NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2016
1. Organization
Bill Barrett Corporation, a Delaware corporation, together with its wholly-owned subsidiaries (collectively, the "Company"), is an independent oil and gas company engaged in the exploration, development and production of crude oil, natural gas and natural gas liquids ("NGLs"). Since its inception in January 2002, the Company has conducted its activities principally in the Rocky Mountain region of the United States.
2
. Summary of Significant Accounting Policies
Basis of Presentation.
The accompanying Unaudited Consolidated Financial Statements include the accounts of the Company. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly, in all material respects, the Company's interim results. However, operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. The Company's Annual Report on Form 10-K includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report on Form 10-Q. 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
2015
Annual Report on Form 10-K.
Use of Estimates.
In the course of preparing the Company's financial statements in accordance with GAAP, management makes various assumptions, judgments and estimates to determine the reported amount of assets, liabilities, revenues and expenses and in the disclosure 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 initially established.
Areas requiring the use of assumptions, judgments and estimates relate to volumes of oil, natural gas and NGL reserves used in calculating depreciation, depletion and amortization ("DD&A"), the amount of expected future cash flows used in determining possible impairments of proved oil and gas properties and the amount of future capital costs used in these calculations. Assumptions, judgments and estimates also are required in determining asset retirement obligations, the timing of dry hole costs, impairments of unproved oil and gas properties, valuing deferred tax assets and estimating fair values of derivative instruments and stock-based payment awards.
Accounts Receivable.
Accounts receivable is comprised of the following:
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
As of December 31, 2015
|
|
(in thousands)
|
Accrued oil, gas and NGL sales
|
$
|
22,775
|
|
|
$
|
33,594
|
|
Due from joint interest owners
|
6,434
|
|
|
8,373
|
|
Other
|
1,839
|
|
|
1,508
|
|
Allowance for doubtful accounts
|
—
|
|
|
(14
|
)
|
Total accounts receivable
|
$
|
31,048
|
|
|
$
|
43,461
|
|
Oil and Gas Properties.
The Company's oil, gas and NGL exploration and production activities are accounted for using the successful efforts method. Under this method, all property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending determination of whether the well has found proved reserves. If an exploratory well does not find proved reserves, the costs of drilling the well are charged to expense and remain within cash flows from investing activities in the Unaudited Consolidated Statements of Cash Flows. If an exploratory well does find proved reserves, the costs remain capitalized and are included within additions to oil and gas properties and remain within cash flows from investing activities in the Unaudited Consolidated Statements of Cash Flows. The costs of development wells are capitalized whether
proved reserves are added or not. Oil and gas lease acquisition costs are also capitalized. Upon sale or retirement of depreciable or depletable property, the cost and related accumulated DD&A are eliminated from the accounts and the resulting gain or loss is recognized.
Other exploration costs, including certain geological and geophysical expenses and delay rentals for oil and gas leases, are charged to expense as incurred. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate. Maintenance and repairs are charged to expense, and renewals and betterments are capitalized to the appropriate property and equipment accounts.
Unproved oil and gas property costs are transferred to proved oil and gas properties if the properties are subsequently determined to be productive or are assigned proved reserves. Proceeds from sales of partial interests in unproved leases are accounted for as a recovery of cost without recognizing any gain until all costs are recovered. Unproved oil and gas properties are assessed periodically for impairment based on remaining lease terms, drilling results, reservoir performance, commodity price outlooks, future plans to develop acreage and other relevant matters.
Materials and supplies consist primarily of tubular goods and well equipment to be used in future drilling operations or repair operations and are carried at the lower of cost or market value, on a first-in, first-out basis.
The following table sets forth the net capitalized costs and associated accumulated DD&A and non-cash impairments relating to the Company's oil, natural gas and NGL producing activities:
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
As of December 31, 2015
|
|
(in thousands)
|
Proved properties
|
$
|
300,444
|
|
|
$
|
320,538
|
|
Wells and related equipment and facilities
|
1,064,556
|
|
|
1,592,716
|
|
Support equipment and facilities
|
56,149
|
|
|
77,785
|
|
Materials and supplies
|
5,836
|
|
|
9,171
|
|
Total proved oil and gas properties
(1)
|
$
|
1,426,985
|
|
|
$
|
2,000,210
|
|
Unproved properties
|
31,554
|
|
|
33,336
|
|
Wells and facilities in progress
|
89,900
|
|
|
45,862
|
|
Total unproved oil and gas properties, excluded from amortization
(1)
|
$
|
121,454
|
|
|
$
|
79,198
|
|
Accumulated depreciation, depletion, amortization and impairment
(1)
|
(416,336
|
)
|
|
(918,510
|
)
|
Total oil and gas properties, net
(1)
|
$
|
1,132,103
|
|
|
$
|
1,160,898
|
|
|
|
(1)
|
Excludes oil and gas properties held for sale of
$33.7 million
, comprised of
$572.2 million
of proved oil and gas properties and
$4.3 million
of unproved oil and gas properties, net of accumulated depreciation, depletion, amortization and impairment of
$542.8 million
. Held for sale balances are included in current assets as assets held for sale, net of amortization and impairment, in the Unaudited Consolidated Balance Sheet as of March 31, 2016. See Note
4
for additional information on assets held for sale.
|
The Company reviews proved oil and gas properties on a field-by-field basis for impairment on a quarterly basis or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. The Company estimates the expected undiscounted future net cash flows of its oil and gas properties based on the Company's best estimate of development plans, future production, commodity pricing, gathering and transportation deductions, production tax rates, lease operating expenses and future development costs. The Company compares such undiscounted future net cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable. If the undiscounted future net cash flows exceed the carrying amount of the proved oil and gas properties, no impairment is taken. If the carrying value of a property exceeds the undiscounted future net cash flows, the Company will impair the carrying value to fair value based on an analysis of quantitative and qualitative factors existing as of the balance sheet date. The Company does not believe that the undiscounted future net cash flows analysis of its proved property represents the applicable market value. The factors used to determine fair value include, but are not limited to, recent sales prices of comparable properties, indications from marketing activities, the present value of future revenues, net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the projected cash flows.
Oil and gas properties are assessed for impairment once they meet the criteria to be classified as held for sale. Assets held for sale are carried at the lower of carrying cost or fair value less costs to sell. The fair value of the assets is determined using a market approach, based on an estimated selling price, as evidenced by current marketing activities, if possible. If an estimated selling price is not available, the Company utilizes the income valuation technique which involves calculating the present value of future revenues, as discussed above. If the carrying amount of the assets exceeds the fair value less costs to sell, an impairment will result to reduce the value of the properties down to fair value less costs to sell.
The Company recognized non-cash impairment, dry hole costs and abandonment expense in the Unaudited Consolidated Statements of Operations, as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
(in thousands)
|
Non-cash impairment of proved oil and gas properties
|
$
|
—
|
|
|
$
|
—
|
|
Non-cash impairment of unproved oil and gas properties
|
183
|
|
|
58
|
|
Dry hole costs
|
57
|
|
|
15
|
|
Abandonment expense and lease expirations
|
318
|
|
|
1,182
|
|
Total non-cash impairment, dry hole costs and abandonment expense
|
$
|
558
|
|
|
$
|
1,255
|
|
The provision for DD&A of oil and gas properties is calculated on a field-by-field basis using the unit-of-production method. Natural gas and NGLs are converted to an oil equivalent, Boe, at the standard rate of six Mcf to one Boe and forty-two gallons to one Boe, respectively. Estimated future dismantlement, restoration and abandonment costs are taken into consideration by this calculation.
Accounts Payable and Accrued Liabilities.
Accounts payable and accrued liabilities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
As of December 31, 2015
|
|
(in thousands)
|
Accrued drilling, completion and facility costs
|
$
|
16,296
|
|
|
$
|
32,895
|
|
Accrued lease operating, gathering, transportation and processing expenses
|
5,031
|
|
|
4,930
|
|
Accrued general and administrative expenses
|
5,282
|
|
|
10,962
|
|
Accrued interest payable
|
28,545
|
|
|
13,918
|
|
Trade payables and other
|
4,017
|
|
|
1,632
|
|
Total accounts payable and accrued liabilities
|
$
|
59,171
|
|
|
$
|
64,337
|
|
Environmental Liabilities.
Environmental expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation are expensed. Environmental liabilities are accrued when environmental assessments and/or clean-ups are probable, and the costs can be reasonably estimated.
Revenue Recognition.
Oil, gas and NGL revenues are recognized when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and collectability of the revenue is reasonably assured. The Company uses the sales method to account for gas and NGL imbalances. Under this method, revenues are recorded on the basis of gas and NGLs actually sold by the Company. In addition, the Company records revenues for its share of gas and NGLs sold by other owners that cannot be volumetrically balanced in the future due to insufficient remaining reserves. The Company also reduces revenues for other owners' volumetric share of gas and NGLs sold by the Company that cannot be volumetrically balanced in the future due to insufficient remaining reserves. The Company's remaining over- and under-produced gas and NGLs balancing positions are taken into account in determining the Company's proved oil, gas and NGL reserves. Imbalances at
March 31, 2016
and
2015
were not material.
Derivative Instruments and Hedging Activities.
The Company periodically uses derivative financial instruments to achieve a more predictable cash flow from its oil, natural gas and NGL sales by reducing its exposure to price fluctuations. Derivative instruments are recorded at fair market value and are included in the Unaudited Consolidated Balance Sheets as assets or liabilities and in the Unaudited Consolidated Statements of Operations as commodity derivative gain (loss).
Income Taxes.
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently payable plus deferred income taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred income tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when assets are recovered or liabilities are settled. Deferred income taxes also include tax credits and net operating losses that are available to offset future income taxes. Deferred income taxes are measured by applying currently enacted tax rates. Deferred tax assets are regularly reviewed, considering all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, taxable strategies and results of recent operations. The assumptions about future taxable income require significant judgment to determine whether it is more likely than not that the deferred tax asset will be realized.
The Company accounts for uncertainty in income taxes for tax positions taken or expected to be taken in a tax return. Only tax positions that meet the more-likely-than-not recognition threshold are recognized. The Company does not have any uncertain tax positions recorded as of
March 31, 2016
.
Earnings/Loss Per Share.
Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to common stock by the weighted average number of common shares outstanding during each period. Diluted net income per common share is calculated by dividing net income attributable to common stock by the weighted average number of common shares outstanding and other dilutive securities. Potentially dilutive securities for the diluted net income per common share calculations consist of nonvested equity shares of common stock, in-the-money outstanding stock options to purchase the Company's common stock and shares into which the Convertible Notes are convertible. No potential common shares are included in the computation of any diluted per share amount when a net loss exists, as was the case for the
three
months ended
March 31, 2016
and
2015
.
The following table sets forth the calculation of basic and diluted income (loss) per share:
|
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|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
(in thousands, except per share amounts)
|
Net income (loss)
|
$
|
(46,496
|
)
|
|
$
|
(11,731
|
)
|
Basic weighted-average common shares outstanding in period
|
48,499
|
|
|
48,199
|
|
Diluted weighted-average common shares outstanding in period
|
48,499
|
|
|
48,199
|
|
Basic net income (loss) per common share
|
$
|
(0.96
|
)
|
|
$
|
(0.24
|
)
|
Diluted net income (loss) per common share
|
$
|
(0.96
|
)
|
|
$
|
(0.24
|
)
|
New Accounting Pronouncements.
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09,
Improvements to Employee Share-Based Payment Accounting
. The objective of this update is to simplify the current guidance for stock compensation. The areas for simplification involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for the annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently evaluating the impact of adopting this standard.
In February 2016, the FASB issued ASU 2016-02,
Leases
. The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for the annual periods beginning after December 15, 2018, and interim periods within those annual periods. The Company is currently evaluating the impact of adopting this standard.
In November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
. The objective of this update is to require deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for the annual periods beginning after December 15, 2016, and interim periods within those annual periods. The standard will be adopted retrospectively and will not have a significant impact on the Company's disclosures and financial statements.
In April 2015, the FASB issued ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs
. The objective of this update is to require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
.
This ASU amends ASU 2015-03 which had not addressed the balance sheet presentation of debt issuance costs incurred in connection with line-of-credit arrangements. Under ASU 2015-15, a Company may defer debt issuance costs associated with line-of-credit arrangements and present such costs as an asset, subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings. ASU 2015-03 and ASU 2015-15 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, should be applied retrospectively and represent a change in accounting principle. The Company adopted ASU 2015-03 and ASU 2015-15 as of March 31, 2016, and as a result, $8.7 million of debt issuance costs related to the Company’s senior notes and convertible senior notes was reclassified from deferred financing costs and other noncurrent assets to long-term debt in the Company’s consolidated balance sheets as of December 31, 2015. The Company elected to continue presenting the debt issuance costs associated with its credit facility within deferred financing costs and other noncurrent assets in the consolidated balance sheets.
In August 2014, the FASB issued ASU 2014-15,
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern.
The objective of this update is to provide guidance in GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The standard will be adopted prospectively.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers.
The objective of this update is to clarify the principles for recognizing revenue and to develop a common revenue standard. ASU 2015-14 deferred the effective reporting periods of ASU 2014-09, and it is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact of adopting this standard.
3. Supplemental Disclosures of Cash Flow Information
Supplemental cash flow information is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
(in thousands)
|
Cash paid for interest
|
$
|
480
|
|
|
$
|
1,105
|
|
Cash paid for income taxes
|
—
|
|
|
1,050
|
|
Supplemental disclosures of non-cash investing and financing activities:
|
|
|
|
Accrued liabilities - oil and gas properties
|
17,518
|
|
|
74,984
|
|
Change in asset retirement obligations, net of disposals
|
(60
|
)
|
|
(525
|
)
|
Retirement of treasury stock
|
(384
|
)
|
|
(975
|
)
|
4
. Assets Held for Sale
Assets are classified as held for sale when the Company commits to a plan to sell the assets and there is reasonable certainty the sale will take place within one year. Upon classification as held for sale, long-lived assets are analyzed for impairment to identify and expense any excess of carrying value over fair value less costs to sell. In addition, the assets are no longer depreciated or depleted.
During the three months ended March 31, 2016, the Company committed to a plan to sell certain non-core assets in the Uinta Basin. Therefore, the related assets and liabilities were classified as held for sale in the Unaudited Consolidated Balance Sheet as of March 31, 2016. Assets held for sale are recorded at the lesser of their respective carrying value or fair value less estimated costs to sell. The fair value of the net assets held for sale was
$28.9 million
and was presented as assets held for sale, net of amortization and impairment, of
$33.7 million
and liabilities associated with assets held for sale of
$4.8 million
on the Unaudited Consolidated Balance Sheet as of March 31, 2016.
5
. Long-Term Debt
The Company's outstanding debt is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
As of December 31, 2015
|
|
Maturity Date
|
Principal
|
|
Debt Issuance Costs
|
|
Carrying
Amount
|
|
Principal
|
|
Debt Issuance Costs
|
|
Carrying
Amount
|
|
|
(in thousands)
|
Amended Credit Facility
|
April 9, 2020
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Convertible Notes
(1)(2)
|
March 15, 2028
|
579
|
|
|
—
|
|
|
579
|
|
|
579
|
|
|
—
|
|
|
579
|
|
7.625% Senior Notes
(3)
|
October 1, 2019
|
400,000
|
|
|
(3,502
|
)
|
|
396,498
|
|
|
400,000
|
|
|
(3,752
|
)
|
|
396,248
|
|
7.0% Senior Notes
(4)
|
October 15, 2022
|
400,000
|
|
|
(4,771
|
)
|
|
395,229
|
|
|
400,000
|
|
|
(4,953
|
)
|
|
395,047
|
|
Lease Financing Obligation
(5)
|
August 10, 2020
|
3,113
|
|
|
(4
|
)
|
|
3,109
|
|
|
3,222
|
|
|
(4
|
)
|
|
3,218
|
|
Total Debt
|
|
$
|
803,692
|
|
|
$
|
(8,277
|
)
|
|
$
|
795,415
|
|
|
$
|
803,801
|
|
|
$
|
(8,709
|
)
|
|
$
|
795,092
|
|
Less: Current Portion of Long-Term Debt
(6)
|
|
443
|
|
|
—
|
|
|
443
|
|
|
440
|
|
|
—
|
|
|
440
|
|
Total Long-Term Debt
|
|
$
|
803,249
|
|
|
$
|
(8,277
|
)
|
|
$
|
794,972
|
|
|
$
|
803,361
|
|
|
$
|
(8,709
|
)
|
|
$
|
794,652
|
|
|
|
(1)
|
The aggregate estimated fair value of the Convertible Notes was approximately
$0.5 million
as of
March 31, 2016
and
December 31, 2015
based on reported market trades of these instruments.
|
|
|
(2)
|
The Company has the right at any time, with at least 30 days' notice, to call the remaining Convertible Notes, and the holders have the right to require the Company to purchase the notes on each of March 20, 2018 and March 20, 2023.
|
|
|
(3)
|
The aggregate estimated fair value of the
7.625%
Senior Notes was approximately
$270.0 million
and
$270.2 million
as of
March 31, 2016
and
December 31, 2015
, respectively, based on reported market trades of these instruments.
|
|
|
(4)
|
The aggregate estimated fair value of the
7.0%
Senior Notes was approximately
$242.0 million
and
$272.0 million
as of
March 31, 2016
and
December 31, 2015
, respectively, based on reported market trades of these instruments.
|
|
|
(5)
|
The aggregate estimated fair value of the Lease Financing Obligation was approximately
$3.0 million
as of
March 31, 2016
and
$3.1 million
as of
December 31, 2015
. Because there is no active, public market for the Lease Financing Obligation, the aggregate estimated fair value was based on market-based parameters of comparable term secured financing instruments.
|
|
|
(6)
|
The current portion of the long-term debt as of
March 31, 2016
and
December 31, 2015
includes the current portion of the Lease Financing Obligation.
|
Amended Credit Facility
The Amended Credit Facility had commitments and a borrowing base of
$375.0 million
from
13
lenders as of
March 31, 2016
. As of
March 31, 2016
, the Company had no amounts outstanding under the Amended Credit Facility. As credit support for future payment under a contractual obligation, a
$26.0 million
letter of credit was issued under the Amended Credit Facility, which reduced the available borrowing capacity of the Amended Credit Facility as of
March 31, 2016
to
$349.0 million
.
Interest rates are LIBOR plus applicable margins of
1.5%
to
2.5%
or ABR plus
0.5%
to
1.5%
and the unused commitment fee is between
0.375%
and
0.5%
based on borrowing base utilization. There have not been any borrowings under the Amended Credit Facility in 2016.
The borrowing base under the Amended Credit Facility is determined at the discretion of the lenders, based on the collateral value of our proved reserves that have been mortgaged to such lenders, and is subject to regular re-determinations on or about April 1 and October 1 of each year, as well as following any property sales. On April 11, 2016, the borrowing base was reduced to
$335.0 million
based on proved reserves and commodity hedge position in place at December 31, 2015. The Company's re-determined borrowing capacity of
$335.0 million
is reduced by
$26.0 million
to
$309.0 million
due to an outstanding irrevocable letter of credit related to a firm transportation agreement. Future borrowing bases will be computed based on proved oil, natural gas and NGL reserves, hedge positions and estimated future cash flows from those reserves calculated using future commodity pricing provided by our lenders, as well as any other outstanding debt. Lower commodity prices will impact the amount lenders will provide for a borrowing base.
The Amended Credit Facility also contains certain financial covenants. The Company is currently in compliance with all financial covenants and has complied with all financial covenants since issuance.
If the Company fails to comply with the covenants or other terms of any agreements governing the Company's debt, the Company's lenders and holders of the Company's convertible notes and senior notes may have the right to accelerate the
maturity of that debt and foreclose upon the collateral, if any, securing that debt. Realization of any of these factors could adversely affect the Company's financial condition. In September 2015, the Company obtained an amendment to the Amended Credit Facility that replaced the Company's debt-to-EBITDAX covenant in the facility with a secured debt-to-EBITDAX covenant and an EBITDAX-to-interest covenant through March 31, 2018. There can be no assurance that the Company will be able to obtain similar amendments, or waivers of covenant breaches, in the future if needed.
5% Convertible Senior Notes Due 2028
On March 12, 2008, the Company issued
$172.5 million
aggregate principal amount of Convertible Notes. On March 20, 2012,
$147.2 million
of the outstanding principal amount, or approximately
85%
of the outstanding Convertible Notes, were put to the Company and redeemed by the Company at par. On March 20, 2015,
$24.8 million
of the remaining outstanding principal amount, or approximately
98%
of the remaining outstanding Convertible Notes, were put to the Company and redeemed by the Company at par. After the redemption,
$0.6 million
aggregate principal amount of the Convertible Notes were outstanding as of
March 31, 2016
. The Convertible Notes mature on
March 15, 2028
, unless earlier converted, redeemed or purchased by the Company. The Convertible Notes are senior unsecured obligations and rank equal in right of payment to all of the Company's existing and future senior unsecured indebtedness, are senior in right of payment to all of the Company's future subordinated indebtedness, and are effectively subordinated to all of the Company's secured indebtedness with respect to the collateral securing such indebtedness. The Convertible Notes are structurally subordinated to all present and future secured and unsecured debt and other obligations of the Company's subsidiaries. The Convertible Notes are fully and unconditionally guaranteed by the subsidiaries that guarantee the Company's indebtedness under the Amended Credit Facility, the
7.625%
Senior Notes and the
7.0%
Senior Notes.
The Convertible Notes bear interest at a rate of
5%
per annum, payable semi-annually in arrears on March 15 and September 15 of each year. Holders of the remaining Convertible Notes may require the Company to purchase all or a portion of their Convertible Notes for cash on each of March 20, 2018 and March 20, 2023 at a purchase price equal to
100%
of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, up to but excluding the applicable purchase date. The Company has the right with at least
30
days' notice to call the Convertible Notes.
7.625% Senior Notes Due 2019
On September 27, 2011, the Company issued
$400.0 million
in principal amount of
7.625%
Senior Notes due 2019 at par. The
7.625%
Senior Notes mature on
October 1, 2019
. Interest is payable in arrears semi-annually on April 1 and October 1 of each year. The
7.625%
Senior Notes are senior unsecured obligations of the Company and rank equal in right of payment with all of the Company's other existing and future senior unsecured indebtedness, including the Convertible Notes and
7.0%
Senior Notes. The
7.625%
Senior Notes are currently redeemable at the Company's option at a specified redemption price. The
7.625%
Senior Notes are fully and unconditionally guaranteed by the subsidiaries that guarantee the Company's indebtedness under the Amended Credit Facility, the Convertible Notes and the
7.0%
Senior Notes. The
7.625%
Senior Notes include certain covenants that limit the Company's ability to incur additional indebtedness, make restricted payments, create liens or sell assets and that generally prohibit the Company from paying dividends. The Company is currently in compliance with all financial covenants and has complied with all financial covenants since issuance.
7.0% Senior Notes Due 2022
On March 12, 2012, the Company issued
$400.0 million
in aggregate principal amount of
7.0%
Senior Notes due 2022 at par. The
7.0%
Senior Notes mature on
October 15, 2022
. Interest is payable in arrears semi-annually on April 15 and October 15 of each year. The
7.0%
Senior Notes are senior unsecured obligations and rank equal in right of payment with all of the Company's other existing and future senior unsecured indebtedness, including the Convertible Notes and
7.625%
Senior Notes. The
7.0%
Senior Notes are redeemable at the Company's option beginning on October 15, 2017 at an initial redemption price of
103.5%
of the principal amount of the notes. The
7.0%
Senior Notes are fully and unconditionally guaranteed by the subsidiaries that guarantee the Company's indebtedness under the Amended Credit Facility, the Convertible Notes and the
7.625%
Senior Notes. The
7.0%
Senior Notes include certain covenants that limit the Company's ability to incur additional indebtedness, make restricted payments, create liens or sell assets and that generally prohibit the Company from paying dividends. The Company is currently in compliance with all financial covenants and has complied with all financial covenants since issuance.
Lease Financing Obligation Due 2020
The Company has a lease financing obligation with a balance of
$3.1 million
as of
March 31, 2016
resulting from the Company's sale and subsequent lease back of certain compressors and related facilities owned by the Company (the "Lease Financing Obligation"). The Lease Financing Obligation expires on
August 10, 2020
, and the Company has the option to purchase the equipment at the end of the lease term for the then current fair market value. The Lease Financing Obligation also contains an early buyout option pursuant to which the Company may purchase the equipment for
$1.8 million
on February 10, 2019. The lease payments related to the equipment are recognized as principal and interest expense based on a weighted average implicit interest rate of
3.3%
. See Note
12
for discussion of aggregate minimum future lease payments.
The following table summarizes, for the periods indicated, the cash or accrued portion of interest expense related to the Amended Credit Facility, the outstanding Convertible Notes, the
7.625%
Senior Notes, the
7.0%
Senior Notes and the Lease Financing Obligation along with the non-cash portion resulting from the amortization of the debt discount and transaction costs through interest expense:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
(in thousands)
|
Amended Credit Facility
(1)
|
|
Cash interest
|
$
|
438
|
|
|
$
|
433
|
|
Non-cash interest
|
$
|
207
|
|
|
$
|
586
|
|
Convertible Notes
(2)
|
|
|
|
Cash interest
|
$
|
22
|
|
|
$
|
276
|
|
Non-cash interest
|
$
|
—
|
|
|
$
|
3
|
|
7.625% Senior Notes
(3)
|
|
|
|
Cash interest
|
$
|
7,625
|
|
|
$
|
7,625
|
|
Non-cash interest
|
$
|
250
|
|
|
$
|
273
|
|
7.0% Senior Notes
(4)
|
|
|
|
Cash interest
|
$
|
7,000
|
|
|
$
|
7,000
|
|
Non-cash interest
|
$
|
181
|
|
|
$
|
204
|
|
Lease Financing Obligation
(5)
|
|
|
|
Cash interest
|
$
|
26
|
|
|
$
|
29
|
|
Non-cash interest
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(1)
|
Cash interest includes amounts related to interest and commitment fees incurred on the Amended Credit Facility and participation and fronting fees paid on the letter of credit.
|
|
|
(2)
|
The stated interest rate for the Convertible Notes is
5%
per annum. The effective interest rate of the Convertible Notes includes amortization of the debt discount, which represented the fair value of the equity conversion feature at the time of issue. The stated interest rate of
5%
on the Convertible Notes will be the effective interest rate of the $0.6 million remaining principal balance, as the related debt discount was fully amortized as of March 31, 2012.
|
|
|
(3)
|
The stated interest rate for the
7.625%
Senior Notes is
7.625%
per annum with an effective interest rate of
8.0%
per annum.
|
|
|
(4)
|
The stated interest rate for the
7.0%
Senior Notes is
7.0%
per annum with an effective interest rate of
7.2%
per annum.
|
|
|
(5)
|
The effective interest rate for the Lease Financing Obligation is
3.3%
per annum.
|
6. Asset Retirement Obligations
A reconciliation of the Company's asset retirement obligations for the
three
months ended
March 31, 2016
is as follows (in thousands):
|
|
|
|
|
As of December 31, 2015
|
$
|
15,176
|
|
Liabilities incurred
|
—
|
|
Liabilities settled
|
(8
|
)
|
Disposition of properties
|
(52
|
)
|
Accretion expense
|
274
|
|
Revisions to estimate
|
—
|
|
As of March 31, 2016
|
$
|
15,390
|
|
Less: liabilities associated with assets held for sale
|
4,785
|
|
Less: current asset retirement obligations
|
502
|
|
Long-term asset retirement obligations
|
$
|
10,103
|
|
7. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. These inputs can be readily observable, market corroborated or generally unobservable. A fair value hierarchy was established that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Level 1
– Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2
– Quoted prices are available in active markets for similar assets or liabilities and in non-active markets for identical or similar instruments. Model-derived valuations have inputs that are observable or whose significant value drivers are observable. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 –
Pricing inputs include significant inputs that are generally less observable than objective sources. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value. At each balance sheet date, the Company performs an analysis of all applicable instruments and includes in Level 3 all of those whose fair value is based on significant unobservable inputs.
The following tables set forth by level within the fair value hierarchy the Company's assets and liabilities that were measured at fair value in the Unaudited Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(in thousands)
|
Assets
|
|
|
|
|
|
|
|
Cash equivalents
(1)
|
$
|
60,095
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
60,095
|
|
Deferred compensation plan
(1)
|
1,208
|
|
|
—
|
|
|
—
|
|
|
1,208
|
|
Commodity derivatives
(1)
|
—
|
|
|
95,184
|
|
|
—
|
|
|
95,184
|
|
Assets held for sale
(2)
|
—
|
|
|
—
|
|
|
33,717
|
|
|
33,717
|
|
Liabilities
|
|
|
|
|
|
|
|
Commodity derivatives
(1)
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
7
|
|
Liabilities associated with assets held for sale
(2)
|
—
|
|
|
—
|
|
|
4,785
|
|
|
4,785
|
|
|
|
(1)
|
This represents a financial asset or liability that is measured at fair value on a recurring basis.
|
|
|
(2)
|
This represents a non-financial asset or liability that is measured at fair value on a nonrecurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(in thousands)
|
Assets
|
|
|
|
|
|
|
|
Cash equivalents
(1)
|
$
|
60,065
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
60,065
|
|
Deferred compensation plan
(1)
|
1,231
|
|
|
—
|
|
|
—
|
|
|
1,231
|
|
Commodity derivatives
(1)
|
—
|
|
|
119,471
|
|
|
—
|
|
|
119,471
|
|
Proved oil and gas properties
(2)
|
—
|
|
|
—
|
|
|
178,221
|
|
|
178,221
|
|
Unproved oil and gas properties
(2)
|
—
|
|
|
—
|
|
|
5,539
|
|
|
5,539
|
|
|
|
(1)
|
This represents a financial asset or liability that is measured at fair value on a recurring basis.
|
|
|
(2)
|
This represents a non-financial asset or liability that is measured at fair value on a nonrecurring basis.
|
Cash equivalents
– The highly liquid cash equivalents are recorded at carrying value, which approximates fair value, which represent Level 1 inputs.
Deferred compensation plan
– The Company maintains a non-qualified deferred compensation plan which allows certain management employees to defer receipt of a portion of their compensation. The Company maintains assets for the deferred compensation plan in a rabbi trust. The assets of the rabbi trust are invested in publicly traded mutual funds and are recorded in other current and other long-term assets in the Unaudited Consolidated Balance Sheets. The deferred compensation plan financial assets are reported at fair value based on active market quotes, which represent Level 1 inputs.
Commodity derivatives
– The fair value of crude oil, natural gas and NGL forwards and options are estimated using a combined income and market valuation methodology with a mid-market pricing convention based upon forward commodity price and volatility curves. The curves are obtained from independent pricing services reflecting broker market quotes. The Company did not make any adjustments to the obtained curves. The pricing services publish observable market information from multiple brokers and exchanges. No proprietary models are used by the pricing services for the inputs. The Company utilized the counterparties' valuations to assess the reasonableness of the Company's valuations.
The commodity derivatives have been adjusted for non-performance risk. For applicable financial assets carried at fair value, the credit standing of the counterparties is analyzed and factored into the fair value measurement of those assets. In addition, the fair value measurement of a liability has been adjusted to reflect the nonperformance risk of the Company. The following methods and assumptions were used to estimate the fair values of the assets and liabilities in the table above.
Oil and gas properties
–
Oil and gas property costs are evaluated for impairment and reduced to fair value when there is an indication that the carrying costs may not be recoverable. If an impairment is necessary, the fair value is estimated by using either a market approach based on recent sales prices of comparable properties and/or indications from marketing activities or by using the income valuation technique which involves calculating the present value of future revenues. The present value, net of estimated operating and development costs, is calculated using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the projected cash flows, predominantly all of which are designated as Level 3 inputs within the fair value hierarchy. During the year ended December 31, 2015, the Company reduced its Uinta Oil Program assets to a fair value of
$183.8 million
, resulting in a non-cash impairment charge of
$572.4 million
.
Properties classified as held for sale are valued using a market approach, based on an estimated selling price, as evidenced by current marketing activities, if possible. If an estimated selling price is not available, the Company utilizes the income valuation technique discussed above. The fair value of net assets classified as held for sale was
$28.9 million
as of
March 31, 2016
. See Note
4
for additional information on assets held for sale.
Long-term Debt
– Long-term debt is not presented at fair value on the Unaudited Consolidated Balance Sheets, as it is recorded at carrying value, net of unamortized debt issuance costs. The fair values of the Company's fixed rate
7.625%
Senior Notes and
7.0%
Senior Notes totaled
$512.0 million
as of
March 31, 2016
. The fair values of the Company's fixed rate
7.625%
Senior Notes and
7.0%
Senior Notes totaled
$542.2 million
as of
December 31, 2015
. The fair values of the Company's fixed rate Senior Notes are based on active market quotes, which represent Level 1 inputs.
There is no active, public market for the Amended Credit Facility, Convertible Notes or Lease Financing Obligation. The recorded value of the Amended Credit Facility, approximates its fair value due to its floating rate structure based on the LIBOR spread and the Company's borrowing base utilization. The Amended Credit Facility had a balance of
zero
as of
March 31, 2016
and
December 31, 2015
. The Convertible Notes had a fair value of
$0.5 million
as of
March 31, 2016
and
December 31, 2015
and are measured based on market-based parameters of the various components of the Convertible Notes and over the counter trades. The Lease Financing Obligation fair values of
$3.0 million
and
$3.1 million
as of
March 31, 2016
and
December 31, 2015
, respectively, are measured based on market-based parameters of comparable term secured financing instruments. The fair value measurements for the Amended Credit Facility, Convertible Notes and Lease Financing Obligation represent Level 2 inputs.
8. Derivative Instruments
The Company uses financial derivative instruments as part of its price risk management program to achieve a more predictable cash flow from its production revenues by reducing its exposure to commodity price fluctuations. The Company has entered into financial commodity swap contracts related to the sale of a portion of the Company's production. The Company does not enter into derivative instruments for speculative or trading purposes.
In addition to financial contracts, the Company may at times be party to various physical commodity contracts for the sale of oil, natural gas and NGLs that have varying terms and pricing provisions. These physical commodity contracts qualify for the normal purchase and normal sale exception and, therefore, are not subject to hedge or mark-to-market accounting. The financial impact of physical commodity contracts is included in oil, natural gas and NGL production revenues at the time of settlement.
All derivative instruments, other than those that meet the normal purchase and normal sale exception, as mentioned above, are recorded at fair value and included in the Unaudited Consolidated Balance Sheets as assets or liabilities. The following table summarizes the location, as well as the gross and net fair value amounts of all derivative instruments presented in the Unaudited Consolidated Balance Sheets as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
Balance Sheet
|
Gross Amounts of
Recognized Assets
|
|
Gross Amounts
Offset in the Balance
Sheet
|
|
Net Amounts of Assets Presented in the
Balance Sheet
|
|
(in thousands)
|
Derivative assets (current)
|
$
|
80,381
|
|
|
$
|
(7
|
)
|
(1)
|
$
|
80,374
|
|
Derivative assets (noncurrent)
|
14,803
|
|
|
—
|
|
|
14,803
|
|
Total derivative assets
|
$
|
95,184
|
|
|
$
|
(7
|
)
|
|
$
|
95,177
|
|
|
Gross Amounts of
Recognized Liabilities
|
|
Gross Amounts
Offset in the Balance
Sheet
|
|
Net Amounts of Liabilities Presented in
the Balance Sheet
|
|
(in thousands)
|
Derivative liabilities
|
$
|
(7
|
)
|
|
$
|
7
|
|
(1)
|
$
|
—
|
|
Derivatives and other noncurrent liabilities
|
—
|
|
|
—
|
|
|
—
|
|
Total derivative liabilities
|
$
|
(7
|
)
|
|
$
|
7
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
Balance Sheet
|
Gross Amounts of
Recognized Assets
|
|
Gross Amounts
Offset in the Balance
Sheet
|
|
Net Amounts of Assets Presented in the
Balance Sheet
|
|
(in thousands)
|
Derivative assets (current)
|
$
|
99,809
|
|
|
$
|
—
|
|
|
$
|
99,809
|
|
Derivative assets (noncurrent)
|
19,662
|
|
|
—
|
|
|
19,662
|
|
Total derivative assets
|
$
|
119,471
|
|
|
$
|
—
|
|
|
$
|
119,471
|
|
|
|
(1)
|
Asset and liability balances with the same counterparty are presented as a net asset or liability on the Unaudited Consolidated Balance Sheets.
|
As of
March 31, 2016
, the Company had financial derivative instruments in place related to the sale of a portion of the Company's production for the following volumes for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April – December 2016
|
|
For the year 2017
|
|
Derivative
Volumes
|
|
Weighted Average Price
|
|
Derivative Volumes
|
|
Weighted Average Price
|
Oil (Bbls)
|
1,906,300
|
|
|
$
|
78.25
|
|
|
683,250
|
|
|
$
|
75.61
|
|
Natural Gas (MMbtu)
|
1,375,000
|
|
|
$
|
4.10
|
|
|
—
|
|
|
$
|
—
|
|
The Company's derivative financial instruments are generally executed with major financial or commodities trading institutions that expose the Company to market and credit risks and may, at times, be concentrated with certain counterparties or groups of counterparties. The Company had derivatives in place with
eight
different counterparties as of
March 31, 2016
. Although notional amounts are used to express the volume of these contracts, the amounts potentially subject to credit risk, in the event of non-performance by the counterparties, are substantially smaller. The creditworthiness of counterparties is subject to continual review by management, and the Company believes all of these institutions currently are acceptable credit risks. Full performance is anticipated, and the Company has no past due receivables from any of these counterparties.
It is the Company's policy to enter into derivative contracts with counterparties that are lenders in the Amended Credit Facility or affiliates of lenders in the Amended Credit Facility. The Company's derivative contracts are documented using an industry standard contract known as a Schedule to the Master Agreement and International Swaps and Derivative Association, Inc. ("ISDA") Master Agreement or other contracts. Typical terms for these contracts include credit support requirements, cross default provisions, termination events and set-off provisions. The Company is not required to provide any credit support to its counterparties other than cross collateralization with the properties securing the Amended Credit Facility. The Company has set-off provisions in its derivative contracts with lenders under its Amended Credit Facility which, in the event of a counterparty default, allow the Company to set-off amounts owed to the defaulting counterparty under the Amended Credit Facility or other obligations against monies owed to the Company under the derivative contracts. Where the counterparty is not a lender under the Company's Amended Credit Facility, it may not be able to set-off amounts owed by the Company under the Amended Credit Facility, even if such counterparty is an affiliate of a lender under such facility. The Company does not have any derivative balances that are offset by cash collateral.
9. Income Taxes
The Company accounts for uncertainty in income taxes for tax positions taken or expected to be taken in a tax return in accordance with the FASB’s rules on income taxes. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities. During the
three
months ended
March 31, 2016
, the Company had no uncertain tax positions.
The Company’s policy is to classify accrued penalties and interest related to unrecognized tax benefits in the Company’s income tax provision. The Company did not record any accrued interest or penalties associated with unrecognized tax benefits during the
three
months ended
March 31, 2016
and
2015
.
Income tax benefit for the
three
months ended
March 31, 2016
and
2015
differs from the amounts that would be provided by applying the U.S. statutory income tax rates to pretax income or loss principally due to the effect of deferred tax asset valuation allowances, stock based compensation, political lobbying expense, political contributions, nondeductible officer compensation and state income taxes. For the
three
months ended
March 31, 2016
, the effective tax rate remains at
zero
as a result of recording a full valuation allowance against our deferred tax asset balance. The Company considers all available evidence (both positive and negative) to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. Such evidence includes the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment, and judgment is required in considering the relative weight of negative and positive evidence. The Company continues to monitor facts and circumstances in the reassessment of the likelihood that operating loss carryforwards, credits and other deferred tax assets will be utilized prior to their expiration.
10. Equity Incentive Compensation Plans and Other Long-term Incentive Programs
The Company maintains various stock-based compensation plans and other employee benefits as discussed below. Stock-based compensation is measured at the grant date based on the value of the awards, and the fair value is recognized on a straight-line basis over the requisite service period (usually the vesting period). Cash-based compensation is measured at fair
value at each reporting date and is recognized on a straight-line basis over the requisite service period (usually the vesting period).
The following table presents the long-term cash and equity incentive compensation related to awards for the periods indicated:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
(in thousands)
|
Common stock options
(1)
|
$
|
69
|
|
|
$
|
242
|
|
Nonvested common stock
(1)
|
2,404
|
|
|
1,574
|
|
Nonvested common stock units
(1)
|
290
|
|
|
261
|
|
Nonvested performance-based shares
(1)
|
678
|
|
|
430
|
|
Nonvested performance cash units
(2)
|
485
|
|
|
251
|
|
Total
|
$
|
3,926
|
|
|
$
|
2,758
|
|
|
|
(1)
|
Unrecognized compensation cost as of
March 31, 2016
was
$9.8 million
related to grants of nonvested stock options and nonvested shares of common stock that are expected to be recognized over a weighted-average period of
2.1 years
.
|
|
|
(2)
|
The nonvested performance-based cash units are liability awards with
$0.9 million
and
$0.4 million
in derivatives and other noncurrent liabilities in the Unaudited Consolidated Balance Sheets as of
March 31, 2016
and
December 31, 2015
, respectively.
|
Nonvested Equity and Cash Awards.
The following table presents the equity and cash awards granted pursuant to the Company's various stock compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Three Months Ended March 31, 2015
|
Equity Awards
|
|
Number of
Shares
|
|
Weighted Average
Grant Date Fair
Value Per Share
|
|
Number of
Shares
|
|
Weighted Average
Grant Date Fair
Value Per Share
|
Nonvested common stock
|
|
686,500
|
|
|
$
|
5.11
|
|
|
622,609
|
|
|
$
|
12.30
|
|
Nonvested common stock units
|
|
3,014
|
|
|
$
|
6.22
|
|
|
2,259
|
|
|
$
|
8.30
|
|
Nonvested performance-based shares
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Total granted
|
|
689,514
|
|
|
|
|
624,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Three Months Ended March 31, 2015
|
Cash Awards
|
|
Number of
Units
|
|
Fair Value
Per Unit
|
|
Number of
Units
|
|
Fair Value
Per Unit
|
Nonvested performance cash units
|
|
646,572
|
|
|
$
|
6.22
|
|
|
405,836
|
|
|
$
|
12.31
|
|
Performance Cash Program
2016 Program.
In March 2016, the Compensation Committee approved a performance cash program (the "2016 Program") granting performance cash units that will settle in cash. The performance-based awards contingently vest in February 2019, depending on the level at which the performance goal is achieved. The performance goal, which will be measured over the three year period ending December 31, 2018, will be the Company's total shareholder return ("TSR") based on a matrix measurement of the Company's absolute performance and ranking relative to a defined peer group's individual TSRs ("Relative TSR"). The Company's absolute performance is measured against the December 31, 2015 closing share price of
$3.93
and if the Company's absolute performance is lower than the
$3.93
share price, the payout is
zero
. If the Company's absolute performance is greater than the
$3.93
share price, then the performance cash units will vest depending on the compound annual growth rate of the Company's absolute performance and the Relative TSR up to
200%
of the original grant.
11. Equity Distribution Agreement
On June 10, 2015, the Company entered into an Equity Distribution Agreement (the "Agreement") with Goldman, Sachs and Co. (the "Manager"). Pursuant to the terms of the Agreement, the Company may sell, from time to time through or to the Manager, shares of its common stock having an aggregate gross sales price of up to
$100.0 million
. Sales of the shares, if any,
will be made by means of ordinary brokers' transactions through the facilities of the New York Stock Exchange, at market prices, in block transactions, to or through a market maker, through an electronic communications network or as otherwise agreed by the Company and the Manager. As of
March 31, 2016
,
no
shares have been sold pursuant to the Agreement.
12
. Commitments and Contingencies
Lease Financing Obligation.
The Company has a Lease Financing Obligation with Bank of America Leasing & Capital, LLC as the lead bank as discussed in Note
5
. The aggregate undiscounted minimum future lease payments, including both principal and interest components, are presented below:
|
|
|
|
|
|
As of March 31, 2016
|
|
(in thousands)
|
2016
|
$
|
403
|
|
2017
|
537
|
|
2018
|
537
|
|
2019
|
1,825
|
|
2020
|
—
|
|
Thereafter
|
—
|
|
Total
|
$
|
3,302
|
|
Transportation Charges
. The Company is party to
two
firm transportation contracts to provide capacity on natural gas pipeline systems. The remaining term on these contracts is
five
years. The contracts require the Company to pay transportation charges regardless of the amount of pipeline capacity utilized by the Company. These monthly transportation payments are included in unused commitments expense in the Unaudited Consolidated Statements of Operations. As a result of previous divestitures in 2013 and 2014, the Company will likely not utilize the firm capacity on the natural gas pipelines.
The amounts in the table below represent the Company's future minimum transportation charges:
|
|
|
|
|
|
As of March 31, 2016
|
|
(in thousands)
|
2016
|
$
|
13,774
|
|
2017
|
18,692
|
|
2018
|
18,692
|
|
2019
|
18,692
|
|
2020
|
18,692
|
|
Thereafter
|
10,902
|
|
Total
|
$
|
99,444
|
|
Lease and Other Commitments.
The Company leases office space, vehicles and certain equipment under non-cancelable operating leases. Additionally, the Company has entered into various long-term agreements for telecommunication services as well as other drilling and throughput commitments.
Future minimum annual payments under lease and other agreements are as follows:
|
|
|
|
|
|
As of March 31, 2016
|
|
(in thousands)
|
2016
(1)
|
$
|
5,715
|
|
2017
|
2,882
|
|
2018
|
2,591
|
|
2019
|
633
|
|
2020
|
—
|
|
Thereafter
|
—
|
|
Total
|
$
|
11,821
|
|
|
|
(1)
|
Includes a contractual obligation of
$3.2 million
related to certain drilling commitments on sold properties.
|
Litigation.
The Company is subject to litigation, claims and governmental and regulatory proceedings arising in the ordinary course of business. It is the opinion of the Company's management that current claims and litigation involving the Company are not likely to have a material adverse effect on its Unaudited Consolidated Balance Sheet, Cash Flows or Statements of Operations.
13. Guarantor Subsidiaries
In addition to the Amended Credit Facility, the
7.625%
Senior Notes,
7.0%
Senior Notes and Convertible Notes, which have been registered under the Securities Act of 1933, are jointly and severally guaranteed on a full and unconditional basis by the Company's
100%
owned subsidiaries ("Guarantor Subsidiaries"). Presented below are the Company's condensed consolidating balance sheets, statements of operations, statements of other comprehensive income (loss) and statements of cash flows, as required by Securities and Exchange Commission ("SEC") Rule 3-10 of Regulation S-X.
The following unaudited condensed consolidating financial statements have been prepared from the Company's financial information on the same basis of accounting as the Unaudited Consolidated Financial Statements. Investments in the subsidiaries are accounted for under the equity method. Accordingly, the entries necessary to consolidate the Company and the Guarantor Subsidiaries are reflected in the intercompany eliminations column.
Condensed Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
Parent
Issuer
|
|
Guarantor
Subsidiaries
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Assets:
|
|
|
|
|
|
|
|
Current assets
|
$
|
253,100
|
|
|
$
|
263
|
|
|
$
|
—
|
|
|
$
|
253,363
|
|
Property and equipment, net
|
1,135,183
|
|
|
6,446
|
|
|
—
|
|
|
1,141,629
|
|
Intercompany receivable (payable)
|
21,316
|
|
|
(21,316
|
)
|
|
—
|
|
|
—
|
|
Investment in subsidiaries
|
(14,660
|
)
|
|
—
|
|
|
14,660
|
|
|
—
|
|
Noncurrent assets
|
49,218
|
|
|
—
|
|
|
—
|
|
|
49,218
|
|
Total assets
|
$
|
1,444,157
|
|
|
$
|
(14,607
|
)
|
|
$
|
14,660
|
|
|
$
|
1,444,210
|
|
Liabilities and Stockholders' Equity:
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
129,530
|
|
|
$
|
53
|
|
|
$
|
—
|
|
|
$
|
129,583
|
|
Long-term debt
|
794,972
|
|
|
—
|
|
|
—
|
|
|
794,972
|
|
Other noncurrent liabilities
|
13,678
|
|
|
—
|
|
|
—
|
|
|
13,678
|
|
Stockholders' equity
|
505,977
|
|
|
(14,660
|
)
|
|
14,660
|
|
|
505,977
|
|
Total liabilities and stockholders' equity
|
$
|
1,444,157
|
|
|
$
|
(14,607
|
)
|
|
$
|
14,660
|
|
|
$
|
1,444,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
Parent
Issuer
|
|
Guarantor
Subsidiaries
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Assets:
|
|
|
|
|
|
|
|
Current assets
|
$
|
274,115
|
|
|
$
|
202
|
|
|
$
|
—
|
|
|
$
|
274,317
|
|
Property and equipment, net
|
1,164,086
|
|
|
6,598
|
|
|
—
|
|
|
1,170,684
|
|
Intercompany receivable (payable)
|
21,412
|
|
|
(21,412
|
)
|
|
—
|
|
|
—
|
|
Investment in subsidiaries
|
(14,664
|
)
|
|
—
|
|
|
14,664
|
|
|
—
|
|
Noncurrent assets
|
61,519
|
|
|
—
|
|
|
—
|
|
|
61,519
|
|
Total assets
|
$
|
1,506,468
|
|
|
$
|
(14,612
|
)
|
|
$
|
14,664
|
|
|
$
|
1,506,520
|
|
Liabilities and Stockholders' Equity:
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
145,231
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
145,231
|
|
Long-term debt
|
794,652
|
|
|
—
|
|
|
—
|
|
|
794,652
|
|
Other noncurrent liabilities
|
17,169
|
|
|
52
|
|
|
—
|
|
|
17,221
|
|
Stockholders' equity
|
549,416
|
|
|
(14,664
|
)
|
|
14,664
|
|
|
549,416
|
|
Total liabilities and stockholders' equity
|
$
|
1,506,468
|
|
|
$
|
(14,612
|
)
|
|
$
|
14,664
|
|
|
$
|
1,506,520
|
|
Condensed Consolidating Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Parent
Issuer
|
|
Guarantor
Subsidiaries
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Operating and other revenues
|
$
|
29,266
|
|
|
$
|
168
|
|
|
$
|
—
|
|
|
$
|
29,434
|
|
Operating expenses
|
(56,305
|
)
|
|
(164
|
)
|
|
—
|
|
|
(56,469
|
)
|
General and administrative
|
(12,420
|
)
|
|
—
|
|
|
—
|
|
|
(12,420
|
)
|
Interest income and other income (expense)
|
(7,041
|
)
|
|
—
|
|
|
—
|
|
|
(7,041
|
)
|
Income (loss) before income taxes and equity in earnings of subsidiaries
|
(46,500
|
)
|
|
4
|
|
|
—
|
|
|
(46,496
|
)
|
(Provision for) Benefit from income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Equity in earnings (loss) of subsidiaries
|
4
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
Net income (loss)
|
$
|
(46,496
|
)
|
|
$
|
4
|
|
|
$
|
(4
|
)
|
|
$
|
(46,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
Parent
Issuer
|
|
Guarantor
Subsidiaries
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Operating and other revenues
|
$
|
48,896
|
|
|
$
|
138
|
|
|
$
|
—
|
|
|
$
|
49,034
|
|
Operating expenses
|
(74,998
|
)
|
|
(161
|
)
|
|
—
|
|
|
(75,159
|
)
|
General and administrative
|
(13,329
|
)
|
|
—
|
|
|
—
|
|
|
(13,329
|
)
|
Interest and other income (expense)
|
20,850
|
|
|
—
|
|
|
—
|
|
|
20,850
|
|
Income (loss) before income taxes and equity in earnings of subsidiaries
|
(18,581
|
)
|
|
(23
|
)
|
|
—
|
|
|
(18,604
|
)
|
(Provision for) Benefit from income taxes
|
6,873
|
|
|
—
|
|
|
—
|
|
|
6,873
|
|
Equity in earnings (loss) of subsidiaries
|
(23
|
)
|
|
—
|
|
|
23
|
|
|
—
|
|
Net income (loss)
|
$
|
(11,731
|
)
|
|
$
|
(23
|
)
|
|
$
|
23
|
|
|
$
|
(11,731
|
)
|
Condensed Consolidating Statements of Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Parent
Issuer
|
|
Guarantor
Subsidiaries
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Net income (loss)
|
$
|
(46,496
|
)
|
|
$
|
4
|
|
|
$
|
(4
|
)
|
|
$
|
(46,496
|
)
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Comprehensive income (loss)
|
$
|
(46,496
|
)
|
|
$
|
4
|
|
|
$
|
(4
|
)
|
|
$
|
(46,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
Parent
Issuer
|
|
Guarantor
Subsidiaries
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Net income (loss)
|
$
|
(11,731
|
)
|
|
$
|
(23
|
)
|
|
$
|
23
|
|
|
$
|
(11,731
|
)
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Comprehensive income (loss)
|
$
|
(11,731
|
)
|
|
$
|
(23
|
)
|
|
$
|
23
|
|
|
$
|
(11,731
|
)
|
Condensed Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Parent
Issuer
|
|
Guarantor
Subsidiaries
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Cash flows from operating activities
|
$
|
40,419
|
|
|
$
|
96
|
|
|
$
|
—
|
|
|
$
|
40,515
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Additions to oil and gas properties, including acquisitions
|
(61,261
|
)
|
|
—
|
|
|
—
|
|
|
(61,261
|
)
|
Additions to furniture, fixtures and other
|
(782
|
)
|
|
—
|
|
|
—
|
|
|
(782
|
)
|
Proceeds from sale of properties and other investing activities
|
(1,238
|
)
|
|
—
|
|
|
—
|
|
|
(1,238
|
)
|
Intercompany transfers
|
96
|
|
|
—
|
|
|
(96
|
)
|
|
—
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Principal payments on debt
|
(109
|
)
|
|
—
|
|
|
—
|
|
|
(109
|
)
|
Intercompany transfers
|
—
|
|
|
(96
|
)
|
|
96
|
|
|
—
|
|
Other financing activities
|
(398
|
)
|
|
—
|
|
|
—
|
|
|
(398
|
)
|
Change in cash and cash equivalents
|
(23,273
|
)
|
|
—
|
|
|
—
|
|
|
(23,273
|
)
|
Beginning cash and cash equivalents
|
128,836
|
|
|
—
|
|
|
—
|
|
|
128,836
|
|
Ending cash and cash equivalents
|
$
|
105,563
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
105,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
Parent
Issuer
|
|
Guarantor
Subsidiaries
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Cash flows from operating activities
|
$
|
53,788
|
|
|
$
|
37
|
|
|
$
|
—
|
|
|
$
|
53,825
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Additions to oil and gas properties, including acquisitions
|
(112,105
|
)
|
|
1,096
|
|
|
—
|
|
|
(111,009
|
)
|
Additions to furniture, fixtures and other
|
(609
|
)
|
|
—
|
|
|
—
|
|
|
(609
|
)
|
Proceeds from sale of properties and other investing activities
|
66,415
|
|
|
—
|
|
|
—
|
|
|
66,415
|
|
Cash paid for short-term investments
|
(114,883
|
)
|
|
—
|
|
|
—
|
|
|
(114,883
|
)
|
Intercompany transfers
|
1,133
|
|
|
|
|
(1,133
|
)
|
|
—
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Principal payments on debt
|
(24,871
|
)
|
|
—
|
|
|
—
|
|
|
(24,871
|
)
|
Intercompany transfers
|
—
|
|
|
(1,133
|
)
|
|
1,133
|
|
|
—
|
|
Other financing activities
|
(1,000
|
)
|
|
—
|
|
|
—
|
|
|
(1,000
|
)
|
Change in cash and cash equivalents
|
(132,132
|
)
|
|
—
|
|
|
—
|
|
|
(132,132
|
)
|
Beginning cash and cash equivalents
|
165,904
|
|
|
—
|
|
|
—
|
|
|
165,904
|
|
Ending cash and cash equivalents
|
$
|
33,772
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33,772
|
|
14. Subsequent Events
On April 28, 2016, the Company entered into a purchase and sale agreement for the sale of certain non-core assets in the Uinta Basin. Total gross consideration, prior to customary closing adjustments, was
$33.7 million
, including cash proceeds of
$28.9 million
and
$4.8 million
related to the relief of asset retirement obligations. The transaction is expected to close during the three months ended June 30, 2016. The related assets and liabilities were classified as held for sale in the Unaudited Consolidated Balance Sheet as of March 31, 2016.