UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022 | |
OR | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to | |
Commission File Number: 001-35467
Battalion Oil Corporation
(Exact name of registrant as specified in its charter)
Delaware | 1311 | 20-0700684 |
3505 West Sam Houston Parkway North, Suite 300, Houston, TX 77043
(Address of principal executive offices)
(832) 538-0300
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻ | Accelerated filer ◻ | Non-accelerated filer ⌧ | Smaller reporting company ☒ Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ⌧
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, par value $0.0001 | BATL | NYSE American |
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities made under a plan confirmed by a court. Yes ⌧ No ◻
At November 9, 2022, 16,344,815 shares of the Registrant’s Common Stock were outstanding.
TABLE OF CONTENTS
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Special note regarding forward-looking statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, are forward looking statements and may concern, among other things, planned capital expenditures, potential increases in oil and natural gas production, potential costs to be incurred, future cash flows and borrowings, our financial position, business strategy and other plans and objectives for future operations. These forward-looking statements may be identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “objective,” “believe,” “predict,” “intend,” “achievable,” “anticipate,” “will,” “continue,” “potential,” “should,” “could” and similar terms and phrases. Although we believe that the expectations reflected in forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. Readers should consider carefully the risks described under the “Risk Factors” section of our previously filed Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as well as the other disclosures contained herein and therein, which describe factors that could cause our actual results to differ from those anticipated in forward-looking statements, which include, but are not limited to, the following factors:
| ● | volatility in commodity prices for oil, natural gas and natural gas liquids; |
| ● | our ability to generate sufficient cash flow from operations, borrowings or other sources to enable us to fund our operations, satisfy our obligations and develop our undeveloped acreage positions; |
| ● | contractual limitations that affect our management’s discretion in managing our business, including covenants that, among other things, limit our ability to incur debt, make investments and pay cash dividends; |
| ● | our indebtedness, which may increase in the future, and higher levels of indebtedness can make us more vulnerable to economic downturns and adverse developments in our business; |
| ● | our ability to replace our oil and natural gas reserves and production; |
| ● | the presence or recoverability of estimated oil and natural gas reserves attributable to our properties and the actual future production rates and associated costs of producing those oil and natural gas reserves; |
| ● | our ability to successfully develop our large inventory of undeveloped acreage; |
| ● | the cost and availability of goods and services, such as drilling rigs, fracture stimulation services and tubulars, which may be subject to inflation caused by labor shortages, supply shortages and increased demand, and other inflationary pressures |
| ● | our ability to secure adequate sour gas treating and/or sour gas take-away capacity and/or our ability to place our planned acid gas treatment facility in service in our Monument Draw area on-time sufficient to handle production volumes and achieve anticipated levels of sour gas treating cost reductions in the future |
| ● | drilling and operating risks, including accidents, equipment failures, fires, and leaks of toxic or hazardous materials, such as hydrogen sulfide (H2S), which can result in injury, loss of life, pollution, property damage and suspension of operations; |
| ● | our ability to retain key members of senior management, the board of directors and key technical employees; |
| ● | senior management’s ability to execute our plans to meet our goals; |
| ● | access to and availability of water, sand and other treatment materials to carry out fracture stimulations in our completion operations; |
| ● | the possibility that our industry may be subject to future regulatory or legislative actions (including additional taxes and changes in environmental regulations); |
| ● | access to adequate gathering systems, processing and treating facilities and transportation take-away capacity to move our production to marketing outlets to sell our production at market prices; |
| ● | the potential for production decline rates for our wells to be greater than we expect; |
| ● | competition, including competition for acreage in our resource play; |
| ● | environmental risks, such as accidental spills of toxic or hazardous materials, and the potential for environmental liabilities; |
| ● | exploration and development risks; |
| ● | social unrest, political instability or armed conflict in major oil and natural gas producing regions outside the United States, such as the conflict between Ukraine and Russia, and acts of terrorism or sabotage; |
| ● | general economic conditions, whether internationally, nationally or in the regional and local market areas in which we do business, may be less favorable than expected, including the possibility that economic conditions |
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| in the United States will worsen and that capital markets are disrupted, which could adversely affect demand for oil and natural gas and make it difficult to access capital; |
| ● | impacts and potential risks related to actual or anticipated pandemics, such as the novel coronavirus (COVID-19) pandemic, including how it has and may continue to impact our operations, financial results, liquidity, contractors, customers, employees and vendors; |
| ● | other economic, competitive, governmental, regulatory, legislative, including federal and state regulations and laws, geopolitical and technological factors that may negatively impact our business, operations or oil and natural gas prices; |
| ● | our insurance coverage may not adequately cover all losses that we may sustain; and |
| ● | title to the properties in which we have an interest may be impaired by title defects. |
All forward-looking statements are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this document. Other than as required under the securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
BATTALION OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Operating revenues: | ||||||||||||
Oil, natural gas and natural gas liquids sales: | ||||||||||||
Oil | $ | 70,406 | $ | 60,023 | $ | 206,874 | $ | 153,228 | ||||
Natural gas | 15,656 | 9,435 | 39,296 | 23,839 | ||||||||
Natural gas liquids | 12,644 | 11,046 | 35,234 | 22,806 | ||||||||
Total oil, natural gas and natural gas liquids sales | 98,706 | 80,504 | 281,404 | 199,873 | ||||||||
Other | 443 | 312 | 858 | 827 | ||||||||
Total operating revenues | 99,149 | 80,816 | 282,262 | 200,700 | ||||||||
Operating expenses: | ||||||||||||
Production: | ||||||||||||
Lease operating | 12,265 | 11,979 | 35,698 | 31,615 | ||||||||
Workover and other | 2,559 | 990 | 4,807 | 2,317 | ||||||||
Taxes other than income | 5,613 | 3,082 | 15,936 | 9,186 | ||||||||
Gathering and other | 16,663 | 15,934 | 47,787 | 43,436 | ||||||||
General and administrative | 4,498 | 4,491 | 14,071 | 13,349 | ||||||||
Depletion, depreciation and accretion | 13,615 | 10,885 | 36,436 | 32,729 | ||||||||
Total operating expenses | 55,213 | 47,361 | 154,735 | 132,632 | ||||||||
Income (loss) from operations | 43,936 | 33,455 | 127,527 | 68,068 | ||||||||
Other income (expenses): | ||||||||||||
Net gain (loss) on derivative contracts | 67,634 | (20,571) | (88,134) | (119,371) | ||||||||
Interest expense and other | (5,682) | (1,900) | (13,202) | (5,017) | ||||||||
Gain (loss) on extinguishment of debt | - | 2,068 | — | 2,068 | ||||||||
Total other income (expenses) | 61,952 | (20,403) | (101,336) | (122,320) | ||||||||
Income (loss) before income taxes | 105,888 | 13,052 | 26,191 | (54,252) | ||||||||
Income tax benefit (provision) | ||||||||||||
Net income (loss) | $ | 105,888 | $ | 13,052 | $ | 26,191 | $ | (54,252) | ||||
Net income (loss) per share of common stock: | ||||||||||||
Basic | $ | 6.48 | $ | 0.80 | $ | 1.60 | $ | (3.34) | ||||
Diluted | $ | 6.42 | $ | 0.79 | $ | 1.59 | $ | (3.34) | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 16,340 | 16,270 | 16,327 | 16,257 | ||||||||
Diluted | 16,483 | 16,428 | 16,496 | 16,257 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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BATTALION OIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share and per share amounts)
September 30, 2022 | December 31, 2021 | |||||
Current assets: | ||||||
Cash and cash equivalents | $ | 33,499 | $ | 46,864 | ||
Accounts receivable, net | 39,867 | 36,806 | ||||
Assets from derivative contracts | 18,225 | 1,383 | ||||
Restricted cash | 60 | 1,495 | ||||
Prepaids and other | 958 | 1,366 | ||||
Total current assets | 92,609 | 87,914 | ||||
Oil and natural gas properties (full cost method): | ||||||
Evaluated | 680,202 | 569,886 | ||||
Unevaluated | 65,021 | 64,305 | ||||
Gross oil and natural gas properties | 745,223 | 634,191 | ||||
Less - accumulated depletion | (375,648) | (339,776) | ||||
Net oil and natural gas properties | 369,575 | 294,415 | ||||
Other operating property and equipment: | ||||||
Other operating property and equipment | 4,223 | 3,467 | ||||
Less - accumulated depreciation | (1,072) | (1,035) | ||||
Net other operating property and equipment | 3,151 | 2,432 | ||||
Other noncurrent assets: | ||||||
Assets from derivative contracts | 8,789 | 2,515 | ||||
Operating lease right of use assets | 446 | 721 | ||||
Other assets | 2,933 | 2,270 | ||||
Total assets | $ | 477,503 | $ | 390,267 | ||
Current liabilities: | ||||||
Accounts payable and accrued liabilities | $ | 100,198 | $ | 62,826 | ||
Liabilities from derivative contracts | 41,088 | 58,322 | ||||
Current portion of long-term debt | 25,041 | 85 | ||||
Operating lease liabilities | 381 | 369 | ||||
Asset retirement obligations | 222 | — | ||||
Total current liabilities | 166,930 | 121,602 | ||||
Long-term debt, net | 179,372 | 181,565 | ||||
Other noncurrent liabilities: | ||||||
Liabilities from derivative contracts | 23,583 | 7,144 | ||||
Asset retirement obligations | 15,250 | 11,896 | ||||
Operating lease liabilities | 65 | 352 | ||||
Other | 960 | 4,003 | ||||
Commitments and contingencies (Note 9) | ||||||
Stockholders' equity: | ||||||
Common stock: 100,000,000 shares of $0.0001 par value authorized; | ||||||
16,343,814 and 16,273,913 shares and as of | ||||||
September 30, 2022 and December 31, 2021, respectively | 2 | 2 | ||||
Additional paid-in capital | 333,634 | 332,187 | ||||
Retained earnings (accumulated deficit) | (242,293) | (268,484) | ||||
Total stockholders' equity | 91,343 | 63,705 | ||||
Total liabilities and stockholders' equity | $ | 477,503 | $ | 390,267 | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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BATTALION OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands)
Retained | ||||||||||||||
Additional | Earnings | |||||||||||||
Common Stock | Paid-In | (Accumulated | Stockholders' | |||||||||||
| Shares |
| Amount |
| Capital |
| Deficit) |
| Equity | |||||
Balances at December 31, 2021 | 16,274 | $ | 2 | $ | 332,187 | $ | (268,484) | $ | 63,705 | |||||
Net income (loss) | — | — | — | (92,744) | (92,744) | |||||||||
Long-term incentive plan vestings | 89 | — | — | — | — | |||||||||
Reduction in shares to cover | ||||||||||||||
individuals' tax withholding | (26) | — | (461) | — | (461) | |||||||||
Stock-based compensation | — | — | 452 | — | 452 | |||||||||
Balances at March 31, 2022 | 16,337 | 2 | 332,178 | (361,228) | (29,048) | |||||||||
Net income (loss) | — | — | — | 13,047 | 13,047 | |||||||||
Long-term incentive plan vestings | 1 | — | — | — | — | |||||||||
Reduction in shares to cover | ||||||||||||||
individuals' tax withholding | — | — | (6) | — | (6) | |||||||||
Stock-based compensation | — | — | 594 | — | 594 | |||||||||
Balances at June 30, 2022 | 16,338 | 2 | 332,766 | (348,181) | (15,413) | |||||||||
Net income (loss) | — | — | — | 105,888 | 105,888 | |||||||||
Long-term incentive plan vestings | 8 | — | — | — | — | |||||||||
Reduction in shares to cover | ||||||||||||||
individuals' tax withholding | (2) | — | (25) | — | (25) | |||||||||
Stock-based compensation | — | — | 893 | — | 893 | |||||||||
Balances at September 30, 2022 | 16,344 | $ | 2 | $ | 333,634 | $ | (242,293) | $ | 91,343 | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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BATTALION OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands)
Retained | ||||||||||||||
Additional | Earnings | |||||||||||||
Common Stock | Paid-In | (Accumulated | Stockholders' | |||||||||||
| Shares |
| Amount |
| Capital |
| Deficit) |
| Equity | |||||
Balances at December 31, 2020 | 16,204 | $ | 2 | $ | 330,123 | $ | (240,167) | $ | 89,958 | |||||
Net income (loss) | — | — | — | (33,375) | (33,375) | |||||||||
Long-term incentive plan vestings | 87 | — | — | — | — | |||||||||
Reduction in shares to cover | ||||||||||||||
individuals' tax withholding | (24) | — | (264) | — | (264) | |||||||||
Stock-based compensation | — | — | 692 | — | 692 | |||||||||
Balances at March 31, 2021 | 16,267 | 2 | 330,551 | (273,542) | 57,011 | |||||||||
Net income (loss) | — | — | — | (33,929) | (33,929) | |||||||||
Long-term incentive plan vestings | 1 | — | — | — | — | |||||||||
Reduction in shares to cover | ||||||||||||||
individuals' tax withholding | — | — | (5) | — | (5) | |||||||||
Stock-based compensation | — | — | 571 | — | 571 | |||||||||
Balances at June 30, 2021 | 16,268 | 2 | 331,117 | (307,471) | 23,648 | |||||||||
Net income (loss) | — | — | — | 13,052 | 13,052 | |||||||||
Long-term incentive plan vestings | 8 | — | — | — | — | |||||||||
Reduction in shares to cover | ||||||||||||||
individuals' tax withholding | (2) | — | (22) | — | (22) | |||||||||
Stock-based compensation | — | — | 565 | — | 565 | |||||||||
Balances at September 30, 2021 | 16,274 | 2 | 331,660 | (294,419) | 37,243 | |||||||||
Net income (loss) | — | — | — | 25,935 | 25,935 | |||||||||
Stock-based compensation | — | — | 527 | — | 527 | |||||||||
Balances at December 31, 2021 | 16,274 | $ | 2 | $ | 332,187 | $ | (268,484) | $ | 63,705 | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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BATTALION OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended | ||||||
September 30, | ||||||
2022 | 2021 | |||||
Cash flows from operating activities: | ||||||
Net income (loss) | $ | 26,191 | $ | (54,252) | ||
Adjustments to reconcile net income (loss) to net cash | ||||||
provided by (used in) operating activities: | ||||||
Depletion, depreciation and accretion | 36,436 | 32,729 | ||||
Stock-based compensation, net | 1,540 | 1,560 | ||||
Unrealized loss (gain) on derivative contracts | (23,911) | 69,053 | ||||
Amortization of deferred loan costs | 2,726 | — | ||||
Reorganization items | (744) | — | ||||
Loss (gain) on extinguishment of debt | — | (2,068) | ||||
Accrued settlements on derivative contracts | 7,493 | 6,769 | ||||
Change in fair value of Change of Control Call Option | (3,043) | — | ||||
Other income (expense) | (128) | (229) | ||||
Change in assets and liabilities: | ||||||
Accounts receivable | (1,605) | (8,432) | ||||
Prepaids and other | 407 | 806 | ||||
Accounts payable and accrued liabilities | 8,452 | 1,196 | ||||
Net cash provided by (used in) operating activities | 53,814 | 47,132 | ||||
Cash flows from investing activities: | ||||||
Oil and natural gas capital expenditures | (86,998) | (47,204) | ||||
Proceeds received from sale of oil and natural gas properties | 1 | 947 | ||||
Other operating property and equipment capital expenditures | (949) | (7) | ||||
Other | 166 | 16 | ||||
Net cash provided by (used in) investing activities | (87,780) | (46,248) | ||||
Cash flows from financing activities: | ||||||
Proceeds from borrowings | 20,122 | 145,000 | ||||
Repayments of borrowings | (85) | (148,021) | ||||
Debt issuance costs | (379) | — | ||||
Other | (492) | (290) | ||||
Net cash provided by (used in) financing activities | 19,166 | (3,311) | ||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (14,800) | (2,427) | ||||
Cash, cash equivalents and restricted cash at beginning of period | 48,359 | 4,295 | ||||
Cash, cash equivalents and restricted cash at end of period | $ | 33,559 | $ | 1,868 | ||
Supplemental cash flow information: | ||||||
Cash paid for reorganization items | $ | 744 | $ | — | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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1. FINANCIAL STATEMENT PRESENTATION
Basis of Presentation and Principles of Consolidation
Battalion is an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States. The consolidated financial statements include the accounts of all majority-owned, controlled subsidiaries. The Company operates in one segment which focuses on oil and natural gas acquisition, production, exploration and development. Allocation of capital is made across the Company’s entire portfolio without regard to operating area. All intercompany accounts and transactions have been eliminated.
These unaudited condensed consolidated financial statements reflect, in the opinion of the Company’s management, all adjustments, consisting of normal and recurring adjustments, necessary to present fairly the financial position as of, and the results of operations for, the periods presented. Interim period results are not necessarily indicative of results of operations or cash flows for the full year and accordingly, certain information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, has been condensed or omitted. During interim periods, Battalion follows the accounting policies disclosed in its Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission (SEC) on March 7, 2022. Please refer to the notes in the Annual Report on Form 10-K for the year ended December 31, 2021 when reviewing interim financial results. The Company has evaluated events or transactions through the date of issuance of these unaudited condensed consolidated financial statements.
Risk and Uncertainties
Supply chain issues. In periods of increasing commodity prices, the Company continues to be at risk to supply chain issues, including, but not limited to, labor shortages, pipe restrictions and potential delays in obtaining frac and/or drilling related equipment that could impact our business. During these periods, the costs and delivery times of rigs, equipment and supplies may also be substantially greater. The unavailability or high cost of drilling rigs and/or frac crews, pressure pumping equipment, tubulars and other supplies, and of qualified personnel can materially and adversely affect our operations and profitability.
COVID-19. The Company is continuously monitoring the current and potential impacts of the novel coronavirus (COVID-19) pandemic on its business, including how it has and may continue to impact its operations, financial results, liquidity, contractors, customers, employees and vendors, and taking appropriate actions in response, including implementing various measures to ensure the continued operation of its business in a safe and secure manner.
During 2021, widespread availability of COVID-19 vaccines in the United States and elsewhere combined with accommodative governmental monetary and fiscal policies and other factors, led to a rebound in demand for oil and natural gas and increases in oil and natural gas prices. Further, in 2022, the effects of Russian sanctions amidst the conflict with Ukraine have pushed oil and gas prices higher. However, there remains the potential for demand for oil and natural gas to be adversely impacted by the economic effects of rising interest rates and tightening monetary policies, as well as the ongoing COVID-19 pandemic, including as a consequence of the circulation of more infectious “variants” of the disease, vaccine hesitancy, waning vaccine effectiveness or other factors. As a consequence, the Company is unable to predict whether oil and natural gas prices will remain at current levels or will be adversely impacted by these or other factors. The results presented in this Form 10-Q are not necessarily indicative of future operating results.
For further information regarding supply chain issues and the actual and potential impacts of COVID-19 on the Company, see “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Estimates and assumptions that, in the opinion of management of the Company, are significant include oil and natural gas revenue accruals, capital and operating expense accruals, oil and natural gas reserves, depletion relating to oil and natural gas properties, asset retirement obligations, and fair value estimates. The Company bases its estimates and judgments on historical experience and on various other assumptions and information believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be predicted with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from the estimates and assumptions used in the preparation of the Company’s unaudited condensed consolidated financial statements.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value. Amounts in the unaudited condensed consolidated balance sheets included in “Cash and cash equivalents” and “Restricted cash” reconcile to the Company’s unaudited condensed statements of cash flows as follows:
| September 30, 2022 | December 31, 2021 | ||||
Cash and cash equivalents | $ | 33,499 | $ | 46,864 | ||
Restricted cash | 60 | 1,495 | ||||
Total cash, cash equivalents and restricted cash | $ | 33,559 | $ | 48,359 | ||
Restricted cash consists of funds to collateralize lines of credit.
Accounts Receivable and Allowance for Doubtful Accounts
The Company’s accounts receivable are primarily receivables from joint interest owners and oil and natural gas purchasers. Accounts receivable are recorded at the amount due, less an allowance for doubtful accounts, when applicable. The Company establishes provisions for losses on accounts receivable if it determines that collection of all or part of the outstanding balance is doubtful. The Company regularly reviews collectability and establishes or adjusts the allowance for doubtful accounts as necessary using the specific identification method. As of both September 30, 2022 and December 31, 2021, allowances for doubtful accounts were approximately $0.2 million.
Concentrations of Credit Risk
The Company’s primary concentrations of credit risk are the risks of uncollectible accounts receivable and of nonperformance by counterparties under the Company’s derivative contracts. Each reporting period, the Company assesses the recoverability of material receivables using historical data, current market conditions and reasonable and supportable forecasts of future economic conditions to determine expected collectability of its material receivables.
The Company’s exposure to credit risk under its derivative contracts is varied among major financial institutions with investment grade credit ratings, where it has master netting agreements which provide for offsetting of amounts payable or receivable between the Company and the counterparty. To manage counterparty risk associated with
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
derivative contracts, the Company selects and monitors counterparties based on an assessment of their financial strength and/or credit ratings. At September 30, 2022, the Company’s derivative counterparties include two major financial institutions, both of which are secured lenders under the Term Loan Agreement.
Recently Issued Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) (ASU 2020-04), in response to the risk of cessation of the London Interbank Offered Rate (LIBOR). This amendment provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging arrangements, and other transactions that reference LIBOR. ASU 2020-04 will be in effect through December 31, 2022. As of the date of this filing, ASU 2020-04 has not had a material impact on the Company’s operating results, financial position and disclosures.
2. LEASES
The Company leases equipment and office space pursuant to net operating leases. Operating leases where the Company is the lessee are included in “Operating lease right of use assets” and “Operating lease liabilities” on the unaudited condensed consolidated balance sheets. The lease liabilities are initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. The Company has no leases that meet the criteria for classification as a finance lease.
Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments, when applicable, are presented as “Gathering and other” or “General and administrative” in the unaudited condensed consolidated statements of operations in the same line item as the expense arising from the fixed lease payments on the operating leases.
The Company elected not to recognize right of use assets and lease liabilities for all short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases when incurred. Variable lease payments associated with these leases are recognized and presented in the same manner as for all other leases.
The “Operating lease right of use assets” outstanding on the unaudited condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 both have initial lease terms of 2.3 years. Payments due under the lease contracts include fixed payments plus, in some instances, variable payments. The table below summarizes the Company’s leases for the nine months ended September 30, 2022 and 2021 (in thousands, except term and discount rate):
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Nine Months Ended | ||||||||
September 30, | ||||||||
| 2022 |
| 2021 |
| ||||
Lease cost | ||||||||
Operating lease costs | $ | 294 | $ | 346 | ||||
Short-term lease costs | 6,112 | 2,231 | ||||||
Variable lease costs | — | 307 | ||||||
Total lease costs | $ | 6,406 | $ | 2,884 | ||||
Other information | ||||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||
Operating cash flows from operating leases | $ | 294 | $ | 439 | ||||
Right-of-use assets obtained in exchange for new operating lease liabilities | 841 | |||||||
Weighted-average remaining lease term - operating leases | 1.2 | years |
| 2.2 | years | |||
Weighted-average discount rate - operating leases | 4.29 | % | 4.29 | % | ||||
Future minimum lease payments associated with the Company’s non-cancellable operating leases for office space as of September 30, 2022 are presented in the table below (in thousands):
3. OPERATING REVENUES
Substantially all of the Company’s revenues are derived from single basin operations, the Delaware Basin in Pecos, Reeves, Ward and Winkler Counties, Texas. Revenue is presented disaggregated in the statement of operations by major product, and depicts how the nature, timing, and uncertainty of revenue and cash flows are affected by economic factors in the Company’s single basin operations.
Revenue is recognized when the following five steps are completed: (1) identify the contract with the customer, (2) identify the performance obligation (promise) in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, (5) recognize revenue when the reporting organization satisfies a performance obligation. Revenues from the sale of crude oil, natural gas and natural gas liquids are recognized, at a point in time, when a performance obligation is satisfied by the transfer of control of the commodity to the customer. Revenue is measured based on consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue. Because the Company’s performance obligations have been satisfied and an unconditional right to consideration exists as of the balance sheet date, the Company recognized amounts due from contracts with customers
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
of $36.5 million and $35.1 million as of September 30, 2022 and December 31, 2021, respectively, as “Accounts receivable, net” on the unaudited condensed consolidated balance sheets.
4. OIL AND NATURAL GAS PROPERTIES
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas reserves (including such costs as leasehold acquisition costs, geological expenditures, treating equipment and gathering support facilities costs, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred. To the extent capitalized costs of evaluated oil and natural gas properties, net of accumulated depletion, exceed the discounted future net revenues of proved oil and natural gas reserves, net of deferred taxes, such excess capitalized costs are charged to expense.
Additionally, the Company assesses all properties classified as unevaluated property on a quarterly basis for possible impairment. The Company assesses properties on an individual basis or as a group, if properties are individually insignificant. 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 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 and the full cost ceiling test limitation.
At September 30, 2022, the ceiling test value of the Company’s reserves was calculated based on the first-day-of-the-month average for the 12-months ended September 30, 2022 of the West Texas Intermediate (WTI) crude oil spot price of $92.16 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for the 12-months ended September 30, 2022 of the Henry Hub natural gas price of $6.13 per MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials. Using these prices, the Company’s net book value of oil and natural gas properties at September 30, 2022 did not exceed the ceiling amount.
At September 30, 2021, the ceiling test value of the Company’s reserves was calculated based on the first-day-of-the-month average for the 12-months ended September 30, 2021 of the WTI crude oil spot price of $57.64 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for the 12-months ended September 30, 2021 of the Henry Hub natural gas price of $2.94 per MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials. Using these prices, the Company’s net book value of oil and natural gas properties at September 30, 2021 did not exceed the ceiling amount.
Changes in commodity prices, production rates, levels of reserves, future development costs, transfers of unevaluated properties to the full cost pool, capital spending, and other factors will determine the Company’s ceiling test calculation and impairment analyses in future periods.
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. DEBT
As of September 30, 2022 and December 31, 2021, the Company’s debt consisted of the following (in thousands):
September 30, 2022 | December 31, 2021 | ||||||
Term loan credit facility(1) | $ | 204,291 | $ | 181,565 | |||
Other | 122 | 85 | |||||
Total debt, net | 204,413 | 181,650 | |||||
Current portion of long-term debt(2) | 25,041 | 85 | |||||
Total long-term debt, net | $ | 179,372 | $ | 181,565 | |||
| (1) | Amount is net of $11.5 million and $14.2 million in unamortized debt issuance costs at September 30, 2022 and December 31, 2021, respectively. Amount also excludes the initial fair value allocated to the change of control call option embedded derivative of $4.2 million. Refer to “Term Loan Credit Facility” below for further details. |
| (2) | As of September 30, 2022, amount primarily represents amortization payments of $25.0 million under the Term Loan Agreement due within one year. As of December 31, 2021, amount represents the balance owed under the Company’s Paycheck Protection Program Loan. |
Term Loan Credit Facility
On November 24, 2021, the Company and its wholly owned subsidiary, Halcón Holdings, LLC (Borrower) entered into an Amended and Restated Senior Secured Credit Agreement (Term Loan Agreement) with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders. The Term Loan Agreement amends and restates in its entirety the senior secured revolving credit agreement, as amended, (the Senior Credit Agreement) entered into in 2019. As of September 30, 2022, the Company had borrowed $220.0 million under the Term Loan Agreement, a portion of which was used to refinance all amounts owed under the Senior Credit Agreement, and had approximately $1.3 million letters of credit outstanding. Under the Term Loan Agreement, the lenders have also agreed to loan the Company up to an additional $15.0 million, which will be available to be drawn from the date certain wells included in the approved plan of development (APOD) are deemed producing APOD wells until up to 18 months after November 24, 2021, subject to the satisfaction of certain conditions. An additional $5.0 million is available for the issuance of letters of credit. The maturity date of the Term Loan Agreement is November 24, 2025. Until such maturity date, borrowings under the Term Loan Agreement bear interest at a rate per annum equal to LIBOR (or another applicable reference rate, as determined pursuant to the provisions of the Term Loan Agreement) plus an applicable margin of 7.00%.
On November 14, 2022, the Company paid approximately $2.4 million and entered into a further Amended Credit Agreement (the “Amended Term Loan Agreement”) with its lenders which modified certain provisions of its original Term Loan Agreement including, but not limited to, the following:
| ● | Current Ratio. Our Current Ratio financial covenant decreased to 0.9 to 1.00 as of September 30, 2022, to 0.70 to 1.00 for the quarter ended December 31, 2022, and to 0.75 to 1.00 for the quarter ended March 31, 2023, returning to 1.00 to 1.00 for the quarter ended June 30, 2023 and for each fiscal quarter thereafter as further described below. |
| ● | Interest Rate. We (i) converted the benchmark interest rate to the Secured Overnight Financing Rate (SOFR) and (ii) increased the applicable margin on borrowings by 0.50%, such that borrowings under the Term Loan Agreement will now bear interest at a rate per annum equal to the SOFR plus an applicable margin of 7.50%. |
15
BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
| ● | Prepayment Premium. We reset the prepayment periods (for outstanding borrowings) beginning on the amendment date with the following prepayment premiums, subject to the conditions described in the table below and the discussion that follows: |
Period (after amendment date) | Premium | ||
Months 0 - 12 | Make-whole amount equal to 12 months of interest plus 2.00% | ||
Months 13 - 24 | 2.00% | ||
Thereafter | 0.00% |
If within 6 months after the November 14, 2022 amendment date the Company raises a minimum of $20 million of new capital in the form of equity, equity-linked, preferred equity, or unsecured debt, in call cases bearing no cash dividend or cash interest, to bolster liquidity or repay debt, our prepayment premiums will reset to those in the original credit agreement (as further described in our 2021 Annual Report on Form 10-K). Additionally, if a change of control results in prepayment within the second anniversary of the amendment date, a 2% payment premium will apply.
The Company may be required to make mandatory prepayments under the Amended Term Loan Agreement in connection with the incurrence of non-permitted debt, certain asset sales, or with cash on hand in excess of certain maximum levels beginning in 2023. For each fiscal quarter after January 1, 2023, the Company is required to make mandatory prepayments when the Consolidated Cash Balance, as defined in the Amended Term Loan Agreement, exceeds $20.0 million. Until December 31, 2024, the forecasted APOD capital expenditures for the succeeding fiscal quarter are excluded for purposes of determining the Consolidated Cash Balance.
The Company is required to make scheduled amortization payments in the aggregate amount of $120.0 million from the fiscal quarter ending March 31, 2023 through the fiscal quarter ending September 30, 2025. Amounts outstanding under the Amended Term Loan Agreement are guaranteed by certain of the Borrower’s direct and indirect subsidiaries and secured by substantially all of the assets of the Borrower and such direct and indirect subsidiaries, and by the equity interests of the Borrower held by the Company. As part of the Amended Term Loan Agreement there are certain restrictions on the transfer of assets, including cash, to Battalion from the guarantor subsidiaries.
The Amended Term Loan Agreement also contains certain financial covenants (as defined), including the maintenance of the following ratios:
| ● | Asset Coverage Ratio of not less than 1.70 to 1.00 as of September 30, 2022, and 1.80 to 1.00 as of December 31, 2022 and each fiscal quarter thereafter |
| ● | Total Net Leverage Ratio of not greater than 3.00 to 1.00 as of September 30, 2022 and December 31, 2022, 2.75 to 1.00 as of March 31, 2023, and 2.50 to 1.00 as of each fiscal quarter thereafter, and |
| ● | Current Ratio of not less than 1.00 to 1.00, each determined as of the last day of any fiscal quarter period, other than as amended in November 2022 to 0.9 to 1.00 as of September 30, 2022, to 0.70 to 1.00 as of December 31, 2022, and to 0.75 to 1.00 as of March 31, 2023 |
As of September 30, 2022, (i) the Company was in compliance with the Asset Coverage Ratio and Total Net Leverage Ratio covenants under the Term Loan Agreement and (ii) our Current Ratio was 0.96 to 1, which was less than the 1.00 to 1.00 Current Ratio required under the original terms of the Term Loan Agreement. As a result of the amendment to our Term Loan Agreement on November 14, 2022, we were in compliance with the amended Current Ratio covenant of 0.9 to 1.00 for the quarter ended September 30, 2022.
The Amended Term Loan Agreement also contains an APOD for the Company’s Monument Draw acreage through the drilling and completion of certain wells. The Amended Term Loan Agreement contains a proved developed producing production test and an APOD economic test which the Company must maintain compliance with otherwise, subject to any available remedies or waivers, the Company is required to immediately cease making expenditures in
16
BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
respect of the APOD other than any expenditures deemed necessary by the Company in respect of no more than six additional APOD wells.
The Amended Term Loan Agreement also contains certain events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy.
In conjunction with entering into the original Term Loan Agreement in November 2021, the Company agreed to pay a premium to the lenders upon a future change of control event in which a majority of the board of directors or the Chief Executive Officer or the Chief Financial Officer positions do not remain held by the same persons as before the change of control event (Change of Control Call Option). The premium is reduced over time through the payment of interest and certain fees. The Change of Control Call Option is accounted for as an embedded derivative not clearly and closely related to the host debt instrument. Accordingly, the Company recorded the initial $4.2 million fair value separately on the unaudited condensed consolidated balance sheet within “Other noncurrent liabilities” and records changes in the fair value of the embedded derivative each reporting period in “Interest expense and other” on the unaudited consolidated statements of operations. Refer to Note 6, “Fair Value Measurements,” for a discussion of the valuation approach used, the significant inputs to the valuation, and for a reconciliation of the change in fair value of the Change of Control Call Option.
Paycheck Protection Program Loan
In 2020, the Company entered into a promissory note (the PPP Loan) for a principal amount of approximately $2.2 million under the Paycheck Protection Program of the CARES Act. Effective August 13, 2021, the principal amount of the Company’s PPP Loan was reduced to approximately $0.2 million upon forgiveness of $2 million based on the use of loan proceeds for eligible expenses under the CARES Act. The Company recorded a gain on the extinguishment of the forgiven portion of the PPP Loan and related accrued interest of $2.1 million presented in “Gain (loss) on extinguishment of debt” in the consolidated statements of operations during the quarter ended September 30, 2021. During the first quarter of 2022, the $0.2 million principal amount of the PPP loan was repaid in full.
6. FAIR VALUE MEASUREMENTS
The Company’s determination of fair value incorporates not only the credit standing of the counterparties involved in transactions with the Company resulting in receivables on the Company’s unaudited condensed consolidated balance sheets, but also the impact of the Company’s nonperformance risk on its own liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company separates the fair value of its financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There were no between fair value hierarchy levels for any period presented. The following tables set forth by level within the fair value hierarchy the Company’s financial assets and
17
BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
liabilities associated with commodity-based derivative contracts that were accounted for at fair value as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022 | ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Assets | ||||||||||||
Assets from commodity-based derivative contracts | $ | — | $ | 27,014 | $ | — | $ | 27,014 | ||||
Liabilities | ||||||||||||
Liabilities from commodity-based derivative contracts | $ | — | $ | 64,671 | $ | — | $ | 64,671 | ||||
December 31, 2021 | ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Assets | ||||||||||||
Assets from commodity-based derivative contracts | $ | — | $ | 3,898 | $ | — | $ | 3,898 | ||||
Liabilities | ||||||||||||
Liabilities from commodity-based derivative contracts | $ | — | $ | 65,466 | $ | — | $ | 65,466 | ||||
Derivative contracts listed above as Level 2 include fixed-price swaps, collars, basis swaps and WTI NYMEX rolls that are carried at fair value. The Company records the net change in the fair value of these positions in “Net gain (loss) on derivative contracts” in the Company’s unaudited condensed consolidated statements of operations. The Level 2 observable data includes the forward curves for commodity prices based on quoted market prices and implied volatility factors related to changes in the forward curves. See Note 7, “Derivative and Hedging Activities,” for additional discussion of derivatives.
The Company’s derivative contracts are with major financial institutions with investment grade credit ratings which are believed to have minimal credit risk. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts; however, the Company does not anticipate such nonperformance.
As discussed in Note 5, “Debt,” the Company reflects the fair value of the Change of Control Call Option separately on the unaudited condensed consolidated balance sheets and changes to the fair value of the embedded derivative each reporting period in “Interest expense and other” on the unaudited consolidated statements of operations. The valuation of the Change of Control Call Option includes significant inputs such as the timing and probability of discrete potential exit scenarios, forward LIBOR curves, and discount rates based on implied and market yields. The following table sets forth a reconciliation of the changes in fair value of the Change of Control Call Option classified as Level 3 in the fair value hierarchy (in thousands):
Change of Control | |||
Call Option | |||
Balance at December 31, 2021 | $ | 4,003 | |
Change in fair value | (3,043) | ||
Balance at September 30, 2022 | $ | 960 | |
Estimated fair value amounts have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, cash equivalents and restricted cash, accounts receivable, and accounts payable approximates their carrying value due to their short-term nature. The estimated fair value of borrowings under the Company’s Term Loan Agreement approximates carrying value because the interest rates approximate current market rates.
18
BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company follows the provisions of ASC 820, for nonfinancial assets and liabilities measured at fair value on a non-recurring basis. These provisions apply to the Company’s initial recognition of asset retirement obligations for which fair value is used. The asset retirement obligation estimates are derived from historical costs and management’s expectation of future cost environments; and therefore, the Company has designated these liabilities as Level 3. See Note 8, “Asset Retirement Obligations,” for a reconciliation of the beginning and ending balances of the liability for the Company’s asset retirement obligations.
7. DERIVATIVE AND HEDGING ACTIVITIES
The Company is exposed to certain risks relating to its ongoing business operations, such as commodity price risk and interest rate risk. In accordance with the Company’s policy and the requirements under the Term Loan Agreement, it generally hedges a substantial, but varying, portion of anticipated oil and natural gas production for future periods. Derivatives are carried at fair value on the unaudited condensed consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the unaudited condensed consolidated statements of operations for the period in which the change occurs. The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, the Company records the net change in the mark-to-market valuation of these derivative contracts, as well as all payments and receipts on settled derivative contracts, in “Net gain (loss) on derivative contracts” on the unaudited condensed consolidated statements of operations. The Company’s hedge policies and objectives may change significantly as its operational profile changes. The Company does not enter into derivative contracts for speculative trading purposes.
It is the Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial or commodity hedging institutions deemed by management as competent and competitive market makers. As of September 30, 2022, the Company did not post collateral under any of its derivative contracts as they are secured under the Company’s Term Loan Agreement.
The Company’s crude oil, and natural gas derivative positions at any point in time may consist of fixed-price swaps, costless put/call collars, basis swaps and WTI NYMEX rolls further described as follows:
| ● | Fixed-price swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for crude oil and natural gas. |
| ● | Costless collars consist of a sold call, which establishes a maximum price the Company will receive for the volumes under contract and a purchased put that establishes a minimum price and are generally utilized less frequently by the Company than fixed-price swaps. |
| ● | Basis swaps effectively lock in a price differential between regional prices (i.e. Midland) where the product is sold and the relevant pricing index under which the oil production is hedged (i.e. Cushing). |
| ● | WTI NYMEX roll agreements account for pricing adjustments to the trade month versus the delivery month for contract pricing. |
19
BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the location and fair value amounts of all commodity derivative contracts in the unaudited condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 (in thousands):
Balance sheet location |
| September 30, 2022 |
| December 31, 2021 |
| Balance sheet location |
| September 30, 2022 |
| December 31, 2021 | ||||
Current assets | $ | 18,225 | $ | 1,383 | Current liabilities | $ | (41,088) | $ | (58,322) | |||||
Other noncurrent assets | 8,789 | 2,515 | Other noncurrent liabilities | (23,583) | (7,144) | |||||||||
$ | 27,014 | $ | 3,898 | $ | (64,671) | $ | (65,466) | |||||||
The following table summarizes the location and amounts of the Company’s realized and unrealized gains and losses on derivative contracts in the Company’s unaudited condensed consolidated statements of operations (in thousands):
At September 30, 2022, the Company had the following open crude oil and natural gas derivative contracts:
The Company presents the fair value of its derivative contracts at the gross amounts in the unaudited condensed consolidated balance sheets. The following table shows the potential effects of master netting arrangements on the fair value of the Company’s derivative contracts at September 30, 2022 and December 31, 2021 (in thousands):
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Derivative Assets | Derivative Liabilities | |||||||||||
Offsetting of Derivative Assets and Liabilities |
| September 30, 2022 |
| December 31, 2021 |
| September 30, 2022 |
| December 31, 2021 | ||||
Gross Amounts - Consolidated Balance Sheet | $ | 27,014 | $ | 3,898 | $ | (64,671) | $ | (65,466) | ||||
Amounts Not Offset - Consolidated Balance Sheet | (24,845) | (3,898) | 24,845 | 3,898 | ||||||||
Net Amount | $ | 2,169 | $ | — | $ | (39,826) | $ | (61,568) | ||||
The Company enters into an International Swap Dealers Association Master Agreement (ISDA) with each counterparty prior to a derivative contract with such counterparty. The ISDA is a standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.
8. ASSET RETIREMENT OBLIGATIONS
The Company records an asset retirement obligation (ARO) on oil and natural gas properties when it can reasonably estimate the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon costs. The Company records the ARO liability on the unaudited condensed consolidated balance sheets and capitalizes the cost in “Oil and natural gas properties” during the period in which the obligation is incurred. The Company records the accretion of its ARO liabilities in “Depletion, depreciation and accretion” expense in the unaudited condensed consolidated statements of operations. The additional capitalized costs are depreciated on a unit-of-production basis.
The Company recorded the following activity related to its ARO liability (in thousands):
9. COMMITMENTS AND CONTINGENCIES
Commitments
As of September 30, 2022, the Company has a minimum volume commitment with a third party for the purchase of chemicals to treat sour gas production through December 31, 2022. The future payments associated with the minimum volume commitment are approximately $1.6 million.
As of September 30, 2022, the Company has an active drilling rig commitment of approximately $2.8 million through the fourth quarter of 2022. Termination of the active drilling rig commitment would require an early termination penalty of $1.0 million, which would be in lieu of paying the active drilling rig commitment of $2.8 million.
The Company has entered into various long-term gathering, transportation and sales contracts with respect to its oil and natural gas production from the Delaware Basin in West Texas. As of September 30, 2022, the Company had in place two long-term crude oil contracts and 12 long-term natural gas contracts in this area and the sales prices under these contracts are based on posted market rates. Under the terms of these contracts, the Company has committed a
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
substantial portion of its production from this area for periods ranging from to years from the date of first production.
Contingencies
In addition to the matter described below, from time to time, the Company may be a plaintiff or defendant in a pending or threatened legal proceeding arising in the normal course of its business. While the outcome and impact of currently pending legal proceedings cannot be determined, the Company’s management and legal counsel believe that the resolution of these proceedings through settlement or adverse judgment will not have a material effect on the Company’s unaudited condensed consolidated operating results, financial position or cash flows.
Surface owners of properties in Louisiana, where the Company formerly operated, often file lawsuits or assert claims against oil and gas companies claiming that operators and working interest owners are liable for environmental damages arising from operations conducted on the leased properties. These damages are frequently measured by the cost to restore the leased properties to their original condition. Currently and in the past, the Company has been party to such matters in Louisiana. With regard to pending matters, the overall exposure is not currently determinable. The Company intends to vigorously oppose these claims.
10. STOCKHOLDERS’ EQUITY
Incentive Plans
The Company’s board of directors has adopted the 2020 Long-Term Incentive Plan (the Plan), as amended in 2021, in which an aggregate of approximately 1.8 million shares of the Company’s common stock were available for grant pursuant to awards under the Plan. As of September 30, 2022, a maximum of 0.2 million of the Company’s common stock remained reserved for issuance under the Plan. For the nine months ended September 30, 2022 and 2021, the Company recognized expense of $1.5 million and $1.6 million, respectively, related to stock-based-compensation awards granted to employees and directors, including grants of stock options and restricted stock. Stock-based compensation expense is recorded as a component of "General and administrative" on the unaudited condensed consolidated statements of operations.
Restricted Stock
From time to time, the Company grants shares of restricted stock units (RSUs) under the Plan to employees of the Company. Under the Plan, employee RSUs will generally vest and convert to shares in equal amounts over a or four year vesting period from the date of the grant, depending on award, or when the performance or market conditions described further described in our Annual Report on Form 10-K occur.
During the nine months ended September 30, 2022, the Company granted 0.2 million shares of RSUs at a weighted average grant date fair value of $13.75 per share. At September 30, 2022, the Company had $3.4 million of unrecognized compensation expense related to non-vested RSU awards to be recognized over a weighted average period of 1.3 years.
Stock Options
From time to time, the Company has granted stock options under the Plan covering shares of common stock to employees of the Company. Stock options, when exercised, are settled through the payment of the exercise price in exchange for new shares of stock underlying the option. Awards granted under the Plan typically vest over a four year period at a rate of -fourth on the annual anniversary date of the grant and expire seven years from the date of grant. No stock options have been granted during 2022. At September 30, 2022, the Company had $0.2 million of
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
unrecognized compensation expense related to non-vested stock options to be recognized over a weighted-average period of 1 year.
Warrants
On October 8, 2019, pursuant to the Company’s plan of reorganization, approximately 6.9 million Series A, Series B and Series C warrants were issued to pre-emergence holders of the predecessor Company’s common stock with corresponding initial exercise prices ranging from $40.17 to $60.45 per share, on a pro rata basis. Each series of Warrants issued under the Warrant Agreement had a three-year term, which expired on October 8, 2022.
11. EARNINGS PER SHARE
The following represents the calculation of earnings (loss) per share (in thousands, except per share amounts):
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||
Basic: | ||||||||||||
Net income (loss) | $ | 105,888 | $ | 13,052 | $ | 26,191 | $ | (54,252) | ||||
Weighted average basic number of common shares outstanding | 16,340 | 16,270 | 16,327 | 16,257 | ||||||||
Basic net income (loss) per share of common stock | $ | 6.48 | $ | 0.80 | $ | 1.60 | $ | (3.34) | ||||
Diluted: | ||||||||||||
Net income (loss) | $ | 105,888 | $ | 13,052 | $ | 26,191 | $ | (54,252) | ||||
Weighted average basic number of common shares outstanding | 16,340 | 16,270 | 16,327 | 16,257 | ||||||||
Common stock equivalent shares representing shares issuable upon: | ||||||||||||
Exercise of Warrants & Stock Options | Anti-dilutive | Anti-dilutive | Anti-dilutive | Anti-dilutive | ||||||||
Vesting of restricted stock units | 143 | 158 | 169 | Anti-dilutive | ||||||||
Weighted average diluted number of common shares outstanding | 16,483 | 16,428 | 16,496 | 16,257 | ||||||||
Diluted net income (loss) per share of common stock | $ | 6.42 | $ | 0.79 | $ | 1.59 | $ | (3.34) | ||||
Common stock equivalents, including warrants and options, totaling 7.4 million for the three and nine months ended September 30, 2022 and three months ended September 30, 2021 were anti-dilutive and not included in the computation of diluted earnings per share of common stock. For the nine months ended September 30, 2021, common stock equivalents, including warrants, options and restricted stock units, totaling 7.7 million were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive due to the Company’s net loss in that period.
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. ADDITIONAL FINANCIAL STATEMENT INFORMATION
Certain balance sheet amounts are comprised of the following (in thousands):
| September 30, 2022 |
| December 31, 2021 | |||
Accounts receivable, net: | ||||||
Oil, natural gas and natural gas liquids revenues | $ | 36,441 | $ | 34,110 | ||
Joint interest accounts | 3,009 | 2,503 | ||||
Other | 417 | 193 | ||||
$ | 39,867 | $ | 36,806 | |||
Prepaids and other: | ||||||
Prepaids | $ | 573 | $ | 975 | ||
Funds in escrow | 341 | 390 | ||||
Other | 44 | 1 | ||||
$ | 958 | $ | 1,366 | |||
Other assets (Non-current): | ||||||
Investment in unconsolidated affiliate(1) | $ | 1,612 | $ | — | ||
Oil, natural gas and natural gas liquids revenues | 59 | 1,010 | ||||
Funds in escrow | 523 | 1,227 | ||||
Other | 739 | 33 | ||||
$ | 2,933 | $ | 2,270 | |||
Accounts payable and accrued liabilities: | ||||||
Trade payables | $ | 34,201 | $ | 25,315 | ||
Accrued oil and natural gas capital costs | 27,208 | 4,881 | ||||
Revenues and royalties payable | 29,595 | 22,763 | ||||
Accrued interest expense | 66 | 42 | ||||
Accrued employee compensation | 2,482 | 3,735 | ||||
Accrued lease operating expenses | 6,534 | 6,090 | ||||
Drilling advances from partners | 109 | — | ||||
Other | 3 | — | ||||
$ | 100,198 | $ | 62,826 | |||
| (1) | In May 2022, we entered into a joint venture with Caracara Services, LLC (“Caracara”) to develop an acid gas treatment facility to remove hydrogen sulfide and carbon dioxide from our produced natural gas. We also entered into a gas treating agreement with the joint venture, Brazos Amine Treater, LLC (“BAT”), and have a minimum volume commitment of 20 MMcf per day, with certain rollover rights and start-up flexibility, for an initial term of five years from the in service date of the facility. Caracara will provide all necessary capital for the construction of the treatment facility. We contributed certain full cost pool assets to the joint venture in exchange for a retained 5% equity interest in BAT, an unconsolidated subsidiary. For accounting purposes, since we do not control the key activities (e.g. operating and maintaining the facility) which most significantly impact economic performance nor do we have the obligation to absorb losses or the right to receive benefits that could potentially be significant, we are not the primary beneficiary of BAT. Accordingly, we account for our investment in BAT using the equity method of accounting based on our ability to exercise significant influence, but not control, over the key activities of the joint venture. |
| (2) |
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding our results of operations for the three and nine months ended September 30, 2022 and 2021 and should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and with the consolidated financial statements, notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The results presented in this Form 10-Q are not necessarily indicative of future operating results.
Statements in this discussion may be forward-looking. These forward-looking statements involve risks and uncertainties, including those discussed below, which could cause actual results to differ from those expressed. For more information, see “Special note regarding forward-looking statements.”
Overview
We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States. During 2017, we acquired certain properties in the Delaware Basin and divested our assets located in the Williston Basin in North Dakota and in the El Halcón area of East Texas. As a result, our properties and drilling activities are currently focused in the Delaware Basin, where we have an extensive drilling inventory that we believe offers attractive long-term economics.
Our total operating revenues for the first nine months of 2022 and 2021 were $282.3 million and $200.7 million, respectively. The increase in revenues is primarily attributable to an approximate $21.07 per Boe increase in average realized prices (excluding the effects of hedging arrangements). During the first nine months of 2022, production averaged 15,352 Boe/d. For the nine months ended September 30, 2022, we drilled and cased 8 gross (7.5 net) operated wells and completed and put online 5 gross (4.5 net) operated wells.
Our financial results depend upon many factors, but are largely driven by the volume of our oil and natural gas production and the price that we receive for that production. Our production volumes will decline as reserves are depleted unless we expend capital in successful development and exploration activities or acquire properties with existing production. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, transportation take-away capacity constraints, inventory storage levels, basis differentials and other factors. Accordingly, finding, developing and producing oil and natural gas reserves at economical costs are critical to our long-term success.
When commodity prices decline significantly our ability to finance our capital budget and operations may be adversely impacted. While we use derivative instruments to provide partial protection against declines in oil and natural gas prices, the total volumes we hedge are less than our expected production, vary from period to period based on our view of current and future market conditions, remain consistent with the requirements in effect under our Term Loan Agreement and extend, on a rolling basis, for the next four years. These limitations result in our liquidity being susceptible to commodity price declines. Additionally, while intended to reduce the effects of volatile commodity prices, derivative transactions may limit our potential gains and increase our potential losses if commodity prices were to rise substantially over the price established by the hedge. Our hedge policies and objectives may change significantly as our operational profile changes and/or commodities prices change. We do not enter into derivative contracts for speculative trading purposes.
Additionally, since oil and natural gas prices are inherently volatile, sustained lower commodity prices could result in impairment charges under our full cost ceiling test calculation. The ceiling test calculation dictates that we use the unweighted arithmetic average price of crude oil and natural gas as of the first day of each month for the 12-month period ending at the balance sheet date. Using the crude oil price for October 2022 of $79.79 per barrel, and holding it constant for two months to create a trailing 12-month period of average prices that is more reflective of recent price trends, our ceiling test calculation would not have generated an impairment, holding all other inputs and factors constant. In addition to commodity prices, our production rates, levels of proved reserves, future development costs, transfers of
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unevaluated properties to our full cost pool, capital spending and other factors will determine our actual ceiling test calculation and impairment analyses in future periods.
Recent Developments
In May 2022, we entered into a joint venture agreement with Caracara Services, LLC (“Caracara”) to develop a strategic acid gas treatment and carbon sequestration facility (the “Facility”) in Winkler County, Texas. The joint venture, operating as Brazos Amine Treater, LLC (“BAT”), has also entered into a Gas Treating Agreement (“GTA”) with us for gas production from our Monument Draw area. In exchange for contributing to the joint venture a wellbore with an approved permit for the injection of acid gas and surface land, we retained a 5% equity interest in BAT, an unconsolidated subsidiary. Caracara is obligated to provide all necessary capital for the construction of the Facility, which is expected to come online on or before twelve months from the effective date of the GTA, with an initial capacity of approximately 30 MMcf per day, and a design capacity to treat up to 10% combined concentrations for H2S and CO2.
Under the GTA, we will pay a treating rate that varies based on volumes delivered to the Facility for a term that will last 20 years from the in-service date of the Facility and have a minimum volume commitment of 20 MMcf per day, with certain rollover rights and start-up flexibility, for an initial term of five years from the in service date of the Facility, which can be extended up to seven years under certain conditions. We currently expect the AGI facility will be in service in the first quarter of 2023. Once in service, the GTA has a tiered-rate structure which is expected to drive a greater than 50 percent reduction in treating fees. Our current estimates of facility in-service dates and future treating fee reductions are subject to various operational and other risk factors, some of which our beyond our control, which could impact the timing and extent of these estimates.
Capital Resources and Liquidity
Overview. At September 30, 2022, we had $33.5 million of cash and cash equivalents, $220.0 million of indebtedness outstanding, approximately $1.3 million letters of credit outstanding and $15.0 million in delayed draw term loans available to be drawn under our Term Loan Agreement, subject to the satisfaction of certain conditions defined in the agreement.
Capital Expenditures. During 2022, we expect to spend approximately $130.0 million to $150.0 million in capital expenditures, including drilling, completion, support infrastructure and other capital costs. Included in our remaining 2022 capital expenditures budget is approximately $2.8 million associated with an active drilling rig commitment through the fourth quarter of 2022. We also have a minimum volume commitment of approximately $1.6 million with a third party for the purchase of chemicals to treat sour gas production through December 31, 2022. Our capital spending requirements and commitments are expected to be funded with cash and cash equivalents on hand from the funding of our Term Loan Agreement (which is further described below) and cash flows from operations.
Debt Obligations. On November 24, 2021, we and our wholly owned subsidiary, Halcón Holdings, LLC (Borrower) entered into the Term Loan Agreement with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders. The Term Loan Agreement amends and restates in its entirety our previous revolving credit agreement entered into in 2019. As of September 30, 2022, the Company had borrowed $220.0 million under the Term Loan Agreement, a portion of which was used to refinance all amounts owed under the Senior Credit Agreement, and had approximately $1.3 million letters of credit outstanding. Under the Term Loan Agreement, the lenders have also agreed to loan the Company up to an additional $15.0 million, which will be available to be drawn from the date certain wells included in the approved plan of development (APOD) are deemed producing APOD wells until up to 18 months after November 24, 2021, subject to the satisfaction of certain conditions. An additional $5.0 million is available for the issuance of letters of credit. The maturity date of the Term Loan Agreement is November 24, 2025. Until such maturity date, borrowings under the Term Loan Agreement shall bear interest at a rate per annum equal to LIBOR (or another applicable reference rate, as determined pursuant to the provisions of the Term Loan Agreement) plus an applicable margin of 7.00%.
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On November 14, 2022, the Company paid approximately $2.4 million and entered into a further Amended Credit Agreement (the “Amended Term Loan Agreement”) with its lenders which modified certain provisions of its original Term Loan Agreement including, but not limited to, the following:
| ● | Current Ratio. Our Current Ratio financial covenant decreased to 0.9 to 1.00 as of September 30, 2022, to 0.70 to 1.00 for the quarter ended December 31, 2022, and to 0.75 to 1.00 for the quarter ended March 31, 2023, returning to 1.00 to 1.00 for the quarter ended June 30, 2023 and each quarter thereafter as further described below. |
| ● | Interest Rate. Effective on the amendment date, we (i) converted the benchmark interest rate to the Secured Overnight Financing Rate (SOFR) and (ii) increased the applicable margin on borrowings by 0.50%, such that borrowings under the Term Loan Agreement will now bear interest at a rate per annum equal to the SOFR plus an applicable margin of 7.50%. |
| ● | We reset the prepayment periods (for outstanding borrowings) beginning on the amendment date with the following prepayment premiums, subject to the conditions in the table below and the discussion that follows: |
Period (after amendment date) | Premium | ||
Months 0 - 12 | Make-whole amount equal to 12 months of interest plus 2.00% | ||
Months 13 - 24 | 2.00% | ||
Thereafter | 0.00% |
If within 6 months after the November 14, 2022 amendment date the Company raises a minimum of $20 million of new capital in the form of equity, equity-linked, preferred equity, or unsecured debt, in call cases bearing no cash dividend or cash interest, to bolster liquidity or repay debt, our prepayment premiums will reset to those in the original credit agreement (as further described in our 2021 Annual Report on Form 10-K). Additionally, if a change of control results in prepayment within the second anniversary of the amendment date, a 2% payment premium will apply.
We may be required to make mandatory prepayments of the loans under the Amended Term Loan Agreement in connection with the incurrence of non-permitted debt, certain asset sales, or with cash on hand in excess of certain maximum levels beginning in 2023. For each fiscal quarter after January 1, 2023, we are required to make mandatory prepayments when our Consolidated Cash Balance, as defined in the Amended Term Loan Agreement, exceeds $20.0 million. Until December 31, 2024, the forecasted APOD capital expenditures for the succeeding fiscal quarter are excluded for purposes of determining the Consolidated Cash Balance. We are required to make scheduled amortization payments in the aggregate amount of $120.0 million from the fiscal quarter ending March 31, 2023 through the fiscal quarter ending September 30, 2025. Amounts outstanding under the Amended Term Loan Agreement are guaranteed by certain of the Borrower’s direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of the Borrower and such direct and indirect subsidiaries, and all of the equity interests of the Borrower held by us. As part of the Amended Term Loan Agreement there are certain restrictions on the transfer of assets, including cash, to Battalion from the guarantor subsidiaries.
The Amended Term Loan Agreement also contains certain financial covenants (as defined), including the maintenance of the following ratios:
| ● | Asset Coverage Ratio of not less than 1.70 to 1.00 as of September 30, 2022, and 1.80 to 1.00 as of December 31, 2022 and each fiscal quarter thereafter |
| ● | Total Net Leverage Ratio of not greater than 3.00 to 1.00 as of September 30, 2022 and December 31, 2022, 2.75 to 1.00 as of March 31, 2023, and 2.50 to 1.00 as of each fiscal quarter thereafter, and |
| ● | Current Ratio of not less than 1.00 to 1.00, each determined as of the last day of any fiscal quarter period, other than as amended in November 2022 to 0.9 to 1 as of September 30, 2022, to 0.70 to 1 for the quarter ended December 31, 2022, and to 0.75 to 1 for the quarter ended March 31, 2023. |
As of September 30, 2022, (i) the Company was in compliance with the Asset Coverage Ratio and Total Net Leverage Ratio covenants under the Term Loan Agreement and (ii) our Current Ratio was 0.96 to 1, which was less than
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the 1.00 to 1.00 Current Ratio required under the original terms of the Term Loan Agreement. As a result of the amendment to our Term Loan Agreement in November 2022, we were in compliance with the amended Current Ratio covenant of 0.9 to 1 for the quarter ended September 30, 2022.
The Amended Term Loan Agreement also contains an APOD for our Monument Draw acreage through the drilling and completion of certain wells. The Amended Term Loan Agreement contains a proved developed producing production test and an APOD economic test which we must maintain compliance with otherwise, subject to any available remedies or waivers, we are required to immediately cease making expenditures in respect of the approved plan of development other than any expenditures deemed necessary by us in respect of no more than six additional approved plan of development wells.
The Amended Term Loan Agreement also contains certain events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy.
Changes in the level and timing of our production, drilling and completion costs, the cost and availability of transportation for our production and other factors varying from our expectations can affect our ability to comply with the covenants under our Amended Term Loan Agreement. As a consequence, we endeavor to anticipate potential covenant compliance issues and work with our lenders under our Amended Term Loan Agreement to address any such issues ahead of time.
While we have been largely been successful in obtaining modifications of our covenants as needed, as evidenced most recently by the amendment of our Term Loan Agreement in November 2022 which reduced the Current Ratio covenant as of September 30, 2022 and each successive quarter through the quarter ended March 31, 2023, there can be no assurance that we will be successful in the future. In the event we are not successful in obtaining future modifications or amendments to our covenants, if needed, there is no assurance that we will be successful in implementing alternatives that allow us to maintain compliance with our covenants or that we will be successful in obtaining alternative financing that provides us with the liquidity that we need to operate our business. Even if successful, alternative sources of financing could prove more expensive than borrowings under our Term Loan Agreement.
Other Risks and Uncertainties. Our future capital resources and liquidity depend, in part, on our success in developing our leasehold interests, growing our reserves and production and finding additional reserves. Cash is required to fund capital expenditures necessary to offset inherent declines in our production and proven reserves, which is typical in the capital-intensive oil and natural gas industry. We strive to maintain financial flexibility while pursuing our drilling plans and may access capital markets, pursue joint ventures, sell assets and engage in other transactions as necessary to, among other things, maintain sufficient liquidity, facilitate drilling on our undeveloped acreage position and permit us to selectively expand our acreage. Our ability to complete such transactions and maintain or increase our liquidity is subject to a number of variables, including our level of oil and natural gas production, proved reserves and commodity prices, the amount and cost of our indebtedness, as well as various economic and market conditions that have historically affected the oil and natural gas industry. Even if we are otherwise successful in growing our proved reserves and production, if oil and natural gas prices decline for a sustained period of time, our ability to fund our capital expenditures, complete acquisitions, reduce debt, meet our financial obligations and become profitable may be materially impacted.
In periods of increasing commodity prices, the Company also continues to be at risk to supply chain issues, including, but not limited to, labor shortages, pipe restrictions and potential delays in obtaining frac and/or drilling related equipment that could impact our business. During these periods, the costs and delivery times of rigs, equipment and supplies may also be substantially greater. The unavailability or high cost of drilling rigs and/or frac crews, pressure pumping equipment, tubulars and other supplies, and of qualified personnel can materially and adversely affect our operations and profitability.
We are also continuously monitoring the current and potential impacts of the novel coronavirus (COVID-19) pandemic on our business, including how it has and may continue to impact our operations, financial results, liquidity,
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contractors, customers, employees and vendors, and taking appropriate actions in response, including implementing various measures to ensure the continued operation of our business in a safe and secure manner.
During 2021, widespread availability of COVID-19 vaccines in the United States and elsewhere combined with accommodative governmental monetary and fiscal policies and other factors, led to a rebound in demand for oil and natural gas and increases in oil and natural gas prices. Further, in 2022, the effects of Russian sanctions amidst the conflict with Ukraine have pushed oil and gas prices higher. However, there remains the potential for demand for oil and natural gas to be adversely impacted by the economic effects of rising interest rates and tightening monetary policies, as well as the ongoing COVID-19 pandemic, including as a consequence of the circulation of more infectious “variants” of the disease, vaccine hesitancy, waning vaccine effectiveness or other factors. As a consequence, the Company is unable to predict whether oil and natural gas prices will remain at current levels or will be adversely impacted by these or other factors. For further information regarding risk factors which could impact the Company, see “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Actual or anticipated declines in domestic or foreign economic activity or growth rates, regional or worldwide increases in tariffs or other trade restrictions, turmoil affecting the U.S. or global financial system and markets and a severe economic contraction either regionally or worldwide, resulting from international conflicts, efforts to contain the COVID-19 coronavirus or other factors, could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price received for oil and natural gas production or adversely impacting our ability to comply with covenants in our Term Loan Agreement. Negative economic conditions could also adversely affect the collectability of our trade receivables or performance by our vendors and suppliers or cause our commodity hedging arrangements to be ineffective if our counterparties are unable to perform their obligations. All of the foregoing may adversely affect our business, financial condition, results of operations, cash flows and, potentially, compliance with the covenants contained in our Term Loan Agreement.
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Cash Flow
Net increase (decrease) in cash and cash equivalents is summarized as follows (in thousands):
Nine Months Ended | ||||||
September 30, | ||||||
| 2022 | 2021 | ||||
Cash flows provided by (used in) operating activities | $ | 53,814 | $ | 47,132 | ||
Cash flows provided by (used in) investing activities | (87,780) | (46,248) | ||||
Cash flows provided by (used in) financing activities | 19,166 | (3,311) | ||||
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | (14,800) | $ | (2,427) | ||
Operating Activities. Net cash flows provided by operating activities for the nine months ended September 30, 2022 and 2021 were $53.8 million and $47.1 million, respectively. Items impacting operating cash flows were (i) higher total operating revenues resulting from an approximate $21.07 per Boe increase in average realized prices (excluding the impact of hedging arrangements) for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 partially offset by realized losses from derivative contracts, (ii) increased operating and interest costs in 2022, and (iii) changes in working capital.
Investing Activities. Net cash flows used in investing activities for the nine months ended September 30, 2022 and 2021 were approximately $87.8 million and $46.2 million, respectively.
During the nine months ended September 30, 2022, we spent $87.0 million on oil and natural gas capital expenditures, of which $77.5 million related to drilling and completion costs and $6.8 million related to the development of our treating equipment and gathering support infrastructure.
During the nine months ended September 30, 2021, we spent $47.2 million on oil and natural gas capital expenditures, of which $39.4 million related to drilling and completion costs and $5.7 million related to the development of our treating equipment and gathering support infrastructure. We received $0.9 million in proceeds from the sale of oil and natural gas properties.
Financing Activities. Net cash flows provided by (used in) financing activities for the nine months ended September 30, 2022 and 2021 were $19.2 million and $(3.3) million, respectively. During the nine months ended September 30, 2022, we borrowed the $20 million available under the first delayed draw of the Term Loan Agreement. During the nine months ended September 30, 2021, net borrowings of $3.0 million under our Senior Credit Agreement were funded with cash flows from operations.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon the unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. There have been no material changes to our critical accounting policies from those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
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Results of Operations
We reported a net income of $105.9 million and $13.1 million for the three months ended September 30, 2022 and 2021, and a net income (loss) of $26.2 million and $(54.3) million for the nine months ended September 30, 2022 and 2021, respectively. The table included below sets forth financial information for the periods presented.
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
In thousands (except per unit and per Boe amounts) |
| 2022 | 2021 | 2022 | 2021 | |||||||
Net income (loss) | $ | 105,888 | $ | 13,052 | $ | 26,191 | $ | (54,252) | ||||
Operating revenues: | ||||||||||||
Oil | 70,406 | 60,023 | 206,874 | 153,228 | ||||||||
Natural gas | 15,656 | 9,435 | 39,296 | 23,839 | ||||||||
Natural gas liquids | 12,644 | 11,046 | 35,234 | 22,806 | ||||||||
Other | 443 | 312 | 858 | 827 | ||||||||
Operating expenses: | ||||||||||||
Production: | ||||||||||||
Lease operating | 12,265 | 11,979 | 35,698 | 31,615 | ||||||||
Workover and other | 2,559 | 990 | 4,807 | 2,317 | ||||||||
Taxes other than income | 5,613 | 3,082 | 15,936 | 9,186 | ||||||||
Gathering and other | 16,663 | 15,934 | 47,787 | 43,436 | ||||||||
General and administrative: | ||||||||||||
General and administrative | 3,815 | 4,010 | 12,531 | 11,789 | ||||||||
Stock-based compensation | 683 | 481 | 1,540 | 1,560 | ||||||||
Depletion, depreciation and accretion: | ||||||||||||
Depletion – Full cost | 13,391 | 10,714 | 35,872 | 32,070 | ||||||||
Depreciation – Other | 110 | 61 | 230 | 292 | ||||||||
Accretion expense | 114 | 110 | 334 | 367 | ||||||||
Other income (expenses): | ||||||||||||
Net gain (loss) on derivative contracts | 67,634 | (20,571) | (88,134) | (119,371) | ||||||||
Interest expense and other | (5,682) | (1,900) | (13,202) | (5,017) | ||||||||
Gain (loss) on extinguishment of debt | — | 2,068 | — | 2,068 | ||||||||
Production: | ||||||||||||
Oil – MBbls | 753 | 872 | 2,097 | 2,396 | ||||||||
Natural Gas - MMcf | 2,352 | 2,589 | 7,022 | 6,777 | ||||||||
Natural gas liquids – MBbls | 348 | 327 | 924 | 812 | ||||||||
Total MBoe(1) | 1,493 | 1,631 | 4,191 | 4,338 | ||||||||
Average daily production – Boe(1) | 16,228 | 17,728 | 15,352 | 15,890 | ||||||||
Average price per unit (2): | ||||||||||||
Oil price - Bbl | $ | 93.50 | $ | 68.83 | $ | 98.65 | $ | 63.95 | ||||
Natural gas price - Mcf | 6.66 | 3.64 | 5.60 | 3.52 | ||||||||
Natural gas liquids price - Bbl | 36.33 | 33.78 | 38.13 | 28.09 | ||||||||
Total per Boe(1) | 66.11 | 49.36 | 67.14 | 46.07 | ||||||||
Average cost per Boe: | ||||||||||||
Production: | ||||||||||||
Lease operating | $ | 8.22 | $ | 7.34 | $ | 8.52 | $ | 7.29 | ||||
Workover and other | 1.71 | 0.61 | 1.15 | 0.53 | ||||||||
Taxes other than income | 3.76 | 1.89 | 3.80 | 2.12 | ||||||||
Gathering and other | 11.16 | 9.77 | 11.40 | 10.01 | ||||||||
General and administrative: | ||||||||||||
General and administrative | 2.56 | 2.46 | 2.99 | 2.72 | ||||||||
Stock-based compensation | 0.46 | 0.29 | 0.37 | 0.36 | ||||||||
Depletion | 8.97 | 6.57 | 8.56 | 7.39 | ||||||||
| (1) | Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or NGLs based on approximate energy equivalency. This is an energy content correlation and does not reflect the value or price relationship between the commodities. |
| (2) | Amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting. |
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Operating Revenues. Oil, natural gas and natural gas liquids revenues were $98.7 million and $80.5 million for the three months ended September 30, 2022 and 2021 and $281.4 million and $199.9 million for the nine months ended September 30 2022 and 2021, respectively. The increase in revenues is primarily attributable to an increase in our average realized prices partially offset by slightly lower production volumes in 2022 compared to 2021. Average realized prices (excluding the effects of hedging arrangements) increased approximately $16.75 per Boe and $21.07 per Boe increase, respectively, for the quarter and nine months ended September 30, 2022 when compared with the same periods in 2021. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, transportation take-away capacity constraints, inventory storage levels, quality of production, basis differentials and other factors.
Production for the three months ended September 30, 2022 and 2021, averaged 16,228 Boe/d and 17,728 Boe/d and 15,352 Boe/d and 15,890 Boe/d for the nine months ended September 30, 2022 and 2021, respectively. While production is lower in 2022 compared with 2021 due largely to the timing of capital expenditures and natural production declines on our existing producing wells, our production has increased from 14,767 Boe/d in the first quarter of 2022 to 16,228 Boe/d in the third quarter of 2022 and we have put online 5 gross (4.5 net) operated wells in 2022. Also impacting 2021 production volumes was temporarily shut-in production due to inclement weather which decreased average daily production by approximately 400 Boe/d in the first nine months of 2021.
Lease Operating Expenses. Lease operating expenses were $12.3 million and $12.0 million for the three months ended September 30, 2022 and 2021 and $35.7 million and $31.6 million for the nine months ended September 30, 2022 and 2021, respectively. On a per unit basis, lease operating expenses were $8.22 per Boe and $7.34 per Boe for the three months ended September 30, 2022 and 2021 and $8.52 per Boe and $7.29 per Boe for the nine months ended September 30, 2022 and 2021, respectively. The increase in lease operating expenses in 2022 results primarily from a market increase in maintenance, power, and chemical costs.
Workover and Other Expenses. Workover and other expenses were $2.6 million and $1.0 million for the three months ended September 30, 2022 and 2021 and $4.8 million and $2.3 million for the nine months ended September 30, 2022 and 2021, respectively. On a per unit basis, workover and other expenses were $1.71 per Boe and $0.61 per Boe for the three months ended September 30, 2022 and 2021 and $1.15 per Boe and $0.53 per Boe for the nine months ended September 30, 2022 and 2021, respectively. The increased workover and other expenses in 2022 relate to more significant workover projects undertaken in the current periods as well as market increases in service and material costs in 2022.
Taxes Other than Income. Taxes other than income were $5.6 million and $3.1 million for the three months ended September 30, 2022 and 2021 and $15.9 million and $9.2 million for the nine months ended September 30, 2022 and 2021, respectively. Most production taxes are based on realized prices at the wellhead. As revenues or volumes from oil and natural gas sales increase or decrease, production taxes on these sales also increase or decrease. On a per unit basis, taxes other than income were $3.76 per Boe and $1.89 per Boe for the three months ended September 30, 2022 and 2021 and $3.80 per Boe and $2.12 per Boe for the nine months ended September 30, 2022 and 2021, respectively.
Gathering and Other Expenses. Gathering and other expenses were $16.7 million and $15.9 million for the three months ended September 30, 2022 and 2021 and $47.8 million and $43.4 million for the nine months ended September 30, 2022 and 2021, respectively. Gathering and other expenses include gathering fees paid to third parties on our oil and natural gas production and operating expenses of our gathering support infrastructure. Approximately $7.0 million and $6.3 million for the three months ended September 30, 2022 and 2021 and $20.5 million and $15.0 million for the nine months ended September 30, 2022 and 2021, respectively, relate to gathering and marketing fees paid to third parties on our oil and natural gas production. Gathering and marketing fees increased in 2022 as we marketed higher quantities of sour gas production to third parties in the current year period. Approximately $9.7 million and $9.6 million for the three months ended September 30, 2022 and 2021 and $27.5 million and $28.5 million for the nine months ended September 30, 2022 and 2021, respectively, relate to operating expenses on our treating equipment and gathering support facilities. The decrease in treating equipment and gathering support facilities expenses for the year-to-date period results from lower operating expenses associated with our treating equipment.
General and Administrative Expense. General and administrative expense was $3.8 million and $4.0 million for the three months ended September 30, 2022 and 2021 and $12.5 million and $11.8 million for the nine months ended
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September 30, 2022 and 2021, respectively. The decrease in general and administrative expense for the quarter ended September 30, 2022 compared with 2021 is primarily associated with a decrease in office rent and payroll and benefits partially offset by an increase in professional fees. The increase in general and administrative expense for the year-to-date period in 2022 is primarily associated with an increase in professional fees and payroll and benefits partially offset by a decrease in corporate office lease expense. On a per unit basis, general and administrative expenses were $2.56 per Boe and $2.46 per Boe for the three months ended September 30, 2022 and 2021 and $2.99 per Boe and $2.72 per Boe for the nine months ended September 30, 2022 and 2021, respectively.
Depletion, Depreciation, and Amortization Expense. Depletion for oil and natural gas properties is calculated using the unit of production method, which depletes the capitalized costs of evaluated properties plus future development costs based on the ratio of production for the current period to total reserve volumes of evaluated properties as of the beginning of the period. Depletion expense was $13.4 million and $10.7 million for the three months ended September 30, 2022 and 2021 and $35.9 million and $32.1 million for the nine months ended September 30, 2022 and 2021, respectively. On a per unit basis, depletion expense was $8.97 per Boe and $6.57 per Boe for the three months ended September 30, 2022 and 2021 and $8.56 per Boe and $7.39 per Boe for the nine months ended September 30, 2022 and 2021, respectively. The increase in our depletion rate for the quarter and nine month periods ended September 30, 2022 compared to the same period in 2021 is primarily due to increased future development costs in 2022 compared to 2021 associated with PUD reserve additions during the periods.
Net gain (loss) on derivative contracts. We enter into derivative commodity instruments to hedge our exposure to price fluctuations on our anticipated oil, natural gas and natural gas liquids production. Consistent with prior years, we have elected not to designate any positions as cash flow hedges for accounting purposes, and accordingly, we recorded the net change in the mark-to-market value of these derivative contracts in the unaudited condensed consolidated statements of operations. At September 30, 2022, we had a $27.0 million derivative asset ($18.2 million current) and a $64.7 million derivative liability ($41.1 million current). For the three months ended September 30, 2022, we recorded a net derivative gain of $67.6 million ($102.1 million net unrealized gain and $34.5 million net realized loss on settled contracts). For the nine months ended September 30, 2022, we recorded a net derivative loss of $88.1 million ($23.9 million net unrealized gain and $112.0 million net realized loss on settled contract). For the three months ended September 30, 2021, we recorded a net derivative loss of $20.6 million ($1.8 million net unrealized gain and $22.4 million net realized loss on settled and early terminated contracts). For the nine months ended September 30, 2021, we recorded a net derivative loss of $119.4 million ($69.1 million net unrealized loss and $50.3 million net realized loss on settled and early terminated contracts).
Interest Expense and Other. Interest expense and other was $5.7 million and $1.9 million for the three months ended September 30, 2022 and 2021 and $13.2 and $5.0 for the nine months ended September 30, 2022 and 2021, respectively. Interest expense and other primarily increased in the current period due to higher debt balances in 2022, increased interest rates, and amortization of debt issuance costs associated with our Term Loan Agreement entered into in 2022. This was partially offset by a $0.4 million and $3.0 million change, respectively in the fair value of the Change of Control Call Option (as further discussed in Note 5, “Debt”) for the quarter and nine months ended September 30, 2022.
Gain (loss) on extinguishment of debt. During the quarter and nine months ended September 30, 2021, we recorded a gain on the extinguishment of the forgiven portion of the PPP Loan and related accrued interest of $2.1 million. We applied for forgiveness of the amount due on the PPP Loan based on the use of the loan proceeds on eligible expenses in accordance with the terms of the CARES Act. Effective August 13, 2021, the principal amount of our PPP Loan was reduced from $2.2 million to $0.2 million by the SBA. During the first quarter of 2022, the $0.2 million principal amount of the PPP loan was repaid in full.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Instruments and Hedging Activity
We are exposed to various risks, including energy commodity price risk, such as price differentials between the NYMEX commodity price and the index price at the location where our production is sold. When oil and natural gas prices decline significantly, our ability to finance our capital budget and operations may be adversely impacted. We expect energy prices to remain volatile and unpredictable, therefore we have designed a risk management policy which provides for the use of derivative instruments to provide partial protection against declines in oil and natural gas prices by reducing the risk of price volatility and the affect it could have on our operations. The types of derivative instruments that we typically utilize include fixed-price swaps, costless collars, basis swaps and WTI NYMEX rolls. The total volumes that we hedge through the use of our derivative instruments varies from period to period; however, our requirement under our Term Loan Agreement is to hedge approximately 50% to 85% of our anticipated oil and natural gas production, in varying percentages by year, on a rolling basis for the next four years. Our hedge policies and objectives may change significantly as our operational profile and contractual obligations change but remain consistent with the requirements in effect under our Term Loan Agreement. We do not enter into derivative contracts for speculative trading purposes.
We are exposed to market risk on our open derivative contracts related to potential non-performance by our counterparties. It is our policy to enter into derivative contracts only with counterparties that are creditworthy institutions deemed by management as competitive market makers. As of September 30, 2022, we did not post collateral under any of our derivative contracts as they are secured under our Term Loan Agreement. We account for our derivative activities on the balance sheet as either an asset or liability measured at fair value. See Item 1. Condensed Consolidated Financial Statements (Unaudited)—Note 7, “Derivative and Hedging Activities,” for more details.
Fair Market Value of Financial Instruments
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information, involve uncertainties, and cannot be determined with precision. The estimated fair value of cash, cash equivalents and restricted cash, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. See Item 1. Condensed Consolidated Financial Statements (Unaudited)—Note 6, “Fair Value Measurements,” for additional information.
Interest Rate Sensitivity
We are also exposed to market risk related to adverse changes in interest rates. Our interest rate risk exposure results primarily from fluctuations in short-term rates, which are LIBOR-based and may result in reductions of earnings or cash flows due to increases in the interest rates we pay on these obligations.
At September 30, 2022, the principal amount of our debt was $220.0 million, which all bears interest at floating and variable interest rates that are tied to LIBOR. Fluctuations in market interest rates will cause our annual interest costs to fluctuate. At September 30, 2022, the weighted average interest rate on our variable rate debt was 10.67% per year. If the balance of our variable interest rate at September 30, 2022 were to remain constant, a 10% change in market interest rates would impact our cash flows by approximately $2.3 million per year.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the design and operation of our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act) as of September 30, 2022.
34
On the basis of this review, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
We did not have any change in our internal controls over financial reporting during the three months ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information regarding legal proceedings to which we are a party is set forth in Item 1. Condensed Consolidated Financial Statements (Unaudited)—Note 9, “Commitments and Contingencies,” which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth information regarding our acquisition of shares of common stock for the periods presented.
Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | |||||
July 2022 | — | $ | — | — | — | |||
August 2022 | 1,617 | 12.04 | — | — | ||||
September 2022 | 370 | 13.46 | — | — | ||||
| (1) | All of the shares were surrendered by employees in exchange for the payment of tax withholding upon the vesting of restricted stock units. The acquisition of the surrendered shares was not part of a publicly announced program to repurchase shares of our common stock. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
On November 14, 2022, the Company and its wholly owned subsidiary, Halcón Holdings, LLC (Borrower) entered into a Second Amendment (the “Amendment”) to its Amended and Restated Senior Secured Credit Agreement dated as of November 24, 2021, with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders. See Part 1. Financial Information, Item 1. Condensed Consolidated Financial Statements (Unaudited) – Note 5, “Debt” for a description of the significant provisions of the Amendment. The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by the terms and conditions of the Amendment. A copy of the Amendment is filed as Exhibit 10.1.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
ITEM 6. EXHIBITS
The following documents are included as exhibits to this Quarterly Report on Form 10-Q. Those exhibits incorporated by reference are so indicated by the information supplied with respect thereto. Those exhibits which are not incorporated by reference are attached hereto.
3.1 |
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3.2 | ||
10.1 | ||
10.1.1 | * | |
31.1 | * | Sarbanes-Oxley Section 302 certification of Principal Executive Officer |
31.2 | * | Sarbanes-Oxley Section 302 certification of Principal Financial Officer |
32 | * | |
101.INS | * | Inline XBRL Instance Document |
101.SCH | * | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | * | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | * | Inline XBRL Taxonomy Extension Definition Document |
101.LAB | * | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | * | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | * | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* | Attached hereto. |
† | Indicates management contract or compensatory plan or arrangement. |
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BATTALION OIL CORPORATION | |||
November 14, 2022 | By: | /s/ RICHARD H. LITTLE | |
Name: | Richard H. Little | ||
Title: | Chief Executive Officer | ||
November 14, 2022 | By: | /s/ R. KEVIN ANDREWS | |
Name: | R. Kevin Andrews | ||
Title: | Executive Vice President, Chief Financial Officer and Treasurer | ||
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Exhibit 10.1.1
SECOND AMENDMENT TO AMENDED AND RESTATED SENIOR SECURED CREDIT AGREEMENT
This SECOND AMENDMENT TO AMENDED AND RESTATED SENIOR SECURED CREDIT AGREEMENT (this “Second Amendment”) is entered into as of November 14, 2022, by and among Halcón Holdings, LLC, a Delaware limited liability company (the “Borrower”), Macquarie Bank Limited, as administrative agent (in such capacity, the “Administrative Agent”) for the lenders party from time to time to the Credit Agreement referred to below (the “Lenders”), the Lenders party hereto, the Guarantors party hereto and Battalion Oil Corporation, a Delaware corporation (“Holdings”).
RECITALS
WHEREAS, the Borrower, the Administrative Agent and the Lenders are party to that certain Amended and Restated Senior Secured Credit Agreement dated as of November 24, 2021 (as amended by that certain First Amendment to Amended and Restated Credit Agreement, dated as of August 2, 2022, the “Credit Agreement”);
WHEREAS, pursuant to the Credit Agreement, the Lenders have made Loans to the Borrower and provided certain other credit accommodations to the Borrower; and
WHEREAS, the Borrower has requested that the Lenders agree to amend certain provisions of the Credit Agreement, and the Lenders party hereto, which constitute all Lenders party to the Credit Agreement, have agreed to amend the Credit Agreement upon the terms and conditions set forth herein and to be effective as of the Second Amendment Effective Date (as defined below).
NOW THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the Loan Parties, the Administrative Agent and the Lenders party hereto hereby agree as follows:
Section 1.Defined Terms. Each capitalized term used herein, but not otherwise defined herein, has the meaning given such term in the Credit Agreement, as amended by this Second Amendment (the “Amended Credit Agreement”).
Section 2.Amendments to Existing Credit Agreement.
2.1Credit Agreement. The Existing Credit Agreement (other than the Annexes, Schedules and Exhibits attached thereto) is hereby amended in its entirety to read as set forth in the attached Exhibit A, with additions denoted as bold+double underline text and deletions denoted as strikethrough text.
2.2Schedule 1.02(a). Schedule 1.02(a) to the Existing Credit Agreement is hereby amended in its entirety as reflected on Annex I attached hereto.
Section 3.Conditions Precedent to Second Amendment. This Second Amendment shall not become effective until the date of satisfaction or waiver of the following conditions (the “Second Amendment Effective Date”):
3.1Signature Pages. The Administrative Agent shall have received counterparts to this Second Amendment duly executed by the Lenders constituting all Lenders party to the Credit Agreement and each Loan Party.
3.2Representations and Warranties. On and as of the Second Amendment Effective Date, after giving effect to this Second Amendment, the representations and warranties contained in Section 4 hereof shall be true and correct.
3.3No Default or Event of Default. On and as of the Second Amendment Effective Date, after giving effect to this Second Amendment, no Default or Event of Default shall exist.
3.4Fees and Expenses. (i) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Second Amendment Effective Date and (ii) the Borrower shall have paid the reasonable and documented out-of-pocket fees and expenses of Sidley Austin LLP, counsel to the Administrative Agent, required to be paid by the Borrower pursuant to Section 12.03 of the Credit Agreement, to the extent invoiced prior to 11:00 a.m. Houston, Texas time on the Second Amendment Effective Date (or such later time as to which the Borrower may agree).
The Administrative Agent shall notify the Borrower and the Lenders of the Second Amendment Effective Date, and such notice shall be conclusive and binding.
Section 4. Representations and Warranties. To induce the Lenders party hereto and the Administrative Agent to enter into this Second Amendment, each Loan Party hereby represents and warrants to the Lenders and the Administrative Agent as follows:
4.1Reaffirm Existing Representations and Warranties. Each representation and warranty of such Loan Party contained in the Credit Agreement and the other Loan Documents is true and correct in all material respects on and as of the Second Amendment Effective Date after giving effect to this Second Amendment, except in the case of any representation and warranty which (A) expressly relates to a given date, such representation and warranty shall be true and correct in all material respects as of such given date and (B) is qualified by a materiality or Material Adverse Effect standard, in which case such representation and warranty shall be true and correct in all respects.
4.2No Default or Event of Default. On and as of the Second Amendment Effective Date, after giving effect to this Second Amendment, no Default or Event of Default has occurred and is continuing.
Section 5.Interest Rate Until Next Interest Period. Notwithstanding the amendments to the Existing Credit Agreement contemplated hereby, from the Second Amendment Effective Date until the expiration of the Interest Period ending on December 31, 2022, all Loans shall continue to bear interest at a rate based on the LIBO Rate for such Interest Period (as in effect immediately prior to giving effect to this Second Amendment), and the provisions of the Existing
2
Credit Agreement related to the LIBO Rate shall continue in effect until the expiration of such Interest Period for the limited purposes set forth in this paragraph; provided, however, that from and after the Second Amendment Effective Date, the Applicable Margin applicable to the Loans shall be the Applicable Margin after giving effect to the Second Amendment. From and after January 1, 2023, all Loans shall bear interest at the rate specified in Section 3.02(a) of the Amended Credit Agreement.
Section 6.Miscellaneous.
6.1Reaffirmation of Loan Documents. Any and all of the terms and provisions of the Credit Agreement and the other Loan Documents shall, except as amended and modified hereby, remain in full force and effect and, to the knowledge of each Loan Party, such Loan Party has no defense to its obligations to pay the Secured Obligations when due. Each Loan Party hereby agrees that the amendments and modifications herein contained shall not limit or impair any Liens securing the Secured Obligations or such Loan Party’s obligation to pay the Secured Obligations when due, each of which is hereby ratified and affirmed.
6.2No Waiver. Neither the execution by the Administrative Agent or the Lenders party hereto of this Second Amendment, nor any other act or omission by Administrative Agent or the Lenders or their officers in connection herewith, shall be deemed a waiver by the Administrative Agent or the Lenders of any Defaults or Events of Default which may exist, which may have occurred prior to the date of the effectiveness of this Second Amendment or which may occur in the future under the Credit Agreement and/or the other Loan Documents. Similarly, nothing contained in this Second Amendment shall directly or indirectly in any way whatsoever: (a) impair, prejudice or otherwise adversely affect the Administrative Agent’s or the Lenders’ right at any time to exercise any right, privilege or remedy in connection with the Loan Documents with respect to any Default or Event of Default, (b) except as expressly provided herein, amend or alter any provision of the Credit Agreement, the other Loan Documents, or any other contract or instrument, or (c) constitute any course of dealing or other basis for altering any obligation of the Borrower or any right, privilege or remedy of the Administrative Agent or the Lenders under the Credit Agreement, the other Loan Documents, or any other contract or instrument. Nothing in this Second Amendment shall be construed to be a consent by Administrative Agent or the Lenders to any Default or Event of Default. Each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or any other word or words of similar import shall mean and be a reference to the Credit Agreement as modified hereby, and each reference in any other Loan Document to the Credit Agreement or any word or words of similar import shall be and mean a reference to the Credit Agreement as modified hereby.
6.3Counterparts. This Second Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Second Amendment by telecopy, emailed pdf. or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Second Amendment. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Second Amendment and the transactions contemplated hereby shall be deemed to include Electronic Signatures, deliveries or the keeping
3
of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
6.4Complete Agreement. THIS SECOND AMENDMENT, THE AMENDED CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG THE PARTIES.
6.5Headings. Section headings used in this Second Amendment are for convenience of reference only, are not part of this Second Amendment and shall not affect the construction of, or be taken into consideration in interpreting, this Second Amendment.
6.6Governing Law. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 12.09(b) through (d) of the Credit Agreement shall apply to this Second Amendment mutatis mutandis.
6.7Severability. Any provision of this Second Amendment held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof or thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
6.8Loan Document. This Second Amendment shall constitute a Loan Document (as defined in the Credit Agreement), and all the terms and provisions of the Amended Credit Agreement relating to Loan Documents shall apply hereto.
[Signature Pages to Follow]
4
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed by their respective authorized officers on the date and year first above written.
BORROWER: | HALCÓN HOLDINGS, LLC | ||
By: | /s/ R. Kevin Andrews | ||
Name: | R. Kevin Andrews | ||
Title: | Executive Vice President | ||
| | ||
HOLDINGS | |||
(solely with respect to Article IX-A of | |||
| BATTALION OIL CORPORATION, | ||
| |||
| By: | /s/ R. Kevin Andrews | |
| Name: | R. Kevin Andrews | |
| Title: | Executive Vice President | |
| |||
GUARANTORS: | BATTALION OIL MANAGEMENT, INC. HALCÓN ENERGY PROPERTIES, INC. HALCÓN OPERATING CO., INC. HALCÓN FIELD SERVICES, LLC HALCÓN PERMIAN, LLC | ||
By: | /s/ R. Kevin Andrews | ||
Name: | R. Kevin Andrews | ||
Title: | Executive Vice President | ||
| | | |
ADMINISTRATIVE AGENT: | MACQUARIE BANK LIMITED, | ||
| |||
| By: | /s/ Philippa Rowe | |
| | Name: | Philippa Rowe |
| | Title: | Associate Director |
| |||
| By: | /s/ Ian Steddon | |
| | Name: | Ian Steddon |
| | Title: | Division Director |
| | | |
| | Signed in | |
[Signature page to Second Amendment]
LENDERS: | |||
| J. ARON & COMPANY LLC, | ||
| |||
| By: | /s/ Simon Collier | |
| | Name: | Simon Collier |
| | Title: | Attorney-In-Fact |
| | ||
| ARES CAPITAL CORPORATION, | ||
| |||
| By: | /s/ M. Kort Schnabel | |
| | Name: | M. Kort Schnabel |
| | Title: | Partner |
| | | |
| IVY XIX FINANCING, LLC, | ||
| |||
| By: | /s/ Steven Alexander | |
| | Name: | Steven Alexander |
| | Title: | Vice President |
| | | |
| CION ARES DIVESTIFIED CREDIT FUND, | ||
| |||
| By: | /s/ M. Kort Schnabel | |
| | Name: | M. Kort Schnabel |
| | Title: | Partner |
| | | |
| FORTRESS CREDIT OPPORTUNITIES IX CLO LIMITED, | ||
| |||
| By: | /s/ Avraham Dreyfuss | |
| | Name: | Avraham Dreyfuss |
| | Title: | Chief Financial Officer |
| | ||
| FORTRESS CREDIT OPPORTUNITIES VI CLO LIMITED, | ||
| | ||
| By: | /s/ Avraham Dreyfuss | |
| | Name: | Avraham Dreyfuss |
| | Title: | Chief Financial Officer |
| | ||
[Signature page to Second Amendment]
| FORTRESS CREDIT OPPORTUNITIES XI CLO LIMITED, | ||
| | ||
| By: | /s/ Avraham Dreyfuss | |
| | Name: | Avraham Dreyfuss |
| | Title: | Chief Financial Officer |
| | ||
| FORTRESS CREDIT OPPORTUNITIES XIX CLO LIMITED, | ||
| | ||
| By: | /s/ Avraham Dreyfuss | |
| | Name: | Avraham Dreyfuss |
| | Title: | Chief Financial Officer |
| | ||
| FORTRESS CREDIT OPPORTUNITIES XV CLO LIMITED, | ||
| | ||
| By: | /s/ Avraham Dreyfuss | |
| | Name: | Avraham Dreyfuss |
| | Title: | Chief Financial Officer |
| | ||
| FLF II HOLDINGS FINANCE L.P., | ||
| | ||
| By: | /s/ Avraham Dreyfuss | |
| | Name: | Avraham Dreyfuss |
| | Title: | Chief Financial Officer |
| | ||
| FLF II MA-CRPTF HOLDINGS FINANCE L.P., | ||
| | ||
| By: | /s/ Avraham Dreyfuss | |
| | Name: | Avraham Dreyfuss |
| | Title: | Chief Financial Officer |
| | ||
| DRAWBRIDGE SPECIAL OPPORTUNITIES FUND LP, | ||
| | ||
| By: | /s/ Avraham Dreyfuss | |
| | Name: | Avraham Dreyfuss |
| | Title: | Chief Financial Officer |
| | ||
[Signature page to Second Amendment]
| FORTRESS LENDING II HOLDINGS L.P., | ||
| | ||
| By: | /s/ Avraham Dreyfuss | |
| | Name: | Avraham Dreyfuss |
| | Title: | Chief Financial Officer |
| | ||
| FORTRESS LENDING FUND II MA-CRPTF LP, | ||
| | ||
| By: | /s/ Avraham Dreyfuss | |
| | Name: | Avraham Dreyfuss |
| | Title: | Chief Financial Officer |
| | ||
| FLF II GMS HOLDINGS FINANCE L.P., | ||
| | ||
| By: | /s/ Avraham Dreyfuss | |
| | Name: | Avraham Dreyfuss |
| | Title: | Chief Financial Officer |
| | ||
| CAVALRY 1ST CO., LTD., | ||
| | ||
| By: | /s/ Gink Choi | |
| Name: | Gink Choi | |
| Title: | Representative Director | |
| |||
[Signature page to Second Amendment]
Exhibit A
Conformed Credit Agreement
[Attached]
Exhibit A
AMENDED AND RESTATED SENIOR SECURED CREDIT AGREEMENT
dated as of
November 24, 2021
among
BATTALION OIL CORPORATION,
as Holdings,
HALCÓN HOLDINGS, LLC,
as Borrower,
MACQUARIE BANK LIMITED,
as Administrative Agent,
and
The Lenders Party Hereto
MACQUARIE BANK LIMITED
as Sole Lead Arranger
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EXHIBITS AND SCHEDULES
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THIS AMENDED AND RESTATED SENIOR SECURED CREDIT AGREEMENT (this “Agreement”) dated as of November 24, 2021 is among HALCÓN HOLDINGS, LLC, a Delaware limited liability company (the “Borrower”), each of the Lenders from time to time party hereto and MACQUARIE BANK LIMITED (in its individual capacity, “MBL”), as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the “Administrative Agent”) and, solely with respect to Article IX-A hereof, BATTALION OIL CORPORATION, a Delaware corporation, (“Holdings”).
R E C I T A L S
A.Holdings previously entered into that certain Senior Secured Revolving Credit Agreement, dated as of October 8, 2019 (as amended prior to the date hereof, the “Existing Credit Agreement”), by and among Holdings, as borrower, Bank of Montreal, as administrative agent (in such capacity, the “Existing Administrative Agent”), and the lenders party thereto (the “Existing Lenders”), which provided for a revolving credit facility made available by the Existing Lenders to Holdings.
B.Pursuant to that certain Amendment No. 6 and Assignment of Loans and Liens dated as of November 24, 2021 (the “Master Assignment”) among the Existing Lenders, the Existing Administrative Agent, the Loan Parties, the Lenders and the Administrative Agent, (i) the Existing Lenders have assigned and conveyed the Assigned Interests (as defined therein) to the Lenders and (ii) the Existing Administrative Agent has resigned as administrative agent under the Existing Credit Agreement and assigned and conveyed the Assigned Security Interests (as defined therein) to the Administrative Agent.
C.Pursuant to the Borrower Assumption Agreement, immediately after giving effect to the Master Assignment, the Borrower assumed all of the Existing Obligations of the Existing Borrower from the Existing Borrower;
D.Holdings, the Borrower, the Lenders and the Administrative Agent desire to amend and restate the Existing Credit Agreement in its entirety by this Agreement.
E.In consideration of the foregoing and the mutual covenants and agreements herein contained and of the loans, extensions of credit and commitments hereinafter referred to, the parties hereto agree as follows:
“ABR” means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 0.50%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal
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Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. For the avoidance of doubt, if the Alternate Base Rate as determined pursuant to the foregoing would be less than 0.00%, such rate shall be deemed to be 0.00% for purposes of this Agreement.
“ABR Loan” means a Loan that bears interest based on the ABR.
“Accounting Change” has the meaning assigned to such term in Section 1.05.
“Acquisition Conditions” means, with respect to any acquisition of assets (including any assets constituting a business unit, line of business or division) or Equity Interests, (a) if such acquisition involves the acquisition of Equity Interests of a Person that upon such acquisition would become a Subsidiary, such acquisition shall result in the issuer of such Equity Interests becoming a Subsidiary and, to the extent required by Section 8.14, a Guarantor; (b) such acquisition shall result in the Administrative Agent, for the benefit of the Secured Parties, being granted a security interest in any Equity Interests or any assets so acquired to the extent required by Section 8.14; (c) subject to Section 1.07, immediately after giving effect to such acquisition, no Default or Event of Default shall have occurred and be continuing; (d) immediately after giving effect to such acquisition, the Borrower and its Subsidiaries shall be in pro forma compliance with Section 9.01 as of the last day of the most recently ended fiscal quarter for which financial statements are required to have been delivered pursuant to Section 8.01(b) (or, if the most recently ended fiscal quarter is the fiscal quarter ending on December 31 of any year, for which annual financial statements are required to have been delivered pursuant to Section 8.01(a)); (e) (i) the Asset Coverage Ratio immediately after giving pro forma effect to such acquisition shall be no lower than the Asset Coverage Ratio immediately prior to giving pro forma effect to such acquisition and (ii) the Total Net Leverage Ratio immediately after giving pro forma effect to such acquisition shall be no greater than the Total Net Leverage Ratio immediately prior to giving pro forma effect to such acquisition; and (f) immediately after giving effect to such acquisition, the Borrower and its Subsidiaries shall be in compliance with Section 9.07.
“Actual Specified PDP Production” means, for any period, the aggregate actual production of Hydrocarbons (measured in barrels of oil equivalent) from the Specified PDP Reserves for such period.
“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
“Adjusted Term SOFR” means, for purposes of any calculation, the rate per annum equal to (a) Term SOFR for such calculation plus (b) the Term SOFR Adjustment; provided that if Adjusted Term SOFR as so determined shall ever be less than the Floor, then Adjusted Term SOFR shall be deemed to be the Floor.
“Administrative Agent” has the meaning assigned to such term in the preamble hereto.
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“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Agreement” means this Amended and Restated Senior Secured Credit Agreement, including the Annexes, Schedules and Exhibits hereto, as the same may be amended, restated, amended and restated, supplemented or modified from time to time.
“Annual Budget” has the meaning assigned to such term in Section 8.01(e).
“Anti-Corruption Laws” means the United States Foreign Corrupt Practices Act of 1977 and all other laws, rules, and regulations of any jurisdiction applicable to the Borrower or any of its Subsidiaries from time to time concerning or relating to bribery or corruption.
“APOD” means the oil and gas wells located within the APOD Boundary and described on Schedule 1.02(a) proposed to be developed by the Borrower and the Subsidiaries, as the same may be updated from time to time in accordance with Section 8.22.
“APOD Boundary” means the geographic boundary depicted on Schedule 1.02(a).
“APOD Economic Test” means, as of any APOD Economic Test Date, the internal rate of return (calculated as of such date in accordance with the IRR Parameters) of all Producing APOD Wells as of such date. The Borrower shall deemed to be in compliance with the APOD Economic Test as of any APOD Economic Test Date if the internal rate of return described in the preceding sentence is equal to or greater than thirty percent (30%).
“APOD Economic Test Date” means (a) the last day of the calendar month in which the APOD Tranche consisting of the Initial APOD Wells first becomes a Producing APOD Tranche and (b) the last day of each fiscal quarter thereafter.
“APOD Tranche” means (a) the Initial APOD Wells and (b) each group of six (6) wells in the APOD to be drilled after the Initial APOD Wells.
“Applicable Borrowing Date” means (a) for the Initial Term Loans, the Closing Date and (b) for any Delayed Draw Term Loans, the date on which such Delayed Draw Term Loans are made to the Borrower.
“Applicable Margin” means 7.00(a) with respect to SOFR Loans (or Loans bearing interest at a rate determined by reference to any other Benchmark), 7.50% per annum and (b) with respect to ABR Loans, 6.50% per annum.
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“Applicable Measurement Date” means (a) for all Loans outstanding on the Second Amendment Effective Date, the Second Amendment Effective Date and (b) for any Delayed Draw Term Loans made after the Second Amendment Effective Date, the date on which such Delayed Draw Term Loans are made to the Borrower.
“Applicable Percentage” means, with respect to any Lender, a percentage equal to a fraction (a) the numerator of which is an amount equal to such Lender’s Credit Exposure (b) the denominator of which is the sum of the Credit Exposure of all Lenders; provided that, in the case of Section 4.04 when a Defaulting Lender shall exist, “Applicable Percentage” shall be adjusted to disregard any Defaulting Lender’s Credit Exposure.
“Applicable Prepayment Premium” means, from and after the Second Amendment Effective Date:
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; or
; and
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● From and after the second anniversary of the Applicable Measurement Date | ● 0.00% |
“Approved Counterparty” means (a) Macquarie Bank Limited or any of its Affiliates, (b) J. Aron & Company LLC or any of its Affiliates and (c) any Person who, at the time a Swap Agreement is entered into, (i) is (A) the Administrative Agent or any Affiliate of the Administrative Agent or (B) any Lender or any Affiliate of a Lender and (ii) has (or whose parent company has) a long term senior unsecured debt rating of A- or higher by S&P or A3 or higher by Moody’s (or their equivalent).
“Approved Electronic Platform” has the meaning assigned such term in Section 11.14.
“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Approved Petroleum Engineers” means NSAI and any other independent petroleum engineers reasonably acceptable to the Administrative Agent.
“Arranger” means Macquarie Bank Limited in its capacity as sole lead arranger.
“Asset Coverage Ratio” means, as of any date, the ratio of (a) Total PDP PV-10 as of such date (plus, for purposes of compliance with Section 9.01(c) only, as of such date, the Quarterly D&C Expenses incurred during the most recently ended fiscal quarter) to (b) Consolidated Total Net Indebtedness as of such date.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 12.04(b)), and accepted by the Administrative Agent, in the form of Exhibit F or any other form approved by the Administrative Agent.
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable, (a) if such Benchmark is a term rate, any tenor for such Benchmark (or payment period for interest calculated with reference to such Benchmark, as applicable,component thereof) that is or may be used for determining the length of an Interest Period pursuant to this Agreement or (b) otherwise, any payment period for interest calculated with reference to such Benchmark (or component thereof) that is or may be used for determining any frequency of making payments of interest calculated with reference to such Benchmark pursuant to this Agreement, in each case, as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of “Interest Period” pursuant to clause (e) of Section 3.03Section 3.03(d).
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“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“Bankruptcy Code” has the meaning assigned to such term in the recitals hereto.
“Bankruptcy Event” means, with respect to any Person, such Person becomes the subject of a voluntary or involuntary bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment or has had any order for relief in such proceeding entered in respect thereof, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof, provided, further, that such ownership interest does not result in or provide such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.
“Benchmark” means, initially, ICEBA LIBORthe Term SOFR Reference Rate; provided that if a Benchmark Transition Event, a Term SOFR Transition Event or an Early Opt-in Election, as applicable, and its related Benchmark Replacement Date have has occurred with respect to ICEBA LIBORthe Term SOFR Reference Rate or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to clause (b) or clause (c) of Section 3.03Section 3.03(a).
“Benchmark Replacement” means, for any Available Tenorwith respect to any Benchmark Transition Event, the first alternative set forth in the order below that can be determined by the Administrative Agent for the applicable Benchmark Replacement Date:
(1)the sum of: (a) Term SOFR and (b) the related Benchmark Replacement Adjustment;
(2a)the sum of: (ai) Daily Simple SOFR andplus (bii) the related Benchmark Replacement Adjustment0.15% (15 basis points); or
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(3b)the sum of: (ai) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower as the replacement for the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to (iA) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (iiB) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement forto the then-current Benchmark for dDollar-denominated syndicated credit facilities at such time and (bii) the related Benchmark Replacement Adjustment;
provided that, in the case of clause (1), such Unadjusted Benchmark Replacement is displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion; provided further that, notwithstanding anything to the contrary in this Agreement or in any other Loan Document, upon the occurrence of a Term SOFR Transition Event, and the delivery of a Term SOFR Notice, on the applicable Benchmark Replacement Date the “Benchmark Replacement” shall revert to and shall be deemed to be the sum of (a) Term SOFR and (b) the related Benchmark Replacement Adjustment, as set forth in clause (1) of this definition (subject to the first proviso above).
If the Benchmark Replacement as determined pursuant to clause (1), (2a) or (3b) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable Interest Period and Available Tenor for any setting of such Unadjusted Benchmark Replacement:
(1)for purposes of clauses (1) and (2) of the definition of “Benchmark Replacement,” the first alternative set forth in the order below that can be determined by the Administrative Agent:
(a) the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that has been selected or recommended by the Relevant Governmental Body for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for the applicable Corresponding Tenor;
(b) the spread adjustment (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that would apply to the fallback rate for a derivative transaction referencing the ISDA Definitions to be effective upon an index cessation event with respect to such Benchmark for the applicable Corresponding Tenor; and
(2)for purposes of clause (3) of the definition of “Benchmark Replacement,” Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement, the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and the Borrower for the applicable Corresponding
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Tenor giving due consideration to (ia) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body on the applicable Benchmark Replacement Date or (iib) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for dDollar-denominated syndicated credit facilities; at such time.
provided that, in the case of clause (1) above, such adjustment is displayed on a screen or other information service that publishes such Benchmark Replacement Adjustment from time to time as selected by the Administrative Agent in its reasonable discretion.
“Benchmark Replacement Conforming Changes” means, with respect to either the use or administration of Adjusted Term SOFR or the use, administration, adoption or implementation of any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of ““Business Day,” the definition of “U.S. Government Securities Business Day,” the definition of “Interest Period,” or any similar or analogous definition (or the addition of a concept of “interest period”), timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, the applicability and length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Administrative Agent decides may be appropriate to reflect the adoption and implementation of any such Benchmark Replacement andrate or to permit the use and administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of such Benchmark Replacementany such rate exists, in such other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then-current Benchmark:
(1a)in the case of clause (1a) or (2b) of the definition of “Benchmark Transition Event,” the later of (ai) the date of the public statement or publication of information referenced therein and (bii) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof); or
(2b)in the case of clause (3c) of the definition of “Benchmark Transition Event,” the first date of the publicon which all Available Tenors of such Benchmark (or the published component used in the calculation thereof) have been determined and announced by the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be non-representative; provided that such non-representativeness will be determined by reference to the most recent statement or publication of information
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referenced therein; orin such clause (c) and even if any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date.
(3)in the case of a Term SOFR Transition Event, the date that is thirty (30) days after the date a Term SOFR Notice is provided to the Lenders and the Borrower pursuant to Section 3.03(b); or
(4)in the case of an Early Opt-in Election, the sixth (6th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, so long as the Administrative Agent has not received, by 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, written notice of objection to such Early Opt-in Election from Lenders comprising the Required Lenders.
For the avoidance of doubt, (i) if the event giving rise to the Benchmark Replacement Date occurs on the same day as, but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for such determination and (ii) the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (1a) or (2b) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark:
(1a)a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
(2b)a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Federal Reserve Board, the NYFRBFederal Reserve Board of New York, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or
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(3c)a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are no longer representative.
For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Unavailability Period” means the period (if any) (x) beginning at the time that a Benchmark Replacement Date pursuant to clauses (1a) or (2b) of that definition has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.03Section 3.03 and (y) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.03Section 3.03.
“Beneficial Ownership Certification” means a certification regarding beneficial ownership or control as required by the Beneficial Ownership Regulation.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in and subject to Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan.”
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Blowdown Trigger Event” has the meaning assigned to such term in Section 9.21(b).
“Blowdown Wells” had the meaning assigned to such term in Section 9.22(b).
“Board” means the Board of Governors of the Federal Reserve System of the United States of America or any successor Governmental Authority.
“Borrower” has the meaning assigned to such term in the preamble hereto.
“Borrower Assumption Agreement” means that certain Assumption Agreement dated as of November 24, 2021, by and among the Existing Borrower and the Borrower.
“Borrowing” means Loans made on the same date.
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“Borrowing Request” means a request by the Borrower, substantially in the form of Exhibit B or any other form approved by the Administrative Agent, for a Borrowing in accordance with Section 2.03.
“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City or Houston, Texas are authorized or required by law to remain closed; and if such day relates to a Borrowing of, or a payment or prepayment of principal of or interest on, a Loan or a notice by the Borrower with respect to any such Borrowing, payment or prepayment, any day which is also a day on which dealings in dollar deposits are carried out in the London interbank market..
“Capital Expenditures” means, with respect to any Person, all expenditures by such Person for the acquisition or leasing of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements and capitalized workover expenses) that are required to be capitalized under GAAP on a balance sheet of such Person. For purposes of this definition, the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment owned by such Person or with insurance proceeds shall be included in Capital Expenditures only to the extent of the gross amount of such purchase price minus the credit granted by the seller of such equipment for such equipment being traded in at such time, or the amount of such proceeds, as the case may be. For the avoidance of doubt, it is hereby understood and agreed that expenditures pursuant to clause (c) of the definition of “Investment” shall not constitute Capital Expenditures.
“Cash Equivalent” means cash held in US dollars and all Investments of the type identified in Section 9.05(c) through Section 9.05(f).
“Casualty Event” means any loss, casualty or other insured damage to, or any nationalization, taking under power of eminent domain or by condemnation or similar proceeding of, any Property of the Borrower or any of its Subsidiaries.
“Change in Control” means (a) Holdings ceases to own directly one hundred percent (100%) of the issued and outstanding Equity Interests of the Borrower, (b) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person (other than a Permitted Holder) or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC) (other than a group of Permitted Holders) of Equity Interests representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of Holdings, (c) occupation of a majority of the seats (other than vacant seats) on the board of directors of Holdings by Persons who were not (i) directors of Holdings on the Closing Date, (ii) nominated or appointed by the board of directors of Holdings or (iii) approved by the board of directors of Holdings as director candidates prior to their election or (d) a Specified Change of Control shall have occurred.
“Change in Control Prepayment” means any prepayment or repayment of the Loans in full in connection with the occurrence of a Change in Control, whether at the Borrower’s option pursuant to Section 3.04(a) or following an acceleration of the Loans pursuant to Section 10.01, in each case so long as such prepayment or repayment is made no later than two (2) Business Days after the date of such Change in Control.
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“Change in Law” means (a) the adoption of or taking effect of any law, rule or regulation or treaty after the date of this Agreement, (b) any change in any law, rule or regulation or treaty or in the administration, in the interpretation, implementation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 5.01(b)), by any lending office of such Lender or by such Lender’s or the Issuing Bank’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith or in the implementation thereof and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States of America or foreign regulatory authorities, in each case pursuant to Basel III (but not Basel II), shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, issued, adopted, promulgated or implemented.
“Closing Date” means the date on which the conditions specified in Section 6.01 are satisfied (or waived in accordance with Section 12.02).
“Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute.
“Collateral” means all Property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Instrument; provided that at no time shall Excluded Assets be included in the Collateral (only for so long as such assets constitute “Excluded Assets”).
“Collateral Coverage Minimum” has the meaning assigned to such term in Section 8.14(a).
“Commitment” means an Initial Term Loan Commitment or a Delayed Draw Term Loan Commitment, as the context requires.
“Commodities Account” has the meaning assigned to such term in the UCC.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute, and any regulations promulgated thereunder.
“Compliance Certificate” means the Compliance Certificate, signed by a Financial Officer, substantially in the form of Exhibit D or any other form approved by the Administrative Agent.
“Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Borrower or any Guarantor pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender or any Issuing Bank by means of electronic communications pursuant to this Agreement, including through an Approved Electronic Platform.
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“Compounded SOFR” means the compounded average of SOFRs for the applicable Corresponding Tenor, with the rate, or methodology for this rate, and conventions for this rate (which may include compounding in arrears with a lookback and/or suspension period as a mechanism to determine the interest amount payable prior to the end of each Interest Period) being established by the Administrative Agent in accordance with: (a) the rate, or methodology for this rate, and conventions for this rate selected or recommended by the Relevant Governmental Body for determining compounded SOFR; provided that: (b) if, and to the extent that, the Administrative Agent determines that Compounded SOFR cannot be determined in accordance with clause (a) above, then the rate, or methodology for this rate, and conventions for this rate that the Administrative Agent determines are substantially consistent with at least five currently outstanding dollar-denominated syndicated credit facilities at such time (as a result of amendment or as originally executed) that are publicly available for review.
“Consolidated Cash Balance” means, as of any date of determination, the aggregate amount of (a) cash, (b) Cash Equivalents and (c) any other marketable securities, treasury bonds and bills, certificates of deposit, investments in money market funds and commercial paper, in each case, held or owned by (either directly or indirectly), credited to an account of or that would otherwise be required to be reflected as an asset on the balance sheet of, the Borrower or any Subsidiary as of such date; provided that the Consolidated Cash Balance shall exclude, without duplication, (i) any cash or Cash Equivalents for which the Borrower or any Subsidiary have, in the ordinary course of business, issued checks or initiated wires or ACH transfers in order to utilize such cash or Cash Equivalents, (ii) any cash or Cash Equivalents set aside to pay royalty obligations, working interest obligations including operating and capital expenses, production payments, suspense payments and severance taxes of the Borrower or any Subsidiary then due and owing to third parties and for which the Borrower or such Subsidiary has issued checks or has initiated wires or ACH transfers (or will issue checks or initiate wires or ACH transfers within three (3) Business Days in order to make such payments); (iii) any cash of Cash Equivalents set aside to pay payroll, payroll taxes, other taxes, employee wage and benefit payments and trust and fiduciary obligations of the Borrower or any Subsidiary then due and owing and for which the Borrower or such Subsidiary has issued checks or has initiated wires or ACH transfers (or will issue checks or initiate wires or ACH transfers within three (3) Business Days in order to make such payments); (iv) while and to the extent refundable, any cash or Cash Equivalents of the Borrower or any Subsidiary constituting purchase price deposits held in escrow pursuant to a binding and enforceable purchase and sale agreement permitted hereunder with a third party containing customary provisions regarding the payment and refunding of such deposits; (v) restricted cash or Cash Equivalents of the Borrower or any Subsidiary associated with the plugging and abandonment liabilities and other similar obligations imposed by a Governmental Requirement and arising in connection with acquisitions and divestitures of Oil and Gas Properties permitted hereunder; (vi) any refundable deposits held by unaffiliated third parties made in connection with transactions in the ordinary course of business; (vii) with respect to any calculation of the Consolidated Cash Balance as of the last day of any fiscal quarter occurring during the period from January 1, 2023 through December 31, 2024, the aggregate amount of cash projected to be spent by the Borrower and its Subsidiaries on Capital Expenditures in accordance with the APOD during the immediately succeeding fiscal quarter, which projection shall be based on the Budget required to be delivered pursuant to Section 8.01(p) within thirty-five (35) days after the end of such fiscal quarter; and (viii) cash constituting Reinvestment Proceeds to the extent being held in a Reinvestment Proceeds Account.
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“Consolidated Net Income” means, with respect to the Borrower and its Consolidated Subsidiaries for any period, the aggregate of the net income (or loss) of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom:
For the avoidance of doubt, if the Borrower or any Consolidated Subsidiary shall acquire or dispose of any Property during such period, then Consolidated Net Income shall be calculated after giving pro forma effect to such acquisition, merger, disposition or redesignation, as if such acquisition, disposition or redesignation had occurred on the first day of such period.
“Consolidated Subsidiaries” means, as to any Person, each Subsidiary of such Person (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of such Person in accordance with GAAP.
“Consolidated Total Indebtedness” means as of any date of determination, the aggregate principal amount of all Indebtedness of the Borrower and its Consolidated Subsidiaries, without duplication, outstanding on such date, in an amount that would be reflected on a consolidated balance sheet (excluding the notes thereto) prepared as of such date on a consolidated basis in accordance with GAAP but only to the extent such Indebtedness comprises (a) Indebtedness for borrowed money, (b) obligations in respect of Finance Leases, (c) obligations evidenced by bonds, notes, debentures, promissory notes or similar instruments, (d) obligations in respect of unreimbursed drawn letters of credit, (e) Indebtedness of the type described in clause (c) of the definition thereof and (f) any Indebtedness to the extent included in the foregoing clauses (a) through (e) of others guaranteed by the Borrower or any of its Subsidiaries or in which the Borrower or such Subsidiary otherwise assures a creditor against loss of the Indebtedness (howsoever such assurance shall be made) to the extent of the lesser of the amount of such
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Indebtedness and the maximum stated amount of such guarantee or assurance against loss; provided that Consolidated Total Indebtedness shall not include Indebtedness in respect of obligations under Swap Agreements, other than to the extent such obligations are due and payable and not paid on such date, or, undrawn (or if drawn, to the extent cash collateralized in the manner set forth in Section 2.07(j)) letters of credit, bank guarantees and performance or similar bonds.
“Consolidated Total Net Indebtedness” means as of any date of determination, Consolidated Total Indebtedness minus Unrestricted Cash that would be listed on the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries at such date.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. For the purposes of this definition, and without limiting the generality of the foregoing, any Person that owns directly or indirectly 10% or more of the Equity Interests having ordinary voting power for the election of the directors or other governing body of a Person (other than as a limited partner of such other Person) will be deemed to “control” such other Person. “Controlled” has the meaning correlative thereto.
“Control Agreement” means a control agreement or similar agreement, as applicable, in form and substance reasonably satisfactory to the Administrative Agent, executed by the applicable Loan Party, the Administrative Agent and the relevant financial institution party thereto, which (a) provides a first priority perfected Lien in favor of the Administrative Agent for the benefit of the Secured Parties (provided such Control Agreement may permit certain Excepted Liens according to its terms) and (b) establishes the Administrative Agent’s control, in each case, with respect to any Deposit Account, Securities Account or Commodities Account of such Loan Party.
“Controlled Account” means a Deposit Account, Securities Account or Commodities Account that is subject to a Control Agreement.
“Covered Entity” means any of the following:
“Covered Party” has the meaning assigned to such term in Section 12.22.
“Corresponding Tenor” with respect to any Available Tenor means, as applicable, either a tenor (including overnight) or an interest payment period having approximately the same length (disregarding business day adjustment) as such Available Tenor.
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“Credit Exposure” means, as to any Lender at any time, an amount equal to the sum of (a) the aggregate unused Commitments of such Lender at such time plus (b) the aggregate principal amount of its Loans outstanding at such time.
“Cure Period” has the meaning assigned to such term in Section 9.01(d)(i).
“Current Assets” means, as of any date of determination, without duplication, the sum of (a) all amounts that would, in accordance with GAAP, be set forth opposite the caption “total current assets” (or any like caption) on a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries at such date, plus (b) the unused Delayed Draw Term Loan Commitments then available to be borrowed (including as a result of the conditions set forth in clauses (b) through (f) of Sections 6.02 being satisfied as of such date), but excluding (i) all non-cash assets under FASB ASC Topic 815, (ii) the aggregate amount of any deposits (whether in cash or otherwise) posted by the Borrower or any of its Consolidated Subsidiaries to secure Swap Obligations owing by such Persons or to cover market exposures, (iii) any deferred tax assets and (iv) any cash or Cash Equivalents deemed to be “restricted” in accordance with GAAP.
“Current Liabilities” means, as of any date of determination, without duplication, the sum of all amounts that would, in accordance with GAAP, be set forth opposite the caption “total current liabilities” (or any like caption) on a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries on such date, but excluding (a) all non-cash obligations under FASB ASC Topic 815, (b) the current portion of the then outstanding aggregate principal amount of the Loans under this Agreement, (c) any deferred tax liabilities, (d) any current maturities of long-term Indebtedness for borrowed money, (e) royalties in suspense which are more than ninety (90) days past due in an amount not to exceed $7,500,000 in the aggregate and (f) accounts payable which are more than ninety (90) days past due and are being contested in good faith by appropriate action (and adequate reserves for the same are being maintained in accordance with GAAP) in an amount not to exceed $2,000,000 in the aggregate.
“Current Ratio” means, as of any date of determination, the ratio of (a) Current Assets as of the last day of the most recently ended fiscal quarter (which may be such date of determination) to (b) Current Liabilities on such day.
“Current Ratio Cure Prepayment” has the meaning assigned to such term in Section 9.01(d)(iii).
“Daily Simple SOFR” means, for any day, SOFR, with the conventions for this rate (which will include a lookback) being established by the Administrative Agent in accordance with the conventions for this rate selected or recommended by the Relevant Governmental Body for determining “Daily Simple SOFR” for business loans; provided, that if the Administrative Agent decides that any such convention is not administratively feasible for the Administrative Agent, then the Administrative Agent may establish another convention in its reasonable discretion. (a “SOFR Rate Day”), a rate per annum equal to SOFR for the day (such day “SOFR Determination Date”) that is five (5) U.S. Government Securities Business Days prior to (i) if such SOFR Rate Day is a U.S. Government Securities Business Day, such SOFR Rate Day or (ii) if such SOFR Rate Day is not a U.S. Government Securities Business Day, the U.S. Government Securities Business Day immediately preceding such SOFR Rate Day, in each case, as such SOFR is
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published by the SOFR Administrator on the SOFR Administrator's Website; provided that if by 5:00 p.m. (New York City time) on the second (2nd) U.S. Government Securities Business Day immediately following any SOFR Determination Day, SOFR in respect of such SOFR Determination Day has not been published on the SOFR Administrator’s Website and a Benchmark Replacement Date with respect to Adjusted Daily Simple SOFR has not occurred, then SOFR for such SOFR Determination Day will be SOFR as published in respect of the first preceding U.S. Government Securities Business Day for which such SOFR was published on the SOFR Administrator’s Website; provided, further that SOFR as determined pursuant to this proviso shall be utilized for purposes of calculation of Adjusted Daily Simple SOFR for no more than three (3) consecutive SOFR Rate Days. Any change in Daily Simple SOFR due to a change in SOFR shall be effective from and including the effective date of such change in SOFR without notice to the Borrower.
“DDTL Commitment Expiration Date” means the earliest to occur of (a) the date on which the Maximum DDTL Amount has been fully drawn, (b) the date on which the Delayed Draw Term Loan Commitments are otherwise terminated and (c) the date that is eighteen (18) months after the Closing Date.
“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
“Defaulting Lender” means any Lender that (a) has failed, within two Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans or (ii) pay over to any Loan Party any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified the Borrower or any Loan Party in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within three Business Days after request by a Loan Party, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations as of the date of certification) to fund prospective Delayed Draw Term Loans under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon such Loan Party’s receipt of such certification in form and substance satisfactory to it and the Administrative Agent, or (d) has become the subject of (A) a Bankruptcy Event or (B) a Bail-In Action.
“Delayed Draw Term Lender” means, as of any date of determination, each Lender having a Delayed Draw Term Loan Commitment or that holds Delayed Draw Term Loans.
“Delayed Draw Term Loan Availability Period” means the period from and including the Closing Date to and including the DDTL Commitment Expiration Date.
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“Delayed Draw Term Loan Commitment” means, as to any Delayed Draw Term Lender, the aggregate commitment of such Delayed Draw Term Lender to make Delayed Draw Term Loans as set forth on Schedule 1.02(b) or in the most recent Assignment and Assumption or other documentation contemplated hereby executed by such Delayed Draw Term Lender, as such commitment may be (i) reduced or terminated from time to time pursuant to Section 2.06(b) and (ii) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 12.04. The aggregate amount of the Delayed Draw Term Loan Commitments of the Delayed Draw Term Lenders as of the Closing Date is $35,000,000.
“Delayed Draw Term Loans” means the loans (including Tranche A Loans and Tranche B Loans) made by the Delayed Draw Term Lenders to the Borrower pursuant to Section 2.02.
“Disposition” means, with respect to any property, any sale, lease, sale and leaseback, assignment, conveyance, transfer, condemnation or other disposition thereof (in one transaction or in a series of transactions and whether effected pursuant to a division or otherwise). The terms “Dispose” and “Disposed of” shall have correlative meanings.
“Disposition Threshold” means $20,000,000.
“Disqualified Capital Stock” means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event, (a) matures (excluding any maturity as a result of the optional redemption by the issuer thereof) or is mandatorily redeemable for any consideration other than other Equity Interests (which would not constitute Disqualified Capital Stock), pursuant to a sinking fund obligation or otherwise, (b) is convertible or exchangeable (unless at the sole option of the issuer thereof) for Indebtedness or (c) is redeemable for any consideration other than other Equity Interests (which would not constitute Disqualified Capital Stock) at the option of the holder thereof, in each case, in whole or in part, on or prior to the date that is one year after the Maturity Date.
“dollars” or “$” refers to lawful money of the United States of America.
“Domestic Subsidiary” means any Subsidiary that is organized under the laws of the United States of America or any state thereof or the District of Columbia.
“Early Opt-in Election” means, if the then-current Benchmark is ICEBA LIBOR, the occurrence of:
(1)a notification by the Administrative Agent to (or the request by the Borrower to the Administrative Agent to notify) each of the other parties hereto that at least five currently outstanding dollar-denominated syndicated credit facilities at such time contain (as a result of amendment or as originally executed) a SOFR-based rate (including SOFR, a term SOFR or any other rate based upon SOFR) as a benchmark rate (and such syndicated credit facilities are identified in such notice and are publicly available for review), and
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(2)the joint election by the Administrative Agent and the Borrower to trigger a fallback from ICEBA LIBOR and the provision by the Administrative Agent of written notice of such election to the Lenders.
“EBITDAX” means, for any period, an amount determined for the Borrower and its Consolidated Subsidiaries equal to the sum of Consolidated Net Income for such period plus the following expenses or charges to the extent deducted from Consolidated Net Income in such period: (a) interest expense, (b) income taxes, (c) depreciation, (d) depletion, (e) amortization, (f) all other non-cash charges, (g) exploration expenses or costs (to the extent the Borrower adopts the successful efforts method of accounting), (h) any fees, expenses and other transaction costs which are incurred in connection with the Transactions and the other transactions contemplated hereby or thereby and (i) the amount of any non-recurring cash expenses and charges (other than any such non-recurring expenses and charges arising in the ordinary course of business), determined in accordance with GAAP, in an amount not to exceed ten percent (10%) of EBITDAX for such period (determined prior to giving effect to such addback), minus the following items of income to the extent included in Consolidated Net Income in such period: (i) all non-cash income (including cancellation of indebtedness income and non-cash income resulting from the requirements of Accounting Standards Codifications 410 and 815) and (ii) the amount of any non-recurring cash items of income, determined in accordance with GAAP; provided that for purposes of calculating EBITDAX for any period of four consecutive Fiscal Quarters (each, a “Reference Period”), (i) if during such Reference Period (or, in the case of pro forma calculations, during the period from the last day of such Reference Period to and including the date as of which such calculation is made) the Borrower or any Consolidated Subsidiary shall have made a Material Disposition or Material Acquisition, EBITDAX (including Consolidated Net Income) for such Reference Period shall be calculated after giving pro forma effect thereto as if such Material Disposition or Material Acquisition by the Borrower or its Consolidated Subsidiaries occurred on the first day of such Reference Period and (ii) if any calculations in the foregoing clause (i) are made on a pro forma basis, such pro forma adjustments are factually supportable and are determined in good faith by a Responsible Officer and subject to supporting documentation reasonably acceptable to the Administrative Agent. As used in this definition, “Material Acquisition” means any acquisition by the Borrower or its Consolidated Subsidiaries of property or series of related acquisitions of property that involves consideration in excess of $5,000,000, and “Material Disposition” means any Disposition of property or series of related sales, transfers or other dispositions of property that yields gross proceeds to the Borrower or any Consolidated Subsidiary in excess of $5,000,000.
“ECP” means any Person who qualifies as an “eligible contract participant” under Section 2(e) of the Commodity Exchange Act.
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
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“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Electronic Signature” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
“Emergency Capital Expenditures” means any Capital Expenditures that are incurred in response to and to resolve or mitigate an emergency or threat to human health, safety or protection of the environment, as determined by the Borrower in good faith in consultation with the Administrative Agent, or to the extent required under any applicable law, rule or regulation of any Governmental Authority (including Environmental Laws).
“Environmental Laws” means any and all Governmental Requirements pertaining in any way to health, safety the environment or the preservation or reclamation of natural resources, in effect in any and all jurisdictions in which the Borrower or any Subsidiary is conducting or at any time has conducted business, or where any Property of the Borrower or any Subsidiary is located, including without limitation, the Oil Pollution Act of 1990 (“OPA”), as amended, the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 (“CERCLA”), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection Governmental Requirements. For the purpose of this definition, (i) the term “oil” shall have the meaning specified in OPA, (ii) the terms “hazardous substance” and “release” (or “threatened release”) have the meanings specified in CERCLA, (iii) the terms “solid waste” and “disposal” (or “disposed”) have the meanings specified in RCRA and (iv) the term “oil and gas waste” shall have the meaning specified in Section 91.1011 of the Texas Natural Resources Code (“Section 91.1011”); provided, however, that (a) in the event either OPA, CERCLA, RCRA or Section 91.1011 is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (b) to the extent the laws of the state or other jurisdiction in which any Property of the Borrower or any Subsidiary is located establish a meaning for “oil,” “hazardous substance,” “release,” “solid waste,” “disposal” or “oil and gas waste” which is broader than that specified in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning shall apply.
“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such Equity Interest.
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“ERISA” means the Employee Retirement Income Security Act of 1974, and the rules and regulations thereunder, each as amended or modified from time to time.
“ERISA Affiliate” means each trade or business (whether or not incorporated) which together with the Borrower or a Subsidiary would be deemed to be a “single employer” within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code.
“ERISA Event” means (a) a “reportable event” described in section 4043 of ERISA with respect to a Plan or a controlled group member, as applicable, for which the reporting requirements have not been waived, (b) the withdrawal of the Borrower, a Subsidiary or any ERISA Affiliate from a Plan subject to section 4063 or 4064 of ERISA during a plan year in which it was a “substantial employer” as defined in section 4001(a)(2) of ERISA, or a cessation of operations that is treated as such a withdrawal as provided in section 4062(e) of ERISA, (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, (e) receipt of a notice of withdrawal liability pursuant to section 4202 of ERISA, (f) the failure of Borrower, a Subsidiary or any ERISA Affiliate to meet the minimum funding standards under section 430 of the Code or section 303 of ERISA (determined without regard to any waiver of funding provisions therein) with respect to a Plan, (g) the Borrower, a Subsidiary or any ERISA Affiliate incurs a withdrawal liability under Subtitle E of Title IV of ERISA with respect to a Multiemployer Plan or (h) any other event or condition which constitutes grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan.
“Erroneous Payment” has the meaning assigned to it in Section 11.06(a).
“Erroneous Payment Deficiency Assignment” has the meaning assigned to it in Section 11.16(d)(i).
“Erroneous Payment Impacted Class” has the meaning assigned to it in Section 11.16(d)(i).
“Erroneous Payment Return Deficiency” has the meaning assigned to it in Section 11.16(d)(i).
“Erroneous Payment Subrogation Rights” has the meaning assigned to it in Section 11.16(e).
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
“Event of Default” has the meaning assigned to such term in Section 10.01.
“Excepted Liens” means: (a) Liens for Taxes, assessments or other governmental charges or levies which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained to the extent required in
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accordance with GAAP; (b) Liens in connection with workers’ compensation, unemployment insurance or other social security, old age pension or public liability obligations which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (c) landlord’s liens, operators’, vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’, workers’, materialmen’s, construction or other like Liens arising by operation of law in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties each of which is in respect of obligations that are not more than sixty (60) days delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (d) contractual Liens which arise in the ordinary course of business under operating agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for claims which are not more than sixty (60) days delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP, provided that any such Lien referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by the Borrower or any Subsidiary or materially impair the value of such Property subject thereto; (e) Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights and remedies and burdening only deposit accounts or other funds maintained with a creditor depository institution, provided that no such deposit account is a dedicated cash collateral account or is subject to restrictions against access by the depositor in excess of those set forth by regulations promulgated by the Board and no such deposit account is intended by Borrower or any of its Subsidiaries to provide collateral to the depository institution; (f) easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any Property of the Borrower or any Subsidiary for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, that do not secure any Indebtedness for borrowed money and which in the aggregate do not materially impair the use of such Property for the purposes of which such Property is held by the Borrower or any Subsidiary or materially impair the value of such Property subject thereto; (g) Liens on cash or securities pledged to secure performance of tenders, surety and appeal bonds, government contracts, performance and return of money bonds, bids, trade contracts, leases, statutory obligations, regulatory obligations and other obligations of a like nature incurred in the ordinary course of business and not in connection with the borrowing of money; (h) judgment and attachment Liens not giving rise to an Event of Default, provided that any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired and no action to enforce such Lien has been commenced; (i) Liens arising from UCC financing statement filings regarding operating leases entered into in the ordinary course of business covering only the Property under any such operating lease; (j) Liens listed on the exhibits
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to the Security Instruments with respect to the Oil and Gas Properties of Borrower and each of its Subsidiaries, so long as such Liens (1) do not reduce the Net Revenues Interest (or “NRI” or terms of similar effect) attributable to any well, unit or lease included in the Oil and Gas Properties of Borrower and its Subsidiaries, materially below that shown on such exhibits to the Security Instruments or (2) increase the Working Interest (or “WI” or terms of similar effect) attributable to any well, unit or lease included in the Oil and Gas Properties of Borrower and its Subsidiaries, materially above that shown on such exhibits to the Security Instruments; and (k) Liens pursuant to merger agreements, stock purchase agreements, asset sale agreements and similar agreements (1) limiting the transfer of properties and assets pending the consummation of the subject transaction, or (2) in respect of earnest money deposits, good faith deposits, purchase price adjustment and indemnity escrows and similar deposit or escrow arrangements made or established thereunder; provided, further that Liens described in clauses (a) through (e) shall remain “Excepted Liens” only for so long as no action to enforce such Lien has been commenced and no intention to subordinate the first priority Lien granted in favor of the Administrative Agent and the Lenders is to be hereby implied or expressed by the permitted existence of such Excepted Liens.
“Excluded Accounts” means (a) Deposit Accounts the balance of which consists exclusively of (i) withheld income Taxes and federal, state or local employment Taxes required to be paid to the Internal Revenue Service or state or local Governmental Authorities with respect to employees of the Borrower or any Subsidiary, (ii) amounts required to be paid over to an employee benefit plan on behalf of or for the benefit of employees of the Borrower or any Subsidiary, (iii) amounts set aside for payroll and the payment of accrued employee benefits, medical, dental and employee benefits claims to employees of the Borrower or any Subsidiary, (iv) amounts constituting purchase price deposits held in escrow pursuant to a purchase and sale agreement with a third party containing customary provisions regarding the payment and refunding of such deposits, (v) amounts held in escrow or in trust pending litigation or other settlement claims, and (vi) amounts held in trust or as fiduciaries for third parties in respect of such third party’s ratable share of the revenues of Oil and Gas Properties and (b) other Deposit Accounts, Securities Accounts or Commodities Accounts so long as (i) the average daily maximum balance in each such account over a thirty (30) day period does not at any time exceed $1,000,000 and (ii) the aggregate balance for all such accounts excluded pursuant to this clause (b) on any day does not exceed $3,000,000.
“Excluded Assets” has the meaning assigned to such term in the Guarantee and Collateral Agreement.
“Excluded Swap Agreement Unwind” means, so long as no Event of Default has occurred and is continuing, any Unwind of Swap Agreements effected by the Borrower in order to comply with the requirements of Section 9.19(d), but only with respect to Swap Agreements covering notional amounts not to exceed the amount required to cause the Borrower to be in compliance with the requirements of Section 9.19(d).
“Excluded Swap Obligation” means (as such definition may be modified from time to time as agreed by the Borrower and the Administrative Agent), with respect to any Guarantor, any Swap Obligation, if, and to the extent that, all or a portion of the guarantee of such Guarantor of, or the grant by such Guarantor of a security interest to secure, as applicable, such Swap Obligation (or any guarantee thereof) is or becomes illegal under the Commodity Exchange Act
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or any rule, regulation or order thereunder (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder, at the time the guarantee of (or grant of such security interest by, as applicable) such Guarantor becomes or would become effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one Swap Agreement, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to Swap Agreements for which such guarantee or security interest is or becomes illegal.
“Excluded Taxes” means, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower or any Guarantor hereunder or under any other Loan Document, (a) Taxes on income (however denominated), branch profits Taxes or franchise Taxes, in each case, (i) imposed by any jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located or (ii) that are Other Connection Taxes, (b) in the case of a Lender (other than an assignee pursuant to a request by the Borrower under Section 5.04(b)), any withholding Tax that is imposed on amounts payable to such Lender at the time such Lender becomes a party to this Agreement (or designates a new lending office), except to the extent that such Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts with respect to such federal withholding Tax pursuant to Section 5.03, (c) Taxes attributable to such Lender’s failure to comply with Section 5.03(e) and (d) any withholding Tax that is imposed under FATCA.
“Existing Borrower” means Battalion Oil Corporation, a Delaware corporation.
“Existing Credit Agreement” has the meaning given to such term in the recitals.
“Existing Obligations” means all “Secured Obligations” as such term is defined in the Existing Credit Agreement.
“Exiting Administrative Agent” means the “Administrative Agent”, as such term is defined in the Existing Credit Agreement.
“Exiting Lender” means any “Lender” (if any), as such term is defined in the Existing Credit Agreement, that is not a Lender under this Agreement.
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code, and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement between the United States and any other such jurisdiction that facilitates the implementation of the foregoing.
“Federal Funds Effective Rate” means, for any day, the greater of (a) the rate calculated by the NYFRBFederal Reserve Bank of New York based on such day’s fFederal funds transactions by depositary institutions, (as determined in such manner as the NYFRBFederal
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Reserve Bank of New York shall set forth on its public website from time to time,) and published on the next succeeding Business Day by the NYFRB as the effective federal funds rate; provided that ifFederal Reserve Bank of New York as the Federal Ffunds Eeffective Rate as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of this Agreementrate and (b) 0.00%.
“Federal Reserve Board” means the Board of Governors of the Federal Reserve System of the United States.
“Fee Letters” means (a) that certain Fee Letter, dated as of the Closing Date, by and among the initial lenders party hereto as of the Closing Date and the Borrower, (b) that certain Administrative Agent Fee Letter, dated as of the Closing Date, by and between the Borrower and the Administrative Agent and (c) that certain Upfront Fee Letter, dated as of the Closing Date, by and between the Borrower and the Administrative Agent.
“Finance Leases” means, in respect of any Person, all leases which shall have been, or should have been, in accordance with GAAP, recorded as finance leases on the balance sheet of the Person liable (whether contingent or otherwise) for the payment of rent thereunder; provided that any lease that would not have been recorded as a finance lease if it had been entered into prior to the adoption of ASU No. 2016-02 “Leases (Topic 842)” and ASU No. 2018-11 “Leases (Topic 842)” shall not be a Finance Lease whether or not so designated in accordance with GAAP as in effect at the time of the execution of such lease.
“Financial Officer” means, for any Person, the chief executive officer, the chief financial officer, principal accounting officer, treasurer or controller of such Person. Unless otherwise specified, all references herein to a Financial Officer means a Financial Officer of the Borrower.
“Financial Statements” means the financial statement or statements of the Borrower and its Consolidated Subsidiaries referred to in Section 7.04(a).
“Five-Year Strip Price” means, as of the date that is five (5) days prior to delivery of a Reserve Report or other information and materials required to be delivered pursuant to the terms of this Agreement, (a) for the sixty (60) month period commencing with the month in which such date occurs, as quoted on the NYMEX and published in a nationally recognized publication for such pricing as selected by the Administrative Agent (as such prices may be corrected or revised from time to time by the NYMEX in accordance with its rules and regulations), the corresponding monthly quoted futures contract price for months 0–60 and (b) for periods after such sixty (60) month period, the average corresponding monthly quoted futures contract price for months 49–60; provided, however, that (i) in the event that the NYMEX no longer provides futures contract price quotes for sixty (60) month periods, the longest period of quotes of less than sixty (60) months shall be used and (ii) if the NYMEX no longer provides such futures contract quotes or has ceased to operate, the Required Lenders shall, in consultation with the Borrower, designate another nationally recognized commodities exchange to replace the NYMEX for purposes of the references to the NYMEX in this definition.
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“Flood Insurance Regulations” means (a) the National Flood Insurance Act of 1968, (b) the Flood Disaster Protection Act of 1973, (c) the National Flood Insurance Reform Act of 1994 (amending 42 USC § 4001, et seq.), (d) the Flood Insurance Reform Act of 2004 and (e) the Biggert-Waters Flood Insurance Reform Act of 2012, in each case as now or hereafter in effect or any successor statute thereto and including any regulations promulgated thereunder.
“Floor” means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to the LIBO Rate. For the avoidance of doubt, the initial Floor for the LIBO Rate shall bea rate of interest equal to 0.00%.
“Force Majeure Event” means any catastrophic accident, act of war or terrorism, civil or military disturbance, natural catastrophe or act of God, and significant interruptions, losses or malfunctions of utilities services (in each case, which are not caused by and are outside the control of the Borrower and its Subsidiaries and their respective officers, employees and agents).
“Forecasted Specified PDP Production” means, for any period, the aggregate forecasted production of Hydrocarbons (measured in barrels of oil equivalent) from the Specified PDP Reserves for such period, as set forth on Schedule 1.02(c).
“Foreign Lender” means any Lender that is not a U.S. Person.
“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.
“G&A Allocation Percentage” means (x) prior to a Subsidiary Trigger Event, 100% and (y) with respect to any fiscal quarter ending after a Subsidiary Trigger Event, subject to the reasonable prior approval of the Administrative Agent, a percentage equal to a fraction (i) the numerator of which is an amount equal to the portion of G&A Expenses of Holdings and all of its Subsidiaries for such fiscal quarter that are allocated to the Loan Parties in a reasonable manner and in proportion to the G&A Expenses actually attributable to the Loan Parties, in the good faith business judgment of the Borrower, and (ii) the denominator of which is the sum of all G&A Expenses of Holdings and all its Subsidiaries for such fiscal quarter. Notwithstanding the foregoing, if the Borrower and the Administrative Agent are unable to agree on the allocation of G&A Expenses pursuant to this definition for a period of three (3) calendar months, then Borrower and the Administrative Agent agree to submit such dispute to a nationally recognized financial valuation firm proposed by the Majority Lenders for resolution, which resolution shall be binding on Borrower and the Administrative Agent.
“G&A Expenses” means expenses and costs incurred by the Borrower and each other Loan Party that are classified as “general and administrative costs”, including Restricted Payments made pursuant to Section 9.04(a)(iii), Section 9.04(a)(iv) or Section 9.04(a)(vi) (other than Section 9.04(a)(vi)(B)), consulting fees, salary, rent, supplies, travel, insurance, accounting, audit, legal, engineering and broker related fees required to manage the affairs of the Loan Parties; provided, that G&A Expenses shall not include (x) any expenses or costs incurred in connection with the Transactions or (y) any one-time expenses or costs relating to unusual or extraordinary events (including, for the avoidance of doubt, (i) settlement costs and (ii) expenses incurred in
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connection with the consummation of any investment, acquisition, merger, disposition, equity issuance or capital contribution, but excluding any retention or bonus payments paid in cash).
“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time subject to the terms and conditions set forth in Section 1.05.
“Gas Balancing Obligations” means those obligations set forth on Schedule 7.18 (as may be updated pursuant to the terms of Section 7.18).
“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
“Governmental Requirement” means any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, rules of common law, authorization or other directive or requirement, whether now or hereinafter in effect, including, without limitation, Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority.
“Guarantors” means, collectively:
“Guarantee and Collateral Agreement” means an Amended and Restated Guarantee and Collateral Agreement substantially in the form of Exhibit K and executed by the Guarantors.
“Highest Lawful Rate” means, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Loans or on other Secured Obligations under laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws allow as of the date hereof.
“Holdings” means Battalion Oil Corporation, a Delaware corporation.
“Hydrocarbon Interests” means all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests of whatever nature.
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“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom.
“Indebtedness” means, for any Person, the sum of the following (without duplication): (a) all obligations of such Person for borrowed money or evidenced by bonds, bankers’ acceptances, debentures, notes or other similar instruments; (b) all obligations of such Person (whether contingent or otherwise) in respect of letters of credit, surety or other bonds and similar instruments; (c) all accounts payable and all accrued expenses, liabilities or other obligations of such Person to pay the deferred purchase price of Property or services (excluding accounts payable incurred in the ordinary course of business that (i) are not overdue by more than ninety (90) days past the date of invoice or (ii) are being contested in good faith by appropriate action and adequate reserves for the same have been maintained in accordance with GAAP); (d) all obligations under Finance Leases; (e) all obligations under Synthetic Leases; (f) all Indebtedness (as defined in the other clauses of this definition) of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien on any Property of such Person, whether or not such Indebtedness is assumed by such Person; (g) all Indebtedness (as defined in the other clauses of this definition) of others guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the Indebtedness (howsoever such assurance shall be made) to the extent of the lesser of the amount of such Indebtedness and the maximum stated amount of such guarantee or assurance against loss; (h) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position or covenants of others or to purchase the Indebtedness or Property of others; (i) obligations to deliver commodities, goods or services, including, without limitation, Hydrocarbons, in consideration of one or more advance payments for periods in excess of 120 days prior to the day of delivery, other than gas balancing arrangements in the ordinary course of business; (j) obligations to pay for goods or services whether or not such goods or services are actually received or utilized by such Person; (k) any Indebtedness of a partnership for which such Person is liable either by agreement, by operation of law or by a Governmental Requirement but only to the extent of such liability; (l) Disqualified Capital Stock; and (m) the undischarged balance of any production payment created by such Person or for the creation of which such Person directly or indirectly received payment. The Indebtedness of any Person shall include all obligations of such Person of the character described above to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is not included as a liability of such Person under GAAP; provided, however, the contingent obligations of Borrower or any Subsidiary of Borrower pursuant to any purchase and sale agreement, stock purchase agreement, merger agreement or similar agreement shall not constitute “Indebtedness” within this definition so long as none of the same contains an obligation to pay money over time.
“Indemnified Taxes” means Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document.
“Indemnitee” has the meaning assigned to such term in Section 12.03(b).
“Information” has the meaning assigned to such term in Section 12.11.
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“Initial APOD Wells” means the first five wells to be drilled after the Closing Date pursuant to the APOD.
“Initial Reserve Report” means the report with respect to certain Oil and Gas Properties of the Borrower and its Subsidiaries prepared by NSAI with an as of date of November 1, 2021.
“Initial Term Lender” means, as of any date of determination, each Lender having an Initial Term Loan Commitment or that holds Initial Term Loans.
“Initial Term Loan Commitment” means, with respect to each Initial Term Lender, the commitment of such Initial Term Lender to make Initial Term Loans as set forth on Schedule 1.02(b) or in the most recent Assignment and Assumption or other documentation contemplated hereby executed by such Lender. The aggregate amount of the Initial Term Loan Commitments of the Initial Term Lenders as of the Closing Date is $200,000,000.
“Initial Term Loans” means the loans made by the Initial Term Lenders to the Borrower pursuant to Section 2.02.
“Interest Payment Date” means (a) the last day of each fiscal quarter and (b) the Maturity Date.
“Interest Period” means (a) initially, the period commencing on the Closing Date and ending on the next succeeding Interest Payment Date and (b) each subsequent period commencing on the day after the last Interest Payment Date and ending on the next succeeding Interest Payment Date.
“Investment” means, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of Equity Interests of any other Person (including any “short sale” or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale); (b) the making of any deposit with, or advance, loan or capital contribution to, assumption of Indebtedness of, purchase or other acquisition of any other Indebtedness of, or equity participation or interest in, or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person, but excluding any such advance, loan or extension of credit having a term not exceeding ninety (90) days representing the purchase price of inventory, goods, supplies or services sold by such Person in the ordinary course of business); (c) the purchase or acquisition (in one or a series of transactions) of Property of another Person that constitutes a business unit or (d) the entering into of any guarantee of, or other contingent obligation (including the deposit of any Equity Interests to be sold) with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person.
“IRR Parameters” means, for purposes of the APOD Economic Test, (a) the price forecast used to calculate the projected internal rate of return shall be (i) for crude oil, $50.00/bbl (WTI) and (ii) for natural gas, the then-current Five Year Strip Price, in each case adjusted by taking into account all then-existing Swap Agreements attributable to projected production from the Producing APOD Wells subject to the applicable APOD Economic Test, (b) the projected
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internal rate of return for any Producing APOD Tranche shall be measured from the date when Capital Expenditures associated with such Producing APOD Tranche were initially made, (c) the cumulative projected internal rate of return shall (i) reflect actual economic and production results of existing Producing APOD Tranches (including, for the avoidance of doubt, pricing actually realized) and (ii) with respect to forecasted economic and production results, be based on the latest forecast provided by the Borrower in good faith and based on reasonable assumptions and approved by the Administrative Agent; provided that, if the Administrative Agent does not approve any such forecast, the Borrower shall provide an updated forecast from NSAI and (d) all costs and expenses associated with the drilling and completion of the wells included in each Producing APOD Tranche shall be included in the calculation of the projected internal rate of return, regardless of whether the Borrower shall have received invoices therefor at the time of measurement of the APOD Economic Test.
“Issuing Bank” means Macquarie Bank Limited. The Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.
“JV HoldCco” means any Subsidiary formed by the Borrower or any Subsidiary to directly own the Equity Interests in any joint venture listed on Schedule 1.02(d) or described in clause (iii) of the definition of “JV Entities”.
“JV Entities” means (i) each JV Holdco, (ii) each of the Persons listed on Schedule 1.02(d) and (iii) each joint venture formed after the Closing Date in which the Borrower or any Subsidiary owns Equity Interests but which does not constitute a “Subsidiary” of any Loan Party pursuant to clause (a) or (b) of the definition thereof.
“LC Commitment” means, at any time, an amount equal to $5,000,000. For the avoidance of doubt, the LC Commitment is in addition to the aggregate Commitments.
“LC Disbursement” means a payment made by the Issuing Bank pursuant to a Letter of Credit.
“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time.
“LC Fee” has the meaning assigned to such term in Section 3.05(b).
“Lenders” means the Persons listed on Schedule 1.02(b) and any Person that shall have become a party hereto pursuant to an Assignment and Assumption other than, in each case, any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption. Unless the context otherwise requires, the term “Lenders” includes the Issuing Bank.
“Letter of Credit” means any letter of credit issued pursuant to this Agreement.
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“Letter of Credit Agreements” means all letter of credit applications and other agreements (including any amendments, modifications or supplements thereto) submitted by the Borrower, or entered into by the Borrower, with the Issuing Bank relating to any Letter of Credit.
“LIBO Rate” means, for any Interest Period, the LIBO Screen Rate at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period; provided that if such rate is not available to the Administrative Agent for any reason, then the applicable Rate for the relevant Interest Period shall instead be the rate determined by the Administrative Agent to be the rate at which Macquarie offers to place deposits in Dollars with first class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of the relevant Advance and having a maturity equal to three months; provided further that if the LIBO Rate as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.
“LIBO Screen Rate” means, for any Interest Period, the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate for dollars for a period equal to three months as displayed on such day and time on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate (or, in the event such rate does not appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as selected by the Administrative Agent in its sole discretion).
“Lien” means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to (a) the lien or security interest arising from a deed of trust, mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes or (b) production payments and the like payable out of Oil and Gas Properties. The term “Lien” shall include easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations. For the purposes of this Agreement, the Borrower and its Subsidiaries shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing.
“Loan Documents” means (i) this Agreement, (ii) the Notes, if any, (iii) the Letter of Credit Agreements, (iv) the Letters of Credit, (v) the Security Instruments, (vi) the Fee Letters and (vii) any other agreements entered into in connection herewith by the Borrower or any Loan Party with or in favor of the Administrative Agent or the Lenders, which such agreements are expressly identified therein as a “Loan Document”.
“Loan Party” means, collectively, the Borrower and each Guarantor.
“Loans” means, collectively, the Initial Term Loans and the Delayed Draw Term Loans and “Loan” means any of the foregoing.
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“Make-Whole Amount” means, with respect to any Loans being prepaid or accelerated (whether pursuant to Section 10.01, at the Borrower’s option pursuant to Section 3.04(a) or as required pursuant to Section 3.04(c)(ii) or Section 3.04(c)(iv)), an amount equal to (i) the sum of interest payments (calculated using a per annum rate of interest equal to the interest rate at the date of prepayment or acceleration (prior to giving effect to any increase in interest rate pursuant to Section 3.02(b)) that would have been paid on the full principal amount of the Loans so prepaid or accelerated if such principal amount had been outstanding from the date of prepayment or acceleration to the first anniversary of the Closing Date,Applicable Borrowing Date or the Applicable Measurement Date, as applicable, plus (ii) 2.00% of the principal amount of such Loans being prepaid or accelerated.
“Majority Lenders” means, at any date, (a) if the Commitments have not been terminated, Non-Defaulting Lenders and the Issuing Bank having or holding more than fifty percent (50%) of the total Credit Exposure, unused LC Commitment, and total LC Exposure in the aggregate at such date or (b) if the Commitments have been terminated, Non-Defaulting Lenders and the Issuing Bank having or holding more than fifty percent (50%) of the Total Outstandings and the total LC Exposure in the aggregate at such date; provided that the Majority Lenders must include, at any time that the Lenders consist solely of two (2) or three (3) un-affiliated Non-Defaulting Lenders, all Non-Defaulting Lenders.
“Material Adverse Effect” means a material adverse effect on (a) the business, financial condition, operations, performance or properties of the Borrower, the Guarantors and their respective Subsidiaries, taken as a whole, (b) the ability of the Loan Parties to perform their respective material obligations under the Loan Documents, or (c) the ability of the Administrative Agent, the Issuing Bank and the Lenders to enforce the Loan Documents.
“Material Indebtedness” means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate outstanding principal amount exceeding $10,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower or any Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Swap Agreement were terminated at such time.
“Material Midstream Agreement” means any gas gathering or transportation agreement to which the Borrower or any Subsidiary is party that provides for or contemplates payments to be made by the Borrower or any Subsidiary in excess of $5,000,000 during any period of twelve (12) consecutive months.
“Material Oil and Gas Properties” means Oil and Gas Properties (x) owned by the Borrower or any of its Subsidiaries with an aggregate fair market value in excess of $1,000,000 or (y) subject to the APOD.
“Maturity Date” means November 24, 2025.
“Maximum DDTL Amount” means $35,000,000.
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“Minimum Volume Commitment” means any “ship or pay” or other similar arrangement where any Person (a) commits to utilize a minimum capacity in a pipeline or otherwise guarantees a minimum thru-put volume in respect of a pipeline, processing or other midstream facility and (b) agrees to pay for such capacity or thru-put regardless of whether such capacity or thru-put is actually utilized.
“Money Laundering Laws” has the meaning assigned to such term in Section 7.23.
“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto that is a nationally recognized rating agency.
“Mortgage” means each of the mortgages or deeds of trust executed by any one or more Loan Parties for the benefit of the Secured Parties as security for the Secured Obligations, together with any supplements, modifications or amendments thereto and assumptions or assignments of the obligations thereunder by any Loan Party. “Mortgages” means all of such Mortgages collectively.
“Mortgaged Property” means any Property owned by any Loan Party which is subject to the Liens existing and to exist under the terms of the Security Instruments.
“Multiemployer Plan” means a multiemployer plan as defined in sections 3(37) or 4001 (a)(3) of ERISA, to which the Borrower, a Subsidiary or an ERISA Affiliate makes or is obligated to make contributions, or during the immediately preceding six years, has made or been obligated to make contributions.
“Net Cash Proceeds” means in connection with any issuance or sale of Equity Interests, debt securities or instruments, the incurrence or issuance of Indebtedness, any Disposition of Property, any Unwind of Swap Agreements (other than an Excluded Swap Agreement Unwind) or any Casualty Event, the aggregate cash proceeds received from such issuance, sale, incurrence, Disposition, Unwind or Casualty Event, as applicable, net of attorneys’ fees, investment banking fees, accountants’ fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith.
“New Indebtedness” has the meaning assigned to such term in the definition of Permitted Refinancing Indebtedness.
“Non-Defaulting Lender” means, at any time, each Lender that is not a Defaulting Lender at such time.
“Non-Producing APOD Wells” means wells contained in the APOD that are spud but do not constitute Proved Developed Producing Reserves (based on the Borrower’s reasonable estimates thereof).
“Non-Recourse Indebtedness” means any Indebtedness of any JV Entity, in each case in respect of which the holder or holders thereof (a) shall have recourse only to, and shall have the right to require the obligations of such JV Entity to be performed, satisfied, and paid only out of, the Property of such JV Entity and/or one or more of its subsidiaries and/or any other Person (other than Borrower and/or any Subsidiary (other than in respect of Equity Interests of such JV
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Entity)) and (b) shall have no direct or indirect recourse (including by way of guaranty, support or indemnity) to the Borrower or any Subsidiary or to any of the Property of Borrower or any Subsidiary (other than in respect of Equity Interests of such JV Entity), whether for principal, interest, fees, expenses or otherwise.
“Notes” means the promissory notes of the Borrower as requested by a Lender and described in Section 2.02(d) and being substantially in the form of Exhibit A-1 or Exhibit A-2, as applicable, together with all amendments, modifications, replacements, extensions and rearrangements thereof.
“NSAI” means Netherland, Sewell & Associates, Inc.
“NYFRB’s Website” means the website of the NYFRB at http://www.newyorkfed.org, or any successor source.
“NYMEX” means the New York Mercantile Exchange.
“Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the Properties now or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; (d) all operating agreements, contracts and other agreements, including production sharing contracts and agreements, which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; (e) all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, including all oil in tanks, and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; (f) all tenements, hereditaments, appurtenances and Properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests and (g) all Properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereinafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment, rental equipment or other personal Property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising solely from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected
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a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Lenders” has the meaning assigned to such term in Section 12.03(a).
“Other Taxes” means any and all present or future stamp, court or documentary, intangible, recording, filing or similar taxes that arise solely from any payment made under or from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, this Agreement and any other Loan Document except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 5.04(b)).
“Outstanding Amount” means the aggregate outstanding principal amount of Loans after giving effect to any borrowings and prepayments or repayments of Loans occurring on such date.
“Participant” has the meaning set forth in Section 12.04(c)(i).
“Participant Register” has the meaning set forth in Section 12.04(c)(i).
“Patriot Act” has the meaning assigned to such term in Section 7.23.
“Payment Conditions” means (a) at the time of, and after given effect to the occurrence of the proposed transaction, no Default or Event of Default shall have occurred and be continuing, (b) after giving pro forma effect to the proposed event, (i) the Specified Asset Coverage Ratio is equal to or greater than 2.50 to 1.00, (ii) the Specified Total Leverage Ratio does not exceed 1.50 to 1.00, (iii) the Current Ratio is equal to or greater than 1.00 0:to 1.00 and (iv) at least $1.00 is available under the Total Available Amount Basket and (c) prior to the occurrence of the proposed transaction, delivery to the Administrative Agent of a certificate signed by a Responsible Officer certifying as to the matters set forth in the preceding clauses (a) and (b).
“Payment in Full” means (a) the Commitments and the LC Commitment have expired or been terminated, (b) the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents shall have been indefeasibly paid in full in cash (other than contingent indemnification obligations), (c) all Letters of Credit shall have expired or terminated (or are cash collateralized or otherwise secured to the satisfaction of the Issuing Bank and the Administrative Agent) and all LC Disbursements shall have been reimbursed and (d) the expiration or termination of all Secured Swap Agreements and all amounts owing by any Loan Party thereunder shall have been indefeasibly paid in full in cash (other than Secured Swap Agreements as to which arrangements satisfactory to the applicable Secured Swap Provider have been made).
“Payment Recipient” has the meaning assigned to it in Section 11.16(a).
“PDP Production Test” means, as of any date of determination, the Actual Specified PDP Production for the period beginning October 1, 2021 and ending on such date (the “PDP Production Test Measurement Period”), measured as a percentage of the Forecasted Specified PDP Production for the same period. The Borrower shall deemed to be in compliance with the PDP
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Production Test as of any date of determination if the Actual Specified PDP Production for the PDP Production Test Measurement Period ending on such date is not more than five percent (5%) less than the Forecasted Specified PDP Production for such PDP Production Test Measurement Period.
“Periodic Term SOFR Determination Day” has the meaning specified in the definition of “Term SOFR”.
“Permitted Acquisition” shall mean the acquisition, by merger or otherwise, by the Borrower or any of the Subsidiaries of any assets (including any assets constituting a business unit, line of business or division) or Equity Interests, so long as (a) the Acquisition Conditions are satisfied and (b) the consideration for such acquisition, together with all other Permitted Acquisitions consummated since the Closing Date, shall not exceed $50,000,000, except to the extent funded with the proceeds of a substantially concurrent issuance of Equity Interests in Holdings (other than Disqualified Capital Stock).
“Permitted Capital Expenditures” means (a) Capital Expenditures made by the Borrower or any of its Subsidiaries on or after the Closing Date in an aggregate amount not to exceed $10,000,000, (b) so long as the Payment Conditions are satisfied at the time of making any such Capital Expenditures, Capital Expenditures made by the Borrower or any of its Subsidiaries on or after January 1, 2023 in an aggregate amount not to exceed $40,000,000, (c) to the extent constituting Capital Expenditures, Permitted Reinvestment Transactions and (d) to the extent funded with the proceeds of a substantially concurrent issuance of Equity Interests in Holdings (other than Disqualified Capital Stock), other Capital Expenditures.
“Permitted Holders” means Luminus Management, LLC, Oaktree Capital Management L.P., Lion Point Capital L.P. and Gen IV Investment Opportunities, LLC, and each of their respective Affiliates and funds managed or advised by any of them or any of their respective Affiliates (but excluding any operating portfolio companies of the foregoing persons).
“Permitted Refinancing Indebtedness” means Indebtedness (for purposes of this definition, “New Indebtedness”) incurred in exchange for, or proceeds of which are used to refinance, all of any other Indebtedness (the “Refinanced Indebtedness”); provided that:
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“Permitted Reinvestment Transaction” shall mean (a) the acquisition, by merger or otherwise, by the Borrower or any of the Subsidiaries of any assets (including any assets constituting a business unit, line of business or division) or Equity Interests, so long as (i) the Acquisition Conditions are satisfied and (ii) such acquisition is funded solely with Reinvestment Proceeds or (b) to the extent the Payment Conditions are satisfied at the time of making thereof, the making by the Borrower or any of its Subsidiaries of any Capital Expenditures funded solely with Reinvestment Proceeds.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Petroleum Industry Standards” means the Definitions for Oil and Gas Reserves promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question.
“Plan” means any employee pension benefit plan, as defined in section 3(2) of ERISA other than a Multiemployer Plan, which (a) is currently or hereafter sponsored, maintained or contributed to by the Borrower, a Subsidiary or an ERISA Affiliate or (b) was at any time during the immediately preceding six years, sponsored, maintained or contributed to by the Borrower, a Subsidiary or an ERISA Affiliate.
“Pledge Agreement” means the Pledge Agreement dated as of the Closing Date and executed by Holdings in favor of the Administrative Agent, for the benefit of the Secured Parties.
“Producing APOD Tranche” means an APOD Tranche for which all of the wells in such APOD Tranche are Producing APOD Wells.
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“Producing APOD Wells” means wells contained in the APOD that were previously Non-Producing APOD Wells but had a first sale of crude oil at least sixty (60) days prior to the date of determination and constitute Proved Developed Producing Reserves (based on the Borrower’s reasonable estimates thereof).
“Production Test Default” means, as of any date of determination, that the Borrower is not in compliance with either (a) the PDP Production Test as of such date or (b) the APOD Economic Test as of such date, except, in either case, as a result of a Force Majeure Event that directly, materially and adversely impacts the business operations of the Borrower for a period no longer than forty-five (45) days, as reasonably determined by the Administrative Agent in consultation with the Borrower.
“Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including, without limitation, cash, securities, accounts and contract rights.
“Proposed Acquisition” has the meaning given to such term in Section 9.19(a)(iii).
“Proposed APOD” has the meaning given to such term in Section 8.22(c).
“Proved Developed Producing Reserves” or “PDP Reserves” means oil and gas reserves that, in accordance with the Petroleum Industry Standards, are classified as both “Proved Reserves” and “Developed Producing Reserves”.
“Proved Reserves” means oil and gas reserves that, in accordance with Petroleum Industry Standards, are classified as both “Proved Reserves” and one of the following: (a) “Developed Producing Reserves”, (b) “Developed Non-Producing Reserves” or (c) “Undeveloped Reserves.”
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Public-Sider” means a Lender whose representatives may trade in securities of the Borrower or any of their respective Subsidiaries while in possession of the financial statements provided by the Borrower under the terms of this Agreement, and has notified the Administrative Agent in writing that such Lender wishes to receive only information consisting exclusively of information with respect to the Borrower and its Affiliates that is either publicly available or not material with respect to the Borrower and its Affiliates, any of their respective securities for purposes of United States federal and state securities laws.
“PV-10” means, on any date of determination, with respect to any Proved Reserves expected to be produced from any Oil and Gas Properties to which Proved Reserves are attributed, the net present value, discounted at 10% per annum, of the future net revenues expected to accrue to the Borrower’s and the other Subsidiaries’ collective interests in such Proved Reserves during the remaining expected economic lives of such reserves, calculated in accordance with the Five-Year Strip Price.
“QFC Credit Support” has the meaning assigned to such term in Section 12.22.
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“Qualified ECP Guarantor” means, in respect of any Swap Obligation, each of the Borrower, any Subsidiary and any Guarantor that has total assets exceeding $10,000,000 at the time such Swap Obligation is incurred or such other person as constitutes an ECP under the Commodity Exchange Act or any regulations promulgated thereunder.
“Quarterly D&C Expenses” means, for any fiscal quarter, the amount of actual cash payments made by the Borrower constituting Capital Expenditures in connection with non-producing wells and drilled but uncompleted wells (excluding plugged wells or wells that are not reasonably expected to be completed), in each case, made pursuant to the then-current APOD during such fiscal quarter.
“Redemption” means with respect to any Indebtedness, the repurchase, redemption, prepayment, repayment, defeasance, purchase or any other acquisition or retirement for value (or the segregation of funds with respect to any of the foregoing) of such Indebtedness. “Redeem” has the correlative meaning thereto.
“Reference Period” has the meaning assigned to such term in the definition of “EBITDAX”.
“Reference Time” with respect to any setting of the then-current Benchmark means (1) if such Benchmark is ICEBA LIBOR, 11:00 a.m. (London time) on the day that is two London banking days preceding the date of such setting, and (2) if such Benchmark is not ICEBA LIBOR, the time determined by the Administrative Agent in its reasonable discretion.
“Register” has the meaning assigned to such term in Section 12.04(b)(iv).
“Regulation D” means Regulation D of the Board, as the same may be amended, supplemented or replaced from time to time.
“Reinvestment Proceeds” has the meaning assigned to such term in Section 3.04(c).
“Reinvestment Proceeds Account” means a deposit account of the Borrower subject to a Control Agreement in favor of the Administrative Agent which exclusively holds Reinvestment Proceeds.
“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents, partners, representatives and advisors (including attorneys, accountants and experts) of such Person and such Person’s Affiliates.
“Relevant Governmental Body” means the Board and/or the NYFRBFederal Reserve Bank of New York, or a committee officially endorsed or convened by the Federal Reserve Board and/or the NYFRBFederal Reserve Bank of New York, or any successor thereto.
“Remedial Work” has the meaning assigned to such term in Section 8.01(a).
“Required APOD Swap Agreements” has the meaning assigned to such term in Section 8.20(c).
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“Required Lenders” means, at any date, (a) if the Commitments have not been terminated, Non-Defaulting Lenders and the Issuing Bank having or holding at least sixty-six and two thirds percent (66-2/3%) of the total Credit Exposure, unused LC Commitment, and total LC Exposure in the aggregate at such date or (b) if the Commitments have been terminated, Non-Defaulting Lenders and the Issuing Bank having or holding at least sixty-six and two thirds percent (66-2/3%) of the Total Outstandings and the total LC Exposure in the aggregate at such date; provided that the Required Lenders must include, at any time that the Lenders consist solely of two (2) or three (3) un-affiliated Non-Defaulting Lenders, all Non-Defaulting Lenders.
“Reserve Report” means the Initial Reserve Report and any other subsequent report, in form and substance reasonably satisfactory to the Administrative Agent, setting forth, as of each March 31st, June 30, September 30 or December 31st, the oil and gas reserves attributable to the Oil and Gas Properties of the Borrower and the Subsidiaries, together with a projection of the rate of production and future net income, taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the pricing assumptions consistent with SEC reporting requirements at the time.
“Reserve Report Certificate” has the meaning assigned to such term in Section 8.12(b).
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Responsible Officer” means, as to any Person, the Chief Executive Officer, the President, the Chief Operating Officer, any Financial Officer, Chief Legal Officer or Executive Vice President of such Person. Unless otherwise specified, all references to a Responsible Officer herein means a Responsible Officer of the Borrower.
“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other Property) with respect to any Equity Interests in any Person, or any payment (whether in cash, securities or other Property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of (a) any such Equity Interests or (b) any option, warrant or other right to acquire any such Equity Interests.
“S&P” means Standard & Poor’s Rating Services, a Standard & Poor’s Financial Services LLC business and any successor thereto that is a nationally recognized rating agency.
“Sanctioned Country” means, at any time, a country, region or territory which is itself the subject or target of any comprehensive Sanctions (as of the Closing Date, Crimea, Cuba, Iran, North Korea and Syria).
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, or by the United Nations Security Council, the European Union or any European Union member state, or Her Majesty’s Treasury of the United Kingdom, (b) any Person operating, organized or resident in a Sanctioned Country, (c) any government, including any agency or instrumentality thereof, of a Sanctioned Country or
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Venezuela, or (d) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a), (b) or (c).
“Sanctions” means all economic or financial sanctions or trade embargoes, or other requirements imposed under similar laws or regulations, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of Commerce or the U.S. Department of State, or (b) the United Nations Security Council, the European Union, any European Union member state or Her Majesty’s Treasury of the United Kingdom.
“SBA” means the U.S. Small Business Administration.
“SEC” means the Securities and Exchange Commission or any successor Governmental Authority.
“Second Amendment Effective Date” means November 14, 2022.
“Secured Obligations” means any and all amounts owing or to be owing by the Borrower or any Guarantor to (a) the Administrative Agent, the Issuing Bank or any Lender under any Loan Document, (b) any Secured Swap Provider with respect to any Secured Swap Agreement and (c) all renewals, extensions and/or rearrangements of any of the foregoing, in each case, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising (including interest and fees accruing after the maturity of the Loans and LC Disbursements or the termination of the Secured Swap Agreements and interest accruing after the filing of any petition for bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding); provided that solely with respect to any Loan Party that is not an “eligible contract participant” under the Commodity Exchange Act, Excluded Swap Obligations of such Loan Party shall in any event be excluded from “Secured Obligations” owing by such Loan Party.
“Secured Parties” means, collectively, the Administrative Agent, the Issuing Bank, the Lenders, each Secured Swap Provider and any other Person owed Secured Obligations. “Secured Party” means any of the foregoing individually.
“Secured Swap Agreement” means a Swap Agreement between (a) any Loan Party and (b) a Secured Swap Provider (including any such Swap Agreements in effect on the Closing Date and, for the avoidance of doubt, any Swap Agreements being novated to any Secured Swap Provider on the Closing Date).
“Secured Swap Provider” means any Person that, at the time it enters into a Swap Agreement with a Loan Party (including by novation), is an Approved Counterparty; provided that any such Person that ceases to be a Lender or an Affiliate of a Lender or the Administrative Agent or an Affiliate of the Administrative Agent shall not be a Secured Swap Counterparty with respect to any Swap Agreement that it thereafter enters into (or that is assigned or transferred to it) while it is not a Lender or an Affiliate of a Lender or the Administrative Agent or an Affiliate of the Administrative Agent; provided further that if any such Swap Agreement is novated or otherwise
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transferred by such Person to a third party that is not an Approved Counterparty, such third party shall not constitute a Secured Swap Provider.
“Securities Account” has the meaning assigned to such term in the UCC.
“Security Instruments” means (a) the Guarantee and Collateral Agreement, (b) the Mortgages, (c) any Perfection Certificate, (d) any Control Agreement, (e) the Pledge Agreement and (f) the other agreements, instruments or certificates described or referred to in Exhibit E and (f) any and all other agreements, instruments or certificates now or hereafter executed and delivered by the Borrower or any other Person (other than Swap Agreements with the Lenders or any Affiliate of a Lender or participation or similar agreements between any Lender and any other lender or creditor with respect to any Secured Obligations pursuant to this Agreement), in each case in connection with, or as security for the payment or performance of the Secured Obligations, the Loans, the Notes, if any, this Agreement, or reimbursement obligations under the Letters of Credit, as such agreements may be amended, modified, supplemented or restated from time to time.
“Small Business Act” means the Small Business Act (15 U.S. Code Chapter 14A – Aid to Small Business).
“SOFR” means, with respect to any Business Day, a rate per annum equal to the secured overnight financing rate for such Business Day publishedas administered by the SOFR Administrator on the SOFR Administrator’s Website at approximately 8:00 a.m. (New York City time) on the immediately succeeding Business Day..
“SOFR Administrator” means the NYFRBFederal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
“SOFR Administrator’s Website” means the NYFRB’s Website, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.”
“SOFR Determination Date” has the meaning given to such term in the definition of “Daily Simple SOFR”.
“SOFR Loan” means a Loan that bears interest at a rate based on Adjusted Term SOFR.
“SOFR Rate Day” has the meaning given to such term in the definition of “Daily Simple SOFR”.
“Solvency Certificate” means a solvency certificate signed by a Financial Officer in substantially the form of Exhibit H hereto.
“Specified Additional Capital” means cash proceeds received by the Borrower from and after the Second Amendment Effective Date and on or before the six-month anniversary of the Second Amendment Effective Date from one or more issuances of Equity Interests (provided, that the terms of any such Equity Interests do not provide for the payment of cash dividends) or
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otherwise from the receipt of cash contributions to the capital of the Borrower or from the issuance of Specified Subordinated Indebtedness, whether in a single transaction or multiple transactions. Specified Additional Capital shall include any amounts received in respect of Specified Equity Contributions pursuant to Section 9.01(d) which otherwise constitute Specified Additional Capital notwithstanding the application of all or a portion of such Specified Equity Contributions to the repayment of the Loans pursuant to the terms of Section 9.01(d).
“Specified Additional Capital Effectiveness Date” means the date on which the Borrower shall have (a) received Specified Additional Capital in a cumulative amount not less than $20,000,000 and (b) delivered evidence reasonably satisfactory to the Administrative Agent of receipt of such Specified Additional Capital.
“Specified Additional Indebtedness” means unsecured senior or senior subordinated Indebtedness issued or incurred by the Borrower and any guarantees thereof by the Guarantors (including any Persons becoming Guarantors simultaneously with the incurrence of such Indebtedness):
“Specified Asset Coverage Ratio” means, as of any date, the ratio of (a) Total PDP PV-10 as of such date to (b) Consolidated Total Indebtedness as of such date.
“Specified Change of Control” means a “Change of Control” (or any other defined term having a similar purpose or meaning) as defined in any Specified Additional Indebtedness or any Permitted Refinancing Indebtedness in respect thereof.
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“Specified Equity Contribution” means any capital contributions made in cash to, or any cash proceeds of an issuance of Equity Interests (other than Disqualified Capital Stock) by, the Borrower during the applicable Cure Period that are made for the purpose of exercising the cure rights set forth in Section 9.01(d).
“Specified Indebtedness” has the meaning assigned to such term in Section 9.04(b)Section 9.04(b).
“Specified PDP Reserves” means (a) PDP Reserves of the Borrower and its Subsidiaries existing on the Closing Date and (b) PDP Reserves attributable to the Initial APOD Wells from and after the time all such wells become Producing APOD Wells.
“Specified Subordinated Indebtedness” means any unsecured Indebtedness (and any Permitted Refinancing Indebtedness in respect thereof) that is subordinated in right of payment to the Secured Obligations on terms satisfactory to the Administrative Agent; provided that such Indebtedness (a) does not require any cash payments of principal, interest or other amounts prior to the date that is 180 days after the Maturity Date unless, after giving effect to any such cash payment, the Payment Conditions are satisfied, (b) does not have any covenants or events of default that are more restrictive or onerous than those contained in the Loan Documents and (c) has a stated maturity date that is no earlier than 180 days after the Maturity Date.
“Specified Total Leverage Ratio” means, as of any date of determination, the ratio of (a) Consolidated Total Indebtedness as of such date to (b) EBITDAX for the period of four consecutive fiscal quarters ending on such date (or, of such date is not the last day of a fiscal quarter, the last day of the most recently ended fiscal quarter).
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Federal Reserve Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency liabilities” in Regulation D). Such reserve percentage shall include those imposed pursuant to Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“Subsidiary” means: (a) any Person of which at least a majority of the outstanding Equity Interests having by the terms thereof ordinary voting power to elect a majority of the board of directors, manager or other governing body of such Person (irrespective of whether or not at the time Equity Interests of any other class or classes of such Person shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by the Borrower or one or more of its Subsidiaries or by the Borrower and one or more of its Subsidiaries and (b) any partnership of which the Borrower or any of its Subsidiaries is a general partner. Unless otherwise indicated herein, each reference to the term “Subsidiary” means a Subsidiary of the Borrower; provided that, notwithstanding anything in this definition to
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the contrary, it is hereby understood and agreed that no JV Entity shall be deemed a “Subsidiary” for any purposes hereunder.
“Subsidiary Trigger Event” means, after the Closing Date, the creation, formation or acquisition of any Subsidiary by Holdings which is not a Subsidiary of the Borrower.
“Supported QFC” has the meaning assigned to such term in Section 12.22.
“Swap Agreement” means any agreement with respect to any swap, forward, future or derivative transaction, collar or option or similar agreement, whether exchange traded, “over-the-counter” or otherwise, involving, or settled by reference to, one or more interest rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or the Subsidiaries shall be a Swap Agreement.
“Swap Obligation” means, with respect to any Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.
“Synthetic Leases” means, in respect of any Person, all leases which shall have been, or should have been, in accordance with GAAP, treated as operating leases on the financial statements of the Person liable (whether contingently or otherwise) for the payment of rent thereunder and which were properly treated as indebtedness for borrowed money for purposes of U.S. federal income taxes, if the lessee in respect thereof is obligated to either purchase for an amount in excess of, or pay upon early termination an amount in excess of, 80% of the residual value of the Property subject to such operating lease upon expiration or early termination of such lease.
“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.
“Term SOFR” means the Term SOFR Reference Rate on the day (such day, the “Periodic Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to the first day of the relevant Interest Period, as such rate is published by the Term SOFR Administrator; provided, however, that if as of 5:00 p.m. (New York City time) on any Periodic Term SOFR Determination Day the Term SOFR Reference Rate for a tenor of three (3) months has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by the Term SOFR Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Periodic Term SOFR Determination Day.
“Term SOFR Adjustment” means a percentage equal to 0.15% per annum.
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“Term SOFR Administrator” means CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by the Administrative Agent in its reasonable discretion).
“Term SOFR” means, for the applicable Corresponding Tenor as of the applicable Reference Time, Reference Rate” means the forward-looking term rate based on SOFR that has been selected or recommended by the Relevant Governmental Bodyfor a tenor of three (3) months.
“Term SOFR Notice” means a notification by the Administrative Agent to the Lenders and the Borrower of the occurrence of a Term SOFR Transition Event.
“Term SOFR Transition Event” means the determination by the Administrative Agent that (a) Term SOFR has been recommended for use by the Relevant Governmental Body, (b) the administration of Term SOFR is administratively feasible for the Administrative Agent and (c) a Benchmark Transition Event has previously occurred resulting in a Benchmark Replacement in accordance with Section 3.03 that is not Term SOFR.
“Title Coverage Minimum” has the meaning assigned to such term in Section 8.13(a).
“Total Available Amount Basket” means, at any time, an amount equal to (a) $50,000,000 less the sum of (b)(i) the amount of Permitted Capital Expenditures made pursuant to clauses (a) and (b) of the definition thereof since the Closing Date, plus (ii) the amount of Restricted Payments made pursuant to Section 9.04(a)(v) since the Closing Date, plus (iii) the amount of Investments made pursuant to Section 9.05(m) since the Closing Date.
“Total Net Leverage Ratio” means, as of any date of determination, the ratio of (a) Consolidated Total Net Indebtedness as of such date to (b) EBITDAX for the period of four consecutive fiscal quarters ending on such date (or, if such date is not the last day of a fiscal quarter, the last day of the most recently ended fiscal quarter).
“Total Outstandings” means the aggregate Outstanding Amount of all Loans.
“Total PDP PV-10” means, as of any date of determination, the sum of (a) the estimated market value (whether positive of negative) of the Loan Parties’ hedge position, discounted using an annual discount rate of 10%, plus (b) the present value of estimated future revenues to be realized from the production of Hydrocarbons from the Oil and Gas Properties of the Loan Parties to which Proved Developed Producing Reserves are attributed as set forth in the most recent Reserve Report delivered pursuant hereto and calculated in accordance with SEC guidelines for reporting proved oil and gas reserves, with appropriate deductions for take or pay and other prepayments, severance and ad valorem taxes, operating, gathering, transportation and marketing expenses, capital expenditures (including capitalized workover expenses) and plugging and abandonment costs. Each calculation of such estimated future revenues shall be made (a) using the Five Year Strip Price, adjusted in a manner reasonably acceptable to the Administrative Agent for (i) any basis differential between the actual delivery location and the reference price delivery location and price differential between the actual product delivered and the reference product, in each case, using in each case using methodology consistent with past practices and in good faith based on observable differentials (which utilized differentials shall be, volume weighted on the
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basis of current and expected future arrangements for the sale of production, the lesser of (A) the average actual differentials for the last twelve months and (B) those future differentials which may be hedged by contract); and (ii) quality and gravity, (b) using costs as of the date of estimation without future escalation and without giving effect to non-property related expenses such as general and administrative expenses, debt service, future income tax expense and depreciation, depletion and amortization, (c) discounted using an annual discount rate of 10% and (d) to the extent not otherwise specified in the preceding clauses of this sentence, using reasonable economic assumptions consistent with such clauses. Total PDP PV-10 shall be calculated on a pro forma basis, giving effect to (x) acquisitions and Dispositions of Oil and Gas Properties consummated by the Borrower and the other Loan Parties since the date of the most recently delivered Reserve Report (provided that, in the case of any acquisition of Oil and Gas Properties, the Administrative Agent shall have received a Reserve Report, in form and substance reasonably satisfactory to it, evaluating the Proved Developed Producing Reserves attributable thereto) and (y) the unwind, monetization or termination of any Swap Agreement to which a Loan Party is a party, in each case occurring since the date of the most recently delivered Reserve Report.
“Tranche A Loans” has the meaning assigned to such term in Section 2.01(b).
“Tranche B Loans” has the meaning assigned to such term in Section 2.01(b).
“Tranche A Draw Period” means the period from the Closing Date until the earlier of (a) the date that is eighteen (18) months after the Closing Date and (b) the date on which Delayed Draw Term Loans in an aggregate principal amount at least equal to $20,000,000 have been made to the Borrower under Section 2.02.
“Tranche B Draw Period” means the period from the date on which the Initial APOD Wells each become Producing APOD Wells to the date that is eighteen (18) months after the Closing Date.
“Transactions” means, with respect to (a) the Borrower, the execution, delivery and performance by the Borrower of its obligations under this Agreement, each other Loan Document to which it is a party, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder, and the grant of Liens by the Borrower on Mortgaged Properties and other Properties pursuant to the Security Instruments and (b) each Guarantor, the execution, delivery and performance by such Guarantor of each Loan Document to which it is a party, the guaranteeing of the Secured Obligations and the other obligations under the Guarantee and Collateral Agreement by such Guarantor and such Guarantor’s grant of the security interests and provision of collateral thereunder, and the grant of Liens by such Guarantor on Mortgaged Properties and other Properties pursuant to the Security Instruments and (c) the assignment, termination or release of all Liens, Indebtedness and guarantees under the Existing Credit Agreement.
“UCC” means the Uniform Commercial Code of the State of New York or of any other state the laws of which are required to be applied in connection with the perfection of security interests in any collateral.
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“UK Financial Institutions” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“Unadjusted Benchmark Replacement” means the Benchmark Replacement excluding the Benchmark Replacement Adjustment.
“Unrestricted Cash” means cash and Cash Equivalents of the Borrower or any of its Subsidiaries that would not appear as “restricted” on a consolidated balance sheet of the Borrower or any of its Subsidiaries; provided that (a) cash and Cash Equivalents that would appear as “restricted” on a consolidated balance sheet of Borrower or any of its Subsidiaries solely because such cash or Cash Equivalents are subject to a Control Agreement in favor of the Administrative Agent shall constitute Unrestricted Cash hereunder, (b) cash and Cash Equivalents shall be included in the determination of Unrestricted Cash only to the extent that such cash and Cash Equivalents are maintained in accounts subject to a Control Agreement or are Excluded Accounts of the type specified in clause (b) of the definition thereof, in each case, in compliance with the terms of this Agreement and (c) cash and Cash Equivalents that are maintained in accounts to the extent required under this Agreement to cash collateralize LC Exposure shall not be included in Unrestricted Cash.
“Unwind” means, with respect to any transaction under a Swap Agreement, the early termination, unwind, or cancelation of any transaction under such Swap Agreement. “Unwound” shall have a meaning correlative to the foregoing.
“U.S. Government Securities Business Day” means any day except for (a) a Saturday, (b) a Sunday or (c) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
“U.S. Person” has the meaning given in Section 7701(a)(30) of the Code.
“U.S. Special Resolution Regimes” has the meaning given to such term in Section 12.22.
“Wholly-Owned Subsidiary” means any Subsidiary of which all of the outstanding Equity Interests (other than any directors’ qualifying shares mandated by applicable law), on a fully-diluted basis, are owned by the Borrower or one or more of the Wholly-Owned Subsidiaries or by the Borrower and one or more of the Wholly-Owned Subsidiaries.
“Workover Expenses” means any expenses relating to workovers, “re-works” or other remedial treatments in respect of producing oil & gas wells.
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“Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
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shall be applicable only on a post-emergence basis), applied on a basis consistent with the Financial Statements, except for Accounting Changes (as defined below) with which the Borrower’s independent certified public accountants concur and which are disclosed to the Administrative Agent on the next date on which financial statements are required to be delivered to the Lenders pursuant to Section 8.01(a). Notwithstanding anything to the contrary contained in the preceding sentence or in the definitions of “Finance Leases,” in the event of an accounting change requiring all leases to be capitalized, only those leases (assuming for purposes hereof that such leases were in existence on the date hereof) that would constitute Finance Leases in conformity with GAAP as in effect prior to giving effect to the adoption of ASU No. 2016-02 “Leases (Topic 842)” and ASU No. 2018-11 “Leases (Topic 842)” shall be considered Finance Leases, and all calculations and deliverables under this Agreement or any other Loan Document shall be made or delivered, as applicable, in accordance therewith. In the event that any “Accounting Change” shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Administrative Agent agree to enter into negotiations in good faith in order to amend such provisions of this Agreement so as to reflect equitably such Accounting Changes with the desired result that the criteria for evaluating the Borrower’s financial condition shall be the same after such Accounting Changes as if such Accounting Changes had not been made. Until such time as such an amendment shall have been executed and delivered by the Borrower, the Administrative Agent and the Majority Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. “Accounting Changes” refers to changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board or, if applicable, the SEC.
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(including any Benchmark Replacement) or any relevant adjustments thereto, in each case, in a manner adverse to the Borrower. The Administrative Agent may select information sources or services in its reasonable discretion to ascertain ABR, the Term SOFR Reference Rate, Term SOFR, Adjusted Term SOFR or any other Benchmark, or any component definition thereof or rates referred to in the definition thereof, in each case pursuant to the terms of this Agreement, and shall have no liability to the Borrower, any Lender or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service.
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Promptly following receipt of such Borrowing Request in accordance with this Section 2.03, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing. Not later than 1:00 P.M., New York City time, on the date of the proposed Borrowing, each Lender shall make available to the Administrative Agent an amount in Dollars and in immediately available funds equal to the Loan to be made by such Lender on the date of the proposed Borrowing. The Administrative Agent shall then make available to Borrower the aggregate of the amounts made available to the Administrative Agent by the Lenders, in like funds as received by the Administrative Agent.
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The obligation of the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions: (i) at the time of and immediately after giving effect to the issuance, amendment, renewal or extension of such Letter of Credit, no Default or Event of Default shall have occurred and be continuing, (ii) all representations and warranties of the Loan Parties in each applicable Loan Document shall be true and correct in all material respects on and as of the date of the issuance, amendment, renewal or extension of such Letter of Credit, with the same effect as though made on and as of such date, except in the case of any representation and warranty which (A) expressly relates to a given date, such representation and warranty shall be true and correct in all material respects as of the respective date and (B) is qualified by a materiality or Material Adverse Effect standard in which case such representation and warranty shall be true and correct in all respects, and (iii) the receipt by the Issuing Bank of a request for a Letter of Credit (or an amendment, extension or renewal of a Letter of Credit) in accordance with Section 2.07(b). Each request for the issuance, amendment, renewal or extension of any Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in this paragraph.
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Fiscal Quarter | Payment Amount |
|---|---|
Fiscal quarter ending March 31, 2023 | $5,000,000.00 |
Fiscal quarters ending June 30, 2023 through and including March 31, 2024 | $10,000,000.00 |
Fiscal quarters ending June 30, 2024 and September 30, 2024 | $12,500,000.00 |
Fiscal quarters ending December 31, 2024 and March 31, 2025 | $15,000,000.00 |
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Fiscal Quarter | Payment Amount |
|---|---|
Fiscal quarters ending June 30, 2025 and September 30, 2025 | $10,000,000.00 |
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(b) Notwithstanding anything to the contrary herein or in any other Loan Document and subject to the proviso below in this paragraph, if a Term SOFR Transition Event and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then the applicable Benchmark Replacement will replace the then-current Benchmark for all purposes hereunder or under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings, without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document; provided that, this clause (b) shall not be effective unless the Administrative Agent has delivered to the Lenders and the Borrower a Term SOFR Notice.
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(f) Upon the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period, the Borrower may revoke any request for a Borrowing to be made during any Benchmark Unavailability Period. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the components of the LIBO Rate based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of the LIBO Rate.
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Upon notice thereof by the Administrative Agent to the Borrower, any obligation of the Lenders to make SOFR Loans, and any right of the Borrower to continue SOFR Loans, shall be suspended (to the extent of the affected SOFR Loans or affected Interest Periods) until the Administrative Agent (with respect to clause (b), at the instruction of the Majority Lenders) revokes such notice. Upon receipt of such notice, (i) the Borrower may revoke any pending request for a borrowing of, conversion to or continuation of SOFR Loans (to the extent of the affected SOFR Loans or affected Interest Periods) or, failing that, the Borrower will be deemed to have converted any such request into a request for a Borrowing of or conversion to ABR Loans in the amount specified therein and (ii) any outstanding affected SOFR Loans will be deemed to have been converted into ABR Loans at the end of the applicable Interest Period. Upon any such conversion, the Borrower shall also pay accrued interest on the amount so converted, together with any additional amounts required pursuant to Section 5.02.
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nor take any other action to cause such proceeds to be remitted to the Administrative Agent or the Lenders, but the Lenders will instead permit such proceeds to be paid to the Borrower and its Subsidiaries and (b) the Lenders hereby authorize the Administrative Agent to take such actions as may be necessary or advisable to cause such proceeds to be paid to the Borrower and/or such Subsidiaries.
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and the result of any of the foregoing shall be to increase the cost to such Lender or Issuing Bank of making, converting into, continuing or maintaining any Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender, such Issuing Bank or such other Loan Party of issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or Issuing Bank (whether of principal, interest or otherwise), then the Borrower will pay to such Lender or Issuing Bank such additional amount or amounts as will compensate such Lender or Issuing Bank for such additional costs incurred or reduction suffered.
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arising from the liquidation or redeployment of funds or from any fees payable including any loss, cost or expense arising from the liquidation or redeployment of funds or from any fees payable. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section 5.02 shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.
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Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
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The Administrative Agent shall notify the Borrower and the Lenders of the Closing Date, and such notice shall be conclusive and binding. For purposes of determining compliance with the conditions specified in this Section 6.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or be satisfied with, each document or other matter required under this Section 6.01 to be consented to or approved by a Lender unless the Administrative Agent shall have received notice from such Lender prior to the Closing Date specifying its objection thereto.
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Each Borrowing of Delayed Draw Term Loans shall be accompanied by a certificate of Responsible Officer certifying as to the matters described in the foregoing clauses (b) through (h) (as applicable depending on whether such Borrowing is of Tranche A Loans or Tranche B Loans).
The Borrower represents and warrants to the Lenders that:
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pursuant to Section 8.01(n) and Section 12.01(c)). Each Subsidiary’s jurisdiction of organization, name as listed in the public records of its jurisdiction of organization, organizational identification number in its jurisdiction of organization, and the location of its principal place of business and chief executive office is stated on Schedule 7.14 (or as set forth in a notice delivered pursuant to Section 8.01(n)).
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production, whether or not the same are currently being exercised) that (a) pertain to the sale of production at a fixed price and (b) have a maturity or expiry date of longer than six (6) months from the date hereof.
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(c) the Borrower and its Subsidiaries, taken as a whole, will not have (and will have no reason to believe that they will have thereafter) unreasonably small capital for the conduct of their business.
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Until Payment in Full, the Borrower, and, if applicable, Holdings, covenants and agrees with the Lenders that:
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Notwithstanding the foregoing, prior to a Subsidiary Trigger Event, (A) the obligations in clauses (a) and (b) of this Section 8.01 may be satisfied by furnishing to the Administrative Agent, at the Borrower’s option, the applicable financial statements of Holdings and its Consolidated Subsidiaries and (B) (i) in the event that the Borrower delivers to the Administrative Agent an Annual Report on Form 10-K of Holdings for any fiscal year, as filed with the SEC or in such form as would have been suitable for filing with the SEC, within the time frames set forth in clause (a) above, such Form 10-K shall satisfy all requirements of clause (a) of this Section 8.01 with respect to such fiscal year to the extent that it contains the information and report and opinion required by such clause (a) and such report and opinion does not contain any qualification or exception as to “going concern” or the scope of the audit (other than any such qualification, exception or explanatory paragraph that is expressly permitted to be contained therein under clause (a) of this Section 8.01) and (ii) in the event that the Borrower delivers to the Administrative Agent a Quarterly Report on Form 10-Q of Holdings for any fiscal quarter, as filed with the SEC or in such form as would have been suitable for filing with the SEC, within the time frames set forth in clause (b) above, such Form 10-Q shall satisfy all requirements of clause (b) of this Section 8.01 with respect to such fiscal quarter to the extent that it contains the information required by such clause (b). To the extent the Borrower elects to satisfy the obligations in clause (a) and (b) of this Section 8.01 by furnishing the financial statements of Holdings and its Consolidated Subsidiaries as described in this paragraph, then, concurrently with the delivery of any financial statements under clause (a) and (b) of this Section 8.01, as applicable, the Borrower shall deliver to the Administrative Agent a certificate of the Borrower executed on its behalf by a Financial Officer setting forth consolidating spreadsheets that show the pro forma adjustments necessary to eliminate the accounts of Holdings from such consolidated financial statements, in such form as would be presentable to the auditors of Holdings.
The Borrower represents and warrants that Holdings and each of its Subsidiaries file the financial statements provided under Section 8.01(a) and Section 8.01(b) with the SEC and/or make such financial statements available to potential holders of their 144A securities, and,
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accordingly, unless the Borrower has marked such financial statements as “PRIVATE”, the Borrower hereby (1) authorizes the Administrative Agent to make the financial statements to be provided under Section 8.01(a) and Section 8.01(b), along with the Loan Documents, available to Public-Siders and (2) agrees that at the time such financial statements are provided hereunder, they shall already have been made available to holders of its securities. The Borrower will not request that any other material be posted to Public-Siders without expressly representing and warranting to the Administrative Agent in writing that (1) such materials do not constitute material non-public information within the meaning of the federal securities laws or (2) make such materials that do constitute material non-public information within the meaning of the federal securities laws publicly available by press release or public filing with the SEC.
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Documents required to be delivered pursuant to this Section 8.01 may be delivered electronically and, if so delivered, shall be deemed to have been delivered on the date (i) on which such materials are publicly available as posted on the SEC’s Electronic Data Gathering, Analysis and Retrieval system (EDGAR) (or any successor system); or (ii) on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether made available by the Administrative Agent); provided that: (A) upon written request by the Administrative Agent (or any Lender through the Administrative Agent) to the Borrower, the
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Borrower shall deliver paper copies of such documents to the Administrative Agent or such Lender until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (B) the Borrower shall notify the Administrative Agent (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. The Administrative Agent shall have no obligation to request the delivery of or to maintain paper copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request by a Lender for delivery, and each Lender shall be solely responsible for timely accessing posted documents or requesting delivery of paper copies of such document to it and maintaining its copies of such documents.
Each notice delivered under this Section 8.02 shall be accompanied by a statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
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adequate reserves with respect thereto to the extent required in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in (i) a Material Adverse Effect or (ii) the seizure or levy of any Property of the Borrower or any Subsidiary thereof.
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said insurance policy or policies insuring any of the collateral for the Loans shall be endorsed in favor of and made payable to the Administrative Agent as its interests may appear and such policies shall (i) name the Administrative Agent as an “additional insured” in respect of liability insurance, (ii) name the Administrative Agent as lender loss payee and mortgagee with respect to Property insurance and (iii) provide that the insurer will use commercially reasonable efforts to give at least thirty (30) days prior notice of any cancellation to the Administrative Agent, but in any event not less than ten (10) days prior notice of such cancellation.
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Until Payment in Full, the Borrower covenants and agrees with the Lenders that:
Fiscal Quarter | Total Net Leverage Ratio |
|---|---|
Fiscal quarters ending December 31, 2021 through and including June 30, 2022 | 3.25 to 1.00 |
Fiscal quarters ending September 30, 2022 and December 31, 2022 | 3.00 to 1.00 |
Fiscal quarter ending March 31, 2023 | 2.75 to 1.00 |
Each fiscal quarter thereafter | 2.50 to 1.00 |
Current Ratio | |
Fiscal quarters ending December 31, 2021 through and including June 30, 2022 | 1.00 to 1.00 |
Fiscal quarter ending September 30, 2022 | 0.90 to 1.00 |
Fiscal quarter ending December 31, 2022 | 0.70 to 1.00 |
Fiscal quarter ending March 31, 2023 | 0.75 to 1.00 |
Each fiscal quarter thereafter | 1.00 to 1.00 |
Fiscal Quarter | Asset Coverage Ratio |
Fiscal quarters ending December 31, 2021 and March 31, 2022 | 1.50 to 1.00 |
Fiscal quarter ending June 30, 2022 | 1.60 to 1.00 |
Fiscal quarter ending September 30, 2022 | 1.70 to 1.00 |
Each fiscal quarter thereafter | 1.80 to 1.00 |
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No intention to subordinate the first priority Lien granted in favor of the Administrative Agent and the Lenders is to be hereby implied or expressed by the permitted existence of Liens permitted under this Section 9.03 or the use of the phrase “subject to” when used in connection with Excepted Liens, Liens permitted by this Section 9.03 or otherwise.
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in the case of each of the foregoing clauses (A) through (F), so long as Holdings applies the amount of any such Restricted Payment for such purpose.
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hereafter acquired) (any such transaction, a “consolidation”), or liquidate or dissolve; provided that:
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ARTICLE IX-A
HOLDINGS COVENANT
Holdings covenants and agrees that on the Closing Date and thereafter, until Payment in Full that:
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Notwithstanding the foregoing, amounts received from the Borrower or any Guarantor that is not an “eligible contract participant” under the Commodity Exchange Act shall not be applied to any Excluded Swap Obligations (it being understood, that in the event that any amount is applied to Secured Obligations other than Excluded Swap Obligations as a result of this clause, the Administrative Agent shall make such adjustments as it determines are appropriate to distributions pursuant to clause fourth above from amounts received from “eligible contract participants” under the Commodity Exchange Act to ensure, as nearly as possible, that the proportional aggregate recoveries with respect to Secured Obligations described in clause fourth above by the holders of any Excluded Swap Obligations are the same as the proportional aggregate recoveries with respect to other Secured Obligations pursuant to clause fourth above).
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its behalf as is contemplated by the terms of such applicable Security Instrument. Without limiting the provisions of Section 11.02 and Section 12.03, each Lender hereby consents to the Administrative Agent and any successor serving in such capacity and agrees not to assert any claim (including as a result of any conflict of interest) against the Administrative Agent, or any such successor, arising from the role of the Administrative Agent or such successor under the Loan Documents so long as it is either acting in accordance with the terms of such documents and otherwise has not engaged in gross negligence or willful misconduct.
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under any other Loan Document or the performance or observance of any covenants, agreements or other terms or conditions set forth herein or therein. For purposes of determining compliance with the conditions specified in Article VI, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender or an Issuing Bank unless the Administrative Agent shall have received written notice from such Lender or such Issuing Bank prior to the proposed Closing Date specifying its objection thereto.
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Agreement or any other Loan Document or for any failure of the Borrower or any Subsidiary to perform its obligations hereunder or thereunder.
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the meaning of the United States securities laws concerning the Borrower and its Affiliates) as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document, any related agreement or any document furnished hereunder or thereunder. The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Borrower or any of its Subsidiaries of this Agreement, the Loan Documents or any other document referred to or provided for herein or to inspect the Properties or books of the Borrower or its Subsidiaries or any JV Holdco. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder, neither the Administrative Agent nor the Arranger shall have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower (or any of its Affiliates) which may come into the possession of the Administrative Agent or any of its Affiliates. In this regard, each Lender acknowledges that Sidley Austin LLP is acting in this transaction as special counsel to the Administrative Agent only, except to the extent otherwise expressly stated in any legal opinion or any Loan Document. Each other party hereto will consult with its own legal counsel to the extent that it deems necessary in connection with the Loan Documents and the matters contemplated therein. Each Lender, by delivering its signature page to this Agreement on the Closing Date, or delivering its signature page to an Assignment and Assumption or any other Loan Document pursuant to which it shall become a Lender hereunder, shall be deemed to have acknowledged receipt of, and consented to and approved, each Loan Document and each other document that is explicitly required to be delivered to, or be approved by or satisfactory to, the Administrative Agent or the Lenders on the Closing Date under this Agreement or any other Loan Document.
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and each Issuing Bank to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall
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consent to the making of such payments directly to the Lenders or the Issuing Banks, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Section 12.03.
Except as specifically contemplated herein, nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or other Secured Party any plan of reorganization, arrangement, adjustment or composition affecting the Secured Obligations or the rights of any Lender or other Secured Party or to authorize the Administrative Agent to vote in respect of the claim of any Lender or other Secured Party in any such proceeding.
Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the Guarantee and Collateral Agreement pursuant to this Section 11.10 or Section 12.19.
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Code, including under Sections 363, 1123 or 1129 of the Bankruptcy Code, or any similar laws in any other jurisdictions to which a Secured Party is subject, or (b) at any other sale, foreclosure or acceptance of collateral in lieu of debt conducted by (or with the consent or at the direction of) the Administrative Agent (whether by judicial action or otherwise) in accordance with any applicable law. In connection with any such credit bid and purchase, the Secured Obligations owed to the Secured Parties shall be entitled to be credit bid by the Administrative Agent at the direction of the Required Lenders on a ratable basis (with Secured Obligations with respect to contingent or unliquidated claims receiving contingent interests in the acquired assets on a ratable basis that shall vest upon the liquidation of such claims in an amount proportional to the liquidated portion of the contingent claim amount used in allocating the contingent interests) for the asset or assets so purchased (or for the equity interests or debt instruments of the acquisition vehicle or vehicles that are issued in connection with such purchase). In connection with any such bid (i) the Administrative Agent shall be authorized to form one or more acquisition vehicles and to assign any successful credit bid to such acquisition vehicle or vehicles, (ii) each of the Secured Parties’ ratable interests in the Secured Obligations which were credit bid shall be deemed without any further action under this Agreement to be assigned to such vehicle or vehicles for the purpose of closing such sale, (iii) the Administrative Agent shall be authorized to adopt documents providing for the governance of the acquisition vehicle or vehicles (provided that any actions by the Administrative Agent with respect to such acquisition vehicle or vehicles, including any Disposition of the assets or equity interests thereof, shall be governed, directly or indirectly, by, and the governing documents shall provide for, control by the vote of the Required Lenders or their permitted assignees under the terms of this Agreement or the governing documents of the applicable acquisition vehicle or vehicles, as the case may be, irrespective of the termination of this Agreement and without giving effect to the limitations on actions by the Required Lenders contained in Section 12.02 of this Agreement), (iv) the Administrative Agent on behalf of such acquisition vehicle or vehicles shall be authorized to issue to each of the Secured Parties, ratably on account of the relevant Secured Obligations which were credit bid, interests, whether as equity, partnership, limited partnership interests or membership interests, in any such acquisition vehicle and/or debt instruments issued by such acquisition vehicle, all without the need for any Secured Party or acquisition vehicle to take any further action, and (v) to the extent that Secured Obligations that are assigned to an acquisition vehicle are not used to acquire Collateral for any reason (as a result of another bid being higher or better, because the amount of Secured Obligations assigned to the acquisition vehicle exceeds the amount of Secured Obligations credit bid by the acquisition vehicle or otherwise), such Secured Obligations shall automatically be reassigned to the Secured Parties pro rata and the equity interests and/or debt instruments issued by any acquisition vehicle on account of such Secured Obligations shall automatically be cancelled, without the need for any Secured Party or any acquisition vehicle to take any further action. Notwithstanding that the ratable portion of the Secured Obligations of each Secured Party are deemed assigned to the acquisition vehicle or vehicles as set forth in clause (ii) above, each Secured Party shall execute such documents and provide such information regarding the Secured Party (and/or any designee of the Secured Party which will receive interests in or debt instruments issued by such acquisition vehicle) as the Administrative Agent may reasonably request in connection with the formation of any acquisition vehicle, the formulation or submission of any credit bid or the consummation of the transactions contemplated by such credit bid. For the avoidance of doubt, Secured Obligations under a Secured Swap Agreement shall not be subject to a credit bid without the prior written consent of the relevant Secured Swap Provider.
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For the avoidance of doubt, the failure to deliver a notice to the Administrative Agent pursuant to this Section 11.16(b) shall not have any effect on a Payment Recipient’s obligations pursuant to Section 11.16(a) or on whether or not an Erroneous Payment has been made.
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Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices delivered through Approved Electronic Platforms, to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).
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Notwithstanding the foregoing, any supplement to Schedule 7.14 (Subsidiaries), Schedule 7.18 (Gas Imbalances), Schedule 7.19 (Marketing Contracts), or Schedule 7.20 (Swap Agreements) shall be effective simply by delivering to the Administrative Agent a supplemental schedule clearly marked as such and, upon receipt, the Administrative Agent will promptly deliver a copy thereof to the Lenders.
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confidentiality of such Information as such Person would accord to its own confidential information.
Each Lender acknowledges that information furnished to it pursuant to this Agreement or the other Loan Documents may include material non-public information concerning the Borrower and its Affiliates and their related parties or their respective securities, and confirms that it has developed compliance procedures regarding the use of material non-public information and that it will handle such material non-public information in accordance with those procedures and applicable law, including Federal and state securities laws.
All information, including requests for waivers and amendments, furnished by the Borrower or the Administrative Agent pursuant to, or in the course of administering, this Agreement or the other Loan Documents will be syndicate-level information, which may contain material non-public information about the Borrower and its Affiliates and their related parties or their respective securities. Accordingly, each Lender represents to the Borrower and the Administrative Agent that it has identified in its Administrative Questionnaire a credit contact who may receive information that may contain material non-public information in accordance with its compliance procedures and applicable law, including Federal and state securities laws.
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amount of interest payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Lender pursuant to this Section 12.12 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Lender would be less than the amount of interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then the amount of interest payable to such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the total amount of interest payable to such Lender shall equal the total amount of interest which would have been payable to such Lender if the total amount of interest had been computed without giving effect to this Section 12.12.
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or any Lender for any reason whatsoever. Other than the Indemnitees, there are no third party beneficiaries.
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subject to the Write-Down and Conversion Powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, default rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such default rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without
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limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.
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Exhibit 31.1
CERTIFICATIONS FOR FORM 10-Q
I, Richard H. Little, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Battalion Oil Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| BATTALION OIL CORPORATION | ||
November 14, 2022 | By: | /s/ Richard H. Little | |
| | Name: | Richard H. Little |
| | Title: | Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS FOR FORM 10-Q
I, R. Kevin Andrews, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Battalion Oil Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| BATTALION OIL CORPORATION | ||
November 14, 2022 | By: | /s/ R. Kevin Andrews | |
| | Name: | R. Kevin Andrews |
| | Title: | Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit 32
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), Richard H. Little, Chief Executive Officer, and R. Kevin Andrews, Executive Vice President, Chief Financial Officer and Treasurer, of Battalion Oil Corporation (the “Company”), each hereby certifies that, to the best of his knowledge:
(1) | The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Richard H. Little |
November 14, 2022 | Richard H. Little |
| |
| |
| /s/ R. Kevin Andrews |
November 14, 2022 | R. Kevin Andrews |
This certification accompanies this Form 10-Q and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section.
A signed original of this written statement required by Section 906 has been provided to, and will be retained by, the Company and furnished to the Securities and Exchange Commission or its staff upon request.