NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENT PRESENTATION
Basis of Presentation and Principles of Consolidation
Halcón Resources Corporation (Halcón or the Company) is an independent energy company focused on the acquisition,
production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States. The unaudited condensed consolidated financial statements include the accounts of all
majority-owned and controlled subsidiaries. The Company operates in one segment focused on oil and natural gas acquisition, production, exploration and development. The Company's oil and natural gas
properties are managed as a whole rather than through discrete operating areas. Operational information is tracked by operating area; however, financial performance is assessed as a whole. Allocation
of capital is made across the Company's entire property portfolio without regard to operating area. All intercompany accounts and transactions have been eliminated. These unaudited condensed
consolidated financial statements reflect, in the opinion of the Company's management, all adjustments, consisting of normal and recurring adjustments, necessary to present fairly the financial
position as of, and the results of operations for, the periods presented. During interim periods, Halcón follows the accounting policies disclosed in its Annual Report on
Form 10-K, as filed with the United States Securities and Exchange Commission (SEC) on February 26, 2016. Please refer to the notes in the 2015 Annual Report on Form 10-K when
reviewing interim financial results, though, as described below, such prior financial statements may not be comparable to the interim financial statements due to the adoption of fresh-start accounting
on September 9, 2016.
Emergence from Voluntary Reorganization under Chapter 11
On July 27, 2016 (the Petition Date), the Company and certain of its subsidiaries (the Halcón Entities) filed voluntary
petitions for relief under chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court in the District of Delaware (the Bankruptcy Court) to pursue a joint prepackaged plan of
reorganization (the Plan). On September 8, 2016, the Bankruptcy Court entered an order confirming the Plan and on September 9, 2016, the Plan became effective (the Effective Date) and
the Halcón Entities emerged from chapter 11 bankruptcy. The Company's subsidiary, HK TMS, LLC which was divested on September 30, 2016, was not part of the
chapter 11 bankruptcy filings. See Note 2,
"Reorganization,"
for further details on the Company's chapter 11 bankruptcy and the
Plan and Note 4,
"Divestiture"
for further details on the divestiture of HK TMS, LLC.
Upon
emergence from chapter 11 bankruptcy, the Company adopted fresh-start accounting in accordance with provisions of the Financial Accounting Standards Board's (FASB) Accounting
Standards Codification (ASC) No. 852,
"Reorganizations"
(ASC 852) which resulted in the Company becoming a new entity for financial reporting
purposes on the Effective Date. Upon the adoption of fresh-start accounting, the Company's assets and liabilities were recorded at their fair values as of the fresh-start reporting date,
September 9, 2016. As a result of the adoption of fresh-start accounting, the Company's unaudited condensed consolidated financial statements subsequent to September 9, 2016 may not be
comparable to its unaudited condensed consolidated financial statements prior to September 9,
2016. See Note 3,
"Fresh-start Accounting,"
for further details on the impact of fresh-start accounting on the Company's unaudited condensed
consolidated financial statements.
References
to "Successor" or "Successor Company" relate to the financial position and results of operations of the reorganized Company subsequent to September 9, 2016. References
to "Predecessor" or "Predecessor Company" relate to the financial position and results of operations of the Company prior to, and including, September 9, 2016.
10
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. FINANCIAL STATEMENT PRESENTATION (Continued)
Use of Estimates
The preparation of the Company's unaudited condensed consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities, if any, at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Estimates and
assumptions that, in the opinion of management of the Company, are significant include oil and natural gas revenue, capital and operating expense accruals, oil and natural gas reserves, depletion
relating to oil and natural gas properties, asset retirement obligations, fair value estimates, including estimates of Reorganization Value, Enterprise Value and the fair value of assets and
liabilities recorded as a result of the adoption of fresh-start accounting, and income taxes. The Company bases its estimates and judgments on historical experience and on various other assumptions
and information believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects are uncertain and, accordingly, these estimates may change as new
events occur, as more experience is acquired, as additional information is obtained and as the Company's operating environment changes. Actual results may differ from the estimates and assumptions
used in the preparation of the Company's unaudited condensed consolidated financial statements.
Interim
period results are not necessarily indicative of results of operations or cash flows for the full year and accordingly, certain information normally included in financial
statements prepared in accordance with accounting principles generally accepted in the United States, has been condensed or omitted. The Company has evaluated events or transactions through the date
of issuance of these unaudited condensed consolidated financial statements.
Accounts Receivable and Allowance for Doubtful Accounts
The Company's accounts receivable are primarily receivables from joint interest owners and oil and natural gas purchasers. Accounts receivable
are recorded at the amount due, less an allowance for doubtful accounts, when applicable. The Company establishes provisions for losses on accounts receivable if it determines that collection of all
or part of the outstanding balance is doubtful. The Company regularly reviews collectability and establishes or adjusts the allowance for doubtful accounts as necessary using the specific
identification method. There were no material allowances for doubtful accounts as of September 30, 2016 (Successor) or December 31, 2015 (Predecessor).
Other Operating Property and Equipment
Gas gathering systems and equipment are recorded at cost. Depreciation is calculated using the straight-line method over a 30-year or 10-year
estimated useful life applicable to gas gathering systems and a compressed natural gas facility, respectively. Upon disposition, the cost and accumulated depreciation are removed and any gains or
losses are reflected in current operations. Maintenance and repair costs are charged to operating expense as incurred. Material expenditures which increase the life or productive capacity of an asset
are capitalized and depreciated over the estimated remaining useful life of the asset. With the adoption of fresh-start accounting, the Company recorded its gas gathering systems and equipment at fair
value totaling approximately $16.3 million as of the fresh-start reporting date. Refer to Note 3,
"Fresh-start Accounting,"
for a
discussion of the valuation approach used.
11
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. FINANCIAL STATEMENT PRESENTATION (Continued)
Other
operating assets are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives: automobiles and computers, three years;
computer software, fixtures, furniture and equipment, five years or the lesser of the lease term; trailers, seven years; heavy equipment, ten years; buildings, twenty years and leasehold improvements,
lease term. Upon disposition, the cost and accumulated depreciation are removed and any gains or losses are reflected in current operations. Maintenance and repair costs are charged to operating
expense as incurred. Material expenditures which increase the life of an asset are capitalized and depreciated over the estimated remaining useful life of the asset. With the adoption of fresh-start
accounting, the Company recorded its other operating assets at fair value totaling approximately $21.8 million as of the fresh-start
reporting date. Refer to Note 3,
"Fresh-start Accounting,"
for a discussion of the valuation approach used.
The
Company reviews its gas gathering systems and equipment and other operating assets for impairment in accordance with ASC 360,
Property, Plant, and
Equipment
(ASC 360). ASC 360 requires the Company to evaluate gas gathering systems and equipment and other operating assets for impairment as events occur or circumstances
change that would more likely than not reduce the fair value below the carrying amount. If the carrying amount is not recoverable from an asset's undiscounted cash flows, then the Company recognizes
an impairment loss for the difference between the carrying amount and the current fair value. The Company also evaluates the remaining useful lives of its gas gathering systems and other operating
assets at each reporting period to determine whether events and circumstances warrant a revision to the remaining depreciation periods. For the three months ended March 31, 2016 (Predecessor),
the Company recorded a non-cash impairment charge of $28.1 million in
"Other operating property and equipment impairment"
in the Company's
unaudited condensed consolidated statements of operations and in
"Gas gathering and other operating assets"
in the Company's unaudited condensed
consolidated balance sheets related to $32.8 million gross investments in gas gathering infrastructure that were deemed non-economical due to a shift in exploration, drilling and developmental
plans in a low commodity price environment.
In
accordance with ASC 820,
Fair Value Measurements and Disclosures
(ASC 820), a financial instrument's level within the fair value
hierarchy is based on the lowest level of input that is significant to the fair value measurement. The estimate of the fair value of the Company's gas gathering systems was based on an income approach
that estimated future cash flows associated with those assets, which resulted in negative net cash flows due to insufficient throughput of natural gas volumes and certain fixed costs necessary to
operate and maintain the assets. This estimation includes the use of unobservable inputs, such as estimated future production, and gathering and compression revenues and operating expenses. The use of
these unobservable inputs results in the fair value estimate of the Company's gas gathering systems being classified as Level 3.
Recently Issued Accounting Pronouncements
In August 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-15,
Statement of Cash Flows (Topic
230)
(ASU 2016-15). For public business entities, ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2017 and early adoption is permitted. The areas for simplification in this ASU involve addressing eight specific classification issues in the statement of cash flows. An entity should apply the
amendments in this ASU using a retrospective transition method. The Company is in the process of assessing the effects of the application of the new guidance.
12
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. FINANCIAL STATEMENT PRESENTATION (Continued)
In
March 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-09,
CompensationStock Compensation
(ASU
2016-09). For public business entities, ASU 2016-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 and early adoption is
permitted. The areas for simplification in this ASU 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. Some of the areas for simplification apply only to nonpublic entities. As there are multiple amendments in this ASU,
the FASB has issued guidance on how an entity should apply each amendment, either prospectively or retrospectively. The Company adopted ASU 2016-09 on September 9, 2016. See Note 12,
"Stockholders'
Equity"
for further details.
In
March 2016, the FASB issued ASU No. 2016-06,
Contingent Put and Call Options in Debt Instruments
(ASU 2016-06). For public
business entities, ASU 2016-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 and early adoption is permitted. ASU 2016-06
provides new guidance that simplifies the analysis of whether a contingent put or call option in a debt instrument qualifies as a separate derivative. An entity should apply the amendments in this ASU
on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year for which the amendments are effective. The Company is in the process of assessing the effects of
the application of the new guidance.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
(ASU 2016-02). For public business entities, ASU 2016-02 is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and early adoption is permitted. The FASB issued ASU 2016-02 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. An entity should
apply the amendments in this ASU on a modified retrospective basis. The transition will require application of the new guidance at the beginning of the earliest comparative period presented in the
financial statements. The Company is in the process of assessing the effects of the application of the new guidance.
In
November 2015, the FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
(ASU 2015-17) to simplify the
presentation of deferred income taxes. Under ASU 2015-17, all deferred tax assets and liabilities, along with any related valuation allowance, are required to be classified as noncurrent on the
balance sheet. Effective December 31, 2015, the Company early adopted ASU 2015-17, on a prospective basis, which resulted in the reclassification of its current deferred tax assets and
liabilities as a non-current deferred tax asset and liability, net of the valuation allowance, in the accompanying unaudited condensed consolidated balance sheets. No prior periods were
retrospectively adjusted.
In
September 2015, the FASB issued ASU No. 2015-16,
Business CombinationsSimplifying the Accounting for Measurement-Period
Adjustments
(ASU 2015-16). For public business entities, ASU 2015-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2015 and early adoption is permitted. The amendments in this ASU require that an acquirer, in a business combination, recognize adjustments to provisional amounts that are
identified during the measurement period in the reporting period in which the adjustment amounts are determined. To simplify the accounting for adjustments made to provisional amounts recognized in a
business combination, the amendments in this ASU eliminate the requirement to retrospectively
13
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. FINANCIAL STATEMENT PRESENTATION (Continued)
account
for those adjustments, and instead present separately on the face of the income statement or disclose in the footnotes the portion of the amount recorded in current-period earnings by line
item that would have been recorded in previous reporting periods. The adoption of ASU 2015-16 did not have an impact to the Company's financial statements or disclosures.
In
April 2015, the FASB issued ASU No. 2015-05,
IntangiblesGoodwill and OtherInternal-Use Software
(ASU
2015-05). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the
customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software
license, the customer should account for the arrangement as a service contract. For public business entities, the guidance is effective for annual periods, including interim periods within those
annual periods, beginning after December 15, 2015. An entity can elect to adopt the guidance either (1) prospectively to all arrangements entered into or materially modified after the
effective date or (2) retrospectively. Early adoption is permitted. The Company adopted prospectively and it did not have a material impact to the Company's financial statements or disclosures.
In
February 2015, the FASB issued ASU No. 2015-02,
Amendments to the Consolidation Analysis
(ASU 2015-02). The amendments in ASU
2015-02 eliminate the previous presumption that a general partner controls a limited partner. ASU 2015-02 may impact the Company's accounting for its general partner interest in SBE Partners LP
(SBE Partners), which is currently accounted for as an equity method investment. ASU 2015-02 is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2015. Early adoption is permitted. Entities may apply the guidance using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the
beginning of the first fiscal year adopted or it may apply the amendment retrospectively. The adoption of ASU 2015-02 did not have an impact on the Company's accounting for its general partner
interest in SBE Partners, LP.
In
August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial StatementsGoing Concern
(ASU 2014-15). ASU
2014-15 is effective for annual reporting periods (including interim periods within those periods) ending after December 15, 2016. Early application is permitted with companies applying the
guidance prospectively. The amendments in ASU 2014-15 create a new ASC Sub-topic 205-40,
Presentation of Financial StatementsGoing Concern
and require management to assess for each annual and interim reporting period if conditions exist that raise substantial doubt about an entity's ability to continue as a going concern. The rule
requires various disclosures depending on the facts and circumstances surrounding an entity's ability to continue as a going concern. Effective June 30, 2016, the Company early adopted ASU
2014-15 on a prospective basis.
In
May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
(ASU 2014-09). ASU 2014-09 states that
an entity should recognize revenue to depict the transfer of promised goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange
for those goods or services. The standard provides five steps an entity should apply in determining its revenue recognition. In March 2016, ASU 2014-09 was updated with ASU No. 2016-08,
Revenue from Contracts with
Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
(ASU 2016-08), which
provides further clarification on the principal versus agent evaluation. ASU 2014-09 is required to be adopted using either the full retrospective approach, with all prior periods presented adjusted,
or the modified retrospective
14
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. FINANCIAL STATEMENT PRESENTATION (Continued)
approach,
with a cumulative adjustment to retained earnings on the opening balance sheet and is effective for annual reporting periods, and interim periods within that reporting period, beginning
after December 15, 2016, or after December 2017, if companies choose to elect the deferred adoption date approved by the FASB. Early adoption is not permitted. The Company is in the process of
assessing the effects of the application of the new guidance.
2. REORGANIZATION
On June 9, 2016, the Halcón Entities entered into a restructuring support agreement (the Restructuring Support Agreement) with certain holders of the Company's 13%
senior secured third lien notes due 2022 (the Third Lien Noteholders), the Company's 8.875% senior unsecured notes due 2021, 9.25% senior unsecured notes due 2022 and 9.75% senior unsecured notes due
2020 (collectively, the Unsecured Noteholders), the holder of the Company's 8% senior unsecured convertible note due 2020 (the Convertible Noteholder), and certain holders of the Company's 5.75%
Series A Convertible Perpetual Preferred Stock. On July 27, 2016, the Halcón Entities filed voluntary petitions for relief under chapter 11 of the United States
Bankruptcy Code in the U.S. Bankruptcy Court in the District of Delaware to effect an accelerated prepackaged bankruptcy restructuring as contemplated in the Restructuring Support Agreement. On
September 8, 2016, the Bankruptcy Court entered an order confirming the Company's plan of reorganization (the Plan) and on September 9, 2016, the Halcón Entities emerged
from chapter 11 bankruptcy.
Upon
emergence, pursuant to the terms of the Plan, the following significant transactions occurred:
-
-
the Predecessor Company's financing facility under the Predecessor Credit Agreement was refinanced and replaced with the DIP Facility, which
was subsequently converted into the Senior Credit Agreement (refer to Note 6,
"Debt"
for credit agreement definitions and further details
regarding the credit agreements);
-
-
the Predecessor Company's Second Lien Notes (consisting of $700.0 million in aggregate principal amount outstanding of 8.625% senior
secured notes due 2020 and $112.8 million in aggregate principal amount outstanding of 12% senior secured notes due 2022) were unimpaired and reinstated;
-
-
the Predecessor Company's Third Lien Notes were cancelled and the Third Lien Noteholders received their pro rata share of 76.5% of the common
stock of reorganized Halcón, together with a cash payment of $33.8 million, and accrued and unpaid interest on their notes through May 15, 2016, which interest was paid
prior to the chapter 11 bankruptcy filing, in full and final satisfaction of their claims;
-
-
the Predecessor Company's Unsecured Notes were cancelled and the Unsecured Noteholders received their pro rata share of 15.5% of the common
stock of reorganized Halcón, together with a cash payment of $37.6 million and warrants to purchase 4% of the common stock of reorganized Halcón (with a four year
term and an exercise price of $14.04 per share), and accrued and unpaid interest on their notes through May 15, 2016, which interest was paid prior to the chapter 11 bankruptcy filing,
in full and final satisfaction of their claims;
-
-
the Predecessor Company's Convertible Note was cancelled and the Convertible Noteholder received 4% of the common stock of reorganized
Halcón, together with a cash payment of
15
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. REORGANIZATION (Continued)
Each
of the foregoing percentages of equity in the reorganized Company were as of September 9, 2016 and are subject to dilution from the exercise of the new warrants described
above, a management incentive plan discussed further in Note 12
, "Stockholders' Equity,"
and other future issuances of equity interests.
See
Note 6, "
Debt
," and Note 12, "
Stockholders' Equity
," for further
information regarding the Company's Successor and Predecessor debt and equity instruments.
3. FRESH-START ACCOUNTING
Upon the Company's emergence from chapter 11 bankruptcy, the Company qualified for and adopted fresh-start accounting in accordance with the provisions set forth in ASC 852 as
(i) the Reorganization Value of the Company's assets immediately prior to the date of confirmation was less than the post-petition liabilities and allowed claims, and (ii) the holders of
the existing voting shares of the Predecessor entity received less than 50% of the voting shares of the emerging entity. Refer to Note 2
,
"Reorganization"
for the terms of the Plan. Fresh-start accounting requires the Company to present its
assets, liabilities, and equity as if it were a new entity upon emergence from bankruptcy. The new entity is referred to as "Successor" or "Successor Company." However, the Company will continue to
present financial information for any periods before adoption of fresh-start accounting for the Predecessor Company. The Predecessor and Successor companies may lack comparability, as required in ASC
Topic 205,
Presentation of Financial Statements
(ASC 205). ASC 205 states financial statements are required to be presented comparably from year to
year, with any exceptions to comparability clearly disclosed. Therefore, "black-line" financial statements are presented to distinguish between the Predecessor and Successor companies.
Adopting
fresh-start accounting results in a new financial reporting entity with no beginning retained earnings or deficit as of the fresh-start reporting date. Upon the application of
fresh-start accounting, the Company allocated the Reorganization Value (the fair value of the Successor Company's total assets) to its individual assets based on their estimated fair values. The
Reorganization Value is intended to represent the approximate amount a willing buyer would value the Company's assets immediately after the reorganization.
Reorganization
Value is derived from an estimate of Enterprise Value, or the fair value of the Company's long-term debt, stockholders' equity and working capital. The estimated
Enterprise Value at the Effective Date is below the midpoint of the Court approved range of $1.6 billion to $1.8 billion,
16
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. FRESH-START ACCOUNTING (Continued)
primarily
reflecting the decline in forward commodity prices during the period between the Company's analysis performed in advance of the July 2016 chapter 11 bankruptcy filing and the
Effective Date. The Enterprise Value was derived from an independent valuation using an asset based methodology of proved reserves, undeveloped acreage, and other financial information, considerations
and projections, applying a combination of the income, cost and market approaches as of the fresh-start reporting date of September 9, 2016.
The
Company's principal assets are its oil and natural gas properties. For purposes of estimating the fair value of the Company's proved, probable and possible reserves, an income
approach was used which estimated fair value based on the anticipated cash flows associated with the Company's reserves, risked by reserve category and discounted using a weighted average cost of
capital rate of 10.5% for proved reserves and 12.5% for probable and possible reserves. The proved reserve locations were limited to wells expected to be drilled in the Company's five year development
plan. Weighted average commodity prices utilized in the determination of the fair value of oil and natural gas properties were $72.30 per barrel of oil, $3.50 per million British thermal units (MMBtu)
of natural gas and $12.00 per barrel of oil equivalent of natural gas liquids, after adjustment for transportation fees and regional price differentials. Base pricing was derived from an average of
forward strip prices and analysts' estimated prices.
In
estimating the fair value of the Company's unproved acreage that was not included in the valuation of probable and possible reserves, a market approach was used in which a review of
recent transactions involving properties in the same geographical location indicated the fair value of the Company's unproved acreage from a market participant perspective.
See
further discussion below in the
"Fresh-start accounting adjustments"
for the specific assumptions used in the valuation of the
Company's various other assets.
Although
the Company believes the assumptions and estimates used to develop Enterprise Value and Reorganization Value are reasonable and appropriate, different assumptions and estimates
could materially impact the analysis and resulting conclusions. The assumptions used in estimating these values are inherently uncertain and require judgment.
The
following table reconciles the Company's Enterprise Value to the estimated fair value of the Successor's common stock as of September 9, 2016 (in thousands):
|
|
|
|
|
|
|
September 9, 2016
|
|
Enterprise Value
|
|
$
|
1,618,888
|
|
Plus: Cash
|
|
|
13,943
|
|
Less: Fair value of debt
|
|
|
(1,016,160
|
)
|
Less: Fair value of redeemable noncontrolling interest
|
|
|
(41,070
|
)
|
Less: Fair value of other long-term liabilities
|
|
|
(4,478
|
)
|
Less: Fair value of warrants
|
|
|
(16,691
|
)
|
|
|
|
|
|
Fair Value of Successor common stock
|
|
$
|
554,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. FRESH-START ACCOUNTING (Continued)
The
following table reconciles the Company's Enterprise Value to its Reorganization Value as of September 9, 2016 (in thousands):
|
|
|
|
|
|
|
September 9, 2016
|
|
Enterprise Value
|
|
$
|
1,618,888
|
|
Plus: Cash
|
|
|
13,943
|
|
Plus: Current liabilities
|
|
|
178,639
|
|
Plus: Noncurrent asset retirement obligation
|
|
|
32,156
|
|
|
|
|
|
|
Reorganization Value of Successor assets
|
|
$
|
1,843,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. FRESH-START ACCOUNTING (Continued)
Condensed Consolidated Balance Sheet
The following illustrates the effects on the Company's unaudited condensed consolidated balance sheet due to the reorganization and fresh-start
accounting adjustments. The explanatory notes following the table below provide further details on the adjustments, including the Company's assumptions and methods used to determine fair value for its
assets and liabilities. Amounts included in the table below are rounded to thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 9, 2016
|
|
|
|
Predecessor
Company
|
|
Reorganization
Adjustments
|
|
|
|
Fresh-Start
Adjustments
|
|
|
|
Successor
Company
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
111,464
|
|
$
|
(97,521
|
)
|
(1)
|
|
$
|
|
|
|
|
$
|
13,943
|
|
Accounts receivable
|
|
|
116,859
|
|
|
|
|
|
|
|
|
|
|
|
|
116,859
|
|
Receivables from derivative contracts
|
|
|
97,648
|
|
|
|
|
|
|
|
|
|
|
|
|
97,648
|
|
Restricted cash
|
|
|
17,164
|
|
|
|
|
|
|
|
|
|
|
|
|
17,164
|
|
Prepaids and other
|
|
|
8,961
|
|
|
|
|
|
|
|
(1,332
|
)
|
(7)
|
|
|
7,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
352,096
|
|
|
(97,521
|
)
|
|
|
|
(1,332
|
)
|
|
|
|
253,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties (full cost method):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated
|
|
|
7,712,003
|
|
|
|
|
|
|
|
(6,497,874
|
)
|
(8)
|
|
|
1,214,129
|
|
Unevaluated
|
|
|
1,193,259
|
|
|
|
|
|
|
|
(861,144
|
)
|
(8)
|
|
|
332,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross oil and natural gas properties
|
|
|
8,905,262
|
|
|
|
|
|
|
|
(7,359,018
|
)
|
|
|
|
1,546,244
|
|
Lessaccumulated depletion
|
|
|
(6,803,231
|
)
|
|
|
|
|
|
|
6,803,231
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net oil and natural gas properties
|
|
|
2,102,031
|
|
|
|
|
|
|
|
(555,787
|
)
|
|
|
|
1,546,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas gathering and other operating assets
|
|
|
100,079
|
|
|
|
|
|
|
|
(62,008
|
)
|
(9)
|
|
|
38,071
|
|
Lessaccumulated depreciation
|
|
|
(24,154
|
)
|
|
|
|
|
|
|
24,154
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other operating property and equipment
|
|
|
75,925
|
|
|
|
|
|
|
|
(37,854
|
)
|
|
|
|
38,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables from derivative contracts
|
|
|
4,431
|
|
|
|
|
|
|
|
|
|
|
|
|
4,431
|
|
Funds in escrow and other
|
|
|
1,610
|
|
|
|
|
|
|
|
27
|
|
(10)
|
|
|
1,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,536,093
|
|
$
|
(97,521
|
)
|
|
|
$
|
(594,946
|
)
|
|
|
$
|
1,843,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
160,000
|
|
$
|
13,688
|
|
(2)
|
|
$
|
|
|
|
|
$
|
173,688
|
|
Liabilities from derivative contracts
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
Other
|
|
|
414
|
|
|
|
|
|
|
|
4,435
|
|
(11)(12)
|
|
|
4,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
160,516
|
|
|
13,688
|
|
|
|
|
4,435
|
|
|
|
|
178,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net
|
|
|
1,031,114
|
|
|
|
|
|
|
|
(14,954
|
)
|
(13)
|
|
|
1,016,160
|
|
Liabilities subject to compromise
|
|
|
2,007,703
|
|
|
(2,007,703
|
)
|
(3)
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from derivative contracts
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
525
|
|
Asset retirement obligations
|
|
|
48,955
|
|
|
|
|
|
|
|
(16,799
|
)
|
(12)
|
|
|
32,156
|
|
Other
|
|
|
528
|
|
|
|
|
|
|
|
3,425
|
|
(11)(14)
|
|
|
3,953
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
|
|
219,891
|
|
|
|
|
|
|
|
(178,821
|
)
|
(14)
|
|
|
41,070
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock (Predecessor)
|
|
|
|
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
Common Stock (Predecessor)
|
|
|
12
|
|
|
(12
|
)
|
(4)
|
|
|
|
|
|
|
|
|
|
Common Stock (Successor)
|
|
|
|
|
|
9
|
|
(5)
|
|
|
|
|
|
|
|
9
|
|
Additional paid-in capital (Predecessor)
|
|
|
3,287,906
|
|
|
(3,287,906
|
)
|
(4)
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital (Successor)
|
|
|
|
|
|
571,114
|
|
(5)
|
|
|
|
|
|
|
|
571,114
|
|
Retained earnings (accumulated deficit)
|
|
|
(4,221,057
|
)
|
|
4,613,289
|
|
(6)
|
|
|
(392,232
|
)
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
(933,139
|
)
|
|
1,896,494
|
|
|
|
|
(392,232
|
)
|
|
|
|
571,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
2,536,093
|
|
$
|
(97,521
|
)
|
|
|
$
|
(594,946
|
)
|
|
|
$
|
1,843,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. FRESH-START ACCOUNTING (Continued)
Reorganization adjustments
-
1)
-
The
table below details cash payments as of September 9, 2016, pursuant to the terms of the Plan described in Note 2
"
Reorganization
" (in thousands):
|
|
|
|
|
Payment to Third Lien Noteholders
|
|
$
|
33,826
|
|
Payment to Unsecured Noteholders
|
|
|
37,595
|
|
Payment to Convertible Noteholder
|
|
|
15,000
|
|
Payment to Preferred Holders
|
|
|
11,100
|
|
|
|
|
|
|
Total Uses
|
|
$
|
97,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
2)
-
In
connection with the chapter 11 bankruptcy, the Company modified and rejected certain office lease arrangements and paid approximately $3.4 million
for these modifications and rejections subsequent to the emergence from chapter 11 bankruptcy. This amount also reflects $10.3 million paid to the Company's restructuring advisors subsequent to
the emergence from chapter 11 bankruptcy.
-
3)
-
Liabilities
subject to compromise were as follows (in thousands):
|
|
|
|
|
13.0% senior secured third lien notes due 2022
|
|
$
|
1,017,970
|
|
9.25% senior notes due 2022
|
|
|
37,194
|
|
8.875% senior notes due 2021
|
|
|
297,193
|
|
9.75% senior notes due 2020
|
|
|
315,535
|
|
8.0% convertible note due 2020
|
|
|
289,669
|
|
Accrued interest
|
|
|
46,715
|
|
Office lease modification and rejection fees
|
|
|
3,427
|
|
|
|
|
|
|
Liabilities subject to compromise
|
|
|
2,007,703
|
|
Fair value of equity and warrants issued to Third Lien Noteholders, Unsecured Noteholders and Convertible Noteholder
|
|
|
(548,947
|
)
|
Cash payments to Third Lien Noteholders, Unsecured Noteholders and Convertible Noteholder
|
|
|
(86,421
|
)
|
Office lease modification and rejection fees
|
|
|
(3,427
|
)
|
|
|
|
|
|
Gain on settlement of Liabilities subject to compromise
|
|
$
|
1,368,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
4)
-
Reflects
the cancellation of Predecessor equity, as follows (in thousands):
|
|
|
|
|
Predecessor Company stock
|
|
$
|
3,287,918
|
|
Fair value of equity issued to Predecessor common stockholers
|
|
|
(22,176
|
)
|
Cash payment to Preferred Holders
|
|
|
(11,100
|
)
|
|
|
|
|
|
Cancellation of Predecessor Company equity
|
|
$
|
3,254,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
5)
-
Reflects
the issuance of Successor equity. In accordance with the Plan, the Successor Company issued 3.6 million shares of common stock to the Predecessor
Company's existing common stockholders, 68.8 million shares of common stock to the Third Lien Noteholders, 14.0 million shares of common stock to the Unsecured Noteholders, and
3.6 million shares of common stock to
20
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. FRESH-START ACCOUNTING (Continued)
the
Convertible Noteholder. This amount is subject to dilution by warrants issued to the Unsecured Noteholders and the Convertible Noteholder totaling 4.7 million shares with an exercise price
of $14.04
per share and a term of four years. The fair value of the warrants was estimated at $3.52 per share using a Black-Scholes-Merton valuation model.
-
6)
-
The
table below reflects the cumulative effect of the reorganization adjustments discussed above (in thousands):
|
|
|
|
|
Gain on settlement of Liabilities subject to compromise
|
|
$
|
1,368,908
|
|
Accrued reorganization items
|
|
|
(10,261
|
)
|
Cancellation of Predecessor Company equity
|
|
|
3,254,642
|
|
|
|
|
|
|
Net impact to retained earnings (accumulated deficit)
|
|
$
|
4,613,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh-start accounting adjustments
-
7)
-
Reflects
the reclassification of tubulars and well equipment to "
Oil and natural gas properties
."
-
8)
-
In
estimating the fair value of its oil and natural gas properties, the Company used a combination of the income and market approaches. For purposes of estimating the
fair value of the Company's proved, probable and possible reserves, an income approach was used which estimated fair value based on the anticipated cash flows associated with the Company's reserves,
risked by reserve category and discounted using a weighted average cost of capital rate of 10.5% for proved reserves and 12.5% for probable and possible reserves. The proved reserve locations were
limited to wells expected to be drilled in the Company's five year development plan. Weighted average commodity prices utilized in the determination of the fair value of oil and natural gas properties
were $72.30 per barrel of oil, $3.50 per MMBtu of natural gas and $12.00 per barrel of natural gas liquids, after adjustment for transportation fees and regional price differentials. Base pricing was
derived from an average of forward strip prices and analysts' estimated prices.
In
estimating the fair value of the Company's unproved acreage that was not included in the valuation of probable and possible reserves, a market approach was used in which a review of recent
transactions involving properties in the same geographical location indicated the fair value of the Company's unproved acreage from a market participant perspective.
-
9)
-
In
estimating the fair value of its gas gathering and other operating assets, the Company used a combination of the income, cost, and market approaches.
For
purposes of estimating the fair value of its gas gathering assets, an income approach was used that estimated future cash flows associated with the assets over the remaining useful lives. The
valuation included such inputs as estimated future production, gathering and compression revenues, and operating expenses that were discounted at a weighted average cost of capital rate of 9.5%.
For
purposes of estimating the fair value of its other operating assets, the Company used a combination of the market and cost approaches. A market approach was relied upon to value land and computer
equipment, and in this valuation approach, recent transactions of similar assets were utilized to determine the value from a market participant perspective. For the remaining other operating assets, a
cost approach was used. The estimation of fair value under the cost approach
21
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. FRESH-START ACCOUNTING (Continued)
was
based on current replacement costs of the assets, less depreciation based on the estimated economic useful lives of the assets and age of the assets.
-
10)
-
Reflects
the adjustment of the Company's equity method investment in SBE Partners, L.P. to fair value based on an income approach, which calculated the
discounted cash flows of the Company's share of the partnership's interest in oil and gas proved reserves. The anticipated cash flows of the reserve were risked by reserve category and discounted at
10.5%. Weighted average commodity prices utilized in the determination of the fair value of oil and natural gas properties were $72.30 per barrel of oil, $3.50 per MMBtu of natural gas and $12.00 per
barrel of oil equivalent of natural gas liquids, after adjustment for transportation fees and regional price differentials. Base pricing was derived from an average of forward strip prices and
analysts' estimated prices.
-
11)
-
Records
an intangible liability of approximately $8.3 million, $4.5 million of which was recorded as current, to adjust the Company's active rig
contract to fair value at September 9, 2016. The intangible liability will be amortized over the remaining life of the contract through July 2018.
-
12)
-
Reflects
the adjustment of asset retirement obligations to fair value using estimated plugging and abandonment costs as of September 9, 2016, adjusted for
inflation and then discounted at the appropriate credit-adjusted risk free rate ranging from 5.5% to 6.6% depending on the life of the well. The fair value of asset retirement obligations was
estimated at $32.5 million, approximately $0.3 million of which was recorded as current. Refer to Note 9,
"Asset Retirement
Obligations"
for further details of the Company's asset retirement obligations.
-
13)
-
Reflects
the adjustment of the 2020 Second Lien Notes and the 2022 Second Lien Notes to fair value. The fair value estimate was based on quoted market prices from
trades of such debt on September 9, 2016. Refer to Note 6,
"Debt"
for definitions of and further information regarding the 2020 Second
Lien Notes and 2022 Second Lien Notes.
-
14)
-
Reflects
the adjustment of the Company's redeemable noncontrolling interest and related embedded derivative of HK TMS, LLC to fair value. The fair value of the
redeemable noncontrolling interest was estimated at $41.1 million and the embedded derivative was estimated at zero. For purposes of estimating the fair values, an income approach was used that
estimated fair value based on the anticipated cash flows associated with HK TMS, LLC's proved reserves, risked by reserve category and discounted using a weighted average cost of capital rate
of 12.5%. The value of the redeemable noncontrolling interest was further reduced by a probability factor of the potential assignment of the common shares of HK TMS, LLC to Apollo Global
Management, which occurred subsequent to the fresh-start date. Refer to Note 4,
"Divestiture,"
for further information regarding the divestiture
of HK TMS, LLC on September 30, 2016.
-
15)
-
Reflects
the cumulative effect of the fresh-start accounting adjustments discussed above.
Reorganization Items
Reorganization items represent (i) expenses or income incurred subsequent to the Petition Date as a direct result of the Plan,
(ii) gains or losses from liabilities settled, and (iii) fresh-start accounting adjustments and are recorded in "
Reorganization items
" in
the Company's unaudited condensed
22
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. FRESH-START ACCOUNTING (Continued)
consolidated
statements of operations. The following table summarizes the net reorganization items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Period from
September 10, 2016
through
September 30, 2016
|
|
|
|
Period from
January 1, 2016
through
September 9, 2016
|
|
Gain on settlement of Liabilities subject to compromise
|
|
$
|
|
|
|
|
$
|
1,368,908
|
|
Fresh-start accounting adjustments
|
|
|
|
|
|
|
|
(392,232
|
)
|
Reorganization professional fees and other
|
|
|
(556
|
)
|
|
|
|
(30,287
|
)
|
Write-off debt discounts/premiums and debt issuance costs
|
|
|
|
|
|
|
|
(32,667
|
)
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on reorganization items
|
|
$
|
(556
|
)
|
|
|
$
|
913,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. DIVESTITURE
On September 30, 2016, certain wholly-owned subsidiaries of the Successor Company executed an Assignment and Assumption Agreement with an affiliate of Apollo Global Management
(Apollo) pursuant to which Apollo acquired one hundred percent (100%) of the common shares (the Membership Interests) of HK TMS, LLC (HK TMS), which transaction is referred to as the HK TMS
Divestiture. HK TMS was previously a wholly-owned subsidiary and held all of the Successor Company's oil and natural gas properties in the Tuscaloosa Marine Shale (TMS). In exchange for the assignment
of the Membership Interests, Apollo assumed all obligations relating to the Membership Interests, which were classified as
"Mezzanine Equity"
on the
unaudited condensed consolidated balance sheets of HK TMS, from and after such date. Refer to Note 11,
"Mezzanine Equity"
for further details of
the accounting considerations for HK TMS.
Effective
with the HK TMS Divestiture, all of the Successor Company's existing 100% owned subsidiaries are joint and several, full and unconditional guarantors of its long-term debt
obligations and the Successor Company has no independent assets or operations. As a consequence, the Successor Company has discontinued the presentation of condensed consolidating financial statements
which separately presented HK TMS's non-guarantor financial position, statements of operations and statements of cash flows.
5. OIL AND NATURAL GAS PROPERTIES
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and
development of oil and natural gas reserves (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs, tangible and intangible development costs and direct internal
costs) are capitalized as the cost of oil and natural gas properties when incurred. To the extent capitalized costs of evaluated oil and natural gas properties, net of accumulated depletion, exceed
the discounted future net revenues of proved oil and natural gas reserves, net of deferred taxes, such excess capitalized costs are charged to expense.
With
the adoption of fresh-start accounting, the Company recorded its oil and natural properties at fair value as of September 9, 2016. The Company's evaluated and unevaluated
properties were assigned
23
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. OIL AND NATURAL GAS PROPERTIES (Continued)
values
of $1.2 billion and $332.1 million, respectively. Refer to Note 3,
"Fresh-start Accounting,"
for a discussion of the
valuation approach used.
Additionally,
the Company assesses all properties classified as unevaluated on a quarterly basis for possible impairment or reduction in value. The Company assesses properties on an
individual basis or as a group, if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term;
geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period
in which these factors indicate impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the
associated leasehold costs are transferred to the full cost pool and are then subject to depletion and the full cost ceiling test limitation.
Investments
in unevaluated oil and natural gas properties and exploration and development projects for which depletion expense is not currently recognized, and for which exploration or
development activities are in progress, qualify for interest capitalization. The Predecessor Company determined capitalized interest by multiplying the Predecessor Company's weighted-average borrowing
cost on debt by the average amount of qualifying costs incurred that were excluded from the full cost pool. The capitalized interest amounts were recorded as additions to unevaluated oil and natural
gas properties on the unaudited condensed consolidated balance sheets. For the period from January 1, 2016 through September 9, 2016 (Predecessor) and the nine months ended
September 30, 2015 (Predecessor), the Company capitalized interest costs of $68.2 million and $80.0 million, respectively. Upon the adoption of fresh-start accounting, the
Successor Company revised its accounting policy on the capitalization of interest and expects future capitalized interest amounts to be minimal.
At
September 30, 2016, the ceiling test value of the Company's reserves was calculated based on the first-day-of-the-month average for the 12-months ended September 30,
2016 of the West Texas Intermediate (WTI) crude oil spot price of $41.68 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the
first-day-of-the-month average for the 12-months ended September 30, 2016 of the Henry Hub natural gas price of $2.28 per MMBtu, adjusted by lease or field for energy content, transportation
fees, and regional price differentials. Using these prices, the Company's net book value of oil and natural gas properties at September 30, 2016 (Successor) exceeded the ceiling amount by
$420.9 million ($268.1 million after taxes, before valuation allowance) which resulted in a ceiling test impairment of that amount for the period of September 10, 2016 through
September 30, 2016 (Successor). The impairment at September 30, 2016 reflects the differences between the first day of the month average prices for the preceding twelve months required
by Regulation S-X, Rule 4-10 and ASC 932 in calculating the ceiling test and the forward-looking prices required by ASC 852 to estimate the fair value of the Company's oil and natural
gas properties on the fresh-start reporting date of September 9, 2016.
At
June 30, 2016 (Predecessor) and March 31, 2016 (Predecessor), the Company recorded a full cost ceiling impairment before income taxes of $257.9 million
($163.1 million after taxes, before valuation allowance) and $496.9 million ($315.1 million after taxes, before valuation allowance), respectively. The ceiling test impairments at
March 31, 2016 and June 30, 2016, were driven by decreases in the first-day-of-the-month 12-month average prices for crude oil used in the ceiling test calculations since
December 31, 2015, when the first-day-of-month 12-month average price for crude oil was $50.28 per barrel. The impairment at March 31, 2016 also reflects the transfer of the remaining
24
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. OIL AND NATURAL GAS PROPERTIES (Continued)
unevaluated
Utica / Point Pleasant (Utica) and TMS properties of approximately $330.4 million and $74.8 million, respectively, to the full cost pool. As discussed above, the Company
considers the facts
and circumstances around its unevaluated properties that may indicate impairment on a quarterly basis. For the quarter ended March 31, 2016, management concluded that it was no longer probable
that capital would be available or approved to continue exploratory drilling activities in the Company's Utica or TMS acreage positions in advance of the related lease expirations due to the Company's
evaluation of strategic alternatives to reduce its debt and preserve liquidity in light of continued low commodity prices, together with a reduction of the Company's exploration department and the
Company's intent to expend capital only on its most economical and proven areas.
At
September 30, 2015 (Predecessor), the ceiling test value of the Company's reserves was calculated based on the first-day-of-the-month average for the 12-months ended
September 30, 2015 of the WTI crude oil spot price of $59.21 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the
first-day-of-the-month average for the 12-months ended September 30, 2015 of the Henry Hub natural gas price of $3.06 per MMBtu, adjusted by lease or field for energy content, transportation
fees, and regional price differentials. Using these prices, the Company's net book value of oil and natural gas properties at September 30, 2015 (Predecessor) exceeded the ceiling amount by
$511.9 million ($322.3 million after taxes before valuation allowance) which resulted in a ceiling test impairment of that amount for the quarter. At June 30, 2015 (Predecessor)
and March 31, 2015 (Predecessor), the Company recorded full cost ceiling impairments before income taxes of $948.6 million ($597.3 million after taxes before valuation allowance)
and $554.0 million ($348.8 million after taxes before valuation allowance), respectively. The ceiling test impairments were driven by decreases in the first-day-of-the-month average
prices for crude oil used in the ceiling test calculations since December 31, 2014, when the first-day-of-the-month average price for crude oil was $94.99 per barrel.
The
Company recorded the full cost ceiling test impairments in "
Full cost ceiling impairment
" in the Company's unaudited condensed
consolidated statements of operations and in "
Accumulated depletion
" in the Company's unaudited condensed consolidated balance sheets. Changes in
commodity prices, production rates, levels of reserves, future development costs, transfers of unevaluated properties, capital spending, and other factors will determine the Company's ceiling test
calculations and impairment analyses in future periods.
25
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DEBT
As of September 30, 2016 (Successor) and December 31, 2015 (Predecessor), the Company's long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
September 30, 2016
|
|
|
|
December 31, 2015
|
|
Successor senior revolving credit facility
|
|
$
|
228,000
|
|
|
|
$
|
|
|
Predecessor senior revolving credit facility
|
|
|
|
|
|
|
|
62,000
|
|
8.625% senior secured second lien notes due 2020
(1)
|
|
|
670,715
|
|
|
|
|
687,797
|
|
12.0% senior secured second lien notes due 2022
(2)
|
|
|
105,809
|
|
|
|
|
111,598
|
|
13.0% senior secured third lien notes due 2022
(3)(8)
|
|
|
|
|
|
|
|
1,009,585
|
|
9.25% senior notes due 2022
(4)(8)
|
|
|
|
|
|
|
|
51,887
|
|
8.875% senior notes due 2021
(5)(8)
|
|
|
|
|
|
|
|
347,671
|
|
9.75% senior notes due 2020
(6)(8)
|
|
|
|
|
|
|
|
336,470
|
|
8.0% convertible note due 2020
(7)(8)
|
|
|
|
|
|
|
|
266,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,004,524
|
|
|
|
$
|
2,873,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amount is net of $12.2 million unamortized debt issuance costs at December 31, 2015 (Predecessor). Amount is net of a $29.3 million discount at
September 30, 2016 (Successor).
-
(2)
-
Amount is net of $1.2 million unamortized debt issuance costs at December 31, 2015 (Predecessor). Amount is net of a $7.0 million discount at
September 30, 2016 (Successor).
-
(3)
-
Amount is net of $8.4 million unamortized debt issuance costs at December 31, 2015 (Predecessor).
-
(4)
-
Amount is net of $0.8 million unamortized debt issuance costs at December 31, 2015 (Predecessor).
-
(5)
-
Amount is net of a $1.0 million unamortized discount at December 31, 2015 (Predecessor) related to the issuance of the original 2021 Notes. The
unamortized premium related to the additional 2021 Notes was approximately $5.5 million at December 31, 2015 (Predecessor). Amount is net of $5.8 million unamortized debt issuance
costs at and December 31, 2015 (Predecessor). See "8.875% Senior Notes" below for more details.
-
(6)
-
Amount is net of a $1.9 million unamortized discount at December 31, 2015 (Predecessor) related to the issuance of the original 2020 Notes. The
unamortized premium related to the additional 2020 Notes was approximately $2.6 million at December 31, 2015 (Predecessor). Amount is net of $4.3 million unamortized debt issuance
costs at December 31, 2015 (Predecessor). See "9.75% Senior Notes" below for more details.
-
(7)
-
Amount is net of a $23.0 million unamortized discount at December 31, 2015 (Predecessor). See "8.0% Convertible Note" below for more details.
-
(8)
-
These notes were cancelled on September 9, 2016 upon emergence from chapter 11 bankruptcy. Contractual interest expense not accrued or recorded on
pre-petition debt as a result of the chapter 11 bankruptcy amounted to $25.2 million for the period from July 27, 2016 to September 9, 2016.
Successor Senior Revolving Credit Facility
On the Effective Date, the Company entered into a senior secured revolving credit agreement (the Senior Credit Agreement) with JPMorgan Chase
Bank, N.A., as administrative agent, and certain other
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DEBT (Continued)
financial
institutions party thereto, as lenders, which refinanced the DIP facility, discussed below. The Senior Credit Agreement currently provides for a $600.0 million senior secured
reserve-based revolving credit facility. The maturity date of the Senior Credit Agreement is the earlier of (i) July 28, 2021 and (ii) the 120th day prior to the
February 1, 2020 stated maturity date of the Company's 2020 Second Lien Notes (defined below), if such notes have not been refinanced, redeemed or repaid in full on or prior to such
120th day. The first borrowing base redetermination will be on May 1, 2017 and redeterminations will occur semi-annually thereafter, with the lenders and the Company each having the
right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations. The borrowing base takes into account the estimated value of the Company's oil and natural
gas properties, proved reserves, total indebtedness, and other relevant factors consistent with customary oil and natural
gas lending criteria. Amounts outstanding under the Senior Credit Agreement bear interest at specified margins over the base rate of 1.75% to 2.75% for ABR-based loans or at specified margins over
LIBOR of 2.75% to 3.75% for Eurodollar-based loans. These margins fluctuate based on the Company's utilization of the facility. The Company may elect, at its option, to prepay any borrowings
outstanding under the Senior Credit Agreement without premium or penalty (except with respect to any break funding payments which may be payable pursuant to the terms of the Senior Credit Agreement).
The Company may be required to make mandatory prepayments under the Senior Credit Agreement in connection with certain borrowing base deficiencies. Additionally, if the Company has outstanding
borrowings or letters of credit or reimbursement obligations in respect of letters of credit and the Consolidated Cash Balance (as defined in the Senior Credit Agreement) exceeds $100.0 million
as of the close of business on the most recently ended business day, the Company may also be required to make mandatory prepayments.
Amounts
outstanding under the Senior Credit Agreement are guaranteed by certain of the Company's direct and indirect subsidiaries and secured by a security interest in substantially all
of the assets of the Company and its subsidiaries.
The
Senior Credit Agreement also contains certain financial covenants, including the maintenance of (i) a Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit
Agreement) not to exceed 4.75:1.00 initially, determined as of each four fiscal quarter periods and commencing with the fiscal quarter ending September 30, 2016, stepping down to 4.50:1.00 and
4.00:1.00 on September 30, 2017 and March 31, 2019, respectively, and (ii) a Current Ratio (as defined in the Senior Credit Agreement) not to be less than 1.00:1.00, commencing
with the fiscal quarter ending December 31, 2016. At September 30, 2016, the Company was in compliance with the financial covenants under the Senior Credit Agreement.
The
Senior Credit Agreement also contains certain events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements;
cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy.
At
September 30, 2016, the Company had approximately $228.0 million of indebtedness outstanding, approximately $5.0 million letters of credit outstanding and
approximately $367.0 million of borrowing capacity available under the Senior Credit Agreement.
27
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DEBT (Continued)
DIP Facility
In connection with the chapter 11 bankruptcy proceedings, the Predecessor Company entered into a commitment letter pursuant to which the
lenders party thereto committed to provide, subject to certain conditions, a $600.0 million debtor-in-possession senior secured, super-priority revolving credit facility (the DIP Facility) and
to replace it upon emergence with a $600.0 million senior secured reserve-based revolving credit facility, discussed above. Proceeds from the DIP Facility were used to refinance borrowings
under the Predecessor Credit Agreement (defined below). Availability under the DIP Facility was $500.0 million upon interim approval by the Bankruptcy Court, and rose to $600.0 million
upon entry of a final order. The DIP Facility was refinanced by the Senior Credit Agreement, upon emergence from chapter 11 bankruptcy. Loans under the DIP Facility bore interest at specified
margins over the base rate of 1.75% to 2.75% for ABR-based loans or at specified margins over LIBOR of 2.75% to 3.75% for Eurodollar-based loans. These margins fluctuated based on the utilization of
the DIP Facility.
Predecessor Senior Revolving Credit Facility
On February 8, 2012, the Predecessor Company entered into a senior secured revolving credit agreement (the Predecessor Credit Agreement)
with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto. The Predecessor Credit Agreement provided for a $1.5 billion facility with a borrowing base of
$700.0 million. Amounts outstanding under the Predecessor Credit Agreement bore interest at specified margins over the base rate of 1.50% to 2.50% for ABR-based loans or at specified margins
over LIBOR of 2.50% to 3.50% for Eurodollar-based loans. These margins fluctuated based on the utilization of the facility. Proceeds from the DIP Facility were used to refinance borrowings under the
Company's Predecessor Credit Agreement.
8.625% Senior Secured Second Lien Notes
On May 1, 2015, the Company issued $700.0 million aggregate principal amount of its 8.625% senior secured second lien notes due
2020 (the 2020 Second Lien Notes) in a private placement. The 2020 Second Lien Notes were issued at par. The net proceeds from the sale of the 2020 Second Lien Notes were approximately
$686.2 million (after deducting offering fees and expenses). The Predecessor Company used the net proceeds from the offering to repay the majority of the then outstanding borrowings under its
Predecessor Credit Agreement.
The
2020 Second Lien Notes bear interest at a rate of 8.625% per annum, payable semi-annually on February 1 and August 1 of each year. The 2020 Second Lien Notes will
mature on February 1, 2020. The 2020 Second Lien Notes are secured by second-priority liens on substantially all of the Company's and its subsidiaries' assets to the extent such assets secure
the Company's Senior Credit Agreement and its 2022 Second Lien Notes (defined below) (the Collateral). Pursuant to the terms of an Intercreditor Agreement, dated May 1, 2015, as amended by
those certain Priority Confirmation Joinders, dated September 10, 2015 and December 21, 2015, in connection with the issuance of the Third Lien Notes and the 2022 Second Lien Notes
(discussed below), respectively (the Intercreditor Agreement), the security interest in those assets that secure the 2020 Second Lien Notes and the guarantees are contractually subordinated to liens
that secure the Company's Senior Credit Agreement and certain other permitted indebtedness. Consequently, the 2020 Second Lien Notes and the guarantees are effectively subordinated to the Senior
Credit Agreement and such other indebtedness to the extent of the value of such assets. The Collateral does not include any of the assets of the
28
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DEBT (Continued)
Company's
future unrestricted subsidiaries. In accordance with the terms of the Plan, the 2020 Second Lien Notes were unimpaired and reinstated upon the Company's emergence from the chapter 11
bankruptcy.
As
discussed in Note 3,
"Fresh-start Accounting,"
on September 9, 2016, the Company adjusted the 2020 Second Lien Notes to
fair value of $679.0 million by recording a discount of $21.0 million to be amortized over the remaining life of the 2020 Second Lien Notes, using the effective interest method.
In
addition, on September 28, 2016, the Company, each of its guarantors and U.S. Bank National Association, as trustee, entered into a supplemental indenture (the 2020 Second Lien
Note Supplemental Indenture) to the Indenture dated as of May 1, 2015 with respect to the Company's 2020 Second Lien Notes (the 2020 Second Lien Note Indenture). The 2020 Second Lien Note
Supplemental Indenture amended the 2020 Second Lien Note Indenture to modify the incurrence of indebtedness, lien and restricted payments covenants. The 2020 Second Lien Note Supplemental Indenture
became operative upon the consummation of the consent solicitation on September 30, 2016. The Company paid an aggregate consent fee of approximately $8.6 million to holders of the 2020
Second Lien Notes and recorded an additional discount of approximately $8.6 million.
The
remaining unamortized discount was $29.3 million at September 30, 2016.
12.0% Senior Secured Second Lien Notes
On December 21, 2015, the Company completed the issuance in a private placement of approximately $112.8 million aggregate
principal amount of new 12.0% senior secured second lien notes due 2022 (the 2022 Second Lien Notes) in exchange for approximately $289.6 million principal amount of its then outstanding senior
unsecured notes, consisting of $116.6 million principal amount of 9.75% senior notes due 2020, $137.7 million principal amount of 8.875% senior notes due 2021 and $35.3 million
principal amount of 9.25% senior notes due 2022. At closing, the Predecessor Company paid all accrued and unpaid interest since the respective interest payment dates of the unsecured notes surrendered
in the exchange. The Predecessor Company recorded the issuance of the 2022 Second Lien Notes at par.
Interest
on the 2022 Second Lien Notes accrues at a rate of 12.0% per annum, payable semi-annually on February 15 and August 15 of each year, beginning on
February 15, 2016. The 2022 Second Lien Notes will mature on February 15, 2022. The 2022 Second Lien Notes are secured by second-priority liens on the Collateral. Pursuant to the terms
of the Intercreditor Agreement, dated December 21, 2015, the security interest in the Collateral securing the 2022 Second Lien Notes and the guarantees are contractually equal with the liens
that secure the 2020 Second Lien Notes and contractually subordinated to liens that secure the Company's Senior Credit Agreement and certain other permitted indebtedness. Consequently, the 2022 Second
Lien Notes and the guarantees are effectively subordinated to the Senior Credit Agreement and such other indebtedness and effectively equal to the 2020 Second Lien Notes, in each case to the extent of
the value of the Collateral. In accordance with the terms of the Plan, the 2022 Second Lien Notes were unimpaired and reinstated upon the Company's emergence from chapter 11 bankruptcy.
As
discussed in Note 3,
"Fresh-start Accounting,"
on September 9, 2016, the Company adjusted the 2022 Second Lien Notes to
fair value of $107.2 million by recording a discount of $5.7 million to be amortized over the remaining life of the 2020 Second Lien Notes, using the effective interest method.
29
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DEBT (Continued)
In
addition, on September 28, 2016, the Company, each of its guarantors and U.S. Bank National Association, as trustee, entered into a supplemental indenture (the 2022 Second Lien
Note Supplemental Indenture) to the Indenture dated as of December 21, 2015 with respect to the Company's 2022 Second Lien Notes (the 2022 Second Lien Note Indenture). The 2022 Second Lien Note
Supplemental Indenture amended the 2022 Second Lien Note Indenture to modify the incurrence of indebtedness, lien and restricted payments covenants. The 2022 Second Lien Note Supplemental Indenture
became operative upon the consummation of the consent solicitation on September 30, 2016.
The Company paid an aggregate consent fee of approximately $1.4 million to holders of the 2022 Second Lien Notes and recorded an additional discount of approximately $1.4 million.
The
remaining unamortized discount was $7.0 million at September 30, 2016.
13.0% Senior Secured Third Lien Notes
On September 10, 2015, the Predecessor Company issued approximately $1.02 billion aggregate principal amount of new 13.0% senior
secured third lien notes due 2022 (the Third Lien Notes) in a private placement in exchange for approximately $497.2 million principal amount of its then outstanding 9.75% senior notes due
2020, $774.7 million principal amount of its then outstanding 8.875% senior notes due 2021 and $294.4 million principal amount of its then outstanding 9.25% senior notes due 2022 in
privately negotiated transactions with certain holders of its senior unsecured notes. The Predecessor Company recorded the issuance of the Third Lien Notes at par and also recognized a
$535.1 million net gain on the extinguishment of debt, as a $548.2 million gain on the exchanges was partially offset by the writedown of $13.1 million associated with related
issuance costs and discounts and premiums for the respective notes. The net gain was recorded in
"Gain (loss) on extinguishment of debt"
in the
unaudited condensed consolidated statements of operation for the three months ended September 30, 2015 (Predecessor). The Third Lien Notes bore interest at a rate of 13.0% per annum and were
scheduled to mature on February 15, 2022.
On
September 9, 2016, upon emergence from chapter 11 bankruptcy, the Third Lien Notes were cancelled. Refer to Note 2,
"Reorganization,"
for further details.
9.25% Senior Notes
On August 13, 2013, the Predecessor Company issued at par $400.0 million aggregate principal amount of 9.25% senior notes due 2022
(the 2022 Notes). The net proceeds from the offering of approximately $392.1 million (after deducting offering fees and expenses) were used to repay a portion of the then outstanding borrowings
under the Company's Predecessor Credit Agreement. The 2022 Notes bore interest at a rate of 9.25% per annum and were scheduled to mature on February 15, 2022.
During
the first quarter of 2016, the Predecessor Company repurchased $15.5 million principal amount of 2022 Notes for cash at prevailing market prices at the time of the
transactions and recognized an $11.1 million net gain on the extinguishment of debt.
On
September 9, 2016, upon emergence from chapter 11 bankruptcy, the 2022 Notes were cancelled. Refer to Note 2,
"Reorganization,"
for further details.
8.875% Senior Notes
On November 6, 2012, the Predecessor Company issued $750.0 million aggregate principal amount of its 8.875% senior notes due 2021
(the 2021 Notes), at a price to the initial purchasers of 99.247% of
30
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DEBT (Continued)
par.
The net proceeds from the offering of approximately $725.6 million (after deducting offering fees and expenses) and were used to fund a portion of the cash consideration paid in the
Williston Basin Acquisition. On January 14, 2013, the Predecessor Company issued an additional $600.0 million aggregate principal amount of the 2021 Notes at a price to the initial
purchasers of 105% of par. The net proceeds from the sale of the additional 2021 Notes of approximately $619.5 million (after offering fees and expenses) were used to repay all of the then
outstanding borrowings under the Predecessor Credit Agreement and for general corporate purposes, including funding a portion of the Predecessor Company's 2013 capital expenditures program. These
notes were issued as "additional notes" under the indenture governing the 2021 Notes and under the indenture were treated as a single series with substantially identical terms as the 2021 Notes
previously issued.
The
2021 Notes bore interest at a rate of 8.875% per annum and were scheduled to mature on May 15, 2021. In conjunction with the issuance of the 2021 Notes, the Predecessor
Company recorded a discount of approximately $5.7 million to be amortized over the remaining life of the 2021 Notes using the effective interest method. In conjunction with the issuance of the
additional 2021 Notes, the Predecessor Company recorded a premium of approximately $30.0 million to be amortized over the remaining life of the additional 2021 Notes using the effective
interest method.
During
the first quarter of 2016, the Predecessor Company repurchased $51.8 million principal amount of the 2021 Notes for cash at prevailing market prices at the time of the
transactions and recognized a $47.5 million net gain on the extinguishment of debt.
On
September 9, 2016, upon emergence from chapter 11 bankruptcy, the 2021 Notes were cancelled. Refer to Note 2,
"Reorganization,"
for further details.
9.75% Senior Notes
On July 16, 2012, the Predecessor Company issued $750.0 million aggregate principal amount of 9.75% senior notes due 2020 issued
at 98.646% of par (the 2020 Notes). The net proceeds from the offering were approximately $723.1 million (after deducting offering fees and expenses) and were used to fund a portion of the cash
consideration paid in the merger with GeoResources, Inc., and the acquisition of certain oil and gas leaseholds located in East Texas. On December 19, 2013, the Predecessor Company
issued an additional $400.0 million aggregate principal amount of the 2020 Notes at a price to the initial purchasers of 102.750% of par. The net proceeds from the sale of the additional 2020
Notes of approximately $406.3 million (after deducting offering fees and expenses) were used to repay a portion of the then outstanding borrowings under the Predecessor Credit Agreement. These
notes were issued as "additional notes" under the indenture governing the 2020 Notes and under the indenture are treated as a single series with substantially identical terms as the 2020 Notes
previously issued.
The
2020 Notes bore interest at a rate of 9.75% per annum and were scheduled to mature on July 15, 2020. In conjunction with the issuance of the 2020 Notes, the Predecessor
Company recorded a discount of approximately $10.2 million to be amortized over the remaining life of the 2020 Notes using the effective interest method. In conjunction with the issuance of the
additional 2020 Notes, the Predecessor Company recorded a premium of approximately $11.0 million to be amortized over the remaining life of the additional 2020 Notes using the effective
interest method.
During
the first quarter of 2016, the Predecessor Company repurchased $24.5 million principal amount of the 2020 Notes for cash at prevailing market prices at the time of the
transactions and recognized a $22.8 million net gain on the extinguishment of debt.
31
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HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DEBT (Continued)
On September 9, 2016, upon emergence from chapter 11 bankruptcy, the 2020 Notes were cancelled. Refer to Note 2,
"Reorganization,"
for
further details.
8.0% Convertible Note
On February 8, 2012, the Predecessor Company issued to HALRES, LLC (HALRES), a note in the principal amount of
$275.0 million due 2017 (the Convertible Note) together with five year warrants (February 2012 Warrants) for an aggregate purchase price of $275.0 million. The Convertible Note bore
interest at a rate of 8% per annum. Through the March 31, 2014 interest payment date, the Predecessor Company was permitted to elect to pay the interest in kind, by adding to the principal of
the Convertible Note, all or any portion of the interest due on the Convertible Note. The Predecessor Company elected to pay the interest in kind on March 31, June 30 and
September 30, 2012, and added $3.2 million, $5.7 million and $5.8 million of interest incurred, respectively, to the Convertible Note, increasing the principal amount to
$289.7 million. On March 9, 2015, the Predecessor Company entered into an amendment (the HALRES Note Amendment) to its Convertible Note, which extended the maturity date of the
Convertible Note by three years and adjusted the conversion price of the Convertible Note from $22.50 per share to $12.20 per share. The Predecessor Company accounted for the HALRES Note Amendment as
a debt extinguishment and recorded a net gain of $7.3 million in
"Gain (loss) on extinguishment of Convertible Note and modification of February 2012
Warrants"
in the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2015 (Predecessor).
On
September 9, 2016, and upon emergence from chapter 11 bankruptcy, the Convertible Note was cancelled. Refer to Note 2,
"Reorganization,"
for further details.
Debt Issuance Costs
The Company capitalizes certain direct costs associated with the issuance of debt and amortizes such costs over the lives of the respective
debt. For the period from January 1, 2016 through September 9, 2016, the Predecessor Company expensed $7.9 million of debt issuance costs in conjunction with debt repurchases,
decreases in the borrowing base under the Predecessor Credit Agreement, and refinancing of the Predecessor Credit Agreement. At December 31, 2015 (Predecessor), the Company had approximately
$40.3 million of debt issuance costs capitalized related to its Predecessor senior secured and unsecured debt. As part of the Company's reorganization, all debt issuance costs related to the
Company's Predecessor debt were extinguished. The debt issuance costs for the Company's Predecessor Credit Agreement are presented in
"Debt issuance costs,
net"
, and the debt issuance costs for the Company's senior unsecured debt are presented in
"Long-term debt, net"
within total
liabilities on the unaudited condensed consolidated balance sheet at December 31, 2015 (Predecessor).
7. FAIR VALUE MEASUREMENTS
Pursuant to ASC 820,
Fair Value Measurements
(ASC 820), the Company's determination of fair value incorporates not only the credit
standing of the counterparties involved in transactions with the Company resulting in receivables on the Company's unaudited condensed consolidated balance sheets, but also the impact of the Company's
nonperformance risk on its own liabilities. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
32
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. FAIR VALUE MEASUREMENTS (Continued)
transaction
between market participants at the measurement date (exit price). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs
(Level 3). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. The
Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation
technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs.
As
required by ASC 820, a financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The
Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement
within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for any period presented. The following tables set forth by level within the fair value hierarchy
the Company's financial assets and liabilities that
were accounted for at fair value as of September 30, 2016 (Successor) and December 31, 2015 (Predecessor) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
September 30, 2016
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables from derivative contracts
|
|
$
|
|
|
$
|
73,651
|
|
$
|
|
|
$
|
73,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from derivative contracts
|
|
$
|
|
|
$
|
2,507
|
|
$
|
30
|
|
$
|
2,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
December 31, 2015
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables from derivative contracts
|
|
$
|
|
|
$
|
365,475
|
|
$
|
|
|
$
|
365,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from derivative contracts
|
|
$
|
|
|
$
|
105
|
|
$
|
185
|
|
$
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
contracts listed above as Level 2 include collars, swaps and swaptions that are carried at fair value. The Company records the net change in the fair value of these
positions in
"Net gain (loss) on derivative contracts"
in the Company's unaudited condensed consolidated statements of operations. The Company is able
to value the assets and liabilities based on observable market data for similar instruments, which resulted in the Company reporting its derivatives as Level 2. This observable data includes
the forward curves for commodity prices based on quoted market prices and implied volatility factors related to changes in the forward curves. See Note 8,
"Derivative
and Hedging Activities"
for additional discussion of derivatives.
33
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. FAIR VALUE MEASUREMENTS (Continued)
Derivative
contracts listed above as Level 3 include extendable collars that are carried at fair value. The significant unobservable inputs for these Level 3 contracts
include unpublished forward strip prices and market volatilities. The following table sets forth a reconciliation of changes in the fair value of the Company's extendable collar contracts classified
as Level 3 in the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
September 30, 2016
|
|
|
|
December 31, 2015
|
|
Beginning Balance
|
|
$
|
(185
|
)
|
|
|
$
|
(1,319
|
)
|
Net gain (loss) on derivative contracts
|
|
|
155
|
|
|
|
|
1,134
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
(30
|
)
|
|
|
$
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Period from September 10, 2016 through September 30, 2016
|
|
|
|
Period from January 1, 2016 through September 9, 2016
|
|
December 31, 2015
|
|
Change in unrealized gains (losses) included in earnings related to derivatives still held at September 30, 2016 (Successor), September 9, 2016
(Predecessor), and December 31, 2015 (Predecessor)
|
|
$
|
18
|
|
|
|
$
|
137
|
|
$
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company's derivative contracts are with major financial institutions with investment grade credit ratings which are believed to have minimal credit risk. As such, the Company is
exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts; however, the Company does not anticipate such nonperformance.
The
following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of ASC 825,
Financial
Instruments
. The estimated fair value amounts have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The estimated fair value of cash, accounts receivables and accounts payables approximate their carrying value due to their short-term nature. The estimated fair
value of the Company's Senior Credit Agreement approximates carrying value because the interest rates approximate current market rates. The following table presents the estimated fair values of the
Company's fixed interest rate debt instruments as of September 30, 2016 (Successor) and
34
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. FAIR VALUE MEASUREMENTS (Continued)
December 31,
2015 (Predecessor) (excluding discounts, premiums and debt issuance costs) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
September 30, 2016
|
|
|
|
December 31, 2015
|
|
Debt
|
|
Principal Amount
|
|
Estimated Fair Value
|
|
|
|
Principal Amount
|
|
Estimated Fair Value
|
|
8.625% senior secured second lien notes
|
|
$
|
700,000
|
|
$
|
707,000
|
|
|
|
$
|
700,000
|
|
$
|
479,500
|
|
12.0% senior secured second lien notes
|
|
|
112,826
|
|
|
112,826
|
|
|
|
|
112,826
|
|
|
77,286
|
|
13.0% senior secured third lien notes
(1)
|
|
|
|
|
|
|
|
|
|
|
1,017,970
|
|
|
333,385
|
|
9.25% senior notes
(1)
|
|
|
|
|
|
|
|
|
|
|
52,694
|
|
|
14,422
|
|
8.875% senior notes
(1)
|
|
|
|
|
|
|
|
|
|
|
348,944
|
|
|
95,506
|
|
9.75% senior notes
(1)
|
|
|
|
|
|
|
|
|
|
|
340,035
|
|
|
93,068
|
|
8.0% convertible note
(1)
|
|
|
|
|
|
|
|
|
|
|
289,669
|
|
|
87,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
812,826
|
|
$
|
819,826
|
|
|
|
$
|
2,862,138
|
|
$
|
1,180,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
These notes were cancelled on September 9, 2016 upon emergence from chapter 11
bankruptcy.
The
fair value of the Company's fixed interest rate debt instruments was calculated using Level 2 criteria. The fair value of the Company's senior notes is based on quoted market
prices from trades of such debt. The fair value of the Predecessor Company's Convertible Note was based on published market prices and risk-free rates.
On
September 9, 2016, the Company emerged from chapter 11 bankruptcy and adopted fresh-start accounting, which resulted in the Company becoming a new entity for financial
reporting purposes. Upon the adoption of fresh-start accounting, the Company's assets and liabilities were recorded at their fair values as of the fresh-start reporting date, September 9, 2016.
See Note 3,
"Fresh-start Accounting,"
for a detailed discussion of the fair value approaches used by the Company.
During
the three months ended March 31, 2016 (Predecessor), the Company recorded a non-cash impairment charge of $28.1 million related to its gas gathering systems. See
Note 1,
"Financial Statement Presentation,"
for a discussion of the valuation approach used and the classification of the estimate within the
fair value hierarchy.
As
discussed in Note 6, "
Debt
" and in Note 12, "
Stockholders' Equity
," on
May 6, 2015 (Predecessor), the HALRES Note Amendment and the Warrant Amendment became effective. The fair value estimates for the Convertible Note and the February 2012 Warrants included the
use of observable inputs such as the Predecessor Company's stock price, expected volatility, and credit spread and the risk-free rate. The use of these observable inputs results in the fair value
estimates being classified as Level 2.
The
Company follows the provisions of ASC 820 for nonfinancial assets and liabilities measured at fair value on a non-recurring basis. These provisions apply to the Company's initial
recognition of asset retirement obligations for which fair value is used. The asset retirement obligation estimates are derived from historical costs and management's expectation of future cost
environments; consequently, the Company has designated these liabilities as Level 3. See Note 9, "
Asset Retirement Obligations
," for a
reconciliation of the beginning and ending balances of the liability for the Company's asset retirement obligations.
35
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. DERIVATIVE AND HEDGING ACTIVITIES
The Company is exposed to certain risks relating to its ongoing business operations, including commodity price risk and interest rate risk. Derivative contracts are utilized to
economically hedge the Company's exposure to price fluctuations and reduce the variability in the Company's cash flows associated with anticipated sales of future oil and natural gas production. When
derivative contracts are available at terms (or prices) acceptable to the Company, it generally hedges a substantial, but varying, portion of anticipated oil and natural gas production for future
periods. Derivatives are carried at fair value on the unaudited condensed consolidated balance sheets as assets or liabilities, with the changes
in the fair value included in the unaudited condensed consolidated statements of operations for the period in which the change occurs. The Company's hedge policies and objectives may change
significantly as its operational profile changes and/or commodities prices change. The Company does not enter into derivative contracts for speculative trading purposes.
It
is the Company's policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions determined by management as competent and competitive
market makers. The Company did not post collateral under any of its derivative contracts as they are secured under the Company's Senior Credit Agreement or are uncollateralized trades.
At
September 30, 2016 (Successor) and December 31, 2015 (Predecessor), the Company's crude oil and natural gas derivative positions consisted of swaps, swaptions, costless
put/call "collars," and extendable costless collars. Swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for crude oil and
natural gas. Swaptions are swap contracts that may be extended annually at the option of the counterparty on a designated date. A costless collar consists of a sold call, which establishes a maximum
price the Company will receive for the volumes under contract and a purchased put that establishes a minimum price. Extendable collars are costless put/call contracts that may be extended annually at
the option of the counterparty on a designated date. The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, the Company records the net change in
the mark-to-market valuation of these derivative contracts, as well as payments and receipts on settled derivative contracts, in
"Net gain (loss) on derivative
contracts"
on the unaudited condensed consolidated statements of operations.
At
September 30, 2016 (Successor), the Company had 37 open commodity derivative contracts summarized in the following tables: one natural gas collar arrangement, 18 crude oil
collar arrangements, 12 crude oil swaps, five crude oil swaptions and one crude oil extendable collar.
At
December 31, 2015 (Predecessor), the Company had 36 open commodity derivative contracts summarized in the following tables: one natural gas collar arrangement, 16 crude oil
collar arrangements, 13 crude oil swaps, five crude oil swaptions and one crude oil extendable collar.
All
derivative contracts are recorded at fair market value in accordance with ASC 815 and ASC 820 and included in the unaudited condensed consolidated balance sheets as
assets or liabilities. The following table summarizes the location and fair value amounts of all derivative contracts in the
36
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. DERIVATIVE AND HEDGING ACTIVITIES (Continued)
unaudited
condensed consolidated balance sheets as of September 30, 2016 (Successor) and December 31, 2015 (Predecessor) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset derivative contracts
|
|
|
|
Liability derivative contracts
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Derivatives not designated as hedging contracts under ASC 815
|
|
Balance
sheet location
|
|
September 30,
2016
|
|
|
|
December 31,
2015
|
|
Balance
sheet location
|
|
September 30,
2016
|
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Current assetsreceivables from derivative contracts
|
|
$
|
70,835
|
|
|
|
$
|
348,861
|
|
Current liabilitiesliabilities from derivative contracts
|
|
$
|
(1,415
|
)
|
|
|
$
|
|
|
Commodity contracts
|
|
Other noncurrent assetsreceivables from derivative contracts
|
|
|
2,816
|
|
|
|
|
16,614
|
|
Other noncurrent liabilitiesliabilities from derivative contracts
|
|
|
(1,122
|
)
|
|
|
|
(290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging contracts under ASC 815
|
|
|
|
$
|
73,651
|
|
|
|
$
|
365,475
|
|
|
|
$
|
(2,537
|
)
|
|
|
$
|
(290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes the location and amounts of the Company's realized and unrealized gains and losses on derivative contracts in the Company's unaudited condensed
consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) recognized in
income on derivative contracts for the
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Derivatives not designated as hedging
contracts under ASC 815
|
|
Location of gain or (loss) recognized in
income on derivative contracts
|
|
Period from
September 10,
2016
through
September 30,
2016
|
|
|
|
Period from
July 1,
2016
through
September 9,
2016
|
|
Three
Months
Ended
September 30,
2015
|
|
Commodity contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on commodity contracts
|
|
Other income (expenses)net gain (loss) on derivative contracts
|
|
$
|
(30,338
|
)
|
|
|
$
|
(39,451
|
)
|
$
|
89,741
|
|
Realized gain (loss) on commodity contracts
|
|
Other income (expenses)net gain (loss) on derivative contracts
|
|
|
22,763
|
|
|
|
|
57,234
|
|
|
114,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on derivative contracts
|
|
|
|
$
|
(7,575
|
)
|
|
|
$
|
17,783
|
|
$
|
204,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. DERIVATIVE AND HEDGING ACTIVITIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) recognized in
income on derivative contracts for the
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
Period from
September 10,
2016
through
September 30,
2016
|
|
|
|
Period from
January 1,
2016
through
September 9,
2016
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended
September 30,
2015
|
|
|
|
Location of gain or (loss) recognized in
income on derivative contracts
|
|
|
|
Derivatives not designated as hedging
contracts under ASC 815
|
|
|
|
|
|
|
Commodity contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on commodity contracts
|
|
Other income (expenses)net gain (loss) on derivative contracts
|
|
$
|
(30,338
|
)
|
|
|
$
|
(263,732
|
)
|
$
|
(93,972
|
)
|
Realized gain (loss) on commodity contracts
|
|
Other income (expenses)net gain (loss) on derivative contracts
|
|
|
22,763
|
|
|
|
|
245,734
|
|
|
310,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on derivative contracts
|
|
|
|
$
|
(7,575
|
)
|
|
|
$
|
(17,998
|
)
|
$
|
216,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
September 30, 2016 (Successor) and December 31, 2015 (Predecessor), the Company had the following open crude oil and natural gas derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
Floors
|
|
Ceilings
|
|
Period
|
|
Instrument
|
|
Commodity
|
|
Volume in
Mmbtu's/
Bbl's
|
|
Price /
Price
Range
|
|
Weighted
Average
Price
|
|
Price /
Price
Range
|
|
Weighted
Average
Price
|
|
October 2016 - December 2016
(1)
|
|
Collars
|
|
Natural Gas
|
|
|
184,000
|
|
$4.00
|
|
$
|
4.00
|
|
$4.22
|
|
$
|
4.22
|
|
October 2016 - December 2016
(2)(3)
|
|
Collars
|
|
Crude Oil
|
|
|
920,000
|
|
60.00 - 90.00
|
|
|
74.30
|
|
64.00 - 95.10
|
|
|
80.26
|
|
October 2016 - December 2016
(4)(5)
|
|
Swaps
|
|
Crude Oil
|
|
|
1,104,000
|
|
62.00 - 91.73
|
|
|
84.91
|
|
|
|
|
|
|
January 2017 - December 2017
|
|
Collars
|
|
Crude Oil
|
|
|
3,923,750
|
|
47.00 - 60.00
|
|
|
51.29
|
|
52.00 - 76.84
|
|
|
60.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Floors
|
|
Ceilings
|
|
Period
|
|
Instrument
|
|
Commodity
|
|
Volume in
Mmbtu's/
Bbl's
|
|
Price /
Price
Range
|
|
Weighted
Average
Price
|
|
Price /
Price
Range
|
|
Weighted
Average
Price
|
|
January 2016 - June 2016
|
|
Collars
|
|
Crude Oil
|
|
|
182,000
|
|
$90.00
|
|
$
|
90.00
|
|
$96.85
|
|
$
|
96.85
|
|
January 2016 - December 2016
|
|
Collars
|
|
Natural Gas
|
|
|
732,000
|
|
4.00
|
|
|
4.00
|
|
4.22
|
|
|
4.22
|
|
January 2016 - December 2016
(2)
|
|
Collars
|
|
Crude Oil
|
|
|
4,392,000
|
|
60.00 - 90.00
|
|
|
71.91
|
|
64.00 - 95.10
|
|
|
77.71
|
|
January 2016 - December 2016
(4)
|
|
Swaps
|
|
Crude Oil
|
|
|
4,758,000
|
|
62.00 - 91.73
|
|
|
85.43
|
|
|
|
|
|
|
January 2017 - December 2017
|
|
Collars
|
|
Crude Oil
|
|
|
1,368,750
|
|
50.00 - 60.00
|
|
|
57.33
|
|
70.00 - 76.84
|
|
|
74.16
|
|
-
(1)
-
Subsequent to September 30, 2016, the Successor Company entered into a natural gas collar for 5,000 MMBtu per day for 2017 at a floor of $3.15 per MMBtu and a
ceiling of $3.50 per MMBtu.
-
(2)
-
Includes an outstanding crude oil collar which may be extended by the counterparty at a floor of $60.00 per Bbl and a ceiling of $75.00 per Bbl for a total of
365,000 Bbls for the year ended December 31, 2017.
-
(3)
-
Subsequent to September 30, 2016, the Successor Company entered into crude oil collars totaling 4,000 barrels per day for 2017 at floors ranging from $49.40
to $51.50 per barrel and ceilings ranging from $54.40 to $56.50 per barrel.
38
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. DERIVATIVE AND HEDGING ACTIVITIES (Continued)
-
(4)
-
Includes an outstanding crude oil swap which may be extended by the counterparty at a price of $88.25 per Bbl for a total of 730,000 Bbls for the year ended
December 31, 2017. Also includes certain outstanding crude oil swaps which may be extended by the counterparty at a price of $88.00 per Bbl totaling 912,500 Bbls for the year ended
December 31, 2017. Includes an outstanding crude oil swap which may be extended by the counterparty at a price of $88.87 per Bbl totaling 547,500 Bbls for the year ended December 31,
2017.
-
(5)
-
Subsequent to September 30, 2016, the Successor Company entered into crude oil swaps totaling 4,000 barrels per day for the fourth quarter of 2016 at $50.00
per barrel.
The
Company presents the fair value of its derivative contracts at the gross amounts in the unaudited condensed consolidated balance sheets. The following table shows the potential
effects of master netting arrangements on the fair value of the Company's derivative contracts at September 30, 2016 (Successor) and December 31, 2015 (Predecessor) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
|
|
December 31,
2015
|
|
September 30,
2016
|
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
Offsetting of Derivative Assets and Liabilities
|
|
|
|
|
|
Gross Amounts Presented in the Consolidated Balance Sheet
|
|
$
|
73,651
|
|
|
|
$
|
365,475
|
|
$
|
(2,537
|
)
|
|
|
$
|
(290
|
)
|
Amounts Not Offset in the Consolidated Balance Sheet
|
|
|
(2,506
|
)
|
|
|
|
(53
|
)
|
|
2,408
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Amount
|
|
$
|
71,145
|
|
|
|
$
|
365,422
|
|
$
|
(129
|
)
|
|
|
$
|
(238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company enters into an International Swap Dealers Association Master Agreement (ISDA) with each counterparty prior to a derivative contract with such counterparty. The ISDA is a
standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the
Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.
9. ASSET RETIREMENT OBLIGATIONS
The Company records an asset retirement obligation (ARO) on oil and natural gas properties when it can reasonably estimate the fair value of an obligation to perform site reclamation,
dismantle facilities
or plug and abandon costs. For gas gathering systems and equipment, the Company records an ARO when the system is placed in service and it can reasonably estimate the fair value of an obligation to
perform site reclamation and other necessary work when it is required. The Company records the ARO liability on the unaudited condensed consolidated balance sheets and capitalizes a portion of the
cost in "
Oil and natural gas properties
" or "
Other operating property and equipment
" during the period
in which the obligation is incurred. The Company records the accretion of its ARO liabilities in "
Depletion, depreciation and accretion
" expense in the
unaudited condensed consolidated statements of operations. The additional capitalized costs are depreciated on a unit-of-production basis or straight-line basis.
39
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. ASSET RETIREMENT OBLIGATIONS (Continued)
The Company recorded the following activity related to its ARO liability (in thousands, inclusive of the current portion):
|
|
|
|
|
Liability for asset retirement obligations as of December 31, 2015 (Predecessor)
|
|
$
|
47,016
|
|
Liabilities settled and divested
|
|
|
(180
|
)
|
Additions
|
|
|
1,044
|
|
Acquisitions
|
|
|
75
|
|
Accretion expense
|
|
|
1,414
|
|
|
|
|
|
|
Liability for asset retirement obligations as of September 9, 2016 (Predecessor)
|
|
$
|
49,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value fresh-start adjustment
|
|
$
|
(16,883
|
)
|
|
|
|
|
|
Liability for asset retirement obligations as of September 9, 2016 (Successor)
|
|
$
|
32,486
|
|
Liabilities settled and divested
(1)
|
|
|
(1,211
|
)
|
Additions
|
|
|
8
|
|
Accretion expense
|
|
|
131
|
|
|
|
|
|
|
Liability for asset retirement obligations as of September 30, 2016 (Successor)
|
|
$
|
31,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
See Note 4, "Divestiture," for further information.
10. COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases corporate office space in Houston, Texas and Denver, Colorado as well as a number of other field office locations. Rent
expense was approximately $0.4 million for the period of September 10, 2016 through September 30, 2016 (Successor) and $5.9 million for the period of January 1, 2016
through September 9, 2016 (Predecessor). Rent expense was approximately $6.4 million for the nine months ended September 30, 2015 (Predecessor). In connection with the
chapter 11 bankruptcy, the Company modified and rejected certain office lease arrangements and paid approximately $3.4 million for these modifications and rejections subsequent to the
emergence from chapter 11 bankruptcy. Future obligations associated with the Company's operating leases are presented in the table below (in thousands):
|
|
|
|
|
Remaining period in 2016
|
|
$
|
867
|
|
2017
|
|
|
3,493
|
|
2018
|
|
|
3,540
|
|
2019
|
|
|
2,997
|
|
2020
|
|
|
1,811
|
|
Thereafter
|
|
|
3,677
|
|
|
|
|
|
|
Total
|
|
$
|
16,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. COMMITMENTS AND CONTINGENCIES (Continued)
In
addition, the Company has commitments for certain equipment under long-term operating lease agreements, namely drilling rigs, with various expiration dates through 2018. In the first
quarter of
2016, the Company entered into an amendment to one of its drilling rig contracts with an original term ending date of August 31, 2016, whereby, as of April 5, 2016 (Predecessor), the
Company early terminated the rig contract, incurred a termination fee of approximately $1.2 million and reduced its 2016 drilling commitments by extending part of the contract term on another
of its drilling rig contracts out further in 2018. In January 2015, the Company made the decision to early terminate a drilling rig contract in response to the decline in crude oil prices, and the
Company incurred an early termination fee of $6.0 million, paid over the first half of 2015 (Predecessor). If certain requirements are not met by two separate trigger dates, the first being
January 1, 2017 and the second being January 12, 2020, the Company may incur up to an additional $3.0 million in connection with this drilling rig contract. Rig termination fees
are expensed as incurred within
"Gathering and other"
on the unaudited condensed consolidated statements of operations.
In
addition, the Company has two drilling rig commitments, for which the Company is incurring a stacking fee of $16,000 and $17,000 per day. The contract terms for these drilling rig
commitments extend through the second quarter of 2017 and 2018, respectively. Rig stacking fees are expensed as incurred within "
Gathering and other
" on
the unaudited condensed consolidated statements of operations. Early termination of the Company's additional drilling rig commitments would result in termination penalties approximating
$13.0 million, which would be in lieu of the remaining $18.2 million of drilling rig commitments as of September 30, 2016 (Successor).
The
Company has entered into various long-term gathering, transportation and sales contracts with respect to production from the Bakken/Three Forks formations in North Dakota. As of
September 30, 2016 (Successor), the Company had in place eight long-term crude oil contracts and five long-term natural gas contracts in this area. Under the terms of these contracts, the
Company has committed a substantial portion of its Bakken/Three Forks production for periods ranging from one to ten years from the date of first production. The sales prices under these contracts are
based on posted market rates. Historically, the Company has been able to meet its delivery commitments.
Contingencies
From time to time, the Company may be a plaintiff or defendant in a pending or threatened legal proceeding arising in the normal course of its
business. While the outcome and impact of currently pending legal proceedings cannot be determined, the Company's management and legal counsel believe that the resolution of these proceedings through
settlement or adverse judgment will not have a material effect on the Company's unaudited condensed consolidated operating results, financial position or cash flows.
11. MEZZANINE EQUITY
On June 16, 2014 (Predecessor), funds and accounts managed by Apollo contributed $150 million in cash to HK TMS, a Delaware limited liability company, which was then wholly
owned by the Company and held all of the Company's undeveloped acreage in the TMS formation, located in Mississippi and Louisiana, in exchange for the issuance by HK TMS of 150,000 preferred shares.
At the closing, the Company also contributed $50 million in cash to HK TMS. Holders of the HK TMS preferred shares were to receive quarterly cash dividends of 8% cumulative perpetual per annum,
41
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. MEZZANINE EQUITY (Continued)
subject
to HK TMS' option to pay such dividends "in-kind" through the issuance of additional preferred shares. The preferred shares were expected to be automatically redeemed and cancelled when the
holders receive cash dividends and distributions on the preferred shares equating to the greater of a 12% annual rate of return plus principal and 1.25 times their investment plus applicable fees (the
Redemption Price), subject to adjustment under certain circumstances. The preferred shares had a liquidation preference in the event of dissolution in an amount equal to the Redemption Price plus any
unpaid dividends not otherwise included in the calculation of the Redemption Price through the date of liquidation payment. HK TMS was also allowed to redeem the preferred shares at any time after
December 31, 2016 by paying the Redemption Price, and under certain circumstances it would have been required to redeem the preferred shares for the Redemption Price plus certain fees. On
September 30, 2016, certain wholly-owned subsidiaries of the Successor Company executed an Assignment and Assumption Agreement with an affiliate of Apollo pursuant to which 100% of the
Membership Interests in HK TMS were assigned to Apollo. In exchange for the assignment, Apollo assumed all obligations relating to such Membership Interests. See Note 4,
"Divestiture,"
for further
information regarding the HK TMS Divestiture.
On
June 1, 2015 (Predecessor), HK TMS and Apollo entered into an amendment to the original agreement (the HK TMS Amendment) which, among other things, i) committed HK TMS
to drill a
minimum of 6.5 net wells in each of the five consecutive twelve month periods beginning December 31, 2015 and ii) allowed for the redemption of preferred shares at the Redemption Price
between March 1, 2016 and June 30, 2016 at the election of Apollo to the extent there was available cash above the minimum cash balance, which is discussed further below. For any
commitment period in which HK TMS did not meet its drilling obligation, HK TMS would have been required to use available cash, above the minimum cash balance, to redeem preferred shares at the
Redemption Price.
The
preferred shares were classified as "
Redeemable noncontrolling interest
" and included in "
Mezzanine
equity
" between total liabilities and stockholders' equity on the unaudited condensed consolidated balance sheets pursuant to ASC 480-10-S99-3A. The preferred shares were
considered probable of becoming redeemable and therefore were accreted up to the estimated required redemption value. The accretion was presented as a deemed dividend and recorded in
"
Redeemable noncontrolling interest
" on the unaudited condensed consolidated balance sheets and within "
Preferred dividends and
accretion on redeemable noncontrolling interest
" on the unaudited condensed consolidated statements of operations. In accordance with ASC 480-10-S99-3A, an adjustment to the
carrying amount presented in "
Mezzanine equity
" was recognized as charges against retained earnings and reduced income available to common shareholders
in the calculation of earnings per share.
HK
TMS was required to maintain a minimum cash balance equal to two quarterly dividend payments, of approximately $3.5 million each, plus $10.0 million, which was presented
on the unaudited condensed consolidated balance sheets in "
Restricted cash
" at December 31, 2015 (Predecessor).
In
March 2015 (Predecessor), Apollo delivered a withdrawal notice to HK TMS indicating their election not to acquire additional preferred shares in HK TMS (the Withdrawal Notice). Upon
issuance of the Withdrawal Notice, HK TMS incurred a fee escalating from $2.50 per share to $20.00 per share for the next eight full fiscal quarters for any preferred shares then outstanding, which
began in the quarter ended June 30, 2015 (the Withdrawal Exit Fee). The Withdrawal Exit Fee would have been payable upon redemption of the preferred shares and was recorded at fair value within
"
Other
42
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. MEZZANINE EQUITY (Continued)
noncurrent liabilities
" on the unaudited condensed consolidated balance sheets at December 31, 2015 (Predecessor).
The
following table sets forth a reconciliation of the changes in fair value of the embedded derivative associated with the amended transaction, which is classified as Level 3 in
the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
Embedded
derivative
|
|
Balance at December 31, 2015 (Predecessor)
|
|
$
|
6,100
|
|
Change in fair value
|
|
|
(5,734
|
)
|
|
|
|
|
|
Balance at September 9, 2016 (Predecessor)
|
|
$
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value fresh-start adjustment
|
|
$
|
(366
|
)
|
|
|
|
|
|
Balance at September 9, 2016 (Successor) and at September 30, 2016 (Successor)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company recorded the following activity related to the preferred shares recorded in
"Mezzanine equity"
on the unaudited condensed
consolidated balance sheets for the period presented (in thousands, except share amounts):
|
|
|
|
|
|
|
|
|
|
Redeemable
noncontrolling interest
|
|
|
|
Shares
|
|
Amount
|
|
Balances at December 31, 2015 (Predecessor)
|
|
|
165,639
|
|
$
|
183,986
|
|
Dividends paid in-kind
|
|
|
9,329
|
|
|
9,329
|
|
Accretion of redeemable noncontrolling interest
|
|
|
|
|
|
26,576
|
|
|
|
|
|
|
|
|
|
Balances at September 9, 2016 (Predecessor)
|
|
|
174,968
|
|
$
|
219,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value fresh-start adjustment
|
|
|
|
|
$
|
(178,821
|
)
|
|
|
|
|
|
|
|
|
Balances at September 9, 2016 (Successor)
|
|
|
174,968
|
|
$
|
41,070
|
|
Dividends paid in-kind
|
|
|
791
|
|
|
791
|
|
HK TMS Divestiture
(1)
|
|
|
(175,759
|
)
|
|
(41,861
|
)
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016 (Successor)
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
See Note 4, "Divestiture," for further information regarding the HK TMS Divestiture.
For
the period of September 10, 2016 through September 30, 2016 (Successor) and January 1, 2016 through September 9, 2016 (Predecessor), HK TMS issued 791 and
9,329 additional preferred shares to Apollo for dividends paid-in-kind, respectively. For the nine months ended September 30, 2015 (Predecessor), HK TMS issued 9,340 additional preferred shares
to Apollo for dividends paid-in-kind. These dividends were presented within "
Preferred dividends and accretion on redeemable noncontrolling interest
" on
the unaudited condensed consolidated statements of operations. Upon the election of in-kind dividends, HK TMS was required to pay a fee of $5.00 per preferred share then outstanding (PIK Exit Fee).
Such fees would have been due upon redemption of the preferred shares and were
43
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. MEZZANINE EQUITY (Continued)
recorded
at fair value within "
Other noncurrent liabilities
" on the unaudited condensed consolidated balance sheets.
HK
TMS was not included in the chapter 11 bankruptcy filings or the Restructuring Support Agreement discussed in Note 2,
"
Reorganization.
"
12. STOCKHOLDERS' EQUITY
Common Stock
On September 9, 2016, upon emergence from chapter 11 bankruptcy, all existing shares of Predecessor common stock were cancelled
and the Successor Company issued approximately 90.0 million shares of common stock in total to the Predecessor Company's existing common stockholders, Third Lien Noteholders, Unsecured
Noteholders, and the Convertible Noteholder. Refer to Note 2, "
Reorganization
" for further details.
On
September 9, 2016, upon emergence from chapter 11 bankruptcy, the Company filed an amended and restated certificate of incorporation with the Delaware Secretary of State
to provide for (i) the total number of shares of all classes of capital stock that the Company has the authority to issue is 1,001,000,000 of which 1,000,000,000 shares are common stock, par
value $0.0001 per share and 1,000,000 shares are preferred stock, par value $0.0001 per share, (ii) a classified board structure, (iii) the right of removal of directors with or without
cause by stockholders, and (iv) a restriction on the Company from issuing any non-voting equity securities in violation of Section 1123(a)(6) of chapter 11 of title 11 of the
United States Code. Additionally, the Company's 5.75% Series A Convertible Perpetual Preferred Stock (the Series A Preferred), was cancelled pursuant to the Plan, and no shares of
Series A Preferred are outstanding.
Warrants
On September 9, 2016, upon the emergence from chapter 11 bankruptcy, all existing February 2012 warrants were cancelled and the
Company issued 3.8 million new warrants to the Unsecured Noteholders and 0.9 million new warrants to the Convertible Noteholder. The warrants in aggregate can be exercised to purchase
4.7 million shares of the Successor Company's common stock at an exercise price of $14.04 per share. The Company allocated approximately $16.7 million of the Enterprise Value to the
warrants which is reflected in "
Successor Additional paid-in capital
" on the unaudited condensed consolidated balance sheet at September 30, 2016
(Successor). The holders are entitled to exercise the warrants in whole or in part at any time prior to expiration on September 9, 2020. See Note 2,
"
Reorganization
" for further details.
Incentive Plans
Immediately prior to emergence from chapter 11 bankruptcy, the 2006 Long-Term Incentive Plan (Predecessor Incentive Plan) of the
Predecessor Company was cancelled and all share-based compensation awards granted thereunder were either vested or cancelled and the former board of directors adopted the 2016 Long-Term Incentive Plan
(the 2016 Incentive Plan). An aggregate of 10.0 million shares of the Successor Company's common stock, are available for grant pursuant to awards under the 2016 Incentive Plan in the form of
nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance units,
44
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. STOCKHOLDERS' EQUITY (Continued)
performance
bonuses, stock awards and other incentive awards. As of September 30, 2016 (Successor), a maximum of 2.4 million shares of common stock remained reserved for issuance under
the 2016 Incentive Plan.
The
Company accounts for share-based payment accruals under authoritative guidance on stock compensation. The guidance requires all share-based payments to employees and directors,
including grants of stock options, and restricted stock, to be recognized in the financial statements based on their fair values. For awards granted under the 2016 Incentive Plan subsequent to
emerging from chapter 11 bankruptcy and in conjunction with the early adoption of ASU 2016-09, the Company has elected to not apply a forfeiture estimate and will recognize a credit in
compensation expense to the extent awards are forfeited.
For
the period from September 10, 2016 through September 30, 2016 (Successor), the period from July 1, 2016 through September 9, 2016 (Predecessor) and the
period from January 1, 2016 through September 9, 2016 (Predecessor) the Company recognized $13.2 million, $1.2 million, and $4.9 million, respectively, of
share-based compensation expense. For the three and nine months ended September 30, 2015 (Predecessor), the Company recognized $3.0 million and $11.2 million, respectively, of
share-based compensation expense. Share-based compensation expense is recorded as a component of "
General and administrative
" on the unaudited condensed
consolidated statements of operations.
Stock Options
Immediately prior to emergence from chapter 11 bankruptcy, all outstanding stock options under the Predecessor Incentive Plan were
cancelled. Refer to Note 2,
"Reorganization,"
for further details.
During
the period from September 10, 2016 through September 30, 2016 (Successor), in accordance with the terms of the Plan, the Company granted stock options under the 2016
Incentive Plan covering 5.0 million shares of common stock to employees of the Company. These stock options have an exercise price of $9.24 per share with a weighted average exercise price of
$9.24 per share. These awards vest over a three year period at a rate of one-third on the annual anniversary date of the grant and expire ten years from the grant date. At September 30, 2016
(Successor), the Company had $29.8 million of unrecognized compensation expense related to non-vested stock options to be recognized over a weighted-average period of 1.9 years.
45
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. STOCKHOLDERS' EQUITY (Continued)
The
following table sets forth the stock option transactions for the period from September 10, 2016 through September 30, 2016 (Successor):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
(In thousands)
|
|
Weighted
Average
Exercise Price
Per Share
|
|
Aggregate
Intrinsic
Value
(1)
(In thousands)
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Outstanding at September 9, 2016 (Successor)
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
Granted
|
|
|
5,000
|
|
|
9.24
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2016 (Successor)
|
|
|
5,000
|
|
$
|
9.24
|
|
$
|
714
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of
the option. No stock options were exercised during the period from September 10, 2016 through September 30, 2016 (Successor).
The
assumptions used in calculating the Black-Scholes-Merton valuation model fair value of the Successor Company's stock options for the period from September 10, 2016 through
September 30, 2016 (Successor) are set forth in the following table:
|
|
|
|
|
|
|
Stock Option
Valuation
Assumptions
|
|
Weighted average value per option granted during the period
|
|
$
|
6.15
|
|
Assumptions:
|
|
|
|
|
Stock price volatility
(1)
|
|
|
56.3
|
%
|
Risk free rate of return
|
|
|
1.3
|
%
|
Expected term
|
|
|
6 years
|
|
-
(1)
-
Due to the Company's limited historical data, expected volatility was estimated using volatilities of similar entities whose share or option
prices and assumptions were publicly available.
Restricted Stock
Immediately prior to emergence from chapter 11 bankruptcy, all restricted stock awards granted under the Predecessor Incentive Plan were
vested. Refer to Note 2,
"Reorganization,"
for further details.
During
the period from September 10, 2016 through September 30, 2016 (Successor), in accordance with the terms of the Plan, the Company granted 2.6 million shares of
restricted stock under the 2016 Incentive Plan to non-employee directors and employees of the Company. These restricted shares were granted at prices ranging from $7.82 to $9.24 per share with a
weighted average price of $9.17 per share. Non-employee directors' shares vest six-months from the date of grant. For restricted stock awards granted on September 12, 2016 (Successor), half
vested immediately on the date
46
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. STOCKHOLDERS' EQUITY (Continued)
of
the grant and the remaining half will vest on the first anniversary of the date of grant. At September 30, 2016 (Successor), the Company had $12.0 million of unrecognized compensation
expense related to non-vested restricted stock awards to be recognized over a weighted-average period of 0.9 years.
The
following table sets forth the restricted stock transactions for the period from September 10, 2016 through September 30, 2016 (Successor):
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
(In thousands)
|
|
Weighted
Average Grant
Date Fair Value
Per Share
|
|
Aggregate
Intrinsic
Value
(1)
(In thousands)
|
|
Unvested shares outstanding at September 9, 2016 (Successor)
|
|
|
|
|
$
|
|
|
$
|
|
|
Granted
|
|
|
2,638
|
|
|
9.17
|
|
|
|
|
Vested
|
|
|
(1,250
|
)
|
|
9.24
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares outstanding at September 30, 2016 (Successor)
|
|
|
1,388
|
|
$
|
9.10
|
|
$
|
13,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The intrinsic value of restricted stock was calculated as the closing market price on September 30, 2016 of the underlying stock
multiplied by the number of restricted shares. The total fair value of shares vested was $11.5 million for the period from September 10, 2016 to September 30, 2016
(Successor).
47
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. EARNINGS PER COMMON SHARE
On September 9, 2016, upon emergence from chapter 11 bankruptcy, the Company's Predecessor equity was cancelled and new equity was issued. Refer to Note 2,
"Reorganization,"
for further details.
The
following represents the calculation of earnings (loss) per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Period from
September 10, 2016
through
September 30, 2016
|
|
|
|
Period from
July 1, 2016
through
September 9, 2016
|
|
Three Months
Ended
September 30, 2015
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(451,483
|
)
|
|
|
$
|
916,421
|
|
$
|
123,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic number of common shares outstanding
|
|
|
91,071
|
|
|
|
|
120,905
|
|
|
117,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share of common stock
|
|
$
|
(4.96
|
)
|
|
|
$
|
7.58
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(451,483
|
)
|
|
|
$
|
916,421
|
|
$
|
123,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Convertible Note, net
|
|
|
|
|
|
|
|
1,522
|
|
|
4,664
|
|
Series A preferred dividends
|
|
|
|
|
|
|
|
2,451
|
|
|
4,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders after assumed conversions
|
|
$
|
(451,483
|
)
|
|
|
$
|
920,394
|
|
$
|
132,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic number of common shares outstanding
|
|
|
91,071
|
|
|
|
|
120,905
|
|
|
117,211
|
|
Common stock equivalent shares representing shares issuable upon:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
Anti-dilutive
|
|
|
|
|
Anti-dilutive
|
|
|
Anti-dilutive
|
|
Exercise of February 2012 Warrants
|
|
|
|
|
|
|
|
Anti-dilutive
|
|
|
Anti-dilutive
|
|
Exercise of warrants
|
|
|
Anti-dilutive
|
|
|
|
|
|
|
|
|
|
Vesting of restricted shares
|
|
|
Anti-dilutive
|
|
|
|
|
Anti-dilutive
|
|
|
Anti-dilutive
|
|
Vesting of performance units
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Convertible Note
|
|
|
|
|
|
|
|
23,743
|
|
|
23,744
|
|
Conversion of Series A Preferred Stock
|
|
|
|
|
|
|
|
7,228
|
|
|
10,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted number of common shares outstanding
|
|
|
91,071
|
|
|
|
|
151,876
|
|
|
150,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share of common stock
|
|
$
|
(4.96
|
)
|
|
|
$
|
6.06
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. EARNINGS PER COMMON SHARE (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Period from
September 10, 2016
through
September 30, 2016
|
|
|
|
Period from
January 1, 2016
through
September 9, 2016
|
|
Nine Months
Ended
September 30, 2015
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(451,483
|
)
|
|
|
$
|
(32,794
|
)
|
$
|
(1,582,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic number of common shares outstanding
|
|
|
91,071
|
|
|
|
|
120,513
|
|
|
103,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share of common stock
|
|
$
|
(4.96
|
)
|
|
|
$
|
(0.27
|
)
|
$
|
(15.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(451,483
|
)
|
|
|
$
|
(32,794
|
)
|
$
|
(1,582,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Convertible Note, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders after assumed conversions
|
|
$
|
(451,483
|
)
|
|
|
$
|
(32,794
|
)
|
$
|
(1,582,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic number of common shares outstanding
|
|
|
91,071
|
|
|
|
|
120,513
|
|
|
103,525
|
|
Common stock equivalent shares representing shares issuable upon:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
Anti-dilutive
|
|
|
|
|
Anti-dilutive
|
|
|
Anti-dilutive
|
|
Exercise of February 2012 Warrants
|
|
|
|
|
|
|
|
Anti-dilutive
|
|
|
Anti-dilutive
|
|
Exercise of warrants
|
|
|
Anti-dilutive
|
|
|
|
|
|
|
|
|
|
Vesting of restricted shares
|
|
|
Anti-dilutive
|
|
|
|
|
Anti-dilutive
|
|
|
Anti-dilutive
|
|
Vesting of performance units
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Convertible Note
|
|
|
|
|
|
|
|
Anti-dilutive
|
|
|
Anti-dilutive
|
|
Conversion of Series A Preferred Stock
|
|
|
|
|
|
|
|
Anti-dilutive
|
|
|
Anti-dilutive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted number of common shares outstanding
|
|
|
91,071
|
|
|
|
|
120,513
|
|
|
103,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share of common stock
|
|
$
|
(4.96
|
)
|
|
|
$
|
(0.27
|
)
|
$
|
(15.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock equivalents, including stock options, warrants, restricted shares, convertible debt and preferred stock totaling 11.1 million, 11.9 million and
43.6 million shares for the period from September 10, 2016 through September 30, 2016 (Successor), the period from July 1, 2016 through September 9, 2016
(Predecessor), the period from January 1, 2016 through September 9, 2016 (Predecessor), respectively, were not included in the computation of diluted earnings per share of common stock
because the effect would have been anti-dilutive.
Common
stock equivalents, including stock options, warrants and restricted shares totaling 13.1 million shares for the three months ended September 30, 2015 (Predecessor)
were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive. Common stock equivalents, including stock options, warrants,
restricted shares, convertible
49
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. EARNINGS PER COMMON SHARE (Continued)
debt,
and preferred stock totaling 47.8 million shares for the nine months ended September 30, 2015 (Predecessor) were not included in the computation of diluted earnings per share of
common stock because the effect would have been anti-dilutive due to the net loss.
14. ADDITIONAL FINANCIAL STATEMENT INFORMATION
Certain balance sheet amounts are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
September 30, 2016
|
|
|
|
December 31, 2015
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids revenues
|
|
$
|
62,010
|
|
|
|
$
|
55,129
|
|
Joint interest accounts
|
|
|
38,832
|
|
|
|
|
67,626
|
|
Accrued settlements on derivative contracts
|
|
|
22,695
|
|
|
|
|
47,011
|
|
Affiliated partnership
|
|
|
221
|
|
|
|
|
176
|
|
Other
|
|
|
1,486
|
|
|
|
|
3,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
125,244
|
|
|
|
$
|
173,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaids and other:
|
|
|
|
|
|
|
|
|
|
Prepaids
|
|
$
|
7,641
|
|
|
|
$
|
4,585
|
|
Inventory
|
|
|
|
|
|
|
|
4,635
|
|
Other
|
|
|
72
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,713
|
|
|
|
$
|
9,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
37,605
|
|
|
|
$
|
47,261
|
|
Accrued oil and natural gas capital costs
|
|
|
33,991
|
|
|
|
|
54,651
|
|
Revenues and royalties payable
|
|
|
62,516
|
|
|
|
|
64,002
|
|
Accrued interest expense
|
|
|
12,666
|
|
|
|
|
88,499
|
|
Accrued employee compensation
|
|
|
7,102
|
|
|
|
|
2,829
|
|
Accrued lease operating expenses
|
|
|
11,837
|
|
|
|
|
20,036
|
|
Drilling advances from partners
|
|
|
93
|
|
|
|
|
7,964
|
|
Income taxes payable
|
|
|
3,863
|
|
|
|
|
9,172
|
|
Affiliated partnership
|
|
|
297
|
|
|
|
|
365
|
|
Other
|
|
|
1,022
|
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
170,992
|
|
|
|
$
|
295,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
Table of Contents