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

FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

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 001-32367

BILL BARRETT CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
 
80-0000545
(State or other jurisdiction of
incorporation
or organization)
 
(IRS Employer
Identification No.)

1099 18th Street, Suite 2300
Denver, Colorado
 
80202
(Address of principal executive offices)
 
(Zip Code)

(303) 293-9100
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x   Yes     o   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     x   Yes     o   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer
 
o
  
Accelerated filer
 
x
Non-accelerated filer
 
o   (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o

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

There were 60,209,051 shares of $0.001 par value common stock outstanding on July 22, 2016 .


Table of Contents

INDEX TO FINANCIAL STATEMENTS
 
 
 
 
 
 
 
Item 1.
3

Item 2.
28

Item 3.
44

Item 4.
45

 
 
 
 
 
 
 
Item 1.
45

Item 1A.
45

Item 2.
46

Item 3.
46

Item 4.
46

Item 5.
46

Item 6.
46

48


2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

BILL BARRETT CORPORATION

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

 
June 30, 2016
 
December 31, 2015
 
(in thousands, except share data)
Assets:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
87,423

 
$
128,836

Accounts receivable, net of allowance for doubtful accounts
33,917

 
43,461

Derivative assets
41,652

 
99,809

Assets held for sale, net of amortization and impairment
33,717

 

Prepayments and other current assets
2,934

 
2,211

Total current assets
199,643

 
274,317

Property and equipment - at cost, successful efforts method for oil and gas properties:
 
 
 
Proved oil and gas properties
1,527,729

 
2,000,210

Unproved oil and gas properties, excluded from amortization
36,924

 
79,198

Furniture, equipment and other
26,902

 
26,021

 
1,591,555

 
2,105,429

Accumulated depreciation, depletion, amortization and impairment
(474,762
)
 
(934,745
)
Total property and equipment, net
1,116,793

 
1,170,684

Deferred income taxes
16,167

 
38,219

Derivative assets
6,781

 
19,662

Deferred financing costs and other noncurrent assets
3,211

 
3,638

Total
$
1,342,595

 
$
1,506,520

Liabilities and Stockholders' Equity:
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
33,346

 
$
64,337

Amounts payable to oil and gas property owners
12,270

 
15,657

Production taxes payable
16,207

 
26,578

Deferred income taxes
16,167

 
38,219

Current portion of long-term debt
447

 
440

Liabilities associated with assets held for sale
4,785

 

Total current liabilities
83,222

 
145,231

Long-term debt, net of debt issuance costs
711,279

 
794,652

Asset retirement obligations
10,464

 
14,066

Derivatives and other noncurrent liabilities
4,106

 
3,155

Stockholders' equity:
 
 
 
Common stock, $0.001 par value; authorized 150,000,000 shares; 60,212,659 and 49,864,512 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively, with 1,371,328 and 1,471,508 shares subject to restrictions, respectively
59

 
48

Additional paid-in capital
1,000,330

 
921,318

Retained earnings (Accumulated deficit)
(466,865
)
 
(371,950
)
Treasury stock, at cost: zero shares at June 30, 2016 and December 31, 2015, respectively

 

Total stockholders' equity
533,524

 
549,416

Total
$
1,342,595

 
$
1,506,520

See notes to Unaudited Consolidated Financial Statements.

3

Table of Contents

BILL BARRETT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands, except share and per share data)
Operating and Other Revenues:
 
 
 
 
 
 
 
Oil, gas and NGL production
$
47,025

 
$
61,382

 
$
76,146

 
$
109,868

Other
259

 
1,236

 
572

 
1,784

Total operating and other revenues
47,284

 
62,618

 
76,718

 
111,652

Operating Expenses:
 
 
 
 
 
 
 
Lease operating expense
8,479

 
11,405

 
17,306

 
25,196

Gathering, transportation and processing expense
611

 
933

 
1,399

 
1,875

Production tax expense
3,520

 
3,816

 
3,205

 
6,350

Exploration expense
21

 
92

 
48

 
125

Impairment, dry hole costs and abandonment expense
234

 
1,090

 
792

 
2,345

(Gain) Loss on divestitures
(708
)
 
(644
)
 
(708
)
 
(682
)
Depreciation, depletion and amortization
40,392

 
52,674

 
82,408

 
104,928

Unused commitments
4,568

 
4,387

 
9,136

 
8,775

General and administrative expense
9,937

 
14,672

 
22,357

 
28,001

Total operating expenses
67,054

 
88,425

 
135,943

 
176,913

Operating Income (Loss)
(19,770
)
 
(25,807
)
 
(59,225
)
 
(65,261
)
Other Income and Expense:
 
 
 
 
 
 
 
Interest and other income
57

 
144

 
94

 
419

Interest expense
(15,423
)
 
(17,390
)
 
(31,169
)
 
(33,820
)
Commodity derivative gain (loss)
(21,980
)
 
(27,657
)
 
(13,312
)
 
6,781

Gain (Loss) on extinguishment of debt
8,697

 
(818
)
 
8,697

 
1,749

Total other income and expense
(28,649
)
 
(45,721
)
 
(35,690
)
 
(24,871
)
Income (Loss) before Income Taxes
(48,419
)
 
(71,528
)
 
(94,915
)
 
(90,132
)
(Provision for) Benefit from Income Taxes

 
26,947

 

 
33,820

Net Income (Loss)
$
(48,419
)
 
$
(44,581
)
 
$
(94,915
)
 
$
(56,312
)
Net Income (Loss) Per Common Share, Basic
$
(0.93
)
 
$
(0.92
)
 
$
(1.89
)
 
$
(1.17
)
Net Income (Loss) Per Common Share, Diluted
$
(0.93
)
 
$
(0.92
)
 
$
(1.89
)
 
$
(1.17
)
Weighted Average Common Shares Outstanding, Basic
51,831,688

 
48,299,157

 
50,165,492

 
48,249,329

Weighted Average Common Shares Outstanding, Diluted
51,831,688

 
48,299,157

 
50,165,492

 
48,249,329

See notes to Unaudited Consolidated Financial Statements.

4

Table of Contents

BILL BARRETT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Net Income (Loss)
$
(48,419
)
 
$
(44,581
)
 
$
(94,915
)
 
$
(56,312
)
Other comprehensive income (loss)

 

 

 

Comprehensive Income (Loss)
$
(48,419
)
 
$
(44,581
)
 
$
(94,915
)
 
$
(56,312
)
See notes to Unaudited Consolidated Financial Statements.

5

Table of Contents

BILL BARRETT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
Six Months Ended June 30,
 
2016
 
2015
 
(in thousands)
Operating Activities:
 
 
 
Net Income (Loss)
$
(94,915
)
 
$
(56,312
)
Adjustments to reconcile to net cash provided by operations:
 
 
 
Depreciation, depletion and amortization
82,408

 
104,928

Deferred income tax benefit

 
(33,820
)
Impairment, dry hole costs and abandonment expense
792

 
2,345

Total commodity derivative (gain) loss
13,312

 
(6,781
)
Gain (Loss) on settlements of commodity derivatives
58,005

 
82,898

Stock compensation and other non-cash charges
5,431

 
5,213

Amortization of deferred financing costs
1,502

 
3,350

(Gain) Loss on extinguishment of debt
(8,697
)
 
(1,749
)
(Gain) Loss on sale of properties
(708
)
 
(682
)
Change in operating assets and liabilities:
 
 
 
Accounts receivable
9,544

 
17,109

Prepayments and other assets
(902
)
 
(1,139
)
Accounts payable, accrued and other liabilities
(3,943
)
 
(13,678
)
Amounts payable to oil and gas property owners
(3,387
)
 
3,311

Production taxes payable
(9,663
)
 
(13,852
)
Net cash provided by (used in) operating activities
48,779

 
91,141

Investing Activities:
 
 
 
Additions to oil and gas properties, including acquisitions
(86,680
)
 
(194,123
)
Additions of furniture, equipment and other
(991
)
 
(878
)
Proceeds from sale of properties and other investing activities
(1,225
)
 
66,518

Cash paid for short-term investments

 
(114,883
)
Proceeds from the sale of short-term investments

 
50,000

Net cash provided by (used in) investing activities
(88,896
)
 
(193,366
)
Financing Activities:
 
 
 
Principal payments on debt
(218
)
 
(24,976
)
Deferred financing costs and other
(1,078
)
 
(2,821
)
Net cash provided by (used in) financing activities
(1,296
)
 
(27,797
)
Increase (Decrease) in Cash and Cash Equivalents
(41,413
)
 
(130,022
)
Beginning Cash and Cash Equivalents
128,836

 
165,904

Ending Cash and Cash Equivalents
$
87,423

 
$
35,882

See notes to Unaudited Consolidated Financial Statements.

6

Table of Contents

BILL BARRETT CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings (Accumulated Deficit)
 
Treasury
Stock
 
Total
Stockholders'
Equity
Balance at December 31, 2014
$
48

 
$
913,619

 
$
115,821

 
$

 
$
1,029,488

Exercise of options, restricted stock activity and shares exchanged for exercise and tax withholding

 

 

 
(1,173
)
 
(1,173
)
Stock-based compensation

 
10,468

 

 

 
10,468

Retirement of treasury stock

 
(1,173
)
 

 
1,173

 

Settlement of convertible notes

 
(1,596
)
 

 

 
(1,596
)
Net income (loss)

 

 
(487,771
)
 

 
(487,771
)
Balance at December 31, 2015
48

 
921,318

 
(371,950
)
 

 
549,416

Exercise of options, restricted stock activity and shares exchanged for exercise and tax withholding
1

 

 

 
(1,042
)
 
(1,041
)
Stock-based compensation

 
5,664

 

 

 
5,664

Retirement of treasury stock

 
(1,042
)
 

 
1,042

 

Exchange of senior notes for shares of common stock
10

 
74,390

 

 

 
74,400

Net income (loss)

 

 
(94,915
)
 

 
(94,915
)
Balance at June 30, 2016
$
59

 
$
1,000,330

 
$
(466,865
)
 
$

 
$
533,524

See notes to Unaudited Consolidated Financial Statements.

7

Table of Contents

BILL BARRETT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

June 30, 2016

1. Organization

Bill Barrett Corporation, a Delaware corporation, together with its wholly-owned subsidiaries (collectively, the "Company"), is an independent oil and gas company engaged in the exploration, development and production of crude oil, natural gas and natural gas liquids ("NGLs"). Since its inception in January 2002, the Company has conducted its activities principally in the Rocky Mountain region of the United States.

2 . Summary of Significant Accounting Policies

Basis of Presentation. The accompanying Unaudited Consolidated Financial Statements include the accounts of the Company. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly, in all material respects, the Company's interim results. However, operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. The Company's Annual Report on Form 10-K includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report on Form 10-Q. Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Company's 2015 Annual Report on Form 10-K.

Use of Estimates. In the course of preparing the Company's financial statements in accordance with GAAP, management makes various assumptions, judgments and estimates to determine the reported amount of assets, liabilities, revenues and expenses and in the disclosure of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts initially established.

Areas requiring the use of assumptions, judgments and estimates relate to volumes of oil, natural gas and NGL reserves used in calculating depreciation, depletion and amortization ("DD&A"), the amount of expected future cash flows used in determining possible impairments of proved oil and gas properties and the amount of future capital costs used in these calculations. Assumptions, judgments and estimates also are required in determining asset retirement obligations, the timing of dry hole costs, impairments of unproved oil and gas properties, valuing deferred tax assets and estimating fair values of derivative instruments and stock-based payment awards.

Accounts Receivable. Accounts receivable is comprised of the following:

 
As of June 30, 2016
 
As of December 31, 2015
 
(in thousands)
Accrued oil, gas and NGL sales
$
26,271

 
$
33,594

Due from joint interest owners
5,526

 
8,373

Other
2,120

 
1,508

Allowance for doubtful accounts

 
(14
)
Total accounts receivable
$
33,917

 
$
43,461


Oil and Gas Properties. The Company's oil, gas and NGL exploration and production activities are accounted for using the successful efforts method. Under this method, all property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending determination of whether the well has found proved reserves. If an exploratory well does not find proved reserves, the costs of drilling the well are charged to expense and remain within cash flows from investing activities in the Unaudited Consolidated Statements of Cash Flows. If an exploratory well does find proved reserves, the costs remain capitalized and are included within additions to oil and gas properties and remain within cash flows from investing activities in the Unaudited Consolidated Statements of Cash Flows. The costs of development wells are capitalized whether

8


proved reserves are added or not. Oil and gas lease acquisition costs are also capitalized. Upon sale or retirement of depreciable or depletable property, the cost and related accumulated DD&A are eliminated from the accounts and the resulting gain or loss is recognized.

Other exploration costs, including certain geological and geophysical expenses and delay rentals for oil and gas leases, are charged to expense as incurred. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate. Maintenance and repairs are charged to expense, and renewals and betterments are capitalized to the appropriate property and equipment accounts.

Unproved oil and gas property costs are transferred to proved oil and gas properties if the properties are subsequently determined to be productive or are assigned proved reserves. Proceeds from sales of partial interests in unproved leases are accounted for as a recovery of cost without recognizing any gain until all costs are recovered. Unproved oil and gas properties are assessed periodically for impairment based on remaining lease terms, drilling results, reservoir performance, commodity price outlooks, future plans to develop acreage, recent sales prices of comparable properties and other relevant matters.

Materials and supplies consist primarily of tubular goods and well equipment to be used in future drilling operations or repair operations and are carried at the lower of cost or market value, on a first-in, first-out basis.

The following table sets forth the net capitalized costs and associated accumulated DD&A and non-cash impairments relating to the Company's oil, natural gas and NGL producing activities:

 
As of June 30, 2016
 
As of December 31, 2015
 
(in thousands)
Proved properties
$
300,535

 
$
320,538

Wells and related equipment and facilities
1,163,081

 
1,592,716

Support equipment and facilities
58,246

 
77,785

Materials and supplies
5,867

 
9,171

Total proved oil and gas properties (1)
$
1,527,729

 
$
2,000,210

Unproved properties
32,234

 
33,336

Wells and facilities in progress
4,690

 
45,862

Total unproved oil and gas properties, excluded from amortization  (1)
$
36,924

 
$
79,198

Accumulated depreciation, depletion, amortization and impairment (1)
(456,695
)
 
(918,510
)
Total oil and gas properties, net  (1)
$
1,107,958

 
$
1,160,898


(1)
Excludes oil and gas properties held for sale of $33.7 million , comprised of $571.9 million of proved oil and gas properties and $3.2 million of unproved oil and gas properties, net of accumulated depreciation, depletion, amortization and impairment of $541.4 million . Held for sale balances are included in current assets as assets held for sale, net of amortization and impairment, in the Unaudited Consolidated Balance Sheet as of June 30, 2016. See Note 4 for additional information on assets held for sale.

The Company reviews proved oil and gas properties on a field-by-field basis for impairment on a quarterly basis or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. The Company estimates the expected undiscounted future net cash flows of its oil and gas properties based on the Company's best estimate of development plans, future production, commodity pricing, gathering and transportation deductions, production tax rates, lease operating expenses and future development costs. The Company compares such undiscounted future net cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable. If the undiscounted future net cash flows exceed the carrying amount of the proved oil and gas properties, no impairment is taken. If the carrying value of a property exceeds the undiscounted future net cash flows, the Company will impair the carrying value to fair value based on an analysis of quantitative and qualitative factors existing as of the balance sheet date. The Company does not believe that the undiscounted future net cash flows analysis of its proved property represents the applicable market value. The factors used to determine fair value include, but are not limited to, recent sales prices of comparable properties, indications from marketing activities, the present value of future revenues, net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the projected cash flows.


9


Oil and gas properties are assessed for impairment once they meet the criteria to be classified as held for sale. Assets held for sale are carried at the lower of carrying cost or fair value less costs to sell. The fair value of the assets is determined using a market approach, based on an estimated selling price, as evidenced by current marketing activities, if possible. If an estimated selling price is not available, the Company utilizes the income valuation technique which involves calculating the present value of future revenues, as discussed above. If the carrying amount of the assets exceeds the fair value less costs to sell, an impairment will result to reduce the value of the properties down to fair value less costs to sell.

The Company recognized non-cash impairment, dry hole costs and abandonment expense in the Unaudited Consolidated Statements of Operations, as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in thousands)
 
Non-cash impairment of proved oil and gas properties
$

 
$
272

(1)  
$

 
$
272

(1)  
Non-cash impairment of unproved oil and gas properties

 
173

(1)  
183


231

(1)  
Dry hole costs
13

 
(58
)
 
70

 
(43
)
 
Abandonment expense and lease expirations
221

 
703

 
539

 
1,885

 
Total non-cash impairment, dry hole costs and abandonment expense
$
234

 
$
1,090

 
$
792

 
$
2,345

 

(1)
Non-cash impairment of proved and unproved oil and gas properties for the three and six months ended June 30, 2015 related to the Company's remaining Powder River Basin properties based upon a true up of previously estimated fair value relative to carrying value. These assets were classified as held for sale as of December 31, 2014 and sold in February 2015.

The provision for DD&A of oil and gas properties is calculated on a field-by-field basis using the unit-of-production method. Natural gas and NGLs are converted to an oil equivalent, Boe, at the standard rate of six Mcf to one Boe and forty-two gallons to one Boe, respectively. Estimated future dismantlement, restoration and abandonment costs are taken into consideration by this calculation.

Accounts Payable and Accrued Liabilities. Accounts payable and accrued liabilities are comprised of the following:

 
As of June 30, 2016
 
As of December 31, 2015
 
(in thousands)
Accrued drilling, completion and facility costs
$
6,445

 
$
32,895

Accrued lease operating, gathering, transportation and processing expenses
5,994

 
4,930

Accrued general and administrative expenses
5,893

 
10,962

Accrued interest payable
12,298

 
13,918

Trade payables and other
2,716

 
1,632

Total accounts payable and accrued liabilities
$
33,346

 
$
64,337


Revenue Recognition. Oil, gas and NGL revenues are recognized when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and collectability of the revenue is reasonably assured. The Company uses the sales method to account for gas and NGL imbalances. Under this method, revenues are recorded on the basis of gas and NGLs actually sold by the Company. In addition, the Company records revenues for its share of gas and NGLs sold by other owners that cannot be volumetrically balanced in the future due to insufficient remaining reserves. The Company also reduces revenues for other owners' volumetric share of gas and NGLs sold by the Company that cannot be volumetrically balanced in the future due to insufficient remaining reserves. The Company's remaining over- and under-produced gas and NGLs balancing positions are taken into account in determining the Company's proved oil, gas and NGL reserves. Imbalances at June 30, 2016 and 2015 were not material.

Derivative Instruments and Hedging Activities. The Company periodically uses derivative financial instruments to achieve a more predictable cash flow from its oil, natural gas and NGL sales by reducing its exposure to price fluctuations.

10


Derivative instruments are recorded at fair market value and are included in the Unaudited Consolidated Balance Sheets as assets or liabilities and in the Unaudited Consolidated Statements of Operations as commodity derivative gain (loss).

Income Taxes. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently payable plus deferred income taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred income tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when assets are recovered or liabilities are settled. Deferred income taxes also include tax credits and net operating losses that are available to offset future income taxes. Deferred income taxes are measured by applying currently enacted tax rates. Deferred tax assets are regularly reviewed, considering all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, taxable strategies and results of recent operations. The assumptions about future taxable income require significant judgment to determine whether it is more likely than not that the deferred tax asset will be realized. If it is determined that the deferred tax asset will not be realized, then a valuation allowance will be recorded against the deferred tax asset.

The Company accounts for uncertainty in income taxes for tax positions taken or expected to be taken in a tax return. Only tax positions that meet the more-likely-than-not recognition threshold are recognized. The Company does not have any uncertain tax positions recorded as of June 30, 2016 .

Earnings/Loss Per Share. Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to common stock by the weighted average number of common shares outstanding during each period. Diluted net income per common share is calculated by dividing net income attributable to common stock by the weighted average number of common shares outstanding and other dilutive securities. Potentially dilutive securities for the diluted net income per common share calculations consist of nonvested equity shares of common stock, in-the-money outstanding stock options to purchase the Company's common stock and shares into which the Convertible Notes are convertible. No potential common shares are included in the computation of any diluted per share amount when a net loss exists, as was the case for the three and six months ended June 30, 2016 and 2015 .

The following table sets forth the calculation of basic and diluted income (loss) per share:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands, except per share amounts)
Net income (loss)
$
(48,419
)
 
$
(44,581
)
 
$
(94,915
)
 
$
(56,312
)
Basic weighted-average common shares outstanding in period
51,832

 
48,299

 
50,165

 
48,249

Diluted weighted-average common shares outstanding in period
51,832

 
48,299

 
50,165

 
48,249

Basic net income (loss) per common share
$
(0.93
)
 
$
(0.92
)
 
$
(1.89
)
 
$
(1.17
)
Diluted net income (loss) per common share
$
(0.93
)
 
$
(0.92
)
 
$
(1.89
)
 
$
(1.17
)

New Accounting Pronouncements. In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-Based Payment Accounting . The objective of this update is to simplify the current guidance for stock compensation. The areas for simplification involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for the annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently evaluating the impact of adopting this standard.

In February 2016, the FASB issued ASU 2016-02, Leases . The objective of this update is 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. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The Company is currently evaluating the impact of adopting this standard.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes . The objective of this update is to require deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for annual periods beginning after December 15, 2016, and interim periods within those

11


annual periods. The standard will be adopted retrospectively and will not have a significant impact on the Company's disclosures and financial statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs . The objective of this update is to require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements . This ASU amends ASU 2015-03 which had not addressed the balance sheet presentation of debt issuance costs incurred in connection with line-of-credit arrangements. Under ASU 2015-15, a Company may defer debt issuance costs associated with line-of-credit arrangements and present such costs as an asset, subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings. ASU 2015-03 and ASU 2015-15 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, should be applied retrospectively and represent a change in accounting principle. The Company adopted ASU 2015-03 and ASU 2015-15 as of March 31, 2016, and as a result, $8.7 million of debt issuance costs related to the Company’s senior notes and convertible senior notes was reclassified from deferred financing costs and other noncurrent assets to long-term debt in the Company’s consolidated balance sheet as of December 31, 2015. The Company elected to continue presenting the debt issuance costs associated with its credit facility within deferred financing costs and other noncurrent assets in the consolidated balance sheets.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. The objective of this update is to provide guidance in GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The standard will be adopted prospectively.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The objective of this update is to clarify the principles for recognizing revenue and to develop a common revenue standard. ASU 2015-14 deferred the effective reporting periods of ASU 2014-09, and it is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact of adopting this standard.

3. Supplemental Disclosures of Cash Flow Information

Supplemental cash flow information is as follows:

 
Six Months Ended June 30,
 
2016
 
2015
 
(in thousands)
Cash paid for interest
$
31,287

 
$
30,839

Cash paid for income taxes

 
1,052

Supplemental disclosures of non-cash investing and financing activities:
 
 
 
Accrued liabilities - oil and gas properties
7,452

 
56,654

Accrued liabilities - equity offering costs

 
624

Change in asset retirement obligations, net of disposals
21

 
(138
)
Retirement of treasury stock
(1,042
)
 
(1,015
)
Fair value of debt exchanged for common stock (1)
74,400

 


(1)
See Note 5 for additional information regarding the Debt Exchange.

4 . Assets Held for Sale

Assets are classified as held for sale when the Company commits to a plan to sell the assets and there is reasonable certainty the sale will take place within one year. Upon classification as held for sale, long-lived assets are analyzed for impairment to identify and expense any excess of carrying value over fair value less costs to sell. In addition, the assets are no longer depreciated or depleted.


12


During the three months ended March 31, 2016, the Company committed to a plan to sell certain non-core assets in the Uinta Basin. Therefore, the related assets and liabilities were classified as held for sale in the Unaudited Consolidated Balance Sheet as of March 31, 2016. The related assets continue to be classified as held for sale in the Unaudited Consolidated Balance Sheet as of June 30, 2016, as the sale did not close until July 14, 2016. See Note 15 for additional information regarding this subsequent event.

Assets held for sale are recorded at the lesser of their respective carrying value or fair value less estimated costs to sell. The fair value of the net assets held for sale was $28.9 million and was presented as assets held for sale, net of amortization and impairment, of $33.7 million and liabilities associated with assets held for sale of $4.8 million on the Unaudited Consolidated Balance Sheet as of June 30, 2016.

5 . Long-Term Debt

The Company's outstanding debt is summarized below:
 
 
 
As of June 30, 2016
 
As of December 31, 2015
 
Maturity Date
Principal
 
Debt Issuance Costs
 
Carrying
Amount
 
Principal
 
Debt Issuance Costs
 
Carrying
Amount
 
 
(in thousands)
Amended Credit Facility
April 9, 2020
$

 
$

 
$

 
$

 
$

 
$

Convertible Notes (1)(2)
March 15, 2028
579

 

 
579

 
579

 

 
579

7.625% Senior Notes (3)
October 1, 2019
315,300

 
(2,563
)
 
312,737

 
400,000

 
(3,752
)
 
396,248

7.0% Senior Notes (4)
October 15, 2022
400,000

 
(4,590
)
 
395,410

 
400,000

 
(4,953
)
 
395,047

Lease Financing Obligation (5)
August 10, 2020
3,004

 
(4
)
 
3,000

 
3,222

 
(4
)
 
3,218

Total Debt
 
$
718,883

 
$
(7,157
)
 
$
711,726

 
$
803,801

 
$
(8,709
)
 
$
795,092

Less: Current Portion of Long-Term Debt (6)
 
447

 

 
447

 
440

 

 
440

Total Long-Term Debt
 
$
718,436

 
$
(7,157
)
 
$
711,279

 
$
803,361

 
$
(8,709
)
 
$
794,652

 
(1)
The aggregate estimated fair value of the Convertible Notes was approximately $0.5 million as of June 30, 2016 and December 31, 2015 based on reported market trades of these instruments.
(2)
The Company has the right at any time, with at least 30 days' notice, to call the remaining Convertible Notes, and the holders have the right to require the Company to purchase the notes on each of March 20, 2018 and March 20, 2023.
(3)
The aggregate estimated fair value of the 7.625% Senior Notes was approximately $245.4 million and $270.2 million as of June 30, 2016 and December 31, 2015 , respectively, based on reported market trades of these instruments.
(4)
The aggregate estimated fair value of the 7.0% Senior Notes was approximately $292.7 million and $272.0 million as of June 30, 2016 and December 31, 2015 , respectively, based on reported market trades of these instruments.
(5)
The aggregate estimated fair value of the Lease Financing Obligation was approximately $3.0 million as of June 30, 2016 and $3.1 million as of December 31, 2015 . Because there is no active, public market for the Lease Financing Obligation, the aggregate estimated fair value was based on market-based parameters of comparable term secured financing instruments.
(6)
The current portion of the long-term debt as of June 30, 2016 and December 31, 2015 includes the current portion of the Lease Financing Obligation.

Amended Credit Facility

The Amended Credit Facility had commitments and a borrowing base of $335.0 million from 13 lenders as of June 30, 2016 . As of June 30, 2016 , the Company had no amounts outstanding under the Amended Credit Facility. As credit support for future payment under a contractual obligation, a $26.0 million letter of credit was issued under the Amended Credit Facility, which reduced the available borrowing capacity of the Amended Credit Facility as of June 30, 2016 to $309.0 million . The borrowing base will not be impacted by the sale of certain non-core assets in the Uinta Basin described in Note 4 and Note 15.

Interest rates are LIBOR plus applicable margins of 1.5% to 2.5% or ABR plus 0.5% to 1.5% and the unused commitment fee is between 0.375% and 0.5% based on borrowing base utilization. There have not been any borrowings under the Amended Credit Facility in 2016.


13


The borrowing base under the Amended Credit Facility is determined at the discretion of the lenders, based on the collateral value of our proved reserves that have been mortgaged to such lenders, and is subject to regular re-determinations on or about April 1 and October 1 of each year, as well as following any property sales. On April 11, 2016, the borrowing base was reduced from $375.0 million to $335.0 million based on proved reserves and the commodity hedge position in place at December 31, 2015. Future borrowing bases will be computed based on proved oil, natural gas and NGL reserves, hedge positions and estimated future cash flows from those reserves calculated using future commodity pricing provided by our lenders, as well as any other outstanding debt. Lower commodity prices will impact the amount lenders will provide for a borrowing base.

The Amended Credit Facility also contains certain financial covenants. The Company is currently in compliance with all financial covenants and has complied with all financial covenants since issuance.

If the Company fails to comply with the covenants or other terms of any agreements governing the Company's debt, the Company's lenders and holders of the Company's convertible notes and senior notes may have the right to accelerate the maturity of that debt and foreclose upon the collateral, if any, securing that debt. The occurrence of any such event would adversely affect the Company's financial condition. In September 2015, the Company obtained an amendment to the Amended Credit Facility that replaced the Company's debt-to-EBITDAX (earnings before interest, taxes, depreciation, depletion, amortization and exploration expenses) covenant in the facility with a secured debt-to-EBITDAX covenant and an EBITDAX-to-interest covenant through March 31, 2018. There can be no assurance that the Company will be able to obtain similar amendments, or waivers of covenant breaches, in the future if needed.

5% Convertible Senior Notes Due 2028

On March 12, 2008, the Company issued $172.5 million aggregate principal amount of Convertible Notes. On March 20, 2012, $147.2 million of the outstanding principal amount, or approximately 85% of the outstanding Convertible Notes, were put to the Company and redeemed by the Company at par. On March 20, 2015, $24.8 million of the remaining outstanding principal amount, or approximately 98% of the remaining outstanding Convertible Notes, were put to the Company and redeemed by the Company at par. After the redemption, $0.6 million aggregate principal amount of the Convertible Notes were outstanding as of June 30, 2016 . The Convertible Notes mature on March 15, 2028 , unless earlier converted, redeemed or purchased by the Company. The Convertible Notes are senior unsecured obligations and rank equal in right of payment to all of the Company's existing and future senior unsecured indebtedness, are senior in right of payment to all of the Company's future subordinated indebtedness, and are effectively subordinated to all of the Company's secured indebtedness with respect to the collateral securing such indebtedness. The Convertible Notes are structurally subordinated to all present and future secured and unsecured debt and other obligations of the Company's subsidiaries. The Convertible Notes are fully and unconditionally guaranteed by the subsidiaries that guarantee the Company's indebtedness under the Amended Credit Facility, the 7.625% Senior Notes and the 7.0% Senior Notes.

The Convertible Notes bear interest at a rate of 5%  per annum, payable semi-annually in arrears on March 15 and September 15 of each year. Holders of the remaining Convertible Notes may require the Company to purchase all or a portion of their Convertible Notes for cash on each of March 20, 2018 and March 20, 2023 at a purchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, up to but excluding the applicable purchase date. The Company has the right with at least 30 days' notice to call the Convertible Notes.

7.625% Senior Notes Due 2019

On September 27, 2011, the Company issued $400.0 million in principal amount of 7.625% Senior Notes due 2019 at par. On June 3, 2016, the Company completed a debt exchange with a holder of the 7.625% Senior Notes (the "Debt Exchange"). The holder exchanged $84.7 million principal amount of the 7.625% Senior Notes for 10 million newly issued shares of the Company’s common stock. Based on the fair value of the shares issued, the Company recognized an $8.7 million gain on extinguishment of debt on the Consolidated Statement of Operations for the three and six months ended June 30, 2016 . After the Debt Exchange, $315.3 million aggregate principal amount of the 7.625% Senior Notes were outstanding as of June 30, 2016 .

The 7.625% Senior Notes mature on October 1, 2019 . Interest is payable in arrears semi-annually on April 1 and October 1 of each year. The 7.625% Senior Notes are senior unsecured obligations of the Company and rank equal in right of payment with all of the Company's other existing and future senior unsecured indebtedness, including the Convertible Notes and 7.0% Senior Notes. The 7.625% Senior Notes are currently redeemable at the Company's option at a specified redemption price. The 7.625% Senior Notes are fully and unconditionally guaranteed by the subsidiaries that guarantee the Company's indebtedness under the Amended Credit Facility, the Convertible Notes and the 7.0% Senior Notes. The 7.625% Senior Notes include certain

14


covenants that limit the Company's ability to incur additional indebtedness, make restricted payments, create liens or sell assets and that generally prohibit the Company from paying dividends. The Company is currently in compliance with all financial covenants and has complied with all financial covenants since issuance.

7.0% Senior Notes Due 2022

On March 12, 2012, the Company issued $400.0 million in aggregate principal amount of 7.0% Senior Notes due 2022 at par. The 7.0% Senior Notes mature on October 15, 2022 . Interest is payable in arrears semi-annually on April 15 and October 15 of each year. The 7.0% Senior Notes are senior unsecured obligations and rank equal in right of payment with all of the Company's other existing and future senior unsecured indebtedness, including the Convertible Notes and 7.625% Senior Notes. The 7.0% Senior Notes are redeemable at the Company's option beginning on October 15, 2017 at an initial redemption price of 103.5% of the principal amount of the notes. The 7.0% Senior Notes are fully and unconditionally guaranteed by the subsidiaries that guarantee the Company's indebtedness under the Amended Credit Facility, the Convertible Notes and the 7.625% Senior Notes. The 7.0% Senior Notes include certain covenants that limit the Company's ability to incur additional indebtedness, make restricted payments, create liens or sell assets and that generally prohibit the Company from paying dividends. The Company is currently in compliance with all financial covenants and has complied with all financial covenants since issuance.

Lease Financing Obligation Due 2020

The Company has a lease financing obligation with a balance of $3.0 million as of June 30, 2016 resulting from the Company's sale and subsequent lease back of certain compressors and related facilities owned by the Company (the "Lease Financing Obligation"). The Lease Financing Obligation expires on August 10, 2020 , and the Company has the option to purchase the equipment at the end of the lease term for the then current fair market value. The Lease Financing Obligation also contains an early buyout option pursuant to which the Company may purchase the equipment for $1.8 million on February 10, 2019. The lease payments related to the equipment are recognized as principal and interest expense based on a weighted average implicit interest rate of 3.3% . See Note 13 for a discussion of aggregate minimum future lease payments.

The following table summarizes, for the periods indicated, the cash or accrued portion of interest expense related to the Amended Credit Facility, the outstanding Convertible Notes, the 7.625% Senior Notes, the 7.0% Senior Notes and the Lease Financing Obligation along with the non-cash portion resulting from the amortization of the debt discount and transaction costs through interest expense:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Amended Credit Facility (1)
 
 
 
Cash interest
$
437

 
$
437

 
$
875

 
$
870

Non-cash interest (2)
$
449

 
$
1,783

 
$
656

 
$
2,369

Convertible Notes (3)
 
 
 
 
 
 
 
Cash interest
$
7

 
$
10

 
$
14

 
$
286

Non-cash interest
$

 
$
2

 
$

 
$
5

7.625% Senior Notes (4)
 
 
 
 
 
 
 
Cash interest
$
7,105

 
$
7,625

 
$
14,730

 
$
15,250

Non-cash interest
$
233

 
$
273

 
$
483

 
$
546

7.0% Senior Notes (5)
 
 
 
 
 
 
 
Cash interest
$
7,000

 
$
7,000

 
$
14,000

 
$
14,000

Non-cash interest
$
181

 
$
204

 
$
362

 
$
408

Lease Financing Obligation (6)
 
 
 
 
 
 
 
Cash interest
$
25

 
$
28

 
$
51

 
$
57

Non-cash interest
$

 
$
24

 
$
1

 
$
24


(1)
Cash interest includes amounts related to interest and commitment fees incurred on the Amended Credit Facility and participation and fronting fees paid on the letter of credit.
(2)
The three and six months ended June 30, 2015 included $1.6 million related to amending the credit facility.

15


(3)
The stated interest rate for the Convertible Notes is 5%  per annum. The effective interest rate of the Convertible Notes includes amortization of the debt discount, which represented the fair value of the equity conversion feature at the time of issue. The stated interest rate of 5% on the Convertible Notes will be the effective interest rate of the $0.6 million remaining principal balance, as the related debt discount was fully amortized as of March 31, 2012.
(4)
The stated interest rate for the 7.625% Senior Notes is 7.625%  per annum with an effective interest rate of 8.0%  per annum.
(5)
The stated interest rate for the 7.0% Senior Notes is 7.0%  per annum with an effective interest rate of 7.2%  per annum.
(6)
The effective interest rate for the Lease Financing Obligation is 3.3%  per annum.

6. Asset Retirement Obligations

A reconciliation of the Company's asset retirement obligations for the six months ended June 30, 2016 is as follows (in thousands):
As of December 31, 2015
$
15,176

Liabilities incurred
82

Liabilities settled
(10
)
Disposition of properties
(51
)
Accretion expense
465

Revisions to estimate

As of June 30, 2016
$
15,662

Less: liabilities associated with assets held for sale
4,785

Less: current asset retirement obligations
413

Long-term asset retirement obligations
$
10,464


7. Fair Value Measurements

Fair value is defined 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). The Company uses market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. These inputs can be readily observable, market corroborated or generally unobservable. A fair value hierarchy was established that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Quoted prices are available in active markets for similar assets or liabilities and in non-active markets for identical or similar instruments. Model-derived valuations have inputs that are observable or whose significant value drivers are observable. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 – Pricing inputs include significant inputs that are generally less observable than objective sources. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value. At each balance sheet date, the Company performs an analysis of all applicable instruments and includes in Level 3 all of those whose fair value is based on significant unobservable inputs.

The following tables set forth by level within the fair value hierarchy the Company's assets and liabilities that were measured at fair value in the Unaudited Consolidated Balance Sheets.


16


 
As of June 30, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Assets
 
 
 
 
 
 
 
Cash equivalents (1)
$
40,070

 
$

 
$

 
$
40,070

Deferred compensation plan (1)
1,241

 

 

 
1,241

Commodity derivatives (1)

 
51,686

 

 
51,686

Assets held for sale (2)

 

 
33,717

 
33,717

Liabilities
 
 
 
 
 
 
 
Commodity derivatives (1)
$

 
$
3,531

 
$

 
$
3,531

Liabilities associated with assets held for sale (2)

 

 
4,785

 
4,785


(1)
This represents a financial asset or liability that is measured at fair value on a recurring basis.
(2)
This represents a non-financial asset or liability that is measured at fair value on a nonrecurring basis.

 
As of December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Assets
 
 
 
 
 
 
 
Cash equivalents (1)
$
60,065

 
$

 
$

 
$
60,065

Deferred compensation plan (1)
1,231

 

 

 
1,231

Commodity derivatives (1)

 
119,471

 

 
119,471

Proved oil and gas properties (2)

 

 
178,221

 
178,221

Unproved oil and gas properties (2)

 

 
5,539

 
5,539


(1)
This represents a financial asset or liability that is measured at fair value on a recurring basis.
(2)
This represents a non-financial asset or liability that is measured at fair value on a nonrecurring basis.

Cash equivalents – The highly liquid cash equivalents are recorded at carrying value. Carrying value approximates fair value, which represents a Level 1 input.

Deferred compensation plan – The Company maintains a non-qualified deferred compensation plan which allows certain management employees to defer receipt of a portion of their compensation. The Company maintains assets for the deferred compensation plan in a rabbi trust. The assets of the rabbi trust are invested in publicly traded mutual funds and are recorded in other current and other long-term assets in the Unaudited Consolidated Balance Sheets. The deferred compensation plan financial assets are reported at fair value based on active market quotes, which represent Level 1 inputs.

Commodity derivatives – The fair value of crude oil, natural gas and NGL forwards and options are estimated using a combined income and market valuation methodology with a mid-market pricing convention based upon forward commodity price and volatility curves. The curves are obtained from independent pricing services reflecting broker market quotes. The Company did not make any adjustments to the obtained curves. The pricing services publish observable market information from multiple brokers and exchanges. No proprietary models are used by the pricing services for the inputs. The Company utilized the counterparties' valuations to assess the reasonableness of the Company's valuations.

The commodity derivatives have been adjusted for non-performance risk. For applicable financial assets carried at fair value, the credit standing of the counterparties is analyzed and factored into the fair value measurement of those assets. In addition, the fair value measurement of a liability has been adjusted to reflect the nonperformance risk of the Company. The following methods and assumptions were used to estimate the fair values of the assets and liabilities in the table above.

Oil and gas properties Oil and gas property costs are evaluated for impairment and reduced to fair value when there is an indication that the carrying costs may not be recoverable. If an impairment is necessary, the fair value is estimated by using either a market approach based on recent sales prices of comparable properties and/or indications from marketing activities or by using the income valuation technique, which involves calculating the present value of future revenues. The present value, net of estimated operating and development costs, is calculated using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk and current

17


market conditions associated with realizing the projected cash flows, predominantly all of which are designated as Level 3 inputs within the fair value hierarchy. During the year ended December 31, 2015, the Company reduced its Uinta Oil Program assets to a fair value of $183.8 million , resulting in a non-cash impairment charge of $572.4 million .

Properties classified as held for sale are valued using a market approach, based on an estimated selling price, as evidenced by current marketing activities, if possible. If an estimated selling price is not available, the Company utilizes the income valuation technique discussed above. The fair value of net assets classified as held for sale was $28.9 million as of June 30, 2016 . See Note 4 for additional information on assets held for sale.

Long-term Debt – Long-term debt is not presented at fair value on the Unaudited Consolidated Balance Sheets, as it is recorded at carrying value, net of unamortized debt issuance costs. The fair values of the Company's fixed rate 7.625% Senior Notes and 7.0% Senior Notes totaled $538.1 million as of June 30, 2016 . The fair values of the Company's fixed rate 7.625% Senior Notes and 7.0% Senior Notes totaled $542.2 million as of December 31, 2015 . The fair values of the Company's fixed rate Senior Notes are based on active market quotes, which represent Level 1 inputs.

The Company estimated the fair value of the Debt Exchange based on the fair value of the Company's common stock. The fair value of the common stock is based on active market quotes, which represent Level 1 inputs. The Company recognized an $8.7 million gain on extinguishment of debt on the Consolidated Statement of Operations for the three and six months ended June 30, 2016 as a result of the Debt Exchange. See Note 5 for additional information regarding the Debt Exchange.

There is no active, public market for the Amended Credit Facility, Convertible Notes or Lease Financing Obligation. The recorded value of the Amended Credit Facility approximates its fair value due to its floating rate structure based on the LIBOR spread and the Company's borrowing base utilization. The Amended Credit Facility had a balance of zero as of June 30, 2016 and December 31, 2015 . The Convertible Notes had a fair value of $0.5 million as of June 30, 2016 and December 31, 2015 . The fair value of the Convertible Notes is measured based on market-based parameters of the various components of the Convertible Notes and over the counter trades. The Lease Financing Obligation fair values of $3.0 million and $3.1 million as of June 30, 2016 and December 31, 2015 , respectively, are measured based on market-based parameters of comparable term secured financing instruments. The fair value measurements for the Amended Credit Facility, Convertible Notes and Lease Financing Obligation represent Level 2 inputs.

8. Derivative Instruments

The Company uses financial derivative instruments as part of its price risk management program to achieve a more predictable cash flow from its production revenues by reducing its exposure to commodity price fluctuations. The Company has entered into financial commodity swap contracts related to the sale of a portion of the Company's production. The Company does not enter into derivative instruments for speculative or trading purposes.

In addition to financial contracts, the Company may at times be party to various physical commodity contracts for the sale of oil, natural gas and NGLs that have varying terms and pricing provisions. These physical commodity contracts qualify for the normal purchase and normal sale exception and, therefore, are not subject to hedge or mark-to-market accounting. The financial impact of physical commodity contracts is included in oil, natural gas and NGL production revenues at the time of settlement.

All derivative instruments, other than those that meet the normal purchase and normal sale exception as mentioned above, are recorded at fair value and included in the Unaudited Consolidated Balance Sheets as assets or liabilities. The following table summarizes the location, as well as the gross and net fair value amounts of all derivative instruments presented in the Unaudited Consolidated Balance Sheets as of the dates indicated.


18


  
As of June 30, 2016
 
Balance Sheet
Gross Amounts of
Recognized Assets
 
Gross Amounts
Offset in the Balance
Sheet
 
Net Amounts of Assets Presented in the
Balance Sheet
 
 
(in thousands)
 
Derivative assets (current)
$
44,693

 
$
(3,041
)
(1)  
$
41,652

 
Derivative assets (noncurrent)
6,993

 
(212
)
(1)  
6,781

 
Total derivative assets
$
51,686

 
$
(3,253
)
 
$
48,433

 
 
Gross Amounts of
Recognized Liabilities
 
Gross Amounts
Offset in the Balance
Sheet
 
Net Amounts of Liabilities Presented in
the Balance Sheet
 
 
(in thousands)
 
Derivative liabilities
$
(3,041
)
 
$
3,041

(1)  
$

 
Derivatives and other noncurrent liabilities
(490
)
 
212

(1)  
(278
)
(2)  
Total derivative liabilities
$
(3,531
)
 
$
3,253

  
$
(278
)
 
 
 
 
 
 
 
 
   
As of December 31, 2015
 
Balance Sheet
Gross Amounts of
Recognized Assets
 
Gross Amounts
Offset in the Balance
Sheet
 
Net Amounts of Assets Presented in the
Balance Sheet
 
 
(in thousands)
 
Derivative assets (current)
$
99,809

 
$

 
$
99,809

 
Derivative assets (noncurrent)
19,662

 

 
19,662

 
Total derivative assets
$
119,471

 
$

 
$
119,471

 
 
(1)
Asset and liability balances with the same counterparty are presented as a net asset or liability on the Unaudited Consolidated Balance Sheets.
(2)
As of June 30, 2016 , this line item on the Unaudited Consolidated Balance Sheet includes $3.8 million of other noncurrent liabilities.

As of June 30, 2016 , the Company had financial derivative instruments in place related to the sale of a portion of the Company's production for the following volumes for the periods indicated:

 
July – December 2016
 
For the year 2017
 
Derivative
Volumes
 
Weighted Average Price
 
Derivative Volumes
 
Weighted Average Price
Oil (Bbls)
1,426,000

 
$
72.57

 
1,410,250

 
$
62.10

Natural Gas (MMbtu)
920,000

 
$
4.10

 
1,825,000

 
$
2.96


The Company's derivative financial instruments are generally executed with major financial or commodities trading institutions. The instruments expose the Company to market and credit risks and may, at times, be concentrated with certain counterparties or groups of counterparties. The Company had derivatives in place with eight different counterparties as of June 30, 2016 . Although notional amounts are used to express the volume of these contracts, the amounts potentially subject to credit risk, in the event of non-performance by the counterparties, are substantially smaller. The creditworthiness of counterparties is subject to continual review by management, and the Company believes all of these institutions currently are acceptable credit risks. Full performance is anticipated, and the Company has no past due receivables from any of these counterparties.

It is the Company's policy to enter into derivative contracts with counterparties that are lenders in the Amended Credit Facility or affiliates of lenders in the Amended Credit Facility. The Company's derivative contracts are documented using an industry standard contract known as a Schedule to the Master Agreement and International Swaps and Derivative Association, Inc. ("ISDA") Master Agreement or other contracts. Typical terms for these contracts include credit support requirements, cross default provisions, termination events and set-off provisions. The Company is not required to provide any credit support to its counterparties other than cross collateralization with the properties securing the Amended Credit Facility. The Company has set-off provisions in its derivative contracts with lenders under its Amended Credit Facility which, in the event of a counterparty default, allow the Company to set-off amounts owed to the defaulting counterparty under the Amended Credit

19


Facility or other obligations against monies owed to the Company under the derivative contracts. Where the counterparty is not a lender under the Company's Amended Credit Facility, it may not be able to set-off amounts owed by the Company under the Amended Credit Facility, even if such counterparty is an affiliate of a lender under such facility. The Company does not have any derivative balances that are offset by cash collateral.

9. Income Taxes

The Company accounts for uncertainty in income taxes for tax positions taken or expected to be taken in a tax return in accordance with the FASB’s rules on income taxes. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities. During the three and six months ended June 30, 2016 , the Company had no uncertain tax positions.

The Company’s policy is to classify accrued penalties and interest related to unrecognized tax benefits in the Company’s income tax provision. The Company did not record any accrued interest or penalties associated with unrecognized tax benefits during the three and six months ended June 30, 2016 and 2015 .

Income tax benefit for the three and six months ended June 30, 2016 and 2015 differs from the amounts that would be provided by applying the U.S. statutory income tax rates to pretax income or loss principally due to the effect of deferred tax asset valuation allowances, stock based compensation, political lobbying expense, political contributions, nondeductible officer compensation and state income taxes. For the three and six months ended June 30, 2016 , the effective tax rate remains at zero as a result of recording a full valuation allowance against our deferred tax asset balance. The Company considers all available evidence (both positive and negative) to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. Such evidence includes the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment, and judgment is required in considering the relative weight of negative and positive evidence. The Company continues to monitor facts and circumstances in the reassessment of the likelihood that operating loss carryforwards, credits and other deferred tax assets will be utilized prior to their expiration.

10. Stockholders' Equity

On June 3, 2016, the Company issued 10 million shares of common stock pursuant to a debt exchange with a holder of the Company's 7.625% Senior Notes. The holder exchanged $84.7 million principal amount of the 7.625% Senior Notes for 10 million newly issued shares of the Company’s common stock.

11. Equity Incentive Compensation Plans and Other Long-term Incentive Programs

The Company maintains various stock-based compensation plans and other employee benefits as discussed below. Stock-based compensation is measured at the grant date based on the value of the awards, and the fair value is recognized on a straight-line basis over the requisite service period (usually the vesting period). Cash-based compensation is measured at fair value at each reporting date and is recognized on a straight-line basis over the requisite service period (usually the vesting period).

The following table presents the long-term cash and equity incentive compensation related to awards for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Common stock options (1)
$

 
$
149

 
$
69

 
$
391

Nonvested common stock (1)
1,411

 
1,617

 
3,815

 
3,191

Nonvested common stock units  (1)
256

 
268

 
546

 
529

Nonvested performance-based shares (1)
557

 
523

 
1,235

 
953

Nonvested performance cash units (2)
361

 
194

 
846

 
445

Total
$
2,585

 
$
2,751

 
$
6,511

 
$
5,509


(1)
Unrecognized compensation cost as of June 30, 2016 was $9.3 million , which related to grants of nonvested stock options and nonvested shares of common stock that are expected to be recognized over a weighted-average period of 1.8 years .

20


(2)
The nonvested performance-based cash units are liability awards with $1.3 million and $0.4 million in derivatives and other noncurrent liabilities in the Unaudited Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015 , respectively.

Nonvested Equity and Cash Awards. The following table presents the equity and cash awards granted pursuant to the Company's various stock compensation plans:

 
 
Three Months Ended June 30, 2016
 
Three Months Ended June 30, 2015
Equity Awards
 
Number of
Shares
 
Weighted Average
Grant Date Fair
Value Per Share
 
Number of
Shares
 
Weighted Average
Grant Date Fair
Value Per Share
Nonvested common stock
 

 
$

 
9,530

 
$
9.30

Nonvested common stock units
 
90,714

 
$
7.10

 
122,729

 
$
8.71

Total granted
 
90,714

 
 
 
132,259

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2016
 
Three Months Ended June 30, 2015
Cash Awards
 
Number of
Units
 
Fair Value
Per Unit
 
Number of
Units
 
Fair Value
Per Unit
Nonvested performance cash units
 

 
$

 
1,855

 
$
8.92

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2016
 
Six Months Ended June 30, 2015
Equity Awards
 
Number of
Shares
 
Weighted Average
Grant Date Fair
Value Per Share
 
Number of
Shares
 
Weighted Average
Grant Date Fair
Value Per Share
Nonvested common stock
 
686,500

 
$
5.11

 
632,139

 
$
12.26

Nonvested common stock units
 
93,728

 
$
7.07

 
124,988

 
$
8.70

Total granted
 
780,228

 
 
 
757,127

 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2016
 
Six Months Ended June 30, 2015
Cash Awards
 
Number of
Units
 
Fair Value
Per Unit
 
Number of
Units
 
Fair Value
Per Unit
Nonvested performance cash units
 
646,572

 
$
6.39

 
407,691

 
$
8.92


Performance Cash Program

2016 Program. In March 2016, the Compensation Committee approved a performance cash program (the "2016 Program") granting performance cash units that will settle in cash. The performance-based awards contingently vest in February 2019, depending on the level at which the performance goal is achieved. The performance goal, which will be measured over the three year period ending December 31, 2018, will be the Company's total shareholder return ("TSR") based on a matrix measurement of the Company's absolute performance and ranking relative to a defined peer group's individual TSRs ("Relative TSR"). The Company's absolute performance is measured against the December 31, 2015 closing share price of $3.93 and if the Company's absolute performance is lower than the $3.93 share price, the payout is zero . If the Company's absolute performance is greater than the $3.93 share price, then the performance cash units will vest depending on the compound annual growth rate of the Company's absolute performance and the Relative TSR up to 200% of the original grant.

12. Equity Distribution Agreement

On June 10, 2015, the Company entered into an Equity Distribution Agreement (the "Agreement") with Goldman, Sachs and Co. (the "Manager"). Pursuant to the terms of the Agreement, the Company may sell, from time to time through or to the Manager, shares of its common stock having an aggregate gross sales price of up to $100.0 million . Sales of the shares, if any, will be made by means of ordinary brokers' transactions through the facilities of the New York Stock Exchange, at market prices, in block transactions, to or through a market maker, through an electronic communications network or as otherwise agreed by the Company and the Manager. As of June 30, 2016 , no shares have been sold pursuant to the Agreement.

13 . Commitments and Contingencies


21


Lease Financing Obligation. The Company has a Lease Financing Obligation with Bank of America Leasing & Capital, LLC as the lead bank as discussed in Note 5 . The aggregate undiscounted minimum future lease payments, including both principal and interest components, are presented below. The Lease Financing Obligation contains an early buyout option pursuant to which the Company may purchase the equipment for $1.8 million on February 10, 2019.

 
As of June 30, 2016
 
(in thousands)
2016
$
269

2017
537

2018
537

2019
1,825

2020

Thereafter

Total
$
3,168


Transportation Charges . The Company is party to two firm transportation contracts to provide capacity on natural gas pipeline systems. The remaining term on these contracts is five years. The contracts require the Company to pay transportation charges regardless of the amount of pipeline capacity utilized by the Company. These monthly transportation payments are included in unused commitments expense in the Unaudited Consolidated Statements of Operations. As a result of previous divestitures in 2013 and 2014, the Company will likely not utilize the firm capacity on the natural gas pipelines.

The amounts in the table below represent the Company's future minimum transportation charges:

 
As of June 30, 2016
 
(in thousands)
2016
$
9,206

2017
18,692

2018
18,692

2019
18,692

2020
18,692

Thereafter
10,902

Total
$
94,876


Lease and Other Commitments. The Company leases office space, vehicles and certain equipment under non-cancelable operating leases. Additionally, the Company has entered into various long-term agreements for telecommunication services as well as other drilling and throughput commitments.

Future minimum annual payments under lease and other agreements are as follows:

 
As of June 30, 2016
 
(in thousands)
2016 (1)
$
4,873

2017  (1)
3,888

2018
2,611

2019
639

2020

Thereafter

Total
$
12,011


(1)
Includes contractual obligations of $3.2 million and $1.0 million related to certain drilling commitments due in 2016 and 2017, respectively.


22


Litigation. The Company is subject to litigation, claims and governmental and regulatory proceedings arising in the ordinary course of business. It is the opinion of the Company's management that current claims and litigation involving the Company are not likely to have a material adverse effect on its Unaudited Consolidated Balance Sheet, Cash Flows or Statements of Operations.

14. Guarantor Subsidiaries

In addition to the Amended Credit Facility, the 7.625% Senior Notes, 7.0% Senior Notes and Convertible Notes, which have been registered under the Securities Act of 1933, are jointly and severally guaranteed on a full and unconditional basis by the Company's 100% owned subsidiaries ("Guarantor Subsidiaries"). Presented below are the Company's condensed consolidating balance sheets, statements of operations, statements of other comprehensive income (loss) and statements of cash flows, as required by Securities and Exchange Commission ("SEC") Rule 3-10 of Regulation S-X.

The following unaudited condensed consolidating financial statements have been prepared from the Company's financial information on the same basis of accounting as the Unaudited Consolidated Financial Statements. Investments in the subsidiaries are accounted for under the equity method. Accordingly, the entries necessary to consolidate the Company and the Guarantor Subsidiaries are reflected in the intercompany eliminations column.

Condensed Consolidating Balance Sheets

 
As of June 30, 2016
 
Parent
Issuer
 
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(in thousands)
Assets:
 
 
 
 
 
 
 
Current assets
$
199,499

 
$
144

 
$

 
$
199,643

Property and equipment, net
1,110,485

 
6,308

 

 
1,116,793

Intercompany receivable (payable)
21,074

 
(21,074
)
 

 

Investment in subsidiaries
(14,676
)
 

 
14,676

 

Noncurrent assets
26,159

 

 

 
26,159

Total assets
$
1,342,541

 
$
(14,622
)
 
$
14,676

 
$
1,342,595

Liabilities and Stockholders' Equity:
 
 
 
 
 
 
 
Current liabilities
$
83,222

 
$

 
$

 
$
83,222

Long-term debt
711,279

 

 

 
711,279

Other noncurrent liabilities
14,516

 
54

 

 
14,570

Stockholders' equity
533,524

 
(14,676
)
 
14,676

 
533,524

Total liabilities and stockholders' equity
$
1,342,541

 
$
(14,622
)
 
$
14,676

 
$
1,342,595

 

23


 
As of December 31, 2015
 
Parent
Issuer
 
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(in thousands)
Assets:
 
 
 
 
 
 
 
Current assets
$
274,115

 
$
202

 
$

 
$
274,317

Property and equipment, net
1,164,086

 
6,598

 

 
1,170,684

Intercompany receivable (payable)
21,412

 
(21,412
)
 

 

Investment in subsidiaries
(14,664
)
 

 
14,664

 

Noncurrent assets
61,519

 

 

 
61,519

Total assets
$
1,506,468

 
$
(14,612
)
 
$
14,664

 
$
1,506,520

Liabilities and Stockholders' Equity:
 
 
 
 
 
 
 
Current liabilities
$
145,231

 
$

 
$

 
$
145,231

Long-term debt
794,652

 

 

 
794,652

Other noncurrent liabilities
17,169

 
52

 

 
17,221

Stockholders' equity
549,416

 
(14,664
)
 
14,664

 
549,416

Total liabilities and stockholders' equity
$
1,506,468

 
$
(14,612
)
 
$
14,664

 
$
1,506,520


Condensed Consolidating Statements of Operations  

 
Three Months Ended June 30, 2016
 
Parent
Issuer
 
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(in thousands)
Operating and other revenues
$
47,139

 
$
145

 
$

 
$
47,284

Operating expenses
(56,956
)
 
(161
)
 

 
(57,117
)
General and administrative
(9,937
)
 

 

 
(9,937
)
Interest income and other income (expense)
(28,649
)
 

 

 
(28,649
)
Income (loss) before income taxes and equity in earnings of subsidiaries
(48,403
)
 
(16
)
 

 
(48,419
)
(Provision for) Benefit from income taxes

 

 

 

Equity in earnings (loss) of subsidiaries
(16
)
 

 
16

 

Net income (loss)
$
(48,419
)
 
$
(16
)
 
$
16

 
$
(48,419
)
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2016
 
Parent
Issuer
 
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(in thousands)
Operating and other revenues
$
76,405

 
$
313

 
$

 
$
76,718

Operating expenses
(113,261
)
 
(325
)
 

 
(113,586
)
General and administrative
(22,357
)
 

 

 
(22,357
)
Interest income and other income (expense)
(35,690
)
 

 

 
(35,690
)
Income (loss) before income taxes and equity in earnings of subsidiaries
(94,903
)
 
(12
)
 

 
(94,915
)
(Provision for) Benefit from income taxes

 

 

 

Equity in earnings (loss) of subsidiaries
(12
)
 

 
12

 

Net income (loss)
$
(94,915
)
 
$
(12
)
 
$
12

 
$
(94,915
)


24


 
Three Months Ended June 30, 2015
 
Parent
Issuer
 
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(in thousands)
Operating and other revenues
$
62,505

 
$
113

 
$

 
$
62,618

Operating expenses
(73,596
)
 
(157
)
 

 
(73,753
)
General and administrative
(14,672
)
 

 

 
(14,672
)
Interest and other income (expense)
(45,721
)
 

 

 
(45,721
)
Income (loss) before income taxes and equity in earnings of subsidiaries
(71,484
)
 
(44
)
 

 
(71,528
)
(Provision for) Benefit from income taxes
26,947

 

 

 
26,947

Equity in earnings of subsidiaries
(44
)
 

 
44

 

Net income (loss)
$
(44,581
)
 
$
(44
)
 
$
44

 
$
(44,581
)
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2015
 
Parent
Issuer
 
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(in thousands)
Operating and other revenues
$
111,401

 
$
251

 
$

 
$
111,652

Operating expenses
(148,594
)
 
(318
)
 

 
(148,912
)
General and administrative
(28,001
)
 

 

 
(28,001
)
Interest and other income (expense)
(24,871
)
 

 

 
(24,871
)
Income (loss) before income taxes and equity in earnings of subsidiaries
(90,065
)
 
(67
)
 

 
(90,132
)
(Provision for) Benefit from income taxes
33,820

 

 

 
33,820

Equity in earnings (loss) of subsidiaries
(67
)
 

 
67

 

Net income (loss)
$
(56,312
)
 
$
(67
)
 
$
67

 
$
(56,312
)

Condensed Consolidating Statements of Comprehensive Income (Loss)
 
 
Three Months Ended June 30, 2016
 
Parent
Issuer
 
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(in thousands)
Net income (loss)
$
(48,419
)
 
$
(16
)
 
$
16

 
$
(48,419
)
Other comprehensive income (loss)

 

 

 

Comprehensive income (loss)
$
(48,419
)
 
$
(16
)
 
$
16

 
$
(48,419
)
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2016
 
Parent
Issuer
 
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(in thousands)
Net income (loss)
$
(94,915
)
 
$
(12
)
 
$
12

 
$
(94,915
)
Other comprehensive income (loss)

 

 

 

Comprehensive income (loss)
$
(94,915
)
 
$
(12
)
 
$
12

 
$
(94,915
)


25


 
Three Months Ended June 30, 2015
 
Parent
Issuer
 
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(in thousands)
Net income (loss)
$
(44,581
)
 
$
(44
)
 
$
44

 
$
(44,581
)
Other comprehensive income (loss)

 

 

 

Comprehensive income (loss)
$
(44,581
)
 
$
(44
)
 
$
44

 
$
(44,581
)
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2015
 
Parent
Issuer
 
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(in thousands)
Net income (loss)
$
(56,312
)
 
$
(67
)
 
$
67

 
$
(56,312
)
Other comprehensive income (loss)

 

 

 

Comprehensive income (loss)
$
(56,312
)
 
$
(67
)
 
$
67

 
$
(56,312
)

Condensed Consolidating Statements of Cash Flows
 
 
Six Months Ended June 30, 2016
 
Parent
Issuer
 
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(in thousands)
Cash flows from operating activities
$
48,426

 
$
353

 
$

 
$
48,779

Cash flows from investing activities:
 
 
 
 
 
 
 
Additions to oil and gas properties, including acquisitions
(86,666
)
 
(14
)
 

 
(86,680
)
Additions to furniture, fixtures and other
(991
)
 

 

 
(991
)
Proceeds from sale of properties and other investing activities
(1,225
)
 

 

 
(1,225
)
Intercompany transfers
339

 

 
(339
)
 

Cash flows from financing activities:
 
 
 
 
 
 
 
Principal payments on debt
(218
)
 

 

 
(218
)
Intercompany transfers

 
(339
)
 
339

 

Other financing activities
(1,078
)
 

 

 
(1,078
)
Change in cash and cash equivalents
(41,413
)
 

 

 
(41,413
)
Beginning cash and cash equivalents
128,836

 

 

 
128,836

Ending cash and cash equivalents
$
87,423

 
$

 
$

 
$
87,423

 

26


 
Six Months Ended June 30, 2015
 
Parent
Issuer
 
Guarantor
Subsidiaries
 
Intercompany
Eliminations
 
Consolidated
 
(in thousands)
Cash flows from operating activities
$
90,952

 
$
189

 
$

 
$
91,141

Cash flows from investing activities:
 
 
 
 
 
 
 
Additions to oil and gas properties, including acquisitions
(195,492
)
 
1,369

 

 
(194,123
)
Additions to furniture, fixtures and other
(878
)
 

 

 
(878
)
Proceeds from sale of properties and other investing activities
66,518

 

 

 
66,518

Cash paid for short-term investments
(114,883
)
 

 

 
(114,883
)
Proceeds from sale of short-term investments
50,000

 

 

 
50,000

Intercompany transfers
1,558

 

 
(1,558
)
 

Cash flows from financing activities:
 
 
 
 
 
 
 
Principal payments on debt
(24,976
)
 

 

 
(24,976
)
Intercompany transfers

 
(1,558
)
 
1,558

 

Other financing activities
(2,821
)
 

 

 
(2,821
)
Change in cash and cash equivalents
(130,022
)
 

 

 
(130,022
)
Beginning cash and cash equivalents
165,904

 

 

 
165,904

Ending cash and cash equivalents
$
35,882

 
$

 
$

 
$
35,882

  
15 . Subsequent Events

On July 14, 2016, the Company closed on the sale of certain non-core assets in the Uinta Basin. Total gross consideration, including preliminary closing adjustments, was $34.4 million , including cash proceeds of $29.6 million and $4.8 million related to relief from asset retirement obligations. The related assets and liabilities were classified as held for sale in the Unaudited Consolidated Balance Sheets as of June 30, 2016.


27


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

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements as to future plans, estimates, beliefs and expected performance of Bill Barrett Corporation (the "Company", "we", "us" or "our"). Forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, risks and uncertainties relating to:

potential failure to achieve expected production from existing and future exploration or development projects or acquisitions;
volatility of market prices received for oil, natural gas and natural gas liquids ("NGLs"), and the risk of a prolonged period of depressed prices;
reduction of proved undeveloped reserves due to failure to develop within the five year development window defined by the Securities and Exchange Commission;
derivative and hedging activities;
legislative, judicial or regulatory changes including initiatives to impose standard setbacks from occupied structures and other sensitive areas, initiatives to give local governmental authorities the ability to regulate or to ban oil and gas development activities within their boundaries, and initiatives related to drilling and completion techniques such as hydraulic fracturing;
solely operating in the Rocky Mountain region;
compliance with environmental and other regulations;
economic and competitive conditions;
occurrence of property divestitures or acquisitions;
possible inability to complete planned dispositions;
costs and availability of third party facilities for gathering, processing, refining and transportation;
future processing volumes and pipeline throughput;
impact of health and safety issues on operations;
operational risks, including industrial accidents and natural disasters;
reductions in the borrowing base under our amended revolving credit facility (the "Amended Credit Facility");
debt and equity market conditions and availability of capital;
ability to receive drilling and other permits, regulatory approvals and required surface access and rights of way;
higher than expected costs and expenses including production, drilling and well equipment costs;
declines in the values of our oil and natural gas properties resulting in impairments;
changes in estimates of proved reserves;
the potential for production decline rates from our wells, or drilling and related costs, to be greater than we expect;
ability to replace natural production declines with acquisitions, new drilling or recompletion activities;
exploration risks such as drilling unsuccessful wells;
capital expenditures and contractual obligations;
liabilities resulting from litigation concerning alleged damages related to environmental issues, pollution, contamination, personal injury, royalties, marketing, title to properties, validity of leases, or other matters that may not be covered by an effective indemnity or insurance;
changes in tax laws and statutory tax rates; and
other uncertainties, including those factors discussed below and in our Annual Report on Form 10-K for the year ended December 31, 2015 under the headings "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" and in Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q, all of which are difficult to predict.

In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. Readers should not place undue reliance on these forward-looking statements, which reflect management's views only as of the date hereof. Other than as required under the securities laws, we do not undertake any obligation to update any forward-looking statements whether as a result of changes in internal estimates or expectations, new information, subsequent events or circumstances or otherwise.

Overview

We develop oil and natural gas in the Rocky Mountain region of the United States. We seek to build stockholder value by delivering profitable growth in cash flow, reserves and production through the development of oil and natural gas assets. In order to deliver profitable growth, we allocate capital to our highest return assets, concentrate expenditures on exploiting our

28

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core assets, maintain capital discipline and optimize operations while upholding high-level standards for health, safety and the environment. Substantially all of our revenues are generated through the sale of oil and natural gas production and NGL recovery at market prices.

We were formed in January 2002 and are incorporated in the State of Delaware. In December 2004, we completed our initial public offering of 14,950,000 shares of our common stock at a price to the public of $25.00 per share.

Oil prices declined severely beginning in 2014, and price decreases continued through 2015 and into 2016. Natural gas and NGL prices have experienced decreases of comparable magnitude over the same period. These decreases have increased the volatility and amplitude of the other risks facing us as described in this report and in the Company's 2015 Annual Report on Form 10-K, have impacted our average realized unit price and are having an impact on our business and financial condition. Commodity prices are inherently volatile and are influenced by many factors outside of our control. We endeavor to maintain flexibility in our activities and capital budgeting using what we believe to be conservative sales price assumptions and our existing hedge position. If commodity prices continue at current or lower levels, our capital availability, liquidity and profitability are likely to be adversely affected as current hedges are realized in 2016 and 2017.

As we go through 2016, our priority remains ensuring ample liquidity and adjusting our development plans as necessary to this end. Further, we continue to monitor debt, equity and hedging markets for opportunities to strengthen our liquidity position. On April 11, 2016, the borrowing base under our Amended Credit Facility was reduced to $335.0 million based on proved reserves in place at December 31, 2015. Our re-determined borrowing base of $335.0 million is reduced by $26.0 million to $309.0 million due to an outstanding irrevocable letter of credit related to a firm transportation agreement.

We are committed to developing and producing oil and natural gas in a responsible and safe manner. Our employees work diligently with regulatory agencies, as well as environmental, wildlife and community organizations, to ensure that exploration and development activities meet stakeholders' expectations and regulatory requirements.

Future acquisitions or dispositions could have a material impact on our financial condition and results of operations by increasing or decreasing our reserves, production and revenues as well as expenses and future capital expenditures. We currently anticipate that we would finance any future acquisitions with available borrowings under our Amended Credit Facility, sales of properties, other indebtedness, and/or debt, equity or equity-linked securities. Our prior acquisitions and capital expenditures were financed with a combination of cash on hand, funding from the sale of our equity securities, our Amended Credit Facility, other debt financing and cash flows from operations.

Because of our growth through acquisitions and, more recently, development of our properties and sales of properties in 2015, our historical results of operations and period-to-period comparisons of these results and certain financial data may not be meaningful. In addition, past results are not indicative of future results.

Commodity prices are inherently volatile and are influenced by many factors outside of our control. We currently have hedged 1,426,000 barrels of oil and 920,000 MMbtu of natural gas or approximately 48% of our expected 2016 production and 1,410,250 barrels of oil and 1,825,000 MMbtu of natural gas for our 2017 production at price levels that provide some economic certainty to our cash flows. We focus our efforts on increasing oil, natural gas and NGLs reserves and production while controlling costs at a level that is appropriate for long-term operations. Our future earnings and cash flows are dependent on our ability to manage our revenues and overall cost structure to a level that allows for profitable production.

We operate in one industry segment, which is the development and production of crude oil, natural gas and NGLs, and all of our operations are conducted in the Rocky Mountain region of the United States. Consequently, we currently report a single reportable segment.

On April 28, 2016, we entered into a purchase and sale agreement for the sale of certain non-core assets in the Uinta Basin. Total gross consideration, prior to customary closing adjustments, was $33.7 million , including cash proceeds of $28.9 million and $4.8 million related to the relief of asset retirement obligations. The transaction closed July 14, 2016. The related assets and liabilities were classified as held for sale in the Unaudited Consolidated Balance Sheet as of March 31, 2016 and June 30, 2016.

Results of Operations

The following table sets forth selected operating data for the periods indicated:

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Table of Contents

Three Months Ended June 30, 2016 Compared with Three Months Ended June 30, 2015
 
 
Three Months Ended June 30,
 
Increase (Decrease)
2016
 
2015
 
Amount
 
Percent
($ in thousands, except per unit data)
Operating Results:
 
 
 
 
 
 
 
Operating and Other Revenues
 
 
 
 
 
 
 
Oil, gas and NGL production
$
47,025

 
$
61,382

 
$
(14,357
)
 
(23
)%
Other
259

 
1,236

 
(977
)
 
(79
)%
Operating Expenses
 
 
 
 
 
 
 
Lease operating expense
8,479

 
11,405

 
(2,926
)
 
(26
)%
Gathering, transportation and processing expense
611

 
933

 
(322
)
 
(35
)%
Production tax expense
3,520

 
3,816

 
(296
)
 
(8
)%
Exploration expense
21

 
92

 
(71
)
 
(77
)%
Impairment, dry hole costs and abandonment expense
234

 
1,090

 
(856
)
 
(79
)%
(Gain) Loss on divestitures
(708
)
 
(644
)
 
(64
)
 
(10
)%
Depreciation, depletion and amortization
40,392

 
52,674

 
(12,282
)
 
(23
)%
Unused commitments
4,568

 
4,387

 
181

 
4
 %
General and administrative expense (1)
9,937

 
14,672

 
(4,735
)
 
(32
)%
Total operating expenses
$
67,054

 
$
88,425

 
$
(21,371
)
 
(24
)%
Production Data:
 
 
 
 
 
 
 
Oil (MBbls)
1,023

 
1,120

 
(97
)
 
(9
)%
Natural gas (MMcf)
1,944

 
1,800

 
144

 
8
 %
NGLs (MBbls)
260

 
208

 
52

 
25
 %
Combined volumes (MBoe)
1,607

 
1,628

 
(21
)
 
(1
)%
Daily combined volumes (Boe/d)
17,659

 
17,890

 
(231
)
 
(1
)%
Average Realized Prices Before Hedging:
 
 
 
 
 
 
 
Oil (per Bbl)
$
39.93

 
$
48.68

 
$
(8.75
)
 
(18
)%
Natural gas (per Mcf)
1.50

 
2.33

 
(0.83
)
 
(36
)%
NGLs (per Bbl)
12.55

 
12.76

 
(0.21
)
 
(2
)%
Combined (per Boe)
29.26

 
37.70

 
(8.44
)
 
(22
)%
Average Realized Prices with Hedging:
 
 
 
 
 
 
 
Oil (per Bbl)
$
63.34

 
$
78.44

 
$
(15.10
)
 
(19
)%
Natural gas (per Mcf)
2.07

 
4.10

 
(2.03
)
 
(50
)%
NGLs (per Bbl)
12.55

 
12.76

 
(0.21
)
 
(2
)%
Combined (per Boe)
44.84

 
60.13

 
(15.29
)
 
(25
)%
Average Costs (per Boe):
 
 
 
 
 
 
 
Lease operating expense
$
5.28

 
$
7.01

 
$
(1.73
)
 
(25
)%
Gathering, transportation and processing expense
0.38

 
0.57

 
(0.19
)
 
(33
)%
Production tax expense
2.19

 
2.34

 
(0.15
)
 
(6
)%
Depreciation, depletion and amortization (2)
27.05

 
32.36

 
(5.31
)
 
(16
)%
General and administrative expense (1)
6.18

 
9.01

 
(2.83
)
 
(31
)%

(1)
Included in general and administrative expense is long-term cash and equity incentive compensation of $2.6 million (or $1.61 per Boe) and $2.8 million (or $1.70 per Boe) for the three months ended June 30, 2016 and 2015 , respectively.
(2)
The DD&A rate per Boe excludes production of 114 MBoe associated with our properties that were classified as held for sale in the Uinta Basin, as these were not depleted throughout the quarter ended June 30, 2016 .

Production Revenues and Volumes . Production revenues decreased to $47.0 million for the three months ended June 30, 2016 from $61.4 million for the three months ended June 30, 2015 . The decrease in production revenues was primarily due to a 22% decrease in average realized prices before hedging.


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Total production volumes were 1.6 MMBoe for both the three months ended June 30, 2016 and June 30, 2015 . Additional information concerning production is in the following table:

 
Three Months Ended June 30, 2016
 
Three Months Ended June 30, 2015
 
% Increase (Decrease)
 
Oil
NGL
Natural
Gas
Total
 
Oil
NGL
Natural
Gas
Total
 
Oil
NGL
Natural
Gas
Total
 
(MBbls)
(MBbls)
(MMcf)
(MBoe)
 
(MBbls)
(MBbls)
(MMcf)
(MBoe)
 
(MBbls)
(MBbls)
(MMcf)
(MBoe)
DJ Basin
783

243

1,584

1,290

 
729

186

1,350

1,140

 
7
 %
31
 %
17
 %
13
 %
Uinta Oil Program
239

16

318

308

 
389

22

444

485

 
(39
)%
(27
)%
(28
)%
(36
)%
Other
1

1

42

9

 
2


6

3

 
*nm

*nm

*nm

*nm

Total
1,023

260

1,944

1,607

 
1,120

208

1,800

1,628

 
(9
)%
25
 %
8
 %
(1
)%

*
Not meaningful.

Lease Operating Expense ("LOE") . LOE decreased to $5.28 per Boe for the three months ended June 30, 2016 from $7.01 per Boe for the three months ended June 30, 2015 . The decrease per Boe for the three months ended June 30, 2016 compared with the three months ended June 30, 2015 is primarily related to operational efficiencies, a decrease in service industry costs, reduced workover activity in the Uinta Basin, our decision to shut-in certain Uinta Basin wells due to the current low commodity price environment and non-core asset sales in the DJ Basin.

Production Tax Expense . Total production taxes decreased to $3.5 million for the three months ended June 30, 2016 from $3.8 million for the three months ended June 30, 2015 . Production taxes are primarily based on the wellhead values of production, which exclude gains and losses associated with hedging activities. Production taxes as a percentage of oil, natural gas and NGL sales before hedging adjustments were 7.5% and 6.2% for the three months ended June 30, 2016 and June 30, 2015 , respectively.

Production tax rates vary across the different areas in which we operate. As the proportion of our production changes from area to area, our average production tax rate will vary depending on the quantities produced from each area and the production tax rates in effect for those areas.

Impairment, Dry Hole Costs and Abandonment Expense. Our impairment, dry hole costs and abandonment expense for the three months ended June 30, 2016 and 2015 is summarized below:

 
Three Months Ended June 30,
 
 
2016
 
2015
 
 
(in thousands)
 
Non-cash impairment of proved oil and gas properties
$

 
$
272

(1)  
Non-cash impairment of unproved oil and gas properties

 
173

(1)  
Dry hole expense
13

 
(58
)
 
Abandonment expense/ Lease expirations
221

 
703

 
Total non-cash impairment, dry hole costs and abandonment expense
$
234

 
$
1,090

 

(1)
Non-cash impairment of proved and unproved oil and gas properties for the three months ended June 30, 2015 related to our remaining Powder River Basin properties based upon a true up of previously estimated fair value relative to carrying value. These assets were classified as held for sale as of December 31, 2014 and sold in February 2015.

We review our proved oil and natural gas properties for impairment on a quarterly basis or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. We estimate the expected future cash flows of our oil and gas properties and compare these undiscounted future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the oil and natural gas properties to fair value. The factors used to determine fair value include, but are not limited to, recent sales prices of comparable properties, indications from marketing activities, the present value of future revenues, net of estimated operating and development costs using

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estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the projected cash flows.

Oil and gas properties are assessed for impairment once they meet the criteria to be classified as held for sale. Assets held for sale are carried at the lower of carrying cost or fair value less costs to sell. The fair value of the assets is determined using a market approach, based on an estimated selling price, as evidenced by current marketing activities, if possible. If an estimated selling price is not available, we utilize the income valuation technique, which involves calculating the present value of future revenues, as discussed above. If the carrying amount of the assets exceeds the fair value less costs to sell, an impairment will result to reduce the value of the properties down to fair value less costs to sell.

Unproved oil and gas properties are assessed periodically for impairment on a property-by-property basis based on remaining lease terms, drilling results, reservoir performance, commodity price outlooks, future plans to develop acreage, recent sales prices of comparable properties and other relevant matters. We generally expect impairments of unproved properties to be more likely to occur in periods of low commodity prices because we will be less likely to devote capital to exploration activities.

Given the decline in current and projected future commodity prices, we will continue to review our acreage position and future drilling plans. In addition, we will assess the carrying value of our properties relative to their estimated future net cash flows. Estimated future net cash flows from our properties are based on our aggregate best estimates of future production, commodity pricing, gathering and transportation deducts, production tax rates, lease operating expenses and future development costs as of the balance sheet date.

Our current recoverability test on our existing proved oil and gas properties as of June 30, 2016 uses commodity pricing based on a combination of assumptions, which are closely aligned with the assumptions management uses in its budgeting and forecasting process adjusted for geographical location and quality differentials as well as other factors that management believes will impact realized prices. The application of this test as of June 30, 2016 results in a surplus of future estimated net cash flows over carrying value of approximately $400.6 million and $95.4 million for the Uinta Oil Program and DJ Basin, respectively. We estimate that the surplus in the Uinta Oil program would decrease by approximately $15.0 million to $20.0 million and the DJ Basin would decrease by approximately $20.0 million to $25.0 million for every $1.00 decrease in the oil price assumptions used in the recoverability test. If impairment is necessary, we would reduce the carrying value to fair value. If future commodity prices assumed in the recoverability test are not realized, it is likely that we will incur a significant impairment.

Depreciation, Depletion and Amortization ("DD&A"). DD&A decreased to $40.4 million for the three months ended June 30, 2016 compared with $52.7 million for the three months ended June 30, 2015 . The decrease of $12.3 million was primarily due to a 16% decrease in the DD&A rate for the three months ended June 30, 2016 compared with the three months ended June 30, 2015 .

Under successful efforts accounting, depletion expense is calculated on a field-by-field basis based on geologic and reservoir delineation using the unit-of-production method. The capital expenditures for proved properties for each field compared to the proved reserves corresponding to each producing field determine a depletion rate for current production. For the three months ended June 30, 2016 , the relationship of capital expenditures, proved reserves and production from certain producing fields yielded a depletion rate of $27.05 per Boe compared with $32.36 per Boe for the three months ended June 30, 2015 .

Unused Commitments. During March 2010, we entered into two firm natural gas pipeline transportation contracts to provide a guaranteed outlet for production from the West Tavaputs area of the Uinta Basin and the Gibson Gulch area of the Piceance Basin. These transportation contracts were not included in the sales of these assets in December 2013 and September 2014, respectively. Both firm transportation contracts require the pipeline to provide transportation capacity and require us to pay transportation charges regardless of the amount of pipeline capacity utilized and expire July 31, 2021. Unused commitments expense for the three months ended June 30, 2016 and June 30, 2015 consisted of $4.6 million and $4.4 million related to these contracts, respectively.

General and Administrative Expense. General and administrative expense decreased to $9.9 million for the three months ended June 30, 2016 from $14.7 million for the three months ended June 30, 2015 primarily due to a decrease in employee compensation and benefits.


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Included in general and administrative expense is long-term cash and equity incentive compensation of $2.6 million and $2.8 million for the three months ended June 30, 2016 and 2015 , respectively. The components of long-term cash and equity incentive compensation for the three months ended June 30, 2016 and 2015 are shown in the following table:

 
Three Months Ended June 30,
 
2016
 
2015
 
(in thousands)
Stock options and nonvested shares of common stock
$
2,205

 
$
2,557

Shares issued for directors' fees
19

 
18

Performance cash units
361

 
194

Total
$
2,585

 
$
2,769


Interest Expense. Interest expense decreased to $15.4 million for the three months ended June 30, 2016 from $17.4 million for the three months ended June 30, 2015 primarily due to recognizing additional interest expense associated with amending the credit facility during the three months ended June 30, 2015.

Interest expense will decrease in future periods due to the Debt Exchange completed on June 3, 2016 (see Note 5 to the accompanying financial statements), which reduced the principal of our 7.625% Senior Notes by $84.7 million.

Commodity Derivative Gain (Loss). Commodity derivative gain (loss) was a loss of $22.0 million for the three months ended June 30, 2016 compared with a loss of $27.7 million for the three months ended June 30, 2015 . The gain or loss on commodity derivatives is related to fluctuations of oil and natural gas future pricing compared to actual pricing of commodity hedges in place as of June 30, 2016 and 2015 or during the periods then ended.

The table below summarizes our commodity derivative gains and losses that were recognized in the periods presented:

 
Three Months Ended June 30,
 
2016
 
2015
 
(in thousands)
Realized gain (loss) on derivatives (1)
$
25,043

 
$
36,523

Reversal of prior year unrealized gain transferred to realized gain (1)
(27,863
)
 
(38,234
)
Unrealized gain (loss) on derivatives (1)
(19,160
)
 
(25,946
)
Total commodity derivative gain (loss)
$
(21,980
)
 
$
(27,657
)

(1)
Realized and unrealized gains and losses on commodity derivatives are presented herein as separate line items but are combined for a total commodity derivative gain (loss) in the Unaudited Consolidated Statements of Operations. This separate presentation is a non-GAAP measure. Management believes the separate presentation of the realized and unrealized commodity derivative gains and losses is useful because the realized cash settlement portion provides a better understanding of our hedge position. We also believe that this disclosure allows for a more accurate comparison to our peers.

During the three months ended June 30, 2016 , approximately 65% of our oil volumes and 22% of our natural gas volumes were subject to financial hedges, which resulted in an increase in oil income of $23.9 million and natural gas income of $1.1 million after settlements for all commodity derivatives.

During the three months ended June 30, 2015 , approximately 92% of our oil volumes and 96% of our natural gas volumes were subject to financial hedges, which resulted in an increase in oil income of $33.3 million and natural gas income of $3.2 million after settlements for all commodity derivatives.

Income Tax (Expense) Benefit . For the three months ended June 30, 2016, we recorded an additional valuation allowance against our deferred tax asset balance which reduced our effective tax rate to zero. The income tax benefit of $26.9 million for the three months ended June 30, 2015 resulted in an effective tax rate of 37.7% . In regard to the valuation allowance recorded against our deferred tax asset balance we considered all available evidence in assessing the need for a valuation allowance. Such evidence includes the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment, and judgment is required in considering the relative weight of negative and positive

33

Table of Contents

evidence. We continue to monitor facts and circumstances in the reassessment of the likelihood that operating loss carryforwards, credits and other deferred tax assets will be utilized prior to their expiration. Additionally, for both the 2016 and 2015 periods, our effective tax rate differs from the federal statutory rate primarily as a result of recording permanent differences for stock-based compensation expense, lobbying and political contributions, and officer compensation as well as the effect of state income taxes.

Six Months Ended June 30, 2016 Compared with Six Months Ended June 30, 2015

 
Six Months Ended June 30,
 
Increase (Decrease)
2016
 
2015
 
Amount
 
Percent
($ in thousands, except per unit data)
Operating Results:
 
 
 
 
 
 
 
Operating and Other Revenues
 
 
 
 
 
 
 
Oil, gas and NGL production
$
76,146

 
$
109,868

 
$
(33,722
)
 
(31
)%
Other
572

 
1,784

 
(1,212
)
 
(68
)%
Operating Expenses
 
 
 
 
 
 
 
Lease operating expense
17,306

 
25,196

 
(7,890
)
 
(31
)%
Gathering, transportation and processing expense
1,399

 
1,875

 
(476
)
 
(25
)%
Production tax expense
3,205

 
6,350

 
(3,145
)
 
(50
)%
Exploration expense
48

 
125

 
(77
)
 
(62
)%
Impairment, dry hole costs and abandonment expense
792

 
2,345

 
(1,553
)
 
(66
)%
(Gain) Loss on divestitures
(708
)
 
(682
)
 
(26
)
 
(4
)%
Depreciation, depletion and amortization
82,408

 
104,928

 
(22,520
)
 
(21
)%
Unused commitments
9,136

 
8,775

 
361

 
4
 %
General and administrative expense (1)
22,357

 
28,001

 
(5,644
)
 
(20
)%
Total operating expenses
$
135,943

 
$
176,913

 
$
(40,970
)
 
(23
)%
Production Data:
 
 
 
 
 
 
 
Oil (MBbls)
1,909

 
2,245

 
(336
)
 
(15
)%
Natural gas (MMcf)
3,564

 
3,558

 
6

 
 %
NGLs (MBbls)
471

 
371

 
100

 
27
 %
Combined volumes (MBoe)
2,974

 
3,209

 
(235
)
 
(7
)%
Daily combined volumes (Boe/d)
16,341

 
17,729

 
(1,388
)
 
(7
)%
Average Realized Prices Before Hedging:
 
 
 
 
 
 
 
Oil (per Bbl)
$
34.20

 
$
42.89

 
$
(8.69
)
 
(20
)%
Natural gas (per Mcf)
1.57

 
2.46

 
(0.89
)
 
(36
)%
 NGLs (per Bbl)
11.15

 
13.00

 
(1.85
)
 
(14
)%
 Combined (per Boe)
25.60

 
34.24

 
(8.64
)
 
(25
)%
Average Realized Prices with Hedging:
 
 
 
 
 
 
 
Oil (per Bbl)
$
63.50

 
$
77.35

 
$
(13.85
)
 
(18
)%
Natural gas (per Mcf)
2.16

 
4.01

 
(1.85
)
 
(46
)%
NGLs (per Bbl)
11.15

 
13.00

 
(1.85
)
 
(14
)%
Combined (per Boe)
45.11

 
60.07

 
(14.96
)
 
(25
)%
Average Costs (per Boe):
 
 
 
 
 
 
 
Lease operating expense
$
5.82

 
$
7.85

 
$
(2.03
)
 
(26
)%
Gathering, transportation and processing expense
0.47

 
0.58

 
(0.11
)
 
(19
)%
Production tax expense
1.08

 
1.98

 
(0.90
)
 
(45
)%
Depreciation, depletion and amortization (2)
28.81

 
32.70

 
(3.89
)
 
(12
)%
General and administrative expense (1)
7.52

 
8.73

 
(1.21
)
 
(14
)%

(1)
Included in general and administrative expense is long-term cash and equity incentive compensation of $6.5 million (or $2.19 per Boe) and $5.8 million (or $1.81 per Boe) for the six months ended June 30, 2016 and 2015 , respectively.

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Table of Contents

(2)
The DD&A rate per Boe excludes production of 114 MBoe associated with our properties that were classified as held for sale in the Uinta Basin, as these were not depleted throughout the quarter ended June 30, 2016 .

Production Revenues and Volumes . Production revenues decreased to $76.1 million for the six months ended June 30, 2016 from $109.9 million for the six months ended June 30, 2015 . The decrease in production revenues was due to a 25% decrease in average realized prices before hedging and a 7% decrease in production volumes. The decrease in average realized prices before hedging decreased production revenues by approximately $27.8 million, while the decrease in production volumes reduced production revenues by approximately $6.0 million.

Total production volumes of 3.0 MMBoe for the six months ended June 30, 2016 decreased from 3.2 MMBoe for the six months ended June 30, 2015 . The decrease is primarily related to a 39% decrease in production from the Uinta Oil Program due to natural production declines with no significant drilling or recompletion activities to offset these declines and our decision to shut-in certain Uinta Basin wells due to the current low commodity price environment. In addition, the increase in the DJ Basin production was offset by non-core asset sales completed during the year ended December 31, 2015. Additional information concerning production is in the following table:
 
Six Months Ended June 30, 2016
 
Six Months Ended June 30, 2015
 
% Increase (Decrease)
 
Oil
NGL
Natural
Gas
Total
 
Oil
NGL
Natural
Gas
Total
 
Oil
NGL
Natural
Gas
Total
 
(MBbls)
(MBbls)
(MMcf)
(MBoe)
 
(MBbls)
(MBbls)
(MMcf)
(MBoe)
 
(MBbls)
(MBbls)
(MMcf)
(MBoe)
DJ Basin
1,421

440

2,946

2,352

 
1,436

323

2,592

2,191

 
(1
)%
36
 %
14
 %
7
 %
Uinta Oil Program
487

29

576

612

 
789

47

960

996

 
(38
)%
(38
)%
(40
)%
(39
)%
Other
1

2

42

10

 
20

1

6

22

 
*nm

*nm

*nm

*nm

Total
1,909

471

3,564

2,974

 
2,245

371

3,558

3,209

 
(15
)%
27
 %
 %
(7
)%

*
Not meaningful.

Lease Operating Expense . LOE decreased to $5.82 per Boe for the six months ended June 30, 2016 from $7.85 per Boe for the six months ended June 30, 2015 . The decrease per Boe for the six months ended June 30, 2016 compared with the six months ended June 30, 2015 is primarily related to operational efficiencies, a decrease in service industry costs, reduced workover activity in the Uinta Basin, our decision to shut-in certain Uinta Basin wells due to the current low commodity price environment and non-core asset sales in the DJ Basin.

Production Tax Expense . Total production taxes decreased to $3.2 million for the six months ended June 30, 2016 from $6.4 million for the six months ended June 30, 2015 . The overall decrease in production tax expense is related to the annual true-up of Colorado ad valorem tax based on actual assessments and a true-up of the Colorado severance tax based on the annual severance tax calculation. In addition, production tax expense decreased due to a 25% decrease in average realized prices before hedging. Production taxes are primarily based on the wellhead values of production, which exclude gains and losses associated with hedging activities.

Production tax rates vary across the different areas in which we operate. As the proportion of our production changes from area to area, our average production tax rate will vary depending on the quantities produced from each area and the production tax rates in effect for those areas.

Impairment, Dry Hole Costs and Abandonment Expense. Our impairment, dry hole costs and abandonment expense for the six months ended June 30, 2016 and 2015 are summarized below:

 
Six Months Ended June 30,
 
 
2016
 
2015
 
 
(in thousands)
 
Non-cash impairment of proved oil and gas properties
$

 
$
272

(1)  
Non-cash impairment of unproved oil and gas properties
183

 
231

(1)  
Dry hole expense
70

 
(43
)
 
Abandonment expense
539

 
1,885

 
Total non-cash impairment, dry hole costs and abandonment expense
$
792

 
$
2,345

 

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(1)
Non-cash impairment of proved and unproved oil and gas properties for the six months ended June 30, 2015 related to our remaining Powder River Basin properties based upon a true up of previously estimated fair value relative to carrying value. These assets were classified as held for sale as of December 31, 2014 and sold in February 2015.

We review our proved oil and natural gas properties for impairment on a quarterly basis or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. We estimate the expected future cash flows of our oil and gas properties and compare these undiscounted future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the oil and natural gas properties to fair value. The factors used to determine fair value include, but are not limited to, recent sales prices of comparable properties, indications from marketing activities, the present value of future revenues, net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the projected cash flows.

Oil and gas properties are assessed for impairment once they meet the criteria to be classified as held for sale. Assets held for sale are carried at the lower of carrying cost or fair value less costs to sell. The fair value of the assets is determined using a market approach, based on an estimated selling price, as evidenced by current marketing activities, if possible. If an estimated selling price is not available, we utilize the income valuation technique, which involves calculating the present value of future revenues, as discussed above. If the carrying amount of the assets exceeds the fair value less costs to sell, an impairment will result to reduce the value of the properties down to fair value less costs to sell.

Unproved oil and gas properties are assessed periodically for impairment on a property-by-property basis based on remaining lease terms, drilling results, reservoir performance, commodity price outlooks, future plans to develop acreage, recent sales prices of comparable properties and other relevant matters. We generally expect impairments of unproved properties to be more likely to occur in periods of low commodity prices because we will be less likely to devote capital to exploration activities.

Given the decline in current and projected future commodity prices, we will continue to review our acreage position and future drilling plans. In addition, we will assess the carrying value of our properties relative to their estimated future net cash flows. Estimated future net cash flows from our properties are based on our aggregate best estimates of future production, commodity pricing, gathering and transportation deducts, production tax rates, lease operating expenses and future development costs as of the balance sheet date.

Our current recoverability test on our existing proved oil and gas properties as of June 30, 2016 uses commodity pricing based on a combination of assumptions, which are closely aligned with the assumptions management uses in its budgeting and forecasting process adjusted for geographical location and quality differentials as well as other factors that management believes will impact realized prices. The application of this test as of June 30, 2016 results in a surplus of future estimated net cash flows over carrying value of approximately $400.6 million and $95.4 million for the Uinta Oil Program and DJ Basin, respectively. We estimate that the surplus in the Uinta Oil program would decrease by approximately $15.0 million to $20.0 million and the DJ Basin would decrease by approximately $20.0 million to $25.0 million for every $1.00 decrease in the oil price assumptions used in the recoverability test. If impairment is necessary, we would reduce the carrying value to fair value. If future commodity prices assumed in the recoverability test are not realized, it is likely that we will incur a significant impairment.

Depreciation, Depletion and Amortization. DD&A decreased to $82.4 million for the six months ended June 30, 2016 compared with $104.9 million for the six months ended June 30, 2015 . The decrease of $22.5 million was a result of the 7% decrease in production for the six months ended June 30, 2016 compared with the six months ended June 30, 2015 and a decrease in the DD&A rate. The decrease in the DD&A rate accounted for a $14.8 million decrease in DD&A expense, while the decrease in production accounted for a $7.7 million decrease in DD&A expense.

Under successful efforts accounting, depletion expense is calculated on a field-by-field basis based on geologic and reservoir delineation using the unit-of-production method. The capital expenditures for proved properties for each field compared to the proved reserves corresponding to each producing field determine a depletion rate for current production. For the six months ended June 30, 2016 , the relationship of capital expenditures, proved reserves and production from certain producing fields yielded a depletion rate of $28.81 per Boe compared with $32.70 per Boe for the six months ended June 30, 2015 .


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Unused Commitments. During March 2010, we entered into two firm natural gas pipeline transportation contracts to provide a guaranteed outlet for production from the West Tavaputs area of the Uinta Basin and the Gibson Gulch area of the Piceance Basin. These transportation contracts were not included in the sales of these assets in December 2013 and September 2014, respectively. Both firm transportation contracts require the pipeline to provide transportation capacity and require us to pay monthly transportation charges of $1.5 million regardless of the amount of pipeline capacity utilized and expire July 31, 2021. Unused commitments expense for the six months ended June 30, 2016 and June 30, 2015 consisted of $9.1 million and $8.8 million related to these contracts, respectively.

General and Administrative Expense. General and administrative expense decreased to $22.4 million for the six months ended June 30, 2016 from $28.0 million for the six months ended June 30, 2015 primarily due to a reduction of employee related costs and benefits.

Included in general and administrative expense is long-term cash and equity incentive compensation of $6.5 million and $5.8 million for the six months ended June 30, 2016 and 2015 , respectively. The components of long-term cash and equity incentive compensation for the six months ended June 30, 2016 and 2015 are shown in the following table:

 
Six Months Ended June 30,
 
2016
 
2015
 
(in thousands)
Stock options and nonvested shares of common stock
$
5,627

 
$
5,064

Shares issued for 401(k) plan (1)

 
273

Shares issued for directors' fees
38

 
37

Performance cash units
846

 
445

Total
$
6,511

 
$
5,819


(1)
Beginning in the second quarter of 2015, the employer matching contribution to the employees 401(k) account was paid entirely in cash.

Interest Expense. Interest expense decreased to $31.2 million for the six months ended June 30, 2016 from $33.8 million for the six months ended June 30, 2015 primarily due to recognizing additional interest expense associated with amending the credit facility during the six months ended June 30, 2015.

Interest expense will decrease in future periods due to the Debt Exchange completed on June 3, 2016 (see Note 5 to the accompanying financial statements), which reduced the principal of our 7.625% Senior Notes by $84.7 million.

Commodity Derivative Gain (Loss). Commodity derivative gain (loss) was a loss of $13.3 million for the six months ended June 30, 2016 compared with a gain of $6.8 million for the six months ended June 30, 2015 . The gain or loss on commodity derivatives is related to fluctuations of oil and natural gas future pricing compared to actual pricing of commodity hedges in place as of June 30, 2016 and 2015 and during the periods then ended.

The table below summarizes our commodity derivative gains and losses that were recognized in the periods presented:

 
Six Months Ended June 30,
 
2016
 
2015
 
(in thousands)
Realized gain (loss) on derivatives (1)
$
58,005

 
$
82,898

Reversal of prior year unrealized gain transferred to realized gain (1)
(57,349
)
 
(78,968
)
Unrealized gain (loss) on derivatives (1)
(13,968
)
 
2,851

Total commodity derivative gain (loss)
$
(13,312
)
 
$
6,781


(1)
Realized and unrealized gains and losses on commodity derivatives are presented herein as separate line items but are combined for a total commodity derivative gain (loss) in the Unaudited Consolidated Statements of Operations. This separate presentation is a non-GAAP measure. Management believes the separate presentation of the realized and unrealized commodity derivative gains and losses is useful because the realized cash settlement portion provides a better

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understanding of our hedge position. We also believe that this disclosure allows for a more accurate comparison to our peers.

During the six months ended June 30, 2016 , approximately 70% of our oil volumes and 24% of our natural gas volumes were subject to financial hedges, which resulted in increased oil income of $55.9 million and natural gas income of $2.1 million after settlements for all commodity derivatives.

During the six months ended June 30, 2015 , approximately 91% of our oil volumes and 94% of our natural gas volumes were subject to financial hedges, which resulted in increased oil income of $77.4 million and natural gas income of $5.5 million after settlements for all commodity derivatives.

Income Tax (Expense) Benefit . For the six months ended June 30, 2016 , we recorded an additional valuation allowance against our deferred tax asset balance which reduced our effective tax rate to zero . For the six months ended June 30, 2015 , the income tax benefit was $33.8 million resulting in an effective tax rate of 37.5% . In regard to the valuation allowance recorded against our deferred tax asset balance, we considered all available evidence in assessing the need for a valuation allowance. Such evidence includes the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment, and judgment is required in considering the relative weight of negative and positive evidence. We continue to monitor facts and circumstances in the reassessment of the likelihood that operating loss carryforwards, credits and other deferred tax assets will be utilized prior to their expiration. Additionally, for both the 2016 and 2015 periods, our effective tax rate differs from the federal statutory rate primarily as a result of recording permanent differences for stock-based compensation expense, lobbying and political contributions, and officer compensation as well as the effect of state income taxes.

Capital Resources and Liquidity

Our primary sources of liquidity since our formation in January 2002 have been net cash provided by operating activities, sales and other issuances of equity and debt securities, notes and senior notes, bank credit facilities, proceeds from sale-leasebacks, joint exploration agreements and sales of interests in properties. Our primary use of capital has been for the development, exploration and acquisition of oil and natural gas properties. As we pursue profitable reserves and production growth, we continually monitor the capital resources, including potential issuances of equity and debt securities, available to us to meet our future financial obligations, fund planned capital expenditure activities and ensure adequate liquidity. Our future success in growing proved reserves and production will be highly dependent on capital resources available to us and our success in finding or acquiring additional reserves. We believe that we have sufficient liquidity available to us from cash on hand, cash flows from operations and under our Amended Credit Facility for our planned uses of capital for the remainder of 2016 . However, we expect to pursue opportunities to further improve our liquidity position through capital markets or other transactions, such as additional property dispositions, if we believe conditions to be favorable.

At June 30, 2016 , we had cash and cash equivalents of $87.4 million and no amounts outstanding under our Amended Credit Facility. At December 31, 2015, we had cash and cash equivalents of $128.8 million and no amounts outstanding under our Amended Credit Facility. Our borrowing base was $335.0 million as of June 30, 2016 . Our effective borrowing capacity as of that date was reduced by $26.0 million to $309.0 million due to an outstanding irrevocable letter of credit related to a firm transportation agreement. The borrowing base is dependent on our proved reserves and hedge position and is calculated using future commodity pricing provided by our lenders, and may be adjusted in the future at the sole discretion of the lenders. The borrowing base will not be impacted by the sale of certain non-core assets in the Uinta Basin described in Note 4 and Note 15.

Cash Flow from Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2016 and 2015 was $48.8 million and $91.1 million , respectively. The decrease in net cash provided by operating activities was primarily due to a decrease in production revenues and cash from derivative settlements.

Commodity Hedging Activities

Our operating cash flow is sensitive to many variables, the most significant of which are the prices we receive for the oil, natural gas and NGLs we produce. Prices for these commodities are determined primarily by prevailing market conditions. National and worldwide economic activity and political stability, weather, infrastructure capacity to reach markets, supply levels and other variable factors influence market conditions for these products. These factors are beyond our control and are difficult to predict.


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To mitigate some of the potential negative impact on cash flow caused by changes in oil, natural gas and NGL prices, we have entered into financial commodity swap contracts to receive fixed prices for a portion of our production revenues. At June 30, 2016 , we had in place crude oil and natural gas swaps covering portions of our 2016 and 2017 production.

In addition to financial contracts, we may at times enter into various physical commodity contracts for the sale of oil and natural gas that cover varying periods of time and have varying pricing provisions. These physical commodity contracts qualify for the normal purchase and normal sales exception and, therefore, are not subject to hedge or mark-to-market accounting. The financial impact of physical commodity contracts is included in oil, gas and NGL production revenues at the time of settlement.

All derivative instruments, other than those that meet the normal purchase and normal sales exception as mentioned above, are recorded at fair market value and are included in the Unaudited Consolidated Balance Sheets as assets or liabilities. All fair values are adjusted for non-performance risk. All changes in the derivative's fair value are recorded in earnings. These mark-to-market adjustments produce a degree of earnings volatility but have no cash flow impact relative to changes in market prices. Our cash flow is only impacted when the associated derivative instrument contract is settled by making a payment to or receiving a payment from the counterparty.

At June 30, 2016 , the estimated fair value of all of our commodity derivative instruments, summarized in the following table, was a net asset of $48.2 million , comprised of current and noncurrent assets and noncurrent liabilities.

Contract
Total
Hedged
Volumes
 
Quantity
Type
 
Weighted
Average
Fixed
Price
 
Index
Price (1)
 
Fair Market
Value
(in thousands)
Swap Contracts:
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
Oil
1,426,000

 
Bbls
 
$
72.57

 
WTI
 
$
33,345

Natural gas
920,000

 
MMBtu
 
$
4.10

 
NWPL
 
1,125

2017
 
 
 
 
 
 
 
 
 
Oil
1,410,250

 
Bbls
 
$
62.10

 
WTI
 
13,780

Natural gas
1,825,000

 
MMBtu
 
$
2.96

 
NWPL
 
(95
)
Total
 
 
 
 
 
 
 
 
$
48,155


(1)
WTI refers to West Texas Intermediate price as quoted on the New York Mercantile Exchange ("NYMEX"). NWPL refers to the Northwest Pipeline Corporation price as quoted in Platt's Inside FERC on the first business day of each month.

The following table includes all hedges entered into from July 1, 2016 to July 22, 2016 :
Contract
Total
Hedged
Volumes
 
Quantity
Type
 
Weighted
Average
Fixed
Price
 
Index
Price
Swap Contracts:
 
 
 
 
 
 
 
2017
 
 
 
 
 
 
 
Natural gas
1,825,000

 
MMBtu
 
$
2.96

 
NWPL

By removing the price volatility from a portion of our oil, natural gas and NGL related revenue, we have mitigated, but not eliminated, the potential effects of changing prices on our operating cash flow for those periods. While mitigating negative effects of falling commodity prices, these derivative contracts also limit the benefits we would receive from increases in commodity prices.

It is our policy to enter into derivative contracts with counterparties that are lenders in the Amended Credit Facility or affiliates of lenders in the Amended Credit Facility. Our derivative contracts are documented using an industry standard contract known as a Schedule to the Master Agreement and International Swaps and Derivative Association, Inc. ("ISDA") Master Agreement or other contracts. Typical terms for these contracts include credit support requirements, cross default provisions, termination events and set-off provisions. We are not required to provide any credit support to our counterparties other than cross collateralization with the properties securing the Amended Credit Facility. We have set-off provisions in our derivative contracts with lenders under our Amended Credit Facility which, in the event of a counterparty default, allow us to set-off amounts owed to the defaulting counterparty under the Amended Credit Facility or other obligations against monies

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owed to us under the derivative contracts. Where the counterparty is not a lender under the Amended Credit Facility, we may not be able to set-off amounts owed by us under the Amended Credit Facility, even if such counterparty is an affiliate of a lender under such facility.

Capital Expenditures

Our capital expenditures are summarized in the following tables for the periods indicated:

 
Six Months Ended June 30,
Basin/Area
2016
 
2015
 
(in millions)
DJ
$
59.3

 
$
158.6

Uinta Oil Program
1.0

 
19.1

Other
1.1

 
1.8

Total
$
61.4

 
$
179.5


 
Six Months Ended June 30,
 
2016
 
2015
 
(in millions)
Acquisitions of proved and unproved properties and other real estate
$
1.1

 
$
3.4

Drilling, development, exploration and exploitation of oil and natural gas properties
56.3

 
167.7

Gathering and compression facilities
3.1

 
5.2

Geologic and geophysical costs

 
2.3

Furniture, fixtures and equipment
0.9

 
0.9

Total
$
61.4

 
$
179.5


Our current estimated capital expenditure budget in 2016 is between $75.0 million and $100.0 million, with all drilling activities targeting oil. The low end of the estimated capital expenditure budget of $75.0 million assumes that we will not drill additional wells in 2016. The budget includes facilities costs and excludes acquisitions. We may adjust capital expenditures throughout the year as business conditions and operating results warrant. The amount, timing and allocation of capital expenditures is generally discretionary and within our control. If oil, natural gas and NGL prices decline below acceptable levels or costs increase above acceptable levels, we could choose to defer a portion of our budgeted capital expenditures until later periods to achieve the desired balance between sources and uses of liquidity. We would generally do this by prioritizing capital projects to first focus on those that we believe will have the highest expected financial returns and ability to generate near-term cash flow. The 2016 capital program is designed to closely align capital expenditures with expected cash flows as certain drilling activity may be deferred to protect our liquidity position.

We believe that we have sufficient available liquidity with available cash on hand, cash under the Amended Credit Facility and cash flow from operations to fund our 2016 budgeted capital expenditures. Future cash flows are subject to a number of variables, including our level of oil and natural gas production, commodity prices and operating costs. There can be no assurance that operations and other capital resources will provide sufficient amounts of cash flow to maintain planned levels of capital expenditures.

Financing Activities

Amended Credit Facility

The Amended Credit Facility had commitments and a borrowing base of $335.0 million from 13 lenders as of June 30, 2016 . As of June 30, 2016 , we had no amounts outstanding under the Amended Credit Facility. As credit support for future payment under a contractual obligation, a $26.0 million letter of credit has been issued under the Amended Credit Facility, which reduced the available borrowing capacity under the Amended Credit Facility as of June 30, 2016 to $309.0 million . The borrowing base will not be impacted by the sale of certain non-core assets in the Uinta Basin described in Note 4 and Note 15.


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Interest rates are LIBOR plus applicable margins of 1.5% to 2.5% or ABR plus 0.5% to 1.5% and the unused commitment fee is between 0.375% to 0.5% based on borrowing base utilization. There have not been any borrowings under the Amended Credit Facility in 2016.

The borrowing base under the Amended Credit Facility is determined at the discretion of the lenders, based on the collateral value of our proved reserves that have been mortgaged to such lenders, and is subject to regular re-determinations on or about April 1 and October 1 of each year, as well as following any property sales. On April 11, 2016, the borrowing base was reduced from $375.0 million to $335.0 million based on proved reserves in place at December 31, 2015. Future borrowing bases will be computed based on proved oil, natural gas and NGL reserves, hedge positions and estimated future cash flows from those reserves calculated using future commodity pricing provided by our lenders, as well as any other outstanding debt. Lower commodity prices will impact the amount lenders will provide for a borrowing base.

The Amended Credit Facility also contains certain financial covenants. We are currently in compliance with all financial covenants and have complied with all financial covenants since issuance. We expect to be in compliance with all financial covenants based on the 2016 budget. However, if commodity prices continue at current levels or lower, EBITDAX will be significantly reduced, which is a critical underpinning of our required financial covenants. If this were to occur, it will make it necessary for us to negotiate an amendment to one or more of these financial covenants.

If we fail to comply with the covenants or other terms of any agreements governing our debt, our lenders and holders of our convertible notes and our senior notes may have the right to accelerate the maturity of that debt and foreclose upon the collateral, if any, securing that debt. The occurrence of any such event would adversely affect our financial condition. In September 2015, we obtained an amendment to the Amended Credit Facility that replaced our debt-to-EBITDAX covenant in the facility with a secured debt-to-EBITDAX covenant and an EBITDAX-to-interest covenant through March 31, 2018. There can be no assurance that we will be able to obtain similar amendments, or waivers of covenant breaches, in the future if needed.

5% Convertible Senior Notes Due 2028

On March 12, 2008, we issued $172.5 million aggregate principal amount of Convertible Notes. On March 20, 2012, $147.2 million of the outstanding principal amount, or approximately 85% of the outstanding Convertible Notes, were put to us and redeemed by us at par. On March 20, 2015, $24.8 million of the remaining outstanding principal amount, or approximately 98% of the remaining outstanding Convertible Notes, were put to us and redeemed by us at par. After the redemption, $0.6 million aggregate principal amount of the Convertible Notes were outstanding as of June 30, 2016 . The Convertible Notes mature on March 15, 2028, unless earlier converted, redeemed or purchased by us. The Convertible Notes are senior unsecured obligations and rank equal in right of payment to all of our existing and future senior unsecured indebtedness, are senior in right of payment to all of our future subordinated indebtedness, and are effectively subordinated to all of our secured indebtedness with respect to the collateral securing such indebtedness. The Convertible Notes are structurally subordinated to all present and future secured and unsecured debt and other obligations of our subsidiaries. The Convertible Notes are fully and unconditionally guaranteed by the subsidiaries that guarantee our indebtedness under the Amended Credit Facility, the 7.625% Senior Notes and the 7.0% Senior Notes.

The Convertible Notes bear interest at a rate of 5% per annum, payable semi-annually in arrears on March 15 and September 15 of each year. Holders of the remaining Convertible Notes may require us to purchase all or a portion of their Convertible Notes for cash on each of March 20, 2018 and March 20, 2023 at a purchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, up to but excluding the applicable purchase date. We have the right with at least 30 days' notice to call the Convertible Notes.

7.625% Senior Notes Due 2019

On September 27, 2011, we issued $400.0 million in principal amount of 7.625% Senior Notes due 2019 at par. On June 3, 2016, we completed the Debt Exchange, pursuant to which a holder of the 7.625% Senior Notes exchanged $84.7 million principal amount of the 7.625% Senior Notes for 10 million newly issued shares of our common stock. Based on the fair value of the shares issued, we recognized an $8.7 million gain on extinguishment of debt on the Consolidated Statement of Operations for the three and six months ended June 30, 2016.

The 7.625% Senior Notes mature on October 1, 2019. Interest is payable in arrears semi-annually on April 1 and October 1 of each year. The 7.625% Senior Notes are senior unsecured obligations and rank equal in right of payment with all of our other existing and future senior unsecured indebtedness, including the Convertible Notes and 7.0% Senior Notes. The 7.625% Senior Notes are currently redeemable at our option at a specified redemption price. The 7.625% Senior Notes are fully and unconditionally guaranteed by our subsidiaries that guarantee our indebtedness under the Amended Credit Facility, the

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Convertible Notes and the 7.0% Senior Notes. The 7.625% Senior Notes include certain covenants that limit our ability to incur additional indebtedness, make restricted payments, create liens or sell assets and that generally prohibit us from paying dividends. We are currently in compliance with all financial covenants and have complied with all financial covenants since issuance.

7.0% Senior Notes Due 2022

On March 12, 2012, we issued $400.0 million in aggregate principal amount of 7.0% Senior Notes due 2022 at par. The 7.0% Senior Notes mature on October 15, 2022. Interest is payable in arrears semi-annually on April 15 and October 15 of each year. The 7.0% Senior Notes are senior unsecured obligations and rank equal in right of payment with all of our other existing and future senior unsecured indebtedness, including the Convertible Notes and 7.625% Senior Notes. The 7.0% Senior Notes are redeemable at our option beginning on October 15, 2017 at an initial redemption price of 103.5% of the principal amount of the notes. The 7.0% Senior Notes are fully and unconditionally guaranteed by our subsidiaries that guarantee the Amended Credit Facility, the Convertible Notes and the 7.625% Senior Notes. The 7.0% Senior Notes include certain covenants that limit our ability to incur additional indebtedness, make restricted payments, create liens or sell assets and that generally prohibit us from paying dividends. We are currently in compliance with all financial covenants and have complied with all financial covenants since issuance.

Lease Financing Obligation Due 2020

We have a Lease Financing Obligation with a balance of $3.0 million as of June 30, 2016 resulting from our sale and subsequent lease back of certain compressors and related facilities owned by us. The Lease Financing Obligation expires on August 10, 2020, and we have the option to purchase the equipment at the end of the lease term for the then current fair market value. The Lease Financing Obligation also contains an early buyout option pursuant to which we may purchase the equipment for $1.8 million on February 10, 2019. The lease payments related to the equipment are recognized as principal and interest expense based on a weighted average implicit interest rate of 3.3%. See Note 13 to the accompanying Unaudited Consolidated Financial Statements for a discussion of aggregate minimum future lease payments.

Our outstanding debt is summarized below:

 
 
As of June 30, 2016
 
As of December 31, 2015
 
Maturity Date
Principal
 
Unamortized
Discount
 
Carrying
Amount
 
Principal
 
Unamortized
Discount
 
Carrying
Amount
 
 
(in thousands)
Amended Credit Facility
April 9, 2020
$

 
$

 
$

 
$

 
$

 
$

Convertible Notes (1)
March 15, 2028 (2)
579

 

 
579

 
579

 

 
579

7.625% Senior Notes (3)
October 1, 2019
315,300

 
(2,563
)
 
312,737

 
400,000

 
(3,752
)
 
396,248

7.0% Senior Notes (4)
October 15, 2022
400,000

 
(4,590
)
 
395,410

 
400,000

 
(4,953
)
 
395,047

Lease Financing Obligation (5)
August 10, 2020
3,004

 
(4
)
 
3,000

 
3,222

 
(4
)
 
3,218

Total Debt
 
$
718,883

 
$
(7,157
)
 
$
711,726

 
$
803,801

 
$
(8,709
)
 
$
795,092

Less: Current Portion of Long-Term Debt (6)
 
447

 

 
447

 
440

 

 
440

     Total Long-Term Debt
 
$
718,436

 
$
(7,157
)
 
$
711,279

 
$
803,361

 
$
(8,709
)
 
$
794,652


(1)
The aggregate estimated fair value of the Convertible Notes was approximately $0.5 million as of both June 30, 2016 and December 31, 2015 based on reported market trades of these instruments.
(2)
We have the right at any time with at least 30 days' notice to call the Convertible Notes, and the holders have the right to require us to purchase the notes on each of March 20, 2018 and March 20, 2023.
(3)
The aggregate estimated fair value of the 7.625% Senior Notes was approximately $245.4 million and $270.2 million as of June 30, 2016 and December 31, 2015 , respectively, based on reported market trades of these instruments.
(4)
The aggregate estimated fair value of the 7.0% Senior Notes was approximately $292.7 million and $272.0 million as of June 30, 2016 and December 31, 2015 , respectively, based on reported market trades of these instruments.
(5)
The aggregate estimated fair value of the Lease Financing Obligation was approximately $3.0 million and $3.1 million as of June 30, 2016 and December 31, 2015 , respectively. Because there is no active, public market for the Lease Financing Obligation, the aggregate estimated fair value was based on market-based parameters of comparable term secured financing instruments.

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(6)
The current portion of the long-term debt as of June 30, 2016 and December 31, 2015 includes the current portion of the Lease Financing Obligation.

Credit Ratings. Our credit risk is evaluated by two independent rating agencies based on publicly available information and information obtained during our ongoing discussions with the rating agencies. Moody's Investor Services and Standard & Poor's Rating Services currently rate our 7.625% Senior Notes and 7.0% Senior Notes and have assigned a credit rating. We do not have any provisions that are linked to our credit ratings, nor do we have any credit rating triggers that would accelerate the maturity of amounts due under our Amended Credit Facility, Convertible Notes, 7.625% Senior Notes or 7.0% Senior Notes. However, our ability to raise funds and the costs of any financing activities will be affected by our credit rating at the time any such financing activities are conducted.

Contractual Obligations. A summary of our contractual obligations as of and subsequent to June 30, 2016 is provided in the following table:

 
Payments Due By Year
Year 1
 
Year 2
 
Year 3
 
Year 4
 
Year 5
 
Thereafter
 
Total
 
Twelve Months Ended June 30, 2017
 
Twelve Months Ended June 30, 2018
 
Twelve Months Ended June 30, 2019
 
Twelve Months Ended June 30, 2020
 
Twelve Months Ended June 30, 2021
 
After
June 30, 2021
 
 
 
(in thousands)
Notes payable (1)
$
553

 
$
547

 
$

 
$

 
$

 
$

 
$
1,100

7.625% Senior Notes (2)
24,042

 
24,042

 
24,042

 
327,321

 

 

 
399,447

7.0% Senior Notes (3)  
28,000

 
28,000

 
28,000

 
28,000

 
28,000

 
456,000

 
596,000

Convertible Notes (4)
29

 
600

 

 

 

 

 
629

Lease Financing Obligation (5)
537

 
537

 
2,094

 

 

 

 
3,168

Office and office equipment leases and other (6)(7)
7,333

 
2,754

 
1,924

 

 

 

 
12,011

Firm transportation and processing agreements (8)
18,552

 
18,692

 
18,692

 
18,692

 
18,692

 
1,556

 
94,876

Asset retirement obligations (9)
413

 
450

 
237

 
40

 
259

 
14,263

 
15,662

Total
$
79,459

 
$
75,622

 
$
74,989

 
$
374,053

 
$
46,951

 
$
471,819

 
$
1,122,893


(1)
Included in notes payable is a $26.0 million letter of credit that accrues interest at 2.0% and 0.125% per annum for participation fees and fronting fees, respectively. The expected term of the letter of credit is April 30, 2018. There is currently no balance outstanding under the Amended Credit Facility.
(2)
On September 27, 2011, we issued $400.0 million aggregate principal amount of 7.625% Senior Notes. On June 3, 2016, we completed the Debt Exchange, reducing our aggregate principal balance to $315.3 million. We are obligated to make annual interest payments through maturity in 2019 equal to $24.0 million.
(3)
On March 25, 2012, we issued $400.0 million aggregate principal amount of 7.0% Senior Notes. We are obligated to make annual interest payments through maturity in 2022 equal to $28.0 million.
(4)
On March 12, 2008, we issued $172.5 million aggregate principal amount of Convertible Notes. On March 20, 2012 approximately 85% of the outstanding Convertible Notes, representing $147.2 million of the then outstanding principal amount, were put to us. On March 20, 2015, approximately 98% of the remaining outstanding Convertible Notes, representing $24.8 million of the then outstanding principal amount, were put to us, leaving $0.6 million principal amount remaining. We are obligated to make semi-annual interest payments on the Convertible Notes until either we call the remaining Convertible Notes or the holders put the Convertible Notes to us, which is expected to occur by 2018.
(5)
The Lease Financing Obligation is calculated based on the aggregate undiscounted minimum future lease payments, which include both an interest and principal component. The Lease Financing Obligation contains an early buyout option pursuant to which we may purchase the equipment for $1.8 million on February 10, 2019.
(6)
The lease for our principal office in Denver, Colorado extends through March 2019.
(7)
Includes contractual obligations of $4.2 million related to certain drilling commitments.
(8)
We have entered into contracts that provide firm transportation capacity on pipeline systems. The remaining term on these contracts is five years. The contracts require us to pay transportation demand charges regardless of the amount of gas we deliver to the processing facility or pipeline.
(9)
This balance includes asset retirement obligations of $4.8 million at June 30, 2016 related to assets held for sale. Neither the ultimate settlement amounts nor the timing of our asset retirement obligations can be precisely determined in advance. See "Critical Accounting Policies and Estimates" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended

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December 31, 2015 for a more detailed discussion of the nature of the accounting estimates involved in estimating asset retirement obligations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as of June 30, 2016 .

Trends and Uncertainties

We refer you to the corresponding section in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of trends and uncertainties that may affect our financial condition or liquidity. Also see "Risk Factors" in Part II of this report.

Critical Accounting Policies and Estimates

We refer you to the corresponding section in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015 and the notes to the Unaudited Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for a description of critical accounting policies and estimates.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term "market risk" refers to the risk of loss arising from adverse changes in oil, natural gas and NGL prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures. All of our market risk sensitive instruments were entered into for purposes other than speculative trading.

Commodity Price Risk

Our primary market risk exposure is in the prices we receive for our production. Commodity pricing is primarily driven by the prevailing worldwide price for crude oil and spot regional market prices applicable to our U.S. oil and natural gas production. Pricing for oil, natural gas and NGLs has been volatile and unpredictable for several years, and we expect this volatility to continue in the future. The prices we receive for future production depend on many factors outside of our control, including volatility in the differences between product prices at sales points and the applicable index price. Based on our average daily production and our derivative contracts in place for the six months ended June 30, 2016 , our income before income taxes would have decreased by approximately $0.4 million for each $1.00 per barrel decrease in crude oil prices, approximately $0.3 million for each $0.10 decrease per MMBtu in natural gas prices and $0.4 million for each $1.00 per barrel decrease in NGL prices.

We routinely enter into commodity hedges relating to a portion of our projected production revenue through various financial transactions that hedge future prices received. These transactions may include financial price swaps whereby we will receive a fixed price and pay a variable market price to the contract counterparty. These commodity hedging activities are intended to support oil, natural gas and NGL prices at targeted levels that provide an acceptable rate of return and to manage our exposure to oil, natural gas and NGL price fluctuations.

As of July 22, 2016 , we have financial derivative instruments related to oil and natural gas volumes in place for the following periods indicated. Further detail of these hedges is summarized in the table presented under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations— Capital Resources and Liquidity— Commodity Hedging Activities."

 
July – December 2016
 
For the year 2017
 
Derivative
Volumes
 
Weighted Average Price
 
Derivative Volumes
 
Weighted Average Price
Oil (Bbls)
1,426,000

 
$
72.57

 
1,410,250

 
$
62.10

Natural Gas (MMbtu)
920,000

 
$
4.10

 
3,650,000

 
$
2.96


Commodity Price Risk - Carrying Value of Proved Oil and Gas Properties

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Our current recoverability test on our existing proved oil and gas properties as of June 30, 2016 uses commodity pricing based on a combination of assumptions, which are closely aligned with the assumptions management uses in its budgeting and forecasting process adjusted for geographical location and quality differentials as well as other factors that management believes will impact realized prices. The application of this test as of June 30, 2016 results in a surplus of future estimated net cash flows over carrying value of approximately $400.6 million and $95.4 million for the Uinta Oil Program and DJ Basin, respectively. We estimate that the surplus in the Uinta Oil program would decrease by approximately $15.0 million to $20.0 million and the DJ Basin would decrease by approximately $20.0 million to $25.0 million for every $1.00 decrease in the oil price assumptions used in the recoverability test. If impairment is necessary, we would reduce the carrying value to fair value. The factors used to determine fair value include, but are not limited to, recent sales prices of comparable properties, indications from marketing activities, the present value of future revenues, net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates used by market participants that are commensurate with the risks inherent in the development and production of the underlying oil and natural gas. If future commodity prices assumed in the recoverability test are not realized, it is likely that we will incur a significant impairment.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. As of June 30, 2016 , we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective as of June 30, 2016 .

Changes in Internal Controls. There has been no change in our internal control over financial reporting during the second fiscal quarter of 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are not a party to any material pending legal or governmental proceedings, other than ordinary routine litigation incidental to our business. While the ultimate outcome and impact of any proceeding cannot be predicted with certainty, our management does not believe that the resolution of any currently pending proceeding will have a material effect on our financial condition or results of operations.

Item 1A. Risk Factors.

As of the date of this filing, there have been no material changes or updates to the risk factors previously disclosed in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2015 except as described below. An investment in our securities involves various risks. When considering an investment in our Company, you should carefully consider all of the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2015 and subsequent reports filed with the SEC. These risks and uncertainties are not the only ones facing us, and there may be additional matters that we are unaware of or that we currently consider immaterial. All of these could adversely affect our business, financial condition, results of operations and cash flows and, thus, the value of an investment in our Company.

Proposed ballot initiatives in Colorado, if approved, could have severely adverse effects on our operations, reserves and financial condition.

As previously disclosed, several statewide ballot initiatives have been filed for the 2016 election cycle that seek to restrict or limit oil and natural gas development in Colorado. Proponents are attempting to collect the required number of signatures to have two such proposals included on the ballot for the November 2016 election. One would amend the Colorado constitution to impose a 2,500 foot statewide drilling setback from occupied structures and other sensitive areas. If implemented, this proposal would have the effect of rendering the vast majority of the surface area of the state ineligible for drilling, including many of our planned future drilling locations. The second would amend the state constitution to give local governmental authorities the ability to regulate, or to ban, oil and gas development activities within their boundaries notwithstanding state rules to the contrary. If implemented, this proposal could cause us to be subject to onerous, and possibly inconsistent, regulations that vary from jurisdiction to jurisdiction, or to outright bans on our activities in the state. Because substantially all of our operations and

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reserves are located in Colorado, the passage and implementation of either of these proposals would likely have a materially adverse effect on our operations, reserves, financial condition and business generally.

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

Unregistered Sales of Securities

There were no sales of unregistered equity securities during the period covered by this report except pursuant to the Debt Exchange as previously disclosed on a Current Report on Form 8-K.

Issuer Purchases of Equity Securities

The following table contains information about our acquisitions of equity securities during the three months ended June 30, 2016 :

Period
Total
Number of
Shares (1)
 
Weighted
Average Price
Paid Per
Share
 
Total Number of 
Shares (or Units) Purchased as
Part of Publicly
Announced Plans or
Programs
 
Maximum Number 
(or Approximate 
Dollar Value)
of Shares (or Units) that May Yet Be Purchased
Under the Plans or
Programs
April 1 – 30, 2016
30,639

 
$
6.18

 

 

May 1 – 31, 2016
57,876

 
7.94

 

 

June 1 – 30, 2016
1,243

 
7.27

 

 

Total
89,758

 
$
7.33

 

 


(1)
Represents shares delivered by employees to satisfy tax withholding obligations resulting from the vesting of restricted shares of common stock issued pursuant to our employee incentive plans.

Item 3. Defaults upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

Exhibit
Number
 
Description of Exhibits
10.1
 
Debt Exchange Agreement.
 
 
 
31.1
  
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
 
 
 
31.2
  
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
 
 
 
32.1
  
Section 1350 Certification of Chief Executive Officer.
 
 
 
32.2
  
Section 1350 Certification of Principal Financial Officer.

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Exhibit
Number
 
Description of Exhibits
 
 
 
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 Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
 
 
 
 
 
BILL BARRETT CORPORATION
 
 
 
 
Date:
August 4, 2016
By:
 
/s/ R. Scot Woodall
 
 
 
 
R. Scot Woodall
 
 
 
 
Chief Executive Officer and President
 
 
 
 
(Principal Executive Officer)
 
 
 
 
Date:
August 4, 2016
By:
 
/s/ David R. Macosko
 
 
 
 
David R. Macosko
 
 
 
 
Senior Vice President-Accounting
 
 
 
 
(Principal Accounting Officer)

48



EXCHANGE AGREEMENT

This letter agreement (“ Agreement ”) sets forth the terms and conditions upon which Bill Barrett Corporation, a Delaware corporation (“ Company ”), will issue the number of shares (the “ Shares ”) of Company’s Common Stock, par value $0.001 per share (“ Common Stock ”), indicated on the signature page hereof to each holder indicated on the signature page hereof (each, a “ Holder ”), in exchange for the aggregate principal amount of the Company’s debt securities (the “ Exchanged Notes ”) identified on the signature page hereof.
Section 1. Exchange . On the terms and subject to the conditions of this Agreement and in reliance upon the representations, warranties and agreements contained herein, each Holder agrees to exchange the Exchange Notes with Company in consideration of and in exchange for the transfer by Company to such Holder of the Shares. As promptly as reasonably practicable, but in no event later than five business days after the execution of this Agreement, each Holder shall deliver the Exchanged Notes on behalf of Company to Deutsche Bank Trust Company Americas (“ Trustee ”) by means of the book-entry transfer procedures of The Depositary Trust Company, as depositary for the Notes, or by other due and proper agreements or instruments of transfer reasonably acceptable to Company and its legal counsel. No adjustment shall be made or Shares issued for interest accrued on any Exchanged Note. Subject to and upon such delivery of the Exchanged Notes, as promptly as reasonably practicable, but in no event later than five business days after the execution of this Agreement, the Company shall cause (i) the transfer agent for the Common Stock to issue and deliver the Shares through the facilities of The Depository Trust Company to the account of each Holder set forth on the signature page hereof and (ii) cash representing all accrued but unpaid interest in respect of the Exchanged Notes up to but not including the closing date by wire transfer of immediately available funds in accordance with wire instructions delivered in writing to Company by each Holder prior to the closing date.
Section 2 . Conditions to Closing. The obligations of Company and each Holder hereunder to consummate the transactions contemplated by this Agreement are subject to the satisfaction of each of the following conditions:
(a)      Each of the representations and warranties of Company and each Holder contained in Section 4 and Sections 3 and 5, respectively, of this Agreement shall be true and correct in all material respects on and as of the closing date of the transactions described herein with the same effect as though such representations and warranties had been made on and as of the closing date of the transactions described herein.
(b)      Each of Company and each Holder shall in all material respects have performed, satisfied and complied with all of its respective covenants, agreements and conditions contained in this Agreement that are required to be performed, satisfied or complied with by it on or before the closing date of the transactions described herein.
Section 3 . Representations And Warranties Of Holder. Each Holder, severally and not jointly, represents and warrants to the Company, as of the date hereof and as of the date of delivery of the Exchanged Notes that:
(a)      Such Holder is duly organized, validly existing and in good standing in its jurisdiction of organization and the execution, delivery and performance by such Holder of this Agreement, and the consummation of the transactions contemplated hereby, are within the powers of such Holder and have been or will have been duly authorized by all necessary action on the part of such Holder, and this





Agreement constitutes a valid and binding agreement of such Holder, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement or creditors’ rights generally or (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
(b)      The execution, delivery and performance by such Holder of this Agreement and the consummation of the transactions contemplated hereby require no order, license, consent, authorization or approval of, or exemption by, or action by or in respect of, or notice to, or filing or registration with, any governmental body, agency or official on the part of Holder.
(c)      The execution, delivery and performance by such Holder and Company of this Agreement, and the consummation of the transactions contemplated by this Agreement, do not and will not (i) violate the certificate of incorporation (or similar constituent document) or bylaws of such Holder, (ii) violate any material agreement to which such Holder is a party or by which such Holder or any of its property or assets is bound, or (iii) violate any law, rule, regulation, judgment, injunction, order or decree applicable to such Holder.
(d)      Such Holder has good and valid title to the Exchanged Notes and owns and holds the entire legal and beneficial right, title, and interest in and to the Exchanged Notes (including, without limitation, accrued and unpaid interest thereon), free and clear of any liens, claims or encumbrances (other than those arising as a result of this Agreement) and the Exchanged Notes are not subject to any contract, agreement, arrangement, commitment or understanding restricting or otherwise relating to the disposition of the Exchanged Notes; good and valid title to the Exchanged Notes (including, without limitation, accrued and unpaid interest thereon) will pass to the Company upon consummation of the transaction contemplated hereby and all claims of such Holder relating to the Exchanged Notes, including any accrued and unpaid interest thereon, shall be released.

(e)      Such Holder has such knowledge, sophistication and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Shares. Such Holder acknowledges that it understands the risks inherent in an investment in the Shares and that it has the financial ability to bear the economic risk of, and to afford the entire loss of, its investment in the Shares.

(f)      Such Holder has made its own independent inquiry as to the legal, tax and accounting aspects of the transactions contemplated by this Agreement, and such Holder has not relied on Company, Company's legal counsel or Company's accounting or financial advisors for legal, tax or accounting advice in connection with the transactions contemplated by this Agreement. Such Holder has had such opportunity as it has deemed adequate to obtain from Company such public information as is necessary to permit such Holder to evaluate the merits and risks of the transactions contemplated hereby.

(g)      Such Holder acknowledges that (i) it has reviewed Company's filings with the Securities and Exchange Commission (the “ SEC ”) and (ii) it is relying only upon the information contained in the Company's filings with the SEC and the representations and warranties of Company in this Agreement and not upon any other information.

(h)      Such Holder acknowledges that Company is in possession of non-public information (the " Non-Public Information "). The Non-Public Information may (or may not) be considered material by such Holder with respect to the exchange of its Exchanged Notes for the Shares. Such Holder has determined that it is in such Holder's best interests to effectuate and close the exchange of Exchanged Notes for the Shares without Company's disclosure to such Holder, and without such Holder's knowledge of, the Non-Public Information. Such Holder has actual knowledge that it may presently have and may





have at or after the time of the closing date of the transactions described herein, claims against Company and Company's directors, officers, employees, agents, attorneys, representatives, affiliates, predecessors, successors and assigns, arising from Company's nondisclosure of the Non-Public Information in connection with the transactions contemplated by this Agreement. As partial consideration for the transactions contemplated by this Agreement, such Holder hereby, on its behalf and on behalf of any and all of its directors, officers, employees, agents, attorneys, representatives, limited partners or other investors, affiliates, predecessors, successors and assigns, unconditionally, irrevocably and absolutely releases and discharges Company and its directors, officers, employees, agents, attorneys, representatives, affiliates, predecessors, successors and assigns from any and all causes of action, claims, demands, damages or liabilities whatsoever, both in law and in equity, in contract, tort or otherwise, which they may now have or may have at or after the closing date of the transactions described herein arising from Company's nondisclosure of the Non-Public Information in connection with the transactions contemplated by this Agreement, in each case to the maximum extent permitted by law.

(i)      Such Holder covenants that neither it nor any person acting on behalf of or pursuant to any understanding with it will engage in any transactions in the securities of Company (including "short sales," as defined in Rule 200 of Regulation SHO under the Securities Exchange Act of 1934, as amended (the " Exchange Act ")) prior to the time that the transactions contemplated by this Agreement are publicly disclosed by Company, and represents that no such person has engaged in such a short sale of, or stock pledge, forward sale or other transaction or arrangement with an effect similar to such a short sale with respect to, Company Common Stock from the date the parties commenced the negotiations leading to the execution of this Agreement and the date hereof. Such Holder has maintained, and covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by Company such Holder will maintain, the confidentiality of any disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

(j)      There is no investment banker, broker, finder or other intermediary which has been retained by, will be retained by or is authorized to act on behalf of such Holder who might be entitled to any fee or commission from Company or such Holder upon consummation of the transactions contemplated by this Agreement.
Section 4 . Representations And Warranties Of Company. Company represents and warrants to each Holder, as of the date hereof and as of the date of delivery of the Shares, that:
(a)      The Company is duly organized, validly existing and in good standing in the State of Delaware and the execution, delivery and performance by Company of this Agreement, and the consummation of the transactions contemplated hereby, are within the powers of Company and have been or will have been duly authorized by all necessary action on the part of Company, and this Agreement constitutes a valid and binding agreement of Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement or creditors’ rights generally or (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
(b)      The execution, delivery and performance by Company of this Agreement and the consummation of the transactions contemplated hereby require no order, license, consent, authorization or approval of, or exemption by, or action by or in respect of, or notice to, or filing or registration with, any governmental body, agency or official on the part of Company except such consents, approvals, authorizations, filings or registrations (x) as are specifically contemplated by this Agreement or (y) required by applicable law or other regulatory authority.





(c)      The execution, delivery and performance by each Holder and Company of this Agreement, and the consummation of the transactions contemplated by this Agreement, do not and will not (i) violate the amended and restated certificate of incorporation or amended and restated bylaws of Company, (ii) violate any material agreement to which Company is a party or by which Company or any of its property or assets is bound, or (iii) violate any material law, rule, regulation, judgment, injunction, order or decree applicable to Company.
(d)      The Shares, when issued in exchange for the Exchanged Notes in accordance with this Agreement, will be duly and validly authorized and issued, fully-paid and non-assessable, free and clear of all encumbrances, liens, equities or claims. On or before the date of issuance of the Shares, the Shares shall have been authorized for listing on the New York Stock Exchange. The Shares will be freely tradeable and will be fungible in all respects with the Company’s existing shares of Common Stock and will not contain any restrictive legends.
(e)      There is no investment banker, broker, finder or other intermediary which has been retained by, will be retained by or is authorized to act on behalf of Company who would be entitled to any fee or commission from Company or each Holder for soliciting the exchange upon consummation of the transactions contemplated by this Agreement.
Section 5. Exempt Transaction . (a) Each Holder understands that the exchange of the Exchanged Notes for the Shares hereby is intended to be exempt from registration under Section 3(a)(9) of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “ Securities Act ”), which exemption depends upon, among other things, the accuracy of the such Holder’s representations expressed herein, and such Holder is not aware of any reason why such exemption is not available.
(b)      Each Holder represents and warrants to Company that it did not purchase the Exchanged Notes with a view to, or for sale in connection with, any distribution of the Shares issuable upon exchange of the Exchanged Notes.
(c)      Each Holder represents and warrants to Company that (i) to the knowledge of such Holder, no commission or other remuneration has been or will be paid or given, directly or indirectly, for soliciting the transactions contemplated hereby and (ii) Company did not, and to the knowledge of such Holder, no person acting on behalf of Company did, solicit such Holder with respect to this disposition of the Exchanged Notes.
(d)      Each Holder represents and warrants to Company that the Exchanged Notes do not constitute “restricted securities” as defined in Rule 144(a)(3) under the Securities Act.
(e)      Each Holder understands that the Shares have not been registered under the Securities Act, and are being issued hereunder in reliance upon a specific exemption from the registration provisions of the Securities Act afforded by Section 3(a)(9) of the Securities Act. Under current interpretations of the SEC, securities that are obtained in a Section 3(a)(9) exchange assume the same character (i.e., restricted or unrestricted) as the securities that have been surrendered. To the extent that the Exchanged Notes are unrestricted securities, the Shares will be unrestricted securities.

(f)      Each Holder represents and warrants to Company that such Holder is not, as of the date hereof, and was not at any time during the three-month period preceding the date hereof, a director or executive officer of the Company or a subsidiary of the Company, a beneficial owner of 5% or more of





the Common Stock, a holder of 5% or more of the voting power outstanding of the Company, or an affiliate of such director, executive officer, beneficial owner or holder.
Section 6. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including electronic mail) and shall be given,
if to a Holder, as indicated on the signature page hereto,
if to Company to:

Bill Barrett Corporation
1099 18th Street, Suite 2300
Denver, Colorado 80202
Attention:
William M. Crawford (bcrawford@billbarrettcorp.com)
Kenneth A. Wonstolen (kwonstolen@billbarrettcorp.com)

with a copy to:

Davis Graham & Stubbs LLP
1550 17 th Street, Suite 500
Denver, Colorado 80202
Attention:
John Elofson (john.elofson@dgslaw.com)
Elizabeth Vonne (elizabeth.vonne@dgslaw.com)

or to such other address and with such other copies as such party may hereafter specify for the purpose of notice. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt.

Section 7. Confidentiality . Each of Company and each Holder represents that it has not disclosed any information regarding discussions relating to this Agreement except to its advisors and representatives who have a need to know such information and are subject to requirements not to disclose any such information. Except as may be required by applicable law or regulatory requirement, neither Company nor any Holder shall disclose the existence or terms of this Agreement or any of the provisions contained herein without the prior written consent of the other until the earlier of (x) the closing date of the transactions described herein or (y) five business days after the date of this Agreement; provided, however, that nothing contained herein shall prevent any party from promptly making all filings with any governmental entity or supervisory body (including, without limitation, Company’s ongoing reporting obligations under the Exchange Act, including Item 3.02 of Form 8-K) or disclosures with the stock exchange, if any, on which such party’s capital stock is listed, as may, in its judgment, be required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. Company will file a Form 8-K promptly upon execution of this Agreement. Company shall provide each Holder a draft of the Form 8-K in advance of such filing to give each Holder a reasonable amount of time to review and comment on the Form 8-K and shall consider any such comments in good faith.






Section 8. Amendments and Waivers . Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate 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, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.     

Section 9. Expenses. All costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense.     

Section 10. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto.     

Section 11. Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York.     

Section 12. Jurisdiction; WAIVER OF JURY TRIAL. Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any Federal or state court located in the Borough of Manhattan in The City of New York, New York in the event any dispute arises out of this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (c) agrees that it will not bring any action relating to this Agreement in any court other than a Federal or state court located in the Borough of Manhattan in The City of New York, New York. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.     

Section 13. Counterparts; Third Party Beneficiaries. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. No provision of this Agreement shall confer upon any person other than the parties hereto any rights or remedies hereunder.     

Section 14. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement.

Section 15. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.
    
Section 16. Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforced in accordance with its terms to the maximum extent permitted by law.


[Signature Page Follows]





If the foregoing is acceptable to you, please acknowledge your agreement by signing below in the space provided for your signature and returning an original copy hereof.

DATE: __31 May 2016_____

BILL BARRETT CORPORATION


By: ________________________________         
Name:      William M. Crawford
Title:      SVP-Treasury and Finance

THE FOREGOING IS AGREED TO
AND ACKNOWLEDGED BY:

Franklin Income Fund
By: Franklin Advisers, Inc., as investment adviser

____________________________________     
Name: Edward Perks     
Title: E.V.P., Portfolio Manager

Address for Notices to Holder pursuant to Section 6:
One Franklin Parkway
San Mateo, CA 94403
Fax: 650-525-7206
Attention: Ed Perks and Christopher Chen


Title of debt securities (“ Exchange Notes ”):
CUSIP: 06846NAC8

Holder: Franklin Custodian Funds - Franklin Income Fund

Principal amount of Exchange Notes: $84,700,000

Number of shares of Common Stock to be issued in exchange: 10,000,000

Accrued but unpaid interest up to but not including the closing date, assuming a closing date of June 3, 2016: $1,094,335.76








Exhibit 31.1
CERTIFICATION
I, R. Scot Woodall, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Bill Barrett 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; and
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 the 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.

Date: August 4, 2016
 
 
/s/ R. Scot Woodall
R. Scot Woodall
Chief Executive Officer, President and Director
(Principal Executive Officer)




Exhibit 31.2
CERTIFICATION
I, William M. Crawford, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Bill Barrett 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; and
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 the 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.

Date: August 4, 2016
 
 
/s/ William M. Crawford
William M. Crawford
Senior Vice President-Treasury and Finance
(Principal Financial Officer)




Exhibit 32.1
BILL BARRETT CORPORATION
SARBANES-OXLEY ACT SECTION 906 CERTIFICATION
In connection with this quarterly report on Form 10-Q of Bill Barrett Corporation for the fiscal quarter ended June 30, 2016 , I, R. Scot Woodall, Chief Executive Officer and President of Bill Barrett Corporation, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
This Form 10-Q for the fiscal quarter ended June 30, 2016 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 this Form 10-Q for the fiscal quarter ended June 30, 2016 fairly presents, in all material respects, the financial condition and results of operations of Bill Barrett Corporation for the periods presented therein.
 

Date: August 4, 2016
 
 
/s/ R. Scot Woodall
R. Scot Woodall
Chief Executive Officer and President
(Principal Executive Officer)




Exhibit 32.2
BILL BARRETT CORPORATION
SARBANES-OXLEY ACT SECTION 906 CERTIFICATION
In connection with this quarterly report on Form 10-Q of Bill Barrett Corporation for the fiscal quarter ended June 30, 2016 , I, William M. Crawford, Senior Vice President - Treasury and Finance of Bill Barrett Corporation, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
This Form 10-Q for the fiscal quarter ended June 30, 2016 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 this Form 10-Q for the fiscal quarter ended June 30, 2016 fairly presents, in all material respects, the financial condition and results of operations of Bill Barrett Corporation for the periods presented therein.
 

Date: August 4, 2016
 
 
/s/ William M. Crawford
William M. Crawford
Senior Vice President-Treasury and Finance
(Principal Financial Officer)