7.2	Conditions to the Obligation of the Sellers		45

ARTICLE 8		TAX MATTERS	46

8.1	Allocation of Purchase Price		46
8.2	Tax Returns		46
8.3	Allocation of Certain Taxes		47
8.4	Tax Refunds		47
8.5	Transfer Taxes		47
8.6	Tax Contest		47
8.7	Purchase Price Adjustments		48

ARTICLE 9		TERMINATION	48

9.1	Events of Termination		48

TABLE OF CONTENTS

(Continued)

			Page

9.2	Effect of Termination		48

ARTICLE 10		INDEMNIFICATION	49

10.1	Indemnification of Buyer		49
10.2	Indemnification of the Sellers		49
10.3	Survival		49
10.4	Limitations on Indemnification		50
10.5	Defense of Claims		51
10.6	Sole Remedy		52

ARTICLE 11		MISCELLANEOUS	53

11.1	Expenses		53
11.2	Notices		53
11.3	Entire Agreement; Amendments and Waivers		54
11.4	Binding Effect; Assignment; Third-Party Beneficiaries		54
11.5	Governing Law		55
11.6	Jurisdiction and Venue		55
11.7	Severability		55
11.8	Interpretation		55
11.9	Headings and Schedules		55
11.10	Time of Essence		56
11.11	Multiple Counterparts		56

iii

TABLE OF CONTENTS

(Continued)

Exhibits

Exhibit A	Form of Transition Services Agreement
Exhibit B	Form of Bill of Sale
Exhibit C	Form of Shared Use Agreement
Exhibit D	Water Systems
Exhibit E	Water Wells
Exhibit F-1	Form of Produced Water Gathering and Disposal Agreement
Exhibit F-2	Water Services Agreement Term Sheet
Exhibit G	Form of Deed
Exhibit H-1	Map of Hackberry Draw Operating Area
Exhibit H-2	Map of Monument Draw Operating Area
Exhibit H-3	Map of West Quito Draw Operating Area
Exhibit I	Adjustment Period Budget
Exhibit J	Closing Adjustment Illustration
Exhibit K	Side Letter Agreement

Schedules

Schedule 1.1(a)	-	Water Contracts
Schedule 1.1(b)	-	Combined Water Agreements
Schedule 1.1(c)	-	Retained Fee Property
Schedule 1.1(d)	-	Knowledge of Sellers
Schedule 1.1(e)	-	Knowledge of Buyer
Schedule 1.1(f)	-	Produced Water Agreement Recording Counties
Schedule 2.5	-	Capital Expenditures
Schedule 4.3(a)	-	No Conflict
Schedule 4.3(b)	-	Consents
Schedule 4.4(a)-1	-	Owned Real Property
Schedule 4.4(a)-2	-	Improvements
Schedule 4.4(a)-3	-	Surface Use Agreements
Schedule 4.4(a)-4	-	Real Property Exceptions
Schedule 4.4(b)-1	-	Tangible Personal Property
Schedule 4.4(b)-2	-	Tangible Personal Property Exceptions
Schedule 4.5	-	Taxes
Schedule 4.6	-	Environmental Matters
Schedule 4.6(e)	-	Environmental Permits
Schedule 4.7	-	Sufficiency of Assets
Schedule 4.8	-	Permits
Schedule 4.9(a)	-	Material Contracts
Schedule 4.9(b)	-	Material Contracts Exceptions
Schedule 4.10	-	Litigation; Compliance with Laws
Schedule 4.12	-	Insurance
Schedule 4.13	-	Intellectual Property
Schedule 4.14(a)	-	Reference Balance Sheets
Schedule 4.14(b)	-	No Undisclosed Liabilities

TABLE OF CONTENTS

(Continued)

Schedule 4.15	-	Absence of Certain Changes
Schedule 4.17	-	Affiliate Transactions
Schedule 4.19	-	SWDs
Schedule 4.21	-	AFEs
Schedule 6.1(b)	-	Operation of the Water Business
Schedule 6.2(a)	-	Access
Schedule 6.7(c)	-	Pending Permit Applications
Schedule 6.9	-	Affiliate Contracts Not to Be Terminated
Schedule 7.2(c)	-	Required Consents

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (the “ Agreement ”) is made and entered into as of October 31, 2018 (the “ Execution Date ”), by and among Halcón Field Services, LLC, a Delaware limited liability company (“ HFS ”), Halcón Energy Properties, Inc., a Delaware corporation (“ HEP ”), and Halcón Operating Co., Inc., a Texas corporation (“ HOC ” and together with HFS and HEP, the “ Sellers ”), and WaterBridge Texas Midstream LLC, a Texas limited liability company (“ Buyer ”).

W I T N E S S E T H:

WHEREAS, Sellers own and operate certain water assets that are described and defined in this Agreement as the “ Water Assets ”; and

WHEREAS, Sellers wish to sell and assign to Buyer, and Buyer wishes to purchase and assume from Sellers, the Water Assets and the Assumed Liabilities, subject to the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants, agreements and conditions contained herein, the Parties hereto agree as follows:

ARTICLE 1
DEFINITIONS

1.1 Definitions . The terms defined in this Section 1.1 shall, when used in this Agreement, have the respective meanings specified herein, with each such definition equally applicable to both singular and plural forms of the terms so defined:

“ Acquisition Proposal ” has the meaning ascribed to such term in Section 6.11(a) .

“ Adjustment Period ” means the period commencing at the Effective Time and ending at 7:00 a.m. United States Central Standard Time on the Closing Date.

“ Adjustment Period Budget ” means the capital budget setting forth the anticipated capital expenditures for the Water Business for the period from the Effective Time through March 31, 2019 and attached hereto as Exhibit I .

“ AFE ” has the meaning specified in Section 4.21 .

“ Aggregate Defect Threshold ” has the meaning specified in Section 6.13 .

“ Affiliate ” means, with respect to any Person, any other Person that directly or indirectly Controls, is Controlled by or is under common Control with, such Person.

“ Affiliate Contract ” has the meaning ascribed to such term in Section 4.17 .

“ Agreement ” has the meaning ascribed to such term in the preamble.

“ Allocation ” has the meaning ascribed to such term in Section 8.1 .

“ Asset Tax Return ” means any Tax Return of or relating to Asset Taxes.

“ Asset Taxes ” means ad valorem, property, excise, severance, production, sales, use, or similar Taxes (excluding any Income Taxes and Transfer Taxes) based upon or measured by the acquisition, ownership or operation of the Water Assets.

“ Assumed Liabilities ” means (a) all Liabilities related to the Water Business arising from events occurring after the Effective Time or that are to be performed after the Effective Time, and (b) all Environmental Liabilities, known or unknown, regardless of whether such obligations or liabilities arose from facts or circumstances existing or occurring prior to, on or after the Effective Time, but only to the extent arising from or related to the Water Business or the Water Assets.

“ Balance Sheet Date ” means September 30, 2018.

“ Base Purchase Price ” means Two Hundred Million Dollars ($200,000,000).

“ Bill of Sale ” means the Bill of Sale, Assignment and Assumption Agreement substantially in the form attached hereto as Exhibit B .

“ Business Day ” means any day other than a Saturday, a Sunday or a day on which national banking associations located in the State of New York or the State of Texas are required or authorized by applicable Law to remain closed.

“ Business Expenditures ” means the sum of (a) all capital expenditures paid or incurred by the Sellers and their Affiliates during the Adjustment Period in connection with the Water Business to the extent incurred in accordance with the Adjustment Period Budget or as permitted by Section 6.1(b)(vi) , (b) without duplication of the amounts described in clause (a) , the capital expenditures set forth on Schedule 2.5 , (c) all operating expenditures paid or incurred by the Sellers and their Affiliates during the Adjustment Period in connection with the Water Business to the extent permitted by Section 6.1(b)(vii) , and (d) a monthly allocation of overhead equal to $125,000 for each calendar month during the Adjustment Period, which amount shall be prorated for any partial calendar month during the Adjustment Period; provided that if the Water Services Agreement has not been entered into on or before the Closing Date in accordance with Section 6.14 , then the operating expenditures and capital expenditures attributable to the Freshwater Wells shall not be included for purposes of the calculation of Business Expenditures and the allocation of overhead set forth in clause (d) shall be $106,250 for purposes of the calculation of Business Expenditures.

“ Business Revenue ” means all revenue of the Water Business (determined in a manner consistent with past practices of Sellers) that would have been received by Buyer during the Adjustment Period pursuant to the Produced Water Agreement and the Water Services Agreement assuming each such agreement had been entered into at the Effective Time; provided, however, that if the Water Services Agreement has not been entered into on or before the Closing Date in accordance with Section 6.14 , then the revenue associated with the Water Services Agreement shall not be included for purposes of the calculation of Business Revenue.

“ Buyer ” has the meaning ascribed to such term in the preamble.

“ Buyer Closing Certificate ” has the meaning ascribed to such term in Section 7.2(a) .

“ Buyer Fundamental Representations ” means the representations and warranties of Buyer set forth in Sections 5.1 (Organization), 5.2 (Authority and Approval; Enforceability), 5.3(a)(i) (No Conflict; Consents), 5.4 (Independent Investigation), and 5.6 (Brokerage Arrangements).

“ Buyer Indemnified Parties ” has the meaning ascribed to such term in Section 10.1 .

“ Buyer Material Adverse Effect ” means any event, effect, change, fact or circumstance, individually or in the aggregate, that has or could reasonably be expected to have, a material and adverse effect on the ability of Buyer to perform its obligations under this Agreement or to consummate the transactions contemplated hereby.

“ Buyer Parent ” means WaterBridge Operating LLC, a Delaware limited liability company.

“ Buyer Parent Guaranty ” means the Guaranty Agreement executed by Buyer Parent in favor of the Sellers dated as of the Execution Date.

“ Buyer’s Auditor ” has the meaning ascribed to such term in Section 6.12(a)(iv) .

“ Cap ” has the meaning ascribed to such term in Section 10.4(a) .

“ CERCLA ” means the Comprehensive Environmental Response, Compensation, and Liability Act.

“ Closing ” has the meaning ascribed to such term in Section 3.1 .

“ Closing Adjustment Amount ” means an amount equal to (a) the Business Expenditures, minus (b) the Business Revenue, and calculated in a manner that is consistent with the illustrative calculation in Exhibit J .

“ Closing Date ” has the meaning ascribed to such term in Section 3.1 .

“ Code ” means the United States Internal Revenue Code of 1986 and any successor statute, as amended from time to time.

“ Combined Water Agreements ” means (a) the Surface Use Agreements and Water Contracts set forth on Schedule 1.1(b) , each of which relates to both the Water Assets and to the Excluded Assets, and (b) any Surface Use Agreement or Water Contract entered into by a Seller in accordance with Section 6.1 after the Execution Date and before the Closing Date relating to both the Water Assets and to the Excluded Assets.

“ Confidentiality Agreement ” has the meaning ascribed to such term in Section 6.2(c) .

“ Contract ” means any legally binding agreement, contract, indenture, mortgage, license, concession, commitment, promise or undertaking (whether written or oral and whether express or implied).

“ Control ” (and its correlative terms) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

“ Cure Amount ” has the meaning ascribed to such term in Section 6.8(a) .

“ Customary Post-Closing Consents ” means the consents and approvals from Governmental Authorities that are customarily obtained in the ordinary course after transfers comparable to the transactions contemplated hereby, but shall not include any consents set forth on Schedule 7.2(c) .

“ Deductible Amount ” has the meaning ascribed to such term in Section 10.4(a) .

“ Defect Notice ” means a written notice delivered to HFS on or before the Defect Notice Date specifying one or more defects associated with the Water Assets that Buyer asserts constitutes an Environmental Defect, which, to be valid, shall include (i) a specific description of each such Environmental Defect and the Water Asset affected thereby, including the Environmental Laws alleged to be violated and the facts that give rise to such alleged violation, (ii) the basis for such assertion under the terms of this Agreement, and (iii) Buyer’s good faith reasonable estimate of the Environmental Defect Amount attributable to such individual alleged Environmental Defect and the computations and information upon which Buyer’s estimate is based.

“ Defect Notice Date ” means 5:00 p.m. United States Central Standard Time on the earlier of (i) December 17, 2018 and (ii) the day that Buyer notifies HFS in writing that it has completed its environmental due diligence of the Water Business.

“ Deed ” means the Special Warranty Deed substantially in the form attached hereto as Exhibit G , pursuant to which the Owned Real Property is conveyed to Buyer.

“ Direct Claim ” means any claim by an Indemnified Party with respect to a Liability which does not result from a Third Party Claim.

“ Disputed Matter ” has the meaning ascribed to such term in Section 6.13(e)(ii) .

“ Effective Time ” means 7:00 a.m. United States Central Standard Time on October 1, 2018.

“ Employee Plans ” has the meaning ascribed to such term in Section 4.11 .

“ Environmental Arbitrator ” has the meaning specified in Section 6.13(g)(i) .

“ Environmental Defect ” means a violation of applicable Environmental Laws existing prior to the Effective Time that requires remediation, restoration or correction in respect of any

Water Asset; provided, however, that the term “Environmental Defect” shall not include (a) any obligations to plug, abandon or otherwise decommission any well, (b) the presence of asbestos or NORM in or on the Water Assets in quantities typical for oilfield and water production and handling operations, or (c) the presence of hydrogen sulfide in the Water Assets.

“ Environmental Defect Amount ” has the meaning ascribed to such term in Section 6.13(f) .

“ Environmental Information ” has the meaning ascribed to such term in Section 6.13(a) .

“ Environmental Laws ” means any applicable federal, state or local statutes, laws, ordinances, rules, regulations, orders, codes, decisions, injunctions or decrees that regulate or otherwise pertain to the protection of human health and safety, the environment, natural resources, or pollutants, contaminants, wastes or chemicals or any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous or regulated substances, wastes, or materials, including the management, control, discharge, emission, treatment, containment, handling, removal, use, generation, permitting, migration, storage, release, transportation, disposal, remediation, manufacture, processing or distribution of, or the exposure to or releases of, Hazardous Materials, including, but in no way limited to, the following laws, in effect as of the Closing Date or at any previous time as in place or amended : (i) the Resource Conservation and Recovery Act; (ii) the Clean Air Act; (iii) CERCLA; (iv) the Federal Water Pollution Control Act; (v) the Safe Drinking Water Act; (vi) the Toxic Substances Control Act; (vii) the Emergency Planning and Community Right-to Know Act; (viii) the National Environmental Policy Act; (ix) the Pollution Prevention Act of 1990; (x) the Oil Pollution Act of 1990; (xi) the Hazardous Materials Transportation Act and (xii) all rules, regulations, orders, judgments, publications, or decrees promulgated or issued with respect to the foregoing by Governmental Authorities with appropriate jurisdiction.

“ Environmental Liabilities ” means any and all environmental response costs (including costs of remediation), damages, natural resource damages, settlements, consulting fees, expenses, penalties, fines, orphan share, prejudgment and post-judgment interest, court costs, reasonable attorneys’ fees, and other liabilities incurred or imposed (i) pursuant to any order, notice of responsibility, directive (including requirements imposed pursuant to Environmental Laws), injunction, judgment or similar act (including binding settlements) by any Governmental Authority or other Person (in each case) to the extent arising out of any violation of, or remedial obligation under, any Environmental Laws or (ii) pursuant to any pending claim or cause of action by a Governmental Authority or other Person for personal injury, property damage, damage to natural resources, remediation or response costs (in each case) to the extent arising out of any violation of, or any remediation obligation under, any Environmental Laws.

“ Environmental Permits ” has the meaning ascribed to such term in Section 4.6(e) .

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

“ Estimated Closing Adjustment Amount ” has the meaning ascribed to such term in Section 2.5(a) .

“ Estimated Closing Payment ” means an amount equal to (a) the Base Purchase Price plus (b) the Estimated Closing Adjustment Amount, less (d) any adjustments to be made at Closing as contemplated by Section 6.8 , Section 6.13(e)(iii) or Section 6.14 .

“ Estimated Defect Amount ” has the meaning ascribed to such term in Section 6.13(e)(ii) .

“ Exchange Act ” has the meaning ascribed to such term in Section 6.12(a)(i) .

“ Excluded Assets ” means the following assets of any Seller or Affiliate thereof:

(a) any and all rights to the HFS Marks, together with any Contracts granting rights to use the same;

(b) any and all cash and cash equivalents on hand or held by any bank or other Person and any accounts or notes receivable;

(c) any and all rights under the Insurance Policies, including the proceeds thereof and interests in insurance pools and programs;

(d) any and all causes of action (including counterclaims) and defenses against Third Parties but only to the extent related to any of the Excluded Assets;

(e) those rights relating to deposits and prepaid expenses and claims for refunds and rights to offset in respect of any Excluded Assets;

(f) overhead power lines, poles and well site connections located in the Operating Areas;

(g) all minute books, stock records and corporate seals of the Sellers;

(h) all employee-related or employee benefit-related files or records of the Sellers or their Affiliates;

(i) the Partially Retained Agreements;

(j) the Retained Fee Property; and

(k) all other assets, rights and properties of the Sellers that are not Water Assets, including all Oil and Gas Interests and all assets used in connection therewith and Contracts related thereto.

“ Excluded Liabilities ” means all Liabilities other than Assumed Liabilities, including (a) the Liabilities, if any, of the Sellers with respect to any employees or any Employee Plan, (b) any Liability arising from the conduct of the Water Business prior to the Effective Time, (c) any Liabilities arising from the gross negligence or willful misconduct of HFS in the operation of the Water Assets prior to the Closing Date, (d) any Income Taxes of the Sellers or any of their respective direct or indirect owners, (e) any Asset Taxes related to any taxable period (or portion thereof, determined in accordance with Section 8.3 ) ending at or before the

end of the day before the Effective Time or on any prior date, (f) any Indebtedness of any Seller (other than any Indebtedness under a Water Contract), (g) Liabilities of the Sellers not relating to the Water Business, (h) any Liabilities associated with any of the Excluded Assets and (i) Liabilities of the Sellers for brokers’ fees.

“ Execution Date ” has the meaning ascribed to such term in the preamble.

“ Filings ” has the meaning ascribed to such term in Section 6.12(a)(i) .

“ Final Closing Adjustment Amount ” means the actual Closing Adjustment Amount as determined pursuant to the procedures set forth in Section 2.5 .

“ Financial Records ” has the meaning ascribed to such term in Section 6.12(a)(i) .

“ Freshwater Wells ” means the freshwater wells identified and described on Exhibit E .

“ GAAP ” means United States generally accepted accounting principles with such exceptions to such United States generally accepted accounting principles as may be noted or otherwise referred to on any individual financial statement or schedule.

“ Governing Documents ” means, (i) with respect to a corporation, its charter and bylaws, or equivalent governing documents, (ii) with respect to a limited partnership, its certificate of limited partnership and its limited partnership agreement, or equivalent governing documents, and (iii) with respect to a limited liability company, its certificate of formation and its operating agreement, or equivalent governing documents.

“ Governmental Authority ” means any (a) national, state, county, municipal, or local government (whether domestic or foreign) and any political subdivision thereof, (b) any court or administrative tribunal, (c) any other governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body, agency, bureau or entity of competent jurisdiction, or (d) any arbitrator with authority to bind a party at law.

“ Hackberry Draw Operating Area ” means the operating area identified as “Hackberry Draw” on the map attached as Exhibit H-1 .

“ Hazardous Materials ” means any pollutant, contaminant, waste, chemical, or any other substance (i) which is listed, defined, or regulated as a “hazardous material,” “hazardous waste,” “hazardous substance,” “toxic substance,” or otherwise classified as hazardous or toxic, in or pursuant to any applicable Environmental Law; (ii) which is or contains asbestos, polychlorinated biphenyls, radon, urea formaldehyde foam insulation, explosives, or radioactive materials; or (iii) which is or contains any petroleum, petroleum hydrocarbons, petroleum products, crude oil and any components, fractions, or derivatives thereof, any oil or gas exploration or production waste, and any natural gas, synthetic gas and any mixtures thereof.

“ HEP ” has the meaning ascribed to such term in the preamble.

“ HFS ” has the meaning ascribed to such term in the preamble.

“ HFS Closing Certificate ” has the meaning ascribed to such term in Section 7.1(a) .

“ HFS Fundamental Representations ” means the representations and warranties of the Sellers set forth in Sections 4.1 (Organization), 4.2 (Authority and Approval; Enforceability), 4.3(a)(i) (No Conflict; Consents) and 4.16 (Brokerage Arrangements).

“ HFS Indemnified Parties ” has the meaning ascribed to such term in Section 10.2 .

“ HFS Marks ” has the meaning ascribed to such term in Section 6.6 .

“ HOC ” has the meaning ascribed to such term in the preamble.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“ Hydrocarbons ” means oil, liquid hydrocarbons, gas, and any and all other liquid or gaseous hydrocarbons, as well as their respective constituent products (including condensate, casinghead gas, distillate and natural gas liquids), and, to the extent useful for the exploration for and production of the foregoing, any other minerals produced in association therewith (including elemental sulfur, helium, carbon dioxide and other non-hydrocarbon substances produced in association with any of the above-described items).

“ Income Taxes ” means all Taxes based upon, measured by, or calculated with respect to gross or net income, gross or net receipts or profits.

“ Indebtedness ” of any Person means, without duplication, ( a) all obligations for borrowed money, (b) all obligations evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, or other financial products, (c) all obligations as a lessee under capital leases, (d) all obligations or liabilities of others secured by a Lien on any asset of such Person, irrespective of whether such obligation or liability is assumed, (e) all obligations to pay the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business and repayable in accordance with customary trade practices), (f) all obligations owing under any hedge Contracts, and (g) any obligation guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person that constitutes Indebtedness under any of clauses (a) through (f) above.

“ Indemnifiable Schedule Supplement Matters ” has the meaning ascribed to such term in Section 6.8(c) .

“ Indemnified Party ” means a HFS Indemnified Party or a Buyer Indemnified Party.

“ Indemnifying Party ” means a Party required to provide indemnification under Section 10.1 or 10.2 .

“ Independent Accountant ” has the meaning ascribed to such term in Section 2.5(d) .

“ Individual Defect Threshold ” has the meaning specified in Section 6.13(f)(v)(A) .

“ Individual Indemnity Threshold ” has the meaning set forth in Section 10.4(a) .

“ Insurance Policies ” has the meaning ascribed to such term in Section 4.12 .

“ Intellectual Property ” means all intellectual property rights, statutory or common law, worldwide, including (i) trademarks, service marks, trade dress, slogans, logos, assumed names , and all goodwill associated therewith, and any applications or registrations for any of the foregoing; (ii) copyrights and domain names and any applications or registrations for any of the foregoing; and (iii) patents, all confidential know-how, trade secrets and similar proprietary rights in confidential inventions, discoveries, improvements, processes, techniques, devices, methods, patterns, formulae, specifications, and lists of suppliers, vendors, customers, and distributors.

“ Knowledge ” means, (a) with respect to the Sellers, the actual knowledge of any person listed on Schedule 1.1(d) , including after due inquiry of such person’s direct reports, and (b) with respect to Buyer, the actual knowledge of any person listed on Schedule 1.1(e) , including after due inquiry of such person’s direct reports.

“ Law ” means any applicable constitutional provision, statute, act, code (including the Code), law, regulation, rule, ordinance, order, decree, ruling, proclamation, resolution, judgment, decision, declaration or interpretative or advisory opinion or letter of a Governmental Authority.

“ Liabilities ” means liabilities and obligations, whether direct or indirect, known or unknown, accrued, contingent, absolute, determined, determinable or otherwise, including all losses, deficiencies, costs, expenses, fines, interest, expenditures, claims, suits, Proceedings, judgments, damages, and reasonable attorneys’ fees and reasonable expenses of investigating, defending and prosecuting any Proceeding.

“ Lien ” means any mortgage, pledge, security interest, lien, restriction on use or transfer (other than those imposed by law), other possessory interest, adverse claim or encumbrance or charge of any kind.

“ Material Adverse Effect ” means any event, effect, change, fact or circumstance that, individually or in the aggregate, has or could reasonably be expected to have, a material and adverse effect on (a) the business, assets, liabilities, properties, financial condition or results of operations of the Water Business, taken as a whole, or (b) the ability of the Sellers to perform their obligations under this Agreement or to consummate the transactions contemplated hereby; provided , however , that a Material Adverse Effect shall not take into account any event, effect, change, fact or circumstance arising from or primarily relating to (i) changes generally affecting the industries in which the Water Business operates (including any change in the price of Hydrocarbons or water), (ii) changes in United States or global economic conditions or financial, banking, or securities markets (including any disruption thereof) in general, (iii) changes in national or international political or social conditions, including any engagement in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack, (iv) changes, or proposed changes in GAAP or applicable Law (or any interpretation thereof), (v) the taking of any action expressly consented to in writing by Buyer pursuant to Section 6.1(b) and (vi) the announcement of the execution of this Agreement

or the Transaction Documents or the proposed or actual consummation of the transactions contemplated hereby or thereby; provided , that in the case of clauses (i) , (ii) , (iii) and (iv) above, the impact of such change on the Water Business is not disproportionate (other than in an immaterial amount) to the impact on similarly situated Persons conducting business in the industries in which the Water Business operates.

“ Material Contract ” has the meaning ascribed to such term in Section 4.9(a) .

“ Material Permits ” has the meaning ascribed to such term in Section 4.8(a) .

“ Memoranda of Agreement ” means the memoranda of agreement relating to the Produced Water Agreement entered into by and among the parties to the Produced Water Agreement, to be filed in each of the counties listed on Schedule 1.1(f) , which memoranda shall be substantially in the form as attached as an exhibit to the Produced Water Agreement.

“ Monument Draw Operating Area ” means the operating area identified as “Monument Draw” on the map attached as Exhibit H-2 .

“ Monument Draw Water ” has the meaning ascribed to such term in Section 6.15 .

“ NORM ” has the meaning ascribed to such term in Section 6.13(b) .

“ Notice ” has the meaning ascribed to such term in Section 11.2 .

“ Notice of Disagreement ” has the meaning ascribed to such term in Section 2.5(c) .

“ Oil and Gas Interests ” means any rights of the Sellers or any of their Affiliates to produce, explore for, or develop any of the lands included in the Real Property (or the mineral estates covered by such lands), or any other real property interests which are pooled, unitized or communitized with such lands (or the mineral estates of such pooled, unitized or communitized real property interests), for the production of native Hydrocarbons in, on or under any of such lands or real property interests.

“ Operating Area ” means each of the Hackberry Draw Operating Area, the Monument Draw Operating Area and the West Quito Draw Operating Area.

“ Other Real Property ” means (a) the Contracts used in connection with the Water Systems for surface operations, such as valves, meters, motors, fixtures, machinery, pressure regulators, piping, and other similar and/or appurtenant structures, and being more fully described on Schedule 4.4(a)-2 , (b) the Surface Use Agreements and (c) the Water Wells; provided, however, that the term “Other Real Property” shall not include any rights in any Oil and Gas Interests.

“ Owned Real Property ” means the real property described on Schedule 4.4(a)-1 ; provided, however, that the term “Owned Real Property” shall not include any rights in any Oil and Gas Interests.

“ Parent ” means Halcón Resources Corporation, a Delaware corporation.

“ Parent Credit Facility ” means the Senior Secured Revolving Credit Agreement dated September 9, 2016, among Parent, JPMorgan Chase Bank, N.A., as administrative agent, and certain other financial institutions.

“ Parent Guaranty ” means the Guaranty Agreement executed by Parent in favor of Buyer dated as of the Execution Date.

“ Partially Assigned Agreement ” means, with respect to the Combined Water Agreements, the rights and obligations that are assigned to Buyer as further described in Section 6.7(b) .

“ Partially Retained Agreement ” means, with respect to the Combined Water Agreements, the rights and obligations that are retained by the Sellers as further described in Section 6.7(b) .

“ Parties ” means the Sellers and Buyer, collectively, and the term “Party” refers to any of them, individually.

“ Pending Permit Applications ” has the meaning ascribed to such term in Section 6.7(c) .

“ Pending Permit Property ” has the meaning ascribed to such term in Section 6.7(d) .

“ Permit ” means any license, permit, certificate of authority, approval, tender, bid, registration, franchise, variance, exemption, consent or other authorization of or from a Governmental Authority.

“ Permitted Liens ” means:

(a) Liens for Taxes or assessments not yet due or delinquent or that are being contested in good-faith by appropriate proceedings;

(b) Customary Post- Closing Consents;

(c) conventional rights of reassignment upon final intention to abandon or release the Water Assets, or any of them, to the extent not triggered;

(d) such title defects as Buyer may waive in writing;

(e) all applicable Laws, and rights reserved to or vested in any Governmental Authority (i) to control or regulate any Water Asset in any manner; (ii) by the terms of any right, power, franchise, grant, license, or permit, or by any provision of Law, to terminate such right, power, franchise grant, license, or permit or to purchase, condemn, expropriate, or recapture or to designate a purchaser of any of the Water Assets; (iii) to use such property in a manner which does not materially impair the use of such property for the purposes for which it is currently owned and operated and (iv) to enforce any obligations or duties affecting the Water Assets to any Governmental Authority, with respect to any franchise, grant, license, or permit, provided, in each case, that any such Law has not been violated;

(f) rights of a Third Party common owner of any interest in any Real Property to the extent that the same does not materially impair the use or operation of the Water Assets as currently used and operated;

(g) easements, conditions, covenants, restrictions, servitudes, permits, rights-of-way, surface leases and other rights affecting the Water Assets for the purpose of surface operations, roads, alleys, highways, railways, pipelines, transmission lines, transportation lines, distribution lines, power lines, telephone lines, and removal of timber, grazing, logging operations, canals, ditches, reservoirs, and other like purposes, or for the joint or common use of real estate, rights-of-way, facilities, and equipment, in each case, that do not, and would not reasonably be expected to, materially impair the use, ownership or operation of the Water Assets (as currently owned and operated) or reduce the share of revenues or increase the share of costs with respect to the Water Assets that must be borne by Buyer;

(h) zoning and planning ordinances and municipal regulations to which the Water Business complies in all material respects; provided that such regulations have not been violated;

(i) vendors, carriers, warehousemen’s, repairmen’s, mechanics, workmen’s, materialmen’s, construction or other like liens arising by operation of Law in the ordinary course of business or incident to the construction or improvement of any property in respect of obligations which are not yet due or are being contested in good-faith by appropriate proceedings, or in the ordinary course of business since the Balance Sheet Date and that do not materially detract from the value of or materially interfere with the conduct of the Water Business;

(j) Liens created under the Real Property and/or operating agreements or by operation of Law in respect of obligations not yet due;

(k) any Liens affecting the Water Assets which are discharged by the Sellers or their Affiliates at or prior to Closing;

(l) any Liens arising under original purchase price conditional sales Contracts and equipment leases with other Persons entered into in the ordinary course of business;

(m) any Liens supporting surety bonds, performance bonds and similar obligations issued in connection with the Water Business in the ordinary course of such business; and

(n) any title defects or Liens that do not, individually or in the aggregate, materially detract from the value, use or occupancy of the Water Assets, taken as a whole, or materially interfere with the Water Business.

“ Person ” means a natural person or entity, including a corporation, limited liability company, venture, partnership (general or limited), trust, unincorporated organization, association, Governmental Authority or other entity.

“ Post-Closing Statement ” has the meaning ascribed to such term in Section 2.5(b) .

“ Proceeding ” means any action, suit, litigation, arbitration, proceeding or investigation by or before any Governmental Authority.

“ Produced Water Agreement ” means a Produced Water Gathering and Disposal Agreement in the form attached hereto as Exhibit F-1 .

“ Reference Balance Sheets ” means (a) the unaudited balance sheet of the Water Business as of December 31, 2017, and (b) the unaudited balance sheet of the Water Business as of September 30, 2018.

“ Release ” means any depositing, spilling, leaking, pumping, pouring, placing, emitting, discarding, abandoning, emptying, discharging, migrating, injecting, escaping, leaching, dumping or disposing into or through the environment.

“ Retained Fee Property ” means the real property described Schedule 1.1(c) .

“ Retained Water Supply Assets ” has the meaning ascribed to such term in Section 6.14(b) .

“ SEC ” has the meaning ascribed to such term in Section 6.12(a)(i) .

“ Securities Act ” means the Securities Act of 1933, as amended.

“ Sellers ” has the meaning ascribed to such term in the preamble.

“ SCADA ” means supervisory control and data acquisition.

“ Schedule Supplement ” has the meaning ascribed to such term in Section 6.8(a) .

“ Schedule Supplement Matters ” has the meaning ascribed to such term in Section 6.8(a) .

“ Schedules ” means the schedules to this Agreement.

“ Shared Use Agreement ” means a shared use agreement between HFS and Buyer in the form attached hereto as Exhibit C .

“ Side Letter Agreement ” means the letter agreement between HFS and Buyer, to be dated of the Closing Date, in the form attached hereto as Exhibit K

“ Straddle Period ” means any taxable period beginning before and ending after the Effective Time.

“ Surface Use Agreements ” means (a) the easements, rights-of-way, permits, consents, licenses and other similar rights and interests described on Schedule 4.4(a)-3 , including any Partially Assigned Agreement that is a Surface Use Agreement, and (b) any easements, rights-of-way, permits, consents, licenses and other similar rights and interests entered into by a Seller in accordance with Section 6.1 after the Execution Date and before the Closing Date relating to the

Water Business (including any rights and obligations that are to be assigned to Buyer as further described in Section 6.7(b) under a Combined Water Agreement that is a Surface Use Agreement entered into by a Seller in accordance with Section 6.1 after the Execution Date and before the Closing Date).

“ SWD ” has the meaning ascribed to such term in Section 4.19 .

“ Tangible Personal Property ” has the meaning ascribed to such term in Section 4.4(b) .

“ Tax ” or “ Taxes ” means any U.S. federal, state, local or foreign income, gross receipts, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, custom duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sale, use, transfer, registration, value added, escheat, unclaimed property, alternative or add on minimum, estimated or other tax of any kind whatsoever, including any interest, penalty, fine or additions to Tax thereto.

“ Tax Contest ” has the meaning ascribed to such term in Section 8.6 .

“ Tax Owner ” means, with respect to any Person that is classified as an entity disregarded from its sole regarded owner for U.S. federal Income Tax purposes, such regarded owner.

“ Taxing Authority ” means, with respect to any Tax, the governmental body, entity or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision, including any governmental or quasi-governmental entity or agency that imposes, or is charged with collecting, social security or similar charges or premiums.

“ Tax Return ” means all reports, estimates, declarations of estimated Tax, information statements and returns relating to, or required to be filed in connection with, any Taxes (including any attachments thereto and any amendment thereof), including information returns or reports with respect to backup withholding and other payments to other Persons.

“ Termination Date ” has the meaning ascribed to such term in Section 9.1(b) .

“ Third Party ” means any Person other than any of the Sellers, Buyer or any of their respective Affiliates.

“ Third Party Claim ” means any claim or the commencement of any Proceeding asserted or commenced by a Third Party against an Indemnified Party, as to which an Indemnified Party is entitled to make a claim pursuant to Article 10 .

“ Transaction Documents ” means (a) the Transition Services Agreement, the Produced Water Agreement, the Memoranda of Agreement, the Buyer Parent Guaranty, the Parent Guaranty, the Bill of Sale, the Shared Use Agreement, the Side Letter Agreement and any other documents or certificates delivered pursuant to this Agreement and (b) to the extent entered into at Closing in accordance with Section 6.14 , the Water Services Agreement.

“ Transfer Taxes ” has the meaning ascribed to such term in Section 8.5 .

“ Transition Services Agreement ” means a transition services agreement between HFS and Buyer in the form attached hereto as Exhibit A .

“ Treasury Regulations ” means the regulations promulgated by the United States Department of the Treasury pursuant to and in respect of provisions of the Code. All references herein to sections of the Treasury Regulations shall include any corresponding provisions of succeeding, similar, substitute, proposed or final Treasury Regulations.

“ Water Assets ” means all of the right, title and interest of the Sellers to the following assets and properties (other than items included in the definition of “Excluded Assets” and subject to Section 6.7 ):

(a) the Water Systems;

(b) the Water Contracts;

(d) the Water Permits;

(e) the Water Records;

(f) the Pending Permit Applications;

(g) all equipment, machinery, tools, fixtures and other personal, movable and mixed property, operational and nonoperational, known or unknown, including meters, check meters, and metering stations, measurement and regulation equipment, compressors and compression facilities and equipment, valves, generators, motors, pumping stations and equipment, cathodic and electrical protection units, bypasses, regulators, flow control equipment, and other connections, fittings, spare parts, facilities, fixtures, and tangible personal and mixed property and improvements, in each case, related to the Water Systems and located on the Water Property;

(h) all prepaid claims, prepaid expense items and deferred charges, credits, advance payments, security and other deposits made by any Seller to any other Person relating exclusively to the Water Business;

(i) all Third-Party indemnities relating exclusively to the Water Business prior to the Closing Date or relating to the Assumed Liabilities, in each case and pursuant to which a Seller is an indemnified party; and

(j) all rights, claims, credits, rights of setoff against a Third Party and causes of action (including counterclaims) and defenses of the Sellers, including to manufacturers’ and contractors warranties and indemnities, with respect to any of the Water Assets.

“ Water Business ” means the business of owning, operating or using the Water Assets as conducted by Sellers as of the Execution Date.

“ Water Contracts ” means (a) the Contracts set forth on Schedule 1.1(a) , and (b) any Contract entered into by a Seller in accordance with Section 6.1(b)(ii) after the Execution Date and before the Closing Date relating to the Water Business. For the avoidance of doubt, the term “Water Contracts” shall not include (i) any Contract representing an interest in any Water Property or (ii) any Contract related to the New Equipment (as such term is defined in the Transition Services Agreement).

“ Water Permits ” means all right, title and interest of the Sellers in and to all Permits, relating to the Water Systems.

“ Water Property ” means the Owned Real Property and the Other Real Property .

“ Water Records ” means all right, title and interest of the Sellers in and to all files, records, maps, information, and data, whether written or electronically stored, including: (a) land and title records (including abstracts of title, title opinions, and title curative documents); (b) contract files; (c) correspondence; and (d) operations, environmental, throughput, pipeline integrity data and records, and (e) Tax Returns and related accounting records, in each case, that are primarily relating to the Water Assets.

“ Water Services Agreement ” has the meaning ascribed to such term in Section 6.14(a) .

“ Water Supply Asset Value ” has the meaning ascribed to such term in Section 6.14(b) .

“ Water Systems ” means the water gathering and pipeline systems, the water facilities and the Water Wells described on Exhibit D .

“ Water Wells ” means the Freshwater Wells (except as set forth in Section 6.14(b) ) and the saltwater disposal wells described on Exhibit E .

“ West Quito Draw Operating Area ” means the operating area identified as “West Quito Draw” on the map attached as Exhibit H-3 .

“ WSA Negotiation Period ” has the meaning ascribed to such term in Section 6.14(b) .

1.2 Construction . In constructing this Agreement: (a) the word “includes” and its derivatives means “includes, without limitation” and corresponding derivative expressions; (b) the currency amounts referred to herein, unless otherwise specified, are in United States dollars; (c) whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified; (d) unless otherwise specified, all references in this Agreement to “Article,” “Section,” “Schedule,” “Exhibit,” “preamble” or “recitals” shall be references to an Article, Section, Schedule, Exhibit, preamble or recitals of this Agreement; (e) whenever the context requires, the words used in this Agreement shall include the masculine, feminine and neuter and singular and the plural; (f) all words used as accounting terms and not otherwise defined in this Agreement has the meaning commonly applied to such term under GAAP; (g) the words “herein,” “hereby,” “hereof,” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Section or Article or other subdivision; (h) the word “or” is not exclusive; and (i) the terms “ordinary course” or “ordinary

course of business” shall be deemed to refer to the conduct of the Sellers with respect to the Water Business in the ordinary course consistent with past practice.

ARTICLE 2
PURCHASE AND SALE

2.1 Purchase and Sale . Subject to the terms and conditions set forth herein, at the Closing, Sellers shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from Sellers, all of Sellers’ right, title and interest in, to and under the Water Assets. Buyer expressly understands and agrees that it is not purchasing or acquiring, and Sellers are not selling or assigning, any Excluded Assets, and all such Excluded Assets shall be excluded from the Water Assets.

2.2 Assumed Liabilities; Excluded Liabilities . Subject to the terms and conditions set forth herein, Buyer shall assume and agree to pay, perform and discharge when due any and all Assumed Liabilities. Buyer shall not assume and shall not be responsible to pay, perform or discharge any of the Excluded Liabilities.

2.3 Purchase Price . The aggregate purchase price for the Water Assets shall be (a) the sum of the Estimated Closing Payment and the Final Closing Adjustment Amount, plus (b) the assumption of the Assumed Liabilities. The purchase price shall be paid in accordance with Section 3.3(b) and subject to adjustment as provided in Sections 2.5 , 6.8 , and 6.13 .

2.4 Guaranties . Simultaneously with the execution and delivery of this Agreement, (a) Parent has executed and delivered to Buyer the Parent Guaranty and (b) Buyer Parent has executed and delivered to HFS the Buyer Parent Guaranty.

2.5 Closing Adjustment Amount .

(a) Estimated Closing Adjustment Amount . At least three (3) Business Days prior to the Closing, HFS shall deliver to Buyer a written statement setting forth HFS’s good-faith estimate of the Closing Adjustment Amount (the “ Estimated Closing Adjustment Amount ”) and the resulting Estimated Closing Payment, calculated in accordance with the terms of this Agreement and quantifying in reasonable detail the estimates of the items constituting such Estimated Closing Adjustment Amount. Upon delivery of the statement setting forth the Estimated Closing Adjustment Amount and prior to the Closing Date, Buyer shall have an opportunity to review such statement and the Parties shall cooperate in good-faith to mutually agree upon the Estimated Closing Adjustment Amount if Buyer disputes any item proposed to be set forth on such statement; provided, that, if the Parties are not able to reach mutual agreement prior to the Closing Date, the Estimated Closing Adjustment Amount set forth in the statement provided by HFS to Buyer shall be binding for purposes of Section 3.3(b) , but not for purposes of Section 2.5(b) .

(b) Post-Closing Statement . As promptly as practicable after the Closing Date, and in any event not later than ninety (90) days after the Closing Date, HFS shall deliver to Buyer a statement (the “ Post-Closing Statement ”) which shall set forth HFS’s good-faith calculation of the Closing Adjustment Amount in reasonable detail. The Sellers shall give Buyer and its authorized representatives access to such employees, officers, facilities and such books

and records of the Sellers as are reasonably necessary to allow Buyer and its authorized representatives to verify the Post-Closing Statement.

(c) Dispute Procedures . The Post-Closing Statement shall become final and binding on the Sellers and Buyer on the forty-fifth (45 th ) day following the date the Post-Closing Statement is received by Buyer, unless prior to such date Buyer delivers a notice (a “ Notice of Disagreement ”) to HFS stating that Buyer disagrees with HFS’s calculation of the Closing Adjustment Amount (or any component thereof), which notice shall set forth all of Buyer’s disputed items together with Buyer’s proposed changes thereto, including an explanation in reasonable detail of the basis on which Buyer proposes such changes. Buyer shall be deemed to have agreed with all items and amounts contained in the Post-Closing Statement that are not specifically identified in such Notice of Disagreement. If Buyer timely delivers a Notice of Disagreement, then Buyer and HFS shall use their good-faith efforts to reach agreement on the disputed items to determine the Closing Adjustment Amount.

(d) Independent Accountant . If Buyer and HFS have not signed an agreement resolving the disputed items by the thirtieth (30th) day following HFS’s receipt of a Notice of Disagreement, then the disputed items set forth in the Notice of Disagreement may be submitted by Buyer or HFS to an independent accounting firm approved by Buyer and HFS (the “ Independent Accountant ”) for resolution at any time after the end of the foregoing thirty (30) day period. In making such determination, the Independent Accountant shall consider only those items and amounts in the Post-Closing Statement with which Buyer has disagreed and which are set forth in the Notice of Disagreement. Each Party agrees that it shall not engage, or agree to engage the Independent Accountant to perform any services other than as the Independent Accountant pursuant hereto until the Post-Closing Statement and the Closing Adjustment Amount have been finally determined pursuant to this Section 2.5 . The fees and expenses of the Independent Accountant shall be borne fifty percent (50%) by the Sellers and fifty percent (50%) by Buyer. In no event shall the Closing Adjustment Amount as determined by the Independent Accountant be more favorable to the Sellers than reflected on the Post-Closing Statement prepared by HFS nor more favorable to Buyer than shown in the proposed changes delivered by Buyer pursuant to its Notice of Disagreement.

(e) Binding Effect . If a Notice of Disagreement is timely given, the Final Closing Adjustment Amount shall be deemed determined on the date that the Independent Accountant gives notice to Buyer and HFS of its determination with respect to all disputes regarding the calculation thereof, or, if earlier, the date on which Buyer and HFS agree in writing on the amount thereof, in which case the Final Closing Adjustment Amount shall be calculated in accordance with such determination or agreement, as the case may be. Any determination of the Final Closing Adjustment Amount by the Independent Accountant shall be final and binding upon Buyer and the Sellers.

(f) Adjustments .

(i) If the Final Closing Adjustment Amount exceeds the Estimated Closing Adjustment Amount, then Buyer shall pay to Sellers an amount of cash equal to such excess.

(ii) If the Final Closing Adjustment Amount is less than the Estimated Closing Adjustment Amount, then HFS shall pay to Buyer an amount of cash equal to such difference.

(iii) Any payment required by this Section 2.5(f) shall be made within five (5) Business Days after the date the Final Closing Adjustment Amount is deemed to be finally determined pursuant to Section 2.5(b) , 2.5(c) or 2.5(d) , as the case may be.

ARTICLE 3
CLOSING

3.1 Closing . The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall be held at the offices of Bracewell LLP, 711 Louisiana Street, Suite 2300, Houston, Texas 77002 on the third Business Day following the date on which all of the conditions to Closing set forth in Article 7 have been satisfied or waived, at 10:00 a.m., Houston time, or such other place, date and time as may be mutually agreed to in writing by the Parties, provided that no less than three (3) Business Days shall elapse between the date of delivery of any supplement to the Schedules pursuant to Section 6.8 and the Closing. The “ Closing Date ,” as referred to herein, shall mean the date of the Closing. For applicable Tax and accounting purposes, the Closing shall be deemed to occur at 12:01 a.m. Houston time on the Closing Date.

3.2 Deliveries by the Sellers at Closing . At the Closing, upon the terms and subject to the conditions of this Agreement, the Sellers shall deliver or cause to be delivered the following to Buyer:

(a) a counterpart of the Produced Water Agreement, duly executed by the Sellers or their Affiliates that are parties thereto;

(b) a counterpart of the Memoranda of Agreement, duly executed by the Sellers or their Affiliates that are parties to the Produced Water Agreement;

(d) a counterpart of the Side Letter Agreement, duly executed by the Sellers that are parties thereto;

(e) a counterpart of the Shared Use Agreement, duly executed by the Sellers that are parties thereto;

(f) counterparts of one or more Bills of Sale, duly executed by the Sellers that are parties thereto;

(g) counterparts of one or more Deeds, duly executed by the Sellers that are parties thereto;

(h) a properly completed and executed statement from each of HEP, HOC, and the Tax Owner of HFS, each dated as of the Closing Date and each meeting the requirements of Treasury Regulations Section 1.1445-2(b)(2);

(i) a properly completed and executed Texas Railroad Commission Form P-4 change of operator form with respect to each Water Well, naming Buyer as the operator of such Water Well, except with respect to any Freshwater Well that is not transferred at Closing in accordance with Section 6.14 ;

(j) Lien releases, in form and substance reasonably satisfactory to Buyer, effecting the full and complete release of all Liens on the Water Assets (with the exception of Permitted Liens), duly executed by the holders thereof, including releases of any Liens in favor of the lenders under the Parent Credit Facility;

(k) a counterpart of a termination letter in a form mutually agreeable to the Parties evidencing the termination of that certain Water Management Services Agreement, dated June 25, 2018, between EnWater Midstream, LLC and Halcón Energy Properties, Inc., duly executed by the Sellers that are parties thereto; and

(l) such other bills of sale, assignments, certificates, cross receipts, instruments and documents as Buyer may reasonably request in order to effectuate the transfer, assignment and conveyance to Buyer of the Water Assets and the assumption of the Assumed Liabilities as contemplated herein and to consummate the other transactions contemplated by this Agreement and the Transaction Documents.

3.3 Deliveries by Buyer at Closing . At the Closing, upon the terms and subject to the conditions of this Agreement, Buyer shall deliver or cause to be delivered the following to HFS:

(a) a counterpart of the Produced Water Agreement, Memoranda of Agreement, Transition Services Agreement, Side Letter Agreement, Shared Use Agreement, Bills of Sale and Deeds (if necessary), duly executed on behalf of Buyer;

(b) a wire transfer to HFS, in an amount equal to the Estimated Closing Payment in immediately available funds;

(c) a counterpart of a termination letter in a form mutually agreeable to the Parties evidencing the termination of that certain Water Management Services Agreement, dated June 25, 2018, between EnWater Midstream, LLC and Halcón Energy Properties, Inc., duly executed on behalf of Buyer; and

(d) such other bills of sale, assignments, certificates, cross receipts, instruments and documents as HFS may reasonably request in order to effectuate the transfer, assignment and conveyance to Buyer of the Water Assets and the assumption of the Assumed Liabilities as contemplated herein and to consummate the other transactions contemplated by this Agreement and the Transaction Documents.

3.4 Sellers’ Representative . Each Seller hereby appoints HFS as the representative of such Seller to act as the agent on behalf of such Seller for all purposes under this Agreement,

including for the purposes of: (a) acceptance of any payments hereunder and delivery of wire instructions in connection therewith; (b) delivering any funds hereunder; (c) determining whether the conditions to closing in Section 7.2 have been satisfied and supervising the Closing, including waiving any such condition if HFS, in its sole discretion, determines that such waiver is appropriate; (d) taking any action that may be necessary or desirable, as determined by HFS in its sole discretion, in connection with the termination hereof in accordance with Article 9 ; (e) taking any and all actions that may be necessary or desirable, as determined by HFS in its sole discretion, in connection with the amendment hereof in accordance with Section 11.3 ; (f) accepting notices on behalf of such Seller; (g) executing and delivering, in HFS’s capacity as the representative of such Seller, any and all notices, documents or certificates to be executed by HFS, on behalf of such Seller, in connection with this Agreement; (h) granting any consent or approval on behalf of such Seller under this Agreement and (i) taking any and all other actions and doing any and all other things provided in or contemplated by this Agreement to be performed by such Seller or by HFS on behalf of such Seller. As the representative of the Sellers, HFS will act as the agent for all Sellers and shall have authority to bind each Seller in accordance with this Agreement. Each Seller agrees that Buyer will be entitled to rely on any action taken by HFS on behalf of the Sellers pursuant to this Section 3.4 , and that any such action will be binding upon each Seller as fully as if such Seller had taken such action. Each Seller agrees that Buyer does not have any duty to investigate or question any action taken or not taken by HFS under this Agreement and that Buyer may fully rely upon such actions and inactions without further inquiry or other duty.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SELLERS

Sellers, jointly and severally, represent and warrant to Buyer as follows:

4.1 Organization . Each Seller is duly formed, validly existing and in good standing under the Laws of the State of Delaware and has all requisite corporate or limited liability company power and authority to own, operate and lease its properties and assets and to carry on its business as now conducted.

4.2 Authority and Approval; Enforceability . Each Seller has full corporate power and authority or limited liability company power and authority, as the case may be, to execute and deliver this Agreement and the Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby and to perform all of the terms and conditions hereof and thereof to be performed by each of them. The execution and delivery of this Agreement and the Transaction Documents, the consummation of the transactions contemplated hereby and thereby and the performance of all of the terms and conditions hereof and thereof to be performed have been duly authorized and approved by all requisite corporate action or limited liability company action, as the case may be, of such Seller. This Agreement and each of the Transaction Documents to which a Seller is a party, or when executed will be, duly executed and delivered by it, and, assuming this Agreement and each of the Transaction Documents have been duly authorized, executed and delivered by Buyer and its Affiliates, constitute the valid and legally binding obligation of such Seller, enforceable against it, be, in accordance with their terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the

enforcement of creditors’ rights and remedies generally and by general principles of equity (whether applied in a proceeding at law or in equity).

4.3 No Conflict; Consents .

(a) Except as set forth on Schedule 4.3(a) and for such filings as may be required under the HSR Act, the execution, delivery and performance of this Agreement and the Transaction Documents by Parent and the Sellers does not, and the fulfillment and compliance with the terms and conditions hereof and thereof and the consummation of the transactions contemplated hereby and thereby will not, (i) violate, conflict with any of, result in any breach of, or require the consent of any Person under, the terms, conditions or provisions of the Governing Documents of Parent or the Sellers, (ii) violate any provision of any Law applicable to Parent, the Sellers, the Water Assets or the Water Business; (iii) conflict with, result in a breach of, constitute a default under (whether with notice or the lapse of time or both), or accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under, or result in the suspension, termination or cancellation of, or in a right of suspension, termination or cancellation of, any Material Contract or violate any Permit held by the Sellers or Parent related to the Water Assets or the Water Business; except for those items in the case of this clause (iii) which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect or (iv) result in the creation of any Lien (other than Permitted Liens) on any of the Water Assets.

(b) Except as set forth on Schedule 4.3(b) and for such filings as may be required under the HSR Act, no consent, approval, license, permit, order or authorization of any Governmental Authority is required in connection with the execution, delivery, and performance by Parent or the Sellers of this Agreement and the Transaction Documents to which it is a party except (i) as have been waived or obtained in writing or with respect to which the time for asserting such right has expired, or (ii) Customary Post-Closing Consents.

4.4 Assets .

(a) Real Property . Other than the Excluded Assets, the real property set forth on Schedules 4.4(a)-1 , 4.4(a)-2 and 4.4(a)-3 , together with the properties made available to Buyer under the Transition Services Agreement, constitutes all real property reasonably necessary to operate the Water Systems as currently operated by Sellers. Except as disclosed on Schedule 4.4(a)-4 :

(i) the Sellers have good and indefeasible fee simple title to the Owned Real Property free and clear of all Liens, except Permitted Liens;

(ii) the Sellers and their Affiliates have not created, made or granted any Liens on the Owned Real Property or the Other Real Property, except for Permitted Liens;

(iii) the Sellers have not sold, conveyed, leased, transferred or assigned all or any portion of Owned Real Property or Other Real Property to any other Person;

(iv) there is no pending or, to the Sellers’ Knowledge, threatened in writing condemnation of any part of the Owned Real Property by any Governmental Authority;

(v) no Seller has received any written notice of any material default or breach under any Surface Use Agreement; and

(vi) subject to Permitted Liens, the Sellers have good and indefeasible title to all Water Wells located on the Owned Real Property.

(b) Tangible Personal Property . Except as disclosed on Schedule 4.4(b)-2 , (i) all material tangible personal property primarily used or held for use in connection with the Water Business is listed on Schedule 4.4(b)-1 (“ Tangible Personal Property ”), and (ii) no event has occurred that constitutes, or that with the giving of notice or the passage of time or both would constitute, a default by the Sellers under any lease of Tangible Personal Property. The Sellers have good, marketable and valid title to, or rights by license, lease or other agreement to use, all Tangible Personal Property, free and clear of all Liens, except for Permitted Liens.

4.5 Taxes . Except as set forth on Schedule 4.5 , (a) all material Asset Tax Returns required to be filed by the Sellers have been filed, such Asset Tax Returns are complete and correct in all material respects, and all Taxes shown on such Asset Tax Returns have been paid in full, (b) there are no outstanding waivers of any limitation periods or agreements providing for an extension of time for the filing of any Asset Tax Return or the payment of any Asset Tax, (c) there are no Proceedings for the assessment or collection of Asset Taxes pending or, to the Sellers’ Knowledge, threatened with respect to Asset Taxes, (d) none of the Water Assets consists of an equity or other ownership interest in any other Person or are subject to any Tax partnership agreement, (e) there are no Tax Liens on any of the Water Assets other than Permitted Liens, and (f) HFS is classified as an entity disregarded from its sole regarded owner for U.S. federal income tax purposes. This Section 4.5 contains the sole and exclusive representations and warranties in this Agreement with respect to Taxes or Tax matters, and such representations and warranties apply solely with respect to taxable periods (or portions thereof) ending prior to the Closing Date, and do not apply with respect to any taxable period (or portion thereof) beginning on or after the Closing Date.

4.6 Environmental Matters . Except as set forth on Schedule 4.6 :

(a) With respect to the Water Business, no Seller has entered into, or is a party (directly or as successor in interest) to, nor is any Water Asset subject to, any material Contracts with, or consent, order, decree, or judgment of, any Governmental Authority that is in existence as of the Execution Date and (i) is based on any Environmental Laws and relates to the present or future use of any of the Water Assets or (ii) that requires any material remediation of or other material change in the present conditions of any of the Water Assets.

(b) No Seller has received any written notice from a Third Party expressly alleging any claims against it (i) that the Water Assets are not in material compliance with any Environmental Laws, except for such non-compliance which has been remediated or otherwise resolved, or (ii) with respect to material Environmental Liabilities to the extent relating to the

Water Assets or making any express demands to clean-up any portion of the Water Assets because of a violation of Environmental Law, except for such claims or demands which have been resolved and closed with the applicable Governmental Authorities.

(c) To the Knowledge of the Sellers, during Sellers’ period of ownership, there has not been any Release of Hazardous Materials at or from any Water Assets (i) for which applicable Environmental Law requires notice, investigation or response action, or (ii) that materially interferes with or prevents compliance by the Sellers with any Environmental Law or the terms of any permits, licenses, orders, approvals, variances, waivers, franchises, rights or other authorizations issued pursuant thereto, in each case, with respect to the Water Business.

(d) All material reports, studies, written notices from environmental Governmental Authorities, including tests, analyses, and other similar documents specifically addressing environmental matters related to the ownership or operation of the Water Assets, which are in the Sellers’ or their Affiliates’ possession, have been made available to Buyer.

(e) Schedule 4.6(e) sets forth a true and correct list of all material Permits required by Environmental Laws for the conduct of the Water Business (the “ Environmental Permits ”) and except as described in Schedule 4.6(e) , (i) the Sellers validly hold all such Environmental Permits; (ii) no Seller has received any written notification expressly alleging any violations with respect to any of such Environmental Permits; and (iii) no Proceeding is pending or, to the Sellers’ Knowledge, threatened with respect to any alleged failure by any Seller to have any Environmental Permit required to conduct the Water Business in compliance in all material respects with Environmental Laws.

(f) Notwithstanding any other provision of this Agreement, this Section 4.6 and Section 4.19(c) contains the sole and exclusive representations and warranties in this Agreement with respect to (and no other provision of this Article 4 shall apply to) Environmental Laws, Environmental Permits and other environmental matters with respect to the Water Assets or the Sellers.

4.7 Sufficiency of Assets . Except as set forth on Schedule 4.7 and other than the Excluded Assets, the Water Assets, together with the Produced Water Agreement, the services contemplated to be provided by Buyer under the term sheet for the Water Services Agreement attached as Exhibit F-2 , and the properties and assets made available to Buyer under the Transition Services Agreement, constitute all material assets and properties reasonably necessary to operate the Water Systems as currently operated by the Sellers. Except as set forth on Schedule 4.7 , during Sellers’ period of ownership, and to Sellers’ Knowledge, during the period prior to Sellers’ ownership, the Water Assets have been, in all material respects, owned, constructed, maintained and operated in a good and workmanlike manner and in accordance with customary practices in the oil and gas industry. To the Knowledge of the Sellers, all pipeline systems and related facilities included in the Water Assets have been in continuous operation during Sellers’ period of ownership, and to Sellers’ Knowledge, during the period prior to Sellers’ ownership, except, in each case, for temporary cessations for the performance of maintenance, repair, replacement, modification, improvement or expansion.

4.8 Permits .

(a) Schedule 4.8 sets forth a true and complete list of all of the material Permits required to conduct the Water Business in the manner currently conducted (the “ Material Permits ”). Except as set forth on Schedule 4.8 : (i) the Sellers validly hold all of the Material Permits; (ii) no Seller has received any written notification concerning any violations with respect to any of the Material Permits; and (iii) no Proceeding is pending or, to the Sellers’ Knowledge, threatened with respect to any alleged or actual failure by any Seller to have any Permit required to conduct the Water Business in the manner currently conducted or to be in compliance with a Material Permit.

(b) Nothing in this Section 4.8 shall be deemed to be a representation or warranty with respect to any Permit required under Environmental Law, which matters are addressed only in Section 4.6 .

4.9 Contracts .

(a) Schedule 4.9(a) contains a true and complete listing of each Water Contract that falls within any one or more of the following categories (each such Contract being referred to herein as a “ Material Contract ”):

(i) any Contract that is reasonably expected to result in aggregate payments by a Seller of more than $150,000 during the current or any subsequent fiscal year (other than master service agreements that were entered into in the ordinary course of business and which can be terminated by such Seller without penalty on thirty (30) days’ or less notice);

(ii) any Contract that is reasonably expected to result in aggregate revenues to a Seller of more than $150,000 during the current or any subsequent fiscal year;

(iii) any Contract that represents Indebtedness;

(iv) any Contract that constitutes a non-competition agreement or any agreement that purports to restrict, limit or prohibit the manner in which, or the locations in which, the Water Business may be conducted, including area of mutual interest Contracts;

(v) any Contract among or between a Seller, on the one hand, and any Affiliate of the Parent, on the other hand; and

(vi) any Contract that constitutes a partnership agreement, joint venture agreement or similar Contract.

(b) The Material Contracts are in full force and effect as to the Seller that is a party thereto, and to the Sellers’ Knowledge, as to each other Person that is a party to such Material Contract (excluding any Material Contract that terminates as a result of expiration of its existing term). Except as set forth on Schedule 4.9(b) , there exist no material defaults (whether

with notice or the lapse of time or both) under the Material Contracts by any Seller or, to the Sellers’ Knowledge, by any other Person that is a party to such Material Contracts. Except as set forth on Schedule 4.9(b) , neither the Seller nor Parent has given or received any written notice of any material disputes under any Material Contract. Prior to the execution of this Agreement, the Sellers have made available to Buyer true and complete copies of each Water Contract and all amendments thereto in existence as of the Execution Date.

4.10 Litigation; Compliance with Laws . Except as set forth on Schedule 4.10 :

(a) There is no Proceeding pending or, to the Sellers’ Knowledge, threatened (i) against either Seller or any of their respective Affiliates that questions or involves the validity or enforceability of any obligations of either Seller under this Agreement or any of the Transaction Documents to which any such Person is a party or (ii) relating to the Water Business or any of the Water Assets.

(b) There are no judgments, orders, decrees or injunctions of any Governmental Authority, or, to the Sellers’ Knowledge, sought by any Governmental Authority, whether at Law or in equity, relating to the Water Business or affecting any of the Water Assets.

(c) The Sellers and Parent are in material compliance with applicable Laws , and no Seller or Parent has received any written notice of any material violation of any Laws, in each case, with respect to the Water Business or affecting any of the Water Assets.

(d) Nothing in this Section 4.10 shall be deemed to be a representation or warranty with respect to (i) any Taxes or related reporting which matters are addressed only in Section 4.5 , or (ii) any Environmental Law, which matters are addressed only in Section 4.6 .

4.11 Employees and Employee Benefits . No Seller has any current or former employees and has never sponsored or maintained any “employee benefit plan,” as defined in Section 3(3) of ERISA, employment, severance or similar contract, plan arrangement or policy and any other plan or arrangement (written or oral) providing for compensation, bonuses, profit-sharing, stock option or other stock-related rights or other forms of incentive or deferred compensation, vacation benefits, insurance (including any self-insured arrangements), health or medical benefits, employee assistance program, disability or sick leave benefits, workers’ compensation, supplemental unemployment benefits, severance benefits and post-employment or retirement benefits (including compensation, pension, health, medical or life insurance benefits) (collectively, “ Employee Plans ”).

4.12 Insurance . Sellers have made available to Buyer a summary of all insurance policies of Sellers or any of their Affiliates that provide coverage with respect to the Water Assets (the insurance policies summarized therein, the “ Insurance Policies ”). All of the Insurance Policies are in full force and effect, and the policyholders are in compliance in all material respects with the terms of such policies. There is no claim pending under any of the Insurance Policies as to which coverage with respect to the policyholder or insured party has been denied or disputed by the underwriters or issuers of such Insurance Policies.

4.13 Intellectual Property . Except for the HFS Marks or as otherwise set forth on Schedule 4.13 , in connection with the Water Business, neither the Sellers nor any of their

Affiliates own any material Intellectual Property or possess any licenses to use any material Intellectual Property (other than customary software licenses relating to “off-the-shelf” software) that is used in connection with the Water Business as currently conducted. To the Sellers’ Knowledge, the Water Business as currently conducted, does not materially conflict with any Intellectual Property of any Third Parties.

4.14 Reference Balance Sheets .

(a) HFS has made available to Buyer copies of the Reference Balance Sheets. The Reference Balance Sheets have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby (except for the absence of footnote disclosure, and in the case of the financial statements as of and for the nine-month period ended September 30, 2018 the absence of year-end adjustments which will not be material to the Water Business), and fairly present in all material respects the financial condition of the Water Business at the dates thereof.

(b) Except as set forth on Schedule 4.14(b) , the Sellers have no Liabilities relating to the Water Business or the Water Assets that are required to be reflected in a balance sheet prepared in accordance with GAAP, other than those (i) reflected on or disclosed in the Reference Balance Sheets or any notes thereto or (ii) incurred in the ordinary course of business since the Balance Sheet Date.

4.15 Absence of Certain Changes . Except as disclosed on Schedule 4.15 , or in connection with the transactions contemplated hereby, since the Balance Sheet Date, (a) the Water Business has been conducted in all material respects in the ordinary course consistent with past practice, and (b) there has not been any change, circumstance, development state of facts, effect or condition that has had or would be reasonably expect to have a Material Adverse Effect.

4.16 Brokerage Arrangements . Neither of the Sellers has entered (directly or indirectly) into any Contract with any Person that would require the payment of a commission, brokerage or “finder’s fee” or other fee in connection with this Agreement, the Transaction Documents or the transactions contemplated hereby or thereby for which Buyer would be responsible.

4.17 Affiliate Transactions . Schedule 4.17 sets forth, among other things, all Contracts relating to the Water Business between any Seller, on the one hand, and Parent or any or Affiliate of Parent (other than a Seller) on the other hand (collectively, the “ Affiliate Contracts ”).

4.18 Solvency . The Sellers are not entering into the transactions contemplated by this Agreement with the intent to hinder, delay or defraud either present or future creditors.

4.19 SWDs . Except as set forth on Schedule 4.19 , to the Knowledge of the Sellers (a) as of the Execution Date, each Water Well that is a salt water disposal well and the associated Tangible Personal Property (collectively, the “ SWDs ” and each, a “ SWD ”) is capable of discharging its contents at the depths, in each case, up to the maximum capacity stated in its respective Permit, (b) the wellbore, casing of the well, tanks, pipelines, electrical equipment and pumps of each SWD are structurally sound, in good operating condition (subject to normal wear and tear), and are otherwise of the quality usable in the ordinary course of business, and (c) each

SWD is, and during the time the Sellers have owned the SWD has been, used only for the disposal of materials characterized pursuant to applicable Environmental Law as non-hazardous oilfield waste or saltwater.

4.20 Preferential Rights . There are no preferential rights to purchase, rights of first refusal or options that are applicable to the transfer of the Water Assets in connection with the transactions contemplated hereby.

4.21 Commitments . Except as set forth on Schedule 4.21 , the Adjustment Period Budget or Schedule 2.5 , there are no authority for expenditures (“ AFE ”) in excess of $250,000 relating to the Water Business to drill or rework any Water Wells or for other capital expenditures pursuant to any of the Water Contracts for which all of the activities anticipated in such AFEs or commitments have not been completed by the Execution Date.

4.22 Disclaimer . EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR CERTIFICATE DELIVERED BY ANY SELLER IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DOCUMENT (a) THE SELLERS MAKE NO REPRESENTATIONS OR WARRANTIES TO BUYER, EXPRESS, STATUTORY OR IMPLIED WITH RESPECT TO SELLERS, THE WATER ASSETS OR THE WATER BUSINESS, AND THE SELLERS FURTHER DISCLAIM ANY REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, OF MERCHANTABILITY, FREEDOM FROM EXHIBITORY VICES OR DEFECTS, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY EQUIPMENT, AND (b) THE SELLERS EXPRESSLY DISCLAIM ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO BUYER OR ANY ITS AFFILIATES, EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES (INCLUDING ANY OPINION, INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO BUYER BY ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT, CONSULTANT, REPRESENTATIVE OR ADVISOR OF THE SELLERS OR ANY OF THEIR AFFILIATES), IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY BUYER THAT, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY CERTIFICATE DELIVERED BY ANY SELLER IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DOCUMENT, BUYER WILL BE DEEMED TO BE OBTAINING THE WATER ASSETS IN THEIR PRESENT STATUS, CONDITION, AND STATE OF REPAIR, “AS IS” AND “WHERE IS” WITH ALL FAULTS.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to the Sellers as follows:

5.1 Organization . Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Texas.

5.2 Authority and Approval; Enforceability . Buyer has full limited liability company power and authority to execute and deliver this Agreement and the Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby and to perform all of the terms and conditions hereof and thereof to be performed by it. The execution and delivery by Buyer of this Agreement and the Transaction Documents to which it is a party, the consummation of the transactions contemplated hereby and thereby and the performance of all of the terms and conditions hereof and thereof to be performed by Buyer has been duly authorized and approved by all requisite limited liability company action on the part of Buyer. This Agreement and each of the Transaction Documents to which Buyer is a party have been, or when executed will be, duly executed and delivered by Buyer and, assuming this Agreement and each of the Transaction Documents to which Buyer is a party have been duly authorized, executed and delivered by the Sellers and their respective Affiliates who are parties thereto, constitute the valid and legally binding obligation of Buyer, enforceable against Buyer in accordance with their terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors’ rights and remedies generally and by general principles of equity (whether applied in a proceeding at law or in equity).

5.3 No Conflict; Consents .

(a) Except for such filings as may be required under the HSR Act, this Agreement and the execution, delivery and performance hereof by Buyer does not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated hereby will not, (i) violate, conflict with any of, result in any breach of, or require the consent of any Person under, the terms, conditions or provisions of the charter documents or equivalent governing instruments of Buyer; (ii) conflict with or violate any provision of any law or administrative rule or regulation or any judicial, administrative or arbitration order, award, judgment, writ, injunction or decree applicable to Buyer or any of its subsidiaries; (iii) conflict with, result in a breach of, constitute a default under (whether with notice or the lapse of time or both), or accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under, any Contract or other instrument to which any of Buyer or any of its subsidiaries is a party or by which any of them is bound or to which any of their property is subject, except in the case of clause (iii) , for those items which individually or in the aggregate would not reasonably be expected to have a Buyer Material Adverse Effect.

(b) Except for such filings as may be required under the HSR Act, no consent, approval, license, permit, order or authorization of any Governmental Authority or other Person is required to be obtained or made by or with respect to Buyer or any of its Affiliates in connection with the execution, delivery, and performance of this Agreement and the Transaction Documents to which it is party or the consummation of the transactions contemplated hereby and thereby, except as have been waived or obtained or with respect to which the time for asserting such right has expired.

5.4 Independent Investigation . Buyer is sophisticated in the evaluation, purchase, ownership and operation of oil and gas and crude oil properties, gas, crude and water gathering pipelines and related facilities. In making its decision to enter into this Agreement, and to

consummate the transaction contemplated hereby and thereby, Buyer, except to the extent of the Sellers’ express representations, warranties, covenants and agreements contained in this Agreement and the Transaction Documents, or in the schedules delivered in connection herewith and therewith, (a) has relied or shall rely solely on its own independent investigation and evaluation of the Water Assets and the Water Business and the advice of its own legal, tax, economic, environmental, engineering, geological and geophysical advisors and the express provisions of this Agreement and not on any comments, statements, projections or other materials made or given by any representatives or consultants or advisors engaged by the Sellers, and (b) has satisfied or shall satisfy itself through its own due diligence as to the environmental and physical condition of and contractual arrangements and other matters affecting the Water Assets or the Water Business.

5.5 Financing . Buyer has, or will have at Closing, sufficient cash, available lines of credit or other sources of immediately available funds to enable Buyer to fund the Estimated Closing Payment and its other obligations under the Transaction Documents.

5.6 Brokerage Arrangements . Neither Buyer nor its Affiliates has entered (directly or indirectly) into any Contract with any Person that would require the payment of a commission, brokerage or “finder’s fee” or other fee in connection with this Agreement, the Transaction Documents or the transactions contemplated hereby or thereby for which the Sellers would have responsibility.

5.7 Litigation . There is no Proceeding pending or, to Buyer’s Knowledge, threatened that (a) questions or involves the validity or enforceability of any of Buyer’s obligations under this Agreement or any of the Transaction Documents to which it is a party or (b) seeks (or reasonably might be expected to seek) (i) to prevent or delay the consummation by Buyer of the transactions contemplated by this Agreement or any of the Transaction Documents to which Buyer is a party or (ii) to impose Liabilities in connection with the consummation of the transactions contemplated by this Agreement or any of the Transaction Documents.

5.8 Disclaimer . EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR CERTIFICATE DELIVERED BY BUYER IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DOCUMENT (i) BUYER MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, AND (ii) BUYER EXPRESSLY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO SELLERS OR ANY THEIR AFFILIATES, EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES (INCLUDING ANY OPINION, INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO SELLERS BY ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT, CONSULTANT, REPRESENTATIVE OR ADVISOR OF BUYER OR ANY OF ITS AFFILIATES).

ARTICLE 6
ADDITIONAL AGREEMENTS, COVENANTS, RIGHTS AND OBLIGATIONS

6.1 Operation of the Water Business .

(a) Except as provided in this Agreement or the Transaction Documents or as consented to in writing by Buyer (which consent will not unreasonably be withheld, conditioned or delayed), during the period from the Execution Date through the Closing Date, the Sellers shall:

(i) operate the Water Business, or cause it to be operated, in the usual and ordinary course of business;

(ii) preserve, maintain and protect the Water Assets in customary repair, order and condition; and

(iii) use commercially reasonable efforts to make capital expenditures in accordance with the Adjustment Period Budget.

(b) Except as set forth on Schedule 6.1(b) , as provided in this Agreement or the Transaction Documents or as consented to in writing by Buyer, during the period from the Execution Date through the Closing Date, the Sellers shall not do any of the following:

(i) merge, consolidate, liquidate, dissolve, recapitalize or otherwise wind up its business;

(ii) enter into any Contract that would constitute a Material Contract, or amend materially or terminate any Water Contract, other than in the ordinary course of business consistent with past practice; it being agreed that no Seller shall enter into any Contract with respect to any services similar to those to be provided by Buyer or its applicable Affiliate under the Produced Water Agreement or the Water Services Agreement, other than Contracts that are terminable without penalty on 30 days’ notice or less;

(iii) sell, lease or otherwise dispose of any Water Asset that individually has a fair market value of in excess of $250,000, other than sales and dispositions to the extent such assets are replaced or sales and dispositions in the ordinary course of business consistent with past practices;

(iv) take any action, refrain from taking any action, or enter into any Contract that would result in the imposition of any Lien (other than Permitted Liens and any Liens under Parent’s Credit Facility that will be released at Closing) on any of the Water Assets;

(v) cancel, compromise, waive, release or settle any right, claim or Proceeding with respect to which the Water Business other than immaterial rights and claims in the ordinary course of business consistent with past practice;

(vi) make any capital expenditures with respect to the Water Business, other than (x) expenditures in accordance with the Adjustment Period Budget, (y) expenditures required in connection with an emergency, (y) expenditures required by applicable Law that are made after prior written notice to Buyer or (z) any other non-budgeted expenditures that do not exceed $250,000 in the aggregate;

(vii) make any operating expenditures with respect to the Water Business, other than operating expenditures (A) required in connection with an emergency, (B) required by applicable Law that are made after prior written notice to Buyer or (C) made in the ordinary course of business; provided, that HFS shall provide Buyer with no less than three (3) Business Days’ prior written notice before making any operating expenditures with respect to the Water Business in excess of $250,000, other than in connection with an emergency;

(viii) fail to maintain in full force and effect the Insurance Policies;

(ix) terminate or materially and adversely amend any Water Permit, except as required by applicable Law or in the ordinary course of business consistent with past practice; or

(x) agree to do any of the foregoing.

6.2 Access to Records; Confidentiality .

(a) Between the Execution Date and the Closing, the Sellers shall give Buyer and its authorized representatives reasonable access, during regular business hours and upon reasonable advance notice, to the Water Assets, including the Water Records and any financial, title, tax, corporate and legal materials and operating data, records and information relating to the Water Business and such other information as it may reasonably request (including the performance of a Phase I Environmental Site Assessment in accordance with the American Society for Testing and Materials (A.S.T.M.) Standard Practice Environmental Site Assessments: Phase I Environmental Site Assessment Process (Publication Designation: E1527-13)); provided that Buyer shall not (i) contact clients, customers, suppliers or lenders of the Sellers with respect to the transactions contemplated hereby or (ii) except as set forth on Schedule 6.2(a) , perform any sampling, boring, operation of equipment, or other invasive or subsurface activity with respect to the Water Assets, without the prior written consent of HFS, which consent can be withheld in HFS’s sole discretion. Sellers shall reasonably cooperate with Buyer and its representatives in performing any confirmatory due diligence with respect to the Water Business. Any such sampling shall be performed by a qualified technical consultant with commercially reasonable insurance coverage. In connection with the access described herein, Buyer shall, and shall cause its representatives to, (A) comply fully with all Laws, (B) comply fully with all rules, regulations, policies and instructions reasonably issued by any Seller and provided to Buyer regarding such Person’s actions while upon, entering or leaving any property and (C) and at Buyer’s sole cost, risk, and expense, restore the Water Assets to their condition prior to the commencement of such access. Buyer shall not, and shall cause its representatives not to, unreasonably interfere with the day-to-day operations of the businesses of the Sellers in conducting any due diligence activities. The Sellers shall have the right to have one or more

representatives present at all times of any inspections, interviews, and examinations conducted at or on the offices or other facilities or properties of the Sellers.

(b) Buyer hereby agrees to defend, indemnify and hold harmless each of the HFS Indemnified Parties from and against any and all Liabilities attributable to personal injury, death or physical property damage, or violations of Parent’s or its Affiliate’s rules, regulations or operating policies of which Buyer or the Buyer’s representatives and advisors had been informed, in each case arising out of, resulting from or relating to any field visit, environmental property assessment, sampling or other due diligence activity conducted by Buyer or any Buyer’s representative or advisor with respect to the Water Assets or Water Business prior to Closing, EVEN IF SUCH LIABILITIES ARISE OUT OF OR RESULT FROM, SOLELY OR IN PART, THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY A MEMBER OF THE PARENT INDEMNIFIED PARTIES, EXCEPTING ONLY LIABILITIES ACTUALLY RESULTING ON THE ACCOUNT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF A MEMBER OF THE PARENT INDEMNIFIED PARTIES .

(c) Buyer shall hold in confidence all information received in connection with Section 6.2(a) on the terms and subject to the conditions contained in the Confidentiality Agreement, dated July 19, 2018, by and between WaterBridge Resources LLC and Parent (the “ Confidentiality Agreement ”).

6.3 Regulatory Filings; Consents .

(a) Each Party shall use, and shall cause its respective Affiliates to use, reasonable best efforts to obtain all necessary consents, clearances, waivers, authorizations and approvals and to give all notices to and make all filings with, all Governmental Authorities and other Persons that may be or become necessary for its execution and delivery of, and the performance of its obligations under this Agreement and the Transaction Documents to which it is a party and will cooperate fully with the other Party in promptly seeking to obtain all such authorizations, consents, orders, and approvals, giving such notices, and making such filings. In furtherance and not in limitation of the foregoing, e ach Party shall use reasonable best efforts to: (i) file its notification and report forms required for the transactions contemplated hereby pursuant to the HSR Act, if applicable, within ten Business Days after the Execution Date; and (ii) cause any waiting period under the HSR Act with respect to the transactions contemplated hereby to expire or terminate at the earliest time that is reasonably practicable and shall request “early termination” with respect to the waiting period under the HSR Act. Buyer and HFS shall each be responsible for fifty percent (50%) of all HSR Act filing fees.

(b) Each Party shall, and shall cause its respective Affiliates to, do each of the following (i) promptly inform the other Party of (and, at the other Party’s reasonable request, supply to such other Party, subject to applicable Law) any communication (or other correspondence or memoranda) from or to, and any proposed understanding or agreement with, any Governmental Authority in connection with this Agreement or the transactions contemplated hereby; (ii) consult and cooperate with the other Party in connection with any analyses, appearances, presentations, memoranda, briefs, arguments and opinions made or submitted by or

on behalf of any Party in connection with all meetings, actions, discussions and Proceedings with Governmental Authorities relating to this Agreement or the transactions contemplated hereby, including, subject to applicable Law, permitting the other Party to review in advance any proposed written communication between it and any Governmental Authority; and (iii) comply, as promptly as is reasonably practicable, with any requests received by a Party or any of its Affiliates under the HSR Act and any other applicable Law for additional information, documents or other materials. If a Party or any of its Affiliates intends to participate in any meeting or discussion with any Governmental Authority with respect to the transactions contemplated hereby or any filings, investigations or inquiries made in connection with the transactions contemplated hereby, it shall give the other Party reasonable prior notice of, and an opportunity to participate in, such meeting or discussion.

(c) The Parties shall exercise reasonable best efforts in order to avoid or eliminate each and every impediment under the HSR Act or any other antitrust, competition, or trade regulation law that may be asserted by any Governmental Authority with respect to the transactions contemplated hereby so as to enable the Closing to occur as soon as reasonably practicable (and in any event, no later than the Termination Date); provided that, nothing in this Agreement shall be deemed to require the Parties (or their Affiliates) to agree to (i) any sale, divestiture or other disposition of any business, assets or property, or the imposition of any limitation on the ability of any of them to conduct their respective businesses or to own or exercise control of such businesses, assets or properties, (ii) to pay any material amounts (other than the payment of filing fees and expenses and fees of counsel), (iii) to commence or defend any litigation, (iv) to agree to any material limitation on the operation or conduct of their or their Affiliates’ respective businesses or (vi) to waive any of the conditions to Closing set forth in Article 7 .

(d) In the event any Governmental Authority issues any order, writ, injunction or decree that prohibits or restrains a Party from consummating the transactions contemplated hereby, such Party shall, and shall cause each of its Affiliates to, use its reasonable best efforts to have such order, writ, injunction or decree lifted as soon as practicable.

6.4 Further Assurances . Upon the request of either Party at any time on or after the Closing Date, the other Party shall, or if requested shall cause its Affiliate to, promptly execute and deliver such further instruments of assignment, transfer, conveyance, endorsement, direction or authorization and other documents as the requesting Party or its counsel may reasonably request in order in order to effectuate the purposes of this Agreement or any of the Transaction Documents or to vest in Buyer all right, title and interest in and to the Water Assets, free and clear of all Liens (except Permitted Liens).

6.5 Publicity . Other than the press release to be issued by Parent in connection with the execution of this Agreement, neither Buyer (or any of its Affiliates) nor any Seller (or any of its Affiliates) shall issue any press release or make any public statement pertaining to this Agreement or the Transaction Documents or the transactions contemplated hereby or thereby without the prior consent of the other Party (which consent shall not be unreasonably withheld, delayed or conditioned), except as permitted by this Section 6.5 . If a Party reasonably determines that a public announcement or filing is required by applicable Law, by rules of any stock exchange upon which the Party’s or a Party’s Affiliate’s capital stock is traded, or by

obligations pursuant to any listing agreement with any national securities exchange (other than the press release to be issued by Parent in connection with the execution of this Agreement), such issuing or announcing Party shall provide at least one (1) Business Day’s prior notice of such press release or public announcement to the other Party for review and comment and shall consider in good-faith any such comments proposed by such Party, but shall have no obligation to incorporate such comments.

6.6 HFS Marks . From and after the Closing, Buyer shall not be permitted to use, and shall obtain no right, title, interest, license or other right whatsoever in, any trademarks, trade names and trade dress of Parent and its Affiliates, including HFS, and the words “Halcón” and “Halcón Field Services” and derivatives and variations thereof (collectively, the “ HFS Marks ”). HFS Marks will appear on some of the Water Assets, including on signage throughout the Water Property, and on supplies, materials, stationery, brochures, advertising materials, manuals and similar consumable items that may be included in the Water Assets. Buyer shall within ninety (90) days after the Closing Date, remove the HFS Marks from the Water Assets, including signage on the Water Property and any personal property included in the Water Assets, and provide written verification thereof to HFS promptly after completing such removal. Buyer will not conduct any business or offer any goods or services under the HFS Marks. Buyer will not send, or cause to be sent, any correspondence or other materials to any Person on any stationery that contains any HFS Marks.

6.7 Nonassignable Contracts, Surface Use Agreements and Permits; Pending Permits .

(a) In the case of any Water Contracts, Surface Use Agreements or Water Permits that are not by their terms assignable or that require the consent of a Third Party in connection with the transfer by a Seller, the Sellers and Buyer will use their reasonable commercial efforts to obtain or cause to be obtained in writing prior to the Closing Date any consents necessary to convey the benefits thereof, and if such consents are not obtained, the applicable Water Contracts, Surface Use Agreements or Water Permits will be deemed not to have been transferred as of the Closing Date. If the consent of any Third Party is not obtained prior to the Closing Date, the applicable Water Contract, Surface Use Agreement or Water Permit shall not be assigned to Buyer, the applicable Seller will continue to hold such Water Contract, Surface Use Agreement or Water Permit for the benefit of Buyer, and the Parties will continue to use its commercially reasonable efforts to obtain all of such consents promptly. The Sellers shall be responsible for the costs incurred in connection with their efforts to obtain the necessary consents. Buyer will assist the Sellers as may be reasonably requested in connection with the foregoing, including by participating in discussions and negotiations with all persons or entities with the authority to grant or withhold such consent, provided, however , that, such assistance will not be deemed to require any expenditure of money on the part of Buyer. Until any such required consent is obtained, the Sellers will make or cause to be made such arrangements as shall be reasonably acceptable to Buyer and sufficient to enable Buyer to receive all the economic benefits and other appropriate rights and benefits under such Water Contract, Surface Use Agreement or Water Permit accruing on and after the Closing Date.

(b) With respect to the Combined Water Agreements, subject to Section 6.7(a) , only the portion of such Combined Water Agreement relating to the Water Assets shall be assigned to Buyer. If the Parties mutually determine that a bifurcation of such

Combined Water Agreement is desirable, the Parties will use commercially reasonable efforts to seek from the counterparty to such Combined Water Agreement a bifurcation and restatement thereof on commercially reasonable terms (consistent with the purposes and intent of this Agreement and consistent with the terms and conditions of the applicable Combined Water Agreement) that results in two separate agreements, one solely between the counterparty and the applicable Seller or its Affiliate reflecting the Partially Retained Agreement and another solely between the counterparty and Buyer reflecting the Partially Assigned Agreement.

(c) The Parties acknowledge that (i) Sellers have commenced the application process for certain Permits relating to the Water Systems but have not yet obtained such Permits, each of which are listed on Schedule 6.7(c) (the “ Pending Permit Applications ”), (ii) assignment of such Pending Permit Applications may be prohibited by Law or the terms of such Pending Permit Applications or require the consent of a Third Party, and (iii) the Sellers and Buyer will use their reasonable commercial efforts to obtain or cause to be obtained in writing prior to the Closing Date any waivers or consents necessary to convey the applicable Pending Permit Applications (and any rights to a Permit upon approval of such Pending Permit Applications), and if such waivers or consents are not obtained, the applicable Pending Permit Applications (and any rights to a Permit upon approval of such Pending Permit Applications) will be deemed not to have been transferred as of the Closing Date. If any Pending Permit Application is not transferred to Buyer at Closing, then upon the reasonable request of Buyer and at Buyer’s sole cost and expense, for a period of eighteen (18) months after the Closing Date, (A) the applicable Seller will continue to hold such Pending Permit Application for the benefit of Buyer, and (B) the Parties will continue to use their commercially reasonable efforts to have such Pending Permit Application (or the Permit issued upon approval thereof) transferred to or issued in the name of Buyer. Notwithstanding anything herein to the contrary, (1) in connection with such efforts, no Seller shall have any obligation to incur any costs or expenses or issue or post any letter of credit, bond or guarantee, (2) Buyer shall reimburse the Sellers for any reasonable, documented out-of-pocket costs or expenses incurred by any Seller in connection with such efforts, (3) Buyer shall indemnify the HFS Indemnified Parties for any Liabilities incurred or suffered by any HFS Indemnified Party in connection with such efforts and (4) subject to compliance with this Section 6.7(c) , Sellers shall have no liability for the failure to assign any Pending Permit Application or the failure to obtain any Permit to be issued upon approval thereof.

(d) With respect to any Retained Fee Property and Water Well(s) that are subject to Pending Permit Applications (the “ Pending Permit Property ”) and not transferred to Buyer at Closing, (i) the Parties will enter into a surface use agreement, in form and substance mutually acceptable to both Parties, that gives Buyer the right to access and utilize the Pending Permit Property until such Pending Permit Application (or the Permit issued upon approval thereof) is transferred to or issued in the name of Buyer and such Pending Permit Property is conveyed or transferred to Buyer, and (ii) on the date that any Pending Permit Application (or the Permit issued upon approval thereof) is transferred to or issued in the name of Buyer, the Parties will enter into one or more Deeds or Bills of Sale, as applicable, necessary to effectuate the transfer, assignment and conveyance to Buyer of the Pending Permit Property associated with such Pending Permit Application, which Pending Permit Property shall consist of a number of acres generally consistent with the number of acres surrounding the Water Wells of the same type that are transferred at Closing.

(e) Sellers shall use commercially reasonable efforts to prepare or cause to be prepared prior to Closing surveys and plats reasonably acceptable to Buyer for all Owned Real Property, and shall provide such surveys and plats to Buyer promptly upon receipt thereof; provided, however, that Buyer acknowledges and agrees that the delivery of such surveys and plats shall not be a condition to Closing, but in the event that such surveys and plats are not delivered to Buyer prior to Closing, Sellers shall continue to exercise commercially reasonable efforts to deliver such surveys and plats promptly thereafter. To the extent any Pending Permit Property will be conveyed to Buyer in fee, Sellers shall also use commercially reasonable efforts to prepare or cause to be prepared after Closing, but prior to the transfer of such Pending Permit Property, surveys and plats reasonably acceptable to Buyer for such Pending Permit Property.

6.8 Amendment of Schedules .

(a) Following the Execution Date and prior to the Closing Date (subject to Section 3.1 ), the Sellers shall supplement or amend all Schedules of the Sellers under Article 4 to include reference to any matter relating to the Sellers, the Water Assets or the Water Business and hereafter arising, which, if existing at the Execution Date, would have been required to be set forth or described on such Schedules in order to avoid any inaccuracies in the respective representations and warranties (each, a “ Schedule Supplement ”). Sellers shall deliver any Schedule Supplement to Buyer as soon as reasonably practicable after the discovery by Sellers of the occurrence of the matter giving rise to such disclosure. Upon delivery to Buyer of such Schedule Supplement, HFS shall also concurrently deliver to Buyer a written statement setting forth HFS’s reasonable good-faith estimate of the amount (if any) required to cure or correct (the “ Cure Amount ”) the matters disclosed on such Schedule Supplement (the “ Schedule Supplement Matters ”).

(b) If the Schedule Supplement Matters would cause the closing condition in Section 7.1(a) not to be satisfied, then Buyer shall have the right to terminate this Agreement in accordance with Section 9.1(c) .

(c) If the Schedule Supplement Matters would not result in the failure of the closing condition in Section 7.1(a) to be satisfied and such Schedule Supplement Matters remain uncured by Sellers as of the Closing Date, HFS and Buyer shall use good-faith efforts to agree upon the Cure Amount for such Schedule Supplement Matters. If HFS and Buyer agree upon the Cure Amount for such Schedule Supplement Matters prior to Closing, the Estimated Closing Payment shall be reduced by such agreed-upon Cure Amount and such Schedule Supplement shall be deemed to have modified Sellers’ representations and warranties for all purposes hereunder and Buyer shall be deemed to have waived any right or claim pursuant to the terms of this Agreement or otherwise, including pursuant to Article 10 , with respect to any and all such Schedule Supplement Matters. If HFS and Buyer are unable to agree upon a Cure Amount for such Schedule Supplement Matters prior to Closing, the Estimated Closing Payment shall be reduced by the Cure Amount set forth in Sellers’ statement, but Buyer shall retain the right to seek indemnification pursuant to Article 10 for any Liabilities arising from such Schedule Supplement Matters in excess of the Cure Amount reflected as an adjustment to the Estimated Closing Payment (“ Indemnifiable Schedule Supplement Matters ”). This Section 6.8 shall not apply to Environmental Defects or the resolution thereof, which shall be resolved in accordance with Section 6.13 .

6.9 Termination of Affiliate Contracts . Except as set forth in Schedule 6.9 , each of the Affiliate Contracts shall be terminated immediately prior to the Closing and the parties to such Contracts shall execute releases reasonably requested by Buyer to ensure that Buyer shall have no liability or obligation thereunder.

6.10 Insurance . Buyer acknowledges that, at or promptly following the Closing, the Insurance Polices shall be terminated or modified to exclude coverage of all of the Water Assets, and, as a result, Buyer shall be obligated at or before Closing to obtain at its sole cost and expense replacement insurance and including insurance required by any Third Party to be maintained for the continued operations of the Water Business. If required by Law or contract, Buyer shall provide to Governmental Authorities and Third Parties evidence of such replacement or substitute insurance coverage for the continued operations of the Water Business following the Closing. If requested, Sellers shall reasonably cooperate with and assist Buyer in obtaining such replacement policies, including by providing copies of the Insurance Policies and all other information reasonably required by Buyer.

6.11 Exclusivity .

(a) From and after the Execution Date until the earlier of (i) the Closing Date or (ii) the date this Agreement is terminated as provided in Article 9 , the Sellers shall not, and shall not authorize or permit any of their Affiliates or any of its or their representatives to, directly or indirectly, (A) encourage, solicit, initiate with, facilitate or continue inquiries with any Person regarding any proposal for the Water Assets (other than assets sold in accordance with Section 6.1(b) ) or the Water Business by such Person (other than Buyer or its representatives), directly or indirectly, whether by merger, consolidation, liquidation, recapitalization, purchase of equity interests, sale of assets or any other means (an “ Acquisition Proposal ”); (B) enter into discussions or negotiations with, or provide any information to, any Person concerning a possible Acquisition Proposal; or (C) enter into any agreements or other instruments (whether or not binding) regarding an Acquisition Proposal. The Sellers shall immediately cease and cause to be terminated, and shall cause their Affiliates and all of its and their representatives to immediately cease and cause to be terminated, all existing discussions or negotiations with any Persons conducted heretofore with respect to, or that could lead to, an Acquisition Proposal.

(b) Sellers agree that the rights and remedies for noncompliance with this Section 6.11 shall include having such provision specifically enforced by any court having jurisdiction, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to Buyer and that money damages would not provide an adequate remedy to Buyer.

6.12 Financial Records and Access to Information .

(a) For a period following the Closing Date until the third anniversary of the Closing Date, Sellers shall (and shall cause their Affiliates to), in a manner consistent with their respective past practices with respect to the preparation of financial information:

(i) make all financial records and all financial information related to the Water Assets (the “ Financial Records ”) for the period prior to the Closing Date that is

necessary for Buyer to prepare and obtain the audit of any financial statements relating to the Water Assets to the extent required to be filed (such filings, the “ Filings ”) by Buyer or its Affiliates with the Securities and Exchange Commission (the “ SEC ”) pursuant to the Securities Act and the rules and regulations thereunder or the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and the rules and regulations thereunder available to Buyer and its representatives at Sellers’ offices;

(ii) provide Buyer with reasonable access, at reasonable times and upon prior notice, and at no cost to Sellers, to the employees of Sellers or their Affiliates associated with the preparation of such Financial Records for purposes of performing Buyer’s audits and financial filings required by a Governmental Authority;

(iii) use commercially reasonable efforts to cause Sellers’ independent auditors to provide, at Buyer’s sole cost and expense, such assistance as Buyer may reasonable request in connection with the preparation of any Filings;

(iv) provide reasonable cooperation to the independent auditors chosen by Buyer (“ Buyer’s Auditor ”) in connection with any audit by Buyer’s Auditor of any financial statements of Sellers with respect to the Water Assets that Buyer or any of its Affiliates required to comply with the Securities Act or Exchange Act with respect to any Filings; and

(v) retain all relevant information and documents in its possession that would reasonably be expected to be necessary in connection with the preparation and audit of financial statements with respect to the Water Assets as provided in this Section 6.12 .

(b) Without limiting the generality of the forgoing, (i) Sellers shall have no obligation to provide any financial statements or other information (A) to the extent it would jeopardize the attorney-client privilege or contravene any applicable Law or any confidentiality undertaking or (B) that is not required by the SEC, and (ii) Buyer shall use commercially reasonable efforts to minimize the periods and dates presented of financial statements and other information to be included in such financial statements that would otherwise be required by the SEC, including, by promptly seeking waivers, exemptions or advice from the staff of the SEC. In no event shall Sellers be required to pay or incur any costs or expenses in connection with the obligations set forth in this Section 6.12 .

6.13 Environmental Defects .

(a) Environmental Information . Buyer shall provide to HFS (free of cost) copies of all final environmental reports generated by Buyer’s Third-Party consultants promptly after receipt thereof to the extent not restricted or prohibited by the terms of the applicable Contract between Buyer (or its Affiliate) and such Third-Party consultant; provided, however, that to the extent Buyer is so restricted or prohibited by the terms of the applicable Contract, Buyer shall provide to HFS a detailed description of the underlying findings therein and any supporting information related thereto. Except (i) as may be required or permitted pursuant to the exercise of the rights and fulfillment of the obligations of a Party under this Agreement,

(ii) as may be required by applicable Law, or (iii) for information which is or becomes public knowledge through no fault of the Person against whom this sentence is sought to be enforced, Buyer and Sellers and their respective Affiliates shall maintain, and shall cause their respective officers, directors, employees, contractors, consultants, and other advisors to maintain, all information, reports (whether interim, draft, final, or otherwise), data, work product, and other matters obtained or generated from or attributable to the Buyer’s environmental review pursuant to Section 6.2 and this Section 6.13 (the “ Environmental Information ”) strictly confidential, and shall not disclose all or any portion of the Environmental Information to any Third Party without the written consent of Buyer or Sellers, as applicable, which consent shall not be unreasonably conditioned, withheld or delayed. If this Agreement is terminated prior to the Closing, Buyer shall continue to be subject to the Confidentiality Agreement with respect to the Environmental Information. Each Party shall be responsible for the compliance of its Affiliates, and its and their respective officers, directors, employees, contractors, consultants, and other advisors with the immediately preceding sentence.

(b) NORM Acknowledgment . Buyer acknowledges that equipment and sites located on or included in the Water Assets may contain Hazardous Materials, including asbestos and naturally occurring radioactive material (“ NORM ”). NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT OR ANY OTHER DOCUMENT EXECUTED PURSUANT TO THIS AGREEMENT, SELLERS DO NOT MAKE, SELLERS EXPRESSLY DISCLAIM, AND BUYER WAIVES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRESENCE OR ABSENCE OF ASBESTOS OR NORM IN OR ON THE WATER ASSETS IN QUANTITIES TYPICAL FOR OILFIELD AND WATER PRODUCTION OPERATIONS IN THE AREAS WHERE THE WATER ASSETS ARE LOCATED.

(c) Notice of Environmental Defects . To assert any alleged Environmental Defect, Buyer must deliver to HFS, on or before the Defect Notice Date, one or more Defect Notices. Buyer agrees to use reasonable good-faith efforts to provide HFS with periodic (but in no event less frequently than before 4:00 p.m. local time in Houston, Texas on Friday of each week prior to the Defect Notice Date) updates in writing (email being sufficient) concerning the progress of Buyer’s environmental due diligence prior to the Defect Notice Date (including any potential Environmental Defects discovered by Buyer), which updates can be preliminary in nature; provided that Buyer’s failure to provide any such preliminary notice pursuant to this sentence shall not act as a waiver of or otherwise limit any claim, right or remedy of Buyer under this Agreement with respect to any Environmental Defect.

(d) Cure .

(i) Sellers shall have the right, but not the obligation, to attempt, at Sellers’ sole cost, risk, and expense, to cure or remove, on or before the Closing Date, any alleged Environmental Defects of which HFS has been advised by Buyer pursuant to Section 6.13(c) . The election by Sellers to attempt to cure one or more of such alleged Environmental Defects shall not affect the rights and obligations of the Parties under Section 6.13(g) with respect to dispute resolution and shall not constitute a waiver of any of the rights of Sellers pursuant to this Section 6.13 , including Sellers’ right to dispute the existence, nature, or value of such Environmental Defect.

(ii) Any dispute relating to whether and to what extent an Environmental Defect has been cured shall be deemed to be a Disputed Matter and shall be resolved as set forth in Section 6.13(g) ; provided, however, that any prior or concurrent determination by an Environmental Arbitrator with respect to Environmental Defects (or factual or legal matters relating thereto, even if determined in connection with the resolution of an otherwise unrelated dispute) which Sellers have elected to attempt to cure pursuant to Section 6.13(d)(i) shall be binding on the Parties with respect to such Environmental Defect (or factual or legal matters relating thereto, even if determined in connection with the resolution of an otherwise unrelated dispute).

(e) Adjustment for Environmental Defects .

(i) With respect to each Water Asset affected by an Environmental Defect reported under Section 6.13(c) , such Water Asset shall be assigned at Closing subject to all uncured Environmental Defects, and the purchase price shall be reduced at Closing as provided in Section 6.13(e)(iii) and after Closing as provided in Section 6.13(e)(iv) , as applicable.

(ii) HFS and Buyer shall use good faith efforts to attempt to agree upon the existence of any alleged Environmental Defects reported pursuant to Section 6.13(c) , and any corresponding Environmental Defect Amounts, on or before the Closing Date. If HFS and Buyer are unable to agree by the Closing Date, then Sellers’ good-faith estimate of the Environmental Defect Amount shall be deemed to be the “ Estimated Defect Amount .” Notwithstanding the foregoing, any alleged Environmental Defect reported pursuant to Section 6.13(c) (or the alleged cure thereof) and any corresponding Environmental Defect Amount which is then in dispute (each a “ Disputed Matter ”) shall be exclusively and finally resolved by arbitration pursuant to Section 6.13(g) or by agreement of the Parties.

(iii) At Closing, the Estimated Closing Payment shall be reduced by (A) the Environmental Defect Amount (or portion thereof) with respect to any Environmental Defects which are not Disputed Matters and (B) the Estimated Defect Amount with respect to any Environmental Defects which are Disputed Matters.

(iv) After Closing, the purchase price paid hereunder may be further adjusted as provided in this Section 6.13(e)(iv) for any Environmental Defects which are Disputed Matters. Within ten (10) days after the determination of all Disputed Matters submitted to a Environmental Arbitrator pursuant to Section 6.13(g) (or the date upon which the Parties reach an agreement, if earlier) and after consideration of all other adjustments previously made to the purchase price and after giving effect to the limitations provided in this Section 6.13 (1) HFS shall pay to Buyer or (2) Buyer shall pay to HFS, as applicable, the net amounts to which the applicable Party is entitled to pursuant to this Section 6.13(e) with respect to any Disputed Matters, as determined by the Environmental Arbitrator under Section 6.13(g) . The Parties shall treat for Tax purposes, any amounts paid pursuant to this Section 6.13(e) as an adjustment to the purchase price hereunder and any payment made pursuant to this Section 6.13(e) shall be

made by wire transfer of immediately available funds to a bank account or accounts to be designated in writing by the Party receiving such payment.

(f) Calculation of Environmental Defect Amounts . The amount resulting from an Environmental Defect (the “ Environmental Defect Amount ”) shall be determined as follows:

(i) if Buyer and HFS agree on the Environmental Defect Amount, that amount shall be the Environmental Defect Amount;

(ii) the Environmental Defect Amount shall include, but shall not exceed, the reasonable cost of the response required under Environmental Laws that addresses the applicable Environmental Defect to the extent required by applicable Environmental Laws as of the Defect Notice Date at the lowest commercially reasonable cost (considered as a whole taking into consideration any material negative impact such response may have on the operations of the relevant Water Assets (as currently operated) and any potential material additional costs or liabilities that would reasonably be expected to arise as a result of such response) as compared to any other response that is required under Environmental Laws;

(iii) the Environmental Defect Amount with respect to an Environmental Defect shall be determined without duplication of any costs or losses included in another Environmental Defect Amount or adjustment to the purchase price hereunder;

(iv) the Environmental Defect Amount with respect to a Disputed Matter shall be the amount finally determined pursuant to Section 6.13(g) or agreed to by the Parties, in each case, taking into account the limitations set forth in this Section 6.13(f) ; and

(v) notwithstanding anything to the contrary in this Section 6.13 :

(A) an individual claim for an Environmental Defect for which a valid Defect Notice is given prior to the Defect Notice Date shall only generate a reduction to the purchase price hereunder if the Environmental Defect Amount with respect thereto exceeds $250,000 (the “ Individual Defect Threshold ”); and

(B) in the event that the aggregate of all Environmental Defect Amounts that would generate a reduction to the purchase price hereunder pursuant to Section 6.13(f)(v)(A) is in excess of $25,000,000 (the “ Aggregate Defect Threshold ”), then either Party may terminate this Agreement in accordance with Section 9.1(e) .

(g) Dispute Resolution .

(i) With respect to any Disputed Matter, on or before a date that is thirty (30) days following the Closing Date, management representatives of the Parties with direct authority to enter into a settlement agreement shall meet and make a good

faith effort to resolve any Disputed Matter. In the event the management representatives are unable to resolve such Disputed Matter within thirty (30) days after commencement of the meetings to resolve such Disputed Matter, then Buyer may submit all remaining Disputed Matters to a reputable and qualified environmental consultant with at least ten (10) years’ experience in corrective environmental action regarding oil and gas properties in the State of Texas, as selected by mutual agreement of Buyer and HFS (the “ Environmental Arbitrator ”). If Buyer and HFS have not agreed upon a Person to serve as Environmental Arbitrator within ten (10) days, Buyer shall, within five (5) days after the end of such initial ten (10) day period, formally apply to the Houston, Texas office of the American Arbitration Association to choose the Environmental Arbitrator and submit such Disputed Matters along with such application. The Environmental Arbitrator shall not have worked as an employee or outside consultant for any Party or its Affiliates during the five (5) year period preceding the arbitration or have any financial interest in the dispute other than the payment of the Environmental Arbitrator’s fees and expenses incurred as Environmental Arbitrator.

(ii) The arbitration proceeding for any Disputed Matter described in Section 6.13(g)(i) shall be held in Houston, Texas and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, to the extent such rules do not conflict with the terms of this Section 6.13(g) . The Environmental Arbitrator’s determination shall be made within forty-five (45) days after submission of the matters in dispute and shall be final and binding upon the Parties, without right of appeal. In making their respective determinations, the Environmental Arbitrator shall be bound by the provisions of this Section 6.13 and may consider such other matters as, in the opinion of the Environmental Arbitrator are necessary or helpful to make a proper determination. The Environmental Arbitrator may consult with and engage disinterested Third Parties to advise the arbitrator. The Environmental Arbitrator shall act as experts for the limited purpose of determining the specific Disputed Matters submitted by any Party and may not award damages, interest, or penalties to any Party with respect to any matter. Sellers and Buyer shall each bear their own legal fees and other costs of presenting their respective cases to any Environmental Arbitrator pursuant to this Section 6.13(g) . Buyer shall bear one-half of the costs and expenses of the Environmental Arbitrator, and Sellers shall be responsible for the remaining one-half of the costs and expenses.

6.14 Water Services Agreement .

(a) The Parties shall use commercially reasonable efforts to negotiate prior to Closing (and enter into at Closing) a form of Water Services Agreement containing terms that are consistent in all material respects with the terms set forth on Exhibit F-2 and such additional terms that are reasonably acceptable to Buyer and Sellers (the “ Water Services Agreement ”). If the Parties have agreed upon a form of Water Services Agreement prior to Closing, Buyer and Sellers (or an Affiliate of Sellers) shall execute and deliver to each other a counterpart of such Water Services Agreement at the Closing.

(b) If the Parties fail to execute and deliver a Water Services Agreement at the Closing, then (i) Buyer shall withhold from and reduce the Estimated Closing Payment by Thirty

Million Dollars ($30,000,000) (the “ Water Supply Asset Value ”), (ii) the Water Assets transferred from Sellers to Buyer at Closing shall not include the Freshwater Wells or flowlines related thereto (the “ Retained Water Supply Assets ”), (iii) the Parties shall revise the Bill of Sale, the Shared Use Agreement, and any other documents or certificates delivered pursuant to this Agreement to give effect to the exclusion of the Retained Water Supply Assets and (iv) for a period of six (6) months after the Closing Date (the “ WSA Negotiation Period ”), the Parties shall continue to use commercially reasonable efforts to negotiate and enter into a Water Services Agreement.

(c) If the Parties execute and deliver a Water Services Agreement during the WSA Negotiation Period, then concurrently with the execution of such agreement, Buyer and Sellers shall enter into one or more Bills of Sale necessary to effectuate the transfer, assignment and conveyance to Buyer of the Retained Water Supply Assets, and Buyer shall pay the Water Supply Asset Value by wire transfer to HFS in immediately available funds.

6.15 Cooperation Related to Monument Draw Water . Prior to Closing, the Parties shall reasonably cooperate with each other (i) to develop and implement operational procedures and systems that enhance or maintain the quality of the Produced Water (as defined in the Produced Water Agreement) after being received from production at wells located within the Monument Draw Operating Area (the “ Monument Draw Water ”) such that the Monument Draw Water meets (or continues to meet) the specification set forth in Section 8.1(k) of the Produced Water Agreement, or (ii) to mutually agree upon alternative arrangements that address or remedy a failure of the Monument Draw Water to meet such specification, including consideration of an adjustment to the Service Fee (as defined in the Produced Water Agreement).

6.16 Covenant to Satisfy Closing Conditions . From the Execution Date until the Closing, subject to the terms and conditions of this Agreement, each of the Parties shall use commercially reasonable efforts to take, or cause to be taken, such actions as are necessary to expeditiously satisfy the closing conditions set forth Article 7 .

ARTICLE 7
CONDITIONS TO CLOSING

7.1 Conditions to the Obligation of Buyer . The obligations of Buyer to consummate the transactions contemplated hereby are subject to the satisfaction on or prior to the Closing Date of all of the following conditions, any one or more of which may be waived, in whole or in part, by Buyer:

(a) The representations and warranties of the Sellers set forth in this Agreement shall be true and correct (without giving effect to any materiality standard or Material Adverse Effect qualification) as of the Execution Date and on the Closing Date as if made on such date (or, in the case of representations and warranties that are made as of a specific date or time, as if made on such specific date or time), except to the extent that the failure of such representations or warranties (other than the HFS Fundamental Representations) to be true and correct would not, individually or in the aggregate, result in a Material Adverse Effect; provided that neither satisfaction of this condition nor completion of Closing will affect Buyer’s rights under Article 10 . The Sellers shall have performed or complied in all material respects with all

obligations and covenants required by this Agreement to be performed or complied with by them by the time of the Closing. The Sellers shall have delivered to Buyer a certificate, dated as of the Closing Date and signed by an authorized officer of each Seller, confirming the foregoing matters set forth in this Section 7.1(a) (the “ HFS Closing Certificate ”).

(b) Sellers shall have delivered to Buyer all of the documents, certificates and other instruments required to be delivered under, and otherwise complied with the provisions of, Section 3.2 , and each such document, certificate or other instrument to which a Person other than a Seller is a party shall have also delivered a duly executed counterpart of such document, certificate or other instrument.

(c) The consents of any Person set forth on Schedule 7.2(c) shall have been obtained, and fully executed copies of such consents shall have been delivered to Buyer.

(d) No statute, rule, regulation, executive order, decree, temporary restraining order, preliminary or permanent injunction, judgment or other order shall have been enacted, entered, promulgated, enforced or issued by any Governmental Authority preventing the consummation of the transactions contemplated hereby shall be in effect.

(e) No Material Adverse Effect shall have occurred.

(f) The Defect Notice Date shall have occurred.

(g) Any applicable waiting period (and any extensions thereof) under the HSR Act with respect to the transactions contemplated hereby shall have expired or been terminated.

7.2 Conditions to the Obligation of the Sellers . The obligation of the Sellers to proceed with the Closing contemplated hereby is subject to the satisfaction on or prior to the Closing Date of all of the following conditions, any one or more of which may be waived in writing, in whole or in part, by HFS:

(a) The representations and warranties of Buyer set forth in this Agreement shall be true and correct (without giving effect to any materiality standard or Buyer Material Adverse Effect qualification) as of the Execution Date and on the Closing Date as if made on such date (or, in the case of representations and warranties that are made as of a specific date or time, as if made on such specific date or time), except to the extent that the failure of such representations or warranties (other than those set forth in Sections 5.1 , 5.2 , 5.3(a)(i) and 5.6 ) to be true and correct would not, individually or in the aggregate, result in a Buyer Material Adverse Effect. Buyer shall have performed or complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by it by the time of the Closing. Buyer shall have delivered to HFS a certificate, dated as of the Closing Date and signed by an authorized officer of Buyer, confirming the foregoing matters set forth in this Section 7.2(a) (the “ Buyer Closing Certificate ”).

(b) Buyer shall have delivered to HFS all of the documents, certificates and other instruments required to be delivered under, and otherwise complied with the provisions of, Section 3.3 , and each such document, certificate or other instrument to which a Person other than

Buyer is a party shall have also delivered a duly executed counterpart of such document, certificate or other instrument.

(c) The consents of any Person set forth on Schedule 7.2(c) shall have been obtained, and fully executed copies of such consents shall have been delivered to HFS.

(d) No statute, rule, regulation, executive order, decree, temporary restraining order, preliminary or permanent injunction, judgment or other order shall have been enacted, entered, promulgated, enforced or issued by any Governmental Authority, or other legal restraint or prohibition initiated by a Third Party or Governmental Authority preventing the consummation of the transactions contemplated hereby shall be in effect.

(e) No Material Adverse Effect shall have occurred.

(f) Any applicable waiting period (and any extensions thereof) under the HSR Act with respect to the transactions contemplated hereby shall have expired or been terminated.

ARTICLE 8
TAX MATTERS

8.1 Allocation of Purchase Price . The purchase price as set forth in Section 2.3 , as adjusted pursuant to Sections 2.5 , 6.8 , and 6.13 , as applicable, shall be allocated among the Water Assets in accordance with Section 1060 of the Code and the Treasury regulations promulgated thereunder (and any similar provision of state, local or foreign Law, as appropriate) (the “ Allocation ”). The Allocation shall be delivered by Sellers to Buyer within sixty (60) days after delivery of the final calculation of the purchase price for Buyer’s approval, which approval shall not be unreasonably withheld, conditioned or delayed. The Parties shall cooperate and negotiate in good-faith to resolve any disputes relating to the Allocation. Neither Sellers nor Buyer shall take any Tax position inconsistent with such Allocation and neither Sellers nor Buyer shall agree to any proposed adjustment to the Allocation by any Governmental Authority without first giving the other Party prior written notice; provided, however, that nothing contained herein shall prevent Sellers or Buyer from settling any proposed deficiency or adjustment by any Governmental Authority based upon or arising out of the Allocation, and neither Sellers nor Buyer shall be required to litigate before any court any proposed deficiency or adjustment by any Governmental Authority challenging such Allocation.

8.2 Tax Returns .

(a) Sellers shall be responsible for filing with the appropriate Governmental Authority any Asset Tax Return relating to the Water Assets that is required to be filed before the Closing Date and paying the Taxes reflected on such Tax Return as due and owing.

(b) Buyer shall be responsible for filing with the appropriate Governmental Authority any Asset Tax Return relating to the Water Assets that is required to be filed on or after the Closing Date and paying the Taxes reflected on such Tax Return as due and owing. Buyer shall prepare any Asset Tax Return relating to any taxable period (or portion thereof) ending before the Effective Time on a basis consistent with past practice except to the extent as otherwise required by applicable Law. Buyer shall provide Sellers with a copy of any such Asset

Tax Return for Sellers’ review at least ten (10) days prior to the due date for the filing of such Tax Return, and Buyer shall incorporate into such Tax Return any comments of Sellers provided to Buyer in advance of the due date for the filing of such Tax Return.

8.3 Allocation of Certain Taxes . For purposes of determining the allocation of Asset Taxes to a Straddle Period: (a) Asset Taxes that are based upon or related to income or receipts or imposed on a transactional basis, shall be allocated to the portion of such period (e.g., that portion ending prior to the Effective Time or that portion beginning at the Effective Time) in which the transaction giving rise to such Asset Taxes occurred, and (b) Asset Taxes that are ad valorem, property or other Asset Taxes imposed on a periodic basis pertaining to a Straddle Period shall be allocated between the portion of such Straddle Period ending prior to the Effective Time and the portion of such Straddle Period beginning at the Effective Time by prorating each such Asset Tax based on the number of days in the applicable Straddle Period that occur before the Effective Time, on the one hand, and the number of days in such Straddle Period that occur from and after the Effective Time, on the other hand.

8.4 Tax Refunds . Sellers shall be entitled to any and all refunds or credits of Taxes that are Excluded Liabilities. If Buyer receives a refund or credit of Taxes to which any Seller is entitled pursuant to this Section 8.4 , Buyer shall promptly pay such amount to such Seller.

8.5 Transfer Taxes . All transfer, documentary, vehicle, sales, use, stamp, registration, recording, filing and other similar Taxes and fees arising out of or in connection with the transactions effected pursuant to this Agreement, including any costs associated with preparing and filing any related Tax Returns (the “ Transfer Taxes ”) shall be borne fifty percent (50%) by Buyer, on the one hand, and fifty percent (50%) by Sellers, on the other hand. Buyer shall prepare and timely file or cause to be prepared and timely filed all Tax Returns it is required by applicable Law to file with respect to Transfer Taxes. If required by applicable Law, any other Party shall, and shall cause its Affiliates to, join in the execution of any such Tax Returns and other documentation. The Parties shall, upon request, use reasonable efforts to mitigate, reduce or eliminate any Transfer Tax, including by obtaining any certificate or other document from any Governmental Authority or any other Person as may be necessary to so mitigate, reduce or eliminate any Transfer Tax, including a properly completed and executed Texas Comptroller of Public Account Form 01-917, Statement of Occasional Sale, to the extent applicable.

8.6 Tax Contest . If, after the Closing Date, Buyer receives notice of an audit or administrative or judicial proceeding with respect to any Asset Tax or Asset Tax Return related to any taxable period (or portion thereof) ending prior to the Effective Time (a “ Tax Contest ”), Buyer shall notify Sellers within ten (10) days of such notice. Sellers shall have the option to control the conduct and resolution of any such Tax Contest for which Sellers would reasonably be expected to have an indemnification obligation pursuant to the terms of this Agreement, and Sellers may exercise such option by providing written notice to Buyer within fifteen (15) days of receiving notice of such Tax Contest from Buyer; provided, that, if Sellers do not so exercise such option, in which case Buyer shall (a) keep Sellers informed of the progress of such Tax Contest, (b) provide Sellers with copies of material correspondence with respect to such Tax Contest, (c) permit Sellers (or Sellers’ counsel) to participate in meetings (including conference calls) with the applicable Governmental Authority with respect to such Tax Contest, and (d) not

effect any settlement or compromise of such Tax Contest without obtaining Sellers’ prior written consent thereto, which shall not be unreasonably conditioned, delayed, or withheld.

8.7 Purchase Price Adjustments . Except as required by applicable Law, any payments pursuant to Article 10 shall be treated as adjustments to the purchase price hereunder for applicable Tax purposes.

ARTICLE 9
TERMINATION

9.1 Events of Termination . This Agreement may be terminated at any time prior to the Closing Date:

(a) by mutual written consent of Buyer and HFS;

(b) by Buyer or HFS, in writing delivered to other Party after January 31, 2019 (the “ Termination Date ”), if the Closing has not occurred by such date, provided that as of such date the terminating Party is not in default in any material respect of its covenants and obligations under this Agreement;

(c) by Buyer or HFS, in writing delivered to the other Party, without prejudice to other rights and remedies that the terminating Party or its Affiliates may have (provided the terminating Party and its Affiliates are not otherwise in material default or breach of this Agreement, and have not failed or refused to close without justification hereunder), if with respect to the other Party (i) there shall be a breach of any representation or warranty of such other Party that would cause a failure of the condition set forth in Section 7.1(a) or 7.2(a) , as applicable, or (ii) there shall be a breach by such other Party of any of its covenants or agreements that would cause a failure of the condition set forth in Section 7.1(a) or Section 7.2(a) , as applicable; provided , however , that in the case of clauses (i) or (ii) , the defaulting Party shall have a period of ten (10) days following written notice from the non-defaulting Party to cure any breach of this Agreement, if such breach is curable;

(d) by Buyer or HFS, in writing delivered to the other Party, without liability, if there shall be any final and non-appealable order, writ, injunction or decree of any Governmental Authority binding on the non-terminating Party, which prohibits or restrains such party from consummating the transactions contemplated hereby; or

(e) by Buyer or HFS, in writing delivered to HFS (in the case of a termination by Buyer) or in writing delivered to Buyer (in the case of a termination by HFS), without liability, if the Aggregate Defect Threshold is exceeded as set forth in Section 6.13(f)(v)(B) .

9.2 Effect of Termination . If the obligation to close the transactions contemplated by this Agreement is terminated pursuant to any provision of Section 9.1 , then, except for the provisions of Sections 1.1 , 1.2 , 6.2(a) , 6.2(c) , Article 11 and this Section 9.2 , this Agreement shall forthwith become void and the Parties shall have no liability or obligation hereunder; provided that, in the event of a willful or intentional breach, the non-breaching Party or Parties shall be entitled to exercise all remedies available at Law or in equity. For the avoidance of

doubt, the failure of a Party to consummate the transactions contemplated by this Agreement when required pursuant to this Agreement shall be deemed to be a willful breach by such Party.

ARTICLE 10
INDEMNIFICATION

10.1 Indemnification of Buyer . Subject to the limitations set forth in this Agreement, the Sellers, jointly and severally, from and after the Closing Date, shall indemnify, defend and hold Buyer and its Affiliates and their respective securityholders, directors, officers, and employees (collectively the “ Buyer Indemnified Parties ”) harmless from and against any and all Liabilities suffered or incurred by any Buyer Indemnified Party (whether such Liabilities relate to a Third Party Claim or a Direct Claim) (a) as a result of any inaccuracy or breach of a representation or warranty of the Sellers set forth in this Agreement, (b) as a result of any breach or nonperformance of any agreement or covenant of the Sellers set forth in this Agreement, (c) related to the Excluded Liabilities or (d) arising from any Indemnifiable Schedule Supplement Matters.

10.2 Indemnification of the Sellers . Subject to the limitations set forth in this Agreement, Buyer shall indemnify, defend and hold the Sellers, their Affiliates, and their respective securityholders, directors, officers, and employees (collectively, the “ HFS Indemnified Parties ”) harmless from and against any and all Liabilities suffered or incurred by the HFS Indemnified Parties (whether such Liabilities relate to a Third Party Claim or a Direct Claim) (a) as a result of any inaccuracy or breach of a representation or warranty of Buyer set forth in this Agreement, (b) as a result of any breach or nonperformance of any agreement or covenant of Buyer set forth in this Agreement, or (c) related to the Assumed Liabilities.

10.3 Survival . All the provisions of this Agreement shall survive the Closing; provided that, (a) the representations and warranties set forth in Article 4 and Article 5 shall survive until 5:00 pm Houston time on the day that is twelve (12) calendar months after the Closing Date, at which time such representations and warranties shall terminate and expire, except that (i) the HFS Fundamental Representations and the Buyer Fundamental Representations shall survive the Closing indefinitely and (ii) the representations and warranties of the Sellers set forth in Section 4.5 (Taxes) shall survive the Closing for a period of thirty (30) days following the expiration of the applicable statute of limitations (taking into account any extensions thereof), (b) the indemnification obligations of the Sellers under clause (c) of Section 10.1 shall survive indefinitely, (c) the indemnification obligations of Buyer under clause (c) of Section 10.2 shall survive indefinitely, and (d) the indemnification obligations of Sellers under clause (d) of Section 10.1 shall survive until 5:00 pm Houston time on the day that is twelve (12) calendar months after the Closing Date. After a representation and warranty has terminated and expired, no indemnification shall or may be sought pursuant to this Article 10 on the basis of that representation and warranty by any Person who would have been entitled pursuant to this Article 10 to indemnification on the basis of that representation and warranty prior to its termination and expiration, provided that in the case of each representation and warranty that shall terminate and expire as provided in this Section 10.3 , no claim presented in writing for indemnification pursuant to this Article 10 on the basis of that representation and warranty prior to its termination and expiration shall be affected in any way by that termination and expiration. The covenants and agreements set forth in this Agreement (A) to be performed

prior to the Closing shall terminate and expire as of the first anniversary of the Closing Date and (B) to be performed after the Closing shall survive until fully performed.

10.4 Limitations on Indemnification .

(a) To the extent that the Buyer Indemnified Parties are entitled to indemnification for Liabilities pursuant to Section 10.1 , the Sellers shall not have any Liability (i) for any individual indemnifiable item (or series of related items) which does not exceed $100,000 (the “ Individual Indemnity Threshold ”), and (ii) in respect of those individual indemnifiable items that exceed the Individual Indemnity Threshold, unless the aggregate Liabilities relating to all such individual indemnifiable items exceed in the aggregate an amount equal to $3,000,000 (the “ Deductible Amount ”), and then only to the extent of any such excess. In no event shall the Sellers’ aggregate liability to the Buyer Indemnified Parties exceed an amount equal to $20,000,000 (the “ Cap ”). Notwithstanding the foregoing, (A) the Individual Indemnity Threshold, the Deductible Amount and the Cap shall not apply to indemnification for Liabilities relating to HFS Fundamental Representations or to any indemnification obligation under Section 10.1(b) or 10.1(c) and (B) the Individual Indemnity Threshold and the Deductible Amount shall not apply to any indemnification obligation under clause (d) of Section 10.1 . Notwithstanding any other provision of this Agreement to the contrary, Sellers’ aggregate liability to the Buyer Indemnified Parties with respect to indemnification under this Article 10 shall in no event exceed the Base Purchase Price.

(b) For purposes of determining the Liabilities subject to indemnity pursuant to this Article 10 , any materiality or Material Adverse Effect qualifiers in the representations and warranties (other than the representations and warranties set forth in (x) the parenthetical in Section 4.14(a) and (y) Section 4.15(b) , and in each case, the related definitions) shall be disregarded.

(c) In calculating any amount to be paid by an Indemnifying Party by reason of the provisions of this Agreement, the amount shall be reduced by all insurance proceeds and any indemnification reimbursement proceeds actually received from Third Parties related to the Liabilities, in each case net of all reasonable out-of-pocket costs incurred in the recovery of such proceeds. No Buyer Indemnified Parties shall be entitled to double recovery for any particular item for which an adjustment has already been made to the purchase price under the terms of this Agreement (whether at Closing or thereafter) or with respect to which indemnification is provided under this Agreement. In calculating amounts payable to any Buyer Indemnified Party hereunder, the amount of any indemnified Liability shall be determined without duplication of any adjustment to the purchase price or any other Liability for which an indemnification claim has been made with respect to any other representation or warranty, or covenant or agreement that contemplates performance thereof prior to the Closing Date.

(d) Except as provided in Section 6.13 , the right to indemnification provided by this Agreement will not be affected by any investigation conducted by the Party to or for whom such representation, warranty, covenant or obligation is made with respect to, or any Knowledge acquired prior to the Closing Date.

(e) Notwithstanding anything in this Agreement to the contrary, Sellers shall have no obligation under this Agreement to indemnify any Person for any Liabilities (including Environmental Liabilities) to the extent that such Liabilities are incurred (i) as a result of any remedial, removal or other response action in excess of the reasonable cost of the response required under Environmental Laws that addresses the applicable cause of such Liabilities to the extent required by applicable Environmental Laws at the lowest commercially reasonable cost (considered as a whole taking into consideration any material negative impact such response may have on the operations of the relevant Water Assets (as operated on the Closing Date) or any potential material additional costs or liabilities that may likely arise as a direct result of such response) as compared to any other response that is required under Environmental Laws or (ii) in order to meet a more stringent cleanup standard than that set forth in clause (i) which result from a change in land use from the use in effect as of the Closing Date, or from a change of Law relative to that which is in effect as of the Closing Date. Buyer agrees not to compel, induce, or solicit, whether directly or indirectly, any Governmental Authority to require any environmental action, investigation, monitoring or remediation unless affirmatively required to do so by Environmental Laws.

(f) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS ARTICLE 10 , NO PARTY NOR ANY OF ITS AFFILIATES SHALL BE LIABLE UNDER THIS ARTICLE 10 OR OTHERWISE FOR EXEMPLARY, SPECIAL, PUNITIVE, INDIRECT, REMOTE, SPECULATIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGES (EXCEPT TO THE EXTENT SUCH CONSEQUENTIAL DAMAGES CONSTITUTE DIRECT DAMAGES), WHETHER IN TORT (INCLUDING NEGLIGENCE OR GROSS NEGLIGENCE), STRICT LIABILITY, BY CONTRACT OR STATUTE, EXCEPT TO THE EXTENT ANY INDEMNIFIED PARTY SUFFERS SUCH DAMAGES TO A THIRD PARTY IN CONNECTION WITH A FINALLY ADJUDICATED THIRD PARTY CLAIM, IN WHICH CASE SUCH DAMAGES SHALL BE RECOVERABLE (TO THE EXTENT RECOVERABLE UNDER THIS ARTICLE 10 ) WITHOUT GIVING EFFECT TO THIS SECTION 10.4(f) .

10.5 Defense of Claims .

(a) Notice . If an Indemnified Party receives notice of the assertion of any claim or of the commencement of any Third Party Claim with respect to which indemnification is to be sought from the Indemnifying Party, the Indemnified Party will give such Indemnifying Party prompt notice thereof. However, the failure to give timely notice will not affect the rights or obligations of the Indemnifying Party except and only to the extent that, as a result of such failure, the Indemnifying Party was prejudiced. Such notice shall describe the nature of the Third Party Claim in reasonable detail and will indicate the estimated amount, if practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party will have the right to participate in or, by giving notice to the Indemnified Party, subject to Section 10.5(b) , to elect to assume the defense of, any Third Party Claim at such Indemnifying Party’s own expense and by such Indemnifying Party’s own counsel.

(b) Opportunity to Defend . If within ten (10) days after an Indemnified Party provides notice to the Indemnifying Party of any Third Party Claim, the Indemnified Party receives notice from the Indemnifying Party that such Indemnifying Party has elected to assume the defense of such Third Party Claim, the Indemnifying Party will have the right to defend, at its

sole cost and expense, such Third Party Claim (other than any Third Party Claim of a criminal or regulatory nature, or which seeks or in respect of which there has been granted non-monetary or injunctive relief). If the Indemnifying Party elects not to defend against, negotiate, settle or otherwise deal with any Third Party Claim that relates to any Liability indemnified against hereunder, the Indemnified Party may defend against, negotiate, settle or otherwise deal with such Third Party Claim. If the Indemnifying Party shall assume the defense of any Third Party Claim, the Indemnified Party may participate, at its own expense, in the defense of such Third Party Claim and the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnified Party in connection with the defense thereof; provided, however, that such Indemnified Party shall be entitled to participate in any such defense with separate counsel at the expense of the Indemnifying Party if, in the reasonable opinion of counsel to the Indemnified Party (x) there are defenses available to the Indemnified Party that are different from or additional to those available to the Indemnifying Party, or (y) a conflict or potential conflict exists between the Indemnified Party and the Indemnifying Party that would make such separate representation advisable, and it is determined that the Third Party Claim is subject to a valid claim of indemnity against the Sellers pursuant to Section 10.1 . The Parties agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such Third Party Claim. Without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld or delayed, the Indemnifying Party will not enter into any settlement of any Third Party Claim which (i) does not include as an unconditional term thereof the giving by the Third-Party claimant to the Indemnified Party of a full release from all liability in respect thereof, and (ii) contains any admission or statement of any wrongdoing or liability on behalf of the Indemnified Party. If a firm offer is made by the Third Party to settle a Third Party Claim and the Indemnifying Party desires to accept and agree to such offer and indemnify the Indemnified Party in respect thereof, the Indemnifying Party will give notice to the Indemnified Party to that effect. If the Indemnified Party fails to consent to such firm offer within ten (10) days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and, in such event, the maximum liability of the Indemnifying Party with respect to such Third Party Claim will be the amount of such settlement offer, plus reasonable costs and expenses paid or incurred by the Indemnified Party up to the date of such notice.

(c) Direct Claim . Any Direct Claim will be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable. The Indemnifying Party will have a period of thirty (30) days from receipt of such claim within which to respond to such Direct Claim. If the Indemnifying Party fails to respond to such Direct Claim, the Indemnified Party will be free to seek enforcement of its right to indemnification under this Agreement.

(d) Conflicts . To the extent the provisions of this Section 10.5 are inconsistent with Section 8.6 , Section 8.6 shall control.

10.6 Sole Remedy . Following the Closing, no Party shall have liability under this Agreement or with respect to the transactions contemplated herein, except (a) for claims arising from a Party’s actual common law fraud with intent to deceive in connection with the transactions contemplated by this Agreement or (b) as is provided in Article 8 or this Article 10 .

ARTICLE 11
MISCELLANEOUS

11.1 Expenses . Except as otherwise provided herein and regardless of whether the transactions contemplated hereby are consummated, the Sellers, on the one hand, and Buyer, on the other hand, shall each bear responsibility their own expenses incident to this Agreement and all actions taken in preparation for carrying this Agreement into effect. Without limiting the foregoing, the Sellers, on the one hand, and Buyer, on the other hand, shall bear equally the expenses related to the assignment, conveyance and transfer of the Water Assets to Buyer as contemplated by this Agreement.

11.2 Notices . Any notice, request, demand, or other communication required or permitted to be given or made hereunder (herein collectively called “ Notice ”) shall be in writing and shall be deemed to have been duly given or made if (a) delivered personally, (b) transmitted by first class registered or certified mail, postage prepaid, return receipt requested, (c) delivered by prepaid overnight courier service or (d) delivered by electronic mail, in each case, to a Party at the addresses set forth below (or at such other addresses as shall be specified by a Party by similar notice):

If to any Seller, addressed to:

Halcón Field Services, LLC

c/o Halcón Resources Corporation

1801 California St., Suite 3500

Denver, Colorado 80202

Attention: David Elkouri

Email: delkouri@halconresources.com

and with a copy (which shall not constitute Notice) to:

Bracewell LLP

711 Louisiana, Suite 2300

Houston, Texas 77002

Attention: W. Cleland Dade

Email: cle.dade@bracewell.com

If to Buyer, addressed to:

WaterBridge Texas Midstream LLC

840 Gessner Road, Suite 100

Houston, Texas 77024

Attention: Chief Financial Officer

Telephone: 832 874 4024

Email: steven.jones@h2obridge.com

and with a copy (which shall not constitute Notice) to:

Porter Hedges LLP

1000 Main, Suite 3600

Houston, Texas 77002

Attention: Randy King

Email: rking@porterhedges.com

Notices shall be effective (i) if delivered personally or sent by courier service, upon actual receipt by the intended recipient, (ii) if mailed, upon the earlier of five (5) days after deposit in the mail or the date of delivery as shown by the return receipt therefor, (iii) if sent by facsimile transmission, when confirmation of transmission is received, or (iv) if sent by electronic mail, upon confirmation of appropriate evidence generated from the sender’s electronic mail server showing that such Notice was sent to the appropriate email on a specified date. Whenever any Notice is required to be given by Law or this Agreement, a written waiver thereof, signed by the Person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.

11.3 Entire Agreement; Amendments and Waivers .

(a) This Agreement and the Transaction Documents constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof.

(b) No amendment, supplement or modification of this Agreement shall be binding unless executed in writing by each Party.

(c) No waiver by any Party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the Party so waiving. No waiver by any Party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. Except as specifically set forth in this Agreement, no failure by a Party to exercise, or delay in exercising, any right, remedy, power or privilege hereunder shall operate or be construed as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

11.4 Binding Effect; Assignment; Third-Party Beneficiaries . This Agreement shall be binding upon and inure to the benefit of the Parties and their respective permitted successors and assigns, but neither this Agreement nor any of the rights, benefits or obligations hereunder shall be assigned or transferred, by operation of law or otherwise, by any Party without the prior written consent of each other Party. Except as set forth in Article 8 , Sections 10.1 and 10.2 , nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the Parties and their respective permitted successors and assigns, any rights, benefits, or remedies of any nature whatsoever under or by reason of this Agreement.

11.5 Governing Law . This Agreement and any disputes arising hereunder or in connection herewith shall be governed by and construed and enforced in accordance with the Laws of the State of Texas without regard to the principles of conflicts of Law.

11.6 Jurisdiction and Venue . Each Party hereby irrevocably submits to the exclusive jurisdiction of the courts of Harris County, Texas and the federal courts of the United States of America located in Harris County, Texas over any dispute between or among the Parties arising out of this Agreement or any of the transactions contemplated hereby, and each Party irrevocably agrees that all such claims in respect of such dispute shall only be heard and determined in such courts. Each Party hereby irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the venue of any such dispute arising out of this Agreement or any of the transactions contemplated hereby brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each Party agrees, to the fullest extent permitted by applicable Law, that a final and unappealable judgment against it in any action contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment or in any other manner provided by Law, a certified copy of which shall be conclusive evidence of the fact and amount of such judgment. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

11.7 Severability . If any provision of this Agreement or the application thereof to any Person or circumstance is held invalid or unenforceable to any extent, the remainder of this Agreement and the application of that provision to other Persons or circumstances is not affected thereby and that provision shall be enforced to the greatest extent permitted by Law, and the Parties shall promptly meet and negotiate substitute provisions for those rendered or declared illegal or unenforceable, but all of the remaining provisions of this Agreement shall remain in full force and effect.

11.8 Interpretation . It is expressly agreed by the Parties that neither this Agreement nor any of the Transaction Documents shall be construed against any party thereto, and no consideration shall be given or presumption made, on the basis of who drafted this Agreement, any Transaction Document or any provision hereof or thereof or who supplied the form of this Agreement or any of the Transaction Documents. Each Party agrees that this Agreement has been purposefully drawn and correctly reflects its understanding of the transactions contemplated by this Agreement and, therefore, waives the application of any Law, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document, it being understood that the parties to this Agreement are sophisticated and have had adequate opportunity and means to retain counsel to represent their interests and to otherwise negotiate the provisions of this Agreement.

11.9 Headings and Schedules . The headings and captions herein are inserted for convenience of reference only and are not intended to govern, limit or aid in the construction of any term or provision hereof. The Schedules and the Exhibits referred to herein are attached hereto and incorporated herein by this reference, and unless the context expressly requires otherwise, the Schedules and such Exhibits are incorporated in the definition of “ Agreement .”

Certain information contained in the Schedules is solely for informational purposes, is not an admission of liability with respect to the matters covered by the information, may not be required to be disclosed pursuant to this Agreement and will not imply that such information or any other information is required to be disclosed. Inclusion of such information will not establish any level of materiality or similar threshold or be an admission that such information is material to the business, assets, liabilities, financial position, operations or results of operations of any Person or is otherwise material regarding such Person. Each matter disclosed in any Schedule in a manner that makes its relevance to one or more other Schedules readily apparent on the face of such disclosure will be deemed to have been appropriately included in each such other Schedule (notwithstanding the presence or absence of any cross reference in any Schedule or the presence or absence of a reference to a Schedule in any representation or warranty).

11.10 Time of Essence . Time is of the essence in the performance of this Agreement.

11.11 Multiple Counterparts . This Agreement may be executed in counterparts, all of which together shall constitute an agreement binding on all Parties, notwithstanding that all such Parties are not signatories to the original or the same counterpart. A signature delivered by facsimile or other electronic transmission (including electronic mail) will be considered an original signature for all purposes of this Agreement and any enforcement hereof. Any Person may rely on a copy or reproduction of this Agreement.

[Signature Pages Follow]

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Execution Date.

	SELLERS :

	HALCÓN FIELD SERVICES, LLC

	By:	/s/ Steve W. Herod
	Name:	Steve W. Herod
	Title:	Executive Vice President - Corporate Development


	HALCÓN OPERATING CO., INC.

	By:	/s/ Steve W. Herod
	Name:	Steve W. Herod
	Title:	Executive Vice President - Corporate Development


	HALCÓN ENERGY PROPERTIES, INC.

	By:	/s/ Steve W. Herod
	Name:	Steve W. Herod
	Title:	Executive Vice President - Corporate Development

Signature Page to Asset Purchase Agreement

	BUYER :

	WATERBRIDGE TEXAS MIDSTREAM LLC

	By:	/s/ Stephen Johnson
	Name:	Stephen Johnson
	Title:	Chief Executive Officer

Signature Page to Asset Purchase Agreement

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 12.1

Computation of Ratio of Earnings to Combined Fixed Charges and Preference Dividends
(In thousands, except ratios)

	Successor						Successor						Predecessor

	Nine Months Ended September 30,									Period from September 10, 2016 through December 31, 2016			Period from January 1, 2016 through September 9, 2016
																Years Ended December 31,
							Year Ended December 31, 2017									Years Ended December 31,
	2018			2017			Year Ended December 31, 2017									2015			2014			2013
Earnings:
Income (loss) before income taxes	$	(100,709	)	$	623,816		$	530,686		$	(474,449	)	$	3,292		$	(1,913,535	)	$	314,880		$	(1,380,378	)
Adjustments:
Equity investment loss (income)		(148	)		(417	)		(1,422	)		(9	)		152			171			(617	)		(97	)
Interest capitalized		—			—			—			—			(68,192	)		(113,009	)		(168,897	)		(203,993	)

Income (loss) before income taxes, as adjusted	$	(100,857	)	$	623,399		$	529,264		$	(474,458	)	$	(64,748	)	$	(2,026,373	)	$	145,366		$	(1,584,468	)
Fixed charges		33,513			67,421			76,356			29,013			197,640			340,399			320,403			262,046

Total earnings	$	(67,344	)	$	690,820		$	605,620		$	(445,445	)	$	132,892		$	(1,685,974	)	$	465,769		$	(1,322,422	)



Fixed charges:
Interest expense and amortization of finance costs	$	32,595		$	66,447		$	75,061		$	28,553		$	195,698		$	337,554		$	317,732		$	259,159
Rental expense representative of interest factor		918			974			1,295			460			1,942			2,845			2,671			2,887

Total fixed charges	$	33,513		$	67,421		$	76,356		$	29,013		$	197,640		$	340,399		$	320,403		$	262,046



Ratio of earnings to fixed charges		—	⁽¹⁾		10.2			7.9			—	⁽²⁾		—	⁽⁴⁾		—	⁽⁶⁾		1.5			—	⁽⁸⁾

Total fixed charges	$	33,513		$	67,421		$	76,356		$	29,013		$	197,640		$	340,399		$	320,403		$	262,046
Pre-tax preferred dividend requirements		—			47,625			47,560			783			12,320			83,942			32,902			12,132

Total fixed charges plus preference dividends	$	33,513		$	115,046		$	123,916		$	29,796		$	209,960		$	424,341		$	353,305		$	274,178



Ratio of earnings to combined fixed charges and preference dividends		—	⁽¹⁾		6.0			4.9			—	⁽³⁾		—	⁽⁵⁾		—	⁽⁷⁾		1.3			—	⁽⁸⁾

(1): Due to the Company's "Loss before income taxes, as adjusted" for the nine months ended September 30, 2018 the ratio coverage was less than 1:1. The Company must generate additional earnings of $100.9 million to achieve a coverage ratio of 1:1.
(2): Due to the Company's "Loss before income taxes, as adjusted" for the period from September 10, 2016 through December 31, 2016 the ratio coverage was less than 1:1. The Company must generate additional earnings of $474.5 million to achieve a coverage ratio of 1:1.
(3): Due to the Company's "Loss before income taxes, as adjusted" for the period from September 10, 2016 through December 31, 2016 the ratio coverage was less than 1:1. The Company must generate additional earnings of $475.2 million to achieve a coverage ratio of 1:1.
(4): Due to the Company's "Loss before income taxes, as adjusted" for the period from January 1, 2016 through September 9, 2016 the ratio coverage was less than 1:1. The Company must generate additional earnings of $64.7 million to achieve a coverage ratio of 1:1.
(5): Due to the Company's "Loss before income taxes, as adjusted" for the period from January 1, 2016 through September 9, 2016 the ratio coverage was less than 1:1. The Company must generate additional earnings of $77.1 million to achieve a coverage ratio of 1:1.
(6): Due to the Company's "Loss before income taxes, as adjusted" for the year ended December 31, 2015, the ratio coverage was less than 1:1. The Company must generate additional earnings of $2.0 billion to achieve a coverage ratio of 1:1.
(7): Due to the Company's "Loss before income taxes, as adjusted" for the year ended December 31, 2015, the ratio coverage was less than 1:1. The Company must generate additional earnings of $2.1 billion to achieve a coverage ratio of 1:1.
(8): Due to the Company's "Loss before income taxes, as adjusted" for the year ended December 31, 2013, the ratio coverage was less than 1:1. The Company must generate additional earnings of $1.6 billion to achieve a coverage ratio of 1:1.

QuickLinks

Exhibit 12.1

Computation of Ratio of Earnings to Combined Fixed Charges and Preference Dividends (In thousands, except ratios)

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.1

CERTIFICATIONS FOR FORM 10-Q

I, Floyd C. Wilson, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Halcón Resources Corporation;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b): Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c): Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
(d): Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

QuickLinks

Exhibit 31.1

CERTIFICATIONS FOR FORM 10-Q

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.2

CERTIFICATIONS FOR FORM 10-Q

I, Mark J. Mize, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Halcón Resources Corporation;

2.

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

(a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b): Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c): Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
(d): Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

(a): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

QuickLinks

Exhibit 31.2

CERTIFICATIONS FOR FORM 10-Q

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 32

Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), Floyd C. Wilson, Chairman of the Board, Chief Executive Officer and President, and Mark J. Mize, Executive Vice President, Chief Financial Officer and Treasurer, of Halcón Resources Corporation (the "Company"), each hereby certifies that, to the best of his knowledge:

(1): The Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2): The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


November 7, 2018		/s/ FLOYD C. WILSON
		Floyd C. Wilson
		Chairman of the Board, Chief Executive Officer and President


November 7, 2018		/s/ MARK J. MIZE
		Mark J. Mize
		Executive Vice President, Chief Financial Officer and Treasurer

This certification accompanies this Form 10-Q and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section.

A signed original of this written statement required by Section 906 has been provided to, and will be retained by, the Company and furnished to the Securities and Exchange Commission or its staff upon request.

QuickLinks

Exhibit 32

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)