Note 1—Organization and basis of presentation
a. Organization
Laredo Petroleum, Inc. ("Laredo"), together with its wholly-owned subsidiaries, Laredo Midstream Services, LLC ("LMS") and Garden City Minerals, LLC ("GCM"), is an independent energy company focused on the acquisition, exploration and development of oil and natural gas properties, primarily in the Permian Basin of West Texas. In these notes, the "Company" refers to Laredo, LMS and GCM collectively, unless the context indicates otherwise. All amounts, dollars and percentages presented in these unaudited consolidated financial statements and the related notes are rounded and, therefore, approximate.
b. Basis of presentation
The unaudited consolidated financial statements were derived from the historical accounting records of the Company and reflect the historical financial position, results of operations and cash flows for the periods described herein. The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). All material intercompany transactions and account balances have been eliminated in the consolidation of accounts.
The unaudited consolidated financial statements have not been audited by the Company's independent registered public accounting firm, except that the consolidated balance sheet as of December 31, 2019 is derived from audited consolidated financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all necessary adjustments to present fairly the Company's financial position as of June 30, 2020, results of operations for the three and six months ended June 30, 2020 and 2019 and cash flows for the six months ended June 30, 2020 and 2019.
Certain disclosures have been condensed or omitted from the unaudited consolidated financial statements. Accordingly, the unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2019 Annual Report.
Significant accounting policies
See Note 2 in the 2019 Annual Report for discussion of significant accounting policies.
Use of estimates in the preparation of interim unaudited consolidated financial statements
The preparation of the unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates are reasonable, actual results could differ.
For further information regarding the use of estimates and assumptions, see Note 2.b in the 2019 Annual Report and Notes 8.e and 8.f pertaining to the Company's 2020 performance unit awards and phantom unit awards, respectively.
Reclassifications
Certain amounts in the accompanying unaudited consolidated financial statements have been reclassified to conform to the 2020 presentation. These reclassifications had no impact on previously reported total assets, total liabilities, net income (loss), stockholders' equity or total operating, investing or financing cash flows.
Note 2—New accounting standards
The Company considers the applicability and impact of all accounting standard updates ("ASU") issued by the Financial Accounting Standards Board to the Accounting Standards Codification ("ASC") and has determined there are no ASUs that are not yet adopted and meaningful to disclose as of June 30, 2020.
On January 1, 2020, the Company adopted ASU 2016-13 to Topic 326, Financial Instruments—Credit Losses, that requires an allowance for expected credit losses to be recorded against newly recognized financial assets measured at an amortized cost basis. The measurement of expected credit losses is based on relevant information about past events, including historical
Condensed notes to the consolidated financial statements
(Unaudited)
experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company has included these factors in its analysis and determined there was minimal impact to the unaudited consolidated financial statements for the three and six months ended June 30, 2020.
Note 3—Acquisitions and divestitures
a. 2020 Asset acquisitions and divestitures
On April 30, 2020, the Company closed an acquisition of 180 net acres in Howard County, Texas for a total purchase price of $0.6 million. The acquisition also provides for one or more potential contingent payments to be paid by the Company if the arithmetic average of the monthly settlement West Texas Intermediate ("WTI") NYMEX prices exceed certain thresholds for the contingency period beginning on January 1, 2021 and ending on the earlier of December 31, 2022 or the date the counterparty has received the maximum consideration of $1.2 million. The fair value of the contingent consideration was $0.2 million as of the acquisition date, which was recorded as part of the basis in the oil and natural gas properties acquired and as a contingent consideration derivative liability. See Note 10.a for the fair value of the contingent consideration as of June 30, 2020.
On February 4, 2020, the Company closed a transaction for $22.5 million acquiring 1,180 net acres and divesting 80 net acres in Howard County, Texas.
All transaction costs for the asset acquisitions were capitalized and were included in "Oil and natural gas properties" on the consolidated balance sheet.
On April 9, 2020, the Company closed a divestiture of 80 net acres and working interests in two producing wells in Glasscock County, Texas for a total sales price of $0.7 million, net of customary closing and subject to customary post-closing purchase price adjustments. The divestiture was recorded as an adjustment to oil and natural gas properties pursuant to the rules governing full cost accounting. Effective at closing, the operations and cash flows of these oil and natural gas properties were eliminated from the ongoing operations of the Company, and the Company has no continuing involvement in the properties. This divestiture does not represent a strategic shift and will not have a major effect on the Company's future operations or financial results.
b. 2019 Acquisitions
Asset acquisitions
On December 12, 2019, the Company closed an acquisition of 7,360 net acres and 750 net royalty acres in Howard County, Texas for $131.7 million, net of customary closing and subject to customary post-closing purchase price adjustments. The acquisition also provides for a potential contingent payment, where the Company is required to pay $20.0 million if the arithmetic average of the monthly settlement WTI NYMEX prices for each consecutive calendar month for the one-year period beginning January 1, 2020 through December 31, 2020 exceeds a certain threshold. The fair value of the contingent consideration was $6.2 million as of the acquisition date, which was recorded as part of the basis in the oil and natural gas properties acquired and as a contingent consideration derivative liability. See Note 10.a for the fair value of the contingent consideration as of June 30, 2020. All transaction costs were capitalized and were included in "Oil and natural gas properties" on the consolidated balance sheet. This acquisition was primarily financed through borrowings under the Senior Secured Credit Facility. Post-closing is expected to be finalized during the third quarter of 2020.
On June 20, 2019, the Company acquired 640 net acres in Reagan County, Texas for $2.9 million.
Business combination
On December 6, 2019, the Company closed a bolt-on acquisition of 4,475 contiguous net acres and working interests in 49 producing wells in western Glasscock County, Texas, which included net production of 1,400 barrels of oil equivalent ("BOE") per day at the time of acquisition, for $64.6 million, net of customary closing purchase price adjustments. This acquisition was financed through borrowings under the Senior Secured Credit Facility. Post-closing was finalized during the three months ended June 30, 2020.
This acquisition was accounted for as a business combination. Accordingly, the Company conducted assessments of net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at the estimated acquisition date fair
Condensed notes to the consolidated financial statements
(Unaudited)
values, while transaction costs associated with the acquisition were expensed. The Company makes various assumptions in estimating the fair values of assets acquired and liabilities assumed. The most significant assumptions relate to the estimated fair values of evaluated and unevaluated oil and natural gas properties. The fair values of these properties were measured using a discounted cash flow model that converts future cash flows to a single discounted amount. Significant inputs to the valuation include estimates of: (i) forecasted oil, NGL and natural gas reserve quantities; (ii) future commodity strip prices as of the closing dates adjusted for transportation and regional price differentials; (iii) forecasted ad valorem taxes, production taxes, income taxes, operating expenses and development costs; and (iv) a peer group weighted-average cost of capital rate subject to additional project-specific risk factors. To compensate for the inherent risk of estimating the value of the unevaluated properties, the discounted future net cash flows of proved undeveloped and probable reserves are reduced by additional reserve adjustment factors. These assumptions represent Level 3 inputs under the fair value hierarchy, as described in Note 10 in the 2019 Annual Report.
The following table reflects an aggregate of the final estimate of the fair values of the assets acquired and liabilities assumed in this business combination on December 6, 2019:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Fair values of acquisition
|
|
Fair values of net assets:
|
|
|
|
Evaluated oil and natural gas properties
|
|
$
|
29,921
|
|
|
Unevaluated oil and natural gas properties
|
|
34,700
|
|
|
Asset retirement cost
|
|
2,728
|
|
|
Total assets acquired
|
|
67,349
|
|
|
Asset retirement obligations
|
|
(2,728)
|
|
|
Net assets acquired
|
|
$
|
64,621
|
|
|
Fair values of consideration paid for net assets:
|
|
|
|
Cash consideration
|
|
$
|
64,621
|
|
c. Exchange of unevaluated oil and natural gas properties
From time to time, the Company exchanges undeveloped acreage with third parties. The exchanges are recorded at fair value and the difference is accounted for as an adjustment of capitalized costs with no gain or loss recognized pursuant to the rules governing full cost accounting, unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil, NGL and natural gas.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 4—Property and equipment
The following table presents the Company's property and equipment as of the dates presented:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Evaluated oil and natural gas properties
|
|
$
|
7,689,108
|
|
|
$
|
7,421,799
|
|
|
Less accumulated depletion and impairment
|
|
(6,429,794)
|
|
|
(5,725,114)
|
|
|
Evaluated oil and natural gas properties, net
|
|
1,259,314
|
|
|
1,696,685
|
|
|
|
|
|
|
|
|
Unevaluated oil and natural gas properties not being depleted
|
|
127,116
|
|
|
142,354
|
|
|
|
|
|
|
|
|
Midstream service assets
|
|
181,239
|
|
|
180,932
|
|
|
Less accumulated depreciation and impairment
|
|
(64,413)
|
|
|
(52,254)
|
|
|
Midstream service assets, net
|
|
116,826
|
|
|
128,678
|
|
|
|
|
|
|
|
|
Depreciable other fixed assets
|
|
38,336
|
|
|
37,894
|
|
|
Less accumulated depreciation and amortization
|
|
(24,533)
|
|
|
(23,649)
|
|
|
Depreciable other fixed assets, net
|
|
13,803
|
|
|
14,245
|
|
|
|
|
|
|
|
|
Land
|
|
19,198
|
|
|
18,259
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
1,536,257
|
|
|
$
|
2,000,221
|
|
See Note 10.b for discussion of impairments of long-lived assets during the six months ended June 30, 2020. See Note 6 in the 2019 Annual Report for additional discussion of the Company's property and equipment.
The Company uses the full cost method of accounting for its oil and natural gas properties. Under this method, all acquisition, exploration and development costs, including certain employee-related costs, incurred for the purpose of acquiring, exploring for or developing oil and natural gas properties, are capitalized and, once evaluated, depleted on a composite unit-of-production method based on estimates of proved oil, NGL and natural gas reserves. The depletion base includes estimated future development costs and dismantlement, restoration and abandonment costs, net of estimated salvage values. Capitalized costs include the cost of drilling and equipping productive wells, dry hole costs, lease acquisition costs, delay rentals and other costs related to such activities. Costs, including employee-related costs, associated with production and general corporate activities are expensed in the period incurred.
The Company excludes unevaluated property acquisition costs and exploration costs from the depletion calculation until it is determined whether or not proved reserves can be assigned to the properties. The Company capitalizes a portion of its interest costs to its unevaluated properties and such costs become subject to depletion when proved reserves can be assigned to the associated properties. All items classified as unevaluated properties are assessed on a quarterly basis for possible impairment. The assessment includes consideration of the following factors, among others: intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, the assignment of proved reserves and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion.
Sales of oil and natural gas properties, whether or not being depleted currently, are accounted for as adjustments of capitalized costs, with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil, NGL and natural gas.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table presents costs incurred in the acquisition, exploration and development of oil and natural gas properties, with asset retirement obligations included in evaluated property acquisition costs and development costs, for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Property acquisition costs:
|
|
|
|
|
|
|
|
—
|
|
|
Evaluated
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,586
|
|
|
$
|
—
|
|
|
Unevaluated
|
|
912
|
|
|
2,880
|
|
|
16,468
|
|
|
2,880
|
|
|
Exploration costs
|
|
3,374
|
|
|
5,116
|
|
|
10,084
|
|
|
12,621
|
|
|
Development costs
|
|
72,567
|
|
|
123,664
|
|
|
218,725
|
|
|
276,381
|
|
|
Total oil and natural gas properties costs incurred
|
|
$
|
76,853
|
|
|
$
|
131,660
|
|
|
$
|
252,863
|
|
|
$
|
291,882
|
|
The aforementioned total oil and natural gas properties costs incurred included certain employee-related costs as shown in the table below.
The following table presents capitalized employee-related costs incurred in the acquisition, exploration and development of oil and natural gas properties for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Capitalized employee-related costs
|
|
$
|
4,092
|
|
|
$
|
3,430
|
|
|
$
|
8,597
|
|
|
$
|
10,112
|
|
The following table presents depletion expense, which is included in "Depletion, depreciation and amortization" on the unaudited consolidated statements of operations, and depletion expense per BOE sold of evaluated oil and natural gas properties for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Depletion expense of evaluated oil and natural gas properties
|
|
$
|
63,305
|
|
|
$
|
61,938
|
|
|
$
|
121,057
|
|
|
$
|
121,308
|
|
|
Depletion expense per BOE sold
|
|
$
|
7.39
|
|
|
$
|
8.27
|
|
|
$
|
7.36
|
|
|
$
|
8.51
|
|
The full cost ceiling is based principally on the estimated future net revenues from proved oil, NGL and natural gas reserves, which exclude the effect of the Company's commodity derivative transactions, discounted at 10%. The SEC guidelines require companies to use the unweighted arithmetic average first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period before differentials ("Benchmark Prices"). The Benchmark Prices are then adjusted for quality, transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price received at the wellhead ("Realized Prices") without giving effect to the Company's commodity derivative transactions. The Realized Prices are utilized to calculate the estimated future net revenues in the full cost ceiling calculation. Significant inputs included in the calculation of discounted cash flows used in the impairment analysis include the Company's estimate of operating and development costs, anticipated production of proved reserves and other relevant data. In the event the unamortized cost of evaluated oil and natural gas properties being depleted exceeds the full cost ceiling, as defined by the SEC, the excess is expensed in the period such excess occurs. Once incurred, a write-down of oil and natural gas properties is not reversible.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table presents the Benchmark Prices and the Realized Prices as of the dates presented:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
March 31, 2020
|
|
December 31, 2019
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benchmark Prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil ($/Bbl)
|
|
$
|
43.60
|
|
|
$
|
52.23
|
|
|
$
|
52.19
|
|
|
$
|
54.27
|
|
|
$
|
57.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL ($/Bbl)(1)
|
|
$
|
16.87
|
|
|
$
|
19.36
|
|
|
$
|
21.14
|
|
|
$
|
23.93
|
|
|
$
|
28.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas ($/MMBtu)
|
|
$
|
0.87
|
|
|
$
|
0.58
|
|
|
$
|
0.87
|
|
|
$
|
0.85
|
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized Prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil ($/Bbl)
|
|
$
|
44.97
|
|
|
$
|
52.47
|
|
|
$
|
52.12
|
|
|
$
|
52.86
|
|
|
$
|
55.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL ($/Bbl)
|
|
$
|
7.66
|
|
|
$
|
10.47
|
|
|
$
|
12.21
|
|
|
$
|
14.78
|
|
|
$
|
18.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas ($/Mcf)
|
|
$
|
0.53
|
|
|
$
|
0.28
|
|
|
$
|
0.53
|
|
|
$
|
0.52
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
_____________________________________________________________________________
(1) Based on the Company's average composite NGL barrel.
The following table presents full cost ceiling impairment expense, which is included in "Impairment expense" on the unaudited consolidated statements of operations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Full cost ceiling impairment expense
|
|
$
|
406,448
|
|
|
$
|
—
|
|
|
$
|
583,630
|
|
|
$
|
—
|
|
Note 5—Leases
The Company has recognized operating lease right-of-use assets and operating lease liabilities on the unaudited consolidated balance sheets for leases of commercial real estate with lease terms extending into 2027 and drilling, completions, production and other equipment leases with lease terms extending through 2025. The Company's lease costs include those that are recognized in net income (loss) during the period as well as those that are capitalized as part of the cost of another asset in accordance with other GAAP.
The lease costs related to drilling, completions and production activities are reflected at the Company's net ownership, which is consistent with the principals of proportional consolidation, and lease commitments are reflected on a gross basis. As of June 30, 2020, the Company had an average working interest of 97% in Laredo-operated active productive wells in its core operating area. See Note 5 in the 2019 Annual Report for additional discussion of the Company's leases.
Note 6—Debt
a. January 2025 Notes and January 2028 Notes
On January 24, 2020, the Company completed an offer and sale (the "Offering") of $600.0 million in aggregate principal amount of 9 1/2% senior unsecured notes due 2025 (the "January 2025 Notes") and $400.0 million in aggregate principal amount of 10 1/8% senior unsecured notes due 2028 (the "January 2028 Notes"). Interest for both the January 2025 Notes and January 2028 Notes is payable semi-annually, in cash in arrears on January 15 and July 15 of each year. The first interest payment was made on July 15, 2020, and consisted of interest from closing to that date. The terms of the January 2025 Notes and January 2028 Notes include covenants, which are in addition to but different than similar covenants in the Senior Secured Credit Facility, which limit the Company's ability to incur indebtedness, make restricted payments, grant liens and dispose of assets.
The January 2025 Notes and January 2028 Notes are fully and unconditionally guaranteed on a senior unsecured basis by LMS, GCM and certain of the Company's future restricted subsidiaries, subject to certain automatic customary releases, including the sale, disposition or transfer of all of the capital stock or of all or substantially all of the assets of a subsidiary guarantor to one or more persons that are not the Company or a restricted subsidiary, exercise of legal defeasance or covenant defeasance options or satisfaction and discharge of the applicable indenture, designation of a subsidiary guarantor as a non-guarantor
Condensed notes to the consolidated financial statements
(Unaudited)
restricted subsidiary or as an unrestricted subsidiary in accordance with the applicable indenture, release from guarantee under the Senior Secured Credit Facility, or liquidation or dissolution (collectively, the "Releases").
The Company received net proceeds of approximately $982.0 million from the Offering, after deducting underwriting discounts and commissions and estimated offering expenses. The proceeds from the Offering were used (i) to fund Tender Offers (defined below) for the Company's January 2022 Notes and March 2023 Notes (defined below), (ii) to repay the Company's January 2022 Notes and March 2023 Notes that remained outstanding after settling the Tender Offers and (iii) for general corporate purposes, including repayment of a portion of the borrowings outstanding under the Company's Senior Secured Credit Facility.
b. January 2022 Notes and March 2023 Notes
On January 23, 2014, the Company completed an offering of $450.0 million in aggregate principal amount of 5 5/8% senior unsecured notes due 2022 (the "January 2022 Notes"). The January 2022 Notes were due to mature on January 15, 2022 and bore an interest rate of 5 5/8% per annum, payable semi-annually, in cash in arrears on January 15 and July 15 of each year, commencing July 15, 2014. The January 2022 Notes were fully and unconditionally guaranteed on a senior unsecured basis by LMS, GCM and certain of the Company's future restricted subsidiaries, subject to certain Releases.
On March 18, 2015, the Company completed an offering of $350.0 million in aggregate principal amount of 6 1/4% senior unsecured notes due 2023 (the "March 2023 Notes"). The March 2023 Notes were due to mature on March 15, 2023 and bore an interest rate of 6 1/4% per annum, payable semi-annually, in cash in arrears on March 15 and September 15 of each year, commencing September 15, 2015. The March 2023 Notes were fully and unconditionally guaranteed on a senior unsecured basis by LMS, GCM and certain of the Company's future restricted subsidiaries, subject to certain Releases.
On January 6, 2020, the Company commenced cash tender offers and consent solicitations for any or all of its outstanding January 2022 Notes and March 2023 Notes (collectively, the "Tender Offers"). On January 24, 2020 and February 6, 2020, the Company settled the Tender Offers for the principal outstanding amounts of $428.9 million and $299.4 million, respectively, for consideration for tender offers and early tender premiums of $431.6 million and $304.1 million for the January 2022 Notes and March 2023 Notes, respectively, plus accrued and unpaid interest. On January 29, 2020, the Company redeemed the remaining $21.1 million of January 2022 Notes not tendered under the Tender Offers at a redemption price of 100.000% of the principal amount thereof, plus accrued and unpaid interest. On March 15, 2020, the Company redeemed the remaining $50.6 million of March 2023 Notes not tendered under the Tender Offers at a redemption price of 101.563% of the principal amount thereof, plus accrued and unpaid interest. The Company recognized a loss on extinguishment of $13.3 million related to the difference between the consideration for tender offers, early tender premiums and redemption prices and the net carrying amounts of the extinguished January 2022 Notes and March 2023 Notes.
c. Senior Secured Credit Facility
As of June 30, 2020, the Senior Secured Credit Facility, which matures on April 19, 2023, had a maximum credit amount of $2.0 billion, a borrowing base and an aggregate elected commitment of $725.0 million each, with $275.0 million outstanding and was subject to an interest rate of 2.19%. The Senior Secured Credit Facility contains both financial and non-financial covenants, all of which the Company was in compliance with for all periods presented. Additionally, the Senior Secured Credit Facility provides for the issuance of letters of credit, limited to the lesser of total capacity or $80.0 million. As of June 30, 2020 and December 31, 2019, the Company had one letter of credit outstanding of $44.1 million and $14.7 million, respectively, under the Senior Secured Credit Facility. The Senior Secured Credit Facility is fully and unconditionally guaranteed by LMS and GCM. For additional information see Note 7.d in the 2019 Annual Report. See Note 19.a for discussion of the (i) additional borrowing and payment on the Senior Secured Credit Facility and (ii) waiver received from the lenders under the Senior Secured Credit Facility of certain representations and warranties relating to the Company's March 31, 2020 quarterly results subsequent to June 30, 2020.
The Company's measurements of Adjusted EBITDA (non-GAAP) for financial reporting as compared to compliance under its debt agreements differ.
Condensed notes to the consolidated financial statements
(Unaudited)
d. Long-term debt, net
The following table presents the Company's long-term debt and debt issuance costs, net included in "Long-term debt, net" on the unaudited consolidated balance sheets as of the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
(in thousands)
|
|
Long-term debt
|
|
Debt issuance costs, net
|
|
Long-term debt, net
|
|
Long-term debt
|
|
Debt issuance costs, net
|
|
Long-term debt, net
|
|
January 2022 Notes(1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
450,000
|
|
|
$
|
(2,034)
|
|
|
$
|
447,966
|
|
|
March 2023 Notes(1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
350,000
|
|
|
(2,549)
|
|
|
347,451
|
|
|
January 2025 Notes(2)
|
|
600,000
|
|
|
(9,979)
|
|
|
590,021
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
January 2028 Notes(2)
|
|
400,000
|
|
|
(6,857)
|
|
|
393,143
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Senior Secured Credit Facility(3)
|
|
275,000
|
|
|
—
|
|
|
275,000
|
|
|
375,000
|
|
|
—
|
|
|
375,000
|
|
|
Long-term debt, net
|
|
$
|
1,275,000
|
|
|
$
|
(16,836)
|
|
|
$
|
1,258,164
|
|
|
$
|
1,175,000
|
|
|
$
|
(4,583)
|
|
|
$
|
1,170,417
|
|
______________________________________________________________________________
(1)During the six months ended June 30, 2020, the Company wrote off debt issuance costs in connection with the extinguishment of the January 2022 Notes and the March 2023 Notes, which are included in "Loss on extinguishment of debt" on the unaudited consolidated statement of operations.
(2)Debt issuance costs for the January 2025 Notes and the January 2028 Notes are amortized on a straight-line basis over the respective terms of the notes.
(3)Debt issuance costs, net related to the Senior Secured Credit Facility of $2.8 million and $4.5 million as of June 30, 2020 and December 31, 2019, respectively, are reported in "Other noncurrent assets, net" on the unaudited consolidated balance sheets, and are amortized on a straight-line basis. In connection with the April 2020 reduction in borrowing base, the Company wrote off $1.1 million of debt issuance costs, which are included in "Write-off of debt issuance costs" on the unaudited consolidated statement of operations, and capitalized $0.1 million of debt issuance costs during the three months ended June 30, 2020.
Note 7—Stockholders' equity
a. Reverse stock split and Authorized Share Reduction
On March 17, 2020, the board of directors authorized an amendment to the Company's amended and restated certificate of incorporation ("Certificate of Incorporation") to effect, at the discretion of the board of directors (i) a reverse stock split that would reduce the number of shares of outstanding common stock in accordance with a ratio to be determined by the board of directors within a range of 1-for-5 and 1-for-20 currently outstanding and (ii) a reduction of the number of authorized shares of common stock by a corresponding proportion ("Authorized Share Reduction").
On May 14, 2020, after receiving stockholder approval of the amendment to the Company's Certificate of Incorporation to effect, at the discretion of the board of directors, the reverse stock split and the Authorized Share Reduction, the board of directors approved the implementation of the reverse stock split at a ratio of 1-for-20 currently outstanding shares of common stock, and the related corresponding Authorized Share Reduction.
On June 1, 2020, the amendment to the Company's Certificate of Incorporation became effective and effected the 1-for-20 reverse stock split of the Company's issued and outstanding common stock and the related Authorized Share Reduction from 450,000,000 to 22,500,000 authorized shares, par value $0.01 per share, with authorized shares of preferred stock remaining unchanged at 50,000,000, par value $0.01 per share, for a total of 72,500,000 shares of capital stock. See Note 8 for discussion of the amendment to the Equity Incentive Plan to proportionately reduce the number of awards that may be granted.
Condensed notes to the consolidated financial statements
(Unaudited)
b. Treasury stock
Treasury stock is recorded at cost, which includes incremental direct transaction costs, and is retired upon acquisition as a result of (i) stock exchanged to satisfy tax withholding that arises upon the lapse of restrictions on share-settled equity-based awards at the awardee's election or (ii) stock exchanged for the cost of exercise of stock options at the awardee's election.
Note 8—Equity Incentive Plan
The Laredo Petroleum, Inc. Omnibus Equity Incentive Plan, as amended and restated as of May 16, 2019 (the "Equity Incentive Plan"), provides for the granting of incentive awards in the form of restricted stock awards, stock option awards, performance share awards, outperformance share awards, performance unit awards, phantom unit awards and other awards. On June 1, 2020, in connection with the effectiveness of the reverse stock split and Authorized Share Reduction, the board of directors approved and adopted an amendment to the Equity Incentive Plan to proportionately adjust the limitations on awards that may be granted under the Equity Incentive Plan. Following the amendment, an aggregate of 1,492,500 shares may be issued under the Equity Incentive Plan. See Note 7.a for additional discussion of the reverse stock split and Authorized Share Reduction.
The Company recognizes the fair value of equity-based compensation awards, expected to vest over the requisite service period, as a charge against earnings, net of amounts capitalized. The Company's restricted stock awards, stock option awards, performance share awards and outperformance share award are accounted for as equity awards and the Company's performance unit awards and phantom unit awards are accounted for as liability awards. Equity-based compensation expense is included in "General and administrative" on the unaudited consolidated statements of operations. The Company capitalizes a portion of equity-based compensation for employees who are directly involved in the acquisition, exploration or development of oil and natural gas properties into the full cost pool. Capitalized equity-based compensation is included in "Evaluated properties" on the unaudited consolidated balance sheets.
a. Restricted stock awards
All service vesting restricted stock awards are treated as issued and outstanding in the unaudited consolidated financial statements. Per the award agreement terms, if employment is terminated prior to the restriction lapse date for reasons other than death or disability, the restricted stock awards are forfeited and canceled and are no longer considered issued and outstanding. If the termination of employment is by reason of death or disability, all of the holder's restricted stock will automatically vest. Restricted stock awards granted to employees vest in a variety of schedules that mainly include (i) 33%, 33% and 34% vesting per year beginning on the first anniversary of the grant date and (ii) full vesting on the first anniversary of the grant date. Restricted stock awards granted to non-employee directors vest immediately on the grant date.
The following table reflects the restricted stock award activity for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for weighted-average grant-date fair value)
|
|
Restricted stock awards(1)
|
|
Weighted-average
grant-date fair value (per share)(1)
|
|
Outstanding as of December 31, 2019
|
|
275
|
|
|
$
|
85.89
|
|
|
Granted
|
|
152
|
|
|
$
|
18.14
|
|
|
Forfeited
|
|
(44)
|
|
|
$
|
51.06
|
|
|
Vested(2)
|
|
(123)
|
|
|
$
|
85.25
|
|
|
Outstanding as of June 30, 2020
|
|
260
|
|
|
$
|
52.48
|
|
_____________________________________________________________________________
(1)Shares and per share data have been retroactively adjusted to reflect the Company's 1-for-20 reverse stock split effective June 1, 2020, as described in Note 7.a.
(2)The aggregate intrinsic value of vested restricted stock awards for the six months ended June 30, 2020 was $2.9 million.
The Company utilizes the closing stock price on the grant date to determine the fair value of restricted stock awards. As of June 30, 2020, unrecognized equity-based compensation related to the restricted stock awards expected to vest was $10.5 million. Such cost is expected to be recognized over a weighted-average period of 1.72 years.
Condensed notes to the consolidated financial statements
(Unaudited)
b. Stock option awards
As of June 30, 2020, the 16,499 outstanding stock option awards have a weighted-average exercise price of $248.04 per award and a weighted-average remaining contractual term of 3.17 years. The stock option awards were adjusted for the Company's 1-for-20 reverse stock split as discussed in Note 7.a. There were de minimis cancellations and forfeitures of stock option awards during the six months ended June 30, 2020, and there were no grants or exercises. The vested and exercisable stock option awards as of June 30, 2020 had no intrinsic value.
c. Performance share awards
Performance share awards, which the Company has determined are equity awards, are subject to a combination of market, performance and service vesting criteria. For portions of awards with market criteria, which include: (i) the relative three-year total shareholder return ("TSR") comparing the Company's shareholder return to the shareholder return of the peer group specified in each award agreement ("RTSR Performance Percentage") and (ii) the Company's absolute three-year total shareholder return ("ATSR Appreciation"), a Monte Carlo simulation prepared by an independent third party is utilized to determine the grant-date (or modification date) fair value, and the associated expense is recognized on a straight-line basis over the three-year requisite service period of the awards. For portions of awards with performance criteria, which is the Company's three-year return on average capital employed ("ROACE Percentage"), the fair value is equal to the Company's closing stock price on the grant date (or modification date), and for each reporting period, the associated expense fluctuates and is adjusted based on an estimated payout of the number of shares of common stock to be delivered on the payment date for the three-year performance period. Any shares earned under performance share awards are expected to be issued in the first quarter following the completion of the respective requisite service periods based on the achievement of certain market and performance criteria, and the payout can range from 0% to 200%.
The following table reflects the performance share award activity for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for weighted-average grant-date fair value)
|
|
Performance
share awards(1)
|
|
Weighted-average
grant-date
fair value
(per share)1)
|
|
Outstanding as of December 31, 2019
|
|
115
|
|
|
$
|
107.05
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(10)
|
|
|
$
|
111.75
|
|
|
Lapsed(2)
|
|
(8)
|
|
|
$
|
379.20
|
|
|
Outstanding as of June 30, 2020
|
|
97
|
|
|
$
|
84.12
|
|
______________________________________________________________________________
(1)Shares and per share data have been retroactively adjusted to reflect the Company's 1-for-20 reverse stock split effective June 1, 2020, as described in Note 7.a.
(2)The performance share awards granted on February 17, 2017 had a performance period of January 1, 2017 to December 31, 2019 and, as their market criteria were not satisfied, resulted in a TSR modifier of 0% based on the Company finishing in the 15th percentile of its peer group for relative TSR. As such, the granted units lapsed and were not converted into the Company's common stock during the three months ended March 31, 2020.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table presents the fair values per performance share and the expense per performance share, which is the fair value per performance share adjusted for the estimated payout of the performance criteria, for the outstanding performance share awards as of June 30, 2020 for the grant dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 3, 2019
|
|
February 28, 2019(1)
|
|
February 16, 2018
|
|
Market Criteria:
|
|
|
|
|
|
|
|
(1/4) RTSR Factor + (1/4) ATSR Factor:
|
|
|
|
|
|
|
|
Grant-date fair value per performance share(2)
|
|
$
|
49.00
|
|
|
$
|
79.61
|
|
|
$
|
201.65
|
|
|
|
|
|
|
|
|
|
|
Expense per performance share as of June 30, 2020(2)
|
|
$
|
49.00
|
|
|
$
|
79.61
|
|
|
$
|
201.65
|
|
|
Performance Criteria:
|
|
|
|
|
|
|
|
(1/2) ROACE Factor:
|
|
|
|
|
|
|
|
Grant-date fair value per performance share(2)
|
|
$
|
51.80
|
|
|
$
|
69.80
|
|
|
$
|
167.20
|
|
|
Estimated payout for expense as of June 30, 2020
|
|
175
|
%
|
|
175
|
%
|
|
68
|
%
|
|
Expense per performance share as of June 30, 2020(2)(3)
|
|
$
|
90.65
|
|
|
$
|
122.15
|
|
|
$
|
113.70
|
|
|
Combined:
|
|
|
|
|
|
|
|
Grant-date fair value per performance share(2)(4)
|
|
$
|
50.40
|
|
|
$
|
74.71
|
|
|
$
|
184.43
|
|
|
Expense per performance share as of June 30, 2020(2)(5)
|
|
$
|
69.83
|
|
|
$
|
100.88
|
|
|
$
|
157.68
|
|
______________________________________________________________________________
(1)The fair values of the performance shares granted on February 28, 2019 are based on the May 16, 2019 modification date. See Note 8.b in the 2019 Annual Report for additional information on the award conversion.
(2)Per share data has been retroactively adjusted to reflect the Company's 1-for-20 reverse stock split effective June 1, 2020, as described in Note 7.a.
(3)As the (1/2) ROACE Factor is based on performance criteria, the expense fluctuates based on the estimated payout and is redetermined each reporting period and the life-to-date recognized expense for the respective awards is adjusted accordingly.
(4)The combined grant-date fair value per performance share is the combination of the fair value per performance share weighted for the market and performance criteria for the respective awards.
(5)The combined expense per performance share is the combination of the expense per performance share for market and performance criteria for the respective awards.
As of June 30, 2020, unrecognized equity-based compensation related to the performance share awards expected to vest was $4.6 million. Such cost is expected to be recognized over a weighted-average period of 1.56 years.
d. Outperformance share award
An outperformance share award was granted during the year ended December 31, 2019, in conjunction with the appointment of the Company's President, and is accounted for as an equity award. The award was adjusted for the Company's 1-for-20 reverse stock split as discussed in Note 7.a. If earned, the payout ranges from 0 to 50,000 shares in the Company's common stock per the vesting schedule. This award is subject to a combination of market and service vesting criteria, therefore, a Monte Carlo simulation prepared by an independent third party was utilized to determine the grant-date fair value with the associated expense recognized over the requisite service period. The payout of this award is based on the highest 50 consecutive trading day average closing stock price of the Company that occurs during the performance period that commenced on June 3, 2019 and ends on June 3, 2022 ("Final Date"). Of the earned outperformance shares, one-third of the award will vest on the Final Date, one-third will vest on the first anniversary of the Final Date and one-third will vest on the second anniversary of the Final Date, provided that the participant has been continuously employed with the Company through the applicable vesting date.
As of June 30, 2020, unrecognized equity-based compensation related to the outperformance share award expected to vest was $0.5 million. Such cost is expected to be recognized over a weighted-average period of 4.00 years.
Condensed notes to the consolidated financial statements
(Unaudited)
e. Performance unit awards
Performance unit awards, which the Company has determined are liability awards since they are settled in cash, are subject to a combination of market, performance and service vesting criteria. For portions of awards with market criteria, which include: (i) the RTSR Performance Percentage (as defined above) and (ii) the ATSR Appreciation (as defined above), a Monte Carlo simulation prepared by an independent third party is utilized to determine the fair value, and is re-measured at each reporting period until settlement. For portions of awards with performance criteria, which is the ROACE Percentage (as defined above), the Company's closing stock price is utilized to determine the fair value and is re-measured on the last trading day of each reporting period until settlement and, additionally, the associated expense fluctuates based on an estimated payout for the three-year performance period. The expense related to the performance unit awards is recognized on a straight-line basis over the three-year requisite service period of the awards, and the life-to-date recognized expense is adjusted accordingly at each reporting period based on the quarterly fair value re-measurements and redetermination of the estimated payout for the performance criteria. Any units earned, are expected to be paid in cash during the first quarter following the completion of the requisite service period, based on the achievement of certain market and performance criteria, and the payout can range from 0% to 200%. Per the award agreement terms, if employment is terminated prior to the restriction lapse date for reasons other than death or disability, the performance unit awards are forfeited and canceled. If the termination of employment is by reason of death or disability, and the market and performance criteria are satisfied, then the holder of the earned performance unit awards will receive a prorated payment based on the number of days the participant was employed with the Company during the performance period.
The following table reflects the performance unit award activity for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Performance units(1)
|
|
Outstanding as of December 31, 2019(2)
|
|
—
|
|
|
Granted(3)
|
|
123
|
|
|
Forfeited
|
|
(24)
|
|
|
|
|
|
|
Outstanding as of June 30, 2020
|
|
99
|
|
______________________________________________________________________________
(1)Units have been retroactively adjusted to reflect the Company's 1-for-20 reverse stock split effective June 1, 2020, as described in Note 7.a.
(2)The performance unit awards granted on February 28, 2019 were originally determined to be liability awards due to the board of directors election to settle the awards in cash. These awards were converted to performance share awards during the three months ended June 30, 2019. See Note 8.b in the 2019 Annual Report for additional information on the award conversion.
(3)The amounts potentially payable in cash at the end of the requisite service period for the performance unit awards granted on March 5, 2020 will be determined based on three criteria: (i) RTSR Performance Percentage, (ii) ATSR Appreciation and (iii) ROACE Percentage. The RTSR Performance Percentage, ATSR Appreciation and ROACE Percentage will be used to identify the "RTSR Factor," the "ATSR Factor" and the "ROACE Factor," respectively, which are used to compute the "Performance Multiple" and ultimately to determine the final value of each performance unit to be paid in cash on the payment date per the award agreement, subject to withholding requirements. In computing the Performance Multiple, the RTSR Factor is given a 1/3 weight, the ATSR Factor a 1/3 weight and the ROACE Factor a 1/3 weight. These awards have a performance period of January 1, 2020 to December 31, 2022.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table presents (i) the fair values per performance unit and the assumptions used to estimate these fair values per performance unit and (ii) the expense per performance unit, which is the fair value per performance unit adjusted for the estimated payout of the performance criteria, for the outstanding performance unit awards as of June 30, 2020 for the grant date presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 5, 2020
|
|
Market criteria:
|
|
|
|
(1/3) RTSR Factor + (1/3) ATSR Factor:
|
|
|
|
Fair value assumptions:
|
|
|
|
Remaining performance period
|
|
2.52 years
|
|
Risk-free interest rate(1)
|
|
0.19
|
%
|
|
Dividend yield
|
|
—
|
%
|
|
Expected volatility(2)
|
|
113.53
|
%
|
|
Closing stock price on June 30, 2020
|
|
$
|
13.86
|
|
|
Fair value per performance unit as of June 30, 2020
|
|
$
|
20.00
|
|
|
Expense per performance unit as of June 30, 2020
|
|
$
|
20.00
|
|
|
Performance criteria:
|
|
|
|
(1/3) ROACE Factor:
|
|
|
|
Fair value assumptions:
|
|
|
|
Closing stock price on June 30, 2020
|
|
$
|
13.86
|
|
|
Fair value per performance unit as of June 30, 2020
|
|
$
|
13.86
|
|
|
Estimated payout for expense as of June 30, 2020
|
|
100.00
|
%
|
|
Expense per performance unit as of June 30, 2020(3)
|
|
$
|
13.86
|
|
|
Combined:
|
|
|
|
Fair value per performance unit as of June 30, 2020(4)
|
|
$
|
17.96
|
|
|
Expense per performance unit as of June 30, 2020(5)
|
|
$
|
17.96
|
|
______________________________________________________________________________
(1)The remaining performance period matched zero-coupon risk-free interest rate was derived from the United States ("U.S.") Treasury constant maturities yield curve on June 30, 2020.
(2)The Company utilized its own remaining performance period matched historical volatility in order to develop the expected volatility.
(3)As the (1/3) ROACE Factor is based on performance criteria, the expense fluctuates based on the estimated payout and is redetermined each reporting period and the life-to-date recognized expense for the award is adjusted accordingly.
(4)The combined fair value per performance unit is the combination of the fair value per performance unit weighted for the market and performance criteria for the award.
(5)The combined expense per performance unit is the combination of the expense per performance unit for market and performance criteria for the award.
As of June 30, 2020, unrecognized equity-based compensation related to the performance unit awards expected to vest was $1.6 million. Such cost is expected to be recognized over a weighted-average period of 2.75 years.
f. Phantom unit awards
Phantom unit awards, which the Company has determined are liability awards, represent the holder's right to receive the cash equivalent of one share of common stock of the Company for each phantom unit as of the applicable vesting date, subject to withholding requirements. Phantom unit awards granted to employees vest 33%, 33% and 34% per year beginning on the first anniversary of the grant date. Per the award agreement terms, if employment is terminated prior to the restriction lapse date
Condensed notes to the consolidated financial statements
(Unaudited)
for reasons other than death or disability, the phantom unit awards are forfeited and canceled. If the termination of employment is by reason of death or disability, all of the holder's phantom unit awards automatically vest.
The following table reflects the phantom unit award activity for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for weighted-average fair value)
|
|
Phantom units(1)
|
|
Fair value
as of June 30, 2020
(per unit)1)
|
|
Outstanding as of December 31, 2019
|
|
—
|
|
|
$
|
—
|
|
|
Granted
|
|
75
|
|
|
$
|
13.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2020
|
|
75
|
|
|
$
|
13.86
|
|
______________________________________________________________________________
(1)Units and per unit data have been retroactively adjusted to reflect the Company's 1-for-20 reverse stock split effective June 1, 2020, as described in Note 7.a.
The Company utilizes the closing stock price on the last day of each reporting period to determine the fair value of phantom unit awards and the life-to-date recognized expense is adjusted accordingly. As of June 30, 2020, unrecognized equity-based compensation related to the phantom unit awards expected to vest was $0.9 million. Such cost is expected to be recognized over a weighted-average period of 2.75 years.
g. Equity-based compensation
The following table reflects equity-based compensation expense for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Equity awards:
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
$
|
2,044
|
|
|
$
|
2,559
|
|
|
$
|
4,542
|
|
|
$
|
7,882
|
|
|
Performance share awards
|
|
282
|
|
|
(3,191)
|
|
|
1,038
|
|
|
(27)
|
|
|
Outperformance share award
|
|
43
|
|
|
13
|
|
|
87
|
|
|
13
|
|
|
Stock option awards
|
|
7
|
|
|
160
|
|
|
50
|
|
|
978
|
|
|
Total share-settled equity-based compensation, gross
|
|
2,376
|
|
|
(459)
|
|
|
5,717
|
|
|
8,846
|
|
|
Less amounts capitalized
|
|
(682)
|
|
|
36
|
|
|
(1,647)
|
|
|
(1,863)
|
|
|
Total share-settled equity-based compensation, net
|
|
1,694
|
|
|
(423)
|
|
|
4,070
|
|
|
6,983
|
|
|
Liability awards:
|
|
|
|
|
|
|
|
|
|
Phantom unit awards
|
|
86
|
|
|
—
|
|
|
111
|
|
|
—
|
|
|
Performance unit awards(1)
|
|
166
|
|
|
(238)
|
|
|
190
|
|
|
—
|
|
|
Total cash-settled equity-based compensation, gross
|
|
252
|
|
|
(238)
|
|
|
301
|
|
|
—
|
|
|
Less amounts capitalized
|
|
(33)
|
|
|
46
|
|
|
(43)
|
|
|
—
|
|
|
Total cash-settled equity-based compensation, net
|
|
219
|
|
|
(192)
|
|
|
258
|
|
|
—
|
|
|
Total equity-based compensation, net
|
|
$
|
1,913
|
|
|
$
|
(615)
|
|
|
$
|
4,328
|
|
|
$
|
6,983
|
|
______________________________________________________________________________
(1)The performance unit award compensation for the three months ended March 31, 2019 was reversed during the second quarter of 2019 due to the awards' conversion from liability to equity and new fair values were assigned under performance share awards. See Note 8 in the 2019 Annual Report for discussion of this conversion and related modification accounting.
See Note 18 for discussion of the Company's organizational restructurings and the related equity-based compensation reversals during the three months ended June 30, 2020 and 2019.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 9—Derivatives
The Company has three types of derivative instruments as of June 30, 2020: (i) commodity derivatives ("Commodity"), (ii) debt interest rate derivative ("Interest rate") and (iii) contingent consideration derivatives ("Contingent consideration"). See Note 10.a for the fair value measurement on a recurring basis of derivatives and Note 2.f in the 2019 Annual Report for the Company's significant accounting policies for derivatives. The Company's derivatives were not designated as hedges for accounting purposes, and the Company does not enter into such instruments for speculative trading purposes. Accordingly, the changes in fair value are recognized in "Gain (loss) on derivatives, net" under "Non-operating income (expense)" on the unaudited consolidated statements of operations.
The following table summarizes components of the Company's gain (loss) on derivatives, net by type of derivative instrument for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Commodity
|
|
$
|
(90,864)
|
|
|
$
|
88,394
|
|
|
$
|
200,497
|
|
|
$
|
40,029
|
|
|
Interest rate
|
|
(338)
|
|
|
—
|
|
|
(338)
|
|
|
—
|
|
|
Contingent consideration
|
|
665
|
|
|
—
|
|
|
7,140
|
|
|
—
|
|
|
Gain (loss) on derivatives, net
|
|
$
|
(90,537)
|
|
|
$
|
88,394
|
|
|
$
|
207,299
|
|
|
$
|
40,029
|
|
a. Commodity
Due to the inherent volatility in oil, NGL and natural gas prices and differences in the prices of oil, NGL and natural gas between where the Company produces and where the Company sells such commodities, the Company engages in commodity derivative transactions, such as puts, swaps, collars and basis swaps to hedge price risk associated with a portion of the Company's anticipated sales volumes. By removing a portion of the price volatility associated with future sales volumes, the Company expects to mitigate, but not eliminate, the potential effects of variability in cash flows from operations. See Note 9 in the 2019 Annual Report for information on the transaction types and settlement indexes. The Brent ICE to WTI NYMEX basis swaps, which the Company entered into in the first quarter of 2020, are settled based on the differential between the basis swaps' fixed differential as compared to the differential between the arithmetic average of each day's index prices for the first nearby month on the pricing dates in each calculation period, for only days when both indices settle, with the index prices being (i) the ICE Brent Crude Oil Futures Contract except for the last day of trading for the applicable expiring Brent Crude Oil Futures Contract whereby the second nearby month of the Brent Crude Oil Futures Contract settlement price will be used and (ii) the NYMEX West Texas Intermediate Light Sweet Crude Oil Futures Contract. See Note 19.b for a discussion of derivatives entered into subsequent to June 30, 2020.
In regards to the Company's basis swaps, when the settlement basis differential is below the fixed basis differential, the counterparty pays the Company an amount equal to the difference between the fixed basis differential and the settlement basis differential multiplied by the hedged contract volume. When the settlement basis differential is above the fixed basis differential, the Company pays the counterparty an amount equal to the difference between the settlement basis differential and the fixed basis differential multiplied by the hedged contract volume.
During the six months ended June 30, 2020, the Company completed a hedge restructuring by early terminating collars and entering into new swaps.
The following table details the commodity derivatives that were terminated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate volumes (Bbl)
|
|
Floor price ($/Bbl)
|
|
Ceiling price ($/Bbl)
|
|
Contract period
|
|
WTI NYMEX - Collars
|
|
912,500
|
|
|
$
|
45.00
|
|
|
$
|
71.00
|
|
|
January 2021 - December 2021
|
Condensed notes to the consolidated financial statements
(Unaudited)
The following table summarizes open commodity derivative positions as of June 30, 2020, for commodity derivatives that were entered into through June 30, 2020, for the settlement periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining year 2020
|
|
Year 2021
|
|
Year 2022
|
|
|
|
Oil:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI NYMEX - Swaps:
|
|
|
|
|
|
|
|
|
|
Volume (Bbl)
|
|
3,606,400
|
|
|
—
|
|
|
—
|
|
|
|
|
Weighted-average price ($/Bbl)
|
|
$
|
59.50
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
Brent ICE:
|
|
|
|
|
|
|
|
|
|
Puts(1):
|
|
|
|
|
|
|
|
|
|
Volume (Bbl)
|
|
—
|
|
|
2,463,750
|
|
|
—
|
|
|
|
|
Weighted-average floor price ($/Bbl)
|
|
$
|
—
|
|
|
$
|
55.00
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps:
|
|
|
|
|
|
|
|
|
|
Volume (Bbl)
|
|
1,196,000
|
|
|
2,555,000
|
|
|
—
|
|
|
|
|
Weighted-average price ($/Bbl)
|
|
$
|
63.07
|
|
|
$
|
53.19
|
|
|
$
|
—
|
|
|
|
|
Collars:
|
|
|
|
|
|
|
|
|
|
Volume (Bbl)
|
|
—
|
|
|
584,000
|
|
|
—
|
|
|
|
|
Weighted-average floor price ($/Bbl)
|
|
$
|
—
|
|
|
$
|
45.00
|
|
|
$
|
—
|
|
|
|
|
Weighted-average ceiling price ($/Bbl)
|
|
$
|
—
|
|
|
$
|
59.50
|
|
|
$
|
—
|
|
|
|
|
Total Brent ICE:
|
|
|
|
|
|
|
|
|
|
Total volume with floor (Bbl)
|
|
1,196,000
|
|
|
5,602,750
|
|
|
—
|
|
|
|
|
Weighted-average floor price ($/Bbl)
|
|
$
|
63.07
|
|
|
$
|
53.13
|
|
|
$
|
—
|
|
|
|
|
Total volume with ceiling (Bbl)
|
|
1,196,000
|
|
|
3,139,000
|
|
|
—
|
|
|
|
|
Weighted-average ceiling price ($/Bbl)
|
|
$
|
63.07
|
|
|
$
|
54.37
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total oil volume with floor (Bbl)
|
|
4,802,400
|
|
|
5,602,750
|
|
|
—
|
|
|
|
|
Total oil volume with ceiling (Bbl)
|
|
4,802,400
|
|
|
3,139,000
|
|
|
—
|
|
|
|
|
Basis Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brent ICE to WTI NYMEX - Basis Swaps
|
|
|
|
|
|
|
|
|
|
Volume (Bbl)
|
|
1,803,200
|
|
|
—
|
|
|
—
|
|
|
|
|
Weighted-average differential ($/Bbl)
|
|
$
|
5.09
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL - Mont Belvieu OPIS:
|
|
|
|
|
|
|
|
|
|
Purity Ethane - Swaps:
|
|
|
|
|
|
|
|
|
|
Volume (Bbl)
|
|
184,000
|
|
|
912,500
|
|
|
—
|
|
|
|
|
Weighted-average price ($/Bbl)
|
|
$
|
13.60
|
|
|
$
|
12.01
|
|
|
$
|
—
|
|
|
|
|
Non-TET Propane - Swaps:
|
|
|
|
|
|
|
|
|
|
Volume (Bbl)
|
|
625,600
|
|
|
730,000
|
|
|
—
|
|
|
|
|
Weighted-average price ($/Bbl)
|
|
$
|
26.58
|
|
|
$
|
25.52
|
|
|
$
|
—
|
|
|
|
|
Non-TET Normal Butane - Swaps:
|
|
|
|
|
|
|
|
|
|
Volume (Bbl)
|
|
220,800
|
|
|
255,500
|
|
|
—
|
|
|
|
|
Weighted-average price ($/Bbl)
|
|
$
|
28.69
|
|
|
$
|
27.72
|
|
|
$
|
—
|
|
|
|
|
Non-TET Isobutane - Swaps:
|
|
|
|
|
|
|
|
|
|
Volume (Bbl)
|
|
55,200
|
|
|
67,525
|
|
|
—
|
|
|
|
|
Weighted-average price ($/Bbl)
|
|
$
|
29.99
|
|
|
$
|
28.79
|
|
|
$
|
—
|
|
|
|
|
Non-TET Natural Gasoline - Swaps:
|
|
|
|
|
|
|
|
|
|
Volume (Bbl)
|
|
202,400
|
|
|
237,250
|
|
|
—
|
|
|
|
|
Weighted-average price ($/Bbl)
|
|
$
|
45.15
|
|
|
$
|
44.31
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NGL volume (Bbl)
|
|
1,288,000
|
|
|
2,202,775
|
|
|
—
|
|
|
|
|
TABLE CONTINUES ON NEXT PAGE
|
|
|
|
|
|
|
|
|
Condensed notes to the consolidated financial statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Hub NYMEX - Swaps:
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
11,960,000
|
|
|
42,522,500
|
|
|
—
|
|
|
|
|
Weighted-average price ($/MMBtu)
|
|
$
|
2.72
|
|
|
$
|
2.59
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waha Inside FERC to Henry Hub NYMEX - Basis Swaps:
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
21,160,000
|
|
|
41,610,000
|
|
|
7,300,000
|
|
|
|
|
Weighted-average differential ($/MMBtu)
|
|
$
|
(0.82)
|
|
|
$
|
(0.55)
|
|
|
$
|
(0.53)
|
|
|
|
_____________________________________________________________________________
(1) Associated with these open positions were $50.6 million of premiums, which were paid at the respective contracts' inception during the three months ended June 30, 2020.
b. Interest rate
Due to the inherent volatility in interest rates, the Company has entered into an interest rate derivative swap to hedge interest rate risk associated with a portion of the Company's anticipated outstanding debt under the Senior Secured Credit Facility. The Company will pay a fixed rate over the contract term for that portion. By removing a portion of the interest rate volatility associated with anticipated outstanding debt, the Company expects to mitigate, but not eliminate, the potential effects of variability in cash flows from operations.
The following table details the interest rate derivative that was entered into during the three months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount
(in thousands)
|
|
Fixed rate
|
|
|
|
Contract period
|
|
LIBOR - Swap
|
|
$
|
100,000
|
|
|
0.345
|
%
|
|
|
|
April 16, 2020 - April 18, 2022
|
c. Contingent consideration
The Company's asset acquisition of oil and natural gas properties that closed on April 30, 2020 provides for potential contingent payments to be paid by the Company if the arithmetic average of the monthly settlement WTI NYMEX prices exceed certain thresholds for the contingency period beginning on January 1, 2021 and ending on the earlier of December 31, 2022 or the date the counterparty has received the maximum consideration of $1.2 million.
See Notes 3.a and 3.b for further discussion of the Company's asset acquisitions associated with potential contingent consideration payments. At each quarterly reporting period, the Company remeasures each contingent consideration with the changes in fair values recognized in earnings. See Note 10.a for the fair value of the contingent considerations as of June 30, 2020.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 10—Fair value measurements
See the beginning of Note 10 in the 2019 Annual Report for information about the fair value hierarchy levels.
a. Fair value measurement on a recurring basis
See Notes 9 and 19.b for further discussion of the Company's derivatives, and see Note 2.f in the 2019 Annual Report for the Company's significant accounting policies for derivatives.
Balance sheet presentation
The following tables present the Company's derivatives' three-level fair value hierarchy by (i) assets and liabilities, (ii) current and noncurrent, (iii) commodity, interest rate and contingent consideration derivatives and (iv) oil, NGL, natural gas, LIBOR and/or deferred premiums, and provide a total, on a gross basis and a net basis reflected in "Derivatives" on the unaudited consolidated balance sheets as of the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total gross fair value
|
|
Amounts offset
|
|
Net fair value presented on the unaudited consolidated balance sheets
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity - Oil
|
|
$
|
—
|
|
|
$
|
136,828
|
|
|
$
|
—
|
|
|
$
|
136,828
|
|
|
$
|
(2,560)
|
|
|
$
|
134,268
|
|
|
Commodity - NGL
|
|
—
|
|
|
17,023
|
|
|
—
|
|
|
17,023
|
|
|
—
|
|
|
17,023
|
|
|
Commodity - Natural gas
|
|
—
|
|
|
10,491
|
|
|
—
|
|
|
10,491
|
|
|
(10,078)
|
|
|
413
|
|
|
Commodity - Oil deferred premiums
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity - Oil
|
|
$
|
—
|
|
|
$
|
33,684
|
|
|
$
|
—
|
|
|
$
|
33,684
|
|
|
$
|
(2,983)
|
|
|
$
|
30,701
|
|
|
Commodity - NGL
|
|
—
|
|
|
7,381
|
|
|
—
|
|
|
7,381
|
|
|
—
|
|
|
7,381
|
|
|
Commodity - Natural gas
|
|
—
|
|
|
3,604
|
|
|
—
|
|
|
3,604
|
|
|
(1,428)
|
|
|
2,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity - Oil
|
|
$
|
—
|
|
|
$
|
(2,560)
|
|
|
$
|
—
|
|
|
$
|
(2,560)
|
|
|
$
|
2,560
|
|
|
$
|
—
|
|
|
Commodity - NGL
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commodity - Natural gas
|
|
—
|
|
|
(10,078)
|
|
|
—
|
|
|
(10,078)
|
|
|
10,078
|
|
|
—
|
|
|
Commodity - Oil deferred premiums
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate - LIBOR
|
|
—
|
|
|
(177)
|
|
|
—
|
|
|
(177)
|
|
|
—
|
|
|
(177)
|
|
|
Contingent consideration
|
|
—
|
|
|
(15)
|
|
|
—
|
|
|
(15)
|
|
|
—
|
|
|
(15)
|
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity - Oil
|
|
$
|
—
|
|
|
$
|
(2,983)
|
|
|
$
|
—
|
|
|
$
|
(2,983)
|
|
|
$
|
2,983
|
|
|
$
|
—
|
|
|
Commodity - NGL
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commodity - Natural gas
|
|
—
|
|
|
(1,428)
|
|
|
—
|
|
|
(1,428)
|
|
|
1,428
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate - LIBOR
|
|
—
|
|
|
(182)
|
|
|
—
|
|
|
(182)
|
|
|
—
|
|
|
(182)
|
|
|
Contingent consideration
|
|
—
|
|
|
(420)
|
|
|
—
|
|
|
(420)
|
|
|
—
|
|
|
(420)
|
|
|
Net derivative asset (liability) positions
|
|
$
|
—
|
|
|
$
|
191,168
|
|
|
$
|
—
|
|
|
$
|
191,168
|
|
|
$
|
—
|
|
|
$
|
191,168
|
|
Condensed notes to the consolidated financial statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total gross fair value
|
|
Amounts offset
|
|
Net fair value presented on the consolidated balance sheets
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity - Oil
|
|
$
|
—
|
|
|
$
|
11,723
|
|
|
$
|
—
|
|
|
$
|
11,723
|
|
|
$
|
(5,301)
|
|
|
$
|
6,422
|
|
|
Commodity - NGL
|
|
—
|
|
|
13,787
|
|
|
—
|
|
|
13,787
|
|
|
(1,297)
|
|
|
12,490
|
|
|
Commodity - Natural gas
|
|
—
|
|
|
33,494
|
|
|
—
|
|
|
33,494
|
|
|
—
|
|
|
33,494
|
|
|
Commodity - Oil deferred premiums
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(477)
|
|
|
(477)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity - Oil
|
|
$
|
—
|
|
|
$
|
1,577
|
|
|
$
|
—
|
|
|
$
|
1,577
|
|
|
$
|
—
|
|
|
$
|
1,577
|
|
|
Commodity - NGL
|
|
—
|
|
|
9,547
|
|
|
—
|
|
|
9,547
|
|
|
—
|
|
|
9,547
|
|
|
Commodity - Natural gas
|
|
—
|
|
|
12,263
|
|
|
—
|
|
|
12,263
|
|
|
—
|
|
|
12,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity - Oil
|
|
$
|
—
|
|
|
$
|
(5,649)
|
|
|
$
|
—
|
|
|
$
|
(5,649)
|
|
|
$
|
5,301
|
|
|
$
|
(348)
|
|
|
Commodity - NGL
|
|
—
|
|
|
(1,297)
|
|
|
—
|
|
|
(1,297)
|
|
|
1,297
|
|
|
—
|
|
|
Commodity - Natural gas
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commodity - Oil deferred premiums
|
|
—
|
|
|
—
|
|
|
(477)
|
|
|
(477)
|
|
|
477
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate - LIBOR
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Contingent consideration
|
|
—
|
|
|
(7,350)
|
|
|
—
|
|
|
(7,350)
|
|
|
—
|
|
|
(7,350)
|
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity - Oil
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commodity - NGL
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commodity - Natural gas
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate - LIBOR
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Contingent consideration
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net derivative asset (liability) positions
|
|
$
|
—
|
|
|
$
|
68,095
|
|
|
$
|
(477)
|
|
|
$
|
67,618
|
|
|
$
|
—
|
|
|
$
|
67,618
|
|
Commodity
See Note 10.a in the 2019 Annual Report for discussion of (i) the significant Level 2 inputs associated with the calculation of discounted cash flows used in the fair value mark-to-market analysis of commodity derivatives and (ii) the Level 3 deferred premiums associated with the Company's commodity derivative contracts. These deferred premiums have settled as of June 30, 2020.
The Company reviewed the third-party specialist's valuations of commodity derivatives, including the related inputs, and analyzed changes in fair values between reporting dates.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table summarizes the changes in net assets and liabilities classified as Level 3 measurements for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Balance of Level 3 at beginning of period
|
|
$
|
—
|
|
|
$
|
(12,644)
|
|
|
$
|
(477)
|
|
|
$
|
(16,565)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net present value of commodity derivative deferred premiums(1)
|
|
—
|
|
|
(24)
|
|
|
—
|
|
|
(119)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements of commodity derivative deferred premiums(2)
|
|
—
|
|
|
9,398
|
|
|
477
|
|
|
13,414
|
|
|
Balance of Level 3 at end of period
|
|
$
|
—
|
|
|
$
|
(3,270)
|
|
|
$
|
—
|
|
|
$
|
(3,270)
|
|
____________________________________________________________________________
(1)This amount is included in "Interest expense" on the unaudited consolidated statements of operations for the three and six months ended June 30, 2019.
(2)The amounts for the three and six months ended June 30, 2019 include $7.2 million that represents the present value of deferred premiums settled upon their early termination.
Interest rate
Significant Level 2 inputs associated with the calculation of discounted cash flows used in the fair value mark-to-market analysis of the interest rate derivative include the LIBOR interest rate forward curve and a counterparty risk-adjusted discount rate generated from a compilation of data gathered by a third-party valuation specialist. The Company reviewed the third-party specialist's valuation of the interest rate derivative, including the related inputs, and will analyze changes in fair values between reporting dates.
Contingent consideration
The Company's asset acquisition of oil and natural gas properties that closed on April 30, 2020 provides for potential contingent payments to be paid by the Company. The fair value of the contingent consideration was $0.2 million as of the April 30, 2020 acquisition date, which was recorded as part of the basis in the oil and natural gas properties acquired and as a contingent consideration derivative liability. At each quarterly reporting period prior to the end of the contingency period, the Company will remeasure the contingent consideration with the changes in fair value recognized in earnings.
See Note 10.a in the 2019 Annual Report for discussion of the 2019 contingent consideration and for significant Level 2 inputs for the option pricing model used in the fair value mark-to-market analysis of contingent consideration derivatives. The Company reviewed the third-party specialist's valuations, including the related inputs, and has analyzed changes in fair values between the acquisition closing and/or reporting dates.
See Notes 3.a and 3.b for further discussion of the Company's asset acquisitions associated with the potential contingent consideration payments.
b. Fair value measurement on a nonrecurring basis
See Note 2.j in the 2019 Annual Report for the Level 2 fair value hierarchy input assumptions used in estimating the net realizable value of inventory used to account for the $1.3 million impairment expense of inventory recorded during the six months ended June 30, 2020, pertaining to line-fill and other inventories. There were no comparable impairments of inventory recorded during the six months ended June 30, 2019.
See Note 4.a in the 2019 Annual Report for the Level 3 fair value hierarchy input assumptions used in estimating the fair values of assets acquired and liabilities assumed for the acquisition of evaluated and unevaluated oil and natural gas properties accounted for as a business combination for the year ended December 31, 2019. There were no acquisitions of evaluated and unevaluated oil and natural gas properties accounted for as business combinations for the six months ended June 30, 2020 or 2019.
Condensed notes to the consolidated financial statements
(Unaudited)
See Note 10.b in the 2019 Annual Report for the Level 3 fair value hierarchy input assumptions used in the fair value measurement of long-lived assets used to account for the $8.2 million impairment expense of long-lived assets recorded during the six months ended June 30, 2020, pertaining to midstream service assets. There were no comparable impairments of long-lived assets recorded during the six months ended June 30, 2019.
c. Items not accounted for at fair value
The carrying amounts reported on the unaudited consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, accrued capital expenditures, undistributed revenue and royalties and other accrued assets and liabilities approximate their fair values.
The Company has not elected to account for its debt instruments at fair value. The following table presents the carrying amounts and fair values of the Company's debt as of the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
(in thousands)
|
|
Long-term
debt
|
|
Fair
value(1)
|
|
Long-term
debt
|
|
Fair
value(1)
|
|
January 2022 Notes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
450,000
|
|
|
$
|
439,875
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2023 Notes
|
|
—
|
|
|
—
|
|
|
350,000
|
|
|
332,500
|
|
|
January 2025 Notes
|
|
600,000
|
|
|
414,750
|
|
|
—
|
|
|
—
|
|
|
January 2028 Notes
|
|
400,000
|
|
|
278,632
|
|
|
—
|
|
|
—
|
|
|
Senior Secured Credit Facility
|
|
275,000
|
|
|
274,947
|
|
|
375,000
|
|
|
375,275
|
|
|
Total
|
|
$
|
1,275,000
|
|
|
$
|
968,329
|
|
|
$
|
1,175,000
|
|
|
$
|
1,147,650
|
|
______________________________________________________________________________
(1)The fair values of the outstanding debt on the notes were determined using the Level 1 fair value hierarchy quoted market prices for each respective instrument as of June 30, 2020 and December 31, 2019. The fair values of the outstanding debt on the Senior Secured Credit Facility were estimated utilizing the Level 2 fair value hierarchy pricing model for similar instruments as of June 30, 2020 and December 31, 2019.
Note 11—Net income (loss) per common share
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted-average common shares outstanding for the period. Diluted net income (loss) per common share reflects the potential dilution of non-vested restricted stock awards, outstanding stock option awards, non-vested performance share awards and the non-vested outperformance share award. See Note 8 for additional discussion of these awards. For the three and six months ended June 30, 2020, all of these awards were anti-dilutive due to the Company's net loss and, therefore, were excluded from the calculation of diluted net income (loss) per common share. For the three and six months ended June 30, 2019, the dilutive effects of these awards were calculated utilizing the treasury stock method. See Note 9 in the second-quarter 2019 Quarterly Report for discussion of the awards excluded from the calculation of diluted net income (loss) per common share.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table reflects the calculations of basic and diluted (i) weighted-average common shares outstanding and (ii) net income (loss) per common share for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
(in thousands, except for per share data)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) (numerator)
|
|
$
|
(545,455)
|
|
|
$
|
173,382
|
|
|
$
|
(470,809)
|
|
|
$
|
163,891
|
|
|
Weighted-average common shares outstanding (denominator)(1):
|
|
|
|
|
|
|
|
|
|
Basic
|
|
11,667
|
|
|
11,570
|
|
|
11,642
|
|
|
11,547
|
|
|
Dilutive non-vested restricted stock awards
|
|
—
|
|
|
8
|
|
|
—
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
11,667
|
|
|
11,578
|
|
|
11,642
|
|
|
11,586
|
|
|
Net income (loss) per common share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(46.75)
|
|
|
$
|
14.99
|
|
|
$
|
(40.44)
|
|
|
$
|
14.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(46.75)
|
|
|
$
|
14.98
|
|
|
$
|
(40.44)
|
|
|
$
|
14.15
|
|
_____________________________________________________________________________
(1)Shares and per share data have been retroactively adjusted to reflect the Company's 1-for-20 reverse stock split effective June 1, 2020, as described in Note 7.a.
Note 12—Commitments and contingencies
a. Litigation
From time to time, the Company is subject to various legal proceedings arising in the ordinary course of business, including proceedings for which the Company may not have insurance coverage. While many of these matters involve inherent uncertainty, as of the date hereof, the Company does not currently believe that any such legal proceedings will have a material adverse effect on the Company's business, financial position, results of operations or liquidity.
b. Drilling rig contract
The Company has committed to a drilling rig contract with a third party to facilitate the Company's drilling plans. This contract is for a term of multiple months and contains an early termination clause that requires the Company to potentially pay penalties to the third party should the Company cease drilling efforts. These penalties would negatively impact the Company's financial statements upon early contract termination. There were no penalties incurred for early contract termination for either of the six months ended June 30, 2020 or 2019. As the Company's current drilling rig contract is an operating lease with an initial term greater than 12 months, the present value of the future commitment as of June 30, 2020 related to the drilling rig contract is included in current and noncurrent operating lease liabilities on the unaudited consolidated balance sheet as of June 30, 2020. Management does not currently anticipate the early termination of this contract in 2020.
c. Firm sale and transportation commitments
The Company has committed to deliver, for sale or transportation, fixed volumes of product under certain contractual arrangements that specify the delivery of a fixed and determinable quantity. If not fulfilled, the Company is subject to firm transportation payments on excess pipeline capacity and other contractual penalties. These commitments are normal and customary for the Company's business. In certain instances, the Company has used spot market purchases to meet its commitments in certain locations or due to favorable pricing. No contractual penalties were incurred during the six months ended June 30, 2020. The Company incurred contractual penalties of $0.5 million and $1.0 million during the three and six months ended June 30, 2019, respectively. Future firm sale and transportation commitments of $306.4 million as of June 30, 2020 are not recorded on the unaudited consolidated balance sheet.
Condensed notes to the consolidated financial statements
(Unaudited)
d. Federal and state regulations
Oil and natural gas exploration, production and related operations are subject to extensive federal and state laws, rules and regulations. Failure to comply with these laws, rules and regulations can result in substantial penalties. The regulatory burden on the oil and natural gas industry increases the cost of doing business and affects profitability. The Company believes that it is in compliance with currently applicable federal and state regulations related to oil and natural gas exploration and production, and that compliance with the current regulations will not have a material adverse impact on the financial position or results of operations of the Company. These rules and regulations are frequently amended or reinterpreted; therefore, the Company is unable to predict the future cost or impact of complying with these regulations.
e. Environmental
The Company is subject to extensive federal, state and local environmental laws and regulations. These laws, among other things, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed in the period incurred. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment or remediation is probable and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments is fixed and readily determinable. Management believes no materially significant liabilities of this nature existed as of June 30, 2020 or December 31, 2019.
Note 13—Supplemental cash flow and non-cash information
The following table presents supplemental cash flow and non-cash information for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
Supplemental cash flow information:
|
|
|
|
|
|
Cash paid for interest, net of $1,822 and $420 of capitalized interest, respectively
|
|
$
|
25,595
|
|
|
$
|
29,721
|
|
|
Net cash received for income taxes(1)
|
|
$
|
—
|
|
|
$
|
(691)
|
|
|
Supplemental non-cash investing information:
|
|
|
|
|
|
Fair value of contingent consideration on acquisition date(2)
|
|
$
|
225
|
|
|
$
|
—
|
|
|
(Decrease) increase in accrued capital expenditures
|
|
$
|
(15,024)
|
|
|
$
|
2,335
|
|
|
|
|
|
|
|
|
Capitalized share-settled equity-based compensation
|
|
$
|
1,647
|
|
|
$
|
1,863
|
|
|
Capitalized asset retirement cost
|
|
$
|
1,082
|
|
|
$
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
______________________________________________________________________________
(1)See Note 16 for additional discussion of the Company's income taxes.
(2)See Notes 3.a and 9.c for discussion of the Company's 2020 asset acquisition of oil and natural gas properties that includes a contingent consideration. See Note 10.a for discussion of the quarterly remeasurement of the contingent consideration.
The following table presents supplemental non-cash adjustments information related to operating leases for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
Right-of-use assets obtained in exchange for operating lease liabilities(1)
|
|
$
|
2,349
|
|
|
$
|
25,212
|
|
______________________________________________________________________________
(1)See Note 5 for additional discussion of the Company's leases.
Note 14—Asset retirement obligations
See Note 2.l in the 2019 Annual Report for discussion of the Company's significant accounting policies for asset retirement obligations.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table reconciles the Company's asset retirement obligation liability associated with tangible long-lived assets for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
Liability at beginning of period
|
|
$
|
62,718
|
|
|
$
|
56,882
|
|
|
Liabilities added due to acquisitions, drilling, midstream service asset construction and other
|
|
1,082
|
|
|
356
|
|
|
Accretion expense
|
|
2,223
|
|
|
2,072
|
|
|
Liabilities settled due to plugging and abandonment or removed due to sale
|
|
(778)
|
|
|
(1,362)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability at end of period
|
|
$
|
65,245
|
|
|
$
|
57,948
|
|
Note 15—Revenue recognition
Oil, NGL and natural gas sales and sales of purchased oil revenues are generally recognized at the point in time that control of the product is transferred to the customer. Midstream service revenues are generated through fees for products and services that need to be delivered by midstream infrastructure, including oil and liquids-rich natural gas gathering services as well as fuel for drilling and completions activities, natural gas lift and water delivery, recycling and takeaway and are recognized over time as the customer benefits from these services when provided. A more detailed summary of the underlying contracts that give rise to the Company's revenues and methods of recognition can be found in Note 13.b in the 2019 Annual Report.
Note 16—Income taxes
The Company is subject to federal and state income taxes and the Texas franchise tax. As of June 30, 2020, the Company had federal net operating loss carryforwards totaling $2.0 billion, and of this amount, $1.7 billion will begin to expire in 2026 and $299.3 million will not expire but may be limited in future periods, and state of Oklahoma net operating loss carryforwards totaling $34.7 million that will begin to expire in 2032. As of June 30, 2020, the Company believes it is more likely than not that a portion of the net operating loss carryforwards are not fully realizable. The Company continues to consider new evidence, both positive and negative, in determining whether, based on the weight of that evidence, a valuation allowance is needed. Such consideration includes projected future cash flows from its oil, NGL and natural gas reserves (including the timing of those cash flows), the reversal of deferred tax liabilities recorded as of June 30, 2020, the Company's ability to capitalize intangible drilling costs, rather than expensing these costs and future projections of Oklahoma sourced income. As of June 30, 2020, a total valuation allowance of $404.5 million has been recorded to offset the Company's federal and Oklahoma net deferred tax assets, resulting in a Texas net deferred tax asset of $2.3 million, which is included in "Other noncurrent assets, net" on the unaudited consolidated balance sheets.
With the passage of the Tax Cuts and Jobs Act of 2017, the Alternative Minimum Tax ("AMT") on corporations was appealed and a provision was added allowing corporations to offset future tax liabilities by the amount of AMT paid with an AMT credit carryforward. The Coronavirus Aid, Relief, and Economic Security Act, enacted March 27, 2020 ("CARES Act"), modified the opportunity for corporations to receive the AMT carryover refunds by adding in a provision where the AMT credit carryforwards do not expire and are fully refundable with the filing of the Company's 2019 consolidated tax return. The Company paid AMT in 2017, creating an AMT credit carryforward in the amount of $4.1 million, of which $2.0 million was received in 2019. The remaining $2.1 million is included in "Accounts receivable, net" on the unaudited consolidated balance sheet as of June 30, 2020.
Note 17—Related parties
a. Helmerich & Payne, Inc.
The former Chairman of the Company's board of directors, whose term on the Company's board of directors ended on May 14, 2020, is on the board of directors of Helmerich & Payne, Inc. ("H&P"). During each of the six months ended June 30, 2020 and 2019, the Company has one drilling rig contract with H&P that is accounted for as a long-term operating lease due to its initial term of greater than 12 months, which is capitalized and included in "Operating lease right-of-use-assets" on the unaudited consolidated balance sheets. The present value of the future commitment is included in current and noncurrent operating lease liabilities on the unaudited consolidated balance sheets. Capital expenditures for oil and natural gas properties are capitalized and are included in "Evaluated oil and natural gas properties" on the unaudited consolidated
Condensed notes to the consolidated financial statements
(Unaudited)
balance sheets. See Note 5 for additional discussion of the Company's significant accounting policies on leases. See Note 12.b for additional discussion of the Company's drilling rig contract.
The following table presents the capital expenditures for oil and natural gas properties paid to H&P included in the unaudited consolidated statements of cash flows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
Capital expenditures for oil and natural gas properties(1)
|
|
$
|
18,104
|
|
|
$
|
6,293
|
|
____________________________________________________________________________
(1)Amount reflected for the six months ended June 30, 2020 is through the date of the former Chairman's expiration of term on the Company's board of directors on May 14, 2020.
b. Halliburton
Beginning in 2020, the Chairman of the Company's board of directors is on the board of directors of Halliburton Company ("Halliburton"). Halliburton provides drilling and completions services to the Company.
The following table presents the capital expenditures for oil and natural gas properties paid to Halliburton included in the unaudited consolidated statement of cash flows for the period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
(in thousands)
|
|
June 30, 2020
|
|
|
|
|
|
Capital expenditures for oil and natural gas properties
|
|
$
|
51,251
|
|
Note 18—Organizational restructurings
On June 17, 2020, the Company announced organizational changes, including a workforce reduction of 22 individuals which included a senior officer, that were implemented immediately, subject to certain administrative procedures. In light of the COVID-19 pandemic and lower oil prices, the Company’s board of directors continues to monitor and evaluate the Company’s business and strategy and to reduce costs and better position the Company for the future. In connection with these changes, the Company incurred $4.2 million of one-time charges during the three months ended June 30, 2020, comprised of compensation, tax, professional, outplacement and insurance-related expenses, with $1.7 million accrued in "Other current liabilities" on the unaudited consolidated balance sheet as of June 30, 2020. All equity-based compensation awards held by the affected employees were forfeited and the corresponding equity-based compensation was reversed totaling $0.8 million during the three months ended June 30, 2020. See Note 8 for additional information on the associated forfeiture activity.
On April 2, 2019, the Company announced the retirement of two of its senior officers. Additionally, on April 8, 2019, the Company committed to a company-wide reorganization effort (the "Plan") that included a workforce reduction of approximately 20%, which included an executive officer. The reduction in workforce was communicated to employees on April 8, 2019 and implemented immediately, subject to certain administrative procedures. The Company's board of directors approved the Plan in response to market conditions and to reduce costs and better position the Company for the future. In connection with the retirements on April 2, 2019 and with the Plan, the Company incurred $10.4 million of one-time charges during the three months ended June 30, 2019 comprised of compensation, taxes, professional fees, outplacement and insurance-related expenses. All equity-based compensation awards held by the two senior officers, the executive officer and the employees who were affected by the Plan were forfeited and the corresponding equity-based compensation was reversed totaling $6.1 million during the three months ended June 30, 2019. See Note 6.c in the second-quarter 2019 Quarterly Report for additional information on the associated forfeiture activity.
The incurred charges were recorded as "Organizational restructuring expenses" and the equity-based compensation expense reversals are recorded in "General and administrative" on the unaudited consolidated statement of operations.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 19—Subsequent events
a. Senior Secured Credit Facility
On July 14, 2020, the Company borrowed an additional $45.0 million on the Senior Secured Credit Facility. On July 31, 2020, the Company made a $20 million payment on the Senior Secured Credit Facility. As a result, the outstanding balance under the Senior Secured Credit Facility was $300.0 million as of August 4, 2020.
On August 5, 2020, the Company received a waiver from the lenders under its Senior Secured Credit Facility of certain representations and warranties relating to the Company's March 31, 2020 quarterly results. Such representations and warranties were incorrect at the time they were given due to the Company's previously disclosed accounting error. Additionally, due to the accounting error the Company was temporarily not in compliance with the financial reporting covenants. As of the filing of its restated unaudited consolidated financial statements for the quarter ended March 31, 2020, the Company regained compliance with the financial reporting covenants under the Senior Secured Credit Facility and the waiver cured the past defaults of the representations and warranties. The Senior Secured Credit Facility contains both financial and non-financial covenants, all of which the Company was in compliance with for all periods presented.
b. Derivatives
The Company entered into additional Brent ICE swaps for 2021 and 2022 subsequent to June 30, 2020. The following table summarizes the resulting open Brent ICE swap positions as of June 30, 2020, updated for derivatives that were entered into through August 5, 2020, for the settlement periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining year 2020
|
|
Year 2021
|
|
Year 2022
|
|
|
|
Oil:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brent ICE swaps:
|
|
|
|
|
|
|
|
|
|
Volume (Bbl)
|
|
1,196,000
|
|
|
4,307,000
|
|
|
2,920,000
|
|
|
|
|
Weighted-average price ($/Bbl)
|
|
$
|
63.07
|
|
|
$
|
49.71
|
|
|
$
|
46.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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See Note 9.a for a table that includes the Company's other commodity derivative positions as of June 30, 2020. There has been no other activity subsequent to June 30, 2020.
EXHIBIT 10.3
Jason Pigott