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ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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COLORADO
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20-2835920
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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1675 Broadway, Suite 2600, Denver, CO
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80202
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
ý
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Emerging growth company
o
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Page
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Part I - FINANCIAL INFORMATION
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Item 1.
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Financial Statements (unaudited)
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Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017
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Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017
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Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017
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Notes to Condensed Consolidated Financial Statements
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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Item 4.
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Controls and Procedures
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Part II - OTHER INFORMATION
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Item 1.
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Legal Proceedings
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Item 1A.
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Risk Factors
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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Item 3.
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Defaults of Senior Securities
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Item 4.
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Mine Safety Disclosures
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Item 5.
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Other Information
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Item 6.
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Exhibits
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SIGNATURES
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ASSETS
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September 30, 2018
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December 31, 2017
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||||
Current assets:
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||||
Cash and cash equivalents
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$
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19,236
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$
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48,772
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Accounts receivable:
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||||
Oil, natural gas, and NGL sales
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110,912
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86,013
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Trade
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29,559
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18,134
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Other current assets
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11,996
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7,116
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Total current assets
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171,703
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160,035
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Property and equipment:
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Oil and gas properties, full cost method:
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Proved properties, net of accumulated depletion
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1,364,116
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970,584
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Wells in progress
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244,206
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106,269
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Unproved properties and land, not subject to depletion
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748,695
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793,669
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Oil and gas properties, net
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2,357,017
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1,870,522
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Other property and equipment, net
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5,902
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6,054
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Total property and equipment, net
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2,362,919
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1,876,576
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Goodwill
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40,711
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40,711
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Other assets
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3,599
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2,242
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Total assets
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$
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2,578,932
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$
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2,079,564
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
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Accounts payable and accrued expenses
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$
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171,951
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$
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74,672
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Revenue payable
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82,670
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64,111
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Production taxes payable
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77,115
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52,413
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Asset retirement obligations
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2,771
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3,246
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Commodity derivative liabilities
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18,570
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7,865
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Total current liabilities
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353,077
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202,307
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Revolving credit facility
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115,000
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—
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Notes payable, net of issuance costs
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539,050
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538,186
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Commodity derivative liabilities
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1,671
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—
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Asset retirement obligations
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48,951
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28,376
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Deferred taxes
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18,076
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—
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Other liabilities
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2,308
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2,261
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Total liabilities
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1,078,133
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771,130
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Commitments and contingencies (See Note 15)
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Shareholders' equity:
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Preferred stock - $0.01 par value, 10,000,000 shares authorized: no shares issued and outstanding
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—
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—
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Common stock - $0.001 par value, 400,000,000 and 300,000,000 shares authorized: 242,572,199 and 241,365,522 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
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243
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241
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Additional paid-in capital
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1,488,588
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1,474,273
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Retained earnings (deficit)
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11,968
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(166,080
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)
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Total shareholders' equity
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1,500,799
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1,308,434
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Total liabilities and shareholders' equity
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$
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2,578,932
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$
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2,079,564
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2018
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2017
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2018
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2017
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Oil, natural gas, and NGL revenues
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$
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160,978
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$
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103,593
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$
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455,298
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$
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222,419
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Expenses:
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Lease operating expenses
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10,360
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4,316
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29,868
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13,008
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Transportation and gathering
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1,994
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838
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5,729
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1,136
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Production taxes
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12,824
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10,083
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41,325
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21,013
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Depreciation, depletion, and accretion
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45,188
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33,740
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124,146
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73,396
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Unused commitment charge
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—
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—
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—
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669
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General and administrative
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10,685
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8,484
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29,691
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24,289
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Total expenses
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81,051
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57,461
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230,759
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133,511
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Operating income
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79,927
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46,132
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224,539
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88,908
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Other income (expense):
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Commodity derivatives gain (loss)
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(8,529
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)
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(2,383
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)
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(28,604
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)
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2,324
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|
||||
Interest expense, net of amounts capitalized
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—
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—
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—
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—
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||||
Interest income
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23
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16
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37
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47
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||||
Other income
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125
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83
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152
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385
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|
||||
Total other income (expense)
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(8,381
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)
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(2,284
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)
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(28,415
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)
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2,756
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||||
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Income before income taxes
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71,546
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43,848
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196,124
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91,664
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Income tax expense
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8,918
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—
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18,076
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—
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Net income
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$
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62,628
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$
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43,848
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$
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178,048
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$
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91,664
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Net income per common share:
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Basic
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$
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0.26
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$
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0.22
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$
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0.74
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$
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0.46
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Diluted
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$
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0.26
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$
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0.22
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$
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0.73
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$
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0.46
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||||||||
Weighted-average shares outstanding:
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||||||||
Basic
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242,536,781
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200,881,447
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242,184,348
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200,807,436
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Diluted
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243,560,046
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201,460,915
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243,207,058
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201,326,129
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Nine Months Ended September 30,
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||||||
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2018
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|
2017
|
||||
Cash flows from operating activities:
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|
||||
Net income
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$
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178,048
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$
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91,664
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Adjustments to reconcile net income to net cash provided by operating activities:
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|
||||
Depletion, depreciation, and accretion
|
124,146
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73,396
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|
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Settlement of asset retirement obligation
|
(5,234
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)
|
|
(4,077
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)
|
||
Provision for deferred taxes
|
18,076
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|
|
—
|
|
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Stock-based compensation expense
|
9,347
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|
|
8,390
|
|
||
Mark-to-market of commodity derivative contracts:
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|
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|
||||
Total loss (gain) on commodity derivatives contracts
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28,604
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(2,324
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)
|
||
Cash settlements on commodity derivative contracts
|
(13,263
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)
|
|
778
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|
||
Changes in operating assets and liabilities
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3,830
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(25,010
|
)
|
||
Net cash provided by operating activities
|
343,554
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|
|
142,817
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|
||||
Cash flows from investing activities:
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|
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|
||||
Acquisition of oil and gas properties and leaseholds
|
(129,069
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)
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(62,562
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)
|
||
Capital expenditures for drilling and completion activities
|
(331,702
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)
|
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(305,636
|
)
|
||
Other capital expenditures
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(26,439
|
)
|
|
(11,198
|
)
|
||
Acquisition of land and other property and equipment
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(2,914
|
)
|
|
(4,058
|
)
|
||
Proceeds from sales of oil and gas properties and other
|
1,233
|
|
|
77,017
|
|
||
Net cash used in investing activities
|
(488,891
|
)
|
|
(306,437
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)
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||
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|
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|
||||
Cash flows from financing activities:
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|
|
|
||||
Proceeds from the employee exercise of stock options
|
4,302
|
|
|
114
|
|
||
Payment of employee payroll taxes in connection with shares withheld
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(1,106
|
)
|
|
(631
|
)
|
||
Proceeds from the revolving credit facility
|
115,000
|
|
|
170,000
|
|
||
Principal repayments on the revolving credit facility
|
—
|
|
|
(20,000
|
)
|
||
Fees on debt and equity issuances and revolving credit facility amendments
|
(2,173
|
)
|
|
(1,372
|
)
|
||
Capital lease payments
|
(222
|
)
|
|
—
|
|
||
Net cash provided by financing activities
|
115,801
|
|
|
148,111
|
|
||
|
|
|
|
||||
Net decrease in cash, cash equivalents, and restricted cash
|
(29,536
|
)
|
|
(15,509
|
)
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||
|
|
|
|
||||
Cash, cash equivalents, and restricted cash at beginning of period
|
48,772
|
|
|
36,834
|
|
||
|
|
|
|
||||
Cash, cash equivalents, and restricted cash at end of period
|
$
|
19,236
|
|
|
$
|
21,325
|
|
1
.
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Organization and Summary of Significant Accounting Policies
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|
|
Three Months Ended September 30,
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|
Nine Months Ended September 30,
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||||
Major Customers
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Company A
|
|
23%
|
|
30%
|
|
13%
|
|
27%
|
Company B
|
|
21%
|
|
27%
|
|
19%
|
|
26%
|
Company C
|
|
14%
|
|
13%
|
|
28%
|
|
15%
|
Company D
|
|
14%
|
|
*
|
|
11%
|
|
*
|
Company E
|
|
14%
|
|
*
|
|
16%
|
|
*
|
|
|
As of
|
|
As of
|
Major Customers
|
|
September 30, 2018
|
|
December 31, 2017
|
Company A
|
|
23%
|
|
26%
|
Company B
|
|
16%
|
|
16%
|
Company C
|
|
14%
|
|
23%
|
Company D
|
|
14%
|
|
*
|
Company E
|
|
*
|
|
11%
|
2
.
|
Property and Equipment
|
|
As of
|
|
As of
|
||||
|
September 30, 2018
|
|
December 31, 2017
|
||||
Oil and gas properties, full cost method:
|
|
|
|
||||
Costs of proved properties:
|
|
|
|
||||
Producing and non-producing
|
$
|
2,148,278
|
|
|
$
|
1,629,789
|
|
Less, accumulated depletion and full cost ceiling impairments
|
(784,162
|
)
|
|
(659,205
|
)
|
||
Subtotal, proved properties, net
|
1,364,116
|
|
|
970,584
|
|
||
|
|
|
|
||||
Costs of wells in progress
|
244,206
|
|
|
106,269
|
|
||
|
|
|
|
||||
Costs of unproved properties and land, not subject to depletion:
|
|
|
|
||||
Lease acquisition and other costs
|
739,303
|
|
|
786,469
|
|
||
Land
|
9,392
|
|
|
7,200
|
|
||
Subtotal, unproved properties and land
|
748,695
|
|
|
793,669
|
|
||
|
|
|
|
||||
Costs of other property and equipment:
|
|
|
|
||||
Other property and equipment
|
9,462
|
|
|
8,134
|
|
||
Less, accumulated depreciation
|
(3,560
|
)
|
|
(2,080
|
)
|
||
Subtotal, other property and equipment, net
|
5,902
|
|
|
6,054
|
|
||
|
|
|
|
||||
Total property and equipment, net
|
$
|
2,362,919
|
|
|
$
|
1,876,576
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Capitalized overhead
|
$
|
3,129
|
|
|
$
|
2,518
|
|
|
$
|
9,522
|
|
|
$
|
7,729
|
|
4
.
|
Depletion, depreciation, and accretion ("DD&A")
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Depletion of oil and gas properties
|
$
|
44,230
|
|
|
$
|
32,944
|
|
|
$
|
121,259
|
|
|
$
|
71,389
|
|
Depreciation and accretion
|
958
|
|
|
796
|
|
|
2,887
|
|
|
2,007
|
|
||||
Total DD&A Expense
|
$
|
45,188
|
|
|
$
|
33,740
|
|
|
$
|
124,146
|
|
|
$
|
73,396
|
|
5
.
|
Asset Retirement Obligations
|
|
Nine Months Ended September 30, 2018
|
||
Asset retirement obligations, December 31, 2017
|
$
|
31,622
|
|
Obligations incurred with development activities
|
1,488
|
|
|
Obligations assumed with acquisitions
|
26,150
|
|
|
Accretion expense
|
1,406
|
|
|
Obligations discharged with asset retirements and divestitures
|
(8,944
|
)
|
|
Asset retirement obligation, September 30, 2018
|
$
|
51,722
|
|
Less, current portion
|
(2,771
|
)
|
|
Long-term portion
|
$
|
48,951
|
|
6
.
|
Revolving Credit Facility
|
7
.
|
Notes Payable
|
8
.
|
Commodity Derivative Instruments
|
Settlement Period
|
|
Derivative
Instrument
|
|
Volumes
(Bbls per day)
|
|
Weighted-Average
Floor Price
|
|
Weighted-Average Ceiling Price
|
|||||
Crude Oil - NYMEX WTI
|
|
|
|
|
|
|
|
|
|||||
Oct 1, 2018 - Dec 31, 2018
|
|
Collar
|
|
10,000
|
|
|
$
|
43.63
|
|
|
$
|
61.29
|
|
Jan 1, 2019 - Dec 31, 2019
|
|
Collar
|
|
6,000
|
|
|
$
|
55.00
|
|
|
$
|
74.31
|
|
|
|
|
|
|
|
|
|
|
|||||
Settlement Period
|
|
Derivative
Instrument
|
|
Volumes
(MMBtu per day)
|
|
Weighted-Average
Floor Price |
|
Weighted-Average Ceiling Price
|
|||||
Natural Gas - CIG Rocky Mountain
|
|
|
|
|
|
|
|
|
|||||
Oct 1, 2018 - Dec 31, 2018
|
|
Collar
|
|
15,000
|
|
|
$
|
2.25
|
|
|
$
|
2.82
|
|
|
|
|
|
|
|
|
|
|
|||||
Settlement Period
|
|
Derivative
Instrument
|
|
Volumes
(MMBtu per day)
|
|
Fixed Basis Difference
|
|
|
|||||
Natural Gas - CIG Rocky Mountain
|
|
|
|
|
|
|
|
|
|||||
Jan 1, 2019 - Dec 31, 2019
|
|
Swap
|
|
10,000
|
|
|
$
|
(0.79
|
)
|
|
|
||
|
|
|
|
|
|
|
|
|
|||||
Settlement Period
|
|
Derivative
Instrument
|
|
Volumes
(Bbls per day) |
|
Weighted-Average Fixed Price
|
|
|
|||||
Propane - Mont Belvieu
|
|
|
|
|
|
|
|
|
|||||
Oct 1, 2018 - Dec 31, 2018
|
|
Swap
|
|
1,000
|
|
|
$
|
33.60
|
|
|
|
||
Jan 1, 2019 - Dec 31, 2019
|
|
Swap
|
|
2,000
|
|
|
$
|
37.52
|
|
|
|
Settlement Period
|
|
Derivative
Instrument
|
|
Volumes
(MMBtu per day) |
|
Weighted-Average Fixed Basis Difference
|
|
|
|||
Natural Gas - CIG Rocky Mountain
|
|
|
|
|
|
|
|
|
|||
Nov 1, 2018 - Dec 31, 2018
|
|
Swap
|
|
50,000
|
|
|
$
|
(0.21
|
)
|
|
|
Jan 1, 2019 - Dec 31, 2019
|
|
Swap
|
|
20,000
|
|
|
$
|
(0.74
|
)
|
|
|
|
|
|
|
As of September 30, 2018
|
||||||||||
Underlying
|
|
Balance Sheet
Location
|
|
Gross Amounts of Recognized Assets and Liabilities
|
|
Gross Amounts Offset in the
Balance Sheet
|
|
Net Amounts of Assets and Liabilities Presented in the
Balance Sheet
|
||||||
Commodity derivative contracts
|
|
Current assets
|
|
$
|
1,740
|
|
|
$
|
(1,740
|
)
|
|
$
|
—
|
|
Commodity derivative contracts
|
|
Noncurrent assets
|
|
1,078
|
|
|
(1,078
|
)
|
|
—
|
|
|||
Commodity derivative contracts
|
|
Current liabilities
|
|
20,310
|
|
|
(1,740
|
)
|
|
18,570
|
|
|||
Commodity derivative contracts
|
|
Noncurrent liabilities
|
|
$
|
2,749
|
|
|
$
|
(1,078
|
)
|
|
$
|
1,671
|
|
|
|
|
|
As of December 31, 2017
|
||||||||||
Underlying
|
|
Balance Sheet
Location
|
|
Gross Amounts of Recognized Assets and Liabilities
|
|
Gross Amounts Offset in the
Balance Sheet
|
|
Net Amounts of Assets and Liabilities Presented in the
Balance Sheet
|
||||||
Commodity derivative contracts
|
|
Current assets
|
|
$
|
1,960
|
|
|
$
|
(1,960
|
)
|
|
$
|
—
|
|
Commodity derivative contracts
|
|
Noncurrent assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Commodity derivative contracts
|
|
Current liabilities
|
|
9,825
|
|
|
(1,960
|
)
|
|
7,865
|
|
|||
Commodity derivative contracts
|
|
Noncurrent liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Realized gain (loss) on commodity derivatives
|
$
|
(8,273
|
)
|
|
$
|
116
|
|
|
$
|
(16,228
|
)
|
|
$
|
(26
|
)
|
Unrealized gain (loss) on commodity derivatives
|
(256
|
)
|
|
(2,499
|
)
|
|
(12,376
|
)
|
|
2,350
|
|
||||
Total gain (loss)
|
$
|
(8,529
|
)
|
|
$
|
(2,383
|
)
|
|
$
|
(28,604
|
)
|
|
$
|
2,324
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Monthly settlement
|
$
|
(8,273
|
)
|
|
$
|
376
|
|
|
$
|
(16,228
|
)
|
|
$
|
927
|
|
Previously incurred premiums attributable to settled commodity contracts
|
—
|
|
|
(260
|
)
|
|
—
|
|
|
(953
|
)
|
||||
Total realized loss
|
$
|
(8,273
|
)
|
|
$
|
116
|
|
|
$
|
(16,228
|
)
|
|
$
|
(26
|
)
|
9
.
|
Fair Value Measurements
|
•
|
Level 1: Quoted prices available in active markets for identical assets or liabilities;
|
•
|
Level 2: Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; and
|
•
|
Level 3: Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash or valuation models.
|
|
Fair Value Measurements at September 30, 2018
|
||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Financial assets and liabilities:
|
|
|
|
|
|
|
|
||||||||
Commodity derivative asset
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commodity derivative liability
|
$
|
—
|
|
|
$
|
20,241
|
|
|
$
|
—
|
|
|
$
|
20,241
|
|
|
Fair Value Measurements at December 31, 2017
|
||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Financial assets and liabilities:
|
|
|
|
|
|
|
|
||||||||
Commodity derivative asset
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commodity derivative liability
|
$
|
—
|
|
|
$
|
7,865
|
|
|
$
|
—
|
|
|
$
|
7,865
|
|
10
.
|
Interest Expense
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Revolving bank credit facility
|
$
|
376
|
|
|
$
|
1,016
|
|
|
$
|
461
|
|
|
$
|
1,286
|
|
Notes payable
|
8,593
|
|
|
1,800
|
|
|
25,781
|
|
|
5,400
|
|
||||
Amortization of issuance costs and other
|
905
|
|
|
1,090
|
|
|
2,905
|
|
|
2,267
|
|
||||
Less: interest capitalized
|
(9,874
|
)
|
|
(3,906
|
)
|
|
(29,147
|
)
|
|
(8,953
|
)
|
||||
Interest expense, net of amounts capitalized
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
11
.
|
Equity and Stock-Based Compensation
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Stock options
|
$
|
1,072
|
|
|
$
|
1,277
|
|
|
$
|
3,470
|
|
|
$
|
3,825
|
|
Performance-vested stock units
|
1,187
|
|
|
807
|
|
|
3,216
|
|
|
2,130
|
|
||||
Restricted stock units and stock bonus shares
|
1,771
|
|
|
1,386
|
|
|
4,507
|
|
|
3,779
|
|
||||
Total stock-based compensation
|
$
|
4,030
|
|
|
$
|
3,470
|
|
|
$
|
11,193
|
|
|
$
|
9,734
|
|
Less: stock-based compensation capitalized
|
(625
|
)
|
|
(440
|
)
|
|
(1,846
|
)
|
|
(1,344
|
)
|
||||
Total stock-based compensation expensed
|
$
|
3,405
|
|
|
$
|
3,030
|
|
|
$
|
9,347
|
|
|
$
|
8,390
|
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Life
|
|
Aggregate Intrinsic Value (thousands)
|
|||||
Outstanding, December 31, 2017
|
5,636,834
|
|
|
$
|
9.38
|
|
|
7.0 years
|
|
$
|
4,806
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|||
Exercised
|
(823,883
|
)
|
|
5.36
|
|
|
|
|
4,611
|
|
||
Expired
|
(23,400
|
)
|
|
11.27
|
|
|
|
|
|
|||
Forfeited
|
(104,917
|
)
|
|
9.57
|
|
|
|
|
|
|||
Outstanding, September 30, 2018
|
4,684,634
|
|
|
$
|
10.07
|
|
|
6.6 years
|
|
$
|
2,505
|
|
Outstanding, Exercisable at September 30, 2018
|
3,142,430
|
|
|
$
|
10.25
|
|
|
6.4 years
|
|
$
|
1,452
|
|
|
|
Outstanding Options
|
|
Exercisable Options
|
||||||||||||||
Range of Exercise Prices
|
|
Options
|
|
Weighted-Average Exercise Price per Share
|
|
Weighted-Average Remaining Contractual Life
|
|
Options
|
|
Weighted-Average Exercise Price per Share
|
|
Weighted-Average Remaining Contractual Life
|
||||||
Under $5.00
|
|
35,000
|
|
|
$
|
3.31
|
|
|
3.8 years
|
|
35,000
|
|
|
$
|
3.31
|
|
|
3.8 years
|
$5.00 - $6.99
|
|
723,800
|
|
|
6.30
|
|
|
6.7 years
|
|
389,200
|
|
|
6.27
|
|
|
5.9 years
|
||
$7.00 - $10.99
|
|
1,362,334
|
|
|
9.42
|
|
|
6.7 years
|
|
864,830
|
|
|
9.49
|
|
|
6.4 years
|
||
$11.00 - $13.46
|
|
2,563,500
|
|
|
11.58
|
|
|
6.7 years
|
|
1,853,400
|
|
|
11.57
|
|
|
6.6 years
|
||
Total
|
|
4,684,634
|
|
|
$
|
10.07
|
|
|
6.6 years
|
|
3,142,430
|
|
|
$
|
10.25
|
|
|
6.4 years
|
Unrecognized compensation cost (in thousands)
|
$
|
5,685
|
|
Remaining vesting phase
|
1.8 years
|
|
|
Number of Shares
|
|
Weighted-Average Grant-Date Fair Value
|
|||
Not vested, December 31, 2017
|
1,087,386
|
|
|
$
|
8.89
|
|
Granted
|
747,168
|
|
|
9.35
|
|
|
Vested
|
(439,945
|
)
|
|
8.77
|
|
|
Forfeited
|
(54,111
|
)
|
|
9.56
|
|
|
Not vested, September 30, 2018
|
1,340,498
|
|
|
$
|
9.16
|
|
Unrecognized compensation cost (in thousands)
|
$
|
9,075
|
|
Remaining vesting phase
|
2.0 years
|
|
|
Nine Months Ended September 30,
|
||||
|
2018
|
|
2017
|
||
Weighted-average expected term
|
2.8 years
|
|
|
2.9 years
|
|
Weighted-average expected volatility
|
52
|
%
|
|
59
|
%
|
Weighted-average risk-free rate
|
2.41
|
%
|
|
1.34
|
%
|
|
Number of Units
1
|
|
Weighted-Average Grant-Date Fair Value
|
|||
Not vested, December 31, 2017
|
951,884
|
|
|
$
|
9.44
|
|
Granted
|
321,507
|
|
|
13.11
|
|
|
Vested
|
—
|
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
Not vested, September 30, 2018
|
1,273,391
|
|
|
$
|
10.36
|
|
12
.
|
Weighted-Average Shares Outstanding
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
Weighted-average shares outstanding — basic
|
242,536,781
|
|
|
200,881,447
|
|
|
242,184,348
|
|
|
200,807,436
|
|
Potentially dilutive common shares from:
|
|
|
|
|
|
|
|
||||
Stock options
|
230,067
|
|
|
415,524
|
|
|
332,953
|
|
|
412,902
|
|
TSR PSUs
1
|
411,738
|
|
|
—
|
|
|
336,882
|
|
|
—
|
|
Restricted stock units and stock bonus shares
|
381,460
|
|
|
163,944
|
|
|
352,875
|
|
|
105,791
|
|
Weighted-average shares outstanding — diluted
|
243,560,046
|
|
|
201,460,915
|
|
|
243,207,058
|
|
|
201,326,129
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
Potentially dilutive common shares from:
|
|
|
|
|
|
|
|
||||
Stock options
1
|
3,456,300
|
|
|
4,726,500
|
|
|
3,438,167
|
|
|
4,756,500
|
|
TSR PSUs
1,2
|
160,754
|
|
|
951,884
|
|
|
160,754
|
|
|
951,884
|
|
Goal-Based PSUs
2,3
|
281,872
|
|
|
—
|
|
|
281,872
|
|
|
—
|
|
Restricted stock units and stock bonus shares
1
|
13,907
|
|
|
308,094
|
|
|
13,907
|
|
|
497,806
|
|
Total
|
3,912,833
|
|
|
5,986,478
|
|
|
3,894,700
|
|
|
6,206,190
|
|
13
.
|
Income Taxes
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
Revenues (in thousands):
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Oil
|
$
|
123,540
|
|
|
$
|
73,144
|
|
|
$
|
354,601
|
|
|
$
|
154,232
|
|
Natural Gas and NGLs
|
37,438
|
|
|
30,449
|
|
|
100,697
|
|
|
68,187
|
|
||||
|
$
|
160,978
|
|
|
$
|
103,593
|
|
|
$
|
455,298
|
|
|
$
|
222,419
|
|
•
|
We sell oil production at the wellhead and collect an agreed-upon index price, net of pricing differentials. In this scenario, we recognize revenue when control transfers to the purchaser at the wellhead at the net price received.
|
•
|
We deliver oil to the purchaser at a contractually agreed-upon delivery point at which the purchaser takes custody, title, and risk of loss of the product. Under this arrangement, we pay a third party to transport the product and receive a specified index price from the purchaser, net of pricing differentials. In this scenario, we recognize revenue when control transfers to the purchaser at the delivery point based on the price received from the purchaser. The third party costs are recorded as transportation and gathering in our condensed consolidated statements of operations.
|
15
.
|
Other Commitments and Contingencies
|
Year ending December 31,
|
|
Oil
|
|
|
(MBbls)
|
||
Remainder of 2018
|
|
1,072
|
|
2019
|
|
5,167
|
|
2020
|
|
4,003
|
|
2021
|
|
1,672
|
|
2022
|
|
—
|
|
Thereafter
|
|
—
|
|
Total
|
|
11,914
|
|
•
|
The first agreement includes a new
200
MMcf per day processing plant ("Mewbourn 3") as well as the expansion of a related gathering system. Starting in August 2018, Mewbourn 3 was complete and in service. Our share of the commitment requires
46.4
MMcf per day to be delivered after the plant in-service date for a period of
7
years.
|
•
|
The second agreement includes an additional
300
MMcf per day processing plant ("O'Connor 2"), including up to
100
MMcf per day of bypass, as well as the expansion of a related gathering system. Construction of the plant is underway and is expected to be placed into service in the second quarter of 2019. Our share of the commitment will require an additional
43.8
MMcf per day to be delivered after the plant in-service date for a period of
7
years.
|
Year ending December 31:
|
|
Vehicles Leases
|
|
Office Leases
|
||||
Remainder of 2018
|
|
$
|
41
|
|
|
$
|
222
|
|
2019
|
|
163
|
|
|
896
|
|
||
2020
|
|
163
|
|
|
916
|
|
||
2021
|
|
189
|
|
|
913
|
|
||
2022
|
|
136
|
|
|
500
|
|
||
Thereafter
|
|
—
|
|
|
—
|
|
||
Total minimum lease payments
|
|
$
|
692
|
|
|
$
|
3,447
|
|
Less: Amount representing estimated executory cost
|
|
(57
|
)
|
|
|
|||
Net minimum lease payments
|
|
635
|
|
|
|
|||
Less: Amount representing interest
|
|
(92
|
)
|
|
|
|||
Present value of net minimum lease payments
*
|
|
$
|
543
|
|
|
|
16
.
|
Supplemental Schedule of Information to the Condensed Consolidated Statements of Cash Flows
|
|
Nine Months Ended September 30,
|
||||||
Supplemental cash flow information:
|
2018
|
|
2017
|
||||
Interest paid
|
$
|
17,701
|
|
|
$
|
4,796
|
|
|
|
|
|
||||
Non-cash investing and financing activities:
|
|
|
|
||||
Accrued well costs as of period end
|
$
|
143,015
|
|
|
$
|
122,387
|
|
Asset retirement obligations incurred with development activities
|
1,488
|
|
|
2,782
|
|
||
Asset retirement obligations assumed with acquisitions
|
26,150
|
|
|
23,521
|
|
||
Obligations discharged with asset retirements and divestitures
|
$
|
(8,944
|
)
|
|
$
|
(7,023
|
)
|
|
|
|
|
||||
Net changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
$
|
(31,170
|
)
|
|
$
|
(85,027
|
)
|
Accounts payable and accrued expenses
|
(842
|
)
|
|
1,413
|
|
||
Revenue payable
|
15,858
|
|
|
41,997
|
|
||
Production taxes payable
|
20,504
|
|
|
17,548
|
|
||
Other
|
(520
|
)
|
|
(941
|
)
|
||
Changes in operating assets and liabilities
|
$
|
3,830
|
|
|
$
|
(25,010
|
)
|
ITEM
2
.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
Year Ended December 31,
|
|
Year Ended August 31,
|
||||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2015
|
|
2014
|
|
2013
|
||||||||||||
Average NYMEX prices
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Oil (per Bbl)
|
$
|
50.93
|
|
|
$
|
43.20
|
|
|
$
|
48.73
|
|
|
$
|
60.65
|
|
|
$
|
100.39
|
|
|
$
|
94.58
|
|
Natural gas (per Mcf)
|
$
|
3.00
|
|
|
$
|
2.52
|
|
|
$
|
2.58
|
|
|
$
|
3.12
|
|
|
$
|
4.38
|
|
|
$
|
3.55
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Oil (NYMEX-WTI)
|
|
|
|
|
|
|
|
||||||||
Average NYMEX Price
|
$
|
69.76
|
|
|
$
|
48.18
|
|
|
$
|
66.89
|
|
|
$
|
49.44
|
|
Realized Price *
|
63.48
|
|
|
41.89
|
|
|
60.13
|
|
|
41.73
|
|
||||
Differential *
|
$
|
(6.28
|
)
|
|
$
|
(6.29
|
)
|
|
$
|
(6.76
|
)
|
|
$
|
(7.71
|
)
|
|
|
|
|
|
|
|
|
||||||||
Natural Gas (NYMEX-Henry Hub)
|
|
|
|
|
|
|
|
||||||||
Average NYMEX Price
|
$
|
2.90
|
|
|
$
|
2.99
|
|
|
$
|
2.90
|
|
|
$
|
3.03
|
|
Realized Price
|
1.79
|
|
|
2.35
|
|
|
1.84
|
|
|
2.39
|
|
||||
Differential
|
$
|
(1.11
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(1.06
|
)
|
|
$
|
(0.64
|
)
|
|
|
|
|
|
|
|
|
||||||||
NGL Realized Price
|
$
|
19.93
|
|
|
$
|
17.32
|
|
|
$
|
18.91
|
|
|
$
|
15.49
|
|
Vertical Wells
|
||||||||||||||||
Operated Wells
|
|
Non-Operated Wells
|
|
Totals
|
||||||||||||
Gross
|
|
Net
|
|
Gross
|
|
Net
|
|
Gross
|
|
Net
|
||||||
628
|
|
|
602
|
|
|
146
|
|
|
44
|
|
|
774
|
|
|
646
|
|
Horizontal Wells
|
||||||||||||||||
Operated Wells
|
|
Non-Operated Wells
|
|
Totals
|
||||||||||||
Gross
|
|
Net
|
|
Gross
|
|
Net
|
|
Gross
|
|
Net
|
||||||
364
|
|
|
338
|
|
|
310
|
|
|
59
|
|
|
674
|
|
|
397
|
|
•
|
Concentrate on our existing core area in the D-J Basin, where we have significant operating experience.
All of our current wells and our proved undeveloped acreage are located either in or adjacent to the Wattenberg Field, and we seek to acquire developed and undeveloped oil and gas properties in the same area. Focusing our operations in this area leverages our management, technical, and operational experience in the basin.
|
•
|
Develop and exploit existing oil and gas properties.
Our principal growth strategy has been to develop and exploit our properties to add reserves. In the Wattenberg Field, we target three benches of the Niobrara formation as well as the Codell formation for horizontal drilling and production. We believe horizontal drilling is the most efficient and safest way to recover the potential hydrocarbons and consider the Wattenberg Field to be relatively low-risk because information gained from the large number of existing wells can be applied to potential future wells. There is enough similarity between wells in the Wattenberg Field that the exploitation process is generally repeatable.
|
•
|
Use the latest technology to maximize returns and improve hydrocarbon recovery.
Our development objective for individual well optimization is to drill and complete wells with lateral lengths of mostly 7,000' to 10,000'. Utilizing petrophysical and seismic data, a 3-D model is developed for each leasehold section to assist in determining optimal wellbore placement, well spacing, and stimulation design. This process is augmented with formation-specific drilling and completion execution designs and coupled with localized production results to implement a continuous improvement philosophy in optimizing the value per acre of our leasehold throughout our development program.
|
•
|
Operate in a safe manner
and work in partnership with our surrounding stakeholders.
While our scale of operations has increased significantly, we continue to focus on maintaining a safe workplace for our employees and contractors. Further, as technology for resource development has advanced, we seek to utilize best industry practices to meet or exceed regulatory requirements while reducing our impacts on neighboring communities. Such practices include building our infrastructure out ahead of operations to minimize traffic, working with our service providers to minimize dust and lighting issues, and constructing sound walls to minimize noise. We value our positive relationship with local governing entities and the communities in which we operate and seek to continually achieve a status of operator of choice.
|
•
|
Retain control over the operation of a substantial portion of our production.
As operator of a majority of our wells and undeveloped acreage, we control the timing and selection of new wells to be drilled. This allows us to modify our capital spending as our financial resources and underlying lease terms allow and market conditions permit.
|
•
|
Maintain financial flexibility while focusing on operational cost control.
We strive to be a cost-efficient operator and to maintain a relatively low utilization of debt, which enhances our financial flexibility. Our high degree of operational control, as well as our focus on operating efficiencies and short return on investment cycle times, is central to our operating strategy.
|
•
|
Acquire and develop assets near established infrastructure
. We have made acquisitions of contiguous acreage and aligned our development plans where technically-capable, financially-stable midstream companies have existing assets and plans for additional investment. We work collaboratively with these companies to proactively identify expansion opportunities that complement our development plans while reducing truck traffic.
|
•
|
Control and reduce emissions from our production facilities
. We place high importance on achieving compliance with all applicable air quality rules and regulations
and r
educing
emissions continues to be a top environmental priority. To minimize these emissions, we employ best management practices such as using available direct pipeline take-away access and pneumatic actuated instrument devices and working with suppliers to deploy diesel engines that meet the U.S. Environmental Protection Agency Tier 4 standand. We also control emissions and minimize flaring of gas by recovering natural gas and actively pursuing sufficient take-away capacity for associated produced gas
and the
use of vapor recovery equipment
.
We continue to evolve the design of our production facilities to produce oil and natural gas with fewer air emissions
,
including those emissions for which there are public health standards (e.g. ozone and particulate matter)
.
|
|
Three Months Ended September 30,
|
|
Percentage
|
|||||||
|
2018
|
|
2017
|
|
Change
|
|||||
Production:
|
|
|
|
|
|
|||||
Oil (MBbls)
1
|
1,915
|
|
|
1,726
|
|
|
11
|
%
|
||
Natural Gas (MMcf)
2
|
9,471
|
|
|
7,412
|
|
|
28
|
%
|
||
NGLs (MBbls)
1
|
1,030
|
|
|
753
|
|
|
37
|
%
|
||
MBOE
3
|
4,523
|
|
|
3,714
|
|
|
22
|
%
|
||
BOED
4
|
49,165
|
|
|
40,378
|
|
|
22
|
%
|
||
|
|
|
|
|
|
|||||
Revenues (in thousands):
|
|
|
|
|
|
|||||
Oil
|
$
|
123,540
|
|
|
$
|
73,144
|
|
|
69
|
%
|
Natural Gas
|
16,908
|
|
|
17,402
|
|
|
(3
|
)%
|
||
NGLs
|
20,530
|
|
|
13,047
|
|
|
57
|
%
|
||
|
$
|
160,978
|
|
|
$
|
103,593
|
|
|
55
|
%
|
Average sales price:
|
|
|
|
|
|
|||||
Oil
5
|
$
|
63.48
|
|
|
$
|
41.89
|
|
|
52
|
%
|
Natural Gas
|
1.79
|
|
|
2.35
|
|
|
(24
|
)%
|
||
NGLs
|
19.93
|
|
|
17.32
|
|
|
15
|
%
|
||
BOE
5
|
$
|
35.15
|
|
|
$
|
27.66
|
|
|
27
|
%
|
|
Three Months Ended September 30,
|
||||||
|
2018
|
|
2017
|
||||
Production costs
|
$
|
10,181
|
|
|
$
|
4,223
|
|
Workover
|
179
|
|
|
93
|
|
||
Total LOE
|
$
|
10,360
|
|
|
$
|
4,316
|
|
|
|
|
|
||||
Per BOE:
|
|
|
|
||||
Production costs
|
$
|
2.25
|
|
|
$
|
1.14
|
|
Workover
|
0.04
|
|
|
0.03
|
|
||
Total LOE
|
$
|
2.29
|
|
|
$
|
1.17
|
|
|
Three Months Ended September 30,
|
||||||
(in thousands)
|
2018
|
|
2017
|
||||
Depletion of oil and gas properties
|
$
|
44,230
|
|
|
$
|
32,944
|
|
Depreciation and accretion
|
958
|
|
|
796
|
|
||
Total DD&A
|
$
|
45,188
|
|
|
$
|
33,740
|
|
|
|
|
|
||||
DD&A expense per BOE
|
$
|
9.99
|
|
|
$
|
9.08
|
|
|
Nine Months Ended September 30,
|
|
Percentage
|
|||||||
|
2018
|
|
2017
|
|
Change
|
|||||
Production:
|
|
|
|
|
|
|||||
Oil (MBbls)
|
5,802
|
|
|
3,668
|
|
|
58
|
%
|
||
Natural Gas (MMcf)
|
26,177
|
|
|
17,122
|
|
|
53
|
%
|
||
NGLs (MBbls)
|
2,780
|
|
|
1,758
|
|
|
58
|
%
|
||
MBOE
|
12,945
|
|
|
8,280
|
|
|
56
|
%
|
||
BOED
|
47,416
|
|
|
30,331
|
|
|
56
|
%
|
||
|
|
|
|
|
|
|||||
Revenues (in thousands):
|
|
|
|
|
|
|||||
Oil
|
$
|
354,601
|
|
|
$
|
154,232
|
|
|
130
|
%
|
Natural Gas
|
48,139
|
|
|
40,945
|
|
|
18
|
%
|
||
NGLs
|
52,558
|
|
|
27,242
|
|
|
93
|
%
|
||
|
$
|
455,298
|
|
|
$
|
222,419
|
|
|
105
|
%
|
Average sales price:
|
|
|
|
|
|
|||||
Oil
|
$
|
60.13
|
|
|
$
|
41.73
|
|
|
44
|
%
|
Natural Gas
|
1.84
|
|
|
2.39
|
|
|
(23
|
)%
|
||
NGLs
|
18.91
|
|
|
15.49
|
|
|
22
|
%
|
||
BOE
|
$
|
34.73
|
|
|
$
|
26.72
|
|
|
30
|
%
|
|
Nine Months Ended September 30,
|
||||||
(in thousands)
|
2018
|
|
2017
|
||||
Depletion of oil and gas properties
|
$
|
121,259
|
|
|
$
|
71,389
|
|
Depreciation and accretion
|
2,887
|
|
|
2,007
|
|
||
Total DD&A
|
$
|
124,146
|
|
|
$
|
73,396
|
|
|
|
|
|
||||
DD&A expense per BOE
|
$
|
9.59
|
|
|
$
|
8.86
|
|
|
Nine Months Ended September 30,
|
||||||
|
2018
|
|
2017
|
||||
Net cash provided by operations
|
$
|
343,554
|
|
|
$
|
142,817
|
|
Capital expenditures
|
(490,124
|
)
|
|
(383,454
|
)
|
||
Net cash provided by other investing activities
|
1,233
|
|
|
77,017
|
|
||
Net cash provided by (used in) equity financing activities
|
3,039
|
|
|
(517
|
)
|
||
Net cash provided by debt financing activities
|
112,762
|
|
|
148,628
|
|
||
Net increase in cash, cash equivalents, and restricted cash
|
$
|
(29,536
|
)
|
|
$
|
(15,509
|
)
|
|
Nine Months Ended September 30,
|
||||||
|
2018
|
|
2017
|
||||
Capital expenditures for drilling and completion activities
|
$
|
408,334
|
|
|
$
|
383,028
|
|
Acquisitions of oil and gas properties and leasehold*
|
162,081
|
|
|
89,677
|
|
||
Capitalized interest, capitalized G&A, and other
|
40,037
|
|
|
17,514
|
|
||
Accrual basis capital expenditures**
|
$
|
610,452
|
|
|
$
|
490,219
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Adjusted EBITDA:
|
|
|
|
|
|
|
|
||||||||
Net income
|
$
|
62,628
|
|
|
$
|
43,848
|
|
|
$
|
178,048
|
|
|
$
|
91,664
|
|
Depreciation, depletion, and accretion
|
45,188
|
|
|
33,740
|
|
|
124,146
|
|
|
73,396
|
|
||||
Stock-based compensation expense
|
3,405
|
|
|
3,030
|
|
|
9,347
|
|
|
8,390
|
|
||||
Mark-to-market of commodity derivative contracts:
|
|
|
|
|
|
|
|
||||||||
Total loss (gain) on commodity derivatives contracts
|
8,529
|
|
|
2,383
|
|
|
28,604
|
|
|
(2,324
|
)
|
||||
Cash settlements on commodity derivative contracts
|
(7,142
|
)
|
|
544
|
|
|
(13,263
|
)
|
|
778
|
|
||||
Interest income
|
(23
|
)
|
|
(16
|
)
|
|
(37
|
)
|
|
(47
|
)
|
||||
Income tax expense
|
8,918
|
|
|
—
|
|
|
18,076
|
|
|
—
|
|
||||
Adjusted EBITDA
|
$
|
121,503
|
|
|
$
|
83,529
|
|
|
$
|
344,921
|
|
|
$
|
171,857
|
|
•
|
declines in oil and natural
gas
prices;
|
•
|
operating hazards that adversely affect our ability to conduct business;
|
•
|
uncertainties in the estimates of proved reserves;
|
•
|
the effect of seasonal weather conditions and wildlife and plant species restrictions on our operations;
|
•
|
our ability to fund, develop, produce, and acquire additional oil and natural gas reserves that are economically recoverable;
|
•
|
our ability to obtain adequate financing;
|
•
|
the effect of local and regional factors on oil and natural gas prices;
|
•
|
incurrence of ceiling test write-downs;
|
•
|
our inability to control operations on properties that we do not operate;
|
•
|
the availability and capacity of gathering systems, pipelines, and other midstream infrastructure for our production;
|
•
|
the strength and financial resources of our competitors;
|
•
|
our ability to successfully identify, execute, and effectively integrate acquisitions;
|
•
|
the effect of federal, state, and local laws and regulations;
|
•
|
the effects of, including costs to comply with, environmental legislation or regulatory initiatives, including those related to hydraulic fracturing and Proposition 112;
|
•
|
our ability to market our production;
|
•
|
the effects of local moratoria or bans on our business;
|
•
|
the effect of environmental liabilities;
|
•
|
the effect of the adoption and implementation of statutory and regulatory requirements for derivative transactions;
|
•
|
changes in U.S. tax laws;
|
•
|
our ability to satisfy our contractual obligations and commitments;
|
•
|
the amount of our indebtedness and our ability to maintain compliance with debt covenants;
|
•
|
the effectiveness of our disclosure controls and our internal controls over financial reporting;
|
•
|
the geographic concentration of our principal properties;
|
•
|
our ability to protect critical data and technology systems;
|
•
|
the availability of water for use in our operations; and
|
•
|
the risks and uncertainties described and referenced in "Risk Factors."
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
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ITEM 4.
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CONTROLS AND PROCEDURES
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Item 1.
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Legal Proceedings
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Item 1A.
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Risk Factors
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•
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additional constraints on midstream capacity if midstream infrastructure and services are not expanded as currently expected,
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•
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increased operating costs,
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•
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greater difficulties in maintaining leases through production,
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•
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increased expenses related to legal, regulatory, or legislative actions that we may pursue in response to the implementation of the proposition, and
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•
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inability to meet commitments related to our future production.
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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Period
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Total Number of Shares Purchased
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Average Price Paid per Share
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|||
July 1, 2018 - July 31, 2018
(1)
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—
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$
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—
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August 1, 2018 - August 31, 2018
(1)
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7,077
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9.85
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September 1, 2018 - September 30, 2018
(1)
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2,899
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$
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9.31
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Total
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9,976
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Item 3.
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Defaults Upon Senior Securities
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Item 4.
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Mine Safety Disclosures
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Item 5.
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Other Information
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Exhibit
Number
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Exhibit
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10.1
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31.1
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31.2
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32.1
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101.INS
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XBRL
Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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*
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Filed herewith
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**
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Furnished herewith
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SRC Energy Inc.
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/s/ Lynn A. Peterson
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Lynn A. Peterson, President and Chief Executive Officer
(Principal Executive Officer)
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/s/ James P. Henderson
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James P. Henderson, Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
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/s/ Jared C. Grenzenbach
|
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Jared C. Grenzenbach, Vice President and Chief Accounting Officer
(Principal Accounting Officer)
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Participant
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[__________]
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Grant Date
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January 29, 2018
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Target Number of Goal-Based Performance-Vested Stock Units (“
Target PSUs
”)
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[__________]
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Overview
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Pursuant to the terms and conditions set forth below, Participant may vest in 0% - 200% of the Target Goal-Based PSUs based on the Committee’s discretionary assessment of achievement of goals identified by the Committee. Except as set forth below under “Special Vesting Events,” Participant must be employed continuously from the Grant Date through the end of the Performance Period in order to vest in any PSUs hereunder.
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Performance Period
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January 1, 2018 – December 31, 2020
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Goals
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The goals by which performance will be judged shall be identified in the discretion of the Committee. The Committee may consider such matters as project level returns, corporate level return on capital employed, balance sheet management, community stewardship, staff development and retention and acquisitions and divestitures or any additional matters it deems appropriate, as well as the Participant’s individual contribution towards the identified goals.
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Award Determination
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Except as set forth below under the headings “Special Vesting Events” and “Change in Control,” the number of PSUs earned by the Participant shall be determined in accordance with this section. At the end of the Performance Period, the Company’s Board of Directors will make a determination as to the Participant’s and the Company’s performance in meeting the above goals. Based on that determination as supported by information provided by management, the Compensation Committee will resolve the number of PSUs that shall vest which shall be 0-200% of the target shares for each participant.
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Special Vesting Events
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Termination Without “Cause” or for “Good Reason”
In the event of the termination of Participant’s continuous employment by the Company without “cause” (as defined in the Plan), or for Good Reason (as defined below), then the Performance Period shall be deemed to have ended as of the Participant’s termination of continuous employment and the Company’s Board of Directors will make a determination as to the Participant’s individual contribution towards the Company’s performance in meeting the Company’s goals from the grant date through the date of such termination, based upon the award determination process described above, which shall be 0-200% of the Target goal based PSUs for such Participant. Upon such termination, Participant shall vest in the number of PSUs that is equal to (i) the number of Target goal-based PSUs awarded to the Participant multiplied by the percentage assigned by the Board of Directors in its performance determination, multiplied by (ii) a fraction, (x) the numerator of which is the number of days Participant remained in continuous employment from the start of the Performance Period through the date of termination, and (y) the total number of days in the Performance Period.
“
Good Reason
” shall mean the occurrence of any of the following without the express written consent of Participant, (i) a material reduction or change in Participant’s title or job duties, responsibilities and requirements inconsistent with Participant’s position with the Company and Participant’s prior duties, responsibilities and requirements, (ii) a material reduction in the Participant’s base salary or bonus opportunity unless a proportionate reduction is made to the base salary or bonus opportunity of all members of the Company’s senior management in accordance with a bona-fide downturn in the Company’s business; (iii) a change of more than 50 miles in the geographic location at which the Participant primarily performs services for the Company; or (iv) any material breach by the Company of any employment or severance agreement between the Company and the Participant. In the case of Participant’s allegation of Good Reason, (1) Participant shall provide written notice to the Company of the event alleged to constitute Good Reason within 30 days after the initial occurrence of such event, (2) the Company shall have the opportunity to remedy the alleged Good Reason event within 30 days from receipt of notice of such allegation, and (3) if the event is not timely remedied, the Participant must terminate employment within 30 days after the expiration of the cure period.
|
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Death or Disability
In the event of the termination of Participant’s continuous employment with the Company on account of Participant’s death or Disability (as defined below), then the Performance Period shall be deemed to have ended as of the Participant’s termination of continuous employment, and Participant shall have earned one hundred percent (100%) of the Target PSUs. “
Disability
” shall have the meaning set forth in Treasury Regulation Section 1.409A-3(i)(4).
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Change in Control
|
In the event of a Change in Control (as defined in the Plan), the Performance Period shall end as of the date of the Change in Control, and the Participant will vest in that number of PSUs determined in accordance with the methodology set forth in the “Award Determination” section above, as of the date of the Change in Control.
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Payment
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Except as set forth below, the Company shall issue to Participant one share of Common Stock for each PSU that vests hereunder, with the delivery of such Common Stock to occur as soon as reasonably practicable following the certification of results for the Performance Period, but in all events within seventy-four (74) days following the last day of the Performance Period (as same may be truncated upon a Change in Control or termination of employment).
Notwithstanding the foregoing, if delivery of shares of Common Stock would, either alone or in combination with other Plan awards, result in the Company exceeding the Plan’s Share Limit, then the Company may instead settle some or all of the vested Restricted Stock Units granted hereunder by paying cash to the Participant on the same date as when shares of Common Stock would have otherwise been issued to the Participant. The amount payable for each cash-settled vested Restricted Stock Unit shall be equal to the Fair Market Value on the settlement date of one share of Common Stock. The determination as to whether any vested Restricted Stock Units shall be settled in cash, and if so, the number thereof, shall be made by the Administrator in its sole and absolute discretion, and neither the Administrator nor the Company shall have any liability to the Participant with respect to any such determination. The Participant hereby acknowledges and agrees that the Administrator need not treat similar Plan awards or award holders the same, and may select in its discretion which Plan awards or portions therefor shall be settled in cash in order to stay within the Share Limit.
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1.
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I have reviewed this quarterly report on Form 10-Q of SRC Energy Inc.;
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2.
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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 the report;
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3.
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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;
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4.
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The registrant's other certifying officer(s) 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:
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a)
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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;
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b)
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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;
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c)
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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
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d)
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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
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5.
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The registrant's other certifying officer(s) 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):
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a)
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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
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b)
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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.
|
1.
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I have reviewed this quarterly report on Form 10-Q of SRC Energy Inc.;
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2.
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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 the report;
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3.
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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;
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4.
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The registrant's other certifying officer(s) 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:
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a)
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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)
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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
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5.
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The registrant's other certifying officer(s) 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
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b)
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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.
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(1)
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
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Date:
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October 31, 2018
|
By:
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/s/ Lynn A. Peterson
|
|
|
|
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Lynn A. Peterson, Principal Executive Officer
|
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Date:
|
October 31, 2018
|
By:
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/s/ James P. Henderson
|
|
|
|
|
James P. Henderson, Principal Financial Officer
|
|