GOODRICH PETROLEUM CORP (Form: 10-Q, Received: 05/14/2019 16:40:59)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-12719

GOODRICH PETROLEUM CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

76-0466193

(I.R.S. Employer

Identification No.)

801 Louisiana, Suite 700

Houston, Texas 77002

(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code): (713) 780-9494

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, par value $0.01 per share	GDP	NYSE American

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

Indicate by check mark whether the registrant has submitted electronically 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). Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☒

		Emerging growth company	☐

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

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

Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

The Registrant had 12,152,318 shares of common stock outstanding on May 13, 2019.

Table of Contents

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION	3
ITEM 1	FINANCIAL STATEMENTS	3
	Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 (unaudited)	3
	Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited)	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited)	5
	Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 (unaudited)	6
	Notes to Unaudited Consolidated Financial Statements	7
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	30
ITEM 4	CONTROLS AND PROCEDURES	31

PART II	OTHER INFORMATION	32
ITEM 1	LEGAL PROCEEDINGS	32
ITEM 1A	RISK FACTORS	32
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	32
ITEM 6	EXHIBITS	33

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PART I – FINANCIAL INFORMATION

Item 1—Financial Statements

GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)

	March 31, 2019			December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	-		$	4,068
Accounts receivable, trade and other, net of allowance		1,400			744
Accrued oil and natural gas revenue		12,228			14,464
Fair value of oil and natural gas derivatives		1,826			803
Inventory		584			596
Prepaid expenses and other		488			533
Total current assets		16,526			21,208
PROPERTY AND EQUIPMENT:
Unevaluated properties		231			180
Oil and natural gas properties (full cost method)		234,242			206,097
Furniture, fixtures and equipment and other capital assets		4,307			1,360
		238,780			207,637
Less: Accumulated depletion, depreciation and amortization		(52,695	)		(42,447	)
Net property and equipment		186,085			165,190
Deferred tax asset		786			786
Other		543			580
TOTAL ASSETS	$	203,940		$	187,764
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	28,375		$	25,734
Accrued liabilities		17,479			16,518
Fair value of oil and natural gas derivatives		742			-
Total current liabilities		46,596			42,252
Long term debt, net		84,969			76,820
Accrued abandonment cost		3,886			3,791
Fair value of oil and natural gas derivatives		-			471
Other non-current liabilities		1,871			-
Total liabilities		137,322			123,334
Commitments and contingencies (See Note 9)
STOCKHOLDERS’ EQUITY:
Preferred stock: 10,000,000 shares $1.00 par value authorized, and none issued and outstanding		-			-
Common stock: $0.01 par value, 75,000,000 shares authorized, and 12,152,318 and 12,150,918 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively		122			122
Treasury stock (414 and zero shares, respectively)		(5	)		-
Additional paid in capital		76,606			74,861
Accumulated deficit		(10,105	)		(10,553	)
Total stockholders’ equity		66,618			64,430
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	203,940		$	187,764

See accompanying notes to consolidated financial statements.

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,			Three Months Ended March 31,
	2019			2018
REVENUES:
Oil and natural gas revenues	$	29,146		$	11,843
Other		(6	)		(9	)
		29,140			11,834
OPERATING EXPENSES:
Lease operating expense		3,335			2,566
Production and other taxes		631			640
Transportation and processing		4,701			1,312
Depreciation, depletion and amortization		10,046			3,452
General and administrative		5,310			5,196
Other		10			-
		24,033			13,166
Operating income (loss)		5,107			(1,332	)
OTHER INCOME (EXPENSE):
Interest expense		(3,657	)		(2,673	)
Interest income and other expense		6			(7	)
Loss on commodity derivatives not designated as hedges		(1,008	)		(981	)
		(4,659	)		(3,661	)

Reorganization items, net		-			(331	)

Income (loss) before income taxes		448			(5,324	)
Income tax benefit		-			-
Net income (loss)	$	448		$	(5,324	)
PER COMMON SHARE
Net income (loss) per common share - basic	$	0.04		$	(0.47	)
Net income (loss) per common share - diluted	$	0.03		$	(0.47	)
Weighted average shares of common stock outstanding - basic		12,151			11,218
Weighted average shares of common stock outstanding - diluted		14,132			11,218

See accompanying notes to consolidated financial statements.

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended March 31,			Three Months Ended March 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	448		$	(5,324	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depletion, depreciation and amortization		10,046			3,452
Right of use asset depreciation		285			-
Loss on commodity derivatives not designated as hedges		1,008			981
Net cash paid in settlement of derivative instruments		(1,760	)		(384	)
Share-based compensation (non-cash)		1,568			1,675
Amortization of finance cost, debt discount, paid in-kind interest and accretion		3,193			2,501
Reorganization items (non-cash) and other		12			331
Change in assets and liabilities:
Accounts receivable, trade and other, net of allowance		(656	)		(1,165	)
Accrued oil and natural gas revenue		2,236			(828	)
Prepaid expenses and other		35			(108	)
Accounts payable		2,641			6,848
Accrued liabilities		(1,149	)		(1,723	)
Net cash provided by operating activities		17,907			6,256
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(28,254	)		(28,990	)
Proceeds from sale of assets		1,284			23,209
Net cash used in investing activities		(26,970	)		(5,781	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of bank borrowings		(2,000	)		(16,723	)
Proceeds from bank borrowings		7,000			-
Issuance cost, net		-			(10	)
Purchase of treasury stock		(5	)		(3	)
Net cash provided by (used in) financing activities		4,995			(16,736	)
Decrease in cash and cash equivalents		(4,068	)		(16,261	)
Cash and cash equivalents, beginning of period		4,068			25,992
Cash and cash equivalents, end of period	$	-		$	9,731
Supplemental disclosures of cash flow information:
Cash paid for reorganization items, net	$	-		$	81
Cash paid for interest	$	505		$	175
Increase (decrease) in non-cash capital expenditures	$	1,059		$	(8,360	)

See accompanying notes to consolidated financial statements.

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)

(In thousands)

(Unaudited)

	Preferred Stock				Common Stock				Additional Paid-in			Treasury Stock						Retained			Total Stockholders’
	Shares		Value		Shares		Value		Capital			Shares			Value			Deficit			Equity
Balance at December 31, 2017		-	$	-		10,771	$	108	$	68,446			-		$	-		$	(12,303	)	$	56,251
Net loss		-		-		-		-		-			-			-			(5,324	)		(5,324	)
Share-based compensation		-		-		-		-		1,776			-			-			-			1,776
Restricted stock vesting & other		-		-		203		2		2,224			(75	)		(827	)		-			1,399
Convertible Second Lien Notes warrant exercises		-		-		589		6		(6	)		-			-			-			-
Issuance cost		-		-		-		-		(34	)		-			-			-			(34	)
Balance at March 31, 2018		-		-		11,563		116		72,406			(75	)		(827	)		(17,627	)		54,068

Balance at December 31, 2018		-	$	-		12,151	$	122	$	74,861			-		$	-		$	(10,553	)	$	64,430
Net income		-		-		-		-		-			-			-			448			448
Share-based compensation		-		-		-		-		1,745			-			-			-			1,745
Treasury stock activity		-		-		1		-		-			-			(5	)		-			(5	)
Balance at March 31, 2019		-	$	-		12,152	$	122	$	76,606			-		$	(5	)	$	(10,105	)	$	66,618

See accompanying notes to consolidated financial statements.

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—Description of Business and Significant Accounting Policies

Goodrich Petroleum Corporation (“Goodrich” and, together with its subsidiary, Goodrich Petroleum Company, L.L.C. (the “Subsidiary”), “we,” “our,” or the “Company”) is an independent oil and natural gas company engaged in the exploration, development and production of oil and natural gas on properties primarily in (i) Northwest Louisiana and East Texas, which includes the Haynesville Shale Trend, (ii) Southwest Mississippi and Southeast Louisiana, which includes the Tuscaloosa Marine Shale Trend (“TMS”), and (iii) South Texas, which includes the Eagle Ford Shale Trend.

Basis of Presentation

The consolidated financial statements of the Company included in this Quarterly Report on Form 10-Q have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and accordingly, certain information normally included in financial statements prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”) has been condensed or omitted. This information should be read in conjunction with our consolidated financial statements and notes contained in our annual report on Form 10-K for the year ended December 31, 2018. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full year or for any interim period.

Principles of Consolidation—The consolidated financial statements include the financial statements of the Company and the Subsidiary. Intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation. Certain data in prior periods’ financial statements have been adjusted to conform to the presentation of the current period. We have evaluated subsequent events through the date of this filing.

Use of Estimates— Our management has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with US GAAP.

Cash and Cash Equivalents—Cash and cash equivalents includes cash on hand, demand deposit accounts and temporary cash investments with maturities of ninety days or less at the date of purchase.

Accounts Payable—Accounts payable consisted of the following amounts as of March 31, 2019 and December 31, 2018:

*(In thousands)*	March 31, 2019		December 31, 2018
Trade payables	$	12,275	$	8,633
Revenue payables		15,535		16,665
Prepayments from partners		325		132
Miscellaneous payables		240		304
Total Accounts payable	$	28,375	$	25,734

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Accrued Liabilities—Accrued liabilities consisted of the following amounts as of March 31, 2019 and December 31, 2018:

*(In thousands)*	March 31, 2019		December 31, 2018
Accrued capital expenditures	$	9,145	$	8,086
Accrued lease operating expense		980		1,100
Accrued production and other taxes		443		338
Accrued transportation and gathering		3,300		1,888
Accrued performance bonus		976		3,420
Accrued interest		402		443
Accrued office lease		1,332		598
Accrued general and administrative expense and other		901		645
Total Accrued liabilities	$	17,479	$	16,518

Inventory –Inventory consists of casing and tubulars that are expected to be used in our capital drilling program. Inventory is carried on the Consolidated Balance Sheets at the lower of cost or market.

Property and Equipment—Under US GAAP, two acceptable methods of accounting for oil and natural gas properties are allowed. These are the Successful Efforts Method and the Full Cost Method. Entities engaged in the production of oil and natural gas have the option of selecting either method for application in the accounting for their properties. The principal differences between the two methods are in the treatment of exploration costs, the computation of depreciation, depletion and amortization (“DD&A”) expense and the assessment of impairment of oil and natural gas properties. We have elected to adopt the Full Cost Method of accounting. We believe that the true cost of developing a “portfolio” of reserves should reflect both successful and unsuccessful attempts at exploration and production. Application of the Full Cost Method better reflects the true economics of exploring for and developing our oil and gas reserves.

Under the Full Cost Method, we capitalize all costs associated with acquisitions, exploration, development and estimated abandonment costs. We capitalize internal costs that can be directly identified with the acquisition of leasehold, as well as drilling and completion activities, but do not include any costs related to production, general corporate overhead or similar activities. Unevaluated property costs are excluded from the amortization base until we make a determination as to the existence of proved reserves on the respective property or impairment. We review our unevaluated properties at the end of each quarter to determine whether the costs should be reclassified to proved oil and natural gas properties and thereby subject to DD&A and the full cost ceiling test. For both the three months ended March 31, 2019 and 2018, we transferred $0.1 million from unevaluated properties to proved oil and natural gas properties. Our sales of oil and natural gas properties are accounted for as adjustments to net proved oil and natural gas properties with no gain or loss recognized, unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves.

Under the Full Cost Method, we amortize our investment in oil and natural gas properties through DD&A expense using the units of production (the “UOP”) method. An amortization rate is calculated based on total proved reserves converted to equivalent thousand cubic feet of natural gas (“Mcfe”) as the denominator and the net book value of evaluated oil and gas asset together with the estimated future development cost of the proved undeveloped reserves as the numerator. The rate calculated per Mcfe is applied against the periods' production also converted to Mcfe to arrive at the periods' DD&A expense.

Depreciation of furniture, fixtures and equipment, consisting of office furniture, computer hardware and software and leasehold improvements, is computed using the straight-line method over their estimated useful lives, which vary from three to five years.

Full Cost Ceiling Test—The Full Cost Method requires that at the conclusion of each financial reporting period, the present value of estimated future net cash flows from proved reserves (adjusted for hedges and excluding cash flows related to estimated abandonment costs), be compared to the net capitalized costs of proved oil and natural gas properties, net of related deferred taxes. This comparison is referred to as a “ceiling test”. If the net capitalized costs of proved oil and natural gas properties exceed the estimated discounted future net cash flows from proved reserves, we are required to write-down the value of our oil and natural gas properties to the value of the discounted cash flows. Estimated future net cash flows from proved reserves are calculated based on a 12-month average pricing assumption.

There were no Full Cost Ceiling Test write-downs for the three months ended March 31, 2019 and 2018.

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurement—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. The fair value of an asset should reflect its highest and best use by market participants, whether in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of non-performance, which includes, among other things, our credit risk.

We use various methods, including the income approach and market approach, to determine the fair values of our financial instruments that are measured at fair value on a recurring basis, which depend on a number of factors, including the availability of observable market data over the contractual term of the underlying instrument. For some of our instruments, the fair value is calculated based on directly observable market data or data available for similar instruments in similar markets. For other instruments, the fair value may be calculated based on these inputs as well as other assumptions related to estimates of future settlements of these instruments. We separate our financial instruments into three levels (levels 1, 2 and 3) based on our assessment of the availability of observable market data and the significance of non-observable data used to determine the fair value of our instruments. Our assessment of an instrument can change over time based on the maturity or liquidity of the instrument, which could result in a change in the classification of the instruments between levels.

Each of these levels and our corresponding instruments classified by level are further described below:

•

Level 1 Inputs— unadjusted quoted market prices in active markets for identical assets or liabilities. We have no Level 1 instruments;

•

Level 2 Inputs— quotes that are derived principally from or corroborated by observable market data. Included in this level are our 2017 Senior Credit Facility (as defined below) and commodity derivatives whose fair values are based on third-party quotes or available interest rate information and commodity pricing data obtained from third party pricing sources and our creditworthiness or that of our counter-parties; and

•

Level 3 Inputs— unobservable inputs for the asset or liability, such as discounted cash flow models or valuations, based on our various assumptions and future commodity prices. Included in this level would be our initial measurement of asset retirement obligations.

As of March 31, 2019 and December 31, 2018, the carrying amounts of our cash and cash equivalents, trade receivables and payables represented fair value because of the short-term nature of these instruments.

Asset Retirement Obligations—Asset retirement obligations are related to the abandonment and site restoration requirements that result from the exploration and development of our oil and natural gas properties. We record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Accretion expense is included in “Depreciation, depletion and amortization” on our Consolidated Statements of Operations. See Note 3.

The estimated fair value of the Company’s asset retirement obligations at inception is determined by utilizing the income approach by applying a credit-adjusted risk-free rate, which takes into account the Company’s credit risk, the time value of money, and the current economic state, to the undiscounted expected abandonment cash flows. Given the unobservable nature of the inputs, the initial measurement of the asset retirement obligations was classified as Level 3 in the fair value hierarchy.

Revenue Recognition—Oil and natural gas revenues are generally recognized upon delivery of our produced oil and natural gas volumes to our customers. We record revenue in the month our production is delivered to the purchaser. However, settlement statements and payments for our oil and natural gas sales may not be received for up to 60 days after the date production is delivered, and as a result, we are required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. We record a liability or an asset for natural gas balancing when we have sold more or less than our working interest share of natural gas production, respectively. As of March 31, 2019 and December 31, 2018, the net liability for natural gas balancing was immaterial. Differences between actual production and net working interest volumes are routinely adjusted. See Note 2.

Derivative Instruments—We use derivative instruments such as swaps, collars, futures, forwards and options for purposes of hedging our exposure to fluctuations in the price of crude oil and natural gas. Accounting standards related to derivative instruments and hedging activities require that all derivative instruments subject to the requirements of those standards be measured at fair value and recognized as assets or liabilities in the balance sheet. We offset the fair value of our asset and liability positions with the same counter-party for each commodity type. Changes in fair value are required to be recognized in earnings unless specific hedge accounting criteria are met. All of our realized gain or losses on our derivative contracts are the result of cash settlements. We have not designated any of our derivative contracts as hedges; accordingly, changes in fair value are reflected in earnings. See Note 8.

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes—We account for income taxes, as required, under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

We recognize, as required, the financial statement benefit of an uncertain tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. See Note 7.

Net Income or Net Loss Per Common Share—Basic income (loss) per common share is computed by dividing net income (loss) applicable to common stock for each reporting period by the weighted-average shares of common stock outstanding during the period. Diluted income (loss) per common share is computed by dividing net income (loss) applicable to common stock for each reporting period by the weighted average shares of common stock outstanding during the period, plus the effects of potentially dilutive restricted stock calculated using the treasury stock method and the potential dilutive effect of the conversion of convertible securities, such as warrants and convertible notes, into shares of our common stock. See Note 6.

Commitments and Contingencies—Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Recoveries from third parties, when probable of realization, are separately recorded and are not offset against the related environmental liability. See Note 9.

Share-Based Compensation—We account for our share-based transactions using the fair value as of the grant date and recognize compensation expense over the requisite service period.

Guarantee—As of March 31, 2019, Goodrich Petroleum Company LLC, the wholly owned subsidiary of Goodrich Petroleum Corporation, was the Subsidiary Guarantor of our Convertible Second Lien Notes (as defined below).

Debt Issuance Cost—The Company records debt issuance costs associated with its Convertible Second Lien Notes as a contra balance to long term debt, net in our Consolidated Balance Sheets, which is amortized straight-line over the life of the Convertible Second Lien Notes. Debt issuance costs associated with our revolving credit facility debt are recorded in other assets in our Consolidated Balance Sheets, which is amortized straight-line over the life of such debt.

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

New Accounting Pronouncements

On August 28, 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820 including the removal, modification and addition of certain disclosure requirements. For all entities, the amendments in this ASU are effective for fiscal periods beginning after December 15, 2019, including interim periods therein. We are evaluating the expected impact these amendments will have on our consolidated financial statements.

The Company adopted ASU 2016-02, Leases (Topic 842) along with other corresponding ASU's during the quarter using a modified retrospective approach. See Note 10 for further details regarding the adoption of the new lease guidance.

NOTE 2—Revenue Recognition

On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers, and the series of related ASU's that followed under Accounting Standards Codification (“ASC”) Topic 606 (collectively, “Topic 606”). Topic 606 did not change our pattern of timing of revenue recognition. Under Topic 606, revenue is generally recognized upon delivery of our produced oil and natural gas volumes to our customers. Our customer sales contracts include oil and natural gas sales. Under Topic 606, each unit (Mcf or barrel) of commodity product represents a separate performance obligation which is sold at variable prices, determinable on a monthly basis. The pricing provisions of our contracts are primarily tied to a market index with certain adjustments based on factors such as delivery, product quality and prevailing supply and demand conditions in the geographic areas in which we operate. We allocate the transaction price to each performance obligation and recognize revenue upon delivery of the commodity product when the customer obtains control. Control of our produced natural gas volumes passes to our customers at specific metered points indicated in our natural gas contracts. Similarly, control of our produced oil volumes passes to our customers when the oil is measured either by a trucking oil ticket or by a meter when entering an oil pipeline. The Company has no control over the commodities after those points and the measurement at those points dictates the amount on which the customer's payment is based. Our oil and natural gas revenue streams include volumes burdened by royalty and non-operated working interests. Our revenues are recorded and presented on our financial statements net of the royalty and non-operated working interests. Our revenue stream does not include any payments for services or ancillary items other than sale of oil and natural gas.

We record revenue in the month our production is delivered to the purchaser. However, settlement statements and payments for our oil and natural gas sales may not be received for up to 60 days after the date production is delivered, and as a result, we are required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. We record any differences, which historically have not been significant, between the actual amounts ultimately received and the original estimates in the period they become finalized. As of March 31, 2019 and December 31, 2018, receivables from contracts with customers were $12.2 million and $14.5 million, respectively.

The following table presents our revenues disaggregated by revenue source and by operated and non-operated properties for the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31, 2019								Three Months Ended March 31, 2018
(In thousands)	Oil Revenue		Gas Revenue		NGL Revenue		Total Oil and Natural Gas Revenues		Oil Revenue		Gas Revenue		NGL Revenue		Total Oil and Natural Gas Revenues

Operated	$	2,711	$	20,174	$	-	$	22,885	$	3,799	$	5,801	$	-	$	9,600
Non-operated		75		6,182		4		6,261		143		2,096		4		2,243
Total oil and natural gas revenues	$	2,786	$	26,356	$	4	$	29,146	$	3,942	$	7,897	$	4	$	11,843

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3—Asset Retirement Obligations

The reconciliation of the beginning and ending asset retirement obligation for the three months ended March 31, 2019 is as follows (in thousands):

	Three Months Ended March 31, 2019
Beginning balance as of December 31, 2018	$	3,791
Liabilities incurred		24
Liabilities settled		(1	)
Accretion expense		72
Ending balance as of March 31, 2019	$	3,886
Current liability	$	-
Long term liability	$	3,886

NOTE 4—Debt

Debt consisted of the following balances as of March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019				December 31, 2018
	Principal		Carrying Amount		Principal		Carrying Amount
2017 Senior Credit Facility	$	32,000	$	32,000	$	27,000	$	27,000
Convertible Second Lien Notes (1)		55,493		52,969		53,691		49,820
Total debt	$	87,493	$	84,969	$	80,691	$	76,820

(1) The debt discount is being amortized using the effective interest rate method based upon a maturity date of August 30, 2019. The principal includes $15.5 million and $13.7 million of paid in-kind interest as of March 31, 2019 and December 31, 2018, respectively. The carrying value includes $2.5 million and $3.9 million of unamortized debt discount as of March 31, 2019 and December 31, 2018, respectively.

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the total interest expense for the three months ended March 31, 2019 and 2018 including contractual interest expense, amortization of debt discount and financing costs (amounts in thousands, except effective interest rates):

	Three Months Ended March 31, 2019					Three Months Ended March 31, 2018
	Interest Expense		Effective Interest Rate			Interest Expense		Effective Interest Rate
2017 Senior Credit Facility	$	508		6.7	%	$	173		6.3	%
Convertible Second Lien Notes (1)		3,149		24.3	%		2,500		24.6	%
Total interest expense	$	3,657				$	2,673

(1) Interest expense for the three months ended March 31, 2019 included $1.3 million of debt discount amortization and $1.8 million of paid in-kind interest, and interest expense for the three months ended March 31, 2018 included $0.9 million of debt discount amortization and $1.6 million of paid in-kind interest.

2017 Senior Credit Facility

On October 17, 2017, the Company entered into the Amended and Restated Senior Secured Revolving Credit Agreement (as amended, the “2017 Credit Agreement”) with the Subsidiary, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and certain lenders that are party thereto, which provides for revolving loans of up to the borrowing base then in effect (as amended, the “2017 Senior Credit Facility”). The 2017 Senior Credit Facility matures (a) October 17, 2021 or (b) December 30, 2019, if the Convertible Second Lien Notes have not been voluntarily redeemed, repurchased, refinanced or otherwise retired by December 30, 2019. The maximum credit amount under the 2017 Senior Credit Facility as of March 31, 2019 was $250.0 million with a borrowing base of $75.0 million, subject to an elected draw limit of $50.0 million in recognition of the limitation set forth in the Convertible Second Lien Notes. The borrowing base is scheduled to be redetermined in March and September of each calendar year, and is subject to additional adjustments from time to time, including for asset sales, elimination or reduction of hedge positions and incurrence of other debt. Additionally, each of the Subsidiary and the administrative agent may request one unscheduled redetermination of the borrowing base between scheduled redeterminations. The amount of the borrowing base is determined by the lenders in their sole discretion and consistent with their oil and gas lending criteria at the time of the relevant redetermination. We may, however, elect to reduce the proposed borrowing base to a lower draw limit by providing notice to the lenders contemporaneously with each redetermination of the borrowing base. The Company may also request the issuance of letters of credit under the 2017 Credit Agreement in an aggregate amount up to $10.0 million, which reduce the amount of available borrowings under the borrowing base in the amount of such issued and outstanding letters of credit.

All amounts outstanding under the 2017 Senior Credit Facility shall bear interest at a rate per annum equal to, at the Company's option, either (i) the alternative base rate plus an applicable margin ranging from 1.75% to 2.75%, depending on the percentage of the borrowing base that is utilized, or (ii) adjusted LIBOR plus an applicable margin ranging from 2.75% to 3.75%, depending on the percentage of the borrowing base that is utilized. Undrawn amounts under the 2017 Senior Credit Facility are subject to a 0.50% commitment fee. To the extent that a payment default exists and is continuing, all amounts outstanding under the 2017 Senior Credit Facility bear interest at 2.00% per annum above the rate and margin otherwise applicable thereto. As of March 31, 2019, the interest rates on the borrowings from the 2017 Senior Credit Facility were between 5.74% and 7.50%.

The 2017 Senior Credit Facility also contains certain financial covenants, including (i) the maintenance of a ratio of Total Debt (as defined in the 2017 Credit Agreement) to EBITDAX not to exceed 4.00 to 1.00 as of the last day of any fiscal quarter, (ii) in accordance with the second amendment to the 2017 Credit Agreement, beginning with the quarter ended December 31, 2018, a current ratio (based on the ratio of current assets plus availability under the current borrowing base to current liabilities) not to be less than 1.00 to 1.00 and (iii) until no Convertible Second Lien Notes remain outstanding, (A) the maintenance of a ratio of Total Proved PV-10 attributable to the Company’s and Borrower’s Proved Reserves (as defined in the 2017 Credit Agreement) to Total Secured Debt (net of any Unrestricted Cash not to exceed $10.0 million) not to be less than 1.50 to 1.00 and (B) minimum liquidity requirements.

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The obligations under the 2017 Credit Agreement are secured by a first lien security interest in substantially all of the assets of the Company and the Subsidiary.

As of March 31, 2019, the Company had a borrowing base of $75.0 million, subject to an elected draw limit of $50.0 million, with $32.0 million outstanding. The Company also had $0.5 million of unamortized debt issuance costs recorded as of March 31, 2019 related to the 2017 Senior Credit Facility.

As of March 31, 2019, the Company was not in compliance with all covenants within the 2017 Senior Credit Facility as the current ratio was less than 1.00 to 1.00 primarily due to the elected draw limit of $50.0 million. On April 29, 2019, the Company entered into a Limited Waiver to Credit Agreement with the Subsidiary, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to waive the Company’s failure to comply with the current ratio financial covenant under the 2017 Senior Credit Facility as of the last day of the fiscal quarter ending March 31, 2019.

2019 Senior Credit Facility

On May 14, 2019, the Company entered into a Second Amended and Restated Senior Secured Revolving Credit Agreement (the “2019 Credit Agreement”) among the Company, the Subsidiary, as borrower (in such capacity, the “Borrower”), SunTrust Bank, as administrative agent (the “Administrative Agent”), and certain lenders that are party thereto, which provides for revolving loans of up to the borrowing base then in effect (the “2019 Senior Credit Facility”). The 2019 Senior Credit Facility amends, restates and refinances the obligations under the 2017 Credit Agreement.

The 2019 Senior Credit Facility matures (a) May 14, 2024 or (b) the date that is 180 days prior to the “Maturity Date” as defined in the New 2L Notes Indenture (as defined below) as in effect on the date of issuance of the New 2L Notes if the New 2L Notes (as defined below) have not been voluntarily redeemed, repurchased, refinanced or otherwise retired by, such date. The maximum credit amount under the 2019 Senior Credit Facility is currently $500 million with an initial borrowing base of $115 million. The borrowing base is scheduled to be redetermined on or about June 1, 2019 and thereafter in March and September of each calendar year, and is subject to additional adjustments from time to time, including for asset sales, elimination or reduction of hedge positions and incurrence of other debt. Additionally, each of the Borrower and the Administrative Agent may request one unscheduled redetermination of the borrowing base between scheduled redeterminations. The amount of the borrowing base is determined by the lenders in their sole discretion and consistent with their oil and gas lending criteria at the time of the relevant redetermination. The Borrower may also request the issuance of letters of credit under the 2019 Credit Agreement in an aggregate amount up to $10 million, which reduce the amount of available borrowings under the borrowing base in the amount of such issued and outstanding letters of credit.

All amounts outstanding under the 2019 Senior Credit Facility shall bear interest at a rate per annum equal to, at the Company’s option, either (i) the alternative base rate plus an applicable margin ranging from 1.50% to 2.50%, depending on the percentage of the borrowing base that is utilized, or (ii) adjusted LIBOR plus an applicable margin from 2.50% to 3.50%, depending on the percentage of the borrowing base that is utilized. Undrawn amounts under the 2019 Senior Credit Facility are subject to a commitment fee ranging from 0.375% to 0.50%, depending on the percentage of the borrowing base that is utilized. To the extent that a payment default exists and is continuing, all amounts outstanding under the 2019 Senior Credit Facility will bear interest at 2.0% per annum above the rate and margin otherwise applicable thereto.

The obligations under the 2019 Credit Agreement are guaranteed by the Company and secured by a first lien security interest in substantially all of the assets of the Company and the Borrower.

The 2019 Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the 2019 Senior Credit Facility to be immediately due and payable.

The 2019 Credit Agreement also contains certain financial covenants, including the maintenance of (i) a ratio of Net Funded Debt to EBITDAX not to exceed 4.00 to 1.00 as of the last day of any fiscal quarter, (ii) a current ratio (based on the ratio of current assets to current liabilities) not to be less than 1.00 to 1.00 and (iii) from and after the issuance of the 2021 Notes, until no 2021 Notes remain outstanding, a ratio of Total Proved PV10% attributable to the Company’s and Borrower’s Proved Reserves to Total Secured Debt (net of any Unrestricted Cash not to exceed $10 million) not to be less than 1.50 to 1.00 and minimum liquidity requirements.

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The foregoing description of the 2019 Credit Agreement is qualified in its entirety by reference to such 2019 Credit Agreement, a copy of which is filed herewith as Exhibit 10.1 and is incorporated herein by reference. Capitalized terms used but not otherwise defined in the foregoing description have the respective meanings ascribed to such terms in the 2019 Credit Agreement.

On May 14, 2019, the Company drew down funds from the 2019 Senior Credit Facility to refinance its obligations under the 2017 Senior Credit Facility and to fund the Redemption (as defined below).

Convertible Second Lien Notes

On October 12, 2016, the Company and the Subsidiary, entered into a purchase agreement (the “Purchase Agreement”) with certain investors (collectively, and together with each of their successors and assigns, the “Purchasers”), in connection with the issuance of $40.0 million aggregate principal amount of the Company’s 13.50% Convertible Second Lien Senior Secured Notes due 2019 (the “Convertible Second Lien Notes”).

The aggregate principal amount of the Convertible Second Lien Notes is convertible at the option of the Purchasers at any time prior to the scheduled maturity date at $21.33 per share representing 1.9 million shares of the Company's common stock, subject to adjustments. At closing, the Purchasers were issued 10-year costless warrants to acquire 2.5 million shares of common stock. Holders of the Convertible Second Lien Notes have a second priority lien on all assets of the Company, and holders of such warrants have a right to appoint two members to our Board of Directors (the “Board”) as long as such warrants are outstanding.

The Convertible Second Lien Notes, as set forth in the agreement, were scheduled to mature on August 30, 2019 or six months after the maturity of our current revolving credit facility but in no event later than March 30, 2020. The 2017 Senior Credit Facility was scheduled to mature no earlier than December 30, 2019; consequently, the Convertible Second Lien Notes were scheduled to mature on March 30, 2020. The Convertible Second Lien Notes bear interest at the rate of 13.50% per annum, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. The Company may elect to pay all or any portion of interest in-kind on the then outstanding principal amount of the Convertible Second Lien Notes by increasing the principal amount of the outstanding Convertible Second Lien Notes or by issuing additional Second Lien Notes (“PIK Interest Notes”). The PIK Interest Notes are not convertible. During such time as the Exit Credit Agreement (but not any refinancing or replacement thereof) was in effect, interest on the Convertible Second Lien Notes had to be paid in-kind. As to the new 2017 Senior Credit Facility, interest on the Convertible Second Lien Notes must be paid in-kind, provided however, that after the quarter ending March 31, 2018, if (i) there is no default, event of default or borrowing base deficiency that has occurred and is continuing, (ii) the ratio of total debt to EBITDAX as defined under the 2017 Senior Credit Facility is less than 1.75 to 1.0 and (iii) the unused borrowing base is at least 25%, then the Company can pay the interest on the Convertible Second Lien Notes in cash, at its election.

The indenture governing the Convertible Second Lien Notes (the “Indenture”) contains certain covenants pertaining to us and our Subsidiary, including delivery of financial reports; environmental matters; conduct of business; use of proceeds; operation and maintenance of properties; collateral and guarantee requirements; indebtedness; liens; dividends and distributions; limits on sale of assets and stock; business activities; transactions with affiliates; and changes of control.

The Indenture also contains certain financial covenants, including the maintenance of (i) a Total Proved Asset Coverage Ratio (as defined in the Exit Credit Agreement) not to be less than 1.50 to 1.00 after September 30, 2017, to be determined as of January 1 and July 1 of each year and (ii) minimum liquidity requirements.

Upon issuance of the Convertible Second Lien Notes in October 2016, in accordance with accounting standards related to convertible debt instruments that may be settled in cash upon conversion as well as warrants on the debt instrument, we recorded a debt discount of $11.0 million, thereby reducing the $40.0 million carrying value upon issuance to $29.0 million and recorded an equity component of $11.0 million. The debt discount is amortized using the effective interest rate method based upon an original term through August 30, 2019. As of March 31, 2019, $2.5 million of debt discount remains to be amortized on the Convertible Second Lien Notes.

As of March 31, 2019, the Company was in compliance with all covenants within the Indenture governing the Convertible Second Lien Notes.

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Redemption of Convertible Second Lien Notes

On May 14, 2019, the Company delivered a notice of redemption to the trustee for the Convertible Second Lien Notes to call for redemption on May 29, 2019 (the “Redemption Date”) approximately $56.7 million aggregate principal amount of the outstanding Convertible Second Lien Notes, representing 100% of the aggregate principal amount of the outstanding Convertible Second Lien Notes (the “Redemption”). The Company instructed the trustee to provide notice of such redemption to the holders of the Convertible Second Lien Notes on May 14, 2019 in accordance with the terms of the Indenture. The Convertible Second Lien Notes will be redeemed at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest from April 15, 2019 to, but not including, the Redemption Date. The Redemption is expected to be funded with proceeds from draws on the 2019 Senior Credit Facility.

New Convertible Second Lien Notes

On May 14, 2019, the Company and the Subsidiary entered into a purchase agreement (the “New 2L Notes Purchase Agreement”) with certain funds and accounts managed by Franklin Advisers, Inc., as investment manager (each such fund or account, together with its successors and assigns, a “New 2L Notes Purchaser”) pursuant to which the Company will issue to the New 2L Notes Purchasers (the “New 2L Notes Offering”) $12.0 million aggregate principal amount of the Company’s 13.50% Convertible Second Lien Senior Secured Notes due 2021 (the “New 2L Notes”). The closing of the New 2L Notes Offering is conditioned upon the Redemption and is expected to occur contemporaneously therewith, subject to the satisfaction of other customary closing conditions. Proceeds from the sale of the New 2L Notes will be used to pay down outstanding borrowings under the 2019 Revolving Credit Facility.

The New 2L Notes will be convertible into the Company’s Common Stock at the conversion rate, which is the sum of the outstanding principal amount of New 2L Notes to be converted, including any accrued and unpaid interest, divided by the conversion price, which shall initially be $21.33, subject to certain adjustments as described in the Indenture governing the Notes (the “New 2L Notes Indenture”). Upon conversion, the Company must deliver, at its option, either (1) a number of shares of its Common Stock determined as set forth in the New 2L Notes Indenture, (2) cash or (3) a combination of shares of its Common Stock and cash, however the Company's ability to redeem the New 2L Notes with cash is subject to the terms of the 2019 Credit Agreement.

The New 2L Notes will be issued and sold to the New 2L Notes Purchasers pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) thereunder. The New 2L Notes Purchasers intend to resell the New 2L Notes only to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to certain persons outside the United States in accordance with Regulation S under the Securities Act. The New 2L Notes will not be registered under the Securities Act or applicable state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws.

The New 2L Notes Purchase Agreement contains customary representations, warranties and agreements by the Company and the Subsidiary and obligations of the parties. The foregoing description of the New 2L Notes Purchase Agreement is qualified in its entirety by reference to such New 2L Notes Purchase Agreement, a copy of which is filed herewith as Exhibit 10.2 and is incorporated herein by reference.

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5—Equity

During the three months ended March 31, 2019, no 10 year costless warrants associated with the Convertible Second Lien Notes were exercised. As of March 31, 2019, 150,000 of such warrants remain un-exercised. The Company also did not have a material vesting of its share-based compensation units during the three months ended March 31, 2019.

During the three months ended March 31, 2018, certain holders of the 10 year costless warrants associated with the Convertible Second Lien Notes exercised 589,375 warrants for the issuance of an equal amount of our one cent par value common stock. The Company received cash for the one cent par value for the issuance of 42,500 common shares. During the three months ended March 31, 2018, the Company issued 201,969 shares of its common stock to employees for payment of a portion of the bonus earned by such employees during 2017 and accrued as of December 31, 2017. The Company repurchased 75,053 of these shares into Treasury for payroll taxes withheld from employees related to the bonus payout, and these Treasury shares were retired in December 2018. The Company did not have a material vesting of its share-based compensation units during the three months ended March 31, 2018.

NOTE 6—Net Income (Loss) Per Common Share

Net income (loss) applicable to common stock was used as the numerator in computing basic and diluted net income (loss) per common share for the three months ended March 31, 2019 and 2018. The Company used the treasury stock method in determining the effects of potentially dilutive restricted stock. The following table sets forth information related to the computations of basic and diluted net income (loss) per common share:

	Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
	(Amounts in thousands, except per share data)
Basic net income (loss) per common share:
Net income (loss) applicable to common stock	$	448	$	(5,324	)
Weighted average shares of common stock outstanding		12,151		11,218
Basic net income (loss) per common share	$	0.04	$	(0.47	)

Diluted net income (loss) per common share:
Net income (loss) applicable to common stock	$	448	$	(5,324	)
Weighted average shares of common stock outstanding		12,151		11,218
Common shares issuable upon conversion of the Convertible Second Lien Notes associated warrants		150		-
Common shares issuable upon conversion of warrants of unsecured claim holders		1,418		-
Common shares issuable on assumed conversion of restricted stock **		413		-
Diluted weighted average shares of common stock outstanding		14,132		11,218
Diluted net income (loss) per common share (1) (2) (3)	$	0.03	$	(0.47	)

(1) Common shares issuable on assumed conversion of share-based compensation were not included in the computation of diluted net loss per common share since their inclusion would have been anti-dilutive. **		-		201
(2) Common shares issuable upon conversion of the Convertible Second Lien Notes were not included in the computation of diluted net income (loss) per common share since their inclusion would have been anti-dilutive.		1,875		1,875
(3) Common shares issuable upon conversion of the warrants associated with the Convertible Second Lien Notes and unsecured claim holders were not included in the computation of diluted net income (loss) per common share since their inclusion would have been anti-dilutive.		-		1,916

** - Common shares issuable on assumed conversion of share-based compensation assumes a payout of the Company's performance share awards at 100% of the initial units granted (or a ratio of one unit to one common share). The range of common stock shares which may be earned ranges from zero to 250% of the initial performance units granted.

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7—Income Taxes

We recorded no income tax expense or benefit for either the three months ended March 31, 2019 or 2018. We recorded a valuation allowance for our net deferred tax asset at December 31, 2016. We recorded this valuation allowance at this date after an evaluation of all available evidence (including our history of net operating losses) that led to a conclusion that based upon the more-likely-than-not standard of the accounting literature, these deferred tax assets were unrecoverable. The valuation allowance was $84.1 million as of December 31, 2018, which resulted in a net non-current deferred tax asset of $0.8 million appearing on our statement of financial position. The net $0.8 million deferred tax asset relates to Alternative Minimum Tax (“AMT”) credits, which are expected to be fully refundable in tax years 2018 - 2021 regardless of the Company's regular tax liability. Considering the Company’s taxable income forecasts, our assessment of the realization of our deferred tax assets has not changed, and we continue to maintain a full valuation allowance for our net deferred tax assets as of March 31, 2019 aside from the deferred tax asset related to the AMT credits.

As of March 31, 2019, we have no unrecognized tax benefits. There were no significant changes to the calculation since December 31, 2018.

NOTE 8—Commodity Derivative Activities

We use commodity and financial derivative contracts to manage fluctuations in commodity prices. We are currently not designating our derivative contracts for hedge accounting. All derivative gains and losses are from our oil and natural gas derivative contracts and have been recognized in “Other income (expense)” on our Consolidated Statements of Operations.

The following table summarizes gains and losses we recognized on our oil and natural gas derivatives for the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
Oil and Natural Gas Derivatives (in thousands)
Loss on commodity derivatives not designated as hedges, settled	$	(1,760	)	$	(384	)
Gain (loss) on commodity derivatives not designated as hedges, not settled		752			(597	)
Total loss on commodity derivatives not designated as hedges	$	(1,008	)	$	(981	)

Commodity Derivative Activity

We enter into swap contracts, costless collars or other derivative agreements from time to time to manage commodity price risk for a portion of our production. Our policy is that all derivatives are approved by the Hedging Committee of our Board, and reviewed periodically by the Board.

Despite the measures taken by us to attempt to control price risk, we remain subject to price fluctuations for natural gas and crude oil sold in the spot market. Prices received for natural gas sold on the spot market are volatile due primarily to seasonality of demand and other factors beyond our control. Decreases in domestic crude oil and natural gas spot prices will have a material adverse effect on our financial position, results of operations and quantities of reserves recoverable on an economic basis. We routinely exercise our contractual right to net realized gains against realized losses when settling with our financial counter-parties. Neither our counter-parties nor we require any collateral upon entering into derivative contracts. We would have been at risk of losing $1.6 million had SunTrust Bank been unable to fulfill their obligations as of March 31, 2019.

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2019, the open positions on our outstanding commodity derivative contracts, all of which were with JPMorgan Chase Bank, N.A. and SunTrust Bank, were as follows:

Contract Type	Daily Volume		Total Volume		Weighted Average Fixed Price		Fair Value at March 31, 2019 (In thousands)
Oil swaps (Bbls)
2019		308		84,775	$	51.08	$	(742	)
Total oil							$	(742	)
Natural Gas swaps (MMBtu)
2020 (through March 31, 2020)		70,000		6,370,000	$	2.873	$	(787	)
2019		100,000		27,500,000	$	2.887	$	2,613
Total natural gas							$	1,826
Total oil and natural gas							$	1,084

During the first quarter of 2019 we entered into the following contract with SunTrust Bank:

Contract Type		Daily Volume				Fixed Price			Contract Start Date		Contract Termination
Natural gas swap (MMBtu)		30,000				$2.951			April 1, 2019		March 31, 2020

The following table summarizes the fair values of our derivative financial instruments that are recorded at fair value classified in each Level as of March 31, 2019 (in thousands). We measure the fair value of our commodity derivative contracts by applying the income approach. See Note 1—“Description of Business and Significant Accounting Policies” for our discussion regarding fair value, including inputs used and valuation techniques for determining fair values.

Description	Level 1		Level 2			Level 3		Total
Fair value of oil and natural gas derivatives - Current Assets	$	-	$	1,826		$	-	$	1,826
Fair value of oil and natural gas derivatives - Non-current Assets		-		-			-		-
Fair value of oil and natural gas derivatives - Current Liabilities		-		(742	)		-		(742	)
Fair value of oil and natural gas derivatives - Non-current Liabilities		-		-			-		-
Total	$	-	$	1,084		$	-	$	1,084

We enter into oil and natural gas derivative contracts under which we have netting arrangements with each counter-party. The following table discloses and reconciles the gross amounts to the amounts as presented on the Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018:

	March 31, 2019									December 31, 2018
Fair Value of Oil and Natural Gas Derivatives	Gross			Amount			As			Gross			Amount			As
(in thousands)	Amount			Offset			Presented			Amount			Offset			Presented
Fair value of oil and natural gas derivatives - Current Assets	$	3,035		$	(1,209	)	$	1,826		$	2,893		$	(2,090	)	$	803
Fair value of oil and natural gas derivatives - Non-current Assets		-			-			-			-			-			-
Fair value of oil and natural gas derivatives - Current Liabilities		(1,951	)		1,209			(742	)		(2,090	)		2,090			-
Fair value of oil and natural gas derivatives - Non-current Liabilities		-						-			(471	)		-			(471	)
Total	$	1,084		$	-		$	1,084		$	332		$	-		$	332

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9—Commitments and Contingencies

We are party to various lawsuits from time to time arising in the normal course of business, including, but not limited to, royalty, contract, personal injury, and environmental claims. We have established reserves as appropriate for all such proceedings and intend to vigorously defend these actions. Management believes, based on currently available information, that adverse results or judgments from such actions, if any, would not have been material to our consolidated financial position, results of operations or liquidity for the three months ended March 31, 2019 and 2018.

NOTE 10—Leases

We adopted ASU 2016-02, Leases, during the quarter ended March 31, 2019, and we elected the transition relief package of practical expedients. We determine if an arrangement is or contains a lease at inception. Leases with an initial term of 12 months or less are not recorded on our Consolidated Balance Sheets. We lease our corporate office building in Houston, Texas. We recognize lease expense for this lease on a straight-line basis over the lease term. This operating lease is included in furniture, fixtures and equipment and other capital assets, accrued liabilities and other non-current liabilities on our Consolidated Balance Sheets. The operating lease asset and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As this lease did not provide an implicit rate, we used a collateralized incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. The operating lease asset includes any lease payments made but excludes annual operating charges. Operating lease expense is recognized on a straight-line basis over the lease term and reported in general and administrative operating expense on our Consolidated Statements of Operations. We have also entered into leases for certain vehicles and other equipment which are immaterial to our financial statements and have therefore not been recorded on our Consolidated Balance Sheets.

The lease cost components for the three months ended March 31, 2019 are classified as follows:

(in thousands)	March 31, 2019		Consolidated Statements of Operations Classification
Building lease cost	$	353	General and administrative expense
Variable lease cost (1)		47	General and administrative expense
	$	400

(1) Includes building operating expenses.

The following are additional details related to our lease portfolio as of March 31, 2019:

(in thousands)	March 31, 2019			Consolidated Balance Sheets Classification
Lease asset, gross	$	2,922		Furniture, fixtures and equipment and other capital assets
Accumulated depreciation		(285	)	Accumulated depletion, depreciation and amortization
Lease asset, net	$	2,637

Current lease liability	$	1,332		Accrued liabilities
Non-current lease liability		1,871		Other non-current liabilities
Total lease liabilities	$	3,203

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GOODRICH PETROLEUM CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents operating lease liability maturities as of March 31, 2019:

(in thousands)	March 31, 2019
2019	$	1,155
2020		1,540
2021		813
2022		-
2023		-
Thereafter		-
Total lease payments	$	3,508
Less imputed interest		305
Present value of lease liabilities	$	3,203

The future minimum obligations under operating leases in effect as of December 31, 2018 having a noncancelable term in excess of one year as determined prior to the adoption of ASU 842 are as follows:

(in thousands)	December 31, 2018
2019	$	3,753
2020		1,556
2021		513
2022		-
2023		-
Thereafter		-
Future minimum lease obligations	$	5,822

As of March 31, 2019, our office building operating lease has a weighted-average remaining lease term of 2.1 years and a weighted-average discount rate of 8.0 percent. Cash paid for amounts included in the measurement of operating lease liabilities was $0.4 million for the three months ended March 31, 2019.

NOTE 11—Dispositions

On March 1, 2019, the Company closed on the sale of working interests in certain non-core Haynesville Shale Trend oil and gas leases and related facilities in Caddo Parish, Louisiana for total consideration of $1.3 million, subject to customary post-closing adjustments. The disposition was recorded as a reduction to our oil and natural gas properties (full cost method) on our Consolidated Balance Sheets.

NOTE 12—Subsequent Events

On April 29, 2019, the Company entered into a Limited Waiver to Credit Agreement with the Subsidiary, JPMorgan Chase Bank, N.A., as administrative agent, and certain lenders that are party thereto, pursuant to which the lenders agreed to waive the Company’s failure to comply with the current ratio financial covenant under the 2017 Senior Credit Facility as of the last day of the fiscal quarter ending March 31, 2019.

On May 14, 2019, the Company entered into the 2019 Credit Agreement among the Company, the Subsidiary, as borrower, SunTrust Bank, as administrative agent, and certain lenders that are party thereto, which provides the 2019 Senior Credit Facility. The 2019 Senior Credit Facility amends, restates and refinances the obligations under the 2017 Credit Agreement.

On May 14, 2019, the Company delivered a notice of redemption to the trustee for the Convertible Second Lien Notes to call for redemption on May 29, 2019 approximately $56.7 million aggregate principal amount of the outstanding Convertible Second Lien Notes, representing 100% of the aggregate principal amount of the outstanding Convertible Second Lien Notes.

On May 14, 2019, the Company and the Subsidiary entered into the New 2L Notes Purchase Agreement with the New 2L Notes Purchasers pursuant to which the Company will issue to the New 2L Notes Purchasers $12.0 million aggregate principal amount of the Company’s 13.50% Convertible Second Lien Senior Secured Notes due 2021.

Please see Note 4—“Debt” for a detailed description of each of these transactions.

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Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

We have made in this report, and may from time to time otherwise make in other public filings, press releases and discussions with our management, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), concerning our operations, economic performance and financial condition. These forward-looking statements include information concerning future production and reserves, schedules, plans, timing of development, contributions from oil and natural gas properties, marketing and midstream activities, and also include those statements accompanied by or that otherwise include the words “may,” “could,” “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “predicts,” “target,” “goal,” “plans,” “objective,” “potential,” “should,” or similar expressions or variations on such expressions that convey the uncertainty of future events or outcomes. For such statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and assumptions about future events. These statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. These forward-looking statements speak only as of the date of this report, or if earlier, as of the date they were made; we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

These forward-looking statements involve risk and uncertainties. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the following:

•

the market prices of oil and natural gas;

•

volatility in the commodity-futures market;

•

financial market conditions and availability of capital;

•

future cash flows, credit availability and borrowings;

•

sources of funding for exploration and development;

•

our financial condition;

•

our ability to repay our debt;

•

the securities, capital or credit markets;

•

planned capital expenditures;

•

future drilling activity;

•

uncertainties about the estimated quantities of our oil and natural gas reserves;

•

production;

•

hedging arrangements;

•

litigation matters;

•

pursuit of potential future acquisition opportunities;

•

general economic conditions, either nationally or in the jurisdictions in which we are doing business;

•

legislative or regulatory changes, including retroactive royalty or production tax regimes, hydraulic-fracturing regulation, drilling and permitting regulations, derivatives reform, changes in state and federal corporate taxes, environmental regulation, environmental risks and liability under federal, state and foreign and local environmental laws and regulations;

•

the creditworthiness of our financial counter-parties and operation partners; and

•

other factors discussed below and elsewhere in this Quarterly Report on Form 10-Q and in our other public filings, press releases and discussions with our management.

For additional information regarding known material factors that could cause our actual results to differ from projected results please read the rest of this report and Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.

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Overview

Goodrich Petroleum Corporation (“Goodrich” and, together with its subsidiary, Goodrich Petroleum Company, L.L.C. (the "Subsidiary”), “we,” “our,” or the “Company”) is an independent oil and natural gas company engaged in the exploration, development and production of oil and natural gas on properties primarily in (i) Northwest Louisiana and East Texas, which includes the Haynesville Shale Trend, (ii) Southwest Mississippi and Southeast Louisiana, which includes the Tuscaloosa Marine Shale Trend (“TMS”), and (iii) South Texas, which includes the Eagle Ford Shale Trend.

We seek to increase shareholder value by growing our oil and natural gas reserves, production, revenues and cash flow from operating activities (“operating cash flow”). In our opinion, on a long term basis, growth in oil and natural gas reserves, cash flow and production on a cost-effective basis are the most important indicators of performance success for an independent oil and natural gas company.

We strive to increase our oil and natural gas reserves, production and cash flow through exploration and development activities. We develop an annual capital expenditure budget, which is reviewed and approved by our Board of Directors (the “Board”) on a quarterly basis and revised throughout the year as circumstances warrant. We take into consideration our projected operating cash flow, commodity prices for oil and natural gas and externally available sources of financing, such as bank debt, asset divestitures, issuance of debt and equity securities, and strategic joint ventures, when establishing our capital expenditure budget.

We place primary emphasis on our operating cash flow in managing our business. Management considers operating cash flow a more important indicator of our financial success than other traditional performance measures such as net income because operating cash flow considers only the cash expenses incurred during the period and excludes the non-cash impact of unrealized hedging gains (losses), non-cash general and administrative expenses and impairments.

Our revenues and operating cash flow depend on the successful development of our inventory of capital projects with available capital, the volume and timing of our production, as well as commodity prices for oil and natural gas. Such pricing factors are largely beyond our control; however, we employ commodity hedging techniques in an attempt to minimize the volatility of short term commodity price fluctuations on our earnings and operating cash flow.

Primary Operating Areas

Haynesville Shale Trend

Our relatively low risk development acreage in this trend is primarily centered in Caddo, DeSoto and Red River parishes, Louisiana and Angelina and Nacogdoches counties, Texas. We have acquired or farmed-in leases totaling approximately 39,100 gross (22,100 net) acres as of March 31, 2019 in the Haynesville Shale Trend. During the first quarter of 2019, we sold a portion of our non-core Haynesville Shale Trend acreage and the associated production located in Caddo Parish, Louisiana. We completed and produced 2 gross (2.0 net) new wells in the first quarter of 2019 and had 3 gross (2.7 net) wells in the drilling or completions phase as of March 31, 2019. Our net production volumes from our Haynesville Shale Trend wells represented approximately 96% of our total equivalent production on a Mcfe basis and substantially all of our natural gas production for the first quarter of 2019. We are focusing on increasing our natural gas production volumes through increased drilling in the Haynesville Shale Trend, where we plan to focus all of our 2019 drilling efforts.

Tuscaloosa Marine Shale Trend

We have acquired approximately 49,900 gross (34,500 net) lease acres in the TMS as of March 31, 2019 with approximately 39,300 gross (33,000 net) acres held by production. We have 2 gross (1.7 net) TMS wells drilled and awaiting completion. Our net production volumes from our TMS wells represented approximately 3% of our total equivalent production on a Mcfe basis and substantially all of our total oil production for the first quarter of 2019. Despite no capital expenditures, we are seeking to maintain production through strategic expense workover operations in the TMS.

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Eagle Ford Shale Trend

We have retained approximately 12,300 net acres of undeveloped leasehold in the Eagle Ford Shale Trend in Frio County, Texas as of March 31, 2019, which is prospective for future development or sale.

Results of Operations

The items that had the most material financial effect on our net income of $0.5 million for the three months ended March 31, 2019 were oil and gas revenues, transportation and processing expense and depletion, depreciation and amortization expense. All these items increased compared to the three months ended March 31, 2018, which is primarily attributable to production volume increases.

The items that had the most material financial effect on our net loss of $5.3 million for the three months ended March 31, 2018 were a $1.0 million loss on our commodity derivatives not designated as hedges, $1.7 million share-based compensation included in general and administrative expense and $2.7 million in interest expense. All but $0.2 million of these items are non-cash expenses.

The following table reflects our summary operating information for the periods presented (in thousands, except for price and volume data). Because of normal production declines, increased or decreased drilling activity and the effects of acquisitions or divestitures, the historical information presented below should not be interpreted as indicative of future results.

Revenues from Operations

	Three Months Ended March 31,
(In thousands, except for price and average daily production data)	2019		2018		Variance
Revenues:
Natural gas	$	26,360	$	7,901	$	18,459		234	%
Oil and condensate		2,786		3,942		(1,156	)	(29	)%
Natural gas, oil and condensate		29,146		11,843		17,303		146	%
Net Production:
Natural gas (Mmcf)		9,060		2,952		6,108		207	%
Oil and condensate (MBbls)		47		61		(14	)	(23	)%
Total (Mmcfe)		9,342		3,316		6,026		182	%
Average daily production (Mcfe/d)		103,795		36,844		66,951		182	%
Average realized sales price per unit:
Natural gas (per Mcf)	$	2.91	$	2.68	$	0.23		9	%
Natural gas (per Mcf) including the effect of realized gains/losses on derivatives	$	2.73	$	2.69	$	0.04		1	%
Oil and condensate (per Bbl)	$	59.45	$	65.00	$	(5.55	)	(9	)%
Oil and condensate (per Bbl) including the effect of realized losses on derivatives	$	57.06	$	57.99	$	(0.93	)	(2	)%
Average realized price (per Mcfe)	$	3.12	$	3.57	$	(0.45	)	(13	)%

Natural gas, oil and condensate revenues increased by $17.3 million for the three months ended March 31, 2019 compared to the same period in 2018. The increase was primarily driven by increased natural gas production and higher realized natural gas prices. The increase in natural gas production volumes is attributed to two operated Haynesville Shale Trend wells completed in the first quarter of 2019 and the continued production of five operated and eight non-operated Haynesville Shale Trend wells completed since the first quarter of 2018. The revenue increases were also offset by decreased oil production and lower realized oil prices in the first quarter of 2019 versus the prior year period. For the three months ended March 31, 2019, 90% of our oil and natural gas revenue was attributable to natural gas sales compared to 67% for the three months ended March 31, 2018.

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Operating Expenses

As described below, total operating expenses increased $10.9 million to $24.0 million for the three months ended March 31, 2019 compared to the same period in 2018. The increase in total operating expenses for the three months ended March 31, 2019 was primarily due to increased depreciation, depletion and amortization, transportation expense and lease operating expense discussed further below.

	Three Months Ended March 31,
Operating Expenses (in thousands)	2019		2018		Variance
Lease operating expenses	$	3,335	$	2,566	$	769		30	%
Production and other taxes		631		640		(9	)	(1	)%
Transportation and processing		4,701		1,312		3,389		258	%
Operating Expenses per Mcfe
Lease operating expenses	$	0.36	$	0.77	$	(0.41	)	(53	)%
Production and other taxes	$	0.07	$	0.19	$	(0.12	)	(63	)%
Transportation and processing	$	0.50	$	0.40	$	0.10		25	%

Lease Operating Expense

Lease operating expense (“LOE”) increased $0.8 million during the three months ended March 31, 2019 compared to the same period in 2018. The increase in LOE between periods included $0.3 million ($0.04 per Mcfe) of workover expense. The increase in LOE not attributable to workover expense is attributable to increased well count and production for the three months ended March 31, 2019. Per unit LOE will continue to decrease as we increase production in the Haynesville Shale Trend, which carries a much lower per unit LOE than the Company’s current per unit rate.

Production and Other Taxes

Production and other taxes includes severance and ad valorem taxes. Severance taxes for the three months ended March 31, 2019 were $0.4 million, and ad valorem taxes for the three months ended March 31, 2019 were $0.3 million, which both remained unchanged from the prior year period.

Severance taxes decreased less than $0.1 million for the three months ended March 31, 2019 as compared with the same period in 2018. The State of Louisiana has enacted an exemption from the existing 12.5% severance tax on oil and from the $0.111 per Mcf (from July 1, 2017 through June 30, 2018) and $0.122 per Mcf (starting on July 1, 2018) severance tax on natural gas for horizontal wells with production commencing after July 31, 1994. The exemption is applicable until the earlier of (i) 24 months from the date of first sale of production or (ii) payout of the well. All of our drilled Haynesville Shale Trend wells in Northwest Louisiana are benefiting from this exemption.

Ad valorem tax increased by less than $0.1 million for the three months ended March 31, 2019 as compared to the same period in 2018 due to adding wells offset by property values slightly decreasing. We expect ad valorem taxes to increase as our newly producing wells begin to be valued by the taxing jurisdictions.

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Transportation and Processing

Transportation and processing expense for the three months ended March 31, 2019 increased compared to the same period in 2018, reflecting increased production from our Haynesville Shale Trend wells. Our natural gas volumes from our operated wells generally carry less transportation cost per Mcf than from wells we do not operate. Despite an increase in our operated natural gas production volumes between periods, our cost per Mcfe increased in the first quarter of 2019 compared to the same period in 2018. This per unit increase is partially attributed to the mix of oil and natural gas production volumes during each period as our oil production is not burdened by transportation and processing cost.

	Three Months Ended March 31,
Operating Expenses (in thousands):	2019		2018		Variance
Depreciation, depletion and amortization	$	10,046	$	3,452	$	6,594		191	%
General and administrative		5,310		5,196		114		2	%
Other		10		-		10		100	%
Operating Expenses per Mcfe
Depreciation, depletion and amortization	$	1.08	$	1.04	$	0.04		4	%
General and administrative	$	0.57	$	1.57	$	(1.00	)	(64	)%
Other	$	-	$	-	$	-		0	%

Depreciation, Depletion and Amortization (“DD&A”)

DD&A expense is calculated on the Full Cost Method using the units of production (the “UOP”) method. The increase in DD&A expense was attributed primarily to increased production as well as an increased DD&A rate for the three months ended March 31, 2019 as compared to the same period in 2018.

General and Administrative (“G&A”)

The Company recorded $5.3 million in G&A expense for the three months ended March 31, 2019, which included non-cash expenses of $1.5 million for share-based compensation. G&A expense increased for the three months ended March 31, 2019 by $0.1 million compared to the same period in 2018 primarily due to increased legal costs.

The Company recorded $5.2 million in G&A expense for the three months ended March 31, 2018, which included non-cash expenses of $1.7 million for share-based compensation.

Other Income (Expense)

	Three Months Ended March 31,
Other income (expense) (in thousands):	2019			2018			Variance
Interest expense	$	(3,657	)	$	(2,673	)	$	(984	)	37	%
Interest income and other		6			(7	)		13		186	%
Gain (loss) on commodity derivatives not designated as hedges		(1,008	)		(981	)		(27	)	3	%

Average funded borrowings adjusted for debt discount	$	80,588		$	50,652		$	29,936		59	%
Average funded borrowings	$	84,490		$	58,258		$	26,232		45	%

Interest Expense

The Company's interest expense for the three months ended March 31, 2019 reflected interest payable in cash of $0.5 million incurred on the 2017 Senior Credit Facility (as defined below) and non-cash interest of $3.2 million incurred on the Company's 13.50% Convertible Second Lien Senior Secured Notes due 2019 (the “Convertible Second Lien Notes”), which included $1.8 million of paid in-kind interest and $1.3 million of amortization of debt discount as well as $0.1 million in amortization of debt issuance costs.

The Company's interest expense for the three months ended March 31, 2018 reflected interest payable in cash of $0.2 million incurred on the 2017 Senior Credit Facility and non-cash interest of $2.5 million incurred on the Convertible Second Lien Notes, which included $1.6 million of paid in-kind interest and $0.9 million of amortization of debt discount.

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Gain (Loss) on Commodity Derivatives Not Designated as Hedges

The loss on commodity derivatives not designated as hedges of $1.0 million for the three months ended March 31, 2019 was comprised of a $1.8 million loss on cash settlement of natural gas and oil derivative contracts offset by a mark to market gain of $0.8 million, representing the change of the fair value of our open natural gas and oil derivative contracts.

Reorganization gain (loss), net

We incurred $0.3 million in trustee and legal fees in the three months ended March 31, 2018 before settling the final outstanding bankruptcy claims and closing our bankruptcy in 2018.

Income Tax Benefit

We recorded no income tax expense or benefit for the three months ended March 31, 2019. We recorded a valuation allowance for our net deferred tax asset at December 31, 2016. We recorded this valuation allowance at this date after an evaluation of all available evidence (including our history of net operating losses) that led to a conclusion that based upon the more-likely-than-not standard of the accounting literature, these deferred tax assets were unrecoverable. The valuation allowance was $84.1 million as of December 31, 2018, which resulted in a net non-current deferred tax asset of $0.8 million appearing on our statement of financial position. The net $0.8 million deferred tax asset relates to Alternative Minimum Tax (“AMT”) credits, which are expected to be fully refundable in tax years 2018 - 2021 regardless of the Company's regular tax liability. Considering the Company’s taxable income forecasts, our assessment of the realization of our deferred tax assets has not changed, and we continue to maintain a full valuation allowance for our net deferred tax assets as of March 31, 2019 aside from the deferred tax asset related to the AMT credits.

Adjusted EBITDA

Adjusted EBITDA is a supplemental non-United States Generally Accepted Accounting Principle (“US GAAP”) financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. The Company defines Adjusted EBITDA as earnings before interest expense, income and similar tax, DD&A, share-based compensation expense and impairment of oil and natural gas properties (if any). In calculating Adjusted EBITDA, gains/losses on reorganization and mark-to-market gains/losses on commodity derivatives not designated as hedges are also excluded. Other excluded items include adjustments resulting from the accounting for operating leases under Accounting Standards Codification (“ASC”) 842, interest income and any extraordinary non-cash gains or losses. Adjusted EBITDA is not a measure of net income (loss) as determined by US GAAP. Adjusted EBITDA should not be considered an alternative to net income (loss), as defined by US GAAP.

The following table presents a reconciliation of the non-US GAAP measure of Adjusted EBITDA to the US GAAP measure of net income (loss), its most directly comparable measure presented in accordance with US GAAP:

	Three Months Ended March 31,
(In thousands)	2019			2018
Net income (loss) (US GAAP)	$	448		$	(5,324	)
Interest expense		3,657			2,673
Depreciation, depletion and amortization		10,046			3,452
Share-based compensation expense (non-cash)		1,568			1,675
Loss on commodity derivatives not designated as hedges, not settled		(752	)		597
Other items (1)		247			338
Adjusted EBITDA	$	15,214		$	3,411

(1)	Other items include $0.3 million from the impact of accounting for operating leases under ASC 842 as well as interest income, reorganization items and other non-recurring income and expense.

Management believes that this non-US GAAP financial measure provides useful information to investors because it is monitored and used by our management and widely used by professional research analysts in the valuation and investment recommendations of companies within the oil and natural gas exploration and production industry.

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Liquidity and Capital Resources

Overview

Our primary sources of cash during the first three months of 2019 were cash on hand, cash from operating activities, net proceeds from borrowings on our 2017 Senior Credit Facility and proceeds from the sale of assets. We used cash primarily to fund capital expenditures. We currently plan to fund our operations and capital expenditures for the remainder of 2019 through a combination of cash on hand, cash from operating activities and borrowing under our revolving credit facility, although we may from time to time consider the funding alternatives described below.

On October 17, 2017, we entered into the 2017 Senior Credit Facility, which provides for revolving loans of up to the borrowing base then in effect. Total lender commitments under the 2017 Senior Credit Facility are $250 million subject to a borrowing base limitation, which as of March 31, 2019 was $75 million, subject to an elected draw limit of $50 million. The 2017 Senior Credit Facility matures on a) October 17, 2021 or b) December 30, 2019, if the Convertible Second Lien Notes have not been voluntarily redeemed, repurchased, refinanced or otherwise retired by December 30, 2019. Revolving borrowings under the 2017 Senior Credit Facility are limited to, and subject to periodic redeterminations of, the borrowing base. The amount of the borrowing base is determined by the lenders in their sole discretion and consistent with their oil and gas lending criteria at the time of the relevant redetermination. We may, however, elect to reduce the proposed borrowing base to a lower draw limit by providing notice to the lenders contemporaneously with each redetermination of the borrowing base. Pursuant to the terms of the 2017 Senior Credit Facility, borrowing base redeterminations will be on a semi-annual basis on or about March 1st and September 1st of each calendar year. The borrowing base is subject to additional adjustments from time to time, including for asset sales, elimination or reduction of hedge positions and incurrence of other debt. Additionally, we and the administrative agent may request one unscheduled redetermination of the borrowing base between scheduled redeterminations. JPMorgan Chase Bank, N.A. is the lead lender and administrative agent under the 2017 Senior Credit Facility.

We exited the first quarter of 2019 with no cash on hand and $32.0 million of outstanding borrowings with $18 million of availability under the 2017 Senior Credit Facility borrowing base draw limit of $50 million. Due to the timing of payment of our capital expenditures, we reflected a working capital deficit of $30 million as of March 31, 2019. Subsequently, our working capital deficit was not covered by availability under our 2017 Senior Credit Facility due to our draw limit, and we were therefore not in compliance with our current ratio covenant under the 2017 Senior Credit Facility. On April 29, 2019, we entered into a Limited Waiver to Credit Agreement with the Subsidiary, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to waive our failure to comply with the current ratio financial covenant under the 2017 Senior Credit Facility as of the last day of the fiscal quarter ending March 31, 2019.

The 2019 Senior Credit Facility matures (a) May 14, 2024 or (b) the date that is 180 days prior to the “Maturity Date” as defined in the New 2L Notes Indenture (as defined below) as in effect on the issuance date of the New 2L Notes if the New 2L Notes (as defined below) have not been voluntarily redeemed, repurchased, refinanced or otherwise retired by, such date. The maximum credit amount under the 2019 Senior Credit Facility is currently $500 million with an initial borrowing base of $115 million. The borrowing base is scheduled to be redetermined on or about June 1, 2019 and thereafter in March and September of each calendar year, and is subject to additional adjustments from time to time, including for asset sales, elimination or reduction of hedge positions and incurrence of other debt. Additionally, each of the Borrower and the Administrative Agent may request one unscheduled redetermination of the borrowing base between scheduled redeterminations. The amount of the borrowing base is determined by the lenders in their sole discretion and consistent with their oil and gas lending criteria at the time of the relevant redetermination. The Borrower may also request the issuance of letters of credit under the 2019 Credit Agreement in an aggregate amount up to $10 million, which reduce the amount of available borrowings under the borrowing base in the amount of such issued and outstanding letters of credit.

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We continuously monitor our leverage position and coordinate our capital program with our expected cash flows and repayment of our projected debt. We will continue to evaluate funding alternatives as needed.

Alternatives available to us include:

•

availability under the 2019 Senior Secured Credit Facility;

	•	issuance of debt securities;
	•	joint ventures in our TMS and/or Haynesville Shale Trend acreage;
	•	issuance of equity securities; and
	•	sale of non-core assets.

We have supported our cash flows with derivative contracts that covered approximately 79% of our natural gas sales volumes for the first three months of 2019 and 62% of our oil volumes for the first three months of 2019. For additional information on our derivative instruments see Note 8—“Commodity Derivative Activities” in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

	Three Months Ended March 31,
	2019			2018
Cash flow statement information:
Net cash:
Provided by operating activities	$	17,907		$	6,256
Used in investing activities		(26,970	)		(5,781	)
Provided by (used in) financing activities		4,995			(16,736	)
Decrease in cash and cash equivalents	$	(4,068	)	$	(16,261	)

Operating activities: Production from our wells, the price of oil and natural gas and operating costs represent the main drivers behind our cash flow from operations for the three months ended March 31, 2019 and 2018. Changes in working capital and net cash settlements related to our derivative contracts also impact cash flows. Net cash provided by operating activities for the three months ended March 31, 2019 was $17.9 million including operating cash flows before positive working capital changes of $3.1 million and including a reduction due to net cash payments of $1.8 million in settlement of derivative contracts. The substantial increase in cash provided by operating activities in the current quarter compared to the first quarter 2018 was attributable to a 146% increase in oil and natural gas revenues driven by a 182% increase in equivalent production volumes offset by a 13% decrease in equivalent realized prices.

Investing activities: Net cash used in investing activities was $27.0 million for the three months ended March 31, 2019 which reflected cash expended on capital projects of $28.3 million reduced by $1.3 million cash proceeds received from sale of oil and gas properties. We recorded $29.5 million in capital expenditures in this period. The difference in capital expenditures and cash expended on capital projects for the three months ended March 31, 2019 was attributed to a net capital accrual increase of $1.1 million and capitalization of $0.2 million of asset retirement and non-cash internal costs. During the three months ended March 31, 2019, we conducted drilling and completion operations on 5 gross (4.7 net) wells bringing 2 gross (2.0 net) wells on production with 3 gross (2.7 net) wells remaining in the drilling and completion process at March 31, 2019.

Financing activities: Net cash provided by financing activities for the three months ended March 31, 2019 reflects primarily net borrowings under our 2017 Senior Credit Facility.

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Debt consisted of the following balances as of the dates indicated (in thousands):

	March 31, 2019				December 31, 2018
	Principal		Carrying Amount		Principal		Carrying Amount
2017 Senior Credit Facility	$	32,000	$	32,000	$	27,000	$	27,000
Convertible Second Lien Notes (1)		55,493		52,969		53,691		49,820
Total debt	$	87,493	$	84,969	$	80,691	$	76,820

For additional information on our financing activities, see Note 4—“Debt” in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Off-Balance Sheet Arrangements

We do not currently have any off-balance sheet arrangements for any purpose.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on consolidated financial statements, which were prepared in accordance with US GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We believe that certain accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. Our Annual Report on Form 10-K for the year ended December 31, 2018 includes a discussion of our critical accounting policies and there have been no material changes to such policies during the three months ended March 31, 2019.

Item 3—Quantitative and Qualitative Disclosures about Market Risk

Our primary market risks are attributable to fluctuations in commodity prices and interest rates. These fluctuations can affect revenues and cash flow from operating, investing and financing activities. Our risk-management policies provide for the use of derivative instruments to manage these risks. The types of derivative instruments we utilize include futures, swaps, options and fixed-price physical-delivery contracts. The volume of commodity derivative instruments we utilize may vary from year to year and is governed by risk-management policies with levels of authority delegated by our Board. Both exchange and over-the-counter traded commodity derivative instruments may be subject to margin deposit requirements, and we may be required from time to time to deposit cash or provide letters of credit with exchange brokers or its counter-parties in order to satisfy these margin requirements.

For information regarding our accounting policies and additional information related to our derivative and financial instruments, see Note 1—“Description of Business and Significant Accounting Policies”, Note 4—“Debt” and Note 8—“Commodity Derivative Activities” in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q.

Commodity Price Risk

Our most significant market risk relates to fluctuations in crude oil and natural gas prices. Management expects the prices of these commodities to remain volatile and unpredictable. As these prices decline or rise significantly, revenues and cash flow will also decline or rise significantly. In addition, a non-cash write-down of our oil and natural gas properties may be required if future commodity prices experience a sustained and significant decline. We have entered into natural gas and oil derivative instruments in order to reduce the price risk associated with production for the rest of 2019 of approximately 100,000 MMBtu per day and 308 barrels per day, respectively, and in the first quarter of 2020 of 70,000 MMBtu per day. We did not enter into derivatives instruments for trading purposes. Utilizing actual derivative contractual volumes, a hypothetical increase of 10% in the underlying commodity prices would have changed the derivative natural gas net asset position to a liability position with a change of $9.1 million and increased the derivative oil liability position by $0.5 million as of March 31, 2019. Likewise, a hypothetical decrease of 10% in the underlying commodity prices would have increased the derivative natural gas net asset position by $9.4 million and decreased the derivative oil liability position by $0.5 million as of March 31, 2019. Furthermore, a gain or loss would have been substantially offset by an increase or decrease, respectively, in the actual sales value of production covered by the derivative instruments.

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Adoption of Comprehensive Financial Reform

The adoption of comprehensive financial reform legislation by the United States Congress could have an adverse effect on our ability to use derivative instruments to reduce the effect of commodity price, interest rate and other risks associated with our business. See Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Item 4—Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures designed to ensure that material information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission and that any material information relating to us is recorded, processed, summarized and reported to our management including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, our management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives. In reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Our Chief Executive Officer and Chief Financial Officer, based upon their evaluation as of March 31, 2019, the end of the period covered in this report, concluded that our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1—Legal Proceedings

A discussion of our current legal proceedings is set forth in Part I, Item 1 under Note 9—“Commitments and Contingencies” to the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

As of March 31, 2019, we did not have any material outstanding and pending litigation.

Item 1A—Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition or future results.

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

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Item 6—Exhibits


3.1		Second Amended and Restated Certificate of Incorporation of Goodrich Petroleum Corporation, dated October 12, 2016, (Incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-8 (File No. 333-214080) filed on October 12, 2016).
3.2		Second Amended and Restated Bylaws of Goodrich Petroleum Corporation, dated October 12, 2016, (Incorporated by reference to Exhibit 4.2 of the Company’s Registration Statement on Form S-8 (File No. 333-214080) filed on October 12, 2016).
10.1*		Second Amended and Restated Senior Secured Revolving Credit Agreement, dated as of May 14, 2019, among Goodrich Petroleum Corporation, as Parent Guarantor, Goodrich Petroleum Company, L.L.C., as Borrower, SunTrust Bank, as Administrative Agent, and the Lenders party thereto.
10.2*		Note Purchase Agreement, dated as of May 14, 2019, by and among Goodrich Petroleum Corporation, Goodrich Petroleum Company, L.L.C., as subsidiary guarantor, and certain funds and accounts managed by Franklin Advisers, Inc., as investment manager.
31.1*		Certification by Chief Executive Officer Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification by Chief Financial Officer Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Schema Document
101.CAL*		XBRL Calculation Linkbase Document
101.LAB*		XBRL Labels Linkbase Document
101.PRE*		XBRL Presentation Linkbase Document
101.DEF*		XBRL Definition Linkbase Document

*	Filed herewith
**	Furnished herewith

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SIGNATURES

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

	GOODRICH PETROLEUM CORPORATION (Registrant)

Date: May 14, 2019	By:	/S/ Walter G. Goodrich
		Walter G. Goodrich
		Chairman & Chief Executive Officer


Date: May 14, 2019	By:	/S/ Robert T. Barker
		Robert T. Barker
		Senior Vice President, Controller, Chief Accounting Officer and Chief Financial Officer

Annex I	List of Maximum Credit Amounts

Exhibit A	Form of Note
Exhibit B	Form of Borrowing Request
Exhibit C	Form of Interest Election Request
Exhibit D	Form of Compliance Certificate
Exhibit E	Form of Solvency Certificate
Exhibit F	Closing Date Security Instruments
Exhibit G	Form of Assignment and Assumption
Exhibit H-1	Form of U.S. Tax Compliance Certificate (Non-U.S. Lenders; non-partnerships)
Exhibit H-2	Form of U.S. Tax Compliance Certificate (Foreign Participants; non-partnerships)
Exhibit H-3	Form of U.S. Tax Compliance Certificate (Foreign Participants; partnerships)
Exhibit H-4	Form of U.S. Tax Compliance Certificate (Non-U.S. Lenders; partnerships)
Exhibit I	Form of Reserve Report Certificate
Exhibit J	Form of Perfection Certificate


Schedule 1.01	Permitted Holders
Schedule 7.05	Litigation
Schedule 7.09	Taxes
Schedule 7.14	Loan Parties
Schedule 7.19	Gas Imbalances
Schedule 7.20	Marketing of Production
Schedule 7.22	Swap Agreements
Schedule 8.10(b)	Environmental Matters
Schedule 9.05	Investments

Borrowing Base Utilization Percentage	< 25%	≥25% and < 50%	≥50% and < 75%	≥75% and < 90%	≥90%
Eurodollar Loans	2.50%	2.75%	3.00%	3.25%	3.50%
ABR Loans	1.50%	1.75%	2.00%	2.25%	2.50%

Borrowing Base Utilization Percentage	< 25%	≥25% and < 50%	≥50% and < 75%	≥75% and < 90%	≥90%
Commitment Fee	0.375%	0.375%	0.50%	0.50%	0.50%

PARENT:	GOODRICH PETROLEUM CORPORATION


	By:/s/ Michael J. Killelea
	Name:Michael J. Killelea
	Title:Executive Vice President, General Counsel and Corporation Secretary

BORROWER:	GOODRICH PETROLEUM COMPANY, L.L.C.


	By:/s/ Michael J. Killelea
	Name:Michael J. Killelea
	Title:Executive Vice President, General Counsel and Corporation Secretary


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(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:


	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


	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: May 14, 2019

/s/ Walter G. Goodrich
Walter G. Goodrich
Chief Executive Officer


1.	I have reviewed this quarterly report on Form 10-Q of Goodrich Petroleum Corporation (the “registrant”);

Date: May 14, 2019

/s/ Robert T. Barker
Robert T. Barker
Senior Vice President, Controller, Chief Accounting Officer and Chief Financial Officer


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	SUNTRUST BANK, as Administrative Agent, Issuing Bank, and a Lender



	By:/s/ John Kovarik
	Name:John Kovarik
	Title:Director

	ROYAL BANK OF CANADA



	By:/s/ Katy Berkemeyer
	Name:Katy Berkemeyer
	Title:Authorized Signatory

	CIT BANK, N.A.



	By:/s/ John Feeley
	Name:John Feeley
	Title:Director

	CATHAY BANK



	By:/s/ Dale T. Wilson
	Name:Dale T/ Wilson
	Title:Senior Vice President

EXITING LENDER (SIGNING SOLELY WITH RESPECT TO SECTION 12.21):	JPMORGAN CHASE BANK, N.A., as Exiting Lender


	By:/s/ Darren M. Vanek
	Name:Darren M. Vanek
	Title:Authorized Signatory

Name of Lender	Applicable Percentage	Applicable Percentage of Initial Borrowing Base	Maximum Credit Amount
SunTrust Bank	43.4782609%	$50,000,000.00	$217,391,304.35
Royal Bank of Canada	30.4347826%	$35,000,000.00	$152,173,913.04
CIT Bank, N.A.	17.3913043%	$20,000,000.00	$86,956,521.74
Cathay Bank	8.6956522%	$10,000,000.00	$43,478,260.87
TOTAL:	100.00000000%	$115,000,000.00	$500,000,000.00

Purchaser	Principal Amount	Purchase Price
Franklin High Income Trust-Franklin High Income Fund	$11,500,000	$11,500,000
FT Opportunistic Distressed Fund, Ltd.	$500,000	$500,000
Total	$12,000,000	$12,000,000

Term	Defined in
Act	Section 16.13
Affiliate Transaction Asset Coverage Ratio	Section 7.27 Section 7.31
Authentication Order	Section 2.02
Change of Control Offer	Section 7.30
Change of Control Payment Date	Section 7.30
Change of Control Payment	Section 7.30
Conversion Obligation	Section 4.06
Covenant Defeasance	Section 11.03
DTC	Section 2.01
Event of Default	Section 9.01
Excess Proceeds	Section 7.26
Funds in Trust	Section 9.04
IAI	Section 2.01
Institutional Accredited Investor Global Note	Section 2.01
Legal Defeasance	Section 9.02
Paying Agent	Section 2.04
payment default	Section 9.01
Reference Property	Section 7.07
Registrar	Section 2.04
Remedial Work	Section 7.15
Reorganization Event	Section 7.07
Restricted Payments	Section 7.23
Restricted Payments Basket	Section 7.23
Subject Debt	Section 7.26
Successor Company	Section 8.01

Date of Exchange	Amount of Decrease in Principal Amount at Maturity of this Global Note	Amount of Increase in Principal Amount at Maturity of this Global Note	Principal Amount at Maturity of this Global Note Following such Decrease (or Increase)