Centennial Resource Development, Inc. (Form: 10-Q, Received: 05/04/2020 17:28:59)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2020

☐ 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 001-37697

CENTENNIAL RESOURCE DEVELOPMENT, INC.

(Exact Name of Registrant as Specified in its Charter)



Delaware		47-5381253
(State of Incorporation)		(I.R.S. Employer Identification No.)

1001 Seventeenth Street, Suite 1800

Denver, Colorado 80202

(Registrant’s telephone number, including area code): (720) 499-1400

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share	CDEV	The NASDAQ Stock Market LLC

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	Accelerated filer	Non-accelerated filer	Smaller reporting company	Emerging growth company
☒	☐	☐	☐	☐

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

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

As of April 30, 2020, there were 277,082,141 shares of Class A Common Stock, par value $0.0001 per share outstanding.

TABLE OF CONTENTS



		Page
Glossary of Oil and Natural Gas Terms		3

Glossary of Certain Other Terms		5

Cautionary Statement Concerning Forward-Looking Statements		6

Part I—FINANCIAL INFORMATION		8

Item 1.	Financial Statements (Unaudited)	8

	Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	8

	Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019	9

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019	10

	Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2020 and 2019	12

	Notes to Consolidated Financial Statements	13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	43

Part II—OTHER INFORMATION		43

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 6.	Exhibits	47

Signatures		48

Table of Contents

GLOSSARY OF OIL AND NATURAL GAS TERMS

The following are abbreviations and definitions of certain terms used in this Quarterly Report on Form 10-Q, which are commonly used in the oil and natural gas industry:

Bbl. One stock tank barrel of 42 U.S. gallons liquid volume used herein in reference to crude oil, condensate or NGLs.

Bbl/d. One Bbl per day.

Boe. One barrel of oil equivalent, calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Bbl of oil. This is an energy content correlation and does not reflect a value or price relationship between the commodities.

Boe/d. One Boe per day.

Btu. One British thermal unit, which is the quantity of heat required to raise the temperature of a one-pound mass of water by one-degree Fahrenheit.

Completion. The process of preparing an oil and gas wellbore for production through the installation of permanent production equipment, as well as perforation and fracture stimulation to optimize production.

Development well. A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

Differential. An adjustment to the price of oil or natural gas from an established spot market price to reflect differences in the quality and/or location of oil or natural gas.

Exploratory well. A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir.

Field. An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.

Flush production. First yield from a flowing oil well during its most productive period after it is first completed and put on line.

Formation. A layer of rock which has distinct characteristics that differs from nearby rock.

Horizontal drilling. A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval.

LIBOR. London Interbank Offered Rate.

MBbl. One thousand barrels of crude oil, condensate or NGLs.

MBoe. One thousand Boe.

Mcf. One thousand cubic feet of natural gas.

Mcf/d. One Mcf per day.

MMBtu. One million British thermal units.

MMcf. One million cubic feet of natural gas.

NGL. Natural gas liquids. These are naturally occurring substances found in natural gas, including ethane, butane, isobutane, propane and natural gasoline, that can be collectively removed from produced natural gas, separated into these substances and sold.

NYMEX. The New York Mercantile Exchange.

Table of Contents

Operator. The individual or company responsible for the development and/or production of an oil or natural gas well or lease.

Proved developed reserves. Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well.

Proved reserves. The estimated quantities of oil, NGLs and natural gas that geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.

Proved undeveloped reserves or PUD. Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for completion or recompletion.

Realized price. The cash market price less differentials.

Recompletion. The completion for production of an existing wellbore in another formation from that which the well has been previously completed.

Reserves. Estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to market and all permits and financing required to implement the project.

Reservoir. A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

Royalty interest. An interest in an oil or gas property entitling the owner to shares of the production free of costs of exploration, development and production operations.

Spot market price. The cash market price without reduction for expected quality, transportation and demand adjustments.

Wellbore. The hole drilled by a drill bit that is equipped for oil and natural gas production once the well has been completed. Also called well or borehole.

Working interest. The interest in an oil and gas property (typically a leasehold interest) that gives the owner the right to drill, produce and conduct operations on the property and to a share of production, subject to all royalties and other burdens and to all costs of exploration, development and operations and all risks in connection therewith.

Workover. Operations on a producing well to restore or increase production.

WTI. West Texas Intermediate is a grade of crude oil used as a benchmark in oil pricing.

Table of Contents

GLOSSARY OF CERTAIN OTHER TERMS

The following are definitions of certain other terms that are used in this Quarterly Report on Form 10-Q:

Business Combination. The acquisition of approximately 89% of the outstanding membership interests in CRP from the Centennial Contributors, which closed on October 11, 2016, and the other transactions contemplated by the Contribution Agreement.

Centennial Contributors. The legacy owners of CRP, who sold approximately 89% of the outstanding membership interests in CRP to the Company in connection with the Business Combination. As of March 31,2020, the Centennial Contributors’ ownership interest in CRP was approximately 0.4%.

The Company, we, our or us. (i) Centennial Resource Development, Inc. and its consolidated subsidiaries including CRP, following the closing of the Business Combination and (ii) Silver Run Acquisition Corporation prior to the closing of the Business Combination.

Class A Common Stock. Our Class A Common Stock, par value $0.0001 per share.

Class C Common Stock. Our Class C Common Stock, par value $0.0001 per share, which was issued to the Centennial Contributors in connection with the Business Combination.

Contribution Agreement. The Contribution Agreement, dated as of July 6, 2016, among the Centennial Contributors, CRP and NewCo, as amended by Amendment No. 1 thereto, dated as of July 29, 2016, and the Joinder Agreement, dated as of October 7, 2016, by the Company.

CRP. Centennial Resource Production, LLC, a Delaware limited liability company.

CRP Common Units. The units representing common membership interests in CRP.

NewCo. New Centennial, LLC, a Delaware limited liability company controlled by affiliates of Riverstone.

Riverstone. Riverstone Investment Group LLC and its affiliates, including Silver Run Sponsor, LLC, a Delaware limited liability company, collectively.

Voting common stock. Our Class A Common Stock and Class C Common Stock.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “could,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “goal,” “plan,” “target” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under “Item 1A. Risk Factors” in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report”) and the risk factors and other cautionary statements contained in our other filings with the United States Securities and Exchange Commission (“SEC”).

Forward-looking statements may include statements about:

•

volatility of oil, natural gas and NGL prices or a prolonged period of low oil, natural gas or NGL prices and the effects of actions by, or disputes among or between, members of the Organization of Petroleum Exporting Countries (“OPEC”), such as Saudi Arabia, and other oil and natural gas producing countries, such as Russia, with respect to production levels or other matters related to the price of oil;


•	the effects of excess supply of oil and natural gas resulting from the reduced demand caused by the COVID-19 pandemic and the actions by certain oil and natural gas producing countries;


•	our business strategy and future drilling plans;


•	our reserves and our ability to replace the reserves we produce through drilling and property acquisitions;


•	our drilling prospects, inventories, projects and programs;


•	our financial strategy, liquidity and capital required for our development program;


•	our realized oil, natural gas and NGL prices;


•	the timing and amount of our future production of oil, natural gas and NGLs;


•	our hedging strategy and results;


•	our competition and government regulations;


•	our ability to obtain permits and governmental approvals;


•	our pending legal or environmental matters;


•	the marketing and transportation of our oil, natural gas and NGLs;


•	our leasehold or business acquisitions;


•	cost of developing our properties;


•	our anticipated rate of return;


•	general economic conditions;


•	credit markets;


•	uncertainty regarding our future operating results; and


•	our plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical.

You should not place undue reliance on these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including but not limited to those risks described under “Item 1A. Risk Factors” in this Quarterly Report and in our 2019 Annual Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.

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Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.

Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied by the forward-looking statements.

All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

All forward-looking statements, expressed or implied, are made only as of the date of this Quarterly Report. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CENTENNIAL RESOURCE DEVELOPMENT, INC.

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share and per share amounts)



	March 31, 2020			December 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	3,841		$	10,223
Accounts receivable, net	62,892			101,912
Prepaid and other current assets	6,997			7,994
Total current assets	73,730			120,129
Property and Equipment
Oil and natural gas properties, successful efforts method
Unproved properties	1,350,287			1,470,903
Proved properties	4,238,784			3,962,175
Accumulated depreciation, depletion and amortization	(1,623,671		)	(931,737)
Total oil and natural gas properties, net	3,965,400			4,501,341
Other property and equipment, net	14,240			14,612
Total property and equipment, net	3,979,640			4,515,953
Noncurrent assets
Operating lease right-of-use assets	8,333			11,841
Other noncurrent assets	44,547			40,365
TOTAL ASSETS	$	4,106,250		$	4,688,288

LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued expenses	$	223,651		$	244,309
Derivative instruments	8,777			325
Operating lease liabilities	6,440			9,232
Other current liabilities	177			600
Total current liabilities	239,045			254,466
Noncurrent liabilities
Long-term debt, net	1,117,919			1,057,389
Asset retirement obligations	17,651			16,874
Deferred income taxes	2,296			85,504
Operating lease liabilities	2,552			3,354
Total liabilities	1,379,463			1,417,587
Commitments and contingencies (Note 11)
Shareholders’ equity
Preferred stock, $0.0001 par value, 1,000,000 shares authorized:
Series A: 1 share issued and outstanding	—			—
Common stock, $0.0001 par value, 620,000,000 shares authorized:
Class A: 281,530,821 shares issued and 276,037,796 shares outstanding at March 31, 2020 and 280,650,341 shares issued and 275,811,346 shares outstanding at December 31, 2019	28			28
Class C (Convertible): 1,034,119 shares issued and outstanding at March 31, 2020 and December 31, 2019	—			—
Additional paid-in capital	2,982,187			2,975,756
Retained earnings (accumulated deficit)	(265,647		)	282,336
Total shareholders’ equity	2,716,568			3,258,120
Noncontrolling interest	10,219			12,581
Total equity	2,726,787			3,270,701
TOTAL LIABILITIES AND EQUITY	$	4,106,250		$	4,688,288

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)



	Three Months Ended March 31,
	2020			2019
Operating revenues
Oil and gas sales	$	192,769		$	214,569
Operating expenses
Lease operating expenses	32,639			29,862
Severance and ad valorem taxes	16,573			16,120
Gathering, processing and transportation expenses	16,939			15,024
Depreciation, depletion and amortization	101,258			96,558
Impairment and abandonment expense	611,300			31,264
Exploration expense	4,009			2,516
General and administrative expenses	18,870			18,118
Total operating expenses	801,588			209,462
Net gain (loss) on sale of long-lived assets	245			(2		)
Income (loss) from operations	(608,574		)	5,105

Other income (expense)
Interest expense	(16,421		)	(10,160		)
Net gain (loss) on derivative instruments	(8,505		)	(5,871		)
Other income (expense)	(53		)	126
Total other income (expense)	(24,979		)	(15,905		)

Income (loss) before income taxes	(633,553		)	(10,800		)
Income tax benefit	83,208			2,263
Net income (loss)	(550,345		)	(8,537		)
Less: Net (income) loss attributable to noncontrolling interest	2,362			425
Net income (loss) attributable to Class A Common Stock	$	(547,983	)	$	(8,112	)

Income (loss) per share of Class A Common Stock:
Basic	$	(1.99	)	$	(0.03	)
Diluted	$	(1.99	)	$	(0.03	)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)



	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net income (loss)	$	(550,345	)	$	(8,537	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	101,258			96,558
Stock-based compensation expense	6,409			6,483
Impairment and abandonment expense	611,300			31,264
Deferred tax benefit	(83,208		)	(2,263		)
Net (gain) loss on sale of long-lived assets	(245		)	2
Non-cash portion of derivative (gain) loss	8,452			5,494
Amortization of debt issuance costs and discount	799			512
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	41,026			(18,708		)
(Increase) decrease in prepaid and other assets	(263		)	(205		)
Increase (decrease) in accounts payable and other liabilities	(34,365		)	(9,572		)
Net cash provided by operating activities	100,818			101,028
Cash flows from investing activities:
Acquisition of oil and natural gas properties	(5,795		)	(25,691		)
Drilling and development capital expenditures	(161,895		)	(217,158		)
Purchases of other property and equipment	(486		)	(1,738		)
Proceeds from sales of oil and natural gas properties	1,200			25,709
Net cash used in investing activities	(166,976		)	(218,878		)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facility	195,000			130,000
Repayment of borrowings under revolving credit facility	(135,000		)	(430,000		)
Proceeds from issuance of Senior Notes	—			496,175
Debt issuance costs	—			(6,698		)
Restricted stock used for tax withholdings	(208		)	(291		)
Net cash provided by financing activities	59,792			189,186
Net increase (decrease) in cash, cash equivalents and restricted cash	(6,366		)	71,336
Cash, cash equivalents and restricted cash, beginning of period	15,543			21,422
Cash, cash equivalents and restricted cash, end of period	$	9,177		$	92,758

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Continued)
(in thousands)



	Three Months Ended March 31,
	2020			2019
Supplemental cash flow information
Cash paid for interest	$	12,977		$	15,210
Operating lease liability payments:
Cash used in operating activities	2,657			4,905
Cash used in investing activities	2,019			5,682
Supplemental non-cash activity
Accrued capital expenditures included in accounts payable and accrued expenses	$	108,282		$	136,113
Asset retirement obligations incurred, including revisions to estimates	413			264
Right-of-use assets recognized (derecognized) with offsetting operating lease liabilities	(829		)	34,385

Reconciliation of cash, cash equivalents and restricted cash presented on the Consolidated Statements of Cash Flows for the periods presented:



	Three Months Ended March 31,
	2020		2019
Cash and cash equivalents	$	3,841	$	89,482
Restricted cash⁽¹⁾	5,336		3,276
Total cash, cash equivalents and restricted cash	$	9,177	$	92,758


⁽¹⁾	Included in Prepaid and other current assets and Other noncurrent assets line items in the Consolidated Balance Sheets.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

(in thousands)



	Common Stock							Preferred Stock
	Class A				Class C			Series A			Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Total Shareholder's Equity			Non-controlling Interest			Total Equity
	Shares		Amount		Shares	Amount		Shares	Amount		Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Total Shareholder's Equity			Non-controlling Interest			Total Equity
Balance at December 31, 2019	280,650		$	28	1,034	$	—	—	$	—	$	2,975,756		$	282,336		$	3,258,120		$	12,581		$	3,270,701
Restricted stock issued	1,305		—		—	—		—	—		—			—			—			—			—
Restricted stock forfeited	(406	)	—		—	—		—	—		—			—			—			—			—
Restricted stock used for tax withholding	(78	)	—		—	—		—	—		(208		)	—			(208		)	—			(208		)
Issuance of Class A common stock under Employee Stock Purchase Plan	59		—		—	—		—	—		230			—			230			—			230
Stock-based compensation	—		—		—	—		—	—		6,409			—			6,409			—			6,409
Net income (loss)	—		—		—	—		—	—		—			(547,983		)	(547,983		)	(2,362		)	(550,345		)
Balance at March 31, 2020	281,530		$	28	1,034	$	—	—	$	—	$	2,982,187		$	(265,647	)	$	2,716,568		$	10,219		$	2,726,787



Balance at December 31, 2018	265,859		$	27	12,003	$	1	—	$	—	$	2,833,611		$	266,538		$	3,100,177		$	143,692		$	3,243,869
Restricted stock issued	436		—		—	—		—	—		—			—			—			—			—
Restricted stock forfeited	—		—		—	—		—	—		—			—			—			—			—
Restricted stock used for tax withholding	(24	)	—		—	—		—	—		(291		)	—			(291		)	—			(291		)
Stock-based compensation	—		—		—	—		—			6,483			—			6,483			—			6,483
Net income (loss)	—		—		—	—		—	—		—			(8,112		)	(8,112		)	(425		)	(8,537		)
Balance at March 31, 2019	266,271		$	27	12,003	$	1	—	$	—	$	2,839,803		$	258,426		$	3,098,257		$	143,267		$	3,241,524

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

Centennial Resource Development, Inc. is an independent oil and natural gas company focused on the development of unconventional oil and associated liquids-rich natural gas reserves in the Permian Basin. The Company’s assets are concentrated in the Delaware Basin, a sub-basin of the Permian Basin, and its properties consist of large, contiguous acreage blocks located in West Texas and New Mexico. Unless otherwise specified or the context otherwise requires, all references in these notes to “Centennial” or the “Company” are to Centennial Resource Development, Inc. and its consolidated subsidiary, Centennial Resource Production, LLC (“CRP”).

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain disclosures normally included in an Annual Report on Form 10-K have been omitted. The consolidated financial statements and related notes included in this Quarterly Report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2019 (the “2019 Annual Report”). Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Company’s 2019 Annual Report.

In the opinion of management, all normal, recurring adjustments and accruals considered necessary to present fairly, in all material respects, the Company’s interim financial results have been included. Operating results for the periods presented are not necessarily indicative of expected results for the full year.

The consolidated financial statements include the accounts of the Company and its majority owned subsidiary CRP, and CRP’s wholly-owned subsidiaries. Noncontrolling interest represents third-party ownership in CRP and is presented as a component of equity. As of March 31, 2020 and December 31, 2019, the noncontrolling interest ownership of CRP was 0.4%.

Use of Estimates

The preparation of the Company’s consolidated financial statements requires the Company’s management to make various assumptions, judgments and estimates to determine the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events, and accordingly, actual results could differ from amounts previously established.

The more significant areas requiring the use of assumptions, judgments and estimates include: (i) oil and natural gas reserves; (ii) cash flow estimates used in impairment tests of long-lived assets; (iii) impairment expense of unproved properties; (iv) depreciation, depletion and amortization; (v) asset retirement obligations; (vi) determining fair value and allocating purchase price in connection with business combinations and asset acquisitions; (vii) accrued revenues and related receivables; (viii) accrued liabilities; (ix) valuation of derivatives; and (x) deferred income taxes.

Income Taxes

Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to the Company’s year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various state jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information becomes known or as the tax environment changes.

As of March 31, 2020, the Company determined that it is more-likely-than-not that a portion of its deferred tax assets will not be realized. Accordingly, a valuation allowance against its deferred tax assets in the amount of $55.6 million was recognized as of March 31, 2020, which caused the Company’s provision for income taxes for the three months ended March 31, 2020 to differ from the amounts that would be provided by applying the statutory U.S. federal income tax rate of 21% to pre-tax book loss.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Risks and Uncertainties

The prices received for oil, natural gas and NGL production heavily influences the Company’s revenue, profitability, liquidity, access to capital, future rate of growth and carrying value of its properties. Oil, natural gas and NGLs are commodities, and their prices have been volatile in response to recent changes in global and domestic supply, the global COVID-19 pandemic and demand and market uncertainty. The Company generally funds its operations and capital expenditures with its cash flows from operations, borrowings under CRP’s credit agreement, and offerings of debt and equity securities. The Company expects to be able to fund its operations, planned capital expenditures and working capital requirements during the next 12 months and the foreseeable future. However, continued volatility of oil and gas prices could have an adverse effect on the Company’s future business, financial condition, results of operations, operating cash flows, liquidity and quantities of oil and gas reserves that may be economically produced, which could in turn impact the Company’s ability to comply with the financial covenants under CRP’s credit agreement and the Senior Notes which could also limit the amount of borrowings available to fund the Company’s capital expenditures and potential acquisitions. Additionally, if forward prices decline, the Company could incur additional impairments of its oil and gas assets and be subject to negative impacts to its production levels.

Note 2—Property Divestiture

On February 24, 2020, the Company entered into a purchase and sale agreement to sell its water disposal assets for a base sale price of approximately $150.0 million in cash at closing with up to an additional $75.0 million in deferred incentive payments based on future drilling activity (all amounts being subject to post-closing adjustments). The water disposal assets include certain saltwater disposal wells and the associated water infrastructure located in Reeves and Ward counties in Texas. The original closing date of the sale was March 31, 2020, however, the transaction has been delayed. While the transaction currently remains pending, either party may terminate the transaction if closing does not occur on or before May 15, 2020.

The purchase and sale agreement required the purchaser to deposit $10.0 million of cash in an escrow account. This amount will be applied to the sales price upon closing, or alternatively, it will be distributed to the Company or the purchaser in accordance with the remedy provisions of the purchase and sale agreement, if the agreement is terminated prior to closing.

Note 3—Accounts Receivable, Accounts Payable and Accrued Expenses

Accounts receivable are comprised of the following:



(in thousands)	March 31, 2020		December 31, 2019
Accrued oil and gas sales receivable, net	$	36,105	$	76,578
Joint interest billings, net	26,530		25,136
Other	257		198
Accounts receivable, net	$	62,892	$	101,912

Accounts payable and accrued expenses are comprised of the following:



(in thousands)	March 31, 2020		December 31, 2019
Accounts payable	$	50,659	$	21,484
Accrued capital expenditures	70,241		83,002
Revenues payable	51,729		82,539
Accrued interest	22,563		19,405
Accrued employee compensation and benefits	4,906		12,979
Accrued expenses and other	23,553		24,900
Accounts payable and accrued expenses	$	223,651	$	244,309

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4—Long-Term Debt

The following table provides information about the Company’s long-term debt as of the dates indicated:



(in thousands)	March 31, 2020			December 31, 2019
Credit Facility due 2023	$	235,000		$	175,000

5.375% Senior Notes due 2026	400,000			400,000
6.875% Senior Notes due 2027	500,000			500,000
Unamortized debt issuance costs on Senior Notes	(13,626		)	(14,061		)
Unamortized debt discount	(3,455		)	(3,550		)
Senior Notes, net	882,919			882,389

Total long-term debt, net	$	1,117,919		$	1,057,389

Credit Agreement

On May 4, 2018, CRP, the Company’s consolidated subsidiary, entered into an amended and restated credit agreement with a syndicate of banks that as of March 31, 2020, had a borrowing base of $1.2 billion and elected commitments of $800.0 million. The credit agreement provides for a five-year secured revolving credit facility, maturing on May 4, 2023. As of March 31, 2020, the Company had $235.0 million in borrowings outstanding and $564.2 million in available borrowing capacity, which was net of $0.8 million in letters of credit outstanding. Refer to Note 14—Subsequent Events for additional information on the spring 2020 redetermination and the amendments to the credit facility, inclusive of its redetermined borrowing base and corresponding level of elected commitments.

The amount available to be borrowed under CRP’s credit agreement is equal to the lesser of (i) the borrowing base, (ii) aggregate elected commitments, or (iii) $1.5 billion. The borrowing base is redetermined semi-annually in the spring and fall by the lenders in their sole discretion. It also allows for two optional borrowing base redeterminations on January 1 and July 1. The borrowing base depends on, among other things, the quantities of CRP’s proved oil and natural gas reserves, estimated cash flows from these reserves, and the Company’s commodity hedge positions. Upon a redetermination of the borrowing base, if actual borrowings exceed the revised borrowing capacity, CRP could be required to immediately repay a portion of its debt outstanding under the credit agreement. Borrowings under CRP’s revolving credit facility are guaranteed by certain of its subsidiaries.

Borrowings under CRP’s revolving credit facility may be base rate loans or LIBOR loans. Interest is payable quarterly for base rate loans and at the end of the applicable interest period for LIBOR loans. LIBOR loans bear interest at LIBOR (adjusted for statutory reserve requirements) plus an applicable margin, which ranged from 125 to 225 basis points as of March 31, 2020, depending on the percentage of the borrowing base utilized. Base rate loans bear interest at a rate per annum equal to the greatest of: (i) the agent bank’s prime rate; (ii) the federal funds effective rate plus 50 basis points; or (iii) the adjusted LIBOR rate for a one-month interest period plus 100 basis points, plus an applicable margin, which ranged from 25 to 125 basis points as of March 31, 2020, depending on the percentage of the borrowing base utilized. CRP also pays a commitment fee of 37.5 to 50 basis points on unused amounts under its facility. The applicable margins for the LIBOR loans and base rate loans referenced above reflect interest rate reductions that became effective on April 26, 2019 and are applicable as long as CRP’s total leverage ratio (as described below) is less than or equal to 3.0 to 1.0. If CRP’s total leverage ratio exceeds 3.0 to 1.0 in the future, the original applicable margins under the credit agreement would revert to the range from 150 to 250 basis points for LIBOR loans and 50 to 150 basis points for base rate loans, in each case depending on the percentage of the borrowing base utilized.

CRP’s credit agreement contains restrictive covenants that limit its ability to, among other things: (i) incur additional indebtedness; (ii) make investments and loans; (iii) enter into mergers; (iv) make or declare dividends; (v) enter into commodity hedges exceeding a specified percentage of the Company’s expected production; (vi) enter into interest rate hedges exceeding a specified percentage of its outstanding indebtedness; (vii) incur liens; (viii) sell assets; and (ix) engage in transactions with affiliates.

CRP’s credit agreement also requires it to maintain compliance with the following financial ratios: (i) a current ratio, which is the ratio of CRP’s consolidated current assets (including unused commitments under its revolving credit facility and excluding non-cash derivative assets and certain restricted cash) to its consolidated current liabilities (excluding the current portion of long-term debt under the credit agreement and non-cash derivative liabilities), of not less than 1.0 to 1.0; and (ii) a leverage ratio, which is the ratio of Total Funded Debt (as defined in CRP’s credit agreement) to consolidated EBITDAX (as defined in CRP’s credit agreement) for the rolling four fiscal quarter period ending on such day, of not greater than 4.0 to 1.0. CRP was in

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

compliance with the covenants and the financial ratios described above as of March 31, 2020 and through the filing of this Quarterly Report.

Senior Unsecured Notes

On March 15, 2019, CRP issued $500.0 million of 6.875% senior notes due 2027 (the “2027 Senior Notes”) in a 144A private placement at a price equal to 99.235% of par that resulted in net proceeds to CRP of $489.0 million, after deducting the original issuance discount of $3.8 million and debt issuance costs of $7.2 million. Interest is payable on the 2027 Senior Notes semi-annually in arrears on each April 1 and October 1, commencing October 1, 2019.

On November 30, 2017, CRP issued at par $400.0 million of 5.375% senior notes due 2026 (the “2026 Senior Notes” and collectively with the 2027 Senior Notes, the “Senior Notes”) in a 144A private placement that resulted in net proceeds to CRP of $391.0 million, after deducting $9.0 million in debt issuance costs. Interest is payable on the 2026 Senior Notes semi-annually in arrears on each January 15 and July 15, which commenced on July 15, 2018.

The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of CRP’s current subsidiaries that guarantee CRP’s revolving credit facility. The Senior Notes are not guaranteed by the Company, nor is the Company subject to the terms of the indentures governing the Senior Notes.

At any time prior to January 15, 2021 (for the 2026 Senior Notes) and April 1, 2022 (for the 2027 Senior Notes), the “Optional Redemption Dates,” CRP may, on any one or more occasions, redeem up to 35% of the aggregate principal amount of either series of Senior Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings at a redemption price equal to 105.375% (for the 2026 Senior Notes) and 106.875% (for the 2027 Senior Notes) of the principal amount of the Senior Notes of the applicable series redeemed, plus any accrued and unpaid interest to the date of redemption; provided that at least 65% of the aggregate principal amount of each such series of Senior Notes remains outstanding immediately after such redemption, and the redemption occurs within 180 days of the closing date of such equity offering.

At any time prior to the Optional Redemption Dates, CRP may, on any one or more occasions, redeem all or a part of the Senior Notes at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed, plus a “make-whole” premium, and any accrued and unpaid interest as of the date of redemption. On and after the Optional Redemption Dates, CRP may redeem the Senior Notes, in whole or in part, at redemption prices expressed as percentages of principal amount plus accrued and unpaid interest to the redemption date.

If CRP experiences certain defined changes of control (and, in some cases, followed by a ratings decline), each holder of the Senior Notes may require CRP to repurchase all or a portion of its Senior Notes for cash at a price equal to 101% of the aggregate principal amount of such Senior Notes, plus any accrued but unpaid interest to the date of repurchase.

The indentures governing the Senior Notes contain covenants that, among other things and subject to certain exceptions and qualifications, limit CRP’s ability and the ability of CRP’s restricted subsidiaries to: (i) incur or guarantee additional indebtedness or issue certain types of preferred stock; (ii) pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; (iii) transfer or sell assets; (iv) make investments; (v) create certain liens; (vi) enter into agreements that restrict dividends or other payments from their subsidiaries to them; (vii) consolidate, merge or transfer all or substantially all of their assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. CRP was in compliance with these covenants as of March 31, 2020 and through the filing of this Quarterly Report.

Upon an Event of Default (as defined in the indentures governing the Senior Notes), the trustee or the holders of at least 25% of the aggregate principal amount of then outstanding Senior Notes may declare the Senior Notes immediately due and payable. In addition, a default resulting from certain events of bankruptcy or insolvency with respect to CRP, any restricted subsidiary of CRP that is a significant subsidiary, or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary, will automatically cause all outstanding Senior Notes to become due and payable.

On April 22, 2020, the Company commenced exchange offers to all eligible holders of its Senior Notes. Refer to Note 14—Subsequent Events for additional information on the Senior Notes exchanges.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 5—Asset Retirement Obligations

The following table summarizes the changes in the Company’s asset retirement obligations (“ARO”) associated with its working interests in oil and gas properties for the three months ended March 31, 2020:



(in thousands)
Asset retirement obligations, beginning of period	$	16,874
Liabilities incurred and acquired	560
Liabilities divested and settled	(35		)
Accretion expense	252
Asset retirement obligations, end of period	$	17,651

ARO reflect the present value of the estimated future costs associated with the plugging and abandonment of oil and natural gas wells, removal of equipment and facilities from leased acreage and land restoration in accordance with applicable local, state and federal laws. Inherent in the fair value calculation of ARO are numerous assumptions and judgments including the ultimate plug and abandonment settlement amounts, inflation factors, credit adjusted discount rates and timing of settlement. To the extent future revisions to these assumptions impact the value of the existing ARO liability, a corresponding offsetting adjustment is made to the oil and gas property balance. Changes in the liability due to the passage of time are recognized as an increase in the carrying amount of the liability and as accretion expense.

Note 6—Stock-Based Compensation

On October 7, 2016, the stockholders of the Company approved the Centennial Resource Development, Inc. 2016 Long Term Incentive Plan (the “LTIP”). An aggregate of 16,500,000 shares of Class A Common Stock were authorized for issuance under the LTIP, and as of March 31, 2020, the Company had 4,196,761 shares of Class A Common Stock available for future grants. The LTIP provides for grants of restricted stock, stock options (including incentive stock options and nonqualified stock options), restricted stock units, stock appreciation rights and other stock or cash-based awards.

Stock-based compensation expense is recognized within both General and administrative expenses and Exploration expense in the Consolidated Statements of Operations. The Company accounts for forfeitures of awards granted under the LTIP as they occur in determining compensation expense.

The following table summarizes stock-based compensation expense recognized for the periods presented:



	Three Months Ended March 31,
(in thousands)	2020		2019
Restricted stock awards	$	4,354	$	3,182
Stock option awards	984		2,584
Performance stock units	1,003		717
Other stock-based compensation expense⁽¹⁾	68		—
Total stock-based compensation expense	$	6,409	$	6,483


⁽¹⁾	Includes expenses related to the Company’s Employee Stock Purchase Plan (the “ESPP”). In May 2019, an aggregate of 2,000,000 shares were authorized by stockholders for issuance under the ESPP, which became effective on July 1, 2019. As of March 31, 2020, the Company had 1,940,801 shares of Class A Common Stock available for future issuance.

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Restricted Stock

The following table provides information about restricted stock activity during the three months ended March 31, 2020:



	Awards		Weighted Average Grant-Date Fair Value
Unvested balance as of December 31, 2019	4,838,996		$	8.51
Granted	1,305,473		2.76
Vested	(245,909	)	15.47
Forfeited	(405,535	)	5.69
Unvested balance as of March 31, 2020	5,493,025		7.04

The Company grants service-based restricted stock awards to executive officers and employees, which vest ratably over a three-year service period, and to directors, which vest over a one-year service period. Compensation cost for the service-based restricted stock awards is based on the closing market price of the Company’s Class A common stock on the grant date, and such costs are recognized ratably over the applicable vesting period. The weighted average grant-date fair value for restricted stock awards granted was $2.76 and $12.51 per share for the three months ended March 31, 2020 and 2019, respectively. The total fair value of restricted stock awards that vested during the three months ended March 31, 2020 and 2019 was $3.8 million and $1.4 million, respectively. Unrecognized compensation cost related to restricted shares that were unvested as of March 31, 2020 was $29.0 million, which the Company expects to recognize over a weighted average period of 2.1 years.

Stock Options

Stock options that have been granted under the LTIP expire ten years from the grant date and vest ratably over a three-year service period. The exercise price for an option granted under the LTIP is the closing market price of the Company’s Class A Common Stock on the grant date.

Compensation cost for stock options is based on the grant-date fair value of the award which is then recognized ratably over the vesting period of three years. The Company estimates the fair value using the Black-Scholes option-pricing model. Expected volatilities are based on the weighted average asset volatility of the Company and an identified set of comparable companies. Expected term is based on the simplified method and is estimated as the mid-point between the weighted average vesting term and the time to expiration as of the grant date. The Company uses U.S. Treasury bond rates in effect at the grant date for its risk-free interest rates.

The following table summarizes the assumptions and related information used to determine the grant-date fair value of stock options awarded during the three months ended March 31, 2020 and 2019:



	Three Months Ended March 31,
	2020			2019
Weighted average grant-date fair value per share	$	2.37		$	5.22
Expected term (in years)	6			6
Expected stock volatility	52		%	45		%
Dividend yield	—		%	—		%
Risk-free interest rate	1.7		%	2.5		%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides information about stock option awards outstanding during the three months ended March 31, 2020:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2019	4,764,167		$	15.99
Granted	52,500		4.69
Exercised	—		—
Forfeited	(22,502	)	18.74
Expired	(42,666	)	18.99
Outstanding as of March 31, 2020	4,751,499		15.82		4.3	$	—
Exercisable as of March 31, 2020	3,987,631		16.15		3.5	$	—

The total fair value of stock options that vested during the three months ended March 31, 2020 and 2019 was $3.5 million and $3.4 million, respectively. There were no stock options exercised during either the three months ended March 31, 2020 or 2019. As of March 31, 2020, there was $3.1 million of unrecognized compensation cost related to unvested stock options, which the Company expects to recognize on a pro-rata basis over a weighted-average period of 1.6 years.

Performance Stock Units

During the three months ended March 31, 2020 and 2019, there was no significant performance stock units activity. As of March 31, 2020, there was $4.7 million of unrecognized compensation cost related to performance stock units that were unvested, which the Company expects to recognize on a pro-rata basis over a weighted average period of 1.7 years.

Note 7—Derivative Instruments

The Company is exposed to certain risks relating to its ongoing business operations and may use derivative instruments to manage its exposure to commodity price risk from time to time.

Commodity Derivative Contracts

Historically, prices received for crude oil and natural gas production have been volatile because of supply and demand factors, worldwide political factors, general economic conditions and seasonal weather patterns. The Company may periodically use derivative instruments, such as swaps, costless collars and basis swaps, to mitigate its exposure to declines in commodity prices and to the corresponding negative impacts such declines can have on its cash flows from operations, returns on capital and other financial results. While the use of these instruments limits the downside risk of adverse price changes, their use may also limit future revenues from favorable price changes. The Company does not enter into derivative contracts for speculative or trading purposes.

Commodity Swap Contracts. The Company may use commodity derivative instruments known as fixed price swaps to realize a known price for a specific volume of production as well as basis swaps to hedge the difference between the index price and a local index price. All transactions are settled in cash with one party paying the other for the resulting difference in price multiplied by the contract volume.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the approximate volumes and average contract prices of swap contracts the Company had in place as of March 31, 2020:



	Period	Volume (Bbls)	Volume (Bbls/d)	Weighted Average Fixed Price ($/Bbl)⁽¹⁾
Crude oil swaps	April 2020 - June 2020	2,730,000	30,000	$	25.88
	July 2020 - September 2020	2,208,000	24,000	26.58

	Period	Volume (Bbls)	Volume (Bbls/d)	Weighted Average Differential ($/Bbl)⁽²⁾
Crude oil basis swaps	April 2020 - June 2020	273,000	3,000	$	0.67
	July 2020 - September 2020	276,000	3,000	0.67
	October 2020 - December 2020	276,000	3,000	0.67


⁽¹⁾	These crude oil swap transactions are settled based on the NYMEX WTI price as of the specified settlement date.


⁽²⁾	These oil basis swap transactions are settled based on the difference between the arithmetic average of ARGUS MIDLAND WTI and ARGUS WTI CUSHING indices, during each applicable settlement period.



	Period	Volume (MMBtu)	Volume (MMBtu/d)	Weighted Average Fixed Price ($/MMBtu)⁽¹⁾
Natural gas swaps	April 2020 - June 2020	2,730,000	30,000	$	2.03
	July 2020 - September 2020	2,760,000	30,000	2.03
	October 2020 - December 2020	930,000	10,109	2.03

	Period	Volume (MMBtu)	Volume (MMBtu/d)	Weighted Average Differential ($/MMBtu)⁽²⁾
Natural gas basis swaps	April 2020 - June 2020	2,730,000	30,000	$	(1.62	)
	July 2020 - September 2020	2,760,000	30,000	(1.62		)
	October 2020 - December 2020	930,000	10,109	(1.62		)


⁽¹⁾	These natural gas swap contracts are settled based on NYMEX Henry Hub price as of the specified settlement date.


⁽²⁾	These natural gas basis swap contracts are settled based on the difference between the Inside FERC’s West Texas WAHA price and the NYMEX price of natural gas during each applicable settlement period.

Derivative Instrument Reporting. The Company’s oil and natural gas derivative instruments have not been designated as hedges for accounting purposes. Therefore, all gains and losses are recognized in the Company’s Consolidated Statements of Operations. All derivative instruments are recorded at fair value in the Consolidated Balance Sheets, other than derivative instruments that meet the “normal purchase normal sale” exclusion, and any fair value gains and losses are recognized in current period earnings.

The following table presents the impact of the Company’s derivative instruments in its Consolidated Statements of Operations for the periods presented:



	Three Months Ended March 31,
(in thousands)	2020			2019
Net gain (loss) on derivative instruments	$	(8,505	)	$	(5,871	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Offsetting of Derivative Assets and Liabilities. The Company’s commodity derivatives are included in the accompanying Consolidated Balance Sheets as derivative assets and liabilities. The Company nets its financial derivative instrument fair value amounts executed with the same counterparty pursuant to ISDA master netting agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. The tables below summarizes the fair value amounts and the classification in the Consolidated Balance Sheets of the Company’s derivative contracts outstanding at the respective balance dates, as well as the gross recognized derivative assets, liabilities and offset amounts:



	Balance Sheet Classification	Gross Fair Value Asset/Liability Amounts		Gross Amounts Offset⁽¹⁾			Net Recognized Fair Value Assets/Liabilities
(in thousands)		March 31, 2020
Derivative Assets
Commodity contracts	Current assets - Derivative instruments	$	8,589	$	(8,589	)	$	—
Derivative Liabilities
Commodity contracts	Current liabilities - Derivative instruments	17,366		(8,589		)	8,777

		December 31, 2019
Derivative Liabilities
Commodity contracts	Current liabilities - Derivative instruments	$	325	$	—		$	325


⁽¹⁾	The Company has agreements in place with all of its counterparties that allow for the financial right of offset for derivative assets against derivative liabilities at settlement or in the event of a default under the agreements or contract termination.

Contingent Features in Financial Derivative Instruments. None of the Company’s derivative instruments contain credit-risk-related contingent features. Counterparties to the Company’s financial derivative contracts are high credit-quality financial institutions that are lenders under CRP’s credit agreement. The Company uses only credit agreement participants to hedge with, since these institutions are secured equally with the holders of any CRP bank debt, which eliminates the potential need to post collateral when Centennial is in a derivative liability position. As a result, the Company is not required to post letters of credit or corporate guarantees for its derivative counterparties in order to secure contract performance obligations.

In addition, the Company is exposed to credit risk associated with its derivative contracts from non-performance by its counterparties. The Company mitigates its exposure to any single counterparty by contracting with a number of financial institutions, each of which has a high credit rating and is a member under CRP’s credit facility as referenced above.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8—Fair Value Measurements

Recurring Fair Value Measurements

The Company follows the Financial Accounting Standards Board’s Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurement and Disclosure, which establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:


•	Level 1: Quoted Prices in Active Markets for Identical Assets – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.


•	Level 2: Significant Other Observable Inputs – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.


•	Level 3: Significant Unobservable Inputs – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following table presents, for each applicable level within the fair value hierarchy, the Company’s net derivative assets and liabilities, including both current and noncurrent portions, measured at fair value on a recurring basis:



(in thousands)	Level 1		Level 2		Level 3
March 31, 2020
Total assets	$	—	$	—	$	—
Total liabilities	—		8,777		—
December 31, 2019
Total assets	$	—	$	—	$	—
Total liabilities	—		325		—

Both financial and non-financial assets and liabilities are categorized within the above fair value hierarchy 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 in its entirety requires judgment and considers factors specific to the asset or liability. The following is a description of the valuation methodologies used by the Company as well as the general classification of such instruments pursuant to the above fair value hierarchy. There were no transfers between any of the fair value levels during any period presented.

Derivatives

The Company uses Level 2 inputs to measure the fair value of its oil and natural gas commodity derivatives. The Company uses industry-standard models that consider various assumptions including current market and contractual prices for the underlying instruments, implied market volatility, time value, nonperformance risk, as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument and can be supported by observable data. The Company utilizes its counterparties’ valuations to assess the reasonableness of its own valuations. Refer to Note 7—Derivative Instruments for details of the gross and net derivatives assets, liabilities and offset amounts presented in the Consolidated Balance Sheets.

Nonrecurring Fair Value Measurements

The Company applies the provisions of the fair value measurement standard on a nonrecurring basis to its non-financial assets and liabilities, including proved oil and gas properties. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances.

Impairment of Oil and Natural Gas Properties. The Company reviews its proved oil and natural gas properties for impairment whenever events and circumstances indicate that the fair value of these assets may be below their carrying value. The significant decrease in the forward price curves for crude oil and natural gas in March of 2020 resulted in a triggering event which required the Company to reassess its proved oil and natural gas properties for impairment as of March 31, 2020. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows from oil and gas properties is less than the carrying amount of the assets. In this circumstance, the Company then recognizes impairment expense for the amount by which the carrying amount of proved properties exceeds their estimated fair value. The Company reviews its oil and natural gas properties on a field-by-field basis.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company calculates the estimated fair values of its oil and natural gas properties using an income approach that is based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs to the expected future net cash flows used for the impairment review and the related fair value measurement of oil and natural gas proved properties include estimates of: (i) reserves; (ii) future production decline rates; (iii) future operating and development costs; (iv) future commodity prices, including price differentials; and (v) a market participant-based weighted average cost of capital rate. These inputs require significant judgments and estimates by the Company’s management and all available information was considered at the date of the review.

The impairment test performed by the Company indicated that a proved property impairment had occurred with respect to certain of its oil and gas fields, and therefore a non-cash impairment charge to reduce the carrying value of the impaired property to its fair value was recorded. Proved oil and natural gas properties with a previous carrying value of $771.4 million were partially written down to their fair value of $179.6 million, resulting in a non-cash impairment charge of $591.8 million being recorded during the three months ended March 31, 2020. The Company performed an impairment assessment of all its proved oil and gas properties as of March 31, 2020. Two of the Company’s fields were subject to an impairment write-down as quantified above, but the remaining five fields were not impaired due to their undiscounted cash flows exceeding their carrying values by 30% to over 100%. The Company did not recognize any impairment write-downs with respect to its proved property during the comparable 2019 period. Impairment expense for proved properties is presented as part of Impairment and Abandonment Expense in the Consolidated Statements of Operations.

Asset Retirement Obligations. The initial measurement of ARO at fair value is calculated using discounted cash flow techniques and is based on internal estimates of future retirement costs associated with property, plant and equipment. Significant Level 3 inputs used in the calculation of ARO include the estimated future costs to plug and abandon oil and gas properties and reserve lives. Refer to Note 5—Asset Retirement Obligations for additional information on the Company’s ARO.

Other Financial Instruments

The carrying amounts of the Company’s cash, cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate their fair values because of the short-term maturities and/or liquid nature of these assets and liabilities.

The Company’s Senior Notes and borrowings under its credit agreement are recorded at cost. The following table summarizes the fair values and carrying values of these instruments as of the dates indicated:



	March 31, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair value
Credit facility due 2023⁽¹⁾	$	235,000	$	235,000	$	175,000	$	175,000
5.375% Senior Notes due 2026⁽²⁾	392,881		96,000		392,623		394,480
6.875% Senior Notes due 2027⁽²⁾	490,038		122,500		489,766		520,000


⁽¹⁾	The carrying values of the amounts outstanding under CRP’s credit agreement approximate fair value because its variable interest rates are tied to current market rates and the applicable credit spreads represent current market rates for the credit risk profile of the Company.


⁽²⁾	The Senior Notes’ carrying values include associated unamortized debt issuance costs and any discounts. The Senior Notes’ fair values were determined using quoted market prices for these debt securities, a Level 1 classification in the fair value hierarchy.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9—Earnings Per Share

Basic earnings per share (“EPS”) is calculated by dividing net income available to Class A Common Stock by the weighted average shares of Class A Common Stock outstanding during each period. Diluted EPS is calculated by dividing adjusted net income available to Class A Common Stock by the weighted average shares of diluted Class A Common Stock outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities for the diluted EPS calculation consists of (i) unvested restricted stock and performance stock units, outstanding stock options, withholding amounts from employee stock purchase plan and warrants using the treasury stock method, and (ii) the Company’s Class C Common Stock using the “if-converted” method, which is net of tax. When a loss from continuing operations exists, all dilutive securities and potentially dilutive securities are anti-dilutive and are therefore excluded from the computation of diluted earnings per share.

The following table reflects the allocation of net income to common shareholders and EPS computations for the periods indicated based on a weighted average number of common shares outstanding for the period:



	Three Months Ended March 31,
(in thousands, except per share data)	2020			2019
Net income (loss) attributable to Class A Common Stock	$	(547,983	)	$	(8,112	)

Basic weighted average shares of Class A Common Stock outstanding	275,952			264,365
Diluted weighted average shares of Class A Common Stock outstanding	275,952			264,365

Basic net earnings (loss) per share of Class A Common Stock	$	(1.99	)	$	(0.03	)
Diluted net earnings (loss) per share of Class A Common Stock	$	(1.99	)	$	(0.03	)

The Company recognized a net loss during the three months ended March 31, 2020 and 2019. As a result, all potential common shares were anti-dilutive and were excluded from the calculation of diluted net earnings per share. The following table presents shares excluded from the diluted earnings per share calculation for the periods presented as their impact was anti-dilutive:



	Three Months Ended March 31,
(in thousands)	2020	2019
Out-of-the-money stock options	4,782	4,556
Restricted stock	5,143	1,516
Employee Stock Purchase Plan	1,138	—
Weighted average shares of Class C Common Stock	1,034	12,003
Warrants	8,000	8,000

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 10—Transactions with Related Parties

Riverstone and its affiliates beneficially own more than 10% equity interest in the Company and are therefore considered related parties. The Company has a marketing agreement with Lucid Energy Delaware, LLC (“Lucid”), an affiliate of Riverstone. The Company believes that the terms of the marketing agreement with Lucid are no less favorable to either party than those held with unaffiliated parties. The following table summarizes the revenues recognized and the associated processing fees incurred from this marketing agreement as presented in the Consolidated Statements of Operations for the periods indicated as well as the related net receivables outstanding as of the balance sheet dates:



	Three Months Ended March 31,
(in thousands)	2020		2019
Oil and gas sales	$	1,088	$	607
Gathering, processing and transportation expenses	953		317



(in thousands)	March 31, 2020		December 31, 2019
Accounts receivable, net⁽¹⁾	$	70	$	91

⁽¹⁾This accounts receivable represents amounts due from Lucid and are presented net of unpaid processing fees due Lucid as of the indicated period end date.

Note 11—Commitments and Contingencies

Commitments

The Company routinely enters into or extends operating agreements in the ordinary course of business. During the three months ended March 31, 2020, the Company amended one of its firm crude oil sales agreements, which moved the start date of its physical delivery commitments of 30,000 Bbls/d from 2020 to January 1, 2021, and affirmed May 31, 2025 as the end of the initial term of the agreement. There has been no other material, non-routine changes in commitments during the three months ended March 31, 2020. Please refer to Note 13—Commitments and Contingencies included in Part II, Item 8 in the Company’s 2019 Annual Report.

Contingencies

The Company may at times be subject to various commercial or regulatory claims, litigation or other legal proceedings that arise in the ordinary course of business. While the outcome of these lawsuits and claims cannot be predicted with certainty, management believes it is remote that the impact of such matters that are reasonably possible to occur will have a material adverse effect on the Company’s financial position, results of operations, or cash flows. Management is unaware of any pending litigation brought against the Company requiring a contingent liability to be recognized as of the date of these consolidated financial statements.

Note 12—Revenues

Revenue from Contracts with Customers

Crude oil, natural gas and NGL sales are recognized at the point that control of the product is transferred to the customer and collectability is reasonably assured. Virtually all of the Company’s contract pricing provisions are tied to a market index, with certain adjustments based on, among other factors, transportation costs to an active spot market and quality differentials. As a result, the Company’s realized price of oil, natural gas, and NGLs fluctuates to remain competitive with other available oil, natural gas, and NGLs supplies both globally (in the case of crude oil) and locally.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Oil and gas revenues presented within the Consolidated Statements of Operations relate to the sale of oil, natural gas and NGLs as shown below:



	Three Months Ended March 31,
	2020		2019
Operating revenues (in thousands):
Oil sales	$	170,505	$	175,554
Natural gas sales	8,358		12,497
NGL sales	13,906		26,518
Oil and gas sales	$	192,769	$	214,569

Oil sales

The Company’s crude oil sales contracts are generally structured whereby oil is delivered to the purchaser at a contractually agreed-upon delivery point at which the purchaser takes title of the product. This delivery point is usually at the wellhead or at the inlet of a transportation pipeline. Revenue is recognized when control transfers to the purchaser at the delivery point based on the net price received from the purchaser. Any downstream transportation costs incurred by crude purchasers are reflected as a net reduction to oil sales revenues.

Natural gas and NGL sales

Under the Company’s natural gas processing contracts, liquids rich natural gas is delivered to a midstream processing entity at the inlet of the gas plant processing system. The midstream processing entity gathers and processes the raw gas and then remits proceeds to Centennial for the resulting sales of NGLs, while the Company generally elects to take its residue gas product “in-kind” at the plant tailgate. For these contracts, the Company evaluates when control is transferred and revenue should be recognized. Where the Company has concluded that control transfers at the tailgate of the processing facility, fees incurred prior to transfer of control are presented as gathering, processing and transportation expenses (“GP&T”) within the Consolidated Statements of Operations. Any transportation and fractionation costs incurred subsequent to the point of transfer of control are reflected as a net reduction to natural gas and NGL sales revenues presented in the table above.

Performance obligations

For all commodity products, the Company records revenue in the month production is delivered to the purchaser. Settlement statements for natural gas and NGL sales may not be received for 30 to 90 days after the date production volumes are delivered and for crude oil, generally within 30 days after delivery has occurred. However, payment is unconditional once the performance obligations have been satisfied. At this time, the volume and price can be reasonably estimated and amounts due from customers are accrued in Accounts receivable, net in the Consolidated Balance Sheets. As of March 31, 2020 and December 31, 2019, such receivable balances were $36.1 million and $76.6 million, respectively.

The Company records any differences between its estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. Historically, any identified differences between revenue estimates and actual revenue received have not been significant. For the three months ended March 31, 2020 and 2019, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods were not material.

Transaction price allocated to remaining performance obligations

For the Company’s product sales that have a contract term greater than one year, the Company has utilized the practical expedient in ASC Topic 606, Revenue from contracts with Customers, which states the Company is not required to disclose the transaction price allocated to the remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, monthly sales of a product generally represent a separate performance obligation; therefore, future commodity volumes to be delivered and sold are wholly unsatisfied, and disclosure of the transaction price allocated to such unsatisfied performance obligations is not required.

Note 13—Leases

At contract inception, the Company determines whether or not an arrangement contains a lease. However, in connection with the implementation of ASC Topic 842, Leases (“ASC 842”), this assessment was made as of the adoption date of ASC 842. Upon determination of a lease, a lease right-of-use (ROU) asset and related liability are recorded based on the present value of the future lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make future lease payments arising from the lease.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Currently, the Company has operating leases for drilling rig contracts, office rental agreements, and other wellhead equipment. As of March 31, 2020, these leases have remaining lease terms ranging from two months to two years, some of which include options to extend the lease term for up to five years, and some of which include options to early terminate. These options are considered in determining the lease term and are included in the present value of future payments that are recorded for leases when the Company is reasonably certain to exercise the option. Leases with an initial term of one year or less are not recorded in the Consolidated Balance Sheets. Additionally, none of the Company’s lease agreements contain any material residual value guarantees or material restrictive covenants.

The present value of future lease payments is determined at the lease commencement date based upon the Company’s incremental borrowing rate. The incremental borrowing rate is calculated using a risk-free interest rate adjusted for the Company’s specific risk and the specific lease term. The table below summarizes the Company’s weighted-average discount rate and weighted-average remaining lease term as of the period presented.



	As of March 31, 2020
Weighted-average discount rate	4.82	%
Weighted-average remaining lease term (years)	1.26

The Company’s drilling rig contracts, office rental agreements, and wellhead equipment agreements contain both lease and non-lease components, which are combined and accounted for as a single lease component.

Variable lease payments are recognized in the period in which they are incurred and include operating expenses related to the office rental agreements and expenses incurred on the drilling rig contracts in excess of the contractual rate. Expenses related to short-term leases are recognized on a straight-line basis over the lease term. The following table presents the various components of the Company’s lease expenses for the periods presented.



	Three Months Ended March 31,
(in thousands)	2020		2019
Lease costs⁽¹⁾
Operating lease cost	$	4,676	$	10,587
Variable lease cost	1,352		801
Short-term lease cost⁽²⁾	19,610		12,224
Total lease cost	$	25,638	$	23,612

⁽¹⁾

The majority of the Company’s operating leases relate to the operations, drilling or completion of the Company’s wells. Therefore, the lease costs presented in the above table represent the total gross costs the Company incurs, which are not comparable to the Company’s net costs recorded to the Consolidated Statements of Operations, Consolidated Statements of Cash Flows or capitalized in the Consolidated Balance Sheets, as amounts therein are reflected net of amounts billed to the Company’s working interest partners.


⁽²⁾	Includes drilling rig lease costs of $11.2 million which may not necessarily be recurring in these amounts in the near-term based on the Company’s current drilling plan discussed in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operational Highlights.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Maturities of the Company’s long-term operating lease liabilities by fiscal year as of March 31, 2020 are as follows:



(in thousands)	Total⁽²⁾
2020⁽¹⁾	$	5,847
2021	3,033
2022	425
Total lease payments	9,305
Less: imputed interest	(313		)
Present value of lease liabilities ⁽³⁾	$	8,992


⁽¹⁾	Excludes payments made during the three months ended March 31, 2020.


⁽²⁾	Total lease payments exclude variable lease payments which can be charged under the terms of the lease agreements.


⁽³⁾	Of the total present value of lease liabilities, $6.4 million was recorded to current Operating lease liabilities and $2.6 million was recorded in noncurrent Operating lease liabilities in the Consolidated Balance Sheets as of March 31, 2020.

Note 14—Subsequent Events

Nasdaq listing Notice

On April 21, 2020, the Company received written notification (the “Notice”) from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the last thirty consecutive business days, the bid price for the Company’s Class A Common Stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”). The Notice has no immediate effect on the listing or trading of the Company’s common stock on the Nasdaq Capital Market. The Company was provided an initial period of 180 calendar days, or until October 19, 2020, to regain compliance. However, due to recent market turmoil, Nasdaq has filed a rule change which has the effect of extending the Company’s compliance period until December 28, 2020. If the Company does not regain compliance with the Minimum Bid Requirement by December 28, 2020, the Company may be eligible for an additional 180 calendar day compliance period. The Company intends to actively monitor the closing bid price of its Common Stock and will evaluate available options to regain compliance with the Minimum Bid Requirement, as necessary.

Senior Notes Exchange

On April 22, 2020, the Company commenced offers to all eligible holders of its Senior Notes to exchange any and all of their Senior Notes held for up to $250.0 million aggregate principal amount of newly issued 8% Second Lien Senior Secured Notes due 2025 and up to $200.0 million aggregate principal amount of newly issued 8% Third Lien Senior Secured Notes due 2027 (the “Exchange Offers”). In accordance with the Exchange Offers, the eligible holders of the Senior Notes can early tender their holdings on or before May 5, 2020 or can normally tender on or before May 19, 2020. The transaction is currently expected to close on May 22, 2020, subject to customary closing conditions.

Amendments to the Credit Agreement

On May 1, 2020, the Company and CRP entered into amendments to CRP’s amended and restated credit agreement (the “Amendments”) with the lenders to its existing credit agreement. Pursuant to the Amendments, the borrowing base and elected commitments were reduced to $700.0 million. In addition, to the extent that the Exchange Offers close, the Amendments introduce a minimum availability condition to borrowing at the lesser of $100.0 million and 25% of the aggregate principal amount of the new second and third lien senior secured notes outstanding from the Exchange Offers discussed above. If the minimum availability condition to borrowing were to be determined at its maximum level of $100.0 million, it would have the resulting effect of limiting the amount of borrowings that CRP could draw against its $700.0 million credit facility to $600.0 million. Among other things, the Amendments also suspended the total funded debt to EBITDAX ratio (as specified in the Company’s existing credit agreement) through year-end 2021, introduced a new financial covenant testing the ratio of first lien debt to EBITDAX, and permitted the issuance of new senior secured notes in connection with the Exchange Offers described above.

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CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Amendment to 2016 LTIP

On April 29, 2020, the stockholders of the Company approved the amended and restated LTIP, which, among other things, increased the number of shares of Class A Common Stock authorized for issuance by 8,250,000 shares.

Class C Common Stock Conversion to Class A Common Stock

On April 2, 2020, the legacy owners of CRP exchanged all of their remaining 1,034,119 CRP Common Units (and corresponding shares of Class C Common Stock) for Class A Common Stock, and as a result, the Company currently owns all of the membership interests in CRP. No cash proceeds were received by the Company in connection with this exchange.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion and analysis of our financial condition and results of operation should be read in conjunction with the accompanying consolidated financial statements and related notes. The following discussion and analysis contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil, natural gas and NGLs, production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, regulatory changes, continued and future impacts of Coronavirus Disease 2019 (“COVID-19”) and other uncertainties, as well as those factors discussed above in “Cautionary Statement Regarding Forward-Looking Statements” and in this Quarterly Report and our 2019 Annual Report under the heading “Item 1A. Risk Factors,” all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

Overview

Centennial Resource Development, Inc. (“Centennial,” “we,” “us,” or “our”) is an independent oil and natural gas company focused on the development of unconventional oil and associated liquids-rich natural gas reserves in the Permian Basin. Our assets are primarily in the Delaware Basin, a sub-basin of the Permian Basin. Our capital programs are specifically focused on projects that we believe provide the highest return on capital. Unless otherwise specified or the context otherwise requires, all references in these discussions to “Centennial,” “we,” “us,” or “our” are to Centennial Resource Development, Inc. and its consolidated subsidiary, Centennial Resource Production, LLC (“CRP”).

Market Conditions

The recent worldwide outbreak of COVID-19, the uncertainty regarding the impact of COVID-19 and various governmental actions taken to mitigate the impact of COVID-19, have resulted in an unprecedented decline in demand for oil and natural gas. At the same time, the decision by Saudi Arabia in March 2020 to drastically reduce export prices and increase oil production followed by curtailment agreements among OPEC and other countries such as Russia further increased uncertainty and volatility around global oil supply-demand dynamics. As a result, there has been a significant decline in commodity prices during the first quarter of 2020. Specifically, WTI spot prices for crude oil dropped to $20.09 per barrel on March 30, 2020 from a high of $63.27 per barrel on January 6, 2020.

The oil and natural gas industry is cyclical, and it is likely that commodity prices, as well as commodity price differentials, will continue to be volatile and fluctuate due to global supply and demand, inventory levels, the continued effects from COVID-19, other geopolitical events, weather conditions and other factors. The following table highlights the quarterly average NYMEX price trends for crude oil and natural gas since the first quarter of 2018:



	2018								2019								2020
	Q1		Q2		Q3		Q4		Q1		Q2		Q3		Q4		Q1
Crude oil (per Bbl)	$	62.91	$	68.07	$	69.50	$	58.81	$	54.90	$	59.81	$	56.45	$	56.94	$	46.19
Natural gas (per MMBtu)	$	3.08	$	2.85	$	2.93	$	3.77	$	2.88	$	2.51	$	2.33	$	2.34	$	1.88

A sustained drop in oil, natural gas and NGL prices, such as we are experiencing thus far in March and April of 2020, will not only decrease our revenues on a per unit basis but can also reduce the amount of oil, natural gas and NGLs that we can produce economically and therefore potentially lower our oil, natural gas and NGL reserve quantities.

Lower commodity prices (including our realized differentials), such as those that we are continuing to observe thus far in the second quarter of 2020 and in the futures curve, can also result in further impairments of our proved oil and natural gas properties or undeveloped acreage (such as the impairments discussed below under “Results of Operations”) and may materially and adversely affect our future business, financial condition, results of operations, operating cash flows, liquidity and/or ability to finance planned capital expenditures. Lower realized prices may also reduce the borrowing base under CRP’s credit agreement (such as the reduction discussed below under “Financing Highlights”), which is determined at the discretion of the lenders and is based on the collateral value of our proved reserves that have been mortgaged to the lenders. Upon a redetermination, if any borrowings in excess of the revised borrowing capacity were outstanding, we could be forced to immediately repay a portion of the debt outstanding under the credit agreement. Additionally, the lower price environment and its impact to our operations could impact our ability to comply with the covenants under our credit agreement and Senior Notes.

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COVID-19 Outbreak

The COVID-19 outbreak and its development into a pandemic in March 2020 have required that we take precautionary measures intended to help minimize the risk to our business, employees, customers, suppliers and the communities in which we operate. Our operational employees are currently still able to work on site. However, we have taken various precautionary measures with respect to such operational employees such as requiring them to verify they have not experienced any symptoms consistent with COVID-19, or been in close contact with someone showing such symptoms, before reporting to the work site, quarantining any operational employees who have shown signs of COVID-19 (regardless of whether such employee has been confirmed to be infected) and imposing social distancing requirements on work sites, all in accordance with the guidelines released by the Center for Disease Control. In addition, the vast majority of our non-operational employees are now working remotely. We have not yet experienced any material operational disruptions (including disruptions from our suppliers and service providers) as a result of the COVID-19 outbreak, nor have we had any confirmed cases of COVID-19 on any of our work sites.

2020 Highlights and Future Considerations

The changes in the macro environment and related decline in commodity prices that occurred during the first quarter of 2020 discussed above have significantly impacted our results of operations for the three months ended March 31, 2020. However, the majority of these market impacts were experienced at the end of the first quarter of 2020. Therefore, we believe that our future operating results and near-term financial condition will continue to be impacted. Further, our results of operations for the three months ended March 31, 2020 discussed within this Quarterly Report will likely not be indicative of our operating results for the remainder of 2020 due to the timing of operational changes and continued volatility of commodity prices.

Operational Highlights

We operated a five-rig drilling program during the majority of the first three months of 2020, which enabled us to complete and bring online 22 gross operated wells with an average effective lateral length of approximately 6,900 feet.

Due to the decline in crude oil prices and ongoing uncertainty regarding the oil supply-demand macro environment, we have recently suspended all drilling and completion activities in order to preserve capital. Specifically, we recently reduced our operated drilling rig program to zero rigs in April of 2020. In addition, given the weakness in realized oil prices, we are actively evaluating whether to voluntarily curtail or shut-in a substantial portion of our current production volumes, and we expect to voluntarily curtail up to 40% of our production during the month of May. Further potential curtailment decisions will continue to be evaluated and made on a month-to-month basis subject to market conditions, storage or transportation constraints, and contractual obligations. As substantially all of our revenues are generated by the production and sale of hydrocarbons, the curtailment or shut-in of our production could adversely affect our business, financial condition, results of operations, liquidity, and ability to finance planned capital expenditures.

Divestiture Highlights

On February 24, 2020, we entered into a purchase and sale agreement to sell our water disposal assets for a base sale price of approximately $150.0 million in cash at closing with up to an additional $75.0 million in deferred incentive payments based on future drilling activity (all amounts are subject to post-closing adjustments). The water disposal assets include certain saltwater disposal wells and the associated water infrastructure located in Reeves and Ward counties in Texas. The original closing date of the sale was March 31, 2020, however, the transaction has been delayed. While the transaction currently remains pending, either party may terminate the transaction if closing does not occur on or before May 15, 2020.

Financing Highlights

On April 22, 2020, we commenced offers to all eligible holders of our 5.375% Senior Notes due 2026 (the “2026 Senior Notes”) and 6.875% Senior Notes due 2027 (“the 2027 Senior Notes” and together with the 2026 Senior Notes, the “Senior Notes”) to exchange (the “Exchange Offers”) any and all of their Senior Notes held for up to $250.0 million aggregate principal amount of newly issued 8% Second Lien Senior Secured Notes due 2025 (the “Second Lien Notes”) and up to $200.0 million aggregate principal amount of newly issued 8% Third Lien Senior Secured Notes due 2027 (together with the Second Lien Notes, the “New Notes”). In accordance with the Exchange Offers, the eligible holders of the Senior Notes can early tender their holdings on or before May 5, 2020 or can normally tender on or before May 19, 2020. The transaction is currently expected to close on May 22, 2020, subject to customary closing conditions.

On May 1, 2020, we entered into amendments to CRP’s amended and restated credit agreement (the “Amendments”) with the lenders to our existing credit agreement. Pursuant to the Amendments, the borrowing base and elected commitments were reduced to $700.0 million. In addition, to the extent that the Exchange Offers close, the Amendments introduce a minimum availability condition to borrowing at the lesser of $100.0 million and 25% of the aggregate principal amount of New Notes outstanding from the Exchange Offers. Among other things, the Amendments also suspended the total funded debt to EBITDAX ratio (as specified in the existing credit agreement) through year-end 2021, introduced a new financial covenant testing the ratio of first lien debt to EBITDAX, and permitted the issuance of new senior secured notes in connection with the Exchange Offers described above.

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Marketing Highlights

We have entered into fixed price oil swaps for April through December of 2020 to protect against possible, additional near-term declines in oil prices. During this period, the Company has hedged an average of approximately 19,400 barrels per day of oil at a weighted average price of $26.79 per barrel. In addition, we have natural gas hedges and oil basis swaps in place for 2020.

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Results of Operations

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

The following table provides the components of our net revenues and net production (net of all royalties, overriding royalties and production due to others) for the periods indicated, as well as each period’s average prices and average daily production volumes:



	Three Months Ended March 31,						Increase/(Decrease)
	2020			2019			$			%
Net revenues (in thousands):
Oil sales	$	170,505		$	175,554		$	(5,049	)	(3	)%
Natural gas sales	8,358			12,497			(4,139		)	(33	)%
NGL sales	13,906			26,518			(12,612		)	(48	)%
Oil and gas sales	$	192,769		$	214,569		$	(21,800	)	(10	)%

Average sales prices:
Oil (per Bbl)	$	45.14		$	48.15		$	(3.01	)	(6	)%
Effect of derivative settlements on average price (per Bbl)	(0.01		)	(0.22		)	0.21			95	%
Oil net of hedging (per Bbl)	$	45.13		$	47.93		$	(2.80	)	(6	)%

Average NYMEX price for oil (per Bbl)	$	46.19		$	54.90		$	(8.71	)	(16	)%
Oil differential from NYMEX	(1.05		)	(6.75		)	5.70			84	%

Natural gas (per Mcf)	$	0.78		$	1.39		$	(0.61	)	(44	)%
Effect of derivative settlements on average price (per Mcf)	—			0.05			(0.05		)	(100	)%
Natural gas net of hedging (per Mcf)	$	0.78		$	1.44		$	(0.66	)	(46	)%

Average NYMEX price for natural gas (per Mcf)	$	1.88		$	2.88		$	(1.00	)	(35	)%
Natural gas differential from NYMEX	(1.10		)	(1.49		)	0.39			26	%

NGL (per Bbl)	$	14.30		$	19.74		$	(5.44	)	(28	)%

Net production:
Oil (MBbls)	3,778			3,646			132			4	%
Natural gas (MMcf)	10,715			8,964			1,751			20	%
NGL (MBbls)	972			1,343			(371		)	(28	)%
Total (MBoe)⁽¹⁾	6,536			6,483			53			1	%

Average daily net production:
Oil (Bbls/d)	41,512			40,508			1,004			2	%
Natural gas (Mcf/d)	117,751			99,596			18,155			18	%
NGL (Bbls/d)	10,683			14,927			(4,244		)	(28	)%
Total (Boe/d)⁽¹⁾	71,820			72,035			(215		)	—	%


⁽¹⁾	Calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Boe.

Oil, Natural Gas and NGL Sales Revenues. Total net revenues for the three months ended March 31, 2020 were $21.8 million (or 10%) lower than total net revenues for the three months ended March 31, 2019. Revenues are a function of oil, natural gas and NGL volumes sold and average commodity prices realized.

Average realized sales prices for oil, natural gas and NGLs decreased in the first quarter of 2020 compared to the same 2019 period. The average price for oil before the effects of hedging decreased 6%, the average price for natural gas before the effects of

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hedging decreased 44%, and the average price for NGLs decreased 28% between periods. The 6% decrease in the average realized oil price was the result of lower NYMEX crude prices between periods (average NYMEX prices decreased 16%), and this lower index price was partially offset by improved oil differentials (a decrease of $5.70 per Bbl). The average realized sales price of natural gas decreased 44% due to lower average NYMEX gas prices between periods (average NYMEX prices decreased $1.00), but this decrease was partially offset by improved gas differentials (a decrease of $0.39 per Mcf) between periods. The 28% decrease in average realized NGL prices between periods was primarily attributable to lower Mont Belvieu spot prices for plant products in the first quarter of 2020 as compared to the first quarter of 2019. The market prices for oil, natural gas and NGLs were all impacted by the lower global demand for oil and gas as a result of COVID-19 as well as commodity supply disruptions, which resulted in significant price declines in March and April of 2020 as discussed in the market conditions section above.

The decreases in realized sales prices were partially offset by slightly higher net production volumes between periods. Net production volumes for oil and natural gas increased 4% and 20%, respectively, while NGL production volumes decreased 28% between periods. The oil volume increase resulted primarily from our successful drilling activities in the Delaware Basin. Since the first quarter 2019, we placed 86 gross operated wells on production in the Delaware, which added 1,864 MBbls of net oil production to the first quarter of 2020. These oil volume increases were partially offset by normal field production declines across our existing wells. Natural gas and NGLs are produced concurrently with our crude oil volumes, typically resulting in a high correlation between fluctuations in oil quantities sold and natural gas and NGL quantities sold. However, during the first quarter of 2020, the main processor of our raw gas operated in ethane-rejection as compared to operating in ethane-recovery during the same 2019 period. As a result of this switch, we recovered an increased amount of natural gas from our wet gas stream and recovered fewer NGLs, resulting in a significant increase in natural gas volumes between periods (up 20%) and a 28% decrease in NGL volumes between periods.

Operating Expenses. The following table sets forth selected operating expense data for the periods indicated:



	Three Months Ended March 31,				Increase/(Decrease)
	2020		2019		$		%
Operating costs (in thousands):
Lease operating expenses	$	32,639	$	29,862	$	2,777	9	%
Severance and ad valorem taxes	16,573		16,120		453		3	%
Gathering, processing and transportation expenses	16,939		15,024		1,915		13	%
Operating costs per Boe:
Lease operating expenses	$	4.99	$	4.61	$	0.38	8	%
Severance and ad valorem taxes	2.54		2.49		0.05		2	%
Gathering, processing and transportation expenses	2.59		2.32		0.27		12	%

Lease Operating Expenses. Lease operating expenses (“LOE”) for the three months ended March 31, 2020 increased $2.8 million compared to the three months ended March 31, 2019. Higher LOE for the first quarter of 2020 was primarily related to a $5.6 million increase in expense associated with our higher well count. We had 377 gross operated horizontal wells as of March 31, 2020 as compared to 280 gross operated horizontal wells as of March 31, 2019. The net increase in well count was mainly due to our drilling activity adding 86 gross operated wells since the first quarter of 2019, which was further adjusted for acquisitions and divestitures. Such increase was partially offset by a $2.8 million decreased in workover expense between periods as a result of lower workover activity.

LOE on a per Boe basis increased when comparing the first quarter of 2020 to the same 2019 period. LOE per Boe was $4.99 for the first quarter of 2020, which represents an increase of $0.38 per Boe from the first quarter of 2019. This increase in rate was mainly due to the following factors: (i) a decline in the ratio of flush production to base production based on our level of D&C activity in 2020; (ii) increased wellhead chemical costs; and (iii) higher electricity expense in the first quarter of 2020 . These increases were partially offset by lower contract labor costs between periods and the lower level of workover activity discussed above.

Severance and Ad Valorem Taxes. Severance and ad valorem taxes for the three months ended March 31, 2020 increased $0.5 million compared to the three months ended March 31, 2019. Severance taxes are primarily based on the market value of production at the wellhead, while ad valorem taxes are generally based on the taxable value of proved developed oil and natural gas reserves and vary across the different counties in which we operate. Severance and ad valorem taxes as a percentage of total net revenues increased to 8.6% for three months ended March 31, 2020 as compared to 7.5% for the same 2019 period due to increased ad valorem taxes of $1.1 million between periods, resulting from our higher well count and higher oil and gas reserve values.

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Gathering, Processing and Transportation Expenses. Gathering, processing and transportation expenses (“GP&T”) for the three months ended March 31, 2020 increased $1.9 million as compared to the three months ended March 31, 2019 primarily due to a $2.8 million decrease in reimbursements (net of related fees) received from third parties for their usage of our firm transport (“FT”) capacity. This was partially offset by a decrease in plant processing costs, transportation tariffs and gathering fees incurred between periods.

On a per Boe basis, GP&T increased 12% from $2.32 for the first quarter of 2019 to $2.59 per Boe for the first quarter of 2020. On a natural gas and NGL volumes basis (i.e. excluding crude oil barrels) the Boe rate likewise increased between periods to $6.14 from $5.29 for the three months ended March 31, 2020 and 2019, respectively. These rate increases were mainly attributable to a decrease in reimbursements (net of related FT fees) received from third parties for their usage of our FT capacity as discussed above. This was partially offset by decreased plant processing costs, which are primarily based on natural gas and NGL prices that were both lower between periods.

Depreciation, Depletion and Amortization. The following table summarizes our depreciation, depletion and amortization (“DD&A”) for the periods indicated:



	Three Months Ended March 31,
(in thousands, except per Boe data)	2020		2019
Depreciation, depletion and amortization	$	101,258	$	96,558
Depreciation, depletion and amortization per Boe	$	15.49	$	14.89

Our DD&A rate can fluctuate as a result of finding and development costs incurred, acquisitions, impairments, as well as changes in proved developed and proved undeveloped reserves. For the three months ended March 31, 2020, DD&A expense amounted to $101.3 million, an increase of $4.7 million over the same 2019 period. The primary factor contributing to higher DD&A expense in 2020 was the increase in DD&A rates between periods, which added $3.9 million of incremental DD&A expense to the first quarter of 2020, while the increase in our overall production volumes between periods contributed an additional $0.8 million of DD&A expense to the first quarter of 2020.

DD&A per Boe was $15.49 for the first quarter of 2020 compared to $14.89 for the same period in 2019. The increase in the DD&A rate was due to a higher level of infrastructure costs in the trailing twelve months, which have no associated proved reserve adds when they are incurred. However, our DD&A per Boe rate of $15.49 decreased from our fourth quarter DD&A rate of $16.75 due to proved developed and proved undeveloped reserves added during the first quarter of 2020 combined with lower drilling and completion costs per well that we realized during the three months ended March 31, 2020. In addition, we anticipate that our DD&A per Boe rate for the remainder of 2020 may continue to decline as a result of the proved property impairment recognized in the first quarter of 2020 as discussed below.

Impairment and Abandonment Expense. During the three months ended March 31, 2020, $611.3 million of impairment and abandonment expense was incurred related to certain of our oil and natural gas properties. This expense consisted of (i) a $591.8 million non-cash impairment of our proved oil and gas properties as a result of depressed oil, natural gas and NGL commodity prices at March 31, 2020, and (ii) $19.5 million related to the amortization of leasehold expiration costs associated with individually insignificant unproved properties.

We review our proved oil and natural gas properties for impairment whenever events and circumstances indicate that the fair value of these assets may be below their carrying value. Fair values of our oil and natural gas properties is estimated using an income approach that is based on the discounted expected future net cash flows from these assets. This valuation is based on inputs which require significant judgments and include estimates of: (i) reserves; (ii) future production decline rates; (iii) future operating and development costs; (iv) future commodity prices, including price differentials; and (v) a market participant-based weighted average cost of capital rate.

We performed an impairment assessment of all our proved oil and gas properties as of March 31, 2020. Two of our fields were subject to impairment write-downs as quantified above, but the remaining five fields were not impaired due to their undiscounted cash flows exceeding their carrying values by 30% to over 100%. This impairment assessment was performed using commodity price futures curves as of March 31, 2020. If future oil, natural gas and NGL prices continue to decline to lower levels, or other estimates impacting future net cash flows deteriorate (e.g. reserves, price differentials, future operating and/or development costs), our proved oil and gas properties could be subject to additional impairment write-downs in future periods.

During the three months ended March 31, 2019, $31.3 million of impairment and abandonment expense was incurred related to undeveloped leasehold acreage. This expense consisted of (i) $14.7 million related to non-core acreage that expired during the period after efforts to extend, sell or trade these leases were unsuccessful, and (ii) $16.6 million for impaired acreage following an acreage sale initiated in the first quarter of 2019.

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Exploration Expense. The following table summarizes our exploration expense for the periods indicated:



	Three Months Ended March 31,
(in thousands)	2020		2019
Geological and geophysical costs	$	1,993	$	1,634
Rig termination fees	1,499		283
Stock-based compensation	517		599
Exploration expense	$	4,009	$	2,516

Exploration expense was $4.0 million for the three months ended March 31, 2020 compared to $2.5 million for the three months ended March 31, 2019. Exploration expense mainly consists of topographical studies, geographical and geophysical (“G&G”) projects, and salaries and expenses of G&G personnel and includes other operating costs. The period over period increase was primarily related to the $1.2 million increase in rig termination fees incurred in the first quarter of 2020 as a result of reducing our operated drilling program from five rigs to one in March of 2020.

General and Administrative Expenses. The following table summarizes our general and administrative (“G&A”) expenses for the periods indicated:



	Three Months Ended March 31,
(in thousands)	2020		2019
Cash general and administrative expenses	$	12,978	$	12,234
Stock-based compensation	5,892		5,884
General and administrative expenses	$	18,870	$	18,118

G&A expenses for the three months ended March 31, 2020 were consistent with the same period of 2019. This was a result of consistent head count and activity during both periods. As a result of our reduction in force announced in the second quarter of 2020, we will incur one-time non-reoccurring severance costs in the second quarter of 2020. Further, we anticipate that our cash G&A expenses will decline from the expense level incurred in the first quarter of 2020, as a result of these reductions in personnel.

Other Income and Expenses.

Interest Expense. The following table summarizes our interest expense for the periods indicated:



	Three Months Ended March 31,
(in thousands)	2020			2019
Credit facility	$	2,167		$	3,734
5.375% Senior Notes due 2026	5,374			5,374
6.875% Senior Notes due 2027	8,594			1,528
Amortization of debt issuance costs and debt discount	799			512
Interest capitalized	(513		)	(988		)
Total	$	16,421		$	10,160

Interest expense was $6.3 million higher for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 primarily due to $7.1 million in increased interest on our 2027 Senior Notes due to the fact that they were issued in March of 2019. This increase was partially offset by lower interest expense incurred on the credit facility due to decreased borrowings outstanding coupled with lower interest rates in the first quarter of 2020. Our weighted average borrowings outstanding under our credit facility were $233.9 million versus $304.3 million for the three months ended March 31, 2020 and 2019, respectively. Our credit facility’s weighted average effective interest rate (which is a LIBOR-based rate) was 2.84% and 4.37% for the three months ended March 31, 2020 and 2019, respectively. LIBOR was lower in the first quarter of 2020 versus the prior year quarter.

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Net Gain (Loss) on Derivative Instruments. Net gains and losses are a function of (i) fluctuations in mark-to-market derivative fair values associated with corresponding changes in the forward price curves for the underlying commodities and (ii) monthly cash settlements on our hedged derivative positions.

The following table presents gains and losses on our derivative instruments for the periods indicated:



	Three Months Ended March 31,
(in thousands)	2020			2019
Cash settlement gains (losses)	$	(53	)	$	(377	)
Non-cash mark-to-market derivative gain (loss)	(8,452		)	(5,494		)
Total	$	(8,505	)	$	(5,871	)

Income Tax Expense. We recognized income tax benefits of $83.2 million and $2.3 million for the three months ended March 31, 2020 and 2019, respectively. The increase in income tax benefit for the three months ended March 31, 2020 as compared to 2019 was primarily due to a larger pre-tax book loss of $622.8 million between periods. Our provisions for income taxes for the first quarter of 2020 and 2019 differed from the amounts that would be provided by applying the statutory U.S. federal income tax rate of 21% to pre-tax book loss primarily due to i) state income taxes; ii) estimated permanent differences; and iii) the recognition of a $55.6 million valuation allowance in the first quarter of 2020 against deferred tax assets that are not expected to be realized.

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Liquidity and Capital Resources

Overview

Our drilling and completion and land acquisition activities require us to make significant capital expenditures. Historically, our primary sources of liquidity have been cash flows from operations, borrowings under CRP’s revolving credit facility, and proceeds from offerings of debt or equity securities. Future cash flows are subject to a number of variables, including oil and natural gas prices. Prices for oil and natural gas began to decline significantly in March 2020 and have continued to deteriorate and have remained low since. These lower commodity prices negatively impact our cash flows and availability to access debt or equity markets, and sustained low oil and natural gas prices could have a material and adverse effect on our liquidity position. To date, our primary use of capital has been for drilling and development capital expenditures and the acquisition of oil and natural gas properties. The following table summarizes our capital expenditures (“capex”) incurred for the three months ended March 31, 2020:



(in millions)	Three Months Ended March 31, 2020
Drilling and completion capital expenditures	$	146.8
Facilities, infrastructure and other	25.2
Land	3.4
Total capital expenditures	$	175.4

We continually evaluate our capital needs and compare them to our capital resources. As a result of the recent decline in crude oil prices and ongoing uncertainty regarding the oil supply-demand macro environment, we have recently suspended all drilling and completion activities in order to preserve capital. Specifically, we recently reduced our operated drilling rig program to zero rigs, which is down from the four-rig program that we announced with our 2020 operational guidance. Consequently, we expect that our total capex budget for 2020 will be between $240.0 million to $290.0 million, which represents an approximate 60% reduction from the mid-point of our original estimated capex budget for 2020 of $590 million to $690 million.

Because we are the operator of a high percentage of our acreage, we can control the amount and timing of our capital expenditures. We can choose to defer or accelerate a portion of our planned capex depending on a variety of factors, including but not limited to: prevailing and anticipated prices for oil and natural gas; oil storage or transportation constraints; the success of our drilling activities; the availability of necessary equipment, infrastructure and capital; the receipt and timing of required regulatory permits and approvals; seasonal conditions; drilling and acquisition costs; and the level of participation by other working interest owners.

Given the weakness in realized oil prices, we are actively evaluating whether to voluntarily curtail or shut-in a substantial portion of our current production volumes, and we expect to voluntarily curtail up to 40% of our production during the month of May. Further potential curtailment decision will continue to be evaluated and made on a month-to-month basis subject to market conditions, storage and transportation constraints, and contractual obligations. Any decision in the future to further curtail or shut-in our production could adversely affect our business, financial condition, results of operations, liquidity, and ability to finance planned capital expenditure.

We expect to fund the remainder of our 2020 capital expenditures with cash flows from operations and borrowings under our Credit Agreement. We cannot ensure that cash flows from operations will be available or other sources of needed capital on acceptable terms or at all. Further, our ability to access the public or private debt or equity capital markets on economic terms in the future will be affected by general economic conditions, the domestic and global financial markets, our operational and financial performance, the value and performance of our debt or equity securities, prevailing commodity prices and other macroeconomic factors outside of our control.

Moreover, to manage our future financing cash outflows and liquidity position, we have initiated the Exchange Offers with respect to our Senior Notes in April 2020 which if successful, would lower our outstanding debt and future interest payments.

Analysis of Cash Flow Changes

The following table summarizes our cash flows for the periods indicated:



	Three Months Ended March 31,
(in thousands)	2020			2019
Net cash provided by operating activities	$	100,818		$	101,028
Net cash used in investing activities	(166,976		)	(218,878		)
Net cash provided by financing activities	59,792			189,186

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For the three months ended March 31, 2020, we generated $100.8 million of cash from operating activities, a decrease of only $0.2 million from the same period in 2019. Cash provided by operating activities decreased primarily due to lower realized prices for crude oil, natural gas and NGLs, lower NGL production volumes, higher lease operating expenses, production taxes, GP&T costs, exploration expense, cash G&A expenses, and the timing of supplier payments during the three months ended March 31, 2020. These declining factors were partially offset by higher crude oil and natural gas production volumes, lower interest payments, lower cash settlement losses from derivatives, and the timing of our receivable collections for the three months ended March 31, 2020 as compared to the same 2019 period. Refer to “Results of Operations” for more information on the impact of volumes and prices on revenues and for more information on fluctuations in our operating expenses between periods.

During the three months ended March 31, 2020, cash flows from operating activities, cash on hand, and net borrowings of $60.0 million under our credit facility were used to finance $161.9 million of drilling and development capex and to fund $5.8 million in oil and gas property acquisitions.

During the three months ended March 31, 2019, cash flows from operating activities, cash on hand, proceeds from sales of oil and gas properties and proceeds from the issuance of our 2027 Senior Notes were used to repay net borrowings of $300.0 million under our credit facility, to finance $217.2 million of drilling and development capex and to fund $25.7 million in oil and gas property acquisitions.

Credit Agreement

On May 4, 2018, CRP, our consolidated subsidiary, entered into an amended and restated credit agreement with a syndicate of banks that as of March 31, 2020 had a borrowing base of $1.2 billion and elected commitments of $800.0 million. The credit agreement provides for a five-year secured revolving credit facility, maturing on May 4, 2023. As of March 31, 2020, we had $235.0 million borrowings outstanding and $564.2 million in available borrowing capacity, which was net of $0.8 million in letters of credit outstanding.

On May 1, 2020, we entered into the Amendments with the lenders to the existing credit agreement. Pursuant to the Amendments, the borrowing base and elected commitment were reduced to $700.0 million. In addition, to the extent that the Exchange Offers close, the Amendments introduce a minimum availability condition to borrowing at the lesser of $100.0 million and 25% of the aggregate principal amount of New Notes outstanding from the Exchange Offers. If the minimum availability condition to borrowing were to be determined at its maximum level of $100.0 million, it would have the resulting effect of limiting the amount of borrowings that CRP could draw against its $700.0 million credit facility to $600.0 million. Among other things, the Amendments also suspended the total funded debt to EBITDAX ratio (as specified in the existing credit agreement) through year-end 2021, introduced a new financial covenant testing the ratio of first lien debt to EBITDAX, and permitted the issuance of new senior secured notes in connection with the Exchange Offers described below.

CRP’s credit agreement contains restrictive covenants that limit its ability to, among other things: (i) incur additional indebtedness; (ii) make investments and loans; (iii) enter into mergers; (iv) make or declare dividends; (v) enter into commodity hedges exceeding a specified percentage of CRP’s expected production; (vi) enter into interest rate hedges exceeding a specified percentage of its outstanding indebtedness; (vii) incur liens; (viii) sell assets; and (ix) engage in transactions with affiliates.

For further information on the credit agreement and related Amendments, refer to Note 4—Long-Term Debt and Note 14—Subsequent Events under Part I, Item I of this Quarterly Report.

Senior Notes

On November 30, 2017, CRP issued $400.0 million of 5.375% senior notes due 2026 and on March 15, 2019, CRP issued $500.0 million of 6.875% senior notes due 2027 in 144A private placements. The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of CRP’s current subsidiaries that guarantee CRP’s revolving credit facility. The Senior Notes are not guaranteed by Centennial, nor are we subject to the terms of the indentures governing the Senior Notes.

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stock or subordinated indebtedness; (iii) transfer or sell assets; (iv) make investments; (v) create certain liens; (vi) enter into agreements that restrict dividends or other payments from their subsidiaries to them; (vii) consolidate, merge or transfer all or substantially all of their assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. CRP was in compliance with these covenants as of March 31, 2020 and through the filing of this Quarterly Report.

On April 22, 2020, we commenced the Exchange Offers to all eligible holders of our Senior Notes to exchange any and all of our outstanding Senior Notes held for up to $250.0 million aggregate principal amount of newly issued 8% Second Lien Senior Secured Notes due 2025 and up to $200.0 million aggregate principal amount of newly issued 8% Third Lien Senior Secured Notes due 2027. The transaction is currently expected to close on May 22, 2020, subject to customary closing conditions. For further information on our Senior Notes and the Exchange Offers, refer to Note 4—Long-Term Debt and Note 14—Subsequent Events under Part I, Item I of this Quarterly Report.

Contractual Obligations

Our contractual obligations include operating and transportation agreements, drilling rig contracts, office and equipment leases, asset retirement obligations, long-term debt obligations and cash interest expense on long-term debt obligations, which we routinely enter into, modify or extend. Since December 31, 2019, there have not been any significant, non-routine changes in our contractual obligations.

Critical Accounting Policies and Estimates

There have been no material changes during the three months ended March 31, 2020 to the critical accounting policies previously disclosed in our 2019 Annual Report. Please refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates in our 2019 Annual Report for a discussion of our critical accounting policies and estimates.

New Accounting Pronouncements

There were no significant new accounting standards adopted or new accounting pronouncements that would have a potential effect on us as of March 31, 2020.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The term “market risk” as it applies to our business refers to the risk of loss arising from adverse changes in oil and natural gas prices and interest rates, and we are exposed to market risk as described below. The primary objective of the following information is to provide quantitative and qualitative information about our potential exposure to market risks. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. All of our market risk sensitive instruments were entered into for purposes other than speculative trading.

Commodity Price Risk

Our primary market risk exposure is in the pricing that we receive for our oil, natural gas and NGL production. Pricing for oil, natural gas and NGLs has been volatile and unpredictable for several years, and we expect this volatility to continue for the foreseeable future. Based on our production for the first three months of 2020, our oil and gas sales for the three months ended March 31, 2020 would have moved up or down $17.1 million for each 10% change in oil prices per Bbl, $1.4 million for each 10% change in NGL prices per Bbl, and $0.8 million for each 10% change in natural gas prices per Mcf.

Due to this volatility, we have historically used, and we may elect to continue to selectively use, commodity derivative instruments (such as collars, swaps and basis swaps) to mitigate price risk associated with a portion of our anticipated production. Our derivative instruments allow us to reduce, but not eliminate, the potential effects of the variability in cash flows from operations due to fluctuations in oil and natural gas prices and provide increased certainty of cash flows for our drilling program and debt service requirements. These instruments provide only partial price protection against declines in oil and natural gas prices, but alternatively they may partially limit our potential gains from future increases in prices. Our credit agreement limits our ability to enter into commodity hedges covering greater than 85% of our reasonably anticipated projected production from proved properties.

The following table summarizes the terms of the swap contracts we had in place as of March 31, 2020 and additional contracts entered into through May 1, 2020. Refer to Note 7—Derivative Instruments in Item 1 of Part I of this Quarterly Report for open derivative positions as of March 31, 2020:



	Period	Volume (Bbls)	Volume (Bbls/d)	Weighted Average Fixed Price ($/Bbl)⁽¹⁾
Crude oil swaps	April 2020 - June 2020	2,852,000	31,341	$	26.14
	July 2020 - September 2020	2,300,000	25,000	26.83
	October 2020 - December 2020	184,000	2,000	36.36

	Period	Volume (Bbls)	Volume (Bbls/d)	Weighted Average Differential ($/Bbl)⁽²⁾
Crude oil basis swaps	April 2020 - June 2020	543,000	5,967	$	1.12
	July 2020 - September 2020	644,000	7,000	0.63
	October 2020 - December 2020	644,000	7,000	0.63


⁽¹⁾	These crude oil swap transactions are settled based on the NYMEX WTI price as of the specified settlement date.


⁽²⁾	These oil basis swap transactions are settled based on the difference between the arithmetic average of ARGUS MIDLAND WTI and ARGUS WTI CUSHING indices, during each applicable settlement period.

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	Period	Volume (MMBtu)	Volume (MMBtu/d)	Weighted Average Fixed Price ($/MMBtu)⁽¹⁾
Natural gas swaps	April 2020 - June 2020	2,730,000	30,000	$	2.03
	July 2020 - September 2020	2,760,000	30,000	2.03
	October 2020 - December 2020	930,000	10,109	2.03

	Period	Volume (MMBtu)	Volume (MMBtu/d)	Weighted Average Differential ($/MMBtu)⁽²⁾
Natural gas basis swaps	April 2020 - June 2020	2,730,000	30,000	$	(1.62	)
	July 2020 - September 2020	2,760,000	30,000	(1.62		)
	October 2020 - December 2020	930,000	10,109	(1.62		)


⁽¹⁾	These natural gas swap contracts are settled based NYMEX Henry Hub price as of the specified settlement date.


⁽²⁾	These natural gas basis swap contracts are settled based on the difference between the Inside FERC’s West Texas WAHA price and the NYMEX price of natural gas during each applicable settlement period.

Changes in the fair value of derivative contracts from December 31, 2019 to March 31, 2020, are presented below:



(in thousands)	Commodity derivative asset (liability)
Net fair value of oil and gas derivative contracts outstanding as of December 31, 2019	$	(325	)
Contracts settled	53
Change in the futures curve of forecasted commodity prices⁽¹⁾	(8,505		)
Net fair value of oil and gas derivative contracts outstanding as of March 31, 2020	$	(8,777	)


⁽¹⁾	At inception, new derivative contracts entered into by us have no intrinsic value.

A hypothetical upward or downward shift of 10% per Bbl in the NYMEX forward curve for crude oil as of March 31, 2020 would cause a less than $13.6 million increase or decrease, respectively, in this fair value liability, and a hypothetical upward or downward shift of 10% per Mcf in the NYMEX forward curve for natural gas as of March 31, 2020 would cause a $0.6 million increase or decrease, respectively, in this same fair value liability.

Interest Rate Risk

Our ability to borrow and the rates offered by lenders can be adversely affected by deteriorations in the credit markets and/or downgrades in our credit rating. The uncertainties regarding the impact of COVID-19 as well as the significant decline in global oil and gas prices in March and April of 2020 has impacted the credit markets, resulting in increases in market interest rates for new debt issuances. CRP’s credit facility interest rate, on the other hand, is based on a LIBOR spread, which exposes us to interest rate risk on our borrowings outstanding to the extent LIBOR increases.

As of March 31, 2020, we had $235.0 million of debt outstanding under our credit agreement, with a weighted average interest rate of 2.1%. Assuming no change in the amount outstanding, the impact on interest expense of a 1.0% increase or decrease in the assumed weighted average interest rate would be approximately $2.4 million per year. We do not currently have or intend to enter into any derivative arrangements to protect against fluctuations in interest rates applicable to our outstanding indebtedness.

The remaining long-term debt balance of $882.9 million consists of our Senior Notes, which have fixed interest rates. Therefore, this balance is not affected by interest rate movements. For additional information regarding our debt instruments, see Note 4—Long-Term Debt, in Item 1 of Part I of this Quarterly Report.

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Item 4. Controls and Procedures

Evaluation of Disclosure Control and Procedures

In accordance with Rules 13a-15 and 15d-15 under the Exchange Act, we have evaluated, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2020. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2020 at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in the system of internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are party to ongoing legal proceedings in the ordinary course of business, including workers’ compensation claims and employment-related disputes. While the outcome of these proceedings cannot be predicted with certainty, we do not believe the results of these proceedings, individually or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or liquidity.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our 2019 Annual Report and the risk factors and other cautionary statements contained in our other SEC filings as well as additional risk factors set forth below. Other than with respect to the additional risk factors below, there have been no material changes in our risk factors from those described in our 2019 Annual Report. The risks described in the 2019 Annual Report and below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

The excess supply of oil and natural gas resulting from the reduced demand caused by the COVID-19 pandemic and the effects of actions by, or disputes among or between, oil and natural gas producing countries may result in transportation and storage constraints, reduced production and shut-in of our wells, any of which would adversely affect our business, financial condition, results of operations, liquidity, and ability to finance planned capital expenditures.

The recent worldwide outbreak of COVID-19, the uncertainty regarding the impact of COVID-19 and various governmental actions taken to mitigate the impact of COVID-19, have resulted in an unprecedented decline in demand for oil and natural gas. At the same time, the decision by Saudi Arabia in March 2020 to drastically reduce export prices and increase oil production followed by the curtailment agreements amongst OPEC and other countries such as Russia further increased uncertainty and volatility around global oil supply-demand dynamics. To the extent that the outbreak of COVID-19 continues to negatively impact demand and OPEC members, other oil exporting nations, and oil producers fail to implement production cuts or take other actions that are sufficient to support and stabilize commodity prices, we expect there to be excess supply of oil and natural gas for a sustained period.

This excess supply could, in turn, result in transportation and storage capacity constraints in the United States, or even the elimination of available storage, including in the Permian Basin. If, in the future, our transportation or storage arrangements become constrained or unavailable, we may incur significant operational costs if there is an increase in price for services or we may be required to shut-in or curtail production or flare our natural gas. In addition, given the weakness in realized oil prices, we are actively evaluating whether to voluntarily curtail or shut-in a substantial portion of our current production volumes, and we expect to voluntarily curtail up to 40% of our production during the month of May. Further potential curtailment decisions will continue to be evaluated and made on a month-to-month basis subject to market conditions, storage or transportation constraints, and contractual obligations. Our actions to shut-in wells may result in obligations to pay certain demand charges for gathering and processing services and firm transportation charges for pipeline capacity we have reserved. Further, any prolonged shut-in of our

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wells may result in materially decreased well productivity once we are able to resume operations, and any cessation of drilling and development of our acreage could result in the expiration, in whole or in part, of our leases. These impacts on our operations, together with the lower price we receive for our continuing production of oil and gas, could impact our ability to comply with the covenants under CRP’s credit agreement and Senior Notes. All of these impacts resulting from the confluence of the COVID-19 pandemic and the price war between Saudi Arabia and Russia may adversely affect our business, financial condition, results of operations, liquidity, and ability to finance planned capital expenditures.

Due to the commodity price environment, we have postponed or eliminated a portion of our developmental drilling. A sustained period of weakness in oil, natural gas and NGLs prices, and the resultant effects of such prices on our drilling economics and ability to raise capital, will require us to reevaluate and further postpone or eliminate additional drilling. Such actions would likely result in the reduction of our proved undeveloped reserves and related reserve values and a reduction in our ability to service our debt obligations.

Additionally, as of December 31, 2019, approximately 13% of our total net acreage was not held by production and we had leases representing 3,162 and 3,750 undeveloped net acres scheduled to expire during 2020 and during 2021, respectively, in each case assuming no exercise of lease extension options where applicable. Our actions to curtail production and shut-in wells, together with any further curtailments we may implement in the future, may result in our inability to continue to hold such leases that are scheduled to expire, which may further reduce our reserves. As a result, if oil, natural gas and/or NGL prices experience a sustained period of weakness, our future business, financial condition, results of operations, liquidity, and ability to finance planned capital expenditures may be materially and adversely affected.

The inability to complete our pending divestiture of our saltwater disposal wells and associated produced water infrastructure on the initial terms agreed to by the parties or in the expected time frame may adversely affect our business and financial condition.

On February 24, 2020, we entered into a purchase and sale agreement with a subsidiary of WaterBridge Resources LLC (“WaterBridge”) to divest our saltwater disposal wells and associated produced water infrastructure in Reeves County for $225.0 million, consisting of $150.0 million in cash at closing and an additional $75 million payable to us on a deferred basis upon meeting certain incentive thresholds. We believe the uncertain macro environment for the oil and gas industry and resulting changes to commodity prices and drilling and completion activity in the Delaware Basin, increase the risk that the transaction fails to close on the original timeframe and terms agreed to between us and WaterBridge. While the transaction currently remains pending, either party may terminate the transaction if closing does not occur on or before May 15, 2020. If the transaction fails to close on the initial terms agreed to between us and WaterBridge, our business and financial condition may be adversely affected. In particular, to the extent the transaction is terminated, or if we receive lower cash consideration than originally planned, then the amount of cash that we may allocate to the repayment of outstanding borrowings under our revolving credit facility or to the funding of our capital budget, and the timing of such repayment or funding, will also be affected.

Our production is not fully hedged, and we are exposed to fluctuations in oil, natural gas and NGL prices and will be affected by continuing and prolonged declines in oil, natural gas and NGL prices.

Our production is not fully hedged, and we are exposed to fluctuations in oil, natural gas and NGL prices and will be affected by continuing and prolonged declines in oil, natural gas and NGL prices. We have entered into fixed price oil swaps for April through December of 2020 to protect against possible, additional near-term declines in oil prices. During this period, CRP has hedged an average of approximately 19,400 barrels per day of oil at a weighted average price of $26.79 per Bbl. We intend to continue to hedge our production, but we may not be able to do so at favorable prices. Accordingly, our revenues and cash flows are subject to increased volatility and may be subject to significant reduction in prices which would have a material negative impact on our results of operations.

If commodity prices continue to decrease or remain at current levels such that our future undiscounted cash flows from our properties are less than their carrying value, we may be required to take additional write-downs of the carrying values of our properties.

Accounting guidance requires that we periodically review the carrying value of our properties for possible impairment. Based on prevailing commodity prices and specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required to write-down the carrying value of our properties. A write-down constitutes a non-cash charge to earnings. Due to the recent depressed commodity prices, we expect to record a material non-cash impairment to the carrying value of our oil and natural gas properties, which will have an adverse effect on our results of operations. Further impairments will be required if oil and natural gas prices remain low or decline further, our undeveloped property leases expire in whole or in part, estimated proved reserve volumes are revised downward or the net capitalized cost of proved oil and gas properties otherwise exceeds the present value of estimated future net cash flows.

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The Pre-Tax PV10% of our proved reserves at December 31, 2019 may not be the same as the current market value of our estimated oil, natural gas and NGLs reserves.

You should not assume that the Pre-Tax PV10% value of our proved reserves as of December 31, 2019 as disclosed in our 2019 Annual Report is the current market value of our estimated oil, natural gas and NGLs reserves. We base the discounted future net cash flows from our proved reserves on the 12-month first-day-of-the-month oil and natural gas average prices without giving effect to derivative transactions. Actual future net cash flows from our oil and natural gas properties will be affected by factors such as:


•	the actual prices we receive for oil, natural gas and NGLs;


•	the actual development and production expenditures;


•	the amount and timing of actual production; and


•	changes in governmental regulations or taxation.

The timing of both our production and expenses incurred in connection with the development and production of oil and natural gas properties will affect the timing and amount of actual future net revenues from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating Pre-Tax PV10% may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the oil and natural gas industry in general. Actual future prices and costs may differ materially from those used in the present value estimates included in the Annual Report, which could have a material effect on the value of our reserves. The oil and natural gas prices used in computing our Pre-Tax PV10% as of December 31, 2019 under SEC guidelines were $52.19 per Bbl and $2.58 per MMBtu, respectively, before price differentials. Using more recent prices in estimating proved reserves results in a reduction in proved reserve volumes due to economic limits, which would further reduce the Pre-Tax PV10% value of our proved reserves.

The marketability of our production is dependent upon transportation and other facilities, certain of which we do not control. If these facilities are unavailable, or if we are unable to access these facilities on commercially reasonable terms, our operations could be interrupted and our revenues reduced.

The marketability of our oil, natural gas and NGL production depends in part upon the availability, proximity, capacity and availability of transportation and storage facilities owned by third parties. In general, we do not control these facilities, and our access to them may be limited or denied. Our oil production is generally transported from the wellhead to our tank batteries by a gathering system. Our purchasers then transport the oil by pipeline to a larger pipeline for transportation to markets. The majority of our natural gas production is generally transported by gathering lines from the wellhead to a central delivery point and is then gathered by third-party lines to a gas processing facility. We do not control these third-party transportation, gathering or processing facilities and our access to them may be limited or denied. Insufficient production from our wells to support the construction of pipeline facilities by our purchasers or a significant disruption in the availability of third-party transportation facilities or other production facilities could adversely impact our ability to deliver to market or produce our production and thereby cause a significant interruption in our operations.

If we cannot meet the continued listing requirements of the NASDAQ, the NASDAQ may delist our common stock, which would have an adverse impact on the trading volume, liquidity and market price of our common stock.

On April 21, 2020, we received written notification (the “Notice”) from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the last thirty consecutive business days, the bid price for our Class A Common Stock, par value $0.0001 per share (our “Common Stock”), had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”). The Notice has no immediate effect on the listing or trading of our Common Stock on the Nasdaq Capital Market. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until October 19, 2020, to regain compliance. However, due to recent market turmoil, Nasdaq has filed a rule change tolling the compliance periods for price-based listing requirements through June 30, 2020, extending our compliance period until December 28, 2020.

If we do not regain compliance with the Minimum Bid Requirement by December 28, 2020, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of our intention to cure the deficiency during the second compliance period. However, if it appears to the Nasdaq staff that we will not be able to cure the deficiency, or if we do not meet the other listing standards, Nasdaq could provide notice that our Common Stock will become subject to delisting. In the event we receive notice that our Common Stock is being delisted, Nasdaq rules permit us to appeal any delisting determination by the Nasdaq staff to a Hearings Panel.

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We intend to actively monitor the closing bid price of our Common Stock and will evaluate available options to regain compliance with the Minimum Bid Requirement. There can be no assurance that we will be able to regain compliance with the Minimum Bid Requirement or maintain compliance with the other listing requirements of the Nasdaq. If our Common Stock ultimately were to be delisted for any reason, it could negatively impact us as it would likely reduce the liquidity and market price of our Common Stock; reduce the number of investors willing to hold or acquire our Common Stock; and negatively impact our ability to access equity markets and obtain financing.

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Item 6. Exhibits



Exhibit Number		Description of Exhibit
3.1		Third Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2019).
3.2		Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 1, 2019).
3.3		Fifth Amended and Restated Limited Liability Company Agreement of Centennial Resource Production, LLC dated as of October 11, 2016 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on October 11, 2016).
3.4		Amendment No. 1 to Fifth Amended and Restated Limited Liability Company Agreement of Centennial Resource Production, LLC dated as of December 28, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 29, 2016).
3.5		Amendment No. 2 to Fifth Amended and Restated Limited Liability Company Agreement of Centennial Resource Production, LLC dated as of March 20, 2017 (incorporated by reference to Exhibit 3.5 to the Company’s Annual Report on Form 10-K filed with the SEC on March 23, 2017).
3.6		Amendment No. 3 to Fifth Amended and Restated Limited Liability Company Agreement of Centennial Resource Production, LLC dated as of June 15, 2018 (incorporated by reference to Exhibit 3.6 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 6, 2018).
4.1		Description of Registrant’s Common Stock (incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2020).
10.1*#		Centennial Resource Development, Inc. Amended and Restated Long Term Incentive Plan
10.2		Amendment no. 1 to Purchase and Sale Agreement, dated as of August 2, 2018, between Centennial Resource Production, LLC and BP North America Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 31, 2020).
10.3*#		Centennial Resource Development, Inc. Third Amended and Restated Non-Employee Director Compensation Program.
10.4		Second Amendment to Second Amended and Restated Credit Agreement, dated as of May 1, 2020, among Centennial Resource Production, LLC, as borrower, Centennial Resource Development, Inc., as parent guarantor, the other guarantors party thereto, JPMorgan Chase Bank, N.A., as administrative agent and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 4, 2020).
10.5		Third Amendment to Second Amended and Restated Credit Agreement and First Amendment to Second Amended and Restated Pledge and Security Agreement, dated as of May 1, 2020, among Centennial Resource Production, LLC, as borrower, Centennial Resource Development, Inc., as parent guarantor, the other guarantors party thereto, JPMorgan Chase Bank, N.A., as administrative agent and the lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 4, 2020).
31.1*		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS*		Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

# Management contract or compensatory plan or agreement.

* Filed herewith.

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SIGNATURES

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



	CENTENNIAL RESOURCE DEVELOPMENT, INC.

	By:	/s/ GEORGE S. GLYPHIS
		George S. Glyphis Vice President, Chief Financial Officer and Assistant Secretary

	Date:	May 4, 2020

Exhibit 10.1

CENTENNIAL RESOURCE DEVELOPMENT, INC.

2016 LONG TERM INCENTIVE PLAN

(as amended and restated effective March 16, 2020

ARTICLE I.

PURPOSE

The Plan’s purpose is to enhance the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing these individuals with equity ownership opportunities. Capitalized terms used in the Plan are defined in Article XI. This Plan constitutes an amendment and restatement of the Centennial Resource Development, Inc. 2016 Long-Term Incentive Plan (the “Existing Plan”). In the event that the Company’s stockholders do not approve this Plan, Awards granted under the Existing Plan will continue to be subject to the terms and conditions of the Existing Plan as in effect immediately prior to the date this Plan is approved by the Board.

ARTICLE II.

ELIGIBILITY

Service Providers are eligible to be granted Awards under the Plan, subject to the limitations described herein.

ARTICLE III.

ADMINISTRATION AND DELEGATION

3.1 Administration. The Plan is administered by the Administrator. The Administrator has authority to determine which Service Providers receive Awards, grant Awards and set Award terms and conditions, subject to the conditions and limitations in the Plan. The Administrator also has the authority to take all actions and make all determinations under the Plan, to interpret the Plan and Award Agreements and to adopt, amend and repeal Plan administrative rules, guidelines and practices as it deems advisable. The Administrator may correct defects and ambiguities, supply omissions and reconcile inconsistencies in the Plan or any Award as it deems necessary or appropriate to administer the Plan and any Awards. The Administrator’s determinations under the Plan are in its sole discretion and will be final and binding on all persons having or claiming any interest in the Plan or any Award.

3.2 Appointment of Committees. To the extent Applicable Laws permit, the Board may delegate any or all of its powers under the Plan to one or more Committees or officers of the Company or any of its Subsidiaries. The Board may abolish any Committee or re-vest in itself any previously delegated authority at any time.

ARTICLE IV.

STOCK AVAILABLE FOR AWARDS

4.1 Number of Shares. Subject to adjustment under Article VIII and the terms of this Article IV, Awards may be made under the Plan covering up to the Overall Share Limit.

4.2 Share Recycling. If all or any part of an Award expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, in any case, in a manner that results in the Company acquiring Shares covered by the Award at a price not greater than the price (as adjusted to reflect any Equity Restructuring) paid by the Participant for such Shares or not issuing any Shares covered by the Award, the unused Shares covered by the Award will again be available for Award grants under the Plan. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not count against the Overall Share Limit.

Notwithstanding anything to the contrary contained herein, the following Shares shall not be added to the Shares authorized for grant under Section 4.1 and shall not be available for future grants of Awards: (i) Shares tendered by the Participant or withheld by the Company in payment of the exercise price of an Option; (ii) Shares tendered by the Participant or withheld by the Company to satisfy any tax withholding obligation with respect to an Award; (iii) Shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of the Stock Appreciation Right on exercise thereof; and (iv) Shares purchased on the open market with the cash proceeds from the exercise of Options.

4.3 Incentive Stock Option Limitations. Notwithstanding anything to the contrary herein, no more than 24,750,000 Shares may be issued pursuant to the exercise of Incentive Stock Options.

4.4 Substitute Awards. In connection with an entity’s merger or consolidation with the Company or any Subsidiary or the Company’s or any Subsidiary’s acquisition of an entity’s property or stock, the Administrator may grant Awards in substitution for any options or other stock or stock-based awards granted before such merger or consolidation by such entity or its affiliate. Substitute Awards may be granted on such terms as the Administrator deems appropriate, notwithstanding limitations on Awards in the Plan. Substitute Awards will not count against the Overall Share Limit (nor shall Shares subject to a Substitute Award be added to the Shares available for Awards under the Plan as provided above), except that Shares acquired by exercise of substitute Incentive Stock Options will count against the maximum number of Shares that may be issued pursuant to the exercise of Incentive Stock Options under the Plan. Additionally, in the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan (and Shares subject to such Awards shall not be added to the Shares available for Awards under the Plan as provided above); provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees or Directors prior to such acquisition or combination.

4.5 Non-Employee Director Compensation. Notwithstanding any provision to the contrary in the Plan, the Administrator may establish compensation for non-employee Directors from time to time, subject to the limitations in the Plan. The Administrator will from time to time determine the terms, conditions and amounts of all such non-employee Director compensation in its discretion and pursuant to the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time, provided that the sum of any cash compensation, or other compensation, and the value (determined as of the grant date in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) of Awards granted to a non-employee Director as compensation for services as a non-employee Director during any fiscal year of the Company may not exceed $500,000. The Administrator may make exceptions to this limit for individual non-employee Directors in extraordinary circumstances, as the Administrator may determine in its discretion, provided that the non-employee Director receiving such additional compensation may not participate in the decision to award such compensation or in other contemporaneous compensation decisions involving non-employee Directors.

ARTICLE V.

STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

5.1 General. The Administrator may grant Options or Stock Appreciation Rights to Service Providers subject to the limitations in the Plan, including any limitations in the Plan that apply to Incentive Stock Options. The Administrator will determine the number of Shares covered by each Option and Stock Appreciation Right, the exercise price of each Option and Stock Appreciation Right and the conditions and limitations applicable to the exercise of each Option and Stock Appreciation Right. A Stock Appreciation Right will entitle the Participant (or other person entitled to exercise the Stock Appreciation Right) to receive from the Company upon exercise of the exercisable portion of the Stock Appreciation Right an amount determined by multiplying the excess, if any, of the Fair Market Value of one Share on the date of exercise over the exercise price per Share of the Stock Appreciation Right by the number of Shares with respect to which the Stock Appreciation Right is exercised, subject to any limitations of the Plan or that the Administrator may impose and payable in cash, Shares valued at Fair Market Value or a combination of the two as the Administrator may determine or provide in the Award Agreement.

5.2 Exercise Price. The Administrator will establish each Option’s and Stock Appreciation Right’s exercise price and specify the exercise price in the Award Agreement. The exercise price will not be less than 100% of the Fair Market Value on the grant date of the Option or Stock Appreciation Right. Notwithstanding the foregoing, if on the last day of the term of an Option or Stock Appreciation Right the Fair Market Value of one Share exceeds the applicable exercise or base price per Share, the Participant has not exercised the Option or Stock Appreciation Right and remains employed by the Company or one of its Subsidiaries and the Option or Stock Appreciation Right has not expired, the Option or Stock Appreciation Right shall be deemed to have been exercised by the Participant on such day with payment made by withholding Shares otherwise issuable in connection with its exercise. In such event, the Company shall deliver to the Participant the number of Shares for which the Option or Stock Appreciation Right was deemed exercised, less the number of Shares required to be withheld for the payment of the total purchase price and required withholding taxes; provided, however, any fractional Share shall be settled in cash.

5.3 Duration. Each Option or Stock Appreciation Right will be exercisable at such times and as specified in the Award Agreement, provided that the term of an Option or Stock Appreciation Right will not exceed ten years. Notwithstanding the foregoing and unless determined otherwise by the Company, in the event that on the last business day of the term of an Option or Stock Appreciation Right (other than an Incentive Stock Option) (i) the exercise of the Option or Stock Appreciation Right is prohibited by Applicable Law, as determined by the Company, or (ii) Shares may not be purchased or sold by the applicable Participant due to any Company insider trading policy (including blackout periods) or a “lock-up” agreement undertaken in connection with an issuance of securities by the Company, the term of the Option or Stock Appreciation Right shall be extended until the date that is thirty (30) days after the end of the legal prohibition, black-out period or lock-up agreement, as determined by the Company; provided, however, in no event shall the extension last beyond the ten year term of the applicable Option or Stock Appreciation Right. Notwithstanding the foregoing, if the Participant, prior to the end of the term of an Option or Stock Appreciation Right, violates the non-competition, non-solicitation, confidentiality or other similar restrictive covenant provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company or any of its Subsidiaries, the right of the Participant and the Participant’s transferees to exercise any Option or Stock Appreciation Right issued to the Participant shall terminate immediately upon such violation, unless the Company otherwise determines. In addition, if, prior to the end of the term of an Option or Stock Appreciation Right, the Participant is given notice by the Company or any of its Subsidiaries of the Participant’s Termination of Service by the Company or any of its Subsidiaries for Cause, and the effective date of such Termination of Service is subsequent to the date of the delivery of such notice, the right of the Participant and the Participant’s transferees to exercise any Option or Stock Appreciation Right issued to the Participant shall be suspended from the time of the delivery of such notice until the earlier of (i) such time as it is determined or otherwise agreed that the Participant’s service as a Service Provider will not be terminated for Cause as provided in such notice or (ii) the effective date of the Participant’s Termination of Service by the Company or any of its Subsidiaries for Cause (in which case the right of the Participant and the Participant’s transferees to exercise any Option or Stock Appreciation Right issued to the Participant will terminate immediately upon the effective date of such Termination of Service).

5.4 Exercise. Options and Stock Appreciation Rights may be exercised by delivering to the Company a written notice of exercise, in a form the Administrator approves (which may be electronic), signed by the person authorized to exercise the Option or Stock Appreciation Right, together with, as applicable, payment in full (i) as specified in Section 5.5 for the number of Shares for which the Award is exercised and (ii) as specified in Section 9.5 for any applicable taxes. Unless the Administrator otherwise determines, an Option or Stock Appreciation Right may not be exercised for a fraction of a Share.

5.5 Payment Upon Exercise. Subject to Section 10.8, any Company insider trading policy (including blackout periods) and Applicable Laws, the exercise price of an Option must be paid by:

(a)cash, wire transfer of immediately available funds or by check payable to the order of the Company, provided that the Company may limit the use of one of the foregoing payment forms if one or more of the payment forms below is permitted;

(b)if there is a public market for Shares at the time of exercise, unless the Company otherwise determines, (A) delivery (including telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to pay the exercise price, or (B) the Participant’s delivery to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to pay the exercise price; provided that such amount is paid to the Company at such time as may be required by the Administrator;

(c)to the extent permitted by the Administrator, delivery (either by actual delivery or attestation) of Shares owned by the Participant valued at their Fair Market Value;

(d)to the extent permitted by the Administrator, surrendering Shares then issuable upon the Option’s exercise valued at their Fair Market Value on the exercise date;

(e)to the extent permitted by the Administrator, delivery of a promissory note or any other property that the Administrator determines is good and valuable consideration; or

(f)to the extent permitted by the Company, any combination of the above payment forms approved by the Administrator.

ARTICLE VI.

RESTRICTED STOCK; RESTRICTED STOCK UNITS

6.1 General. The Administrator may grant Restricted Stock, or the right to purchase Restricted Stock, to any Service Provider, subject to the Company’s right to repurchase all or part of such shares at their issue price or other stated or formula price from the Participant (or to require forfeiture of such shares) if conditions the Administrator specifies in the Award Agreement are not satisfied before the end of the applicable restriction period or periods that the Administrator establishes for such Award. In addition, the Administrator may grant to Service Providers Restricted Stock Units, which may be subject to vesting and forfeiture conditions during the applicable restriction period or periods, as set forth in an Award Agreement. The Administrator will determine and set forth in the Award Agreement the terms and conditions for each Restricted Stock and Restricted Stock Unit Award, subject to the conditions and limitations contained in the Plan.

6.2 Restricted Stock.

(a)Dividends. Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such Shares, unless the Administrator provides otherwise in the Award Agreement. In addition, unless the Administrator provides otherwise, if any dividends or distributions are paid in Shares, or consist of a dividend or distribution to holders of Common Stock of property other than an ordinary cash dividend, the Shares or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid. In addition, with respect to a share of Restricted Stock, dividends which are paid prior to vesting shall only be paid out to the Participant to the extent that the vesting conditions are subsequently satisfied and the share of Restricted Stock vests.

(b)Stock Certificates. The Company may require that the Participant deposit in escrow with the Company (or its designee) any stock certificates issued in respect of shares of Restricted Stock, together with a stock power endorsed in blank.

6.3 Restricted Stock Units.

(a)Settlement. The Administrator may provide that settlement of Restricted Stock Units will occur upon or as soon as reasonably practicable after the Restricted Stock Units vest or will instead be deferred, on a mandatory basis or at the Participant’s election, in a manner intended to comply with Section 409A.

(b)Stockholder Rights. A Participant will have no rights of a stockholder with respect to Shares subject to any Restricted Stock Unit unless and until the Shares are delivered in settlement of the Restricted Stock Unit.

(c)Dividend Equivalents. If the Administrator provides, a grant of Restricted Stock Units may provide a Participant with the right to receive Dividend Equivalents. Dividend Equivalents may be paid currently or credited to an account for the Participant, settled in cash or Shares and subject to the same restrictions on transferability and forfeitability as the Restricted Stock Units with respect to which the Dividend Equivalents are granted and subject to other terms and conditions as set forth in the Award Agreement. In addition, Dividend Equivalents with respect to an Award that are based on dividends paid prior to the vesting of such Award shall only be paid out to the Participant to the extent that the vesting conditions are subsequently satisfied and the Award vests.

ARTICLE VII.

OTHER STOCK OR CASH BASED AWARDS

Other Stock or Cash Based Awards may be granted to Participants, including Awards entitling Participants to receive Shares to be delivered in the future and including annual or other periodic or long-term cash bonus awards (whether based on specified Performance Criteria or otherwise), in each case subject to any conditions and limitations in the Plan. Such Other Stock or Cash Based Awards will also be available as a payment form in the settlement of other Awards, as standalone payments and as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock or Cash Based Awards may be paid in Shares, cash or other property, as the Administrator determines. Subject to the provisions of the Plan, the Administrator will determine the terms and conditions of each Other Stock or Cash Based Award, including any purchase price, performance goal (which may be based on the Performance Criteria), transfer restrictions, and vesting conditions, which will be set forth in the applicable Award Agreement.

ARTICLE VIII.

ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS

8.1 Equity Restructuring. In connection with any Equity Restructuring, notwithstanding anything to the contrary in this Article VIII, the Administrator will equitably adjust each outstanding Award as it deems appropriate to reflect the Equity Restructuring, which may include adjusting the number and type of securities subject to each outstanding Award and/or the Award’s exercise price or grant price (if applicable), granting new Awards to Participants, and making a cash payment to Participants. The adjustments provided under this Section 8.1 will be final and binding on the affected Participant and the Company; provided that the Administrator will determine whether an adjustment is equitable.

8.2 Corporate Transactions. In the event of any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), reorganization, merger, consolidation, combination, amalgamation, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, Change in Control, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, other similar corporate transaction or event, other unusual or nonrecurring transaction or event affecting the Company or its financial statements or any change in any Applicable Laws or accounting principles, the Administrator, on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event (except that action to give effect to a change in Applicable Law or accounting principles may be made within a reasonable period of time after such change) and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to (x) prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any Award granted or issued under the Plan, (y) to facilitate such transaction or event or (z) give effect to such changes in Applicable Laws or accounting principles:

(a)To provide for the cancellation of any such Award in exchange for either an amount of cash or other property with a value equal to the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights under the vested portion of such Award, as applicable; provided that, if the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights, in any case, is equal to or less than zero, then the Award may be terminated without payment;

(b)To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and/or applicable exercise or purchase price, in all cases, as determined by the Administrator;

(c)To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards and/or with respect to which Awards may be granted under the Plan (including, but not limited to, adjustments of the limitations in Article IV hereof on the maximum number and kind of shares which may be issued) and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards;

(d)To replace such Award with other rights or property selected by the Administrator; and/or

(e)To provide that the Award will terminate and cannot vest, be exercised or become payable after the applicable event.

8.3 Administrative Stand Still. In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets

to stockholders, or any other extraordinary transaction or change affecting the Shares or the share price of Common Stock, including any Equity Restructuring or any securities offering or other similar transaction, for administrative convenience, the Administrator may refuse to permit the exercise of any Award for up to sixty days before or after such transaction.

8.4 General. Except as expressly provided in the Plan or the Administrator’s action under the Plan, no Participant will have any rights due to any subdivision or consolidation of Shares of any class, dividend payment, increase or decrease in the number of Shares of any class or dissolution, liquidation, merger, or consolidation of the Company or other corporation. Except as expressly provided with respect to an Equity Restructuring under Section 8.1 above or the Administrator’s action under the Plan, no issuance by the Company of Shares of any class, or securities convertible into Shares of any class, will affect, and no adjustment will be made regarding, the number of Shares subject to an Award or the Award’s grant or exercise price. The existence of the Plan, any Award Agreements and the Awards granted hereunder will not affect or restrict in any way the Company’s right or power to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, (ii) any merger, consolidation dissolution or liquidation of the Company or sale of Company assets or (iii) any sale or issuance of securities, including securities with rights superior to those of the Shares or securities convertible into or exchangeable for Shares. The Administrator may treat Participants and Awards (or portions thereof) differently under this Article VIII.

ARTICLE IX.

GENERAL PROVISIONS APPLICABLE TO AWARDS

9.1 Transferability. Except as the Administrator may determine or provide in an Award Agreement or otherwise for Awards other than Incentive Stock Options, Awards may not be sold, assigned, transferred, pledged or otherwise encumbered, either voluntarily or by operation of law, except by will or the laws of descent and distribution, or, subject to the Administrator’s consent, pursuant to a domestic relations order, and, during the life of the Participant, will be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, will include references to a Participant’s authorized transferee that the Administrator specifically approves.

9.2 Documentation. Each Award will be evidenced in an Award Agreement, which may be written or electronic, as the Administrator determines. Each Award may contain terms and conditions in addition to those set forth in the Plan.

9.3 Discretion. Except as the Plan otherwise provides, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award to a Participant need not be identical, and the Administrator need not treat Participants or Awards (or portions thereof) uniformly.

9.4 Termination of Status. The Administrator will determine how the disability, death, retirement, authorized leave of absence or any other change or purported change in a Participant’s Service Provider status affects an Award and the extent to which, and the period during which, the Participant, the Participant’s legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award, if applicable.

9.5 Withholding. Each Participant must pay the Company, or make provision satisfactory to the Administrator for payment of, any taxes required by law to be withheld in connection with such Participant’s Awards by the date of the event creating the tax liability. The Company may deduct an amount sufficient to satisfy such tax obligations based on the applicable statutory withholding rate (or such other rate as may be determined by the Company after considering any accounting consequences or costs) from any payment of any kind otherwise due to a Participant. Subject to Section 10.8 and any Company insider trading policy (including blackout periods), Participants may satisfy such tax obligations (i) in cash, by wire transfer of immediately available funds, by check made payable to the order of the Company, provided that the Company may limit the use of the foregoing payment forms if one or more of the payment forms below is permitted, (ii) to the extent permitted by the Administrator, in whole or in part by delivery of Shares, including Shares retained from the Award creating the tax obligation, valued at their Fair Market Value, (iii) if there is a public market for Shares at the time the tax obligations are satisfied, unless the Company otherwise determines, (A) delivery (including telephonically to the extent permitted by the Company) of an irrevocable and unconditional

undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to satisfy the tax obligations, or (B) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to satisfy the tax withholding; provided that such amount is paid to the Company at such time as may be required by the Administrator, or (iv) to the extent permitted by the Company, any combination of the foregoing payment forms approved by the Administrator. If any tax withholding obligation will be satisfied under clause (ii) of the immediately preceding sentence by the Company’s retention of Shares from the Award creating the tax obligation and there is a public market for Shares at the time the tax obligation is satisfied, the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on the applicable Participant’s behalf some or all of the Shares retained and to remit the proceeds of the sale to the Company or its designee, and each Participant’s acceptance of an Award under the Plan will constitute the Participant’s authorization to the Company and instruction and authorization to such brokerage firm to complete the transactions described in this sentence.

9.6 Amendment of Award; Prohibition on Repricing. The Administrator may amend, modify or terminate any outstanding Award, including by substituting another Award of the same or a different type, changing the exercise or settlement date, and converting an Incentive Stock Option to a Non-Qualified Stock Option. The Participant’s consent to such action will be required unless (i) the action, taking into account any related action, does not materially and adversely affect the Participant’s rights under the Award, or (ii) the change is permitted under Article VIII or pursuant to Section 10.6. Notwithstanding the foregoing or anything in the Plan to the contrary, the Administrator may not except pursuant to Article VIII, without the approval of the stockholders of the Company, reduce the exercise price per share of outstanding Options or Stock Appreciation Rights or cancel outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards or Options or Stock Appreciation Rights with an exercise price per share that is less than the exercise price per share of the original Options or Stock Appreciation Rights.

9.7 Conditions on Delivery of Stock. The Company will not be obligated to deliver any Shares under the Plan or remove restrictions from Shares previously delivered under the Plan until (i) all Award conditions have been met or removed to the Company’s satisfaction, (ii) as determined by the Company, all other legal matters regarding the issuance and delivery of such Shares have been satisfied, including any applicable securities laws and stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Administrator deems necessary or appropriate to satisfy any Applicable Laws. The Company’s inability to obtain authority from any regulatory body having jurisdiction, which the Administrator determines is necessary to the lawful issuance and sale of any securities, will relieve the Company of any liability for failing to issue or sell such Shares as to which such requisite authority has not been obtained.

9.8 Additional Terms of Incentive Stock Options. The Administrator may grant Incentive Stock Options only to employees of the Company, any of its present or future parent or subsidiary corporations, as defined in Sections 424(e) or (f) of the Code, respectively, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code. If an Incentive Stock Option is granted to a Greater Than 10% Stockholder, the exercise price will not be less than 110% of the Fair Market Value on the Option’s grant date, and the term of the Option will not exceed five years. All Incentive Stock Options will be subject to and construed consistently with Section 422 of the Code. By accepting an Incentive Stock Option, the Participant agrees to give prompt notice to the Company of dispositions or other transfers (other than in connection with a Change in Control) of Shares acquired under the Option made within (i) two years from the grant date of the Option or (ii) one year after the transfer of such Shares to the Participant, specifying the date of the disposition or other transfer and the amount the Participant realized, in cash, other property, assumption of indebtedness or other consideration, in such disposition or other transfer. Neither the Company nor the Administrator will be liable to a Participant, or any other party, if an Incentive Stock Option fails or ceases to qualify as an “incentive stock option” under Section 422 of the Code. Any Incentive Stock Option or portion thereof that fails to qualify as an “incentive stock option” under Section 422 of the Code for any reason, including becoming exercisable with respect to Shares having a fair market value exceeding the $100,000 limitation under Treasury Regulation Section 1.422-4, will be a Non-Qualified Stock Option.

ARTICLE X.

MISCELLANEOUS

10.1 No Right to Employment or Other Status. No person will have any claim or right to be granted an Award, and the grant of an Award will not be construed as giving a Participant the right to continued employment or any other relationship with the Company or any Subsidiary. The Company and its Subsidiaries expressly reserve the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan or any Award, except as expressly provided in an Award Agreement.

10.2 No Rights as Stockholder; Certificates. Subject to the Award Agreement, no Participant or Designated Beneficiary will have any rights as a stockholder with respect to any Shares to be distributed under an Award until becoming the record holder of such Shares. Notwithstanding any other provision of the Plan, unless the Administrator otherwise determines or Applicable Laws require, the Company will not be required to deliver to any Participant certificates evidencing Shares issued in connection with any Award and instead such Shares may be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator). The Company may place legends on stock certificates issued under the Plan that the Administrator deems necessary or appropriate to comply with Applicable Laws.

10.3 Effective Date and Term of Plan. The Plan, as amended and restated, shall become effective as of the Amendment Date. In the event that the Company’s stockholders do not approve this Plan, Awards granted under the Existing Plan will continue to be subject to the terms and conditions of the Existing Plan as in effect immediately prior to the date this Plan is approved by the Board. Unless earlier terminated by the Board, the Plan will remain in effect until the tenth anniversary of the Amendment Date, but Awards previously granted may extend beyond that date in accordance with the Plan.

10.4 Amendment of Plan. The Administrator may amend, suspend or terminate the Plan at any time; provided that no amendment, other than an increase to the Overall Share Limit, may materially and adversely affect any Award outstanding at the time of such amendment without the affected Participant’s consent. No Awards may be granted under the Plan during any suspension period or after Plan termination. Awards outstanding at the time of any Plan suspension or termination will continue to be governed by the Plan and the Award Agreement, as in effect before such suspension or termination. The Board will obtain stockholder approval of any Plan amendment to the extent necessary to comply with Applicable Laws.

10.5 Provisions for Foreign Participants. The Administrator may modify Awards granted to Participants who are foreign nationals or employed outside the United States or establish subplans or procedures under the Plan to address differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.

10.6 Section 409A.

(a)General. The Company intends that all Awards be structured to comply with, or be exempt from, Section 409A, such that no adverse tax consequences, interest, or penalties under Section 409A apply. Notwithstanding anything in the Plan or any Award Agreement to the contrary, the Administrator may, without a Participant’s consent, amend this Plan or Awards, adopt policies and procedures, or take any other actions (including amendments, policies, procedures and retroactive actions) as are necessary or appropriate to preserve the intended tax treatment of Awards, including any such actions intended to (A) exempt this Plan or any Award from Section 409A, or (B) comply with Section 409A, including regulations, guidance, compliance programs and other interpretative authority that may be issued after an Award’s grant date. The Company makes no representations or warranties as to an Award’s tax treatment under Section 409A or otherwise. The Company and its Subsidiaries will have no obligation under this Section 10.6 or otherwise to avoid the taxes, penalties or interest under Section 409A with respect to any Award and will have no liability to any Participant or any other person if any Award, compensation or other benefits under the Plan are determined to constitute noncompliant “nonqualified deferred compensation” subject to taxes, penalties or interest under Section 409A.

(b)Separation from Service. If an Award constitutes “nonqualified deferred compensation” under Section 409A, any payment or settlement of such Award upon a termination of a Participant’s Service Provider relationship will, to the extent necessary to avoid taxes under Section 409A, be made only upon the Participant’s “separation from service” (within the meaning of Section 409A), whether such “separation from service” occurs upon or after the termination of the Participant’s Service Provider relationship. For purposes of this Plan or any Award Agreement relating to any such payments or benefits, references to a “termination,” “termination of employment” or like terms means a “separation from service.”

(c)Payments to Specified Employees. Notwithstanding any contrary provision in the Plan or any Award Agreement, any payment(s) of “nonqualified deferred compensation” required to be made under an Award to a “specified employee” (as defined under Section 409A and as the Administrator determines) due to his or her “separation from service” will, to the extent necessary to avoid taxes under Section 409A(a)(2)(B)(i) of the Code, be delayed for the six-month period immediately following such “separation from service” (or, if earlier, until the specified employee’s death) and will instead be paid (as set forth in the Award Agreement) on the day immediately following such six-month period or as soon as administratively practicable thereafter (without interest). Any payments of “nonqualified deferred compensation” under such Award payable more than six months following the Participant’s “separation from service” will be paid at the time or times the payments are otherwise scheduled to be made.

10.7 Limitations on Liability. Notwithstanding any other provisions of the Plan, no individual acting as a director, officer, other employee or agent of the Company or any Subsidiary will be liable to any Participant, former Participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan or any Award, and such individual will not be personally liable with respect to the Plan because of any contract or other instrument executed in his or her capacity as an Administrator, director, officer, other employee or agent of the Company or any Subsidiary. The Company will indemnify and hold harmless each director, officer, other employee and agent of the Company or any Subsidiary that has been or will be granted or delegated any duty or power relating to the Plan’s administration or interpretation, against any cost or expense (including attorneys’ fees) or liability (including any sum paid in settlement of a claim with the Administrator’s approval) arising from any act or omission concerning this Plan unless arising from such person’s own fraud or bad faith.

10.8 Lock-Up Period. The Company may, at the request of any underwriter representative or otherwise, in connection with registering the offering of any Company securities under the Securities Act, prohibit Participants from, directly or indirectly, selling or otherwise transferring any Shares or other Company securities during a period of up to one hundred eighty days following the effective date of a Company registration statement filed under the Securities Act, or such longer period as determined by the underwriter.

10.9 Data Privacy. As a condition for receiving any Award, each Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this section by and among the Company and its Subsidiaries and affiliates exclusively for implementing, administering and managing the Participant’s participation in the Plan. The Company and its Subsidiaries and affiliates may hold certain personal information about a Participant, including the Participant’s name, address and telephone number; birthdate; social security, insurance number or other identification number; salary; nationality; job title(s); any Shares held in the Company or its Subsidiaries and affiliates; and Award details, to implement, manage and administer the Plan and Awards (the “Data”). The Company and its Subsidiaries and affiliates may transfer the Data amongst themselves as necessary to implement, administer and manage a Participant’s participation in the Plan, and the Company and its Subsidiaries and affiliates may transfer the Data to third parties assisting the Company with Plan implementation, administration and management. These recipients may be located in the Participant’s country, or elsewhere, and the Participant’s country may have different data privacy laws and protections than the recipients’ country. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, to implement, administer and manage the Participant’s participation in the Plan, including any required Data transfer to a broker or other third party with whom the Company or the Participant may elect to deposit any Shares. The Data related to a Participant will be held only as long as necessary to implement, administer, and manage the Participant’s participation in the Plan. A Participant may, at any time, view the Data that the Company holds regarding such Participant, request additional information about the storage and processing of the Data regarding such Participant, recommend any necessary corrections to the Data regarding the Participant or refuse or withdraw the consents in this

Section 10.9 in writing, without cost, by contacting the local human resources representative. The Company may cancel Participant’s ability to participate in the Plan and, in the Administrator’s discretion, the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents in this Section 10.9. For more information on the consequences of refusing or withdrawing consent, Participants may contact their local human resources representative.

10.10 Severability. If any portion of the Plan or any action taken under it is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provisions had been excluded, and the illegal or invalid action will be null and void.

10.11 Governing Documents. If any contradiction occurs between the Plan and any Award Agreement or other written agreement between a Participant and the Company (or any Subsidiary) that the Administrator has approved, the Plan will govern, unless it is expressly specified in such Award Agreement or other written document that a specific provision of the Plan will not apply.

10.12 Governing Law. The Plan and all Awards will be governed by and interpreted in accordance with the laws of the State of Delaware, disregarding any state’s choice of law principles requiring the application of a jurisdiction’s laws other than the State of Delaware.

10.13 Claw-back Provisions. All Awards (including any proceeds, gains or other economic benefit the Participant actually or constructively receives upon receipt or exercise of any Award or the receipt or resale of any Shares underlying the Award) will be subject to any Company claw-back policy, including any claw-back policy adopted to comply with Applicable Laws (including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder) as set forth in such claw-back policy or the Award Agreement.

10.14 Titles and Headings. The titles and headings in the Plan are for convenience of reference only and, if any conflict, the Plan’s text, rather than such titles or headings, will control.

10.15 Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conform to the extent necessary with Applicable Laws. Notwithstanding anything herein to the contrary, the Plan and all Awards will be administered only in conformance with Applicable Laws. To the extent Applicable Laws permit, the Plan and all Award Agreements will be deemed amended as necessary to conform to Applicable Laws.

10.16 Relationship to Other Benefits. No payment under the Plan will be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except as expressly provided in writing in such other plan or an agreement thereunder.

10.17 Broker-Assisted Sales. In the event of a broker-assisted sale of Shares in connection with the payment of amounts owed by a Participant under or with respect to the Plan or Awards, including amounts to be paid under the final sentence of Section 9.5: (a) any Shares to be sold through the broker-assisted sale will be sold on the day the payment first becomes due, or as soon thereafter as practicable; (b) such Shares may be sold as part of a block trade with other Participants in the Plan in which all participants receive an average price; (c) the applicable Participant will be responsible for all broker’s fees and other costs of sale, and by accepting an Award, each Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (d) to the extent the Company or its designee receives proceeds of such sale that exceed the amount owed, the Company will pay such excess in cash to the applicable Participant as soon as reasonably practicable; (e) the Company and its designees are under no obligation to arrange for such sale at any particular price; and (f) in the event the proceeds of such sale are insufficient to satisfy the Participant’s applicable obligation, the Participant may be required to pay immediately upon demand to the Company or its designee an amount in cash sufficient to satisfy any remaining portion of the Participant’s obligation.

10.18 Section 162(m) Limitations. Notwithstanding any other provision of the Plan or any Award, each Award made under the Existing Plan prior to November 2, 2017 that is intended to qualify as “performance-based compensation” as described in Section 162(m)(4)(C) of the Code prior to its repeal or is otherwise not subject to the

deduction limitation of Section 162(m) of the Code because it was granted to an individual who was not considered a “covered employee” under Section 162(m) of the Code (each such Award, a “Section 162(m) Award”) shall be subject to any additional limitations as the Administrator determines necessary for such Section 162(m) Award to qualify as “performance-based compensation” as described in Section 162(m)(4)(C) of the Code prior to its repeal or to otherwise be exempt from Section 162(m) of the Code pursuant to the transition relief rules in the Tax Cuts and Jobs Act of 2017, and to the extent any of the provisions of the Plan or any Award would cause any Section 162(m) Award to fail to so qualify or to otherwise be so exempt, any such provisions shall not apply to such Award to the extent necessary to ensure the continued qualification or exemption of such Award. To the extent permitted by applicable law, the Plan and any such Award shall be deemed amended to the extent necessary to conform to such requirements. To the extent necessary with respect to Section 162(m) Awards, the Administrator shall be comprised solely of two or more directors intended to qualify as “outside directors” for purposes of Section 162(m) of the Code.

10.19 No Fractional Shares. Notwithstanding any provision in the Plan to the contrary, no fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Administrator shall determine whether cash, other securities or other property shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.

10.20 Section 83(b) Elections Prohibited. No Participant may make an election under Section 83(b) of the Code, or any successor section thereto, with respect to any Award without the consent of the Administrator, which the Administrator may grant or withhold in its discretion.

10.21 Award Vesting Limitations. Notwithstanding any other provisions of the Plan to the contrary, but subject to Section 8.2, no Award (or portion thereof) granted under the Plan shall vest earlier than the first anniversary of the date the Award is granted, and no Award Agreement shall reduce or eliminate such minimum vesting requirement, provided, however, that, notwithstanding the foregoing, the minimum vesting requirement of this Section 10.21 shall not apply to: (a) any Substitute Awards, (b) any Awards delivered in lieu of fully-vested cash-based Awards (or other fully-vested cash awards or payments), (c) any Awards to non-employee directors for which the vesting period runs from the date of one annual meeting of the Company’s stockholders to the next annual meeting of the Company’s stockholders, or (d) any other Awards granted by the Administrator from time to time that result in the issuance of an aggregate of up to 5% of the shares available for issuance under Section 4.1 as of the Amendment Date, provided that nothing in this Section 10.21 limits the ability of an Award to provide that such minimum vesting restrictions may lapse or be waived upon the Participant’s death or disability, subject to Section 9.6.

ARTICLE XI.

DEFINITIONS

As used in the Plan, the following words and phrases will have the following meanings:

11.1“Administrator” means the Board or a Committee to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee.

11.2“Amendment Date” means the date on which this Plan, as amended and restated, is approved by the Board, subject to approval of this Plan by the Company’s stockholders.

11.3“Applicable Laws” means the requirements relating to the administration of equity incentive plans under U.S. federal and state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where Awards are granted.

11.4“Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units or Other Stock or Cash Based Awards.

11.5“Award Agreement” means a written agreement evidencing an Award, which may be electronic, that contains such terms and conditions as the Administrator determines, consistent with and subject to the terms and conditions of the Plan.

11.6“Board” means the Board of Directors of the Company.

11.7“Cause” means (i) if a Participant is a party to a written employment or consulting agreement with the Company or any of its Subsidiaries or an Award Agreement in which the term “cause” is defined (a “Relevant Agreement”), “Cause” as defined in the Relevant Agreement, and (ii) if no Relevant Agreement exists, (A) the Administrator’s determination that the Participant failed to substantially perform the Participant’s duties (other than a failure resulting from the Participant’s Disability); (B) the Administrator’s determination that the Participant failed to carry out, or comply with any lawful and reasonable directive of the Board or the Participant’s immediate supervisor; (C) the occurrence of any act or omission by the Participant that could reasonably be expected to result in (or has resulted in) the Participant’s conviction, plea of no contest, plea of nolo contendere, or imposition of unadjudicated probation for any felony or indictable offense or crime involving moral turpitude; (D) the Participant’s unlawful use (including being under the influence) or possession of illegal drugs on the premises of the Company or any of its Subsidiaries or while performing the Participant’s duties and responsibilities for the Company or any of its Subsidiaries; or (E) the Participant’s commission of an act of fraud, embezzlement, misappropriation, misconduct, or breach of fiduciary duty against the Company or any of its Subsidiaries.

11.8“Change in Control” means and includes each of the following:

(a)A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained by the Company or any of its Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

(b)During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(c)The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

(i)to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

(ii)after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall

be treated for purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.

Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or portion of any Award) that provides for the deferral of compensation that is subject to Section 409A, to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a), (b) or (c) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

The Administrator shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.

11.9“Code” means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.

11.10“Committee” means one or more committees or subcommittees of the Board, which may include one or more Company directors or executive officers, to the extent Applicable Laws permit. To the extent required to comply with the provisions of Rule 16b-3, it is intended that each member of the Committee will be, at the time the Committee takes any action with respect to an Award that is subject to Rule 16b-3, a “non-employee director” within the meaning of Rule 16b-3; however, a Committee member’s failure to qualify as a “non-employee director” within the meaning of Rule 16b-3 will not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.

11.11“Common Stock” means the Class A common stock of the Company.

11.12“Company” means Centennial Resource Development, Inc., a Delaware corporation, or any successor.

11.13“Consultant” means any person, including any adviser, engaged by the Company or its parent or Subsidiary to render services to such entity if the consultant or adviser: (i) renders bona fide services to the Company; (ii) renders services not in connection with the offer or sale of securities in a capital-raising transaction and does not directly or indirectly promote or maintain a market for the Company’s securities; and (iii) is a natural person.

11.14“Designated Beneficiary” means the beneficiary or beneficiaries the Participant designates, in a manner the Administrator determines, to receive amounts due or exercise the Participant’s rights if the Participant dies or becomes incapacitated. Without a Participant’s effective designation, “Designated Beneficiary” will mean the Participant’s estate.

11.15“Director” means a Board member.

11.16“Disability” means a permanent and total disability under Section 22(e)(3) of the Code, as amended.

11.17“Dividend Equivalents” means a right granted to a Participant under the Plan to receive the equivalent value (in cash or Shares) of dividends paid on Shares.

11.18“Employee” means any employee of the Company or its Subsidiaries.

11.19“Equity Restructuring” means a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other Company securities) or the share price of Common Stock

(or other Company securities) and causes a change in the per share value of the Common Stock underlying outstanding Awards.

11.20“Exchange Act” means the Securities Exchange Act of 1934, as amended.

11.21“Fair Market Value” means, as of any date, the value of Common Stock determined as follows: (i) if the Common Stock is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; (ii) if the Common Stock is not traded on a stock exchange but is quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; or (iii) without an established market for the Common Stock, the Administrator will determine the Fair Market Value in its discretion.

11.22“Greater Than 10% Stockholder” means an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporation, as defined in Section 424(e) and (f) of the Code, respectively.

11.23“Incentive Stock Option” means an Option intended to qualify as an “incentive stock option” as defined in Section 422 of the Code.

11.24“Non-Qualified Stock Option” means an Option not intended or not qualifying as an Incentive Stock Option.

11.25“Option” means an Option not intended or not qualifying as an Incentive Stock Option.

11.26“Other Stock or Cash Based Awards” means cash awards, awards of Shares, and other awards valued wholly or partially by referring to, or are otherwise based on, Shares or other property.

11.27“Overall Share Limit” means 24,750,000 Shares, which amount is inclusive of the number of Shares issued or transferred pursuant to Awards under the Existing Plan.

11.28“Participant” means a Service Provider who has been granted an Award.

11.29“Performance Criteria” mean the criteria (and adjustments) that the Administrator may select for an Award to establish performance goals for a performance period, which may include the following: net earnings or losses (either before or after one or more of interest, taxes, depreciation, amortization, and non-cash equity-based compensation expense); gross or net sales or revenue or sales or revenue growth; net income (either before or after taxes) or adjusted net income; profits (including but not limited to gross profits, net profits, profit growth, net operation profit or economic profit), profit return ratios or operating margin; budget or operating earnings (either before or after taxes or before or after allocation of corporate overhead and bonus); cash flow (including operating cash flow and free cash flow or cash flow return on capital); return on assets; return on capital or invested capital; cost of capital; return on stockholders’ equity; total stockholder return; return on sales; costs, reductions in costs and cost control measures; expenses; working capital; earnings or loss per share; adjusted earnings or loss per share; price per share or dividends per share (or appreciation in or maintenance of such price or dividends); regulatory achievements or compliance; implementation, completion or attainment of objectives relating to research, development, regulatory, commercial, or strategic milestones or developments; market share; economic value or economic value added models; division, group or corporate financial goals; individual business objectives; production or growth in production; reserves or added reserves; growth in reserves per share; inventory growth; environmental, health and/or safety performance; effectiveness of hedging programs; improvements in internal controls and policies and procedures; customer satisfaction/growth; customer service; employee satisfaction; recruitment and maintenance of personnel; human resources management; supervision of litigation and other legal matters; strategic partnerships and transactions; financial ratios (including those measuring liquidity, activity, profitability or leverage); debt levels or reductions; sales-related goals; financing and

other capital raising transactions; cash on hand; acquisition activity; investment sourcing activity; and marketing initiatives, any of which may be measured in absolute terms or as compared to any incremental increase or decrease. Such performance goals also may be based solely by reference to the Company’s performance or the performance of a Subsidiary, division, business segment or business unit of the Company or a Subsidiary, or based upon performance relative to performance of other companies or upon comparisons of any of the indicators of performance relative to performance of other companies. Any performance goals that are financial metrics may be determined in accordance with U.S. Generally Accepted Accounting Principles, in accordance with accounting principles established by the International Accounting Standards Board, or may be adjusted when established to include or exclude any items otherwise includable or excludable under U.S. Generally Accepted Accounting Principles or under the accounting principles established by the International Accounting Standards Board. The Committee may provide for exclusion of the impact of an event or occurrence which the Committee determines should appropriately be excluded, including (a) restructurings, discontinued operations, extraordinary items, and other unusual, infrequently occurring or non-recurring charges or events, (b) asset write-downs, (c) litigation or claim judgments or settlements, (d) acquisitions or divestitures, (e) reorganization or change in the corporate structure or capital structure of the Company, (f) an event either not directly related to the operations of the Company, Subsidiary, division, business segment or business unit or not within the reasonable control of management, (g) foreign exchange gains and losses, (h) a change in the fiscal year of the Company, (i) the refinancing or repurchase of bank loans or debt securities, (j) unbudgeted capital expenditures, (k) the issuance or repurchase of equity securities and other changes in the number of outstanding shares, (l) conversion of some or all of convertible securities to Common Stock, (m) any business interruption event (n) the cumulative effects of tax or accounting changes in accordance with U.S. generally accepted accounting principles, or (o) the effect of changes in other laws or regulatory rules affecting reported results.

11.30“Plan” means this 2016 Long Term Incentive Plan, as amended or restated from time to time.

11.31“Restricted Stock” means Shares awarded to a Participant under Article VI subject to certain vesting conditions and other restrictions.

11.32“Restricted Stock Unit” means an unfunded, unsecured right to receive, on the applicable settlement date, one Share or an amount in cash or other consideration determined by the Administrator to be of equal value as of such settlement date, subject to certain vesting conditions and other restrictions.

11.33“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act.

11.34“Section 409A” means Section 409A of the Code and all regulations, guidance, compliance programs and other interpretative authority thereunder.

11.35“Securities Act” means the Securities Act of 1933, as amended.

11.36“Service Provider” means an Employee, Consultant or Director.

11.37“Shares” means shares of Common Stock.

11.38“Stock Appreciation Right” means a stock appreciation right granted under Article V.

11.39“Subsidiary” means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.

11.40“Substitute Awards” shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines.

11.41“Termination of Service” means the date the Participant ceases to be a Service Provider.

* * * * *


1.	I have reviewed this Quarterly Report on Form 10-Q (this “report”) of Centennial Resource Development, Inc. (the “registrant”);


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)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



	CENTENNIAL RESOURCE DEVELOPMENT, INC.

	By:	/s/ SEAN R. SMITH
		Sean R. Smith Chief Executive Officer (Principal Executive Officer)