HALCÓN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
Period from
September 10, 2016
through
December 31, 2016
|
|
|
|
Period from
January 1, 2016
through
September 9, 2016
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
|
|
$
|
139,786
|
|
|
|
$
|
248,064
|
|
$
|
512,346
|
|
$
|
1,071,319
|
|
Natural gas
|
|
|
6,756
|
|
|
|
|
9,511
|
|
|
22,509
|
|
|
37,101
|
|
Natural gas liquids
|
|
|
6,018
|
|
|
|
|
7,929
|
|
|
13,624
|
|
|
37,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total oil, natural gas and natural gas liquids sales
|
|
|
152,560
|
|
|
|
|
265,504
|
|
|
548,479
|
|
|
1,145,880
|
|
Other
|
|
|
802
|
|
|
|
|
1,339
|
|
|
1,799
|
|
|
2,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
153,362
|
|
|
|
|
266,843
|
|
|
550,278
|
|
|
1,148,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating
|
|
|
22,382
|
|
|
|
|
50,032
|
|
|
103,590
|
|
|
130,239
|
|
Workover and other
|
|
|
10,510
|
|
|
|
|
22,507
|
|
|
20,862
|
|
|
16,193
|
|
Taxes other than income
|
|
|
12,364
|
|
|
|
|
24,453
|
|
|
48,890
|
|
|
106,331
|
|
Gathering and other
|
|
|
14,677
|
|
|
|
|
29,279
|
|
|
40,281
|
|
|
26,719
|
|
Restructuring
|
|
|
|
|
|
|
|
5,168
|
|
|
2,886
|
|
|
987
|
|
General and administrative
|
|
|
41,395
|
|
|
|
|
83,641
|
|
|
87,766
|
|
|
116,532
|
|
Depletion, depreciation and accretion
|
|
|
46,899
|
|
|
|
|
120,555
|
|
|
364,204
|
|
|
534,421
|
|
Full cost ceiling impairment
|
|
|
420,934
|
|
|
|
|
754,769
|
|
|
2,626,305
|
|
|
239,668
|
|
Other operating property and equipment impairment
|
|
|
|
|
|
|
|
28,056
|
|
|
|
|
|
35,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
569,161
|
|
|
|
|
1,118,460
|
|
|
3,294,784
|
|
|
1,206,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(415,799
|
)
|
|
|
|
(851,617
|
)
|
|
(2,744,506
|
)
|
|
(58,387
|
)
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on derivative contracts
|
|
|
(27,740
|
)
|
|
|
|
(17,998
|
)
|
|
310,264
|
|
|
518,956
|
|
Interest expense and other, net
|
|
|
(28,861
|
)
|
|
|
|
(122,249
|
)
|
|
(232,878
|
)
|
|
(145,689
|
)
|
Reorganization items
|
|
|
(2,049
|
)
|
|
|
|
913,722
|
|
|
|
|
|
|
|
Gain (loss) on extinguishment of debt
|
|
|
|
|
|
|
|
81,434
|
|
|
761,804
|
|
|
|
|
Gain (loss) on extinguishment of Convertible Note and modification of February 2012 Warrants
|
|
|
|
|
|
|
|
|
|
|
(8,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expenses)
|
|
|
(58,650
|
)
|
|
|
|
854,909
|
|
|
830,971
|
|
|
373,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(474,449
|
)
|
|
|
|
3,292
|
|
|
(1,913,535
|
)
|
|
314,880
|
|
Income tax benefit (provision)
|
|
|
(4,744
|
)
|
|
|
|
8,666
|
|
|
(9,086
|
)
|
|
1,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(479,193
|
)
|
|
|
|
11,958
|
|
|
(1,922,621
|
)
|
|
315,956
|
|
Series A preferred dividends
|
|
|
|
|
|
|
|
(8,847
|
)
|
|
(17,517
|
)
|
|
(19,838
|
)
|
Preferred dividends and accretion on redeemable noncontrolling interest
|
|
|
(791
|
)
|
|
|
|
(35,905
|
)
|
|
(66,820
|
)
|
|
(13,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(479,984
|
)
|
|
|
$
|
(32,794
|
)
|
$
|
(2,006,958
|
)
|
$
|
282,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(5.26
|
)
|
|
|
$
|
(0.27
|
)
|
$
|
(18.66
|
)
|
$
|
3.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(5.26
|
)
|
|
|
$
|
(0.27
|
)
|
$
|
(18.66
|
)
|
$
|
2.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
91,228
|
|
|
|
|
120,513
|
|
|
107,531
|
|
|
83,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
91,228
|
|
|
|
|
120,513
|
|
|
107,531
|
|
|
108,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
85
Table of Contents
HALCÓN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
December 31,
2016
|
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
24
|
|
|
|
$
|
8,026
|
|
Accounts receivable
|
|
|
147,762
|
|
|
|
|
173,624
|
|
Receivables from derivative contracts
|
|
|
5,923
|
|
|
|
|
348,861
|
|
Restricted cash
|
|
|
182
|
|
|
|
|
16,812
|
|
Prepaids and other
|
|
|
6,758
|
|
|
|
|
9,270
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
160,649
|
|
|
|
|
556,593
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties (full cost method):
|
|
|
|
|
|
|
|
|
|
Evaluated
|
|
|
1,269,034
|
|
|
|
|
7,060,721
|
|
Unevaluated
|
|
|
316,439
|
|
|
|
|
1,641,356
|
|
|
|
|
|
|
|
|
|
|
|
Gross oil and natural gas properties
|
|
|
1,585,473
|
|
|
|
|
8,702,077
|
|
Lessaccumulated depletion
|
|
|
(465,849
|
)
|
|
|
|
(5,933,688
|
)
|
|
|
|
|
|
|
|
|
|
|
Net oil and natural gas properties
|
|
|
1,119,624
|
|
|
|
|
2,768,389
|
|
|
|
|
|
|
|
|
|
|
|
Other operating property and equipment:
|
|
|
|
|
|
|
|
|
|
Gas gathering and other operating assets
|
|
|
38,617
|
|
|
|
|
130,090
|
|
Lessaccumulated depreciation
|
|
|
(1,107
|
)
|
|
|
|
(22,435
|
)
|
|
|
|
|
|
|
|
|
|
|
Net other operating property and equipment
|
|
|
37,510
|
|
|
|
|
107,655
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets:
|
|
|
|
|
|
|
|
|
|
Receivables from derivative contracts
|
|
|
|
|
|
|
|
16,614
|
|
Debt issuance costs, net
|
|
|
|
|
|
|
|
7,633
|
|
Funds in escrow and other
|
|
|
1,887
|
|
|
|
|
1,808
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,319,670
|
|
|
|
$
|
3,458,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
186,184
|
|
|
|
$
|
295,085
|
|
Liabilities from derivative contracts
|
|
|
16,434
|
|
|
|
|
|
|
Other
|
|
|
4,935
|
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
207,553
|
|
|
|
|
295,248
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net
|
|
|
964,653
|
|
|
|
|
2,873,637
|
|
Other noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
Liabilities from derivative contracts
|
|
|
486
|
|
|
|
|
290
|
|
Asset retirement obligations
|
|
|
31,985
|
|
|
|
|
46,853
|
|
Other
|
|
|
2,305
|
|
|
|
|
6,264
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
|
Mezzanine equity:
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
|
|
|
|
|
|
|
183,986
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
|
Predecessor Preferred stock: 1,000,000 shares of $0.0001 par value authorized; 244,724 shares of 5.75% Cumulative Perpetual Convertible Series A,
issued and outstanding
|
|
|
|
|
|
|
|
|
|
Predecessor Common stock: 1,340,000,000 shares of $0.0001 par value authorized;122,523,559 shares issued and outstanding
|
|
|
|
|
|
|
|
12
|
|
Predecessor Additional paid-in capital
|
|
|
|
|
|
|
|
3,283,097
|
|
Successor Common stock: 1,000,000,000 shares of $0.0001 par value authorized; 92,991,183 shares issued and outstanding
|
|
|
9
|
|
|
|
|
|
|
Successor Additional paid-in capital
|
|
|
592,663
|
|
|
|
|
|
|
Retained earnings (accumulated deficit)
|
|
|
(479,984
|
)
|
|
|
|
(3,230,695
|
)
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
112,688
|
|
|
|
|
52,414
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
1,319,670
|
|
|
|
$
|
3,458,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
86
Table of Contents
HALCÓN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Stockholders'
Equity
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Balances at December 31, 2013 (Predecessor)
|
|
|
345
|
|
$
|
|
|
|
83,146
|
|
$
|
8
|
|
$
|
2,953,819
|
|
$
|
(1,506,217
|
)
|
$
|
1,447,610
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315,956
|
|
|
315,956
|
|
Dividends on Series A preferred stock
|
|
|
|
|
|
|
|
|
653
|
|
|
|
|
|
14,878
|
|
|
(19,838
|
)
|
|
(4,960
|
)
|
Preferred dividends on redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,543
|
)
|
|
(6,543
|
)
|
Accretion of redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,633
|
)
|
|
(6,633
|
)
|
Offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
39
|
|
Long-term incentive plan grants
|
|
|
|
|
|
|
|
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term incentive plan forfeitures
|
|
|
|
|
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in shares to cover individuals' tax withholding
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
(453
|
)
|
|
|
|
|
(453
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,153
|
|
|
|
|
|
27,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2014 (Predecessor)
|
|
|
345
|
|
|
|
|
|
85,562
|
|
|
8
|
|
|
2,995,436
|
|
|
(1,223,275
|
)
|
|
1,772,169
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,922,621
|
)
|
|
(1,922,621
|
)
|
Dividends on Series A preferred stock
|
|
|
|
|
|
|
|
|
1,354
|
|
|
1
|
|
|
9,801
|
|
|
(17,979
|
)
|
|
(8,177
|
)
|
Conversion of Series A preferred stock
|
|
|
(100
|
)
|
|
|
|
|
3,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends on redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,614
|
)
|
|
(12,614
|
)
|
Accretion of redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,561
|
)
|
|
(53,561
|
)
|
Change in fair value of redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(645
|
)
|
|
(645
|
)
|
Common stock issuance
|
|
|
|
|
|
|
|
|
1,888
|
|
|
|
|
|
15,356
|
|
|
|
|
|
15,356
|
|
Common stock issuance on conversion of senior notes
|
|
|
|
|
|
|
|
|
28,955
|
|
|
3
|
|
|
231,380
|
|
|
|
|
|
231,383
|
|
Modification of February 2012 Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,129
|
|
|
|
|
|
14,129
|
|
Offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,871
|
)
|
|
|
|
|
(1,871
|
)
|
Long-term incentive plan grants
|
|
|
|
|
|
|
|
|
2,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term incentive plan forfeitures
|
|
|
|
|
|
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in shares to cover individuals' tax withholding
|
|
|
|
|
|
|
|
|
(153
|
)
|
|
|
|
|
(947
|
)
|
|
|
|
|
(947
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,813
|
|
|
|
|
|
19,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2015 (Predecessor)
|
|
|
245
|
|
|
|
|
|
122,524
|
|
|
12
|
|
|
3,283,097
|
|
|
(3,230,695
|
)
|
|
52,414
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,958
|
|
|
11,958
|
|
Conversion of Series A preferred stock
|
|
|
(23
|
)
|
|
|
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends on redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,329
|
)
|
|
(9,329
|
)
|
Accretion of redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,576
|
)
|
|
(26,576
|
)
|
Fair value of equity issued to Predecessor common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,176
|
)
|
|
|
|
|
(22,176
|
)
|
Cash payment to Preferred Holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,100
|
)
|
|
|
|
|
(11,100
|
)
|
Reverse stock split rounding
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
(10
|
)
|
Long-term incentive plan forfeitures
|
|
|
|
|
|
|
|
|
(517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in shares to cover individuals' tax withholding
|
|
|
|
|
|
|
|
|
(498
|
)
|
|
|
|
|
(176
|
)
|
|
|
|
|
(176
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,995
|
|
|
|
|
|
4,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 9, 2016 (Predecessor)
|
|
|
222
|
|
$
|
|
|
|
122,238
|
|
$
|
12
|
|
$
|
3,254,630
|
|
|
(3,254,642
|
)
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of Predecessor equity
|
|
|
(222
|
)
|
$
|
|
|
|
(122,238
|
)
|
$
|
(12
|
)
|
$
|
(3,254,630
|
)
|
$
|
3,254,642
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 9, 2016 (Predecessor)
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Successor common stock and warrants
|
|
|
|
|
$
|
|
|
|
90,000
|
|
$
|
9
|
|
$
|
571,114
|
|
$
|
|
|
$
|
571,123
|
|
Balances at September 9, 2016 (Successor)
|
|
|
|
|
$
|
|
|
|
90,000
|
|
$
|
9
|
|
$
|
571,114
|
|
$
|
|
|
$
|
571,123
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(479,193
|
)
|
|
(479,193
|
)
|
Preferred dividends on redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(791
|
)
|
|
(791
|
)
|
Long-term incentive plan grants
|
|
|
|
|
|
|
|
|
2,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,549
|
|
|
|
|
|
21,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2016 (Successor)
|
|
|
|
|
$
|
|
|
|
92,991
|
|
$
|
9
|
|
$
|
592,663
|
|
$
|
(479,984
|
)
|
$
|
112,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
87
Table of Contents
HALCÓN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Period from
September 10, 2016
through
December 31, 2016
|
|
|
|
Period from
January 1, 2016
through
September 9, 2016
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(479,193
|
)
|
|
|
$
|
11,958
|
|
$
|
(1,922,621
|
)
|
$
|
315,956
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion, depreciation and accretion
|
|
|
46,899
|
|
|
|
|
120,555
|
|
|
364,204
|
|
|
534,421
|
|
Full cost ceiling impairment
|
|
|
420,934
|
|
|
|
|
754,769
|
|
|
2,626,305
|
|
|
239,668
|
|
Other operating property and equipment impairment
|
|
|
|
|
|
|
|
28,056
|
|
|
|
|
|
35,558
|
|
Share-based compensation, net
|
|
|
21,519
|
|
|
|
|
4,876
|
|
|
14,529
|
|
|
18,733
|
|
Unrealized loss (gain) on derivative contracts
|
|
|
112,449
|
|
|
|
|
263,732
|
|
|
129,282
|
|
|
(508,285
|
)
|
Amortization and write-off of deferred loan costs
|
|
|
|
|
|
|
|
6,371
|
|
|
7,357
|
|
|
4,315
|
|
Non-cash interest and amortization of discount and premium
|
|
|
2,506
|
|
|
|
|
1,515
|
|
|
2,509
|
|
|
2,780
|
|
Reorganization items
|
|
|
(15,963
|
)
|
|
|
|
(929,084
|
)
|
|
|
|
|
|
|
Loss (gain) on extinguishment of debt
|
|
|
|
|
|
|
|
(81,434
|
)
|
|
(761,804
|
)
|
|
|
|
Loss (gain) on extinguishment of Convertible Note and modification of February 2012 Warrants
|
|
|
|
|
|
|
|
|
|
|
8,219
|
|
|
|
|
Accrued settlements on derivative contracts
|
|
|
(18,498
|
)
|
|
|
|
|
|
|
(47,011
|
)
|
|
(25,868
|
)
|
Other expense (income)
|
|
|
79
|
|
|
|
|
(4,233
|
)
|
|
8,934
|
|
|
(2,435
|
)
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(20,459
|
)
|
|
|
|
47,920
|
|
|
86,411
|
|
|
85,767
|
|
Prepaids and other
|
|
|
857
|
|
|
|
|
(4,329
|
)
|
|
3,714
|
|
|
7,474
|
|
Accounts payable and accrued liabilities
|
|
|
32,006
|
|
|
|
|
(45,324
|
)
|
|
(53,029
|
)
|
|
(40,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
103,136
|
|
|
|
|
175,348
|
|
|
466,999
|
|
|
667,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas capital expenditures
|
|
|
(61,459
|
)
|
|
|
|
(226,617
|
)
|
|
(659,419
|
)
|
|
(1,524,341
|
)
|
Proceeds received from sales of oil and natural gas assets
|
|
|
888
|
|
|
|
|
(407
|
)
|
|
1,222
|
|
|
484,184
|
|
Advance on carried interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189,442
|
)
|
Other operating property and equipment capital expenditures
|
|
|
(750
|
)
|
|
|
|
(950
|
)
|
|
(10,838
|
)
|
|
(43,083
|
)
|
Funds held in escrow and other
|
|
|
(1,721
|
)
|
|
|
|
200
|
|
|
1,903
|
|
|
1,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(63,042
|
)
|
|
|
|
(227,774
|
)
|
|
(667,132
|
)
|
|
(1,271,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
115,000
|
|
|
|
|
886,000
|
|
|
1,834,000
|
|
|
2,276,000
|
|
Repayments of borrowings
|
|
|
(159,000
|
)
|
|
|
|
(727,648
|
)
|
|
(1,643,804
|
)
|
|
(1,719,000
|
)
|
Cash payments to Noteholders and Preferred Holders
|
|
|
(10,013
|
)
|
|
|
|
(97,521
|
)
|
|
|
|
|
|
|
Debt issuance costs
|
|
|
|
|
|
|
|
(1,977
|
)
|
|
(29,568
|
)
|
|
(819
|
)
|
Series A preferred dividends
|
|
|
|
|
|
|
|
|
|
|
(8,177
|
)
|
|
(4,960
|
)
|
Common stock issued
|
|
|
|
|
|
|
|
|
|
|
15,356
|
|
|
|
|
HK TMS, LLC preferred stock issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,051
|
|
HK TMS, LLC tranche rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,516
|
|
Preferred dividends on redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,518
|
)
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
(543
|
)
|
|
(16,131
|
)
|
Offering costs and other
|
|
|
|
|
|
|
|
(511
|
)
|
|
(2,818
|
)
|
|
(2,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(54,013
|
)
|
|
|
|
58,343
|
|
|
164,446
|
|
|
644,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(13,919
|
)
|
|
|
|
5,917
|
|
|
(35,687
|
)
|
|
40,879
|
|
Cash at beginning of period
|
|
|
13,943
|
|
|
|
|
8,026
|
|
|
43,713
|
|
|
2,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
24
|
|
|
|
$
|
13,943
|
|
$
|
8,026
|
|
$
|
43,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of capitalized interest
|
|
$
|
3,605
|
|
|
|
$
|
139,930
|
|
$
|
204,178
|
|
$
|
132,557
|
|
Cash paid (refunded) for income taxes
|
|
|
5,000
|
|
|
|
|
|
|
|
(3,078
|
)
|
|
(8,600
|
)
|
Cash paid for reorganization items
|
|
|
18,012
|
|
|
|
|
15,362
|
|
|
|
|
|
|
|
Disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued capitalized interest
|
|
$
|
|
|
|
|
$
|
(23,966
|
)
|
$
|
(1,417
|
)
|
$
|
(1,180
|
)
|
Asset retirement obligations
|
|
|
513
|
|
|
|
|
939
|
|
|
6,742
|
|
|
(1,262
|
)
|
Series A preferred dividends paid in common stock
|
|
|
|
|
|
|
|
|
|
|
9,802
|
|
|
14,878
|
|
Preferred dividends on redeemable noncontrolling interest paid-in-kind
|
|
|
791
|
|
|
|
|
9,329
|
|
|
12,614
|
|
|
3,025
|
|
Accretion of redeemable noncontrolling interest
|
|
|
|
|
|
|
|
26,576
|
|
|
53,561
|
|
|
6,633
|
|
Change in fair value of redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
645
|
|
|
|
|
Common stock issued on conversion of senior notes
|
|
|
|
|
|
|
|
|
|
|
231,383
|
|
|
|
|
Third Lien Notes issued on conversion of senior notes
|
|
|
|
|
|
|
|
|
|
|
1,017,970
|
|
|
|
|
2022 Second Lien Notes issued on conversion of senior notes
|
|
|
|
|
|
|
|
|
|
|
112,826
|
|
|
|
|
Accrued debt issuance costs
|
|
|
|
|
|
|
|
1,176
|
|
|
(1,176
|
)
|
|
|
|
Receivable for sale of oil and natural gas properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
The accompanying notes are an integral part of these consolidated financial statements.
88
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT EVENTS AND ACCOUNTING POLICIES
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 consolidated financial statements include the accounts of all majority-owned,
controlled subsidiaries. The Company operates in one segment which focuses on oil and natural gas acquisition, production, exploration and development. 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 portfolio without regard to operating
area. All intercompany accounts and transactions have been eliminated. The Company has evaluated events or transactions through the date of issuance of this report in conjunction with the preparation
of these consolidated financial statements.
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 5,
"Divestitures,"
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) 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. As a result of the adoption
of fresh-start accounting, the Company's consolidated financial statements subsequent to September 9, 2016 are not comparable to its consolidated financial statements prior to, and including,
September 9, 2016. See Note 3,
"Fresh-start Accounting,"
for further details on the impact of fresh-start accounting on the Company's
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.
Use of Estimates
The preparation of the Company's 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 consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Estimates and
89
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT EVENTS AND ACCOUNTING POLICIES (Continued)
assumptions
that, in the opinion of management of the Company, are significant include oil and natural gas revenue accruals, capital and operating expense accruals, oil and natural gas reserves,
depletion relating to oil and natural gas properties, asset retirement obligations, 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 that are believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty and, accordingly, these
estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company's operating environment changes. Actual results may differ from the
estimates and assumptions used in the preparation of the Company's 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 significant allowances for doubtful accounts as of December 31, 2016 (Successor) or 2015 (Predecessor).
Oil and Natural Gas Properties
The Company uses the full cost method of accounting for its investment in oil and natural gas properties as prescribed by the United States
Securities and Exchange Commission (SEC). Accordingly, all costs incurred in the acquisition, exploration and development of proved and unproved oil and natural gas properties, including the costs of
abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized. All general and administrative corporate costs unrelated to drilling activities are expensed as incurred.
Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would
significantly change. Depletion of evaluated oil and natural gas properties is computed on the units of production method based on proved reserves. The net capitalized costs of evaluated oil and
natural gas properties are subject to a full cost ceiling limitation in which the costs are not allowed to exceed their related estimated future net revenues discounted at 10%, net of tax
considerations.
Costs
associated with unevaluated properties are excluded from the full cost pool until the Company has made a determination as to the existence of proved reserves. The Company reviews
its unevaluated properties at the end of each quarter to determine whether the costs incurred should be transferred to the full cost pool and thereby subject to amortization. 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 Company determines capitalized interest, when applicable, by multiplying the Company's weighted-average borrowing cost on debt by the average amount
of qualifying costs incurred that were excluded from the full cost pool; however, the amount of capitalized interest cannot exceed the amount of gross interest expense incurred in any given period.
The Successor Company's
90
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HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT EVENTS AND ACCOUNTING POLICIES (Continued)
accounting
policy on the capitalization of interest establishes thresholds for the determination of a development project for the purpose of interest capitalization.
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 compressed natural gas facilities, 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. At December 31, 2016 (Successor) and 2015 (Predecessor), the Company had approximately $16.4 million and $87.2 million capitalized,
respectively, related to the construction of its gas gathering systems, after any amounts impaired.
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 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 its undiscounted cash flows, then the Company would recognize an
impairment loss for the difference between the carrying amount and the current fair value. Further, the Company evaluates the remaining useful lives of its gas gathering systems and equipment 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 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. For the year ended December 31, 2014 (Predecessor), the Company recorded a
non-cash impairment charge for gas gathering systems and other related operating assets of $35.6 million, net of $1.9 million of accumulated depreciation. The majority of the impairment
represents
approximately half of the Predecessor Company's gas gathering infrastructure, right-of-way and permitting investments in the Utica / Point Pleasant area (Utica). These infrastructure related
91
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HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT EVENTS AND ACCOUNTING POLICIES (Continued)
investments
were related to acreage in certain non-core areas of the Utica play which, at the time of evaluation for impairment in December 2014, the Predecessor Company did not plan to develop in
light of the downtrend in oil prices which rendered certain areas to be deemed uneconomical and/or non-strategic. These impairments were recorded in
"Other operating property
and equipment impairment"
in the Company's consolidated statements of operations and in
"Gas gathering and other operating
assets"
in the Company's consolidated balance sheets.
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 over the remaining asset lives. This estimation includes the use of unobservable inputs, such as estimated future production, 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.
Revenue Recognition
Revenues from the sale of crude oil, natural gas, and natural gas liquids are recognized when the product is delivered at a fixed or
determinable price, title has transferred, and collectability is reasonably assured and evidenced by a contract. The Company follows the entitlement method of accounting for crude oil and natural gas
sales, recognizing as revenues only its net interest share of all production sold. Any amount attributable to the sale of production in excess of or less than the Company's net interest is recorded as
a balancing asset or liability. At December 31, 2016 (Successor) and 2015 (Predecessor), the Company's imbalances were immaterial.
Concentrations of Credit Risk
The Company operates a substantial portion of its oil and natural gas properties. As the operator of a property, the Company makes full payments
for costs associated with the property and seeks reimbursement from the other working interest owners in the property for their share of those costs. The Company's joint interest partners consist
primarily of independent oil and natural gas producers. If the oil and natural gas exploration and production industry in general was adversely affected, the ability of the Company's joint interest
partners to reimburse the Company could be adversely affected.
The
purchasers of the Company's oil and natural gas production consist primarily of independent marketers, major oil and natural gas companies and gas pipeline companies. Historically,
the Company has not experienced any significant losses from uncollectible accounts. For the combined periods, September 10, 2016 through December 31, 2016 (Successor) and
January 1, 2016 through September 9, 2016 (Predecessor), two individual purchasers of the Company's production, Crestwood Midstream Partners, formerly Arrow Field Services LLC
(Crestwood), and Energy Marketing Inc. (Suncor), each accounted for more than 10% of total sales, collectively representing 58%, of the Company's total sales for the period. In 2015 and 2014
(Predecessor), three individual purchasers of the Company's production, Crestwood, Sunoco Inc. and Suncor, each accounted for more than 10% of total sales, collectively representing 57% and
66%, respectively, of the Company's total sales for the years.
92
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HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT EVENTS AND ACCOUNTING POLICIES (Continued)
Risk Management Activities
The Company follows ASC 815,
Derivatives and Hedging
(ASC 815). From time to time, when
derivative contracts are available at terms (or prices) acceptable to the Company, it may hedge a portion of its forecasted oil, natural gas, and natural gas liquids production. Derivative contracts
entered into by the Company have consisted of transactions in which the Company hedges the variability of cash flow related to a forecasted transaction. The Company recognized all derivative
instruments as either assets or liabilities in the consolidated balance sheets at fair value. The Company has elected to not designate any of its positions for hedge accounting. Accordingly, the
Company
records the net change in the mark-to-market valuation of these positions, as well as payments and receipts on settled contracts, in "
Net gain (loss) on derivative
contracts
" on the consolidated statements of operations.
Income Taxes
The Company accounts for income taxes using the asset and liability method wherein deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The
Company follows ASC 740,
Income Taxes
(ASC 740). ASC 740 creates a single model to address accounting for the uncertainty in income
tax positions and prescribes a minimum recognition threshold a tax position must meet before recognition in the consolidated financial statements.
The
evaluation of a tax position in accordance with ASC 740 is a two-step process. The first step is a recognition process to determine whether it is more likely than not that a tax
position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position
has met the more likely than not recognition threshold, it is presumed that the position will be examined by the appropriate taxing authority with full knowledge of all relevant information. The
second step is a measurement process whereby a tax position that meets the more likely than not recognition threshold is calculated to determine the amount of benefit/expense to recognize in the
consolidated financial statements. The tax position is measured at the largest amount of benefit/expense that is more likely than not of being realized upon ultimate settlement.
The
Company has no liability for unrecognized tax benefits as of December 31, 2016 (Successor) and 2015 (Predecessor). Accordingly, there is no amount of unrecognized tax benefits
that, if recognized, would affect the effective tax rate and there is no amount of interest or penalties currently recognized in the consolidated statements of operations or consolidated balance
sheets as of December 31, 2016 (Successor), 2015 and 2014 (Predecessor). In addition, the Company does not believe that there are any positions for which it is reasonably possible that the
total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.
93
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HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT EVENTS AND ACCOUNTING POLICIES (Continued)
The
Company includes interest and penalties relating to uncertain tax positions within "
Interest expense and other, net
" on the Company's
consolidated statements of operations. Refer to Note 14, "
Income Taxes,
" for more details.
Generally,
the Company's tax years 2013 through 2016 are either currently under audit or remain open and subject to examination by federal tax authorities or the tax authorities in
Louisiana, Mississippi, North Dakota, Oklahoma, Texas, Pennsylvania, Ohio and certain other state taxing jurisdictions where the Company has, or previously had, principal operations. In certain of
these jurisdictions, the Company operates through more than one legal entity, each of which may have different open years subject to examination. Additionally, it is important to note that years are
open for examination until the statute of limitations in each respective jurisdiction expires.
Tax
audits may be ongoing at any point in time. Tax liabilities are recorded based on estimates of additional taxes which may be due upon the conclusion of these audits. Estimates of
these tax liabilities are made based upon prior experience and are updated for changes in facts and circumstances. However, due to the uncertain and complex application of tax regulations, it is
possible that the ultimate resolution of audits may result in liabilities which could be materially different from these estimates.
Asset Retirement Obligations
ASC 410,
Asset Retirement and Environmental Obligations
(ASC 410) requires that the fair value
of an asset retirement cost, and corresponding liability, should be recorded as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational
method. The Company records asset retirement obligations to reflect the Company's legal obligations related to future plugging and abandonment of its oil and natural gas wells and gas gathering
systems and equipment. The Company estimates the expected cash flows associated with the obligation and discounts the amounts using a credit-adjusted, risk-free interest rate. At least annually, the
Company reassesses the obligation to determine whether a change in the estimated obligation is necessary. The Company evaluates whether there are indicators that suggest the estimated cash flows
underlying the obligation have materially changed. Should these indicators suggest the estimated obligation may have materially changed on an interim basis (quarterly), the Company will accordingly
update its assessment. Additional retirement obligations increase the liability associated with new oil and natural gas wells and gas gathering systems and equipment as these obligations are incurred.
401(k) Plan
The Company sponsors a 401(k) tax deferred savings plan, whereby the Company matches a portion of employees' contributions in cash.
Participation in the plan is voluntary and all employees of the Company who are 18 years of age are eligible to participate. The Company provided matching contributions of $0.8 million
and $2.0 million for the period September 10, 2016 through December 31, 2016 (Successor) and the period January 1, 2016 through September 9, 2016 (Predecessor),
respectively. The Company provided matching contributions of $3.8 million and $4.5 million in 2015 and 2014 (Predecessor), respectively. The Company matches employee contributions
dollar-for-dollar on the first 10% of an employee's pre-tax earnings, subject to individual IRS limitations.
94
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT EVENTS AND ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board (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 early stages of assessing the effects of the application of
the new guidance.
In
March 2016, the FASB issued ASU 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 13,
"Stockholders' Equity"
for further details.
In
March 2016, the FASB issued ASU 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 adopted ASU 2016-06 in 2016 resulting in no changes
to the accounting for its current debt instruments.
In
February 2016, the FASB issued ASU 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 early stages of assessing the effects of the application of the new guidance and the financial statement and disclosure impacts. The Company will adopt
ASU 2016-02 no later than January 1, 2019.
In
September 2015, the FASB issued ASU 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
95
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT EVENTS AND ACCOUNTING POLICIES (Continued)
business
combination, the amendments in this ASU eliminate the requirement to retrospectively 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 a material impact to the Company's financial statements or disclosures.
In
February 2015, the FASB issued ASU 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 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 financial statements or
disclosures.
In
August 2014, the FASB issued ASU 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. 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 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 an amount that reflects 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 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, after December 15, 2017. Early adoption is not permitted. The Company is in the early stages of assessing the effects of the application of the new guidance and the financial
statement and disclosure impacts. The Company will adopt ASU 2014-09 effective January 1, 2018.
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
96
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HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. REORGANIZATION (Continued)
(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 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 7,
"Long-term 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 $15.0 million and warrants to purchase 1% of the common stock of reorganized Halcón (with a four year term and an exercise
price of $14.04 per share), in full and final satisfaction of their claims;
-
-
the general unsecured claims were unimpaired and paid in full in the ordinary course;
-
-
all outstanding shares of the Predecessor Company's Series A Preferred Stock were cancelled and the Preferred Holders received their pro
rata share of $11.1 million in cash, in full and final satisfaction of their interests; and
-
-
all of the Predecessor Company's outstanding shares of common stock were cancelled and the common stockholders received their pro rata share of
4% of the common stock of reorganized Halcón, in full and final satisfaction of their interests.
97
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE 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 subject to dilution from the exercise of the new warrants described above,
a management incentive plan and other future issuances of equity securities.
See
Note 7,
"Long-term Debt,"
and Note 13, "
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, 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
98
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. FRESH-START ACCOUNTING (Continued)
$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.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet
The following illustrates the effects on the Company's 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
99
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. FRESH-START ACCOUNTING (Continued)
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE 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 stockholders
|
|
|
(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
101
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE 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
102
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE 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 10,
"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 7,
"Long-term 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 5,
"Divestitures,"
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
103
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. FRESH-START ACCOUNTING (Continued)
adjustments
and are recorded in "
Reorganization items
" in the Company's consolidated statements of operations. The following table summarizes the net
reorganization items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Period from
September 10, 2016
through
December 31, 2016
|
|
|
|
Period from
January 1, 2016
through
September 9, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on settlement of Liabilities subject to compromise
|
|
$
|
|
|
|
|
$
|
1,368,908
|
|
Fresh start adjustments
|
|
|
|
|
|
|
|
(392,232
|
)
|
Reorganization professional fees and other
|
|
|
(2,049
|
)
|
|
|
|
(30,287
|
)
|
Write-off debt discounts/premiums and debt issuance costs
|
|
|
|
|
|
|
|
(32,667
|
)
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on reorganization items
|
|
$
|
(2,049
|
)
|
|
|
$
|
913,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. RESTRUCTURING
In 2016 and 2015, the Predecessor Company had reductions in its workforce due to the decrease in drilling and developmental activities planned for the years. Consequently, in 2016 and
2015 the Predecessor Company incurred approximately $5.2 million and $2.9 million, respectively, in severance costs and accelerated stock-based compensation expense related to the
termination of certain employees during the year. These costs were recorded in "
Restructuring
" on the consolidated statements of operations.
5. DIVESTITURES
HK TMS, LLC
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 previously classified as
"Mezzanine Equity"
on
the consolidated balance sheets of HK TMS, from and after such date. Refer to Note 12,
"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.
104
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. DIVESTITURES (Continued)
East Texas Assets
On May 9, 2014, the Predecessor Company completed the divestiture of certain non-core assets in East Texas (the East Texas Assets) to a
privately-owned company for a total sales price of $424.5 million after closing adjustments for (i) operating expenses, capital expenditures and revenues between the effective date and
the closing date, (ii) title and environmental defects, and (iii) other purchase price adjustments customary in oil and gas purchase and sale agreements. The effective date of the
transaction was April 1, 2014. Proceeds from the sale were recorded as a reduction to the carrying value of the Predecessor Company's full cost pool with no gain or loss recorded.
6. OIL AND NATURAL GAS PROPERTIES
Oil and natural gas properties as of December 31, 2016 (Successor) and 2015 (Predecessor) consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Subject to depletion
|
|
$
|
1,269,034
|
|
|
|
$
|
7,060,721
|
|
|
|
|
|
|
|
|
|
|
|
Not subject to depletion:
|
|
|
|
|
|
|
|
|
|
Exploration and extension wells in progress
|
|
|
5,159
|
|
|
|
|
55,126
|
|
Other capital costs:
|
|
|
|
|
|
|
|
|
|
Incurred in 2016
(1)
|
|
|
311,280
|
|
|
|
|
|
|
Incurred in 2015
|
|
|
|
|
|
|
|
130,911
|
|
Incurred in 2014
|
|
|
|
|
|
|
|
242,788
|
|
Incurred in 2013 and prior
|
|
|
|
|
|
|
|
1,212,531
|
|
|
|
|
|
|
|
|
|
|
|
Total not subject to depletion
|
|
|
316,439
|
|
|
|
|
1,641,356
|
|
|
|
|
|
|
|
|
|
|
|
Gross oil and natural gas properties
|
|
|
1,585,473
|
|
|
|
|
8,702,077
|
|
Less accumulated depletion
|
|
|
(465,849
|
)
|
|
|
|
(5,933,688
|
)
|
|
|
|
|
|
|
|
|
|
|
Net oil and natural gas properties
|
|
$
|
1,119,624
|
|
|
|
$
|
2,768,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
In 2016, with the application of fresh-start accounting, the Company's unevaluated properties were recorded at fair value.
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 gas properties at fair value as of September 9, 2016. The Company's evaluated and unevaluated
properties
105
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. OIL AND NATURAL GAS PROPERTIES (Continued)
were
assigned 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 property 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. In March 2016, the Predecessor Company transferred the remaining unevaluated Utica and TMS properties of approximately
$330.4 million and $74.8 million, respectively, to the full cost pool. 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 Predecessor Company's Utica or TMS acreage positions in advance of the related lease expirations due to the Predecessor
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 Predecessor Company's exploration
department and the Predecessor Company's intent to expend capital only on its most economical and proven areas. During the three months ended December 31, 2014, the Predecessor Company also
transferred $211.5 million of unevaluated property costs to the full cost pool related to certain non-core areas of the Utica and TMS plays. These costs pertain to acreage that the Predecessor
Company did not plan to develop, at the time of evaluation for impairment, in light of the downtrend in oil prices which rendered certain areas to be deemed uneconomical and/or non-strategic.
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; however, the amount of capitalized interest cannot exceed the amount of gross interest
expense incurred in any given period. The capitalized interest amounts were recorded as additions to unevaluated oil and natural gas properties on the consolidated balance sheets. As the costs
excluded were transferred to the full cost pool, the associated capitalized interest was also transferred to the full cost pool. For the period from January 1, 2016 through September 9,
2016 (Predecessor) and the year ended December 31, 2015 (Predecessor), the Company capitalized interest costs of $68.2 million and $112.7 million, respectively. The Successor
Company's policy on the capitalization of interest establishes thresholds for the determination of a development project for the purpose of interest capitalization.
106
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. OIL AND NATURAL GAS PROPERTIES (Continued)
The
ceiling test value of the Company's reserves was calculated based on the following prices:
|
|
|
|
|
|
|
|
|
|
West Texas
Intermediate
(per barrel)
(1)
|
|
Henry Hub
(per MMBtu)
(1)
|
|
December 31, 2016
|
|
$
|
42.75
|
|
$
|
2.481
|
|
December 31, 2015
|
|
|
50.28
|
|
|
2.587
|
|
December 31, 2014
|
|
|
94.99
|
|
|
4.350
|
|
-
(1)
-
Unweighted average of the first day of the 12-months ended spot price, adjusted by lease or field for quality, transportation fees and market differentials.
The
Company's net book value of oil and natural gas properties at March 31, June 30 and September 30, 2016 exceeded the ceiling amount. The Company recorded full
cost ceiling test impairments before income taxes of $420.9 million ($268.1 million after taxes, before valuation allowance) for the period of September 10, 2016 through
September 30, 2016 (Successor) and $754.8 million ($478.2 million after taxes, before valuation allowance) for the six months ended June 30, 2016 (Predecessor). 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. 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. The impairment at March 31, 2016 also reflects the transfer of the remaining unevaluated Utica
and TMS properties as discussed further above.
The
Predecessor Company's net book value of oil and natural gas properties at March 31, June 30, September 30 and December 31, 2015 exceeded the ceiling
amount. The Predecessor Company recorded a full cost ceiling test impairment before income taxes of $2.6 billion ($1.7 billion after taxes, before valuation allowance) for the year ended
December 31, 2015. The impairment for the year ended December 31, 2015 (Predecessor) was driven by decreases in the first-day-of-the-month average prices for crude oil used in the
ceiling test calculations from $94.99 per barrel at December 31, 2014 to $50.28 per barrel at December 31, 2015.
The
Predecessor Company's net book value of oil and natural gas properties at March 31 and December 31, 2014 exceeded the ceiling amount. The Predecessor Company recorded a
full cost ceiling test impairment before income taxes of $239.7 million ($151.4 million after taxes) for the year ended December 31, 2014. The impairment for the year ended
December 31, 2014 (Predecessor) primarily relates to non-routine transfers of unevaluated properties to the full cost pool, due to the Predecessor Company's shift in drilling, away from the
non-strategic areas of the Utica and TMS until economics and return on investment improve, which would include a combination of lower drilling and completion costs and higher commodity prices.
The
Company recorded the full cost ceiling test impairments in
"Full cost ceiling impairment"
in the Company's consolidated statements of
operations and in
"Accumulated depletion"
in the Company's consolidated balance sheets.
107
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. OIL AND NATURAL GAS PROPERTIES (Continued)
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 actual ceiling test calculation and impairment analyses in future periods.
7. LONG-TERM DEBT
Long-term debt as of December 31, 2016 (Successor) and 2015 (Predecessor) consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Successor senior revolving credit facility
|
|
$
|
186,000
|
|
|
|
$
|
|
|
Predecessor senior revolving credit facility
|
|
|
|
|
|
|
|
62,000
|
|
8.625% senior secured second lien notes due 2020
(1)
|
|
|
672,613
|
|
|
|
|
687,797
|
|
12.0% senior secured second lien notes due 2022
(1)
|
|
|
106,040
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
964,653
|
|
|
|
$
|
2,873,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amount is net of a $27.4 million unamortized discount at December 31, 2016 (Successor). Amount is net of $12.2 million unamortized debt issuance
costs at December 31, 2015 (Predecessor). On February 16, 2017, the Company repurchased approximately 41% of the outstanding aggregate principal amount of the 2020 Second Lien Notes with
proceeds from the issuance of its new 6.75% senior unsecured notes due 2025. Refer to Note 17, "Subsequent Events," for further details.
-
(2)
-
Amount is net of a $6.8 million unamortized discount at December 31, 2016 (Successor). Amount is net of $1.2 million unamortized debt issuance
costs at December 31, 2015 (Predecessor).
-
(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 December 31, 2015 (Predecessor).
108
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. LONG-TERM DEBT (Continued)
-
(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).
-
(7)
-
Amount is net of a $23.0 million unamortized discount at December 31, 2015 (Predecessor).
-
(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 financial institutions party thereto, as lenders, which refinanced the DIP facility, discussed below. The Senior Credit Agreement provides for a
$1.5 billion senior secured reserve-based revolving credit facility with a current borrowing base of $600.0 million. 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).
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
109
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HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. LONG-TERM DEBT (Continued)
Agreement)
not to be less than 1.00:1.00, commencing with the fiscal quarter ending December 31, 2016. At December 31, 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
December 31, 2016 (Successor), the Company had approximately $186.0 million of indebtedness outstanding, approximately $6.7 million letters of credit outstanding
and approximately $407.3 million of borrowing capacity available under the Senior Credit Agreement.
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 (Predecessor), the Company issued $700 million aggregate principal amount of its 8.625% second lien senior secured
notes due 2020 (the 2020 Second Lien Notes) in a private offering. 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
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,
110
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HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. LONG-TERM DEBT (Continued)
2020.
The 2020 Second Lien Notes are secured by second-priority liens on substantially all of the Company's and its guarantors' assets to the extent such assets secure the Company's Senior Credit
Agreement, 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
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.
The
2020 Second Lien Notes are governed by an Indenture, dated as of May 1, 2015, by and among the Company, certain subsidiaries of the Company (the Guarantors) and U.S. Bank
National Association, as Trustee, (the Trustee), which contains affirmative and negative covenants that, among other things, limit the ability of the Company and the Guarantors to incur indebtedness;
purchase or redeem stock or subordinated indebtedness; make investments; create liens; enter into transactions with affiliates; sell assets; refinance certain indebtedness; merge with or into other
companies or transfer substantially all of their assets; and, in certain circumstances, to pay dividends or make other distributions on stock. The indenture also contains customary events of default.
Upon the occurrence of certain events of default, the Trustee or the holders of the 2020 Second Lien Notes may declare all outstanding 2020 Second Lien Notes to be due and payable immediately. The
2020 Second Lien Notes are fully and unconditionally guaranteed on a senior basis by the Guarantors and by certain future subsidiaries of the Company.
On
September 28, 2016 (Successor), 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 $27.4 million at December 31, 2016.
On
February 16, 2017 (Successor), the Company paid approximately $303.5 million for approximately $289.2 million principal amount of 2020 Second Lien Notes, a
make-whole premium of $13.2 million plus accrued and unpaid interest of approximately $1.1 million to repurchase such notes pursuant to a tender offer and issued a redemption notice to
redeem the remaining 2020 Second Lien
111
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HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. LONG-TERM DEBT (Continued)
Notes.
The remaining $410.8 million aggregate principal amount of 2020 Second Lien Notes will be repurchased through the guaranteed delivery procedures or redeemed at a price of 104.313% of the
principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date. The redemption date is expected to be March 20, 2017. The repurchase and redemption of the
2020 Second Lien Notes will be funded with proceeds from the issuance of $850.0 million in new 6.75% senior unsecured notes due 2025. See Note 17,
"Subsequent
Events,"
for further details.
12.0% Senior Secured Second Lien Notes
On December 21, 2015 (Predecessor), the Company completed the issuance of approximately $112.8 million aggregate principal amount
of new 12.0% second lien senior secured 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 its 9.75% senior notes due 2020, $137.7 million principal amount of its 8.875% senior notes due 2021 and $35.3 million principal
amount of its 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 value and also recognized a $174.5 million net gain on the extinguishment of debt, as a
$176.7 million gain on the exchanges was partially offset by the write-down of $2.2 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 consolidated statements of operations.
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. 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 2022 Second Lien Notes, using the effective interest method.
On
September 28, 2016 (Successor), 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 $6.8 million at December 31, 2016.
112
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HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. LONG-TERM DEBT (Continued)
At any time prior to August 15, 2018, the Company may redeem the 2022 Second Lien Notes, in whole or in part, at a redemption price equal to 100% of their principal amount plus a
make-whole premium, together with accrued and unpaid interest, if any, to the redemption date. The 2022 Second Lien Notes will be redeemable, in whole or in part, on or after August 15, 2018 at
redemption prices equal to the principal amount multiplied by the percentage set forth below, plus accrued and unpaid interest:
|
|
|
|
|
Year
|
|
Percentage
|
|
2018
|
|
|
112.000
|
|
2019
|
|
|
106.000
|
|
2020 and thereafter
|
|
|
100.000
|
|
Additionally,
the Company may redeem up to 35% of the 2022 Second Lien Notes on or prior to August 15, 2018 for a redemption price of 112.000% of the principal amount thereof,
plus accrued and unpaid interest, utilizing net cash proceeds from certain equity offerings. In addition, upon a change of control of the Company, holders of the 2022 Second Lien Notes will have the
right to require the Company to repurchase all or any part of their 2022 Second Lien Notes for cash at a price equal to 101% of the aggregate principal amount of the 2022 Second Lien Notes
repurchased, plus any accrued and unpaid interest.
The
2022 Second Lien Notes were issued in accordance with exemptions from the registration requirements of the Securities Act of 1933, as amended afforded by Rule 144A and
Regulation S under the Securities Act.
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 write-down 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 consolidated statements of operations for the three months ended September 30, 2015 (Predecessor).
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 were approximately $392.1 million (after deducting offering fees and expenses). During the first quarter of
113
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HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. LONG-TERM DEBT (Continued)
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 par. The net proceeds from the offering were approximately $725.6 million (after deducting offering fees and expenses). 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 were approximately $619.5 million (after offering fees and expenses).
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). 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 were approximately $406.3 million (after deducting offering fees and expenses).
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.
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. 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
114
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HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. LONG-TERM DEBT (Continued)
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 consolidated statements of operations for the year ended December 31, 2015 (Predecessor).
On
September 9, 2016, and upon emergence from chapter 11 bankruptcy, the Convertible Note and February 2012 Warrants were cancelled. Refer to Note 2,
"Reorganization,"
for further details.
Debt Maturities
Aggregate maturities required on long-term debt at December 31, 2016 (Successor) due in future years are as follows (in thousands,
excluding discounts and debt issuance costs):
|
|
|
|
|
2017
|
|
$
|
|
|
2018
|
|
|
|
|
2019
|
|
|
186,000
|
|
2020
(1)
|
|
|
700,000
|
|
2021
|
|
|
|
|
Thereafter
|
|
|
112,826
|
|
|
|
|
|
|
Total
|
|
$
|
998,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
On February 16, 2017 (Successor), the Company issued $850.0 million aggregate principal amount of new 6.75% senior unsecured notes due 2025. A portion
of the net proceeds from the issuance of the new 6.75% senior unsecured notes were used to fund the repurchase of the validly tendered 2020 Second Lien Notes. These transactions are not included in
the table above. See Note 17, "Subsequent Events," for more 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 were presented in
"Debt issuance costs,
net"
, and the debt issuance costs for the Company's senior unsecured debt were presented in
"Long-term debt, net"
within total
liabilities on the consolidated balance sheet at December 31, 2015 (Predecessor).
8. FAIR VALUE MEASUREMENTS
Pursuant to 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 consolidated balance sheets, but also the impact of the Company's nonperformance risk on
115
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. FAIR VALUE MEASUREMENTS (Continued)
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 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 December 31, 2016 (Successor) and 2015 (Predecessor) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
December 31, 2016
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables from derivative contracts
|
|
$
|
|
|
$
|
5,923
|
|
$
|
|
|
$
|
5,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from derivative contracts
|
|
$
|
|
|
$
|
16,920
|
|
$
|
|
|
$
|
16,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 markets prices and implied volatility factors related to
116
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. FAIR VALUE MEASUREMENTS (Continued)
changes
in the forward curves. See Note 9,
"Derivative and Hedging Activities,"
for additional discussion of derivatives.
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
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(185
|
)
|
|
|
$
|
(1,319
|
)
|
Net gain (loss) on derivative contracts
|
|
|
185
|
|
|
|
|
1,134
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
|
|
|
|
$
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Period from
September 10, 2016
through
December 31, 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 December 31, 2016 (Successor), September 9, 2016
(Predecessor) and December 31, 2015 (Predecessor)
|
|
$
|
|
|
|
|
$
|
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 receivable and accounts payable approximates 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, long-term debt instruments as of December 31, 2016
117
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. FAIR VALUE MEASUREMENTS (Continued)
(Successor)
and 2015 (Predecessor) (excluding discounts, premiums and debt issuance costs) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Principal
Amount
|
|
Estimated
Fair Value
|
|
|
|
Principal
Amount
|
|
Estimated
Fair Value
|
|
|
|
|
|
Debt
|
|
|
|
8.625% senior secured second lien notes
|
|
|
700,000
|
|
$
|
733,250
|
|
|
|
$
|
700,000
|
|
$
|
479,500
|
|
12.0% senior secured second lien notes
|
|
|
112,826
|
|
|
123,827
|
|
|
|
|
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
|
|
$
|
857,077
|
|
|
|
$
|
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 debt instruments was calculated using Level 2 criteria at December 31, 2016 (Successor) and 2015 (Predecessor). 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 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 and the year ended December 31, 2014, the Predecessor Company recorded non-cash impairment charges of $28.1 million and
$35.6 million, respectively, related to its gas gathering systems. See Note 1,
"Summary of Significant Events and Accounting Policies,"
for a discussion of the valuation approach used and the classification of the estimate within the fair value hierarchy.
As
discussed in Note 7, "
Long-term Debt,
" and in Note 13, "
Stockholders'
Equity
," on May 6, 2015, the HALRES Note Amendment and the Warrant Amendment became effective. The fair value estimates for the Convertible Note and the February 2012
Warrants include 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; and therefore, the Company has designated these liabilities as Level 3. See Note 10,
"Asset Retirement Obligations,"
for a
reconciliation of the beginning and ending balances of the liability for the Company's asset retirement obligations.
118
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. DERIVATIVE AND HEDGING ACTIVITIES
The Company is exposed to certain risks relating to its ongoing business operations, such as commodity price risk and interest rate risk. Derivative contracts are utilized to 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 consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the
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 deemed 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.
The
Company's crude oil and natural gas derivative positions at any point in time may consist of swaps, swaptions, costless put/call "collars," extendable costless collars and deferred
put options. 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. A sold put option limits the exposure of the counterparty's risk should the price fall below the strike price. Sold put options limit the effectiveness of purchased put options at the
low end of the put/call collars to market prices in excess of the strike price of the put option sold. The Company has elected to not designate any of its derivative contracts for hedge accounting.
Accordingly, the Company records the net change in the mark-to-market valuation of these derivative contracts, as well as all payments and receipts on settled derivative contracts, in
"Net gain (loss) on derivative
contracts"
on the consolidated statements of operations.
At
December 31, 2016 (Successor), the Company had 22 open commodity derivative contracts summarized in the following tables: two natural gas collar arrangements and 20 crude oil
collar arrangements.
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 consolidated balance sheets as assets or liabilities.
The following table
119
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. DERIVATIVE AND HEDGING ACTIVITIES (Continued)
summarizes
the location and fair value amounts of all derivative contracts in the consolidated balance sheets as of December 31, 2016 (Successor) and 2015 (Predecessor) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset derivative contracts
|
|
|
|
Liability derivative contracts
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
December 31,
2016
|
|
|
|
December 31,
2015
|
|
|
|
December 31,
2016
|
|
|
|
December 31,
2015
|
|
Derivatives not designated as
hedging contracts under ASC 815
|
|
Balance sheet location
|
|
|
|
Balance sheet location
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Current assetsreceivables from derivative contracts
|
|
$
|
5,923
|
|
|
|
$
|
348,861
|
|
Current liabilitiesliabilities from derivative contracts
|
|
$
|
(16,434
|
)
|
|
|
$
|
|
|
Commodity contracts
|
|
Other noncurrent assetsreceivables from derivative contracts
|
|
|
|
|
|
|
|
16,614
|
|
Other noncurrent liabilitiesliabilities from derivative contracts
|
|
|
(486
|
)
|
|
|
|
(290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging contracts under ASC 815
|
|
$
|
5,923
|
|
|
|
$
|
365,475
|
|
|
|
$
|
(16,920
|
)
|
|
|
$
|
(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 consolidated statements of
operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss)
recognized in income on derivative contracts for the
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
Period from
September 10, 2016
through
December 31, 2016
|
|
|
|
Period from
January 1, 2016
through
September 9, 2016
|
|
|
|
Location of gain or (loss)
recognized in income on derivative
contracts
|
|
|
|
Derivatives not designated as hedging
contracts under ASC 815
|
|
|
|
2015
|
|
2014
|
|
|
|
|
Commodity contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on commodity contracts
|
|
Other income (expenses)net gain (loss) on derivative contracts
|
|
$
|
(112,449
|
)
|
|
|
$
|
(263,732
|
)
|
$
|
(129,282
|
)
|
$
|
506,526
|
|
Realized gain (loss) on commodity contracts
|
|
Other income (expenses)net gain (loss) on derivative contracts
|
|
|
84,709
|
|
|
|
|
245,734
|
|
|
439,546
|
|
|
12,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on derivative contracts
|
|
$
|
(27,740
|
)
|
|
|
$
|
(17,998
|
)
|
$
|
310,264
|
|
$
|
518,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2016 (Successor) and 2015 (Predecessor), the Company had the following open crude oil and natural gas derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
Floors
|
|
Ceilings
|
|
Period
|
|
Instrument
|
|
Commodity
|
|
Volume in
Mmbtu's/
Bbl's
|
|
Price /
Price Range
|
|
Weighted
Average
Price
|
|
Price /
Price Range
|
|
Weighted
Average
Price
|
|
January 2017 - December 2017
|
|
Collars
|
|
Natural Gas
|
|
|
3,650,000
|
|
$3.15 - $3.26
|
|
$
|
3.20
|
|
$3.50 - $3.76
|
|
$
|
3.63
|
|
January 2017 - December 2017
|
|
Collars
|
|
Crude Oil
|
|
|
6,843,750
|
|
47.00 - 60.00
|
|
|
51.39
|
|
52.00 - 76.84
|
|
|
58.75
|
|
January 2018 - December 2018
(1)
|
|
Collars
|
|
Crude Oil
|
|
|
730,000
|
|
53.00
|
|
|
53.00
|
|
58.00
|
|
|
58.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. DERIVATIVE AND HEDGING ACTIVITIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
(3)
|
|
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 December 31, 2016, the Company entered into crude oil collars at floors of $50.00 per Bbl and ceilings of $60.00 per Bbl for a total of 730,000
Bbls for the year ended December 31, 2018, which are not included in the table above.
-
(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)
-
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.
The
Company presents the fair value of its derivative contracts at the gross amounts in the 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 December 31, 2016 (Successor) and 2015 (Predecessor) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
December 31,
2016
|
|
|
|
December 31,
2015
|
|
December 31,
2016
|
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
Offsetting of Derivative Assets and Liabilities
|
|
|
|
|
|
Gross amounts presented in the consolidated balance sheet
|
|
$
|
5,923
|
|
|
|
$
|
365,475
|
|
$
|
(16,920
|
)
|
|
|
$
|
(290
|
)
|
Amounts not offset in the consolidated balance sheet
|
|
|
(5,283
|
)
|
|
|
|
(53
|
)
|
|
5,075
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount
|
|
$
|
640
|
|
|
|
$
|
365,422
|
|
$
|
(11,845
|
)
|
|
|
$
|
(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.
10. ASSET RETIREMENT OBLIGATIONS
The Company records an asset retirement obligation (ARO) when it can reasonably estimate the fair value of an obligation to perform site reclamation, dismantle facilities or plug and
abandon costs.
121
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HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. ASSET RETIREMENT OBLIGATIONS (Continued)
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 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 consolidated statements of operations. The
additional capitalized costs are depreciated on a unit-of-production basis or straight-line basis.
The
Company recorded the following activity related to its ARO liability (in thousands, inclusive of the current portion) (in thousands):
|
|
|
|
|
Liability for asset retirement obligation as of December 31, 2014 (Predecessor)
|
|
$
|
38,477
|
|
Liabilities settled and divested
|
|
|
(324
|
)
|
Additions
|
|
|
3,209
|
|
Accretion expense
|
|
|
1,797
|
|
Revisions in estimated cash flows
|
|
|
3,857
|
|
|
|
|
|
|
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
|
|
|
513
|
|
Accretion expense
|
|
|
587
|
|
|
|
|
|
|
Liability for asset retirement obligations as of December 31, 2016 (Successor)
|
|
$
|
32,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
See Note 5, "Divestitures," for additional information on the Company's divestiture activities.
122
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. 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. In
addition, the Company has lease commitments for certain equipment under long-term operating lease agreements. The office and equipment operating lease agreements expire on various dates through 2024.
Rent expense was approximately $1.4 million for the period of September 10, 2016 through December 31, 2016 (Successor) and $5.9 million for the period of January 1,
2016 through September 9, 2016 (Predecessor). Rent expense was approximately $8.6 million and $8.1 million for the years ended December 31, 2015 and 2014 (Predecessor),
respectively. 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. Approximate future minimum lease payments for subsequent annual periods for all non-cancelable operating
leases as of December 31, 2016 (Successor) are as follows (in thousands):
|
|
|
|
|
2017
|
|
$
|
3,493
|
|
2018
|
|
|
3,540
|
|
2019
|
|
|
2,997
|
|
2020
|
|
|
1,811
|
|
2021
|
|
|
1,497
|
|
Thereafter
|
|
|
2,180
|
|
|
|
|
|
|
Total
|
|
$
|
15,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2016 (Successor), the Company has the following active drilling rig commitments (in thousands):
|
|
|
|
|
2017
|
|
$
|
17,574
|
|
2018
|
|
|
7,444
|
|
2019
|
|
|
|
|
2020
|
|
|
|
|
2021
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2016 (Successor), termination of the Company's active drilling rig commitments would require early termination penalties of $12.5 million, which would be
in lieu of paying the remaining active drilling rig commitments of $25.0 million.
123
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. COMMITMENTS AND CONTINGENCIES (Continued)
In
past years, with the sustained decline in crude oil prices, the Company stacked certain drilling rigs and amended other previous drilling rig contracts. In the future, the Company
expects to incur stacking charges/early termination fees on certain drilling rig commitments as follows (in thousands):
|
|
|
|
|
2017
|
|
$
|
6,820
|
|
2018
|
|
|
1,260
|
|
2019
|
|
|
|
|
2020
|
|
|
3,000
|
|
2021
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company has entered into an agreement with a private operator for the right to purchase up to 15,040 net acres located in Ward and Winkler Counties, Texas (the Ward County Assets)
prospective for the Wolfcamp and Bone Spring formations. The Ward County Assets are divided into two tracts: the Southern Tract, comprising 6,720 net acres, and the Northern Tract, comprising 8,320
net acres, with separate options for each tract. Pursuant to the terms of the agreement, the Company paid $5.0 million and is drilling a commitment well on the Southern Tract. The Company has
until June 15, 2017 to exercise the option on either the Southern Tract acreage or on all 15,040 net acres, in each case for $11,000 per acre. If the Company initially elects only to exercise
its option on the Southern Tract, the Company would need to pay $5.0 million on or before June 15, 2017 and drill a commitment
well on the Northern Tract by September 1, 2017 to earn an option to acquire the Northern Tract acreage for $11,000 per acre by December 31, 2017. This option purchase not included in
the tables above.
The
Company has entered into various long-term gathering, transportation and sales contracts in its Bakken/Three Forks formations in North Dakota which are not included in the tables
above. As of December 31, 2016 (Successor), the Company had in place eight long-term crude oil contracts and five long-term natural gas contracts in this area and the sales prices under these
contracts are based on posted market rates. Under the terms of these contracts, the Company has committed a substantial portion of its Bakken/Three Forks production for periods ranging from one to ten
years from the date of first production. The Company believes that there are sufficient available reserves and supplies in the Bakken/Three Forks formations to meet its commitments, as the proved
reserves from this area represent approximately 76% of its total proved reserves. 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 consolidated operating results, financial position or cash flows.
124
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. MEZZANINE EQUITY
On June 16, 2014 (Predecessor), funds and accounts managed by affiliates of 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 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 Predecessor 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, 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. 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 5,
"Divestitures,"
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 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 consolidated balance
sheets and within "
Preferred dividends and accretion on redeemable noncontrolling interest
" on the 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 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, referred to as the Tranche Rights, 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
125
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. MEZZANINE EQUITY (Continued)
recorded
at fair value within "
Other noncurrent liabilities
" on the consolidated balance sheets at December 31, 2015 (Predecessor).
For
purposes of estimating the fair values of the original and amended transaction components, an income approach was used that estimated fair value based on the anticipated cash flows
associated with the Company's proved reserves, discounted using a weighted average cost of capital rate. The estimation of the fair value of these components includes the use of unobservable inputs,
such as estimates of proved reserves, the weighted average scost of capital (discount rate), estimated future revenues, and estimated future capital and operating costs. The use of these unobservable
inputs results in the fair value estimates being classified as Level 3. Although the Company believes the assumptions and estimates used in the fair value calculation of the original and
amended transaction components are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and resulting conclusions. The assumptions used in estimating
the fair value of the original and amended transaction components are inherently uncertain and require management judgment.
The
following table sets forth a reconciliation of the changes in fair value of the Tranche Rights and embedded derivative classified as Level 3 in the fair value hierarchy (in
thousands):
|
|
|
|
|
|
|
|
|
|
Tranche
rights
|
|
Embedded
derivative
|
|
Balances at December 31, 2014 (Predecessor)
|
|
$
|
(2,634
|
)
|
$
|
5,963
|
|
Change in fair value
|
|
|
2,634
|
|
|
137
|
|
|
|
|
|
|
|
|
|
Balances 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 December 31, 2016 (Successor)
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. MEZZANINE EQUITY (Continued)
The
Company recorded the following activity related to the preferred shares in
"Mezzanine equity"
on the consolidated balance sheets for
the years ended December 31, 2016 (Successor) and 2015 (Predecessor) (in thousands, except share amounts):
|
|
|
|
|
|
|
|
|
|
Redeemable
noncontrolling interest
|
|
|
|
Shares
|
|
Amount
|
|
Balances at December 31, 2014 (Predecessor)
|
|
|
153,025
|
|
$
|
117,166
|
|
Dividends paid in-kind
|
|
|
12,614
|
|
|
12,614
|
|
Accretion of redeemable noncontrolling interest
|
|
|
|
|
|
53,561
|
|
Deemed dividend for change in fair value due to the HK TMS Amendment
|
|
|
|
|
|
645
|
|
|
|
|
|
|
|
|
|
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 December 31, 2016 (Successor)
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
See Note 5, "Divestitures," for additional information on 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 year ended December 31, 2015 (Predecessor), HK TMS issued 12,614 additional preferred shares to
Apollo for dividends paid in-kind. For the year ended December 31, 2014 (Predecessor), HK TMS paid approximately $3.5 million in cash dividends and issued 3,025 additional preferred
shares for dividends paid-in-kind. These dividends were presented within "
Preferred dividends and accretion on redeemable noncontrolling interest"
on
the 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. For the years ended December 31 2015 and 2014 (Predecessor), HK TMS incurred PIK exit fees totaling $3.1 million and
$0.8 million, respectively, which were recorded at fair value within "
Other noncurrent liabilities
" on the consolidated balance sheets.
HK
TMS was not included in the chapter 11 bankruptcy filings or the Restructuring Support Agreement discussed in Note 2,
"Reorganization."
On September 30, 2016, Apollo acquired one hundred
percent of the common shares of HK TMS and assumed all obligations relating
to the Membership Interests. For additional information regarding the divestiture see Note 5,
"Divestitures."
127
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. 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 Successor 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 Successor 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 Successor 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.
During
the second quarter of 2015, the Predecessor Company entered into several exchange agreements with holders of the Predecessor Company's senior unsecured notes in which they agreed
to exchange an aggregate $258.0 million principal amount of their senior notes for approximately 29.0 million shares of the Predecessor Company's common stock. The Predecessor Company
recorded the issuance of common shares at fair value on the various dates the debt for equity exchanges occurred.
On
March 18, 2015, the Predecessor Company entered into an Equity Distribution Agreement (the Equity Distribution Agreement) with BMO Capital Markets Corp., Jefferies LLC
and MLV & Co. LLC (collectively, the Managers). Pursuant to the terms of the Equity Distribution Agreement, the Predecessor Company sold, by means of ordinary brokers'
transactions through the facilities of the NYSE at market prices, a total of approximately 1.9 million shares of the Predecessor Company's common stock for net proceeds of approximately
$15.0 million, after deducting offering expenses. The shares sold were registered under the Securities Act pursuant to a Registration Statement on Form S-3 (No. 333-188640), which
was filed with the SEC and became effective March 13, 2015. The Predecessor Company used the net proceeds from the offering to repay a portion of the then outstanding borrowings under its
Predecessor Credit Agreement and for general corporate purposes.
On
May 22, 2014, upon stockholder approval, the Predecessor Company filed a Certificate of Amendment of the Amended and Restated Certificate of Incorporation with the Delaware
Secretary of State to increase its authorized common stock by approximately 670.0 million shares for a total of 1.34 billion authorized shares of common stock.
5.75% Series A Convertible Perpetual Preferred Stock
On June 18, 2013, the Predecessor Company completed its offering of 345,000 shares of its Predecessor 5.75% Series A Convertible
Perpetual Preferred Stock (the Predecessor Series A Preferred Stock) at a public offering price of $1,000 per share (the Liquidation Preference). The Predecessor Company filed a Certificate of
Designations, Preferences, Rights and Limitations of 5.75% Series A Convertible Preferred Stock on June 17, 2013 (the Series A Designation). The net proceeds to the Predecessor
Company from the offering of the Predecessor Series A Preferred Stock were
128
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. STOCKHOLDERS' EQUITY (Continued)
approximately
$335.2 million, after deducting the underwriting discount and offering expenses. The Predecessor Company used the net proceeds from the offering to repay a portion of the then
outstanding borrowings under its Predecessor Credit Agreement.
Holders
of the Predecessor Series A Preferred Stock were entitled to receive, when, as and if declared by the Predecessor Company's board of directors, cumulative dividends at the
rate of 5.75% per annum (the dividend rate) on the Liquidation Preference per share of the Predecessor Series A Preferred Stock, payable quarterly in arrears on each dividend payment date.
Dividends were paid in cash or, where freely transferable by any non-affiliate recipient thereof, in common stock of the Predecessor Company or a combination thereof, and were payable on
March 1, June 1, September 1 and December 1 of each year and commenced on September 1, 2013. In January 2016, the Predecessor Company announced that quarterly
dividends on the Predecessor Series A Preferred Stock were suspended due to the weakened market conditions as a result of low commodity prices. During the years ended December 31, 2015
and 2014 (Predecessor), the Company incurred cumulative, declared dividends of $18.0 million by paying $8.2 million in cash and issuing approximately 1.4 million shares of common
stock and $19.8 million by paying $5.0 million in cash and issuing approximately 0.7 million shares of common stock, respectively, reflected as cash and non-cash dividends. As of
September 9, 2016 (Predecessor) and December 31, 2015 (Predecessor), cumulative, undeclared dividends on the Predecessor Series A Preferred Stock amounted to approximately
$9.9 million and $1.2 million, respectively.
On
September 9, 2016, upon emergence from chapter 11 bankruptcy, all existing shares of Predecessor Series A Preferred Stock were cancelled and the Preferred Holders
received their pro rata share of $11.1 million in cash, in full and final satisfaction of their interests. Refer to Note 2,
"
Reorganization,
" for further details.
Warrants
On September 9, 2016, upon the emergence from chapter 11 bankruptcy, all existing February 2012 warrants were cancelled and the
Successor 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 consolidated balance sheet at December 31, 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.
In
February 2012, in conjunction with the issuance of the Convertible Note, the Predecessor Company issued the February 2012 Warrants to purchase 7.3 million shares of the
Predecessor Company's common stock at an exercise price of $22.50 per share of common stock. The Predecessor Company allocated $43.6 million to the February 2012 Warrants which is reflected in
"Predecessor Additional
paid-in capital"
on the consolidated balance sheet at December 31, 2015 (Predecessor), net of $0.6 million in
issuance costs. The February 2012 Warrants entitled the holders to exercise the warrants in whole or in part at any time prior to the expiration date of February 8, 2017.
On
March 9, 2015, in conjunction with the HALRES Note Amendment, the Predecessor Company entered into an amendment to the February 2012 Warrants, the Warrant Amendment, which
extended
129
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. STOCKHOLDERS' EQUITY (Continued)
the
term of the February 2012 Warrants from February 8, 2017 to February 8, 2020 and adjusted the exercise price from $22.50 to $12.20 per share. The Warrant Amendment was approved by
the Predecessor Company's stockholders on May 6, 2015, in accordance with the rules of the NYSE. The Predecessor Company expensed approximately $14.1 million for the change in the fair
value of the February 2012 Warrants immediately before and after the Warrant Amendment in
"Gain (loss) on extinguishment of Convertible Note and modification of February 2012
Warrants"
in the consolidated statements of operations for the year ended December 31, 2015 (Predecessor). See Note 6, "
Long-term
debt
," for further discussion of the HALRES Note Amendment and the Warrant Amendment.
Incentive Plans
On May 8, 2006, the Company's stockholders first approved its 2006 Long-Term Incentive Plan (Predecessor Incentive Plan). On
May 6, 2015, shareholders last approved an increase in authorized shares under the Predecessor Incentive Plan from 8.3 million to 16.3 million. As of December 31, 2015, a
maximum of 6.3 million shares of Predecessor common stock remained reserved for issuance under the Predecessor Incentive Plan.
Immediately
prior to emergence from chapter 11 bankruptcy, the Predecessor Incentive Plan was cancelled and all share-based compensation awards granted thereunder were either
vested or cancelled and Predecessor Company's Board 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 were 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, performance bonuses, stock awards and other incentive awards. As of December 31, 2016 (Successor), a maximum of 1.7 million shares of the
Successor Company's 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 Successor 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 December 31, 2016 (Successor) and the period from January 1, 2016 through September 9, 2016 (Predecessor) the
Company recognized $21.5 million and $4.9 million, respectively, of share-based compensation expense. For the years ended December 31, 2015 and 2014 (Predecessor), the Company
recognized $14.5 million and $18.7 million, respectively, of share-based compensation expense. Share-based compensation expense is recorded as a component of
"
General and administrative
" on the consolidated statements of operations.
Performance Share Units
As of December 31, 2015 (Predecessor), the Company had outstanding performance share units (PSU) under the Predecessor Incentive Plan
covering 0.3 million shares of common stock granted to senior management in 2014. The PSU provided that the number of shares of Predecessor common stock received upon vesting would vary if the
market price of the Predecessor Company's common
130
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. STOCKHOLDERS' EQUITY (Continued)
stock
exceeded certain pre-established target thresholds as measured by the average of the adjusted closing price of a share of the Predecessor Company's common stock during the sixty trading days
preceding the third anniversary of issuance, or the measurement date. The Company had reserved for issuance under the Predecessor Incentive Plan the maximum number of shares that participants might
have the right to receive upon vesting of the PSU, or 0.6 million shares of common stock.
No
PSUs were granted during the period from January 1, 2016 through September 9, 2016 (Predecessor) or in 2015 (Predecessor). The weighted average grant date fair value of
PSUs granted in 2014 (Predecessor) was $4.9 million. At December 31, 2015 (Predecessor) the unrecognized compensation expense related to non-vested PSUs totaled $1.9 million. The
weighted average remaining vesting period as of December 31, 2015 (Predecessor) was 1.2 years.
Immediately
prior to emergence from chapter 11 bankruptcy, all outstanding PSUs under the Predecessor Incentive Plan were cancelled. Refer to Note 2,
"Reorganization,"
for further details.
The
following table sets forth the PSU transactions for the period from January 1, 2016 through September 9, 2016 (Predecessor) and the years ended December 31, 2015
and 2014 (Predecessor):
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average Grant
Date Fair Value
Per Share
|
|
Aggregate
Intrinsic
Value
(1)
(In thousands)
|
|
Unvested outstanding shares at December 31, 2013 (Predecessor)
|
|
|
|
|
$
|
|
|
$
|
|
|
Granted
|
|
|
320,830
|
|
|
15.40
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested outstanding shares at December 31, 2014 (Predecessor)
|
|
|
320,830
|
|
$
|
15.40
|
|
$
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested outstanding shares at December 31, 2015 (Predecessor)
|
|
|
320,830
|
|
$
|
15.40
|
|
$
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
Cancelled
(2)
|
|
|
(320,830
|
)
|
|
15.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested outstanding shares at September 9, 2016 (Predecessor)
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The intrinsic value of PSUs was calculated as the average closing market price on December 31, 2015 and 2014 (Predecessor) of the underlying stock multiplied
by the number of PSUs that would be convertible. There were no vested PSUs as of December 31, 2015 and 2014 (Predecessor).
-
(2)
-
Immediately prior to emergence from chapter 11 bankruptcy, all outstanding PSUs under the Predecessor Incentive Plan were cancelled.
131
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. STOCKHOLDERS' EQUITY (Continued)
The assumptions used in calculating the Monte Carlo simulation model fair value of the Company's PSUs for the year ended December 31, 2014 (Predecessor) are disclosed in the
following table:
|
|
|
|
|
Predecessor
|
|
|
Year Ended
December 31, 2014
|
Weighted average value per PSUs granted during the period
|
|
$15.40
|
Assumptions:
|
|
|
Stock price volatility
(1)
|
|
48.00%
|
Risk free rate of return
|
|
0.68%
|
Expected term
|
|
3 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.
Stock Options
From time to time, the Company grants stock options under its incentive plans covering shares of common stock to employees of the Company. Stock
options, when exercised, are
settled through the payment of the exercise price in exchange for new shares of stock underlying the option. These awards typically 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.
No
options were granted from the period January 1, 2016 through September 9, 2016 (Predecessor). The weighted average grant date fair value of options granted in 2015 and
2014 (Predecessor) was $4.9 million, and $13.2 million, respectively. At December 31, 2015 (Predecessor), the unrecognized compensation expense related to non-vested stock options
totaled $6.2 million. The weighted average remaining vesting period as of December 31, 2015 (Predecessor) was 1.3 years.
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.
The
weighted average grant date fair value of options granted during the period from September 10, 2016 through December 31, 2016 (Successor) was $32.3 million. At
December 31, 2016 (Successor), the Company had $26.5 million of unrecognized compensation expense related to non-vested stock options to be recognized over a weighted-average period of
1.7 years.
132
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. STOCKHOLDERS' EQUITY (Continued)
The
following table sets forth the stock option transactions for the period from September 10, 2016 through December 31, 2016 (Successor), January 1, 2016 through
September 9, 2016 (Predecessor) and the years ended December 31, 2015 and 2014 (Predecessor):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
Weighted
Average
Exercise Price
Per Share
|
|
Aggregate
Intrinsic
Value
(1)
(In thousands)
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
Outstanding at December 31, 2013 (Predecessor)
|
|
|
2,083,237
|
|
$
|
35.75
|
|
$
|
|
|
|
9.0
|
|
Granted
|
|
|
1,936,764
|
|
|
14.70
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(235,269
|
)
|
|
31.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014 (Predecessor)
|
|
|
3,784,732
|
|
$
|
25.25
|
|
$
|
724
|
|
|
8.7
|
|
Granted
|
|
|
1,922,467
|
|
|
5.36
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(847,066
|
)
|
|
22.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015 (Predecessor)
|
|
|
4,860,133
|
|
$
|
17.80
|
|
$
|
|
|
|
8.4
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(695,302
|
)
|
|
21.17
|
|
|
|
|
|
|
|
Cancelled
(2)
|
|
|
(4,164,831
|
)
|
|
17.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 9, 2016 (Predecessor)
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 9, 2016 (Successor)
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
Granted
|
|
|
5,319,400
|
|
|
9.22
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016 (Successor)
|
|
|
5,319,400
|
|
$
|
9.22
|
|
$
|
631
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The intrinsic value of stock options was calculated as the amount by which the closing market price on December 31, 2016 (Successor) and December 31,
2015 and 2014 (Predecessor) of the underlying stock exceeded the exercise price of the option. No stock options were exercised during the period from September 10, 2016 through
December 31, 2016 (Successor), the period from January 1, 2016 through September 9, 2016 (Predecessor), or the years ended December 31, 2015 and 2014 (Predecessor).
-
(2)
-
Immediately prior to emergence from chapter 11 bankruptcy, all outstanding options under the Predecessor Incentive Plan were cancelled.
133
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. STOCKHOLDERS' EQUITY (Continued)
Options
outstanding at December 31, 2016 (Successor) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
(1)
|
|
Range of Grant
Prices Per Share
|
|
Number
|
|
Weighted Average
Exercise Price
per Share
|
|
Weighted Average
Remaining
Contractual Live
(Years)
|
|
Number
|
|
Weighted Average
Exercise Price
per Share
|
|
Aggregate
Intrinsic
Value
|
|
Weighted Average
Remaining
Contractual Live
(Years)
|
|
$8.93
|
|
|
319,400
|
|
$
|
8.93
|
|
|
10.0
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
$9.24
|
|
|
5,000,000
|
|
|
9.24
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
At December 31, 2016 (Successor), none of the Company's options were exercisable due to service performance conditions.
The
assumptions used in calculating the Black-Scholes-Merton valuation model fair value of the Company's stock options for the period from September 10, 2016 through
December 31, 2016 (Successor) and the years ended December 31, 2015 and 2014 (Predecessor) are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
Period from
September 10, 2016
through
December 31, 2016
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
|
Weighted average value per option granted during the period
|
|
$6.07
|
|
|
|
$2.56
|
|
$6.80
|
Assumptions:
|
|
|
|
|
|
|
|
|
Stock price volatility
(1)
|
|
56.29%
|
|
|
|
56.45%
|
|
51.48%
|
Risk free rate of return
|
|
1.34%
|
|
|
|
1.66%
|
|
1.56%
|
Expected term
|
|
6 years
|
|
|
|
5 years
|
|
5 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
From time to time, the Company grants shares of restricted stock to employees and non-employee directors of the Company. Employee shares
typically vest over a three year period at a rate of one-third on the annual anniversary date of the grant, and the non-employee directors' shares vest six months from the date of grant. For certain
shares granted under the 2016 Incentive Plan, subsequent to emergence from chapter 11 bankruptcy, half vested immediately on the date of the grants and the remaining half will vest on the first
anniversary of the date of grants.
No
restricted shares were granted from the period January 1, 2016 through September 9, 2016 (Predecessor). The weighted average grant date fair value of the shares granted
in 2015 and 2014 (Predecessor) was $8.5 million and $23.7 million, respectively. At December 31, 2015 (Predecessor), the unrecognized compensation expense related to non-vested
restricted stock totaled $11.1 million. The weighted average remaining vesting period as of December 31, 2015 (Predecessor) was 1.5 years.
Immediately
prior to emergence from chapter 11 bankruptcy, all outstanding unvested restricted stock awards granted under the Predecessor Incentive Plan were vested. Refer to
Note 2,
"Reorganization,"
for further details.
134
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. STOCKHOLDERS' EQUITY (Continued)
The
weighted average grant date fair value of shares granted during the period from September 10, 2016 through December 31, 2016 (Successor) was $27.3 million. At
December 31, 2016 (Successor), the Company had $11.5 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 December 31, 2016 (Successor), January 1, 2016
through September 9, 2016 (Predecessor) and the years ended December 31, 2015 and 2014 (Predecessor):
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average Grant
Date Fair Value
Per Share
|
|
Aggregate
Intrinsic
Value
(1)
(In thousands)
|
|
Unvested outstanding shares at December 31, 2013 (Predecessor)
|
|
|
528,676
|
|
$
|
35.80
|
|
$
|
10,204
|
|
Granted
|
|
|
1,877,608
|
|
|
12.60
|
|
|
|
|
Vested
|
|
|
(246,232
|
)
|
|
34.05
|
|
|
|
|
Forfeited
|
|
|
(91,141
|
)
|
|
23.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested outstanding shares at December 31, 2014 (Predecessor)
|
|
|
2,068,911
|
|
$
|
15.55
|
|
$
|
18,413
|
|
Granted
|
|
|
2,047,785
|
|
|
4.15
|
|
|
|
|
Vested
|
|
|
(858,708
|
)
|
|
16.24
|
|
|
|
|
Forfeited
|
|
|
(387,583
|
)
|
|
12.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested outstanding shares at December 31, 2015 (Predecessor)
|
|
|
2,870,405
|
|
$
|
7.55
|
|
$
|
3,617
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(436,256
|
)
|
|
18.50
|
|
|
|
|
Accelerated vesting
(2)
|
|
|
(1,917,072
|
)
|
|
5.39
|
|
|
|
|
Forfeited
|
|
|
(517,077
|
)
|
|
6.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested outstanding shares at September 9, 2016 (Predecessor)
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares outstanding at September 9, 2016 (Successor)
|
|
|
|
|
$
|
|
|
$
|
|
|
Granted
|
|
|
2,991,202
|
|
|
9.14
|
|
|
|
|
Vested
|
|
|
(1,253,125
|
)
|
|
9.24
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares outstanding at December 31, 2016 (Successor)
|
|
|
1,738,077
|
|
$
|
9.06
|
|
$
|
16,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The intrinsic value of restricted stock was calculated as the closing market price on December 31, 2016 (Successor) and December 31, 2015 and 2014
(Predecessor) of the underlying stock multiplied by the number of restricted shares. The total fair value of shares vested was $11.6 million for the period from September 10, 2016 to
December 31, 2016 (Successor). The total fair value of shares vested was $0.9 million, $5.2 million, and $5.1 million for the period from January 1, 2016 through
September 9, 2016 (Predecessor) and the years ended December 31, 2015 and 2014 (Predecessor).
-
(2)
-
Immediately prior to emergence from chapter 11 bankruptcy, all outstanding unvested restricted stock under the Predecessor Incentive Plan were vested.
135
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. INCOME TAXES
Income tax benefit (provision) for the indicated periods is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
Period from
September 10, 2016
through
December 31, 2016
|
|
|
|
Period from
January 1, 2016
through
September 9, 2016
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(5,000
|
)
|
|
|
$
|
8,666
|
|
$
|
(8,580
|
)
|
$
|
1,295
|
|
State
|
|
|
256
|
|
|
|
|
|
|
|
(506
|
)
|
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax benefit (provision)
|
|
|
(4,744
|
)
|
|
|
|
8,666
|
|
|
(9,086
|
)
|
|
1,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
52,223
|
|
|
|
|
(22,491
|
)
|
|
(39,331
|
)
|
|
2,653
|
|
State
|
|
|
(52,223
|
)
|
|
|
|
22,491
|
|
|
39,331
|
|
|
(2,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax benefit (provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit (provision)
|
|
$
|
(4,744
|
)
|
|
|
$
|
8,666
|
|
$
|
(9,086
|
)
|
$
|
1,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
actual income tax benefit (provision) differs from the expected income tax benefit (provision) as computed by applying the United States Federal corporate income tax rate of 35% for
each period as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Period from
September 10, 2016
through
December 31, 2016
|
|
|
|
Period from
January 1, 2016
through
September 9, 2016
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
Expected tax benefit (provision)
|
|
$
|
166,057
|
|
|
|
$
|
(1,152
|
)
|
$
|
669,737
|
|
$
|
(110,208
|
)
|
State income tax expense, net of federal benefit
|
|
|
6,243
|
|
|
|
|
(43
|
)
|
|
41,003
|
|
|
(4,615
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
(14,803
|
)
|
|
|
|
|
|
|
Net operating loss limitation under IRC Section 382
|
|
|
(161,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
HK TMS Divestiture
|
|
|
(157,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments attributable to reorganization
|
|
|
|
|
|
|
|
275,460
|
|
|
|
|
|
|
|
Debt related costs
|
|
|
|
|
|
|
|
(4,089
|
)
|
|
(7,102
|
)
|
|
(5,467
|
)
|
Cancellation of indebtedness income
|
|
|
|
|
|
|
|
103,268
|
|
|
(89,081
|
)
|
|
|
|
Increase (reduction) in deferred tax asset
|
|
|
|
|
|
|
|
14,429
|
|
|
(6,369
|
)
|
|
19,233
|
|
Change in valuation allowance and related items
|
|
|
202,592
|
|
|
|
|
(262,995
|
)
|
|
(598,429
|
)
|
|
102,068
|
|
IRC section 108 attribute reduction
|
|
|
(56,483
|
)
|
|
|
|
(101,342
|
)
|
|
(13,744
|
)
|
|
|
|
Other
|
|
|
(3,682
|
)
|
|
|
|
(67
|
)
|
|
(5,101
|
)
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit (provision)
|
|
$
|
(4,744
|
)
|
|
|
$
|
8,666
|
|
$
|
(9,086
|
)
|
$
|
1,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. INCOME TAXES (Continued)
The
components of net deferred income tax assets (liabilities) recognized are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Deferred noncurrent income tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carry-forwards
|
|
$
|
155,393
|
|
|
|
$
|
555,044
|
|
Share-based compensation expense
|
|
|
3,430
|
|
|
|
|
15,027
|
|
Asset retirement obligations
|
|
|
11,233
|
|
|
|
|
14,616
|
|
Investment in unconsolidated entities
|
|
|
|
|
|
|
|
59,429
|
|
Book-tax differences in property basis
|
|
|
647,574
|
|
|
|
|
234,900
|
|
Unrealizd hedging transactions
|
|
|
3,937
|
|
|
|
|
|
|
Other
|
|
|
330
|
|
|
|
|
19,376
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred noncurrent income tax assets
|
|
|
821,897
|
|
|
|
|
898,392
|
|
Valuation allowance
|
|
|
(821,897
|
)
|
|
|
|
(761,493
|
)
|
|
|
|
|
|
|
|
|
|
|
Deferred noncurrent income tax assets
|
|
$
|
|
|
|
|
$
|
136,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred noncurrent income tax liabilities:
|
|
|
|
|
|
|
|
|
|
Change in accounting method
|
|
$
|
|
|
|
|
$
|
(4,057
|
)
|
Unrealized hedging transactions
|
|
|
|
|
|
|
|
(132,842
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred noncurrent income tax liabilities
|
|
$
|
|
|
|
|
$
|
(136,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net noncurrent deferred income tax assets (liabilities)
|
|
$
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2015, the Company early adopted ASU 2015-07 on a prospective basis and accordingly, presented all deferred tax assets and liabilities as noncurrent on the consolidated
balance sheet as of December 31, 2015.
Under
the Plan, a substantial portion of the Company's pre-petition debt securities were extinguished. Absent an exception, a debtor recognizes cancellation of indebtedness income (CODI)
upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The Internal Revenue Code of 1986, as amended (IRC), provides that a debtor in
a bankruptcy case may exclude CODI from taxable income but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization. The
amount of CODI realized by a taxpayer is the adjusted issue price of any indebtedness discharged less the sum of (i) the amount of cash paid, (ii) the issue price of any new indebtedness
issued and (iii) the fair market value of any other consideration, including equity, issued. As a result of the market value of equity upon emergence from chapter 11 bankruptcy
proceedings, the estimated amount of U.S. CODI is approximately $844 million, which will reduce the value of the Company's U.S. net operating losses and other assets. The actual reduction in
tax attributes does not occur until the first day of the Company's tax year subsequent to the date of emergence, or January 1, 2017. The estimated results of the attribute reduction have been
reflected in the Company's ending balance of deferred tax assets for the year ended December 31, 2016 (Successor). The Successor Company also has various state NOL carryforwards that are
subject to reduction as a result of the CODI being excluded from taxable income. The Successor Company's state NOL carryforwards after attribute reduction are not expected to be material.
137
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. INCOME TAXES (Continued)
IRC
Section 382 provides an annual limitation with respect to the ability of a corporation to utilize its tax attributes, as well as certain built-in-losses, against future U.S.
taxable income in the event of a change in ownership. The Company's emergence from chapter 11 bankruptcy proceedings is considered a change in ownership for purposes of IRC Section 382.
The limitation under the IRC is based on the value of the corporation as of the emergence date. The ownership changes and resulting annual limitation will result in the expiration of an estimated
$462 million of net operating losses generated prior to the emergence date. The expiration of these tax attributes was fully offset by a corresponding decrease in the Company's U.S. valuation
allowance, which results in no net tax provision.
The
amount of consolidated U.S. net operating losses (NOLs) available as of December 31, 2016 (Successor) after attribute reduction on January 1, 2017 and
Section 382 limitation is estimated to be approximately $444 million. These NOLs will expire in the years 2019 through 2036.
The
Company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not
be realized. The Company considers all available evidence (both positive and negative) in determining whether a valuation allowance is required. The Company evaluated possible sources of taxable
income that may be available to realize the benefit of deferred tax assets, including projected future taxable income, the reversal of existing temporary differences, taxable income in carryback years
and available tax planning strategies in making this assessment. A significant item of objective negative evidence considered was the cumulative book loss over the three-year period ended
December 31, 2016 driven primarily by the full cost ceiling impairments over that period which limits the ability to consider other subjective evidence such as the Company's anticipated future
growth. As a result of the Company's analysis, it was concluded that as of December 31, 2016 a valuation allowance should continue to be applied against the Company's net deferred tax asset.
The Company recorded a valuation allowance as of December 31, 2016 (Successor) of $821.9 million, an increase of $60.4 million from December 31, 2015 (Predecessor). The
Company will continue to monitor facts and circumstances in the reassessment of the likelihood that operating loss carryforwards, credits and other deferred tax assets will be utilized.
ASC
740,
Income Taxes
(ASC 740) prescribes a recognition threshold and a measurement attribute for the financial statement recognition and
measurement of income tax positions taken or expected to be taken in an income tax return. For those benefits to be recognized, an income tax position must be more-likely-than-not to be sustained upon
examination by taxing authorities. The Company has no unrecognized tax benefits for the period of September 10, 2016 through December 31, 2016 (Successor) and January 1, 2016 through September 9, 2016
(Predecessor) and the years ended December 31, 2015 or 2014 (Predecessor).
Generally,
the Company's income tax years 2013 through 2016 remain open for federal purposes and are subject to examination by Federal tax authorities. The Company's income tax returns
are also subject to audit by the tax authorities in Louisiana, Mississippi, North Dakota, Oklahoma, Texas, Pennsylvania, Ohio and certain other state taxing jurisdictions where the Company has, or
previously had, operations. In certain jurisdictions the Company operates through more than one legal entity, each of which may have different open years subject to examination. The open years for
state purposes can vary from the normal three year statue expiration period for federal purposes.
The
Company recognizes interest and penalties accrued to unrecognized benefits in
"Interest expense and other, net"
in its consolidated
statements of operations. For the period of September 10, 2016 through December 31, 2016 (Successor) and January 1, 2016 through September 9, 2016
138
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. INCOME TAXES (Continued)
(Predecessor)
and the years ended December 31, 2015 and 2014 (Predecessor) the Company recognized no interest and penalties.
During
the first quarter of 2014 (Predecessor), the Internal Revenue Service commenced an audit of GeoResources' tax returns for the years ending December 31, 2010 through
August 1, 2012. The audit closed during April 2015 (Predecessor) resulting in a favorable adjustment to the Company of $0.1 million.
15. EARNINGS PER SHARE
On September 9, 2016, upon emergence from chapter 11 bankruptcy, the Predecessor Company's 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
December 31, 2016
|
|
|
|
Period from
January 1, 2016
through
September 9, 2016
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(479,984
|
)
|
|
|
$
|
(32,794
|
)
|
$
|
(2,006,958
|
)
|
$
|
282,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic number of common shares outstanding
|
|
|
91,228
|
|
|
|
|
120,513
|
|
|
107,531
|
|
|
83,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$
|
(5.26
|
)
|
|
|
$
|
(0.27
|
)
|
$
|
(18.66
|
)
|
$
|
3.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(479,984
|
)
|
|
|
$
|
(32,794
|
)
|
$
|
(2,006,958
|
)
|
$
|
282,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Convertible Note, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,302
|
|
Series A preferred dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders after assumed conversions
|
|
$
|
(479,984
|
)
|
|
|
$
|
(32,794
|
)
|
$
|
(2,006,958
|
)
|
$
|
318,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic number of common shares outstanding
|
|
|
91,228
|
|
|
|
|
120,513
|
|
|
107,531
|
|
|
83,155
|
|
Common stock equivalent shares representing shares issuable upon:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
Anti-dilutive
|
|
|
|
|
Anti-dilutive
|
|
|
Anti-dilutive
|
|
|
75
|
|
Exercise of February 2012 Warrants
|
|
|
|
|
|
|
|
Anti-dilutive
|
|
|
Anti-dilutive
|
|
|
784
|
|
Exercise of Warrants
|
|
|
Anti-dilutive
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of restricted shares
|
|
|
Anti-dilutive
|
|
|
|
|
Anti-dilutive
|
|
|
Anti-dilutive
|
|
|
310
|
|
Vesting of performance units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
Conversion of Convertible Note
|
|
|
|
|
|
|
|
Anti-dilutive
|
|
|
Anti-dilutive
|
|
|
12,875
|
|
Conversion of Series A Preferred Stock
|
|
|
|
|
|
|
|
Anti-dilutive
|
|
|
Anti-dilutive
|
|
|
11,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted number of common shares outstanding
|
|
|
91,228
|
|
|
|
|
120,513
|
|
|
107,531
|
|
|
108,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$
|
(5.26
|
)
|
|
|
$
|
(0.27
|
)
|
$
|
(18.66
|
)
|
$
|
2.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. EARNINGS PER SHARE (Continued)
Common
stock equivalents, including stock options, restricted shares and warrants totaling 11.2 million shares for the period from September 10, 2016 through
December 31, 2016 (Successor) 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, restricted shares, warrants, convertible debt and preferred stock totaling 43.6 million shares for the period from January 1, 2016 through September 9,
2016 (Predecessor) were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive.
On
January 24, 2017 (Successor), the Company entered into a stock purchase agreement with certain accredited investors to sell approximately 5,518 shares of 8% automatically
convertible preferred stock, each share of which is convertible into 10,000 shares of common stock (or a proportionate number of shares of common stock with respect to any fractional shares of
preferred stock issued). Refer to Note 17, "
Subsequent Events,"
for further details.
Common
stock equivalents, including stock options, restricted shares, warrants, convertible debt and preferred stock totaling 47.1 million shares were not included in the
computation of diluted earnings per share of common stock because the effect would have been anti-dilutive for the year ended December 31, 2015 (Predecessor) due to the net loss.
Common
stock equivalents, including stock options, restricted shares and warrants, totaling 6.2 million shares were not included in the computation of diluted earnings per share
of common stock because the effect would have been anti-dilutive for the year ended December 31, 2014 (Predecessor).
140
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. ADDITIONAL FINANCIAL STATEMENT INFORMATION
Certain balance sheet amounts are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids revenues
|
|
$
|
86,433
|
|
|
|
$
|
55,129
|
|
Joint interest accounts
|
|
|
39,828
|
|
|
|
|
67,626
|
|
Accrued settlements on derivative contracts
|
|
|
18,599
|
|
|
|
|
47,011
|
|
Affiliated partnership
|
|
|
268
|
|
|
|
|
176
|
|
Other
|
|
|
2,634
|
|
|
|
|
3,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
147,762
|
|
|
|
$
|
173,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaids and other:
|
|
|
|
|
|
|
|
|
|
Prepaids
|
|
$
|
6,704
|
|
|
|
$
|
4,585
|
|
Inventory
|
|
|
|
|
|
|
|
4,635
|
|
Other
|
|
|
54
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,758
|
|
|
|
$
|
9,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
24,364
|
|
|
|
$
|
47,261
|
|
Accrued oil and natural gas capital costs
|
|
|
32,967
|
|
|
|
|
54,651
|
|
Revenues and royalties payable
|
|
|
79,147
|
|
|
|
|
64,002
|
|
Accrued interest expense
|
|
|
31,146
|
|
|
|
|
88,499
|
|
Accrued employee compensation
|
|
|
3,428
|
|
|
|
|
2,829
|
|
Accrued lease operating expenses
|
|
|
14,077
|
|
|
|
|
20,036
|
|
Drilling advances from partners
|
|
|
422
|
|
|
|
|
7,964
|
|
Income taxes payable
|
|
|
250
|
|
|
|
|
9,172
|
|
Affiliated partnership
|
|
|
323
|
|
|
|
|
365
|
|
Other
|
|
|
60
|
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
186,184
|
|
|
|
$
|
295,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17. SUBSEQUENT EVENTS
Issuance of 2025 Senior Notes and Repurchase of 2020 Second Lien Notes
On February 16, 2017 (Successor), the Company issued $850.0 million aggregate principal amount of new 6.75% senior unsecured notes
due 2025 (the 2025 Notes) in a private placement exempt from registration under the Securities Act of 1933, as amended (Securities Act), afforded by Rule 144A and Regulation S, and
applicable state securities laws. The 2025 Notes were issued at par and bear interest at a rate of 6.75% per annum, payable semi-annually on February 15 and August 15 of each year,
beginning on August 15, 2017. The 2025 Notes will mature on February 15, 2025. Proceeds from the private placement were approximately $835.1 million after deducting initial
purchasers' discounts and commissions and offering expenses. The Company used a portion of the net proceeds from the private placement to fund the repurchase of the outstanding 2020 Second Lien Notes,
and will use an additional amount of the net proceeds to redeem the remaining amount of such notes, discussed further below, and for general corporate purposes.
The
2025 Notes are governed by an Indenture, dated as of February 16, 2017, (the February 2017 Indenture) by and among the Company, the Guarantors and U.S. Bank National
Association, as
141
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. SUBSEQUENT EVENTS (Continued)
Trustee,
which contains affirmative and negative covenants that, among other things, limit the ability of the Company and the Guarantors to incur indebtedness; purchase or redeem stock or subordinated
indebtedness; make investments; create liens; enter into transactions with affiliates; sell assets; refinance certain indebtedness; merge with or into other companies or transfer substantially all of
their assets; and, in certain circumstances, to pay dividends or make other distributions on stock. The February 2017 Indenture also contains customary events of default. Upon the occurrence of
certain events of default, the Trustee or the holders of the 2025 Notes may declare all outstanding 2025 Notes to be due and payable immediately. The 2025 Notes are fully and unconditionally
guaranteed on a senior basis by the Guarantors and by certain future subsidiaries of the Company.
In
connection with the sale of the 2025 Notes, on February 16, 2017, the Company, the Guarantors and J.P. Morgan Securities LLC, on behalf of itself and as representative
of the Initial Purchasers, entered into a Registration Rights Agreement (the 2017 Registration Rights Agreement) pursuant to which the Company agreed to, among other things, use reasonable best
efforts to file a registration statement under the Securities Act and complete an exchange offer for the 2025 Notes within 365 days after closing.
At
any time prior to February 15, 2020, the Company may redeem the 2025 Notes, in whole or in part, at a redemption price equal to 100% of their principal amount plus a make-whole
premium, together with accrued and unpaid interest, if any, to the redemption date. The 2025 Notes will be redeemable, in whole or in part, on or after February 15, 2020 at redemption prices
equal to the principal amount multiplied by the percentage set forth below, plus accrued and unpaid interest (if any) on the 2025 Notes redeemed during the twelve month period indicated beginning on
February 15 of the years indicated below:
|
|
|
|
|
Year
|
|
Percentage
|
|
2020
|
|
|
105.063
|
|
2021
|
|
|
103.375
|
|
2022
|
|
|
101.688
|
|
2023 and thereafter
|
|
|
100.000
|
|
Additionally,
the Company may redeem up to 35% of the 2025 Notes prior to February 15, 2020 for a redemption price of 106.75% of the principal amount thereof, plus accrued and
unpaid interest, utilizing net cash proceeds from certain equity offerings. In addition, upon a change of control of the Company, holders of the 2025 Notes will have the right to require the Company
to repurchase all or any part of their 2025 Notes for cash at a price equal to 101% of the aggregate principal amount of the 2025 Notes repurchased, plus any accrued and unpaid interest.
On
February 9, 2017 (Successor), the Company commenced a cash tender offer for any and all of its 2020 Second Lien Notes and on February 15, 2017, the Company received
approximately $289.2 million or 41% of the outstanding aggregate principal amount of the 2020 Second Lien Notes which were validly tendered (and not validly withdrawn). As a result, on
February 16, 2017 (Successor), the Company paid approximately $303.5 million for approximately $289.2 million principal amount of 2020 Second Lien Notes, a make-whole premium of
$13.2 million plus accrued and unpaid interest of approximately $1.1 million to repurchase such notes and issued a redemption notice to redeem the remaining 2020 Second Lien Notes. The
remaining $410.8 million aggregate principal amount of 2020 Second Lien Notes will be repurchased through the guaranteed delivery procedures or redeemed at a
142
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. SUBSEQUENT EVENTS (Continued)
price
of 104.313% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date. The redemption date is expected to be March 20, 2017.
Pending Divestiture of East Texas Eagle Ford Assets
On January 24, 2017 (Successor), certain of the Company's subsidiaries entered into an Agreement of Sale and Purchase with a subsidiary
of Hawkwood Energy, LLC (Hawkwood) for the sale of all of its oil and natural gas properties and related assets located in the Eagle Ford formation of East Texas (the El Halcón
Assets) for a total sales price of $500.0 million (the El Halcón Divestiture). The effective date of the proposed sale is January 1, 2017, and the Company expects to close
the transaction in early March 2017. The sale properties include approximately 80,500 net acres prospective for the Eagle Ford formation in East Texas and the related gas gathering assets.
The
sales price is subject to adjustments for (i) operating expenses, capital expenditures and revenues between the effective date and the closing date, (ii) title,
casualty and environmental defects, and (iii) other purchase price adjustments customary in oil and gas purchase and sale agreements. Pursuant to the terms of the agreement, Hawkwood paid into
escrow a deposit of $32.5 million at signing, which amount will be applied to the sales price if the transaction closes.
The
completion of the El Halcón Divestiture is subject to customary closing conditions. The parties may terminate the sale agreement if certain closing conditions have not
been satisfied, if total adjustments to the sales price exceed 20% of the sales price, or $100.0 million, or the transaction has not closed on or before March 20, 2017. If one or more of
the closing conditions are not satisfied, or if the transaction is otherwise terminated, the divestiture may not be completed. There can be no assurance that the Company will sell the El
Halcón Assets on the terms or timing described or at all. If the El Halcón Divestiture closes, the Company intends to use the net proceeds to repay borrowings outstanding
under its Senior Credit Agreement and for general corporate purposes.
Private Placement of Automatically Convertible Preferred Stock
On January 24, 2017 (Successor), the Company entered into a stock purchase agreement with certain accredited investors to sell, in a
private placement exempt from registration requirements of the Securities Act pursuant to Section 4(a)(2), approximately 5,518 shares of 8% automatically convertible preferred stock, par value
$0.0001 per share, each share of which is convertible into 10,000 shares of common stock, par value $0.0001 per share (or a proportionate number of shares of common stock with respect to any
fractional shares of preferred stock issued), for gross proceeds of approximately $400.1 million, equivalent to a placement at $7.25 per common share.
The Company used the net proceeds from the sale of the preferred stock to partially fund the Pecos County Acquisition.
The
preferred stock was offered and sold in a private placement exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) to "accredited
investors" (as defined in Rule 501(a) under the Securities Act).
Each
share of preferred stock will be convertible into a number of shares of common stock determined by dividing the liquidation preference of the preferred stock, which is equal to the
liquidation price plus the amount of any accrued and unpaid dividends through the date of conversion, by the conversion price. The aggregate liquidation preference of the preferred stock is
$400.1 million. Accordingly, until such date each share of preferred stock will automatically convert into 10,000 shares
143
Table of Contents
HALCÓN RESOURCES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. SUBSEQUENT EVENTS (Continued)
of
common stock at an initial conversion price of $7.25 per share of common stock and each fractional share of preferred stock will be initially convertible into a proportionate number of shares of
common stock. The preferred stock will convert automatically on the 20th calendar day after the Company mails a definitive information statement to holders of its common stock notifying them
that holders of a majority of its outstanding common stock consented to the issuance of common stock upon conversion of the preferred stock on as of January 24, 2017 (Successor). The initial
conversion price is subject to adjustment in certain circumstances, including stock splits, stock dividends, rights offerings, or combinations of its common stock. No dividend will be paid on the
preferred stock if it converts into common stock on or before June 1, 2017. The common stock issuable upon a conversion of the preferred stock represents approximately 37% of the Company's
outstanding common stock as of December 31, 2016 on an as-converted basis.
The
Company agreed to file a registration statement to register the resale of shares of common stock issuable upon conversion of the preferred stock and to pay penalties in the
event such registration is not effective by June 27, 2017.
Acquisition of Southern Delaware Basin Assets (Pecos and Reeves Counties, Texas)
On January 18, 2017 (Successor), Halcón Energy Properties, Inc., a wholly owned subsidiary of the Company, entered
into a Purchase and Sale Agreement with Samson Exploration, LLC (Samson), pursuant to which it agreed to acquire a total of 20,901 net acres and related assets in the Southern Delaware Basin
located in Pecos and Reeves Counties, Texas (collectively, the Pecos County Assets), for a total purchase price of $705.0 million (the Pecos County Acquisition). The effective date of the
acquisition was November 1, 2016, and the Company closed the transaction on February 28, 2017.
The
purchase price was subject to adjustments for (i) operating expenses, capital expenditures and revenues between the effective date and the closing date, (ii) title,
casualty and environmental defects, and (iii) other purchase price adjustments customary in oil and gas purchase and sale agreements. The Company funded the Pecos County Acquisition with the
net proceeds from the private placement of its preferred stock and borrowings under its Senior Credit Agreement.
Following
the agreement with Samson, the Company agreed to acquire additional interests in the acreage from a non-operating owner for approximately $22.3 million. This incremental
acquisition includes 594 additional net acres and is expected to close in early March 2017.
144
Table of Contents
SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Oil and Natural Gas Reserves
Users of this information should be aware that the process of estimating quantities of "proved" and "proved developed" oil and natural gas
reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may
also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the
viability of production under varying economic conditions. As a result, revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure reserve
estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various reservoirs make these estimates generally less precise than
other estimates included in the financial statement disclosures.
Proved
reserves represent estimated quantities of natural gas, crude oil and condensate and natural gas liquids that geological and engineering data demonstrate, with reasonable
certainty, to be recoverable in future years from known reservoirs under economic and operating conditions in effect when the estimates were made. Proved developed reserves are proved reserves
expected to be recovered through wells and equipment in place and under operating methods used when the estimates were made.
The
proved reserves estimates shown herein for the years ended December 31, 2016 (Successor), 2015 (Predecessor) and 2014 (Predecessor) have been independently evaluated by
Netherland, Sewell, a worldwide leader of petroleum property analysis for industry and financial organizations and government agencies. Netherland, Sewell was founded in 1961 and performs consulting
petroleum engineering services under Texas Board of Professional Engineers Registration No. F-2699. Within Netherland, Sewell, the technical persons primarily responsible for preparing the
estimates set forth in the Netherland, Sewell reserves report incorporated herein are Mr. J. Carter Henson, Jr. and Mr. Mike K. Norton. Mr. Henson, a Licensed Professional
Engineer in the State of Texas (No. 73964), has been practicing consulting petroleum engineering at Netherland, Sewell since 1989 and has over 8 years of prior industry
experience. He graduated from Rice University in 1981 with a Bachelor of Science Degree in Mechanical Engineering. Mr. Norton, a Licensed Professional Geoscientist in the State of Texas
(No. 441), has been a practicing petroleum geoscience consultant at Netherland, Sewell since 1989 and has over ten years of prior industry experience. He graduated from Texas A&M University
in 1978 with a Bachelor of Science Degree in Geology. Netherland, Sewell has reported to the Company, that both technical principals meet or exceed the education, training, and experience
requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers; both are proficient in
judiciously applying industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.
The
Company's board of directors has established an independent reserves committee composed of three outside directors, all of whom have experience in energy company reserve evaluations.
The Company's independent engineering firm reports jointly to the reserves committee and to the Senior Vice President of Corporate Reserves. The reserves committee is charged with ensuring the
integrity of the process of selection and engagement of the independent engineering firm and in making a recommendation to the board of directors as to whether to approve the report prepared by the
independent engineering firm. Ms. Tina Obut, the Company's Senior Vice President of Corporate Reserves is primarily responsible for overseeing the preparation of the annual reserve report by
Netherland, Sewell. She graduated from Marietta College with a Bachelor of Science degree in Petroleum Engineering, received a Master of Science degree in Petroleum and Natural Gas
145
Table of Contents
Engineering
from Penn State University and a Master of Business Administration degree from the University of Houston.
The
reserves information in this Annual Report on Form 10-K represents only estimates. There are a number of uncertainties inherent in estimating quantities of proved reserves,
including many factors beyond the Company's control, such as commodity pricing. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot
be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result,
estimates of different engineers may vary. In addition, results of drilling, testing and production subsequent to the date of an estimate may lead to revising the original estimate. Accordingly,
initial reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered. The meaningfulness of such estimates depends primarily on the accuracy of the
assumptions upon which they were based. Except to the extent the Company acquires additional properties containing proved reserves or conducts successful exploration and development activities or
both, the Company's proved reserves will decline as reserves are produced.
The
following table illustrates the Company's estimated net proved reserves, including changes, and proved developed reserves for the periods indicated. The oil and natural gas liquids
prices as of December 31, 2016, 2015 and 2014 are based on the respective 12-month unweighted average of the first of the month prices of the West Texas Intermediate spot price which equates to
$42.75 per barrel, $50.28 per barrel and $94.99 per barrel, respectively. The natural gas prices as of December 31, 2016, 2015 and 2014 are based on the respective 12-month unweighted average
of the first of the month prices of the Henry Hub spot price which equates to $2.481 per MMBtu, $2.587 per MMBtu and $4.350 per MMBtu, respectively. All prices are adjusted by lease or field for
energy content, transportation fees, and market differentials. All prices are held constant in accordance with SEC guidelines. All proved reserves are located in the United States.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved Reserves
|
|
|
|
Oil (MBbls)
|
|
Natural Gas
(MMcf)
|
|
Natural Gas
Liquids
(MBbls)
|
|
Equivalent
(MBoe)
|
|
Proved reserves, December 31, 2013 (Predecessor)
|
|
|
114,510
|
|
|
69,748
|
|
|
9,832
|
|
|
135,967
|
|
Extensions and discoveries
|
|
|
61,312
|
|
|
31,937
|
|
|
5,984
|
|
|
72,619
|
|
Purchase of minerals in place
|
|
|
942
|
|
|
767
|
|
|
45
|
|
|
1,115
|
|
Production
|
|
|
(12,787
|
)
|
|
(8,812
|
)
|
|
(1,113
|
)
|
|
(15,369
|
)
|
Sale of minerals in place
|
|
|
(14,487
|
)
|
|
(8,125
|
)
|
|
(1,789
|
)
|
|
(17,630
|
)
|
Revision of previous estimates
|
|
|
6,084
|
|
|
18,147
|
|
|
3,327
|
|
|
12,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved reserves, December 31, 2014 (Predecessor)
|
|
|
155,574
|
|
|
103,662
|
|
|
16,286
|
|
|
189,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extensions and discoveries
|
|
|
10,117
|
|
|
6,838
|
|
|
1,215
|
|
|
12,472
|
|
Purchase of minerals in place
|
|
|
36
|
|
|
17
|
|
|
4
|
|
|
43
|
|
Production
|
|
|
(12,019
|
)
|
|
(10,123
|
)
|
|
(1,457
|
)
|
|
(15,163
|
)
|
Sale of minerals in place
|
|
|
(5
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
(6
|
)
|
Revision of previous estimates
|
|
|
(33,010
|
)
|
|
(21,950
|
)
|
|
(3,010
|
)
|
|
(39,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved reserves, December 31, 2015 (Predecessor)
|
|
|
120,693
|
|
|
78,442
|
|
|
13,037
|
|
|
146,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extensions and discoveries
|
|
|
15,279
|
|
|
7,532
|
|
|
1,722
|
|
|
18,256
|
|
Purchase of minerals in place
|
|
|
1,114
|
|
|
654
|
|
|
113
|
|
|
1,336
|
|
Production
|
|
|
(10,368
|
)
|
|
(9,571
|
)
|
|
(1,597
|
)
|
|
(13,560
|
)
|
Sale of minerals in place
|
|
|
(1,319
|
)
|
|
(258
|
)
|
|
(7
|
)
|
|
(1,369
|
)
|
Revision of previous estimates
|
|
|
(5,799
|
)
|
|
3,439
|
|
|
2,373
|
|
|
(2,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved reserves, December 31, 2016 (Successor)
|
|
|
119,600
|
|
|
80,238
|
|
|
15,641
|
|
|
148,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved Developed Reserves
|
|
|
|
Oil (MBbls)
|
|
Natural Gas
(MMcf)
|
|
Natural Gas
Liquids
(MBbls)
|
|
Equivalent
(MBoe)
|
|
December 31, 2016 (Successor)
|
|
|
67,983
|
|
|
51,525
|
|
|
9,337
|
|
|
85,908
|
|
December 31, 2015 (Predecessor)
|
|
|
66,123
|
|
|
49,201
|
|
|
7,561
|
|
|
81,885
|
|
December 31, 2014 (Predecessor)
|
|
|
62,770
|
|
|
47,851
|
|
|
6,681
|
|
|
77,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved Undeveloped Reserves
|
|
|
|
Oil (MBbls)
|
|
Natural Gas
(MMcf)
|
|
Natural Gas
Liquids
(MBbls)
|
|
Equivalent
(MBoe)
|
|
December 31, 2016 (Successor)
|
|
|
51,617
|
|
|
28,713
|
|
|
6,304
|
|
|
62,706
|
|
December 31, 2015 (Predecessor)
|
|
|
54,570
|
|
|
29,241
|
|
|
5,476
|
|
|
64,919
|
|
December 31, 2014 (Predecessor)
|
|
|
92,804
|
|
|
55,811
|
|
|
9,605
|
|
|
111,710
|
|
The
Company's reserves have been estimated using deterministic methods. The total proved reserve increase of 1.8 MMBoe during 2016 is the result of an increase in proved developed
reserves of 4.0 MMBoe offset by a decrease of 2.2 MMBoe in proved undeveloped (PUD) reserves.
During
2016, the increase in proved developed reserves is primarily associated with extension and infill drilling in the Bakken / Three Forks and El Halcón areas and
positive performance revisions in the Bakken / Three Forks area partially offset by negative revisions due to lower SEC prices. The decrease in PUD reserves is primarily due to the conversion of PUD
reserves to proved developed reserves from infill drilling and the removal of PUDs that no longer met the SEC five year development requirement, partially offset by the addition of PUD reserves.
During
2015, the Predecessor Company added 12.5 MMBoe in proved reserves by drilling extensions and infill development primarily in the Bakken / Three Forks and El Halcón
areas. Extensions and discoveries were offset by negative revisions due to the sustained decline in commodity prices, resulting in an overall negative revision of 39.7 MMBoe.
During
2014, the Predecessor Company added 72.6 MMBoe in proved reserves by drilling extensions and infill development in the Bakken / Three Forks and El Halcón areas and
an additional 12.4 MMBoe in positive revisions driven by better performance in the Bakken / Three Forks area. Sales of 17.6 MMBoe of proved reserves are primarily attributable to the divestiture of
the East Texas Assets.
At
December 31, 2016, the Successor Company's estimated PUD reserves were approximately 62.7 MMBoe, a 2.2 MMBoe net decrease over the previous year's estimate of 64.9
MMBoe. The following details the changes in PUD reserves for 2016 (MBoe):
|
|
|
|
|
Beginning proved undeveloped reserves at December 31, 2015 (Predecessor)
|
|
|
64,919
|
|
Undeveloped reserves transferred to developed
|
|
|
(7,510
|
)
|
Revisions
|
|
|
(9,314
|
)
|
Purchases
|
|
|
526
|
|
Divestitures
|
|
|
(246
|
)
|
Extension and discoveries
|
|
|
14,331
|
|
|
|
|
|
|
Ending proved undeveloped reserves at December 31, 2016 (Successor)
|
|
|
62,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
decrease in PUD reserves was due to a negative revision associated with the decline in the unweighted 12-month average prices of oil and natural gas during 2016. Negative revisions
of approximately 9 MMBoe were largely associated with PUD locations in the Bakken/Three Forks and El Halcón areas that became uneconomic at the lower unweighted 12-month average prices
of oil and natural gas as of December 31, 2016 (Successor), or were removed because they no longer met the
147
Table of Contents
SEC
five year development requirement as we have reduced our capital spending since the prior year as a result of the sustained decline in oil and natural gas prices. Further reductions of
approximately 8 MMBoe in PUD reserves were the direct result of development through our drilling program and the associated transfer of those reserves to proved developed reserves, primarily in
the Bakken/Three Forks and El Halcón areas.
As
of December 31, 2016 all of the Successor Company's PUD reserves are planned to be developed within five years from the date they were initially recorded. During 2016,
approximately $181.7 million in capital expenditures went toward the development of proved undeveloped reserves, which includes drilling, completion and other facility costs associated with
developing proved undeveloped wells.
For
wells classified as proved developed producing where sufficient production history existed, reserves were based on individual well performance evaluation and production decline curve
extrapolation techniques. For undeveloped locations and wells that lacked sufficient production history, reserves were based on analogy to producing wells within the same area exhibiting similar
geologic and reservoir characteristics, combined with volumetric methods. The volumetric estimates were based on geologic maps and rock and fluid properties derived from well logs, core data, pressure
measurements, and fluid samples. Well spacing was determined from drainage patterns derived from a combination of performance-based recoveries and volumetric estimates for each area or field. PUD
locations were limited to areas of uniformly high quality reservoir properties, between existing commercial producers.
Reliable
technologies were used to determine areas where PUD locations are more than one offset location away from a producing well. These technologies include seismic data, wire line
open hole log data, core data, log cross-sections, performance data, and statistical analysis. In such areas, these data demonstrated consistent, continuous reservoir characteristics in addition to
significant quantities of economic EURs from individual producing wells. The Company's management team has been a leader in data gathering and evaluation in these areas and was instrumental in
developing consortiums that allow various operators to exchange data. The Company relied only on production flow tests and historical production data, along with the reliable geologic data mentioned
above to estimate proved reserves. No other alternative methods or technologies were used to estimate proved reserves.
Capitalized Costs Relating to Oil and Natural Gas Producing Activities
The following table illustrates the total amount of capitalized costs relating to oil and natural gas producing activities and the total amount
of related accumulated depletion, depreciation and accretion (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
Evaluated oil and natural gas properties
(1)
|
|
$
|
1,269,034
|
|
|
|
$
|
7,060,721
|
|
$
|
6,390,820
|
|
Unevaluated oil and natural gas properties
|
|
|
316,439
|
|
|
|
|
1,641,356
|
|
|
1,829,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,585,473
|
|
|
|
|
8,702,077
|
|
|
8,220,606
|
|
Accumulated depletion
(1)
|
|
|
(465,849
|
)
|
|
|
|
(5,933,688
|
)
|
|
(2,953,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,119,624
|
|
|
|
$
|
2,768,389
|
|
$
|
5,267,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amounts do not include costs for the Company's gas gathering systems and related support equipment.
148
Table of Contents
Costs Incurred in Oil and Natural Gas Property Acquisition, Exploration and Development Activities
Costs incurred in property acquisition, exploration and development activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Period from
September 10, 2016
through
December 31, 2016
|
|
|
|
Period from
January 1, 2016
through
September 9, 2016
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Property acquisition costs, proved
(1)
|
|
$
|
|
|
|
|
$
|
(127
|
)
|
$
|
(582
|
)
|
$
|
16,037
|
|
Property acquisition costs, unproved
|
|
|
5,070
|
|
|
|
|
3
|
|
|
268
|
|
|
220,044
|
|
Exploration and extension well costs
|
|
|
13,865
|
|
|
|
|
67,216
|
|
|
194,683
|
|
|
1,107,549
|
|
Development costs
|
|
|
45,765
|
|
|
|
|
135,939
|
|
|
285,194
|
|
|
374,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs
|
|
$
|
64,700
|
|
|
|
$
|
203,031
|
|
$
|
479,563
|
|
$
|
1,717,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Proved property acquisition costs in 2016 and 2015 primarily reflect the impact of purchase price adjustments.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Natural Gas Reserves
The following Standardized Measure of Discounted Future Net Cash Flows (Standardized Measure) has been developed utilizing ASC 932,
Extractive ActivitiesOil
and Gas
(ASC 932) procedures and based on oil and natural gas reserve and production volumes estimated by the
Company's engineering staff. It can be used for some comparisons, but should not be
the only method used to evaluate the Company or its performance. Further, the information in the following table may not represent realistic assessments of future cash flows, nor should the
Standardized Measure be viewed as representative of the current value of the Company.
The
Company believes that the following factors should be taken into account when reviewing the following information:
-
-
future costs and selling prices will probably differ from those required to be used in these calculations;
-
-
due to future market conditions and governmental regulations, actual rates of production in future years may vary significantly from the rate
of production assumed in the calculations;
-
-
a 10% discount rate may not be reasonable as a measure of the relative risk inherent in realizing future net oil and natural gas
revenues; and
-
-
future net revenues may be subject to different rates of income taxation.
At
December 31, 2016, 2015 and 2014, as specified by the SEC, the prices for oil and natural gas used in this calculation were the unweighted 12-month average of the first day of
the month prices, except for volumes subject to fixed price contracts. Estimates of future income taxes are computed using current statutory income tax rates including consideration for estimated
future statutory depletion and tax credits. The resulting net cash flows are reduced to present value amounts by applying a 10% discount factor.
149
Table of Contents
The
Standardized Measure is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
(In thousands)
|
|
Future cash inflows
|
|
$
|
4,726,490
|
|
$
|
5,406,179
|
|
$
|
14,439,301
|
|
Future production costs
|
|
|
(2,290,079
|
)
|
|
(2,414,629
|
)
|
|
(4,804,728
|
)
|
Future development costs
|
|
|
(771,070
|
)
|
|
(813,814
|
)
|
|
(2,795,208
|
)
|
Future income tax expense
|
|
|
|
|
|
|
|
|
(1,979,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Future net cash flows before 10% discount
|
|
|
1,665,341
|
|
|
2,177,736
|
|
|
4,860,120
|
|
10% annual discount for estimated timing of cash flows
|
|
|
(861,824
|
)
|
|
(1,067,171
|
)
|
|
(1,603,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Standardized measure of discounted future net cash flows
|
|
$
|
803,517
|
|
$
|
1,110,565
|
|
$
|
3,256,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Natural Gas Reserves
The following is a summary of the changes in the Standardized Measure for the Company's proved oil and natural gas reserves during each of the
years in the three year period ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
(In thousands)
|
|
Beginning of year
|
|
$
|
1,110,565
|
|
$
|
3,256,370
|
|
$
|
2,745,995
|
|
Sale of oil and natural gas produced, net of production costs
|
|
|
(275,816
|
)
|
|
(375,137
|
)
|
|
(893,117
|
)
|
Purchase of minerals in place
|
|
|
9,626
|
|
|
946
|
|
|
22,142
|
|
Sales of minerals in place
|
|
|
(18,816
|
)
|
|
(96
|
)
|
|
(475,096
|
)
|
Extensions and discoveries
|
|
|
67,433
|
|
|
94,679
|
|
|
1,298,611
|
|
Changes in income taxes, net
|
|
|
|
|
|
170,546
|
|
|
(151,690
|
)
|
Changes in prices and costs
|
|
|
(302,064
|
)
|
|
(2,452,581
|
)
|
|
64,467
|
|
Previously estimated development costs incurred
|
|
|
66,087
|
|
|
295,258
|
|
|
424,504
|
|
Net changes in future development costs
|
|
|
46,981
|
|
|
456,726
|
|
|
(10,774
|
)
|
Revisions of previous quantities
|
|
|
20,192
|
|
|
(718,932
|
)
|
|
226,499
|
|
Accretion of discount
|
|
|
111,056
|
|
|
342,692
|
|
|
276,485
|
|
Changes in production rates and other
|
|
|
(31,727
|
)
|
|
40,094
|
|
|
(271,656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
803,517
|
|
$
|
1,110,565
|
|
$
|
3,256,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
Table of Contents
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Prior year financial statements are not comparable to our current year financial statements due to the adoption of fresh-start accounting.
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 reorganized company prior to, and including, September 9, 2016.
The
following table presents selected quarterly financial data derived from the Company's unaudited consolidated interim financial statements. The following data is only a summary and
should be read
with the Company's historical consolidated financial statements and related notes contained in this document (in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
Period from
July 1, 2016
through
September 9, 2016
|
|
|
|
Period from
September 10, 2016
through
September 30, 2016
|
|
|
|
|
|
Quarter Ended
March 31
|
|
Quarter Ended
June 30
|
|
|
|
Quarter Ended
December 31
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
81,349
|
|
$
|
106,147
|
|
$
|
79,347
|
|
|
|
$
|
23,107
|
|
$
|
130,255
|
|
Income (loss) from operations
|
|
|
(592,384
|
)
|
|
(261,458
|
)
|
|
2,225
|
|
|
|
|
(433,725
|
)
|
|
17,926
|
|
Net income (loss)
|
|
|
(539,999
|
)
|
|
(374,303
|
)
|
|
926,260
|
|
|
|
|
(450,692
|
)
|
|
(28,501
|
)
|
Net income (loss) available to common stockholders
(1)
|
|
|
(566,862
|
)
|
|
(382,353
|
)
|
|
916,421
|
|
|
|
|
(451,483
|
)
|
|
(28,501
|
)
|
Net income (loss) per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(4.72
|
)
|
$
|
(3.17
|
)
|
$
|
7.58
|
|
|
|
$
|
(4.96
|
)
|
$
|
(0.31
|
)
|
Diluted
|
|
$
|
(4.72
|
)
|
$
|
(3.17
|
)
|
$
|
6.06
|
|
|
|
$
|
(4.96
|
)
|
$
|
(0.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Quarters Ended
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
136,194
|
|
$
|
168,024
|
|
$
|
129,939
|
|
$
|
116,121
|
|
Income (loss) from operations
|
|
|
(626,169
|
)
|
|
(954,387
|
)
|
|
(528,685
|
)
|
|
(635,265
|
)
|
Net income (loss)
|
|
|
(587,641
|
)
|
|
(1,088,612
|
)
|
|
147,075
|
|
|
(393,443
|
)
|
Net income (loss) available to common stockholders
(2)
|
|
|
(601,193
|
)
|
|
(1,104,581
|
)
|
|
123,528
|
|
|
(424,712
|
)
|
Net income (loss) per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(7.16
|
)
|
$
|
(10.13
|
)
|
$
|
1.05
|
|
$
|
(3.56
|
)
|
|
|
$
|
(7.16
|
)
|
$
|
(10.13
|
)
|
$
|
0.88
|
|
$
|
(3.56
|
)
|
-
(1)
-
The volatility in "Net income (loss) available to common stockholders" is substantially due to a) the Company's reorganization and associated fresh-start
accounting, (b) the Company's full cost ceiling impairments, c) the gains on the extinguishment of debt and d) the Company's realized and unrealized gains and losses on its
derivative contracts. See footnotes for additional information.
-
(2)
-
The volatility in "Net income (loss) available to common
stockholders" is substantially due to a) the Company's full cost ceiling impairments, b) the
gains on the extinguishment of debt and c) the Company's realized and unrealized gains and losses on its derivative contracts. See footnotes for additional
information.
151
Table of Contents