NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - ORGANIZATION AND BUSINESS
Bonanza Creek Energy, Inc. (“BCEI” or, together with our consolidated subsidiaries, the “Company”) is engaged primarily in acquiring, developing, extracting, and producing oil and gas properties. The Company’s assets and operations are concentrated in the rural portions of the Wattenberg Field in Colorado.
NOTE 2 - BASIS OF PRESENTATION
These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments as necessary for a fair presentation of our financial position and results of operations.
The financial information as of December 31, 2019, has been derived from the audited financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”), but does not include all disclosures, including notes required by GAAP. As such, this quarterly report should be read in conjunction with the consolidated financial statements and related notes included in our 2019 Form 10-K. The Company follows the same accounting principles for preparing quarterly and annual reports.
Principles of Consolidation
The condensed consolidated balance sheets (“balance sheets”) include the accounts of the Company and its wholly owned subsidiaries, Bonanza Creek Energy Operating Company, LLC, Holmes Eastern Company, LLC, and Rocky Mountain Infrastructure, LLC. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of the Company's condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of oil and gas reserves, assets and liabilities, disclosure of contingent assets and liabilities at the date of the balance sheet, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. Further these estimates and other factors, including those outside of the Company's control, such as the impact of lower commodity prices, may impact the Company's business, financial condition, results of operations and cash flows.
Revenue Recognition
Sales of oil, natural gas, and natural gas liquids (“NGLs”) are recognized when performance obligations are satisfied at the point control of the product is transferred to the customer. The Company's contracts’ pricing provisions are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, quality of the oil or natural gas, and prevailing supply and demand conditions. As a result, the price of the oil, natural gas, and NGLs fluctuates to remain competitive with other available oil, natural gas, and NGLs supplies.
As further described in Note 6 - Commitments and Contingencies, one contract with NGL Crude Logistics, LLP (“NGL Crude”, known as the “NGL Crude agreement”) has an additional aspect of variable consideration related to the minimum volume commitments (“MVCs”) as specified in the agreement. On an on-going basis, the Company performs an analysis of expected risk adjusted production applicable to the NGL Crude agreement based on approved production plans to determine if liquidated damages to NGL Crude are probable. As of March 31, 2020, the Company believes that the volumes delivered to NGL Crude will be in excess of the MVCs required then and for the upcoming approved production plan. As a result of this analysis, to date, no variable consideration related to potential liquidated damages has been considered in the transaction price for the NGL Crude agreement.
Under the oil sales contracts, the Company sells oil production at the wellhead, or other contractually agreed-upon delivery points, and collects an agreed-upon index price, net of pricing differentials. In this scenario, the Company recognizes revenue when control transfers to the purchaser at the wellhead, or other contractually agreed-upon delivery point, at the net contracted price received.
Under the natural gas processing contracts, the Company delivers natural gas to an agreed-upon delivery point. The delivery points are specified within each contract, and the transfer of control varies between the inlet and outlet of the midstream processing facility. The midstream processing entity gathers and processes the natural gas and remits proceeds to the Company for the resulting sales of NGLs and residue gas. For the contracts where the Company maintains control through the outlet of the midstream processing facility, the Company recognizes revenue on a gross basis, with gathering, transportation, and processing fees presented as an expense in the Company's accompanying condensed consolidated statements of operations and comprehensive income (loss) (“statements of operations”). Alternatively, for those contracts where the Company relinquishes control at the inlet of the midstream processing facility, the Company recognizes natural gas and NGLs revenues based on the contracted amount of the proceeds received from the midstream processing entity and, as a result, the Company recognizes revenue on a net basis.
Under the product sales contracts, the Company invoices customers once the performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company's product sales contracts do not give rise to contract assets or liabilities under this guidance. At March 31, 2020 and December 31, 2019, the Company's receivables from contracts with customers were $16.5 million and $43.7 million, respectively. Payment is generally received within 30 to 60 days after the date of production.
The Company records revenue in the month production is delivered to the purchaser. However, as stated above, settlement statements for certain natural gas and NGLs sales may not be received for 30 to 60 days after the date production is delivered, and as a result, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. The Company records the differences between its estimates and the actual amounts received for product sales in the month in which payment is received from the purchaser. For the period from January 1, 2020 through March 31, 2020, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was insignificant.
Revenue attributable to each identified revenue stream is disaggregated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Operating Revenues:
|
|
|
|
|
|
|
|
|
Crude oil sales
|
$
|
51,146
|
|
|
$
|
60,790
|
|
|
|
|
|
|
Natural gas sales
|
6,018
|
|
|
7,456
|
|
|
|
|
|
|
Natural gas liquids sales
|
3,241
|
|
|
4,348
|
|
|
|
|
|
|
Oil and gas sales
|
$
|
60,405
|
|
|
$
|
72,594
|
|
|
|
|
|
Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheets, which sum to the total of such amounts shown in the accompanying condensed consolidated statements of cash flows (“statements of cash flows”) (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
2020
|
|
2019
|
|
Cash and cash equivalents
|
$
|
11,052
|
|
|
$
|
32,695
|
|
|
Restricted cash included in other noncurrent assets(1)
|
95
|
|
|
87
|
|
|
Total cash, cash equivalents, and restricted cash as shown in the statements of cash flows
|
$
|
11,147
|
|
|
$
|
32,782
|
|
__________________________
(1) Consists of funds for road maintenance and repairs.
Unproved Property
Unproved oil and gas property costs are evaluated for impairment when there is an indication that the carrying costs may not be fully recoverable. During the three months ended March 31, 2020, the Company incurred $30.1 million in abandonment and impairment of unproved properties due to the reassessment of estimated probable and possible reserve locations based primarily upon economic viability. During the three months ended March 31, 2019, the Company incurred $0.9 million in abandonment and impairment of unproved properties due to the expiration of non-core leases.
Accounting Pronouncements Recently Adopted and Issued
In June 2016, the FASB issued Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The update changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowances for losses. The amended standard was adopted using a modified retrospective approach on January 1, 2020. The Company considered past events (including historical experience), current economic and industry conditions, reasonable and supportable forecasts, and lives of receivable balances and loss experience. Historically and currently, the Company's credit losses on oil and natural gas sales receivables and joint interest receivables have not been significant, and the adoption of this standard did not have a material impact on its consolidated financial statements. As of March 31, 2020, the Company has an allowance of $0.8 million established against joint interest receivables.
In August 2018, the FASB issued Update No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The objective of this update is to improve the effectiveness of fair value measurement disclosures. The new standard was adopted on January 1, 2020. The standard only impacted the form of the Company's disclosures.
In March 2020, the FASB issued Update No. 2020-04, Reference Rate Reform, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The amendment provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. This amendment is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and this update on the Company's financial statements.
There are no other accounting standards applicable to the Company that would have a material effect on the Company’s financial statements and disclosures that have been issued, but not yet adopted by the Company as of March 31, 2020, and through the filing date of this report.
NOTE 3 - LEASES
The Company’s right-of-use assets and lease liabilities are recognized at their discounted present value on the balance sheet, which include leases related to the asset classes reflected as of the dates indicated in the table below (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Operating leases
|
|
|
|
|
|
Field equipment(1)
|
|
$
|
36,688
|
|
|
$
|
35,057
|
|
|
Corporate leases
|
|
2,193
|
|
|
2,462
|
|
|
Vehicles
|
|
923
|
|
|
1,043
|
|
|
Total right-of-use asset
|
|
$
|
39,804
|
|
|
$
|
38,562
|
|
|
|
|
|
|
|
|
Field equipment(1)
|
|
$
|
36,708
|
|
|
$
|
35,075
|
|
|
Corporate leases
|
|
2,809
|
|
|
3,129
|
|
|
Vehicles
|
|
903
|
|
|
1,026
|
|
|
Total lease liability
|
|
$
|
40,420
|
|
|
$
|
39,230
|
|
|
|
|
|
|
|
|
Finance leases
|
|
|
|
|
|
Right-of-use asset - field equipment(1)
|
|
$
|
219
|
|
|
|
$
|
—
|
|
|
Lease liability - field equipment(1)
|
|
209
|
|
|
|
—
|
|
__________________________
(1) Includes compressors, certain gas processing equipment, and other field equipment.
The lease amounts disclosed are presented on a gross basis. A portion of these costs may have been or will be billed to other working interest owners, and the Company's net share of these costs, once paid, are included in proved properties, other property and equipment, lease operating expenses, or general and administrative expenses, as applicable.
The Company recognizes operating lease expense on a straight-line basis. Finance lease expense is recognized based on the effective interest method for the lease liability and straight-line amortization for the right-of-use asset, resulting in more cost being recognized in earlier lease periods. Short-term and variable lease payments are recognized as incurred. Short-term lease cost represents payments for leases with a lease term of one year or less, excluding leases with a term of one month or less. Short-term leases include drilling rigs and other equipment. Drilling rig contracts are structured based on an allotted number of wells to be drilled consecutively at a daily operating rate. Short-term drilling rig costs include a non-lease labor component, which is treated as a single lease component.
The following table summarizes the components of the Company's gross lease costs incurred during the three months ended March 31, 2020 and 2019 (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Operating lease cost(1)
|
|
$
|
3,491
|
|
|
|
$
|
2,350
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
2
|
|
|
|
—
|
|
|
|
|
|
|
Interest on lease liabilities
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
Short-term lease cost
|
|
1,590
|
|
|
1,822
|
|
|
|
|
|
|
Variable lease cost(2)
|
|
91
|
|
|
20
|
|
|
|
|
|
|
Sublease income(3)
|
|
(89)
|
|
|
(87)
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
5,086
|
|
|
$
|
4,105
|
|
|
|
|
|
____________________________
(1) Includes office rent expense of $0.3 million for the three months ended March 31, 2020 and 2019.
(2) Variable lease cost represents differences between lease obligations and actual costs incurred for certain leases that do not have fixed payments related to both lease and non-lease components. Such incremental costs include lease payment increases or decreases driven by market price fluctuations and leased asset maintenance costs.
(3) The Company subleased a portion of its office space for the remainder of the office lease term.
The Company does not have any leases with an implicit interest rate that can be readily determined. As a result, the Company used the incremental borrowing rate, based on the Credit Facility benchmark rate, adjusted for facility utilization and lease term, to calculate the respective discount rates. Please refer to Note 5 - Long-term Debt for additional information.
The Company has certain lease agreements that provide for the option to extend, purchase, or terminate early, which was evaluated on each lease to arrive at the proper lease term. There were some leases for which the option to extend or purchase was factored into the resulting lease term. There were no leases where early termination was factored into the resulting lease term. The Company's weighted-average remaining lease terms and discount rates as of March 31, 2020 are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
Weighted-average lease term (years)
|
|
3.35
|
|
0.92
|
|
Weighted-average discount rate
|
|
3.95%
|
|
3.47%
|
Supplemental cash flow information related to leases for the three months ended March 31, 2020 and 2019 consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2020
|
|
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
3,133
|
|
|
|
$
|
2,032
|
|
|
Operating cash flows from finance leases
|
1
|
|
|
|
—
|
|
|
Financing cash flows from finance leases
|
10
|
|
|
—
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease obligations
|
$
|
5,444
|
|
|
$
|
1,197
|
|
|
Right-of-use assets obtained in exchange for new finance lease obligations
|
219
|
|
|
—
|
|
Future commitments by year for the Company's operating and finance leases with a lease term of one year or more as of March 31, 2020 are presented in the table below. Such commitments are reflected at undiscounted values and are reconciled to the discounted present value recognized on the balance sheet as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
Remainder of 2020
|
|
$
|
10,862
|
|
|
$
|
96
|
|
|
2021
|
|
13,116
|
|
|
118
|
|
|
2022
|
|
10,719
|
|
|
—
|
|
|
2023
|
|
6,378
|
|
|
—
|
|
|
2024
|
|
2,017
|
|
|
—
|
|
|
Thereafter
|
|
3
|
|
|
—
|
|
|
Total lease payments
|
|
43,095
|
|
|
214
|
|
|
Less: imputed interest
|
|
(2,675)
|
|
|
(5)
|
|
|
Total lease liability
|
|
$
|
40,420
|
|
|
$
|
209
|
|
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses contain the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020
|
|
As of December 31, 2019
|
|
Accrued drilling and completion costs
|
$
|
16,780
|
|
|
$
|
3,248
|
|
|
Accounts payable trade
|
14,608
|
|
|
17,117
|
|
|
Accrued general and administrative expense
|
1,194
|
|
|
5,620
|
|
|
Accrued lease operating expense
|
3,949
|
|
|
2,187
|
|
|
Accrued interest
|
540
|
|
|
692
|
|
|
Accrued oil and gas hedging
|
—
|
|
|
453
|
|
|
Accrued production and ad valorem taxes and other
|
26,662
|
|
|
28,321
|
|
|
Total accounts payable and accrued expenses
|
$
|
63,733
|
|
|
$
|
57,638
|
|
NOTE 5 - LONG-TERM DEBT
Credit Facility
On December 7, 2018, the Company entered into a reserve-based revolving facility, as the borrower, with JPMorgan Chase Bank, N.A., as the administrative agent, and a syndicate of financial institutions, as lenders (the “Credit Facility”). The Credit Facility has an aggregate original commitment amount of $750.0 million, an initial borrowing base of $350.0 million, and a maturity date of December 7, 2023. The Credit Facility borrowing base is redetermined on a semi-annual basis. The most recent redetermination was concluded on November 26, 2019, resulting in a reaffirmation of the borrowing base at $375.0 million; however, the Company chose to hold the aggregate elected commitments at $350.0 million. The next scheduled redetermination is set to occur in May 2020, but was not completed prior to the date of this filing.
Borrowings under the Credit Facility bear interest at a per annum rate equal to, at the option of the Company, either (i) LIBOR, subject to a 0% LIBOR floor plus a margin of 1.75% to 2.75%, based on the utilization of the Credit Facility (the “Eurodollar Rate”) or (ii) a fluctuating interest rate per annum equal to the greatest of (a) the rate of interest publicly announced by JPMorgan Chase Bank, N.A. as its prime rate, (b) the rate of interest published by the Federal Reserve Bank of New York as the federal funds effective rate, (c) the rate of interest published by the Federal Reserve Bank of New York as the overnight bank funding rate, or (d) a LIBOR offered rate for a one-month interest period, subject to a 0% LIBOR floor plus a margin of 0.75% to 1.75%, based on the utilization of the Credit Facility (the “Reference Rate”). Interest on borrowings that bear interest at the Eurodollar Rate shall be payable on the last day of the applicable interest period selected by the Company, which shall be one, two, three, or six months, and interest on borrowings that bear interest at the Reference Rate shall be payable quarterly in arrears. The Company's Credit Facility approximates fair value as the applicable interest rates are floating.
The Credit Facility is guaranteed by all wholly-owned subsidiaries of the Company (each, a “Guarantor” and, together with the Company, the “Credit Parties”), and is secured by first priority security interests on substantially all assets of each Credit Party, subject to customary exceptions.
The Credit Facility contains customary representations and affirmative covenants. The Credit Facility also contains customary negative covenants, which, among other things, and subject to certain exceptions, include restrictions on (i) liens, (ii) indebtedness, guarantees and other obligations, (iii) restrictions in agreements on liens and distributions, (iv) mergers or consolidations, (v) asset sales, (vi) restricted payments, (vii) investments, (viii) affiliate transactions, (ix) change of business, (x) foreign operations or subsidiaries, (xi) name changes, (xii) use of proceeds, letters of credit, (xiii) gas imbalances, (xiv) hedging transactions, (xv) additional subsidiaries, (xvi) changes in fiscal year or fiscal quarter, (xvii) operating leases, (xviii) prepayments of certain debt and other obligations, (xix) sales or discounts of receivables, and (xx) dividend payments. The Credit Parties are subject to certain financial covenants under the Credit Facility, as tested on the last day of each fiscal quarter, including, without limitation, (i) a maximum ratio of the Company’s consolidated indebtedness (subject to certain exclusions) to earnings before interest, income taxes, depreciation, depletion, and amortization, exploration expense, and other non-cash charges (“EBITDAX”) of 4.00 to 1.00 and (ii) a current ratio, as defined in the agreement, inclusive of the unused Commitments then available to be borrowed, to not be less than 1.00 to 1.00. The Company was in compliance with all covenants as of March 31, 2020, and through the filing date of this report.
For each of the periods ending March 31, 2020 and through the filing date of this report, the Company had $59.0 million outstanding on the Credit Facility and $80.0 million as of December 31, 2019.
In connection with the Credit Facility, the Company capitalized a total of $2.5 million in deferred financing costs. Of the total post-amortization net capitalized amounts, (i) $1.3 million and $1.4 million as of March 31, 2020 and December 31, 2019, respectively, are presented within other noncurrent assets and (ii) $0.5 million as of March 31, 2020 and December 31, 2019, is presented within the prepaid expenses and other line items in the accompanying condensed consolidated balance sheets (“balance sheets”).
For each of the three months ended March 31, 2020 and 2019, the Company incurred interest expense of $1.2 million. The Company capitalized $1.0 million of interest expense during the three months ended March 31, 2020. No interest was capitalized during the three months ended March 31, 2019.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, the Company is involved in various commercial and regulatory claims, litigation, and other legal proceedings that arise in the ordinary course of its business. The Company assesses these claims in an effort to determine the degree of probability and range of possible loss for potential accrual in its condensed consolidated financial statements. In accordance with authoritative accounting guidance, an accrual is recorded for a loss contingency when its occurrence is probable and damages can be reasonably estimated based on the most likely anticipated outcome or the minimum amount within a range of possible outcomes. Because legal proceedings are inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about uncertain future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. The Company regularly reviews contingencies to determine the adequacy of its accruals and related disclosures. No claims have been made, nor is the Company aware of any material uninsured liability which the Company may have, as it relates to any environmental cleanup, restoration, or the violation of any rules or regulations. As of the filing date of this report, there were no probable, material pending, or overtly threatened legal actions against the Company of which it was aware.
In February 2019, the Company was sent a notice of intent to sue (“NOI”) letter by WildEarth Guardians (“WEG”), an environmental non-governmental organization, alleging failure to obtain required permits under the federal Clean Air Act before constructing and operating well production facilities in the ozone non-attainment area around the Denver Metropolitan and North Front Range of Colorado, among other things. The Company is one of seven operators in the Wattenberg Field to receive such an NOI letter from WEG, and these letters appear to challenge long-established federal and state regulations and policies for permitting the construction and initial operation of upstream oil and gas production facilities in Colorado and elsewhere under the Clean Air Act and state counterpart statutes.
On May 3, 2019, WEG filed a lawsuit in the U.S. District Court for the District of Colorado against the Company and the other six operators who received the NOI, alleging claims consistent with those contained in the NOI letters. The allegations made in the lawsuit are based on novel and unprecedented interpretations of complex federal and state air quality laws and regulations. The Company has and will continue to vigorously defend against those allegations, and it will also coordinate as much as possible with state and federal permitting authorities to maintain the validity of its facilities’ current and future air permits. At this time, the Company is unable to estimate the lawsuit’s potential outcome.
Commitments
The Company is party to a purchase agreement to deliver fixed determinable quantities of crude oil to NGL Crude. The NGL Crude agreement includes defined volume commitments over a term ending in 2023. Under the terms of the NGL Crude agreement, the Company is required to make periodic deficiency payments for any shortfalls in delivering minimum gross volume commitments, which are set in six-month periods. The minimum gross volume commitment will increase approximately 3% each year for the remainder of the contract, to a maximum of approximately 16,000 gross barrels per day. The aggregate financial commitment fee over the remaining term was $73.7 million as of March 31, 2020. Upon notifying NGL Crude at least twelve months prior to the expiration date of the NGL Crude agreement, the Company may elect to extend the term of the NGL Crude agreement for up to three additional years.
The annual minimum commitment payments under the NGL Crude agreement for the next five years as of March 31, 2020 are presented below (in thousands):
|
|
|
|
|
|
|
|
|
NGL Crude Commitments(1)
|
|
Remainder of 2020
|
$
|
15,219
|
|
|
2021
|
23,316
|
|
|
2022
|
24,009
|
|
|
2023
|
11,200
|
|
|
2024
|
—
|
|
|
2025 and thereafter
|
—
|
|
|
Total
|
$
|
73,744
|
|
____________________________
(1) The above calculation is based on the minimum volume commitment schedule (as defined in the NGL Crude agreement) and applicable differential fees.
Since the commencement of the NGL Crude agreement and through the remainder of the term of the agreement, the Company has not and does not expect to incur any deficiency payments.
There have been no other material changes from the commitments disclosed in the notes to the Company’s consolidated financial statements included in our 2019 Form 10-K. Refer to Note 3 - Leases, for lease commitments.
NOTE 7 - STOCK-BASED COMPENSATION
2017 Long Term Incentive Plan
Upon emergence from bankruptcy, the Company adopted a new Long Term Incentive Plan (the “2017 LTIP”), as established by the pre-emergence Board of Directors, which allows for the issuance of restricted stock units (“RSUs”), performance stock units (“PSUs”), and options, and reserved 2,467,430 shares of new common stock. See below for further discussion of awards granted under the 2017 LTIP.
The Company recorded compensation expense related to the awards granted under the 2017 LTIP as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Restricted stock units
|
$
|
1,301
|
|
|
$
|
1,085
|
|
|
|
|
|
|
Performance stock units
|
(193)
|
|
|
143
|
|
|
|
|
|
|
Stock options
|
131
|
|
|
152
|
|
|
|
|
|
|
Total stock-based compensation
|
$
|
1,239
|
|
|
$
|
1,380
|
|
|
|
|
|
As of March 31, 2020, unrecognized compensation expense will be amortized through the relevant periods as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized Compensation Expense
|
|
Final Year of Recognition
|
|
Restricted stock units
|
$
|
8,010
|
|
|
2023
|
|
Performance stock units
|
955
|
|
|
2021
|
|
Stock options
|
40
|
|
|
2020
|
|
|
$
|
9,005
|
|
|
|
Restricted Stock Units
The 2017 LTIP allows for the issuance of RSUs to members of the Board of Directors (the “Board”) and employees of the Company at the discretion of the Board. Each RSU represents one share of the Company's common stock to be released from restriction upon completion of the vesting period. The awards typically vest in one-third increments over three years. The RSUs are valued at the grant date share price and are recognized as general and administrative expense over the vesting period of the award.
No RSUs were granted during the three months ended March 31, 2020. A summary of the status and activity of non-vested restricted stock units for the three months ended March 31, 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
Weighted-Average Grant-Date Fair Value
|
|
Non-vested, beginning of year
|
557,817
|
|
|
$
|
26.95
|
|
|
Granted
|
—
|
|
|
—
|
|
|
Vested
|
(13,674)
|
|
|
19.70
|
|
|
Forfeited
|
(7,714)
|
|
|
30.38
|
|
|
Non-vested, end of quarter
|
536,429
|
|
|
$
|
26.82
|
|
Cash flows resulting from excess tax benefits are to be classified as part of cash flows from operating activities. Excess tax benefits are realized tax benefits from tax deductions for vested restricted stock in excess of the deferred tax asset attributable to stock compensation costs for such restricted stock. The Company recorded no excess tax benefits for the periods presented.
Performance Stock Units
The 2017 LTIP allows for the issuance of PSUs to employees at the sole discretion of the Board. The number of shares of the Company’s common stock that may be issued to settle PSUs ranges from zero to two times the number of PSUs awarded. The PSUs vest in their entirety at the end of the three-year performance period. The total number of PSUs granted is evenly split between two performance criteria. The first criterion is based on a comparison of the Company’s absolute and relative total shareholder return (“TSR”) for the performance period compared with the TSRs of a group of peer companies for the same performance period. The TSR for the Company and each of the peer companies is determined by dividing (A) (i) the volume-weighted average share price for the last 30 trading days of the performance period minus (ii) the volume-weighted average share price for the 30 trading days preceding the beginning of the performance period, by (B) the volume-weighted average share price for the 30 trading days preceding the beginning of the performance period. The second criterion is based on the Company's average annual return on capital employed (“ROCE”) for each year during the three-year performance period. Compensation expense associated with PSUs is recognized as general and administrative expense over the performance period. Because these awards depend on a combination of performance-based and market-based settlement criteria, compensation expense may be adjusted in future periods as the number of units expected to vest increases or decreases based on the Company’s expected ROCE performance. As of March 31, 2020, the Company does not expect any of the ROCE PSUs to vest and has accordingly adjusted the related compensation expense.
The fair value of the PSUs was measured at the grant date. The portion of the PSUs tied to the TSR required a stochastic process method using a Brownian Motion simulation. A stochastic process is a mathematically defined equation that can create a series of outcomes over time. These outcomes are not deterministic in nature, which means that by iterating the equations multiple times, different results will be obtained for those iterations. In the case of the Company’s TSRs, the Company could not predict with certainty the path its stock price or the stock prices of its peers would take over the performance period. By using a stochastic simulation, the Company created multiple prospective stock pathways, statistically analyzed these simulations, and ultimately made inferences regarding the most likely path the stock price would take. As such, because future stock prices are stochastic, or probabilistic with some direction in nature, the stochastic method, specifically the Brownian Motion Model, was deemed an appropriate method by which to determine the fair value of the portion of the PSUs tied to the TSR. Significant assumptions used in this simulation include the Company’s expected volatility, risk-free interest rate based on U.S. Treasury yield curve rates with maturities consistent with the performance period, as well as the volatilities for each of the Company’s peers.
No PSUs were granted during the three months ended March 31, 2020. A summary of the status and activity of performance stock units for the three months ended March 31, 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Stock Units(1)
|
|
Weighted-Average Grant-Date Fair Value
|
|
Non-vested, beginning of year
|
153,470
|
|
|
$
|
24.74
|
|
|
Granted
|
—
|
|
|
—
|
|
|
Vested
|
—
|
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
Non-vested, end of quarter
|
153,470
|
|
|
$
|
24.74
|
|
___________________________
(1)The number of awards assumes that the associated performance condition is met at the target amount. The final number of shares of the Company’s common stock issued may vary depending on the performance multiplier, which ranges from zero to two, depending on the level of satisfaction of the performance condition.
Stock Options
The 2017 LTIP allows for the issuance of stock options to the Company's employees at the sole discretion of the Board. Options expire ten years from the grant date unless otherwise determined by the Board. Compensation expense on the stock options is recognized as general and administrative expense over the vesting period of the award.
Stock options are valued using a Black-Scholes Model where (i) expected volatility is based on an average historical volatility of a peer group selected by management over a period consistent with the expected life assumption on the grant date, (ii) the risk-free rate of return is based on the U.S. Treasury constant maturity yield on the grant date with a remaining term equal to the expected term of the awards, and (iii) the Company’s expected life of stock option awards is derived from the midpoint of the average vesting time and contractual term of the awards.
There were no stock options granted during the three months ended March 31, 2020. A summary of the status and activity of stock options for the three months ended March 31, 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
|
Outstanding, beginning of year
|
100,714
|
|
|
$
|
34.36
|
|
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Forfeited
|
(5,976)
|
|
|
34.36
|
|
|
|
|
|
|
|
|
Outstanding, end of quarter
|
94,738
|
|
|
$
|
34.36
|
|
|
6.9
|
|
$
|
—
|
|
|
Number of options outstanding and exercisable
|
64,632
|
|
|
$
|
34.36
|
|
|
6.8
|
|
$
|
—
|
|
NOTE 8 - FAIR VALUE MEASUREMENTS
The Company follows fair value measurement authoritative guidance, which defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The authoritative accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The statement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
Level 1: Quoted prices are available in active markets for identical assets or liabilities
Level 2: Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable
Level 3: Significant inputs to the valuation model are unobservable
Financial and non-financial assets and liabilities are to be classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The following tables present the Company's financial and non-financial assets and liabilities that were accounted for at fair value on a recurring basis and their classification within the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Derivative assets
|
$
|
—
|
|
|
$
|
90,551
|
|
|
$
|
—
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
1,452
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Derivative assets
|
$
|
—
|
|
|
$
|
3,005
|
|
|
$
|
—
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
7,311
|
|
|
$
|
—
|
|
Derivatives
Fair value of all derivative instruments are estimated with industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value of money, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. All valuations were compared against counterparty statements to verify the reasonableness of the estimate. The Company’s commodity swaps, collars, and puts were validated by observable transactions for the same or similar commodity options using the NYMEX futures index and were designated as Level 2 within the valuation hierarchy.
Proved Oil and Gas Properties
Proved oil and gas property costs are evaluated for impairment on a nonrecurring basis and reduced to fair value when there is an indication that the carrying costs exceed the sum of the undiscounted cash flows. Depending on the availability of data, the Company uses Level 3 inputs and either the income valuation technique, which converts future amounts to a single present value amount to measure the fair value of proved properties through an application of risk-adjusted discount rates and price forecasts selected by the Company’s management, or the market valuation approach. The calculation of the risk-adjusted discount rate is a significant management estimate based on the best information available. Management believes that the risk-adjusted discount rate is representative of current market conditions and reflects the following factors: estimates of future cash payments, expectations of possible variations in the amount and/or timing of cash flows, the risk premium, and nonperformance risk. The price forecast is based on the Company's internal budgeting model derived from the NYMEX strip pricing, adjusted for management estimates and basis differentials. Future operating costs are also adjusted as deemed appropriate for these estimates. Proved properties classified as held for sale are valued using a market approach, based on an estimated selling price, as evidenced by the most current bid prices received from third parties. If a relevant estimated selling price is not available, the Company utilizes the income valuation technique discussed above. There were no proved oil and gas property impairments during the three months ended March 31, 2020 and 2019.
NOTE 9 - ASSET RETIREMENT OBLIGATIONS
The Company recognizes an estimated liability for future costs to abandon its oil and gas properties. The fair value of the asset retirement obligation is recorded as a liability when incurred, which is typically at the time the asset is acquired or placed in service. There is a corresponding increase to the carrying value of the asset, which is included in the proved properties line item in the accompanying balance sheets. The Company depletes the amount added to proved properties and recognizes expense in connection with accretion of the discounted liability over the remaining estimated economic lives of the properties.
The Company’s estimated asset retirement obligation liability is based on historical experience in abandoning wells, estimated economic lives, estimated costs to abandon the wells, and regulatory requirements. The liability is discounted using the credit-adjusted risk-free rate estimated at the time the liability is incurred.
A roll-forward of the Company's asset retirement obligation is as follows (in thousands):
|
|
|
|
|
|
|
|
|
Amount
|
|
Beginning balance as of December 31, 2019
|
$
|
27,908
|
|
|
Liabilities settled
|
(610)
|
|
|
Additions
|
64
|
|
|
Accretion expense
|
260
|
|
|
|
|
|
Ending balance as of March 31, 2020
|
$
|
27,622
|
|
NOTE 10 - DERIVATIVES
The Company enters into commodity derivative contracts to mitigate a portion of its exposure to potentially adverse market changes in commodity prices and the associated impact on cash flows. All contracts are entered into for other-than-trading purposes. The Company’s derivatives include swaps, collars, and puts for oil and natural gas, and none of the derivative instruments qualify as having hedging relationships.
In a typical commodity swap agreement, if the agreed upon published third-party index price is lower than the swap strike price, the Company receives the difference between the index price and the agreed upon swap strike price. If the index price is higher than the swap strike price, the Company pays the difference.
A put gives the owner the right to sell the underlying commodity at a set price over the term of the contract. If the index settlement price is higher than the put fixed price, the put will expire worthless. If the settlement price is lower than the put fixed price, the Company will exercise the put and receive the difference between the settlement price and the put fixed price.
A cashless collar arrangement establishes a floor and ceiling price on future oil and gas production. When the settlement price is above the ceiling price, the Company pays the difference between the settlement price and the ceiling price. When the settlement price is below the floor price, the Company receives the difference between the settlement price and floor price. In the event that the settlement price is between the ceiling and the floor, no payment or receipt occurs.
A basis swap arrangement guarantees a price differential from a specified delivery point to an agreed upon reference point. The Company receives the difference between the price differential and the stated terms, if the price differential is greater than the stated terms. The Company pays the difference between the price differential and the stated terms, if the stated terms are greater than the price differential.
As of March 31, 2020, the Company had entered into the following commodity derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil
(NYMEX WTI)
|
|
|
|
Natural Gas
(NYMEX Henry Hub)
|
|
|
|
Natural Gas
(CIG Basis)
|
|
|
|
|
|
|
|
|
|
Bbls/day
|
|
Weighted Avg. Price per Bbl
|
|
MMBtu/day
|
|
Weighted Avg. Price per MMBtu
|
|
MMBtu/day
|
|
Weighted Avg. Basis Differential to CIG Price per MMBtu
|
|
|
|
|
|
2Q20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
7,500
|
|
|
$54.00/$61.01
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
1,500
|
|
|
$54.98
|
|
10,000
|
|
|
$2.61
|
|
30,000
|
|
|
$0.54
|
|
|
|
|
|
Put
|
|
4,000
|
|
|
$32.50
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
3Q20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
6,000
|
|
|
$52.67/$58.40
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
3,500
|
|
|
$54.12
|
|
—
|
|
|
—
|
|
30,000
|
|
|
$0.54
|
|
|
|
|
|
Put
|
|
4,000
|
|
|
$32.50
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
4Q20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
6,000
|
|
|
$52.67/$58.40
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
3,500
|
|
|
$54.12
|
|
—
|
|
|
—
|
|
30,000
|
|
|
$0.54
|
|
|
|
|
|
Put
|
|
3,000
|
|
|
$32.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
2,000
|
|
|
$50.50/$55.19
|
|
20,000
|
|
|
$2.25/$2.52
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
5,000
|
|
|
$54.48
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
2Q21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
500
|
|
|
$52.00/$55.00
|
|
20,000
|
|
|
$2.25/$2.52
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
4,000
|
|
|
$54.13
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
3Q21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
—
|
|
|
—
|
|
20,000
|
|
|
$2.25/$2.52
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
2,500
|
|
|
$54.45
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
4Q21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
—
|
|
|
—
|
|
20,000
|
|
|
$2.25/$2.52
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
1,000
|
|
|
$55.20
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
As of the filing date of this report, the Company had entered into the following commodity derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil
(NYMEX WTI)
|
|
|
|
Natural Gas
(NYMEX Henry Hub)
|
|
|
|
Natural Gas
(CIG Basis)
|
|
|
|
|
|
|
|
|
|
Bbls/day
|
|
Weighted Avg. Price per Bbl
|
|
MMBtu/day
|
|
Weighted Avg. Price per MMBtu
|
|
MMBtu/day
|
|
Weighted Avg. Basis Differential to CIG Price per MMBtu
|
|
|
|
|
|
2Q20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
7,500
|
|
|
$54.00/$61.01
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
2,500
|
|
|
$44.48
|
|
10,000
|
|
|
$2.61
|
|
30,000
|
|
|
$0.54
|
|
|
|
|
|
Put
|
|
4,000
|
|
|
$32.50
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
3Q20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
6,000
|
|
|
$52.67/$58.40
|
|
10,000
|
|
|
$2.25/$2.67
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
3,500
|
|
|
$54.12
|
|
—
|
|
|
—
|
|
30,000
|
|
|
$0.54
|
|
|
|
|
|
Put
|
|
4,000
|
|
|
$32.50
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
4Q20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
6,000
|
|
|
$52.67/$58.40
|
|
10,000
|
|
|
$2.25/$2.67
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
3,500
|
|
|
$54.12
|
|
10,000
|
|
|
$2.30
|
|
30,000
|
|
|
$0.54
|
|
|
|
|
|
Put
|
|
3,000
|
|
|
$32.50
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
1Q21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
2,000
|
|
|
$50.50/$55.19
|
|
30,000
|
|
|
$2.25/$2.57
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
5,000
|
|
|
$54.48
|
|
—
|
|
|
—
|
|
20,000
|
|
|
$0.43
|
|
|
|
|
|
2Q21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
1,000
|
|
|
$41.00/$49.18
|
|
20,000
|
|
|
$2.25/$2.52
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
4,000
|
|
|
$54.13
|
|
—
|
|
|
—
|
|
20,000
|
|
|
$0.43
|
|
|
|
|
|
3Q21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
500
|
|
|
$30.00/$43.35
|
|
20,000
|
|
|
$2.25/$2.52
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
2,500
|
|
|
$54.45
|
|
—
|
|
|
—
|
|
20,000
|
|
|
$0.43
|
|
|
|
|
|
4Q21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
1,000
|
|
|
$30.00/$43.80
|
|
20,000
|
|
|
|
$2.25/$2.52
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Swap
|
|
1,000
|
|
|
$55.20
|
|
—
|
|
|
|
—
|
|
|
20,000
|
|
|
$0.43
|
|
|
|
|
|
1Q22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless Collar
|
|
1,000
|
|
|
$30.00/$43.80
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets and Liabilities Fair Value
The Company’s commodity derivatives are measured at fair value and are included in the accompanying balance sheets as derivative assets and liabilities. The following table contains a summary of all the Company’s derivative positions reported on the accompanying balance sheets for the periods below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020
|
|
As of December 31, 2019
|
|
Derivative Assets:
|
|
|
|
|
|
Commodity contracts - current
|
|
$
|
77,973
|
|
|
$
|
2,884
|
|
|
Commodity contracts - noncurrent
|
|
12,578
|
|
|
121
|
|
|
Derivative Liabilities:
|
|
|
|
|
|
Commodity contracts - current
|
|
(1,248)
|
|
|
(6,390)
|
|
|
Commodity contracts - noncurrent
|
|
(204)
|
|
|
(921)
|
|
|
Total derivative assets (liabilities), net
|
|
$
|
89,099
|
|
|
$
|
(4,306)
|
|
The following table summarizes the components of the derivative gain (loss) presented on the accompanying statements of operations for the periods below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Derivative cash settlement gain (loss):
|
|
|
|
|
|
|
|
|
Oil contracts
|
$
|
10,438
|
|
|
$
|
2,078
|
|
|
|
|
|
|
Gas contracts
|
816
|
|
|
(1,142)
|
|
|
|
|
|
|
Total derivative cash settlement gain(1)
|
11,254
|
|
|
936
|
|
|
|
|
|
|
Change in fair value gain (loss)
|
89,165
|
|
|
(37,480)
|
|
|
|
|
|
|
Total derivative gain (loss)(1)
|
$
|
100,419
|
|
|
$
|
(36,544)
|
|
|
|
|
|
_______________________________
(1)Total derivative gain (loss) and total derivative cash settlement gain for the three months ended March 31, 2020 and 2019 are reported in the derivative (gain) loss line item and derivative cash settlements line item in the accompanying statements of cash flows, within the cash flows from operating activities.
NOTE 11 - EARNINGS PER SHARE
The Company issues RSUs, which represent the right to receive, upon vesting, one share of the Company's common stock. The number of potentially dilutive shares related to RSUs is based on the number of shares, if any, that would be issuable at the end of the respective reporting period, assuming that date was the end of the vesting period. The Company issues PSUs, which represent the right to receive, upon settlement of the PSUs, a number of shares of the Company's common stock that ranges from zero to two times the number of PSUs granted on the award date. The number of potentially dilutive shares related to PSUs is based on the number of shares, if any, that would be issuable at the end of the respective reporting period, assuming that date was the end of the performance period applicable to such PSUs. The Company issued stock options and warrants, which both represent the right to purchase the Company's common stock at a specified price. The number of potentially dilutive shares related to the stock options is based on the number of shares, if any, that would be exercised at the end of the respective reporting period, assuming that date was the end of such stock options' term. The number of potentially dilutive shares related to the warrants is based on the number of shares, if any, that would be exercisable at the end of the respective reporting period.
Please refer to Note 7 - Stock-Based Compensation for additional discussion.
The Company uses the treasury stock method to calculate earnings per share as shown in the following table (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Net income (loss)
|
$
|
78,551
|
|
|
$
|
(6,993)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
$
|
3.80
|
|
|
$
|
(0.34)
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
$
|
3.80
|
|
|
$
|
(0.34)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic
|
20,649
|
|
|
20,557
|
|
|
|
|
|
|
Add: dilutive effect of contingent stock awards
|
35
|
|
|
—
|
|
|
|
|
|
|
Weighted-average shares outstanding - diluted
|
20,684
|
|
|
20,557
|
|
|
|
|
|
There were 648,476 and 173,252 shares that were anti-dilutive for the three months ended March 31, 2020 and 2019, respectively. The Company was in a net loss position for the three months ended March 31, 2019, which made all potentially dilutive shares anti-dilutive.
The exercise price of the Company's warrants was in excess of the Company's stock price; therefore, they were excluded from the earnings per share calculation.
NOTE 12 - INCOME TAXES
Deferred tax assets and liabilities are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years related to cumulative temporary differences between the tax basis of assets and liabilities and amounts reported in the Company's balance sheets. The tax effect of the net change in the cumulative temporary differences during each period in the deferred tax assets and liabilities determines the periodic provision for deferred taxes.
The Company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of temporary differences, tax-planning strategies, projected future taxable income, and results of operations. As a result of the Company's analysis, it was concluded that as of March 31, 2020 and December 31, 2019, a full valuation allowance should be established against the Company's deferred tax asset. The Company will continue to monitor facts and circumstances in the reassessment of the likelihood that the deferred tax assets will be realized.
Federal income tax expense differs from the amount that would be provided by applying the statutory United States federal income tax rate of 21% to income before income taxes primarily due to the effect of state income taxes, changes in valuation allowances, and other permanent differences.
As of March 31, 2020 and December 31, 2019, the Company had no unrecognized tax benefits. The Company's management does not believe that there are any new items or changes in facts or judgments that would impact the Company's tax position taken thus far in 2020.