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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

or

        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission file number: 001-31899

GRAPHIC

WHITING PETROLEUM CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

    

20-0098515

(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer
Identification No.)

1700 Lincoln Street, Suite 4700
Denver, Colorado

80203-4547

(Address of principal executive offices)

(Zip code)

(303) 837-1661

(Registrant’s telephone number, including area code)

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

Common Stock, $0.001 par value

WLL

New York Stock Exchange

(Title of each class)

(Trading symbol)

(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Smaller reporting company

Accelerated filer

Emerging growth company

Non-accelerated filer

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Yes      No  

Number of shares of the registrant’s common stock outstanding at April 30, 2021: 39,054,196 shares.

GLOSSARY OF CERTAIN DEFINITIONS

Unless the context otherwise requires, the terms “we,” “us,” “our” or “ours” when used in this Quarterly Report on Form 10-Q refer to Whiting Petroleum Corporation, together with its consolidated subsidiaries.  When the context requires, we refer to these entities separately.

We have included below the definitions for certain terms used in this report:

“ASC” Accounting Standards Codification.

“Bankruptcy Code” Title 11 of the United States Code.

“Bankruptcy Court” United States Bankruptcy Court for the Southern District of Texas.

“basis swap” or “differential swap” A derivative instrument that guarantees a fixed price differential to NYMEX at a specified delivery point.  We receive the difference between the floating market price differential and the fixed price differential from the counterparty if the floating market differential is greater than the fixed price differential for the hedged commodity.  We pay the difference between the floating market price differential and the fixed price differential to the counterparty if the fixed price differential is greater than the floating market differential for the hedged commodity.

“Bbl” One stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to oil, NGLs and other liquid hydrocarbons.

“Bcf” One billion cubic feet, used in reference to natural gas.

“BOE” One stock tank barrel of oil equivalent, computed on an approximate energy equivalent basis that one Bbl of crude oil equals six Mcf of natural gas and one Bbl of crude oil equals one Bbl of natural gas liquids.

“Btu” or “British thermal unit” The quantity of heat required to raise the temperature of one pound of water one degree Fahrenheit.

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

“costless collar” An option position where the proceeds from the sale of a call option at its inception fund the purchase of a put option at its inception.  

“deterministic method” The method of estimating reserves or resources using a single value for each parameter (from the geoscience, engineering or economic data) in the reserves calculation.

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

“differential” The difference between a benchmark price of oil and natural gas, such as the NYMEX crude oil spot price, and the wellhead price received.

“FASB” Financial Accounting Standards Board.

“field” An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.  There may be two or more reservoirs in a field that are separated vertically by intervening impervious strata, or laterally by local geologic barriers, or both.  Reservoirs that are associated by being in overlapping or adjacent fields may be treated as a single or common operational field.  The geological terms “structural feature” and “stratigraphic condition” are intended to identify localized geological features as opposed to the broader terms of basins, trends, provinces, plays, areas of interest, etc.

“GAAP” Generally accepted accounting principles in the United States of America.

1

“gross acres” or “gross wells” The total acres or wells, as the case may be, in which a working interest is owned.

“ISDA” International Swaps and Derivatives Association, Inc.

“lease operating expense” or “LOE” The expenses of lifting oil or gas from a producing formation to the surface, constituting part of the current operating expenses of a working interest, and also including labor, superintendence, supplies, repairs, short-lived assets, maintenance, allocated overhead costs and other expenses incidental to production, but not including lease acquisition or drilling or completion expenses.

“LIBOR” London interbank offered rate.

“MBbl” One thousand barrels of oil, NGLs or other liquid hydrocarbons.

“MBbl/d” One MBbl per day.

“MBOE” One thousand BOE.

“MBOE/d” One MBOE per day.

“Mcf” One thousand cubic feet, used in reference to natural gas.

“MMBbl” One million barrels of oil, NGLs or other liquid hydrocarbons.

“MMBOE” One million BOE.

“MMBtu” One million British Thermal Units, used in reference to natural gas.

“MMcf” One million cubic feet, used in reference to natural gas.

“MMcf/d” One MMcf per day.

“net acres” or “net wells” The sum of the fractional working interests owned in gross acres or wells, as the case may be.

“net production” The total production attributable to our fractional working interest owned.

“NGL” Natural gas liquid.

“NYMEX” The New York Mercantile Exchange.

“plugging and abandonment” Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or to the surface.  Regulations of most states legally require plugging of abandoned wells.

“probabilistic method” The method of estimating reserves using the full range of values that could reasonably occur for each unknown parameter (from the geoscience and engineering data) to generate a full range of possible outcomes and their associated probabilities of occurrence.

“prospect” A property on which indications of oil or gas have been identified based on available seismic and geological information.

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

2

“proved reserves” Those reserves which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs and under existing economic conditions, operating methods and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.  The project to extract the hydrocarbons must have commenced, or the operator must be reasonably certain that it will commence the project, within a reasonable time.

The area of the reservoir considered as proved includes all of the following:

a. The area identified by drilling and limited by fluid contacts, if any, and
b. Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

Reserves that can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when both of the following occur:

a. Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based, and
b. The project has been approved for development by all necessary parties and entities, including governmental entities.

Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined.  The price shall be the average price during the 12-month period before the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

“proved undeveloped reserves” or “PUDs” Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.  Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.  Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless specific circumstances justify a longer time.  Under no circumstances shall estimates of proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.

“reasonable certainty” If deterministic methods are used, reasonable certainty means a high degree of confidence that the quantities will be recovered.  If probabilistic methods are used, there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimate.  A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical and geochemical) engineering, and economic data are made to estimated ultimate recovery with time, reasonably certain estimated ultimate recovery is much more likely to increase or remain constant than to decrease.

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

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

3

“resource play” An expansive contiguous geographical area with known accumulations of crude oil or natural gas reserves that has the potential to be developed uniformly with repeatable commercial success due to advancements in horizontal drilling and completion technologies.

“royalty” The amount or fee paid to the owner of mineral rights, expressed as a percentage or fraction of gross income from crude oil or natural gas produced and sold, unencumbered by expenses relating to the drilling, completing or operating of the affected well.

“SEC” The United States Securities and Exchange Commission.

“turn-in-line” or “TIL” To turn a drilled and completed well online to begin sales.

“working interest” The interest in a crude oil and natural gas property (normally a leasehold interest) that gives the owner the right to drill, produce and conduct operations on the property and to a share of production, subject to all royalties, overriding royalties and other burdens and to all costs of exploration, development and operations and all associated risks.

“workover” Operations on a producing well to restore or increase production.

4

PART I – FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share and per share data)

Successor

March 31,

December 31,

2021

2020

ASSETS

Current assets:

Cash and cash equivalents

$

24,704

$

25,607

Restricted cash

2,400

2,760

Accounts receivable trade, net

203,058

142,830

Prepaid expenses and other

15,318

19,224

Total current assets

245,480

190,421

Property and equipment:

Oil and gas properties, successful efforts method

1,872,469

1,812,601

Other property and equipment

66,613

74,064

Total property and equipment

1,939,082

1,886,665

Less accumulated depreciation, depletion and amortization

(126,072)

(73,869)

Total property and equipment, net

1,813,010

1,812,796

Other long-term assets

38,458

40,723

TOTAL ASSETS

$

2,096,948

$

2,043,940

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable trade

$

53,642

$

23,697

Revenues and royalties payable

171,895

151,196

Accrued capital expenditures

28,832

20,155

Accrued liabilities and other

36,074

42,007

Accrued lease operating expenses

20,594

23,457

Taxes payable

16,201

11,997

Derivative liabilities

134,422

49,485

Total current liabilities

461,660

321,994

Long-term debt

245,000

360,000

Asset retirement obligations

99,271

91,864

Operating lease obligations

16,907

17,415

Other long-term liabilities

45,300

23,863

Total liabilities

868,138

815,136

Commitments and contingencies

Equity:

Successor common stock, $0.001 par value, 500,000,000 shares authorized; 39,054,196 issued and outstanding as of March 31, 2021 and 38,051,125 issued and outstanding as of December 31, 2020

39

38

Additional paid-in capital

1,190,644

1,189,693

Accumulated earnings

38,127

39,073

Total equity

1,228,810

1,228,804

TOTAL LIABILITIES AND EQUITY

$

2,096,948

$

2,043,940

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

5

WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except per share data)

Successor

Predecessor

Three Months Ended March 31, 2021

Three Months Ended March 31, 2020

OPERATING REVENUES

Oil, NGL and natural gas sales

$

304,679

$

244,846

Purchased gas sales

2,712

-

Total operating revenues

307,391

244,846

OPERATING EXPENSES

Lease operating expenses

59,339

72,340

Transportation, gathering, compression and other

7,028

8,963

Purchased gas expense

1,902

-

Production and ad valorem taxes

24,150

22,423

Depreciation, depletion and amortization

53,729

183,968

Exploration and impairment

2,622

3,753,457

General and administrative

10,291

47,167

Derivative (gain) loss, net

146,693

(231,371)

Gain on sale of properties

-

(864)

Amortization of deferred gain on sale

-

(2,037)

Total operating expenses

305,754

3,854,046

INCOME (LOSS) FROM OPERATIONS

1,637

(3,609,200)

OTHER INCOME (EXPENSE)

Interest expense

(5,103)

(45,250)

Gain on extinguishment of debt

-

25,883

Other income

2,520

(4)

Total other expense

(2,583)

(19,371)

LOSS BEFORE INCOME TAXES

(946)

(3,628,571)

INCOME TAX EXPENSE (BENEFIT)

Current

-

3,746

Deferred

-

(3,746)

Total income tax expense (benefit)

-

-

NET LOSS

$

(946)

$

(3,628,571)

LOSS PER COMMON SHARE

Basic

$

(0.02)

$

(39.70)

Diluted

$

(0.02)

$

(39.70)

WEIGHTED AVERAGE SHARES OUTSTANDING

Basic

38,698

91,390

Diluted

38,698

91,390

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

6

WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Successor

Predecessor

   

Three Months Ended March 31, 2021

 

  

Three Months Ended March 31, 2020

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss

$

(946)

$

(3,628,571)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation, depletion and amortization

53,729

183,968

Deferred income tax benefit

-

(3,746)

Amortization of debt issuance costs, debt discount and debt premium

887

4,536

Stock-based compensation

2,309

2,068

Amortization of deferred gain on sale

-

(2,037)

Gain on sale of properties

-

(864)

Oil and gas property impairments

1,441

3,745,092

Gain on extinguishment of debt

-

(25,883)

Non-cash derivative (gain) loss

107,399

(199,550)

Other, net

(973)

805

Changes in current assets and liabilities:

Accounts receivable trade, net

(58,032)

62,289

Prepaid expenses and other

3,906

(22,624)

Accounts payable trade and accrued liabilities

18,570

(55,561)

Revenues and royalties payable

20,699

(9,629)

Taxes payable

4,204

(13,080)

Net cash provided by operating activities

153,193

37,213

CASH FLOWS FROM INVESTING ACTIVITIES

Drilling and development capital expenditures

(35,728)

(146,299)

Acquisition of oil and gas properties

(470)

(350)

Other property and equipment

(2,597)

(985)

Proceeds from sale of properties

1,945

27,453

Net cash used in investing activities

(36,850)

(120,181)

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings under Predecessor Credit Agreement

-

1,185,000

Repayments of borrowings under Predecessor Credit Agreement

-

(490,000)

Borrowings under Credit Agreement

250,000

-

Repayments of borrowings under Credit Agreement

(365,000)

-

Repurchase of 1.25% Convertible Senior Notes due 2020

-

(52,890)

Restricted stock used for tax withholdings

(1,357)

(304)

Principal payments on finance lease obligations

(1,249)

(1,217)

Net cash provided by (used in) financing activities

$

(117,606)

$

640,589

(Continued)

7

WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Successor

Predecessor

   

Three Months Ended March 31, 2021

 

 

Three Months Ended March 31, 2020

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

$

(1,263)

$

557,621

CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Beginning of period

28,367

8,652

End of period

$

27,104

$

566,273

SUPPLEMENTAL CASH FLOW DISCLOSURES

Cash paid for reorganization items

$

396

$

-

NONCASH INVESTING ACTIVITIES

Accrued capital expenditures and accounts payable related to property additions

$

34,121

$

88,424

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

(Concluded)

8

WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

(in thousands)

Additional

Common Stock

Paid-in

Accumulated

Total

Shares

Amount

Capital

Earnings (Deficit)

Equity

BALANCES - January 1, 2020 (Predecessor)

91,744

$

92

$

6,409,991

$

(2,385,112)

$

4,024,971

Net loss

-

-

-

(3,628,571)

(3,628,571)

Adjustment to equity component of Convertible Senior Notes upon extinguishment

-

-

(3,461)

-

(3,461)

Restricted stock issued

185

-

-

-

-

Restricted stock forfeited

(238)

-

-

-

-

Restricted stock used for tax withholdings

(54)

-

(304)

-

(304)

Stock-based compensation

-

-

2,068

-

2,068

BALANCES - March 31, 2020 (Predecessor)

91,637

$

92

$

6,408,294

$

(6,013,683)

$

394,703

BALANCES - January 1, 2021 (Successor)

38,051

$

38

$

1,189,693

$

39,073

$

1,228,804

Net loss

-

-

-

(946)

(946)

Common stock issued in settlement of bankruptcy claims

949

1

(1)

-

-

Restricted stock issued

95

-

-

-

-

Restricted stock used for tax withholdings

(41)

-

(1,357)

-

(1,357)

Stock-based compensation

-

-

2,309

-

2,309

BALANCES - March 31, 2021 (Successor)

39,054

$

39

$

1,190,644

$

38,127

$

1,228,810

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

9

WHITING PETROLEUM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.          BASIS OF PRESENTATION

Description of Operations—Whiting Petroleum Corporation, a Delaware corporation, is an independent oil and gas company engaged in the development, production and acquisition of crude oil, NGLs and natural gas primarily in the Rocky Mountains region of the United States.  Unless otherwise specified or the context otherwise requires, all references in these notes to “Whiting” or the “Company” are to Whiting Petroleum Corporation, together with its consolidated subsidiaries, Whiting Oil and Gas Corporation (“Whiting Oil and Gas” or “WOG”), Whiting US Holding Company, Whiting Canadian Holding Company ULC, Whiting Resources LLC (“WRC,” formerly Whiting Resources Corporation) and Whiting Programs, Inc.  In September 2020, Whiting US Holding Company merged with and into WOG with WOG surviving, and WRC transferred all of its operating assets to WOG.  In November 2020, WRC, over a series of steps, was amalgamated with Whiting Canadian Holding Company ULC and subsequently dissolved.  When the context requires, the Company refers to these entities separately.  

Voluntary Reorganization under Chapter 11 of the Bankruptcy Code—On April 1, 2020 (the “Petition Date”), Whiting Petroleum Corporation, Whiting Oil and Gas, Whiting US Holding Company, Whiting Canadian Holding Company ULC and Whiting Resources Corporation (collectively, the “Debtors”) commenced voluntary cases (the “Chapter 11 Cases”) under chapter 11 of the Bankruptcy Code.  On June 30, 2020, the Debtors filed the Joint Chapter 11 Plan of Reorganization of Whiting Petroleum Corporation and its Debtor affiliates (as amended, modified and supplemented, the “Plan”).  On August 14, 2020, the Bankruptcy Court confirmed the Plan and on September 1, 2020 (the “Emergence Date”), the Debtors satisfied all conditions required for Plan effectiveness and emerged from the Chapter 11 Cases.  

Upon emergence, the Company adopted fresh start accounting in accordance with FASB ASC Topic 852 – Reorganizations (“ASC 852”), which specifies the accounting and financial reporting requirements for entities reorganizing through chapter 11 bankruptcy proceedings.  The application of fresh start accounting resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes.  As a result of the implementation of the Plan and the application of fresh start accounting, the consolidated financial statements after the Emergence Date are not comparable to the consolidated financial statements before that date and the historical financial statements on or before the Emergence Date are not a reliable indicator of the Company’s financial condition and results of operations for any period after its adoption of fresh start accounting.  Refer to the “Fresh Start Accounting” footnote for more information.  References to “Successor” refer to the Company and its financial position and results of operations after the Emergence Date.  References to “Predecessor” refer to the Company and its financial position and results of operations on or before the Emergence Date.  References to “Successor Period” refer to the three months ended March 31, 2021.  References to “Predecessor Period” refer to the three months ended March 31, 2020.  

Condensed Consolidated Financial Statements—The unaudited condensed consolidated financial statements include the accounts of Whiting Petroleum Corporation and its consolidated subsidiaries.  Investments in entities which give Whiting significant influence, but not control, over the investee are accounted for using the equity method.  Under the equity method, investments are stated at cost plus the Company’s equity in undistributed earnings and losses.  All intercompany balances and transactions have been eliminated upon consolidation.  These financial statements have been prepared in accordance with GAAP and the SEC rules and regulations for interim financial reporting.  In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly, in all material respects, the Company’s interim results.  However, operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year.  The condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q should be read in conjunction with Whiting’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2020.  Except as disclosed herein, there have been no material changes to the information disclosed in the notes to consolidated financial statements included in the Company’s 2020 Annual Report on Form 10-K.

ReclassificationsCertain prior period balances in the condensed consolidated balance sheets have been combined pursuant to Rule 10-01(a)(2) of Regulation S-X of the SEC. Such reclassifications had no impact on net loss, cash flows or shareholders’ equity previously reported.

10

Cash, Cash Equivalents and Restricted CashCash equivalents consist of demand deposits and highly liquid investments which have an original maturity of three months or less.  Cash and cash equivalents potentially subject the Company to a concentration of credit risk as substantially all of its deposits held in financial institutions were in excess of the Federal Deposit Insurance Corporation insurance limits as of March 31, 2021 and December 31, 2020.  The Company maintains its cash and cash equivalents in the form of money market and checking accounts with financial institutions that are also lenders under the Successor’s credit agreement.  The Company has not experienced any losses on its deposits of cash and cash equivalents.

Restricted cash as of March 31, 2021 and December 31, 2020 consist of funds remaining in a professional fee escrow account that were reserved to pay certain professional fees upon emergence from the Chapter 11 Cases.  

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets and statements of cash flows (in thousands):

Successor

March 31,

December 31,

2021

2020

Cash and cash equivalents

$

24,704

$

25,607

Restricted cash

2,400

2,760

Total cash, cash equivalents and restricted cash

$

27,104

$

28,367

Accounts Receivable TradeWhiting’s accounts receivable trade consist mainly of receivables from oil and gas purchasers and joint interest owners on properties the Company operates.  The Company’s collection risk is inherently low based on the viability of its oil and gas purchasers as well as its general ability to withhold future revenue disbursements to recover any non-payment of joint interest billings.  The Company’s oil and gas receivables are generally collected within two months, and to date, the Company has not experienced material credit losses.

The Company routinely evaluates expected credit losses for all material trade and other receivables to determine if an allowance for credit losses is warranted.  Expected credit losses are estimated based on (i) historic loss experience for pools of receivable balances with similar characteristics, (ii) the length of time balances have been outstanding and (iii) the economic status of each counterparty.  These loss estimates are then adjusted for current and expected future economic conditions, which may include an assessment of the probability of non-payment, financial distress or expected future commodity prices and the impact that any current or future conditions could have on a counterparty’s credit quality and liquidity.  As of March 31, 2021 and December 31, 2020 (Successor), the Company had immaterial allowances for credit losses.

2.          CHAPTER 11 EMERGENCE

Plan of Reorganization under Chapter 11 of the Bankruptcy CodeOn April 1, 2020, the Debtors commenced the Chapter 11 Cases as described in the “Basis of Presentation” footnote above.  On April 23, 2020, the Debtors entered into a restructuring support agreement with certain holders of the Company’s senior notes to support a restructuring in accordance with the terms set forth in the Plan.  On August 14, 2020, the Bankruptcy Court confirmed the Plan.  On September 1, 2020 the Debtors satisfied all conditions required for Plan effectiveness and emerged from the Chapter 11 Cases.  

On the Emergence Date and pursuant to the Plan:

(1) The Company amended and restated its certificate of incorporation and bylaws.
(2) The Company constituted a new Successor board of directors.
(3) The Company appointed a new Chief Executive Officer and a new Chief Financial Officer.

11

(4) The Company issued:
36,817,630 shares of the Successor’s common stock pro rata to holders of the Predecessor’s senior notes,
1,233,495 shares of the Successor’s common stock pro rata to holders of the Predecessor’s common stock,
4,837,387 Series A Warrants to purchase the same number of shares of the Successor’s common stock pro rata to holders of the Predecessor’s common stock and
2,418,840 Series B Warrants to purchase the same number of shares of the Successor’s common stock pro rata to holders of the Predecessor’s common stock.

The Company also reserved 3,070,201 shares of the Successor’s common stock for potential future distribution to certain general unsecured claimants whose claim values were pending resolution in the Bankruptcy Court.  In February 2021, the Company issued 948,897 shares out of this reserve to a general unsecured claimant in full settlement of such claimant’s claims pending before the Bankruptcy Court and for rejection damages relating to an executory contract.  Any remaining reserved shares that are not distributed to resolve pending claims will be cancelled.  In addition, 4,035,885 shares have been reserved for distribution under the Company’s 2020 equity incentive plan, as further detailed in the “Stock-Based Compensation” footnote below.  

(5) Whiting Petroleum Corporation, as parent guarantor, and Whiting Oil and Gas, as borrower, entered into a reserves-based credit agreement with a syndicate of banks (the “Credit Agreement”) with initial aggregate commitments in the amount of $750 million, with the ability to increase the aggregate commitments by up to an additional $750 million, subject to certain conditions.  Refer to the “Long-Term Debt” footnote for more information on the Credit Agreement.  The Company utilized borrowings from the Credit Agreement and cash on hand to repay all borrowings and accrued interest outstanding on its pre-emergence credit facility (the “Predecessor Credit Agreement”) as of the Emergence Date, and the Predecessor Credit Agreement terminated on that date.
(6) The holders of trade claims, administrative expense claims, other secured claims and other priority claims received payment in full in cash upon emergence or through the ordinary course of business after the Emergence Date.

Executory Contracts—Subject to certain exceptions, under the Bankruptcy Code the Debtors were entitled to assume, assign or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and fulfillment of certain other conditions.  Generally, the rejection of an executory contract or unexpired lease was treated as a pre-petition breach of such contract and, subject to certain exceptions, relieved the Debtors from performing future obligations under such contract but entitled the counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach.  Alternatively, the assumption of an executory contract or unexpired lease required the Debtors to cure existing monetary defaults under such executory contract or unexpired lease, if any, and provide adequate assurance of future performance.  Accordingly, any description of an executory contract or unexpired lease with the Debtors in this document, including where applicable quantification of the Company’s obligations under such executory or unexpired lease of the Debtors, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code unless an order settling the claims has been issued by the Bankruptcy Court.  Further, nothing herein is or shall be deemed an admission with respect to any claim amounts or calculations arising from the rejection of any executory contract or unexpired lease and the Debtors expressly preserve all of their rights in that regard.  Refer to the “Commitments and Contingencies” footnote for more information on potential future rejection damages related to general unsecured claims.  

Claims Resolution Process—Pursuant to the Plan, the Debtors have the sole authority to (1) file and prosecute objections to claims asserted by third parties and governmental entities and (2) settle, compromise, withdraw, litigate to judgment or otherwise resolve objections to such claims.  The claims resolutions process is ongoing and certain of these claims remain subject to the jurisdiction of the Bankruptcy Court.

12

3.         FRESH START ACCOUNTING

Fresh Start—In connection with the Company’s emergence from bankruptcy and in accordance with ASC 852, the Company qualified for and adopted fresh start accounting on the Emergence Date.  Upon application of fresh start accounting, the Company allocated its reorganization value to its individual assets based on their estimated fair values in conformity with FASB ASC Topic 820 – Fair Value Measurement (“ASC 820”) and FASB ASC Topic 805 – Business Combinations (“ASC 805”).  The reorganization value represents the fair value of the Successor’s assets before considering certain liabilities and is intended to represent the approximate amount a willing buyer would pay for the Company’s assets immediately after reorganization.

For further information on the Company’s reorganization value and the resulting fresh start adjustments made on the Emergence Date, refer to the “Fresh Start Accounting” footnote in the notes to the consolidated financial statements in Item 8 of the Company’s 2020 Annual Report on Form 10-K.

4.          OIL AND GAS PROPERTIES

Net capitalized costs related to the Company’s oil and gas producing activities at March 31, 2021 and December 31, 2020 are as follows (in thousands):

Successor

March 31,

December 31,

    

2021

2020

Proved oil and gas properties

$

1,743,530

$

1,701,163

Unproved leasehold costs

102,841

105,073

Wells and facilities in progress

26,098

6,365

Total oil and gas properties, successful efforts method

1,872,469

1,812,601

Accumulated depletion

(121,277)

(71,064)

Oil and gas properties, net

$

1,751,192

$

1,741,537

Impairment expense for unproved properties totaled $1 million and $12 million for the three months ended March 31, 2021 (Successor) and March 31, 2020 (Predecessor), respectively, and is reported in exploration and impairment expense in the condensed consolidated statements of operations.

Refer to the “Fair Value Measurements” footnote for more information on proved property measurements recorded during the periods presented.

5.          ACQUISITIONS AND DIVESTITURES

2021 Acquisitions and Divestitures

There were no significant acquisitions or divestitures during the three months ended March 31, 2021.

2020 Acquisitions and Divestitures

On January 9, 2020, the Predecessor completed the divestiture of its interests in 30 non-operated, producing oil and gas wells and related undeveloped acreage located in McKenzie County, North Dakota for aggregate sales proceeds of $25 million (before closing adjustments).

There were no significant acquisitions during the three months ended March 31, 2020.

13

6.          LONG-TERM DEBT

Long-term debt consisted of the following at March 31, 2021 and December 31, 2020 (in thousands):

Successor

March 31,

December 31,

    

2021

2020

Credit Agreement

$

245,000

$

360,000

Total long-term debt

$

245,000

$

360,000

Credit Agreement (Successor)

On the Emergence Date, Whiting Petroleum Corporation, as parent guarantor, and Whiting Oil and Gas, as borrower, entered into the Credit Agreement, a reserves-based credit facility, with a syndicate of banks.  As of March 31, 2021, the Credit Agreement had a borrowing base and aggregate commitments of $750 million.  As of March 31, 2021, the Company had $503 million of available borrowing capacity under the Credit Agreement, which was net of $245 million of borrowings outstanding and $2 million in letters of credit outstanding.

The borrowing base under the Credit Agreement is determined at the discretion of the lenders, based on the collateral value of the Company’s proved reserves that have been mortgaged to such lenders, and is subject to regular redeterminations on April 1 and October 1 of each year, as well as special redeterminations described in the Credit Agreement, in each case which may increase or decrease the amount of the borrowing base.  In April 2021, the Company’s borrowing base and aggregate commitments of $750 million were reaffirmed in connection with our regular borrowing base redetermination. Future asset sales that materially impact the value of the Company’s proved reserves may result in a reduction of the borrowing base. However, the Company can increase the aggregate commitments by up to an additional $750 million, subject to certain conditions.  

A portion of the revolving credit facility in an aggregate amount not to exceed $50 million may be used to issue letters of credit for the account of Whiting Oil and Gas or other designated subsidiaries of the Company.  As of March 31, 2021, $48 million was available for additional letters of credit under the Credit Agreement.

The Credit Agreement provides for interest only payments until maturity on April 1, 2024, when the agreement terminates and all outstanding borrowings are due.  In addition, the Credit Agreement provides for certain mandatory prepayments, including a provision pursuant to which, if the Company’s cash balances are in excess of approximately $75 million during any given week, such excess must be utilized to repay borrowings under the Credit Agreement.  Interest under the Credit Agreement accrues at the Company’s option at either (i) a base rate for a base rate loan plus a margin between 1.75% and 2.75% based on the ratio of outstanding borrowings and letters of credit to the lower of the current borrowing base or total commitments, where the base rate is defined as the greatest of the prime rate, the federal funds rate plus 0.5% per annum, or an adjusted LIBOR plus 1.0% per annum, or (ii) an adjusted LIBOR for a eurodollar loan plus a margin between 2.75% and 3.75% based on the ratio of outstanding borrowings and letters of credit to the lower of the current borrowing base or total commitments.  Additionally, the Company incurs commitment fees of 0.5% on the unused portion of the aggregate commitments of the lenders under the Credit Agreement, which are included as a component of interest expense.  At March 31, 2021, the weighted average interest rate on the outstanding principal balance under the Credit Agreement was 4.2%.

The Credit Agreement contains restrictive covenants that may limit the Company’s ability to, among other things, incur additional indebtedness, sell assets, make loans to others, make investments, enter into mergers, enter into hedging contracts, incur liens and engage in certain other transactions without the prior consent of its lenders.  Except for limited exceptions, the Credit Agreement also restricts the Company’s ability to make any dividend payments or distributions on its common stock prior to September 1, 2021, and thereafter only to the extent that the Company has distributable free cash flow and (i) has at least 20% of available borrowing capacity, (ii) has a consolidated net leverage ratio of less than or equal to 2.0 to 1.0, (iii) does not have a borrowing base deficiency and (iv) is not in default under the Credit Agreement. These restrictions apply to all of the Company’s restricted subsidiaries and are calculated in accordance with definitions contained in the Credit Agreement. The Credit Agreement requires the Company, as of the last day of any quarter, to maintain commodity hedges covering a minimum of 65% of its projected production for the succeeding twelve months, and 35% of its projected production for the next succeeding twelve months, both as reflected in the reserves report most recently provided by the Company to the lenders under the Credit Agreement.  The Company is also limited to hedging a maximum of 85% of its production from proved reserves.  The Credit Agreement requires the Company to maintain the following ratios: (i) a consolidated current assets to

14

consolidated current liabilities ratio of not less than 1.0 to 1.0 and (ii) a total debt to last four quarters’ EBITDAX ratio of not greater than 3.5 to 1.0.  As of March 31, 2021, the Company was in compliance with the covenants under the Credit Agreement.

The obligations of Whiting Oil and Gas under the Credit Agreement are secured by a first lien on substantially all of the Company’s properties.  The Company has also guaranteed the obligations of Whiting Oil and Gas under the Credit Agreement and has pledged the stock of its subsidiaries as security for its guarantee.

Senior Notes and Convertible Senior Notes (Predecessor)

Prior to the Emergence Date, the Company had outstanding notes consisting of $774 million 5.75% Senior Notes due 2021, $408 million 6.25% Senior Notes due 2023 and $1.0 billion 6.625% Senior Notes due 2026 (the “Senior Notes”) and $187 million of 1.25% Convertible Senior Notes due 2020 (the “Convertible Senior Notes”).  On the Emergence Date, through implementation of the Plan, all outstanding obligations under the Senior Notes and the Convertible Senior Notes were cancelled and 36,817,630 shares of Successor common stock were issued to the holders of those outstanding notes.  In addition, the remaining unamortized debt issuance costs and debt premium were written off to reorganization items, net in the condensed consolidated statements of operations.  Refer to the “Chapter 11 Emergence” and “Fresh Start Accounting” footnotes for more information.

In March 2020, the Company paid $53 million to repurchase $73 million aggregate principal amount of the Convertible Senior Notes, which payment consisted of the average 72.5% purchase price plus all accrued and unpaid interest on the notes, which were allocated to the liability and equity components based on their relative fair values.  The Company financed the repurchases with borrowings under the Predecessor Credit Agreement.  As a result of these repurchases, the Company recognized a $23 million gain on extinguishment of debt during the Predecessor Period, which was net of a $0.2 million charge for the non-cash write-off of unamortized debt issuance costs and debt discount.  In addition, the Company recorded a $3 million reduction to the equity component of the Convertible Senior Notes.  There was no deferred tax impact associated with this reduction due to the full valuation allowance in effect as of March 31, 2020.

7.          ASSET RETIREMENT OBLIGATIONS

The Company’s asset retirement obligations represent the present value of estimated future costs associated with the plugging and abandonment of oil and gas wells, removal of equipment and facilities from leased acreage and land restoration in accordance with applicable local, state and federal laws and the terms of the Company’s lease agreements.  The current portions as of March 31, 2021 and December 31, 2020 (Successor) were $7 million and $6 million, respectively, and have been included in accrued liabilities and other in the condensed consolidated balance sheets.  The following table provides a reconciliation of the Company’s asset retirement obligations for the three months ended March 31, 2021 (in thousands):

Asset retirement obligation at January 1, 2021 (Successor)

$

98,130

Additional liability incurred

265

Revisions to estimated cash flows

6,821

Accretion expense

2,222

Obligations on sold properties

(123)

Liabilities settled

(1,309)

Asset retirement obligation at March 31, 2021 (Successor)

$

106,006

8.          DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to certain risks relating to its ongoing business operations, and it uses derivative instruments to manage its commodity price risk.

Commodity Derivative ContractsHistorically, prices received for crude oil, natural gas and natural gas liquids production have been volatile because of supply and demand factors, worldwide political factors, general economic conditions and seasonal weather patterns.  Whiting primarily enters into derivative contracts such as crude oil, natural gas and natural gas liquids swaps, collars, basis swaps and differential swaps to achieve a more predictable cash flow by reducing its exposure to commodity price volatility, thereby ensuring adequate funding for the Company’s capital programs and facilitating the management of returns on drilling programs and acquisitions.  The Company also enters into derivative contracts to maintain its compliance with certain minimum hedging requirements contained in

15

the Credit Agreement.  Refer to the “Long Term Debt” footnote for a detailed discussion of the minimum and maximum hedging requirements of the Credit Agreement.  The Company does not enter into derivative contracts for speculative or trading purposes.

Crude Oil, Natural Gas and Natural Gas Liquids Swaps and Collars, Natural Gas Basis Swaps and Crude Oil Differential Swaps.  Swaps establish a fixed price for anticipated future oil, gas or NGL production, while collars are designed to establish floor and ceiling prices on anticipated future oil or gas production.  Natural gas basis swaps and crude oil differential swaps mitigate risk associated with anticipated future production by establishing a fixed differential between NYMEX prices and the referenced index price.  While the use of these derivative instruments limits the downside risk of adverse price movements, it may also limit future income from favorable price movements.  

The table below details the Successor’s swap and collar derivatives entered into to hedge forecasted crude oil, NGL and natural gas production revenues as of March 31, 2021 (Successor).

Weighted Average

Settlement Period

Index

Derivative Instrument

Total Volumes

Units

Swap Price

Floor

Ceiling

Crude Oil

2021

NYMEX WTI

Fixed Price Swaps

4,723,500

Bbl

$44.44

-

-

2021

NYMEX WTI

Two-way Collars

4,796,000

Bbl

-

$38.95

$47.05

2022

NYMEX WTI

Fixed Price Swaps

630,000

Bbl

$54.30

-

-

2022

NYMEX WTI

Two-way Collars

9,197,000

Bbl

-

$42.61

$52.87

Q1 2023

NYMEX WTI

Two-way Collars

2,160,000

Bbl

-

$46.13

$56.25

Total

21,506,500

Natural Gas

2021

NYMEX Henry Hub

Fixed Price Swaps

14,430,000

MMBtu

$2.81

-

-

2021

NYMEX Henry Hub

Two-way Collars

8,250,000

MMBtu

-

$2.60

$2.79

2022

NYMEX Henry Hub

Fixed Price Swaps

3,530,000

MMBtu

$2.65

-

-

2022

NYMEX Henry Hub

Two-way Collars

10,720,000

MMBtu

-

$2.35

$2.85

Q1 2023

NYMEX Henry Hub

Two-way Collars

2,700,000

MMBtu

-

$2.58

$3.08

Total

39,630,000

Natural Gas Basis (1)

2021

NNG Ventura to NYMEX

Fixed Price Swaps

5,500,000

MMBtu

-$0.18

-

-

2022

NNG Ventura to NYMEX

Fixed Price Swaps

2,165,000

MMBtu

$0.50

-

-

Q1 2023

NNG Ventura to NYMEX

Fixed Price Swaps

3,375,000

MMBtu

$0.37

-

-

Total

11,040,000

NGL - Propane

2021

Mont Belvieu

Fixed Price Swaps

17,325,000

Gallons

$0.76

-

-

Total

17,325,000

(1) The weighted average price associated with the natural gas basis swaps shown in the table above represents the average fixed differential to NYMEX as stated in the related contracts, which is compared to the Northern Natural Gas Ventura Index (“NNG Ventura”) for each period.  If NYMEX combined with the fixed differential as stated in each contract is higher than the NNG Ventura index price at any settlement date, the Company receives the difference.  Conversely, if the NNG Ventura index price is higher than NYMEX combined with the fixed differential, the Company pays the difference.

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Subsequent to March 31, 2021, the Company entered into additional crude oil and natural gas swaps and collars for the remainder of 2021, 2022 and the second quarter of 2023.  The table below details the Company’s additional swap and collar derivatives entered into during April 2021.

Weighted Average

Settlement Period

Index

Derivative Instrument

Total Volumes

Units

Swap Price

Floor

Ceiling

Crude Oil

Q2 2023

NYMEX WTI

Two-way Collars

546,000

Bbl

-

$47.50

$59.23

Crude Oil Differential (1)

2021

UHC Clearbrook to NYMEX

Fixed Price Swaps

107,000

Bbl

-$1.95

-

-

Natural Gas

2022

NYMEX Henry Hub

Fixed Price Swaps

1,365,000

MMBtu

$2.49

-

-

Q2 2023

NYMEX Henry Hub

Two-way Collars

1,365,000

MMBtu

-

$2.25

$2.50

Total

2,730,000

Natural Gas Basis

2022

NNG Ventura to NYMEX

Fixed Price Swaps

1,365,000

MMBtu

-$0.22

-

-

Q2 2023

NNG Ventura to NYMEX

Fixed Price Swaps

1,365,000

MMBtu

-$0.22

-

-

Total

2,730,000

(1) The weighted average price associated with the crude oil differential swaps shown in the table above represents the average fixed differential to NYMEX as stated in the related contracts, which is compared to the NE2 Canadian Monthly Index for UHC Clearbrook (“UHC Clearbrook”) for each period.  If NYMEX combined with the fixed differential as stated in each contract is higher than the UHC Clearbrook index price at any settlement date, the Company receives the difference.  Conversely, if the UHC Clearbrook index price is higher than NYMEX combined with the fixed differential, the Company pays the difference.

Derivative Instrument Reporting—All derivative instruments are recorded in the condensed consolidated financial statements at fair value, other than derivative instruments that meet the “normal purchase normal sale” exclusion or other derivative scope exceptions.  The following table summarizes the effects of derivative instruments on the condensed consolidated statements of operations for the periods presented (in thousands):

(Gain) Loss Recognized in Income

Successor

Predecessor

Not Designated as ASC 815 Hedges

    

Statements of Operations Classification

    

Three Months Ended March 31, 2021

  

  

Three Months Ended March 31, 2020

Commodity contracts

Derivative (gain) loss, net

$

146,693

$

(231,371)

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Offsetting of Derivative Assets and Liabilities.  The Company nets its financial derivative instrument fair value amounts executed with the same counterparty pursuant to ISDA master agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract.  The following tables summarize the location and fair value amounts of all the Successor’s derivative instruments in the condensed consolidated balance sheets, as well as the gross recognized derivative assets, liabilities and amounts offset in the condensed consolidated balance sheets (in thousands):

March 31, 2021 (1)

Net

Gross

Recognized

Recognized

Gross

Fair Value

Not Designated as 

Assets/

Amounts

Assets/

ASC 815 Hedges

    

Balance Sheet Classification

    

Liabilities

    

Offset

    

Liabilities

Derivative assets

Commodity contracts - current

Prepaid expenses and other

$

11,517

$

(11,517)

$

-

Commodity contracts - non-current

Other long-term assets

42,716

(42,716)

-

Total derivative assets

$

54,233

$

(54,233)

$

-

Derivative liabilities

Commodity contracts - current

Derivative liabilities

$

145,939

$

(11,517)

$

134,422

Commodity contracts - non-current

Other long-term liabilities

74,928

(42,716)

32,212

Total derivative liabilities

$

220,867

$

(54,233)

$

166,634

December 31, 2020 (1)

Net

Gross

Recognized

Recognized

Gross

Fair Value

Not Designated as 

Assets/

Amounts

Assets/

ASC 815 Hedges

    

Balance Sheet Classification

    

Liabilities

    

Offset

    

Liabilities

Derivative assets

Commodity contracts - current

Prepaid expenses and other

$

14,287

$

(14,287)

$

-

Commodity contracts - non-current

Other long-term assets

19,991

(19,991)

-

Total derivative assets

$

34,278

$

(34,278)

$

-

Derivative liabilities

Commodity contracts - current

Derivative liabilities

$

63,772

$

(14,287)

$

49,485

Commodity contracts - non-current

Other long-term liabilities

29,741

(19,991)

9,750

Total derivative liabilities

$

93,513

$

(34,278)

$

59,235

(1) All of the counterparties to the Company’s financial derivative contracts subject to master netting arrangements are lenders under the Credit Agreement, which eliminates the need to post or receive collateral associated with its derivative positions.  Therefore, columns for cash collateral pledged or received have not been presented in these tables.

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

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9.          FAIR VALUE MEASUREMENTS

The Company follows ASC 820 which establishes a three-level valuation hierarchy for disclosure of fair value measurements.  The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement.  The three levels are defined as follows:

Level 1:  Quoted Prices in Active Markets for Identical Assets – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2:  Significant Other Observable Inputs – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3:  Significant Unobservable Inputs – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Cash, cash equivalents, restricted cash, accounts receivable and accounts payable are carried at cost, which approximates their fair value because of the short-term maturity of these instruments.  The Company’s Credit Agreement has a recorded value that approximates its fair value since its variable interest rate is tied to current market rates and the applicable margins represent market rates.

The Company’s derivative financial instruments are recorded at fair value and include a measure of the Company’s own nonperformance risk or that of its counterparty, as appropriate.  The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 (Successor), and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values (in thousands):

Total Fair Value

    

Level 1

    

Level 2

    

Level 3

    

March 31, 2021

Financial Liabilities

Commodity derivatives – current

$

-

$

134,422

$

-

$

134,422

Commodity derivatives – non-current

-

32,212

-

32,212

Total financial liabilities

$

-

$

166,634

$

-

$

166,634

Total Fair Value

    

Level 1

    

Level 2

    

Level 3

    

December 31, 2020

Financial Liabilities

Commodity derivatives – current

$

-

$

49,485

$

-

$

49,485

Commodity derivatives – non-current

-

9,750

-

9,750

Total financial liabilities

$

-

$

59,235

$

-

$

59,235

The following methods and assumptions were used to estimate the fair values of the Company’s financial assets and liabilities that are measured on a recurring basis:

Commodity Derivatives.  Commodity derivative instruments consist mainly of swaps, collars and basis swaps for crude oil, natural gas and natural gas liquids.  The Company’s swaps, collars and basis swaps are valued based on an income approach.  Both the option and swap models consider various assumptions, such as quoted forward prices for commodities, time value and volatility factors.  These assumptions are observable in the marketplace throughout the full term of the contract, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace, and are therefore designated as Level 2 within the valuation hierarchy.  The discount rates used in the fair values of these instruments include a measure of either the Company’s or the counterparty’s nonperformance risk, as appropriate.  The Company utilizes its counterparties’ valuations to assess the reasonableness of its own valuations.

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Non-recurring Fair Value MeasurementsThe Company applies the provisions of the fair value measurement standard on a non-recurring basis to its non-financial assets and liabilities, including proved property.  These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances.  The Company did not recognize any impairment write-downs with respect to its proved property during the Successor Period.  The following table presents information about the Company’s non-financial assets measured at fair value on a non-recurring basis during the Predecessor Period and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values (in thousands):

Predecessor

Net Carrying

Loss (Before

Value as of

Tax) During the

March 31,

Fair Value Measurements Using

Predecessor

    

2020

    

Level 1

    

Level 2

    

Level 3

    

Period

Proved property (1)

$

816,234

$

-

$

-

$

816,234

$

3,732,096

(1) During the first quarter of 2020, certain proved oil and gas properties across the Company’s Williston Basin resource play with a previous carrying amount of $4.5 billion were written down to their fair value as of March 31, 2020 of $816 million, resulting in a non-cash impairment charge of $3.7 billion, which was recorded within exploration and impairment expense.  These impaired properties were written down due to a reduction in anticipated future cash flows primarily driven by an expectation of sustained depressed oil prices and a resultant decline in future development plans for the properties.

Predecessor Proved Property Impairments.  The Company tests proved property for impairment whenever events or changes in circumstances indicate that the fair value of these assets may be reduced below their carrying value.  As a result of the significant decrease in the forward price curves for crude oil and natural gas during the first quarter of 2020, the associated decline in anticipated future cash flows and the resultant decline in future development plans for the properties, the Company performed a proved property impairment test as of March 31, 2020.  The fair value was ascribed using an income approach based on the net discounted future cash flows from the producing properties and related assets.  The discounted cash flows were based on management’s expectations for the future.  Unobservable inputs included estimates of future oil and gas production from the Company’s reserve reports, commodity prices based on forward strip price curves (adjusted for basis differentials) as of March 31, 2020, operating and development costs, expected future development plans for the properties and a discount rate of 16% as of March 31, 2020 based on a weighted-average cost of capital (all of which were designated as Level 3 inputs within the fair value hierarchy).  The impairment test indicated that a proved property impairment had occurred, and the Company therefore recorded non-cash impairment charges to reduce the carrying value of the impaired properties to their fair value at March 31, 2020.

10.          REVENUE RECOGNITION

The Company recognizes revenue in accordance with FASB ASC Topic 606 – Revenue from Contracts with Customers (“ASC 606”).  Revenue is recognized at the point in time at which the Company’s performance obligations under its commodity sales contracts are satisfied and control of the commodity is transferred to the customer.  The Company has determined that its contracts for the sale of crude oil, unprocessed natural gas, residue gas and NGLs contain monthly performance obligations to deliver product at locations specified in the contract.  Control is transferred at the delivery location, at which point the performance obligation has been satisfied and revenue is recognized.  Fees included in the contract that are incurred prior to control transfer are classified as transportation, gathering, compression and other, and fees incurred after control transfers are included as a reduction to the transaction price.  The transaction price at which revenue is recognized consists entirely of variable consideration based on quoted market prices less various fees and the quantity of volumes delivered.  Purchased gas sales revenue relates to the sale of natural gas from Whiting facilities that was not produced from the Company’s properties.  The table below presents the disaggregation of revenue by product and transaction type for the periods presented (in thousands):

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Successor

Predecessor

OPERATING REVENUES

Three Months Ended March 31, 2021

Three Months Ended March 31, 2020

Oil sales

$

256,709

$

231,945

NGL and natural gas sales

47,970

12,901

Oil, NGL and natural gas sales

304,679

244,846

Purchased gas sales

2,712

-

Total operating revenues

$

307,391

$

244,846

Whiting receives payment for product sales from one to three months after delivery.  At the end of each month when the performance obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are accrued in accounts receivable trade, net in the condensed consolidated balance sheets.  As of March 31, 2021 and December 31, 2020 (Successor), such receivable balances were $126 million and $88 million, respectively.  Variances between the Company’s estimated revenue and actual payments are recorded in the month the payment is received, but differences have been and are insignificant.  Accordingly, the variable consideration is not constrained.

The Company has elected to utilize the practical expedient in ASC 606 that states the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation.  Under the Company’s contracts, each monthly delivery of product represents a separate performance obligation, therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

11.        SHAREHOLDERS’ EQUITY

Common StockOn the Emergence Date, the Successor filed an amended and restated certificate of incorporation with the Delaware Secretary of State to provide for, among other things, the authority to issue a total of 550,000,000 shares of all classes of capital stock, of which 500,000,000 shares are common stock, par value $0.001 per share, (the “New Common Stock”) and 50,000,000 shares are preferred stock, par value $0.001 per share.

Upon emergence from the Chapter 11 Cases on the Emergence Date, all existing shares of the Predecessor’s common stock were cancelled and the Successor issued 38,051,125 shares of New Common Stock.  Refer to the “Chapter 11 Emergence” footnote for more information.

WarrantsOn the Emergence Date and pursuant to the Plan, the Successor entered into warrant agreements with Computershare Inc. and Computershare Trust Company, N.A., as warrant agent, which provide for (i) the Successor’s issuance of up to an aggregate of 4,837,821 Series A warrants to purchase the New Common Stock (the “Series A Warrants”) to certain former holders of the Predecessor’s common stock and (ii) the Successor’s issuance of up to an aggregate of 2,418,910 Series B warrants to purchase New Common Stock (the “Series B Warrants” and together with the Series A Warrants, the “Warrants”) to certain former holders of the Predecessor’s common stock.  The Warrants were recorded at fair value upon issuance on the Emergence Date, as further detailed in the “Fresh Start Accounting” footnote.

The Series A Warrants are exercisable from the date of issuance until the fourth anniversary of the Emergence Date, at which time all unexercised Series A Warrants will expire, and the rights of the holders of such warrants to purchase New Common Stock will terminate. The Series A Warrants are initially exercisable for one share of New Common Stock per Series A Warrant at an initial exercise price of $73.44 per Series A Warrant (the “Series A Exercise Price”).

The Series B Warrants are exercisable from the date of issuance until the fifth anniversary of the Emergence Date, at which time all unexercised Series B Warrants will expire, and the rights of the holders of such warrants to purchase New Common Stock will terminate. The Series B Warrants are initially exercisable for one share of New Common Stock per Series B Warrant at an initial exercise price of $83.45 per Series B Warrant (the “Series B Exercise Price” and together with the Series A Exercise Price, the “Exercise Prices”).

Pursuant to the warrant agreements, no holder of a Warrant, by virtue of holding or having a beneficial interest in a Warrant, will have the right to vote, receive dividends, receive notice as stockholders with respect to any meeting of stockholders for the election of

21

Whiting’s directors or any other matter, or exercise any rights whatsoever as a stockholder of Whiting unless, until and only to the extent such holders become holders of record of shares of New Common Stock issued upon settlement of the Warrants.

The number of shares of New Common Stock for which a Warrant is exercisable and the Exercise Prices, are subject to adjustment from time to time upon the occurrence of certain events, including stock splits, reverse stock splits or stock dividends to holders of New Common Stock or a reclassification in respect of New Common Stock.

Settlement of Bankruptcy ClaimsPrior to the Chapter 11 Cases, WOG was party to various executory contracts with BNN Western, LLC, subsequently renamed Tallgrass Water Western, LLC (“Tallgrass”), including a Produced Water Gathering and Disposal Agreement (the “PWA”).  In January 2021, WOG and Tallgrass entered into a settlement agreement to resolve all of the related claims before the Bankruptcy Court relating to such executory contracts, terminated the PWA and entered into a new Water Transport, Gathering and Disposal Agreement.  In accordance with the settlement agreement, Whiting made a $2 million cash payment and issued 948,897 shares of New Common Stock pursuant to the confirmed Plan to a Tallgrass entity in February 2021.

12.        STOCK-BASED COMPENSATION

Equity Incentive Plan—As discussed in the “Chapter 11 Emergence” footnote, on the Emergence Date and pursuant to the terms of the Plan, all of the Predecessor’s common stock and any unvested awards based on such common stock were cancelled and holders were issued an aggregate of 1,233,495 shares of Successor common stock on a pro rata basis.  On September 1, 2020, the Successor’s board of directors adopted the Whiting Petroleum Corporation 2020 Equity Incentive Plan (the “2020 Equity Plan”), which replaced the Predecessor’s equity plan (the “Predecessor Equity Plan”).  The 2020 Equity Plan provides the authority to issue 4,035,885 shares of the Successor’s common stock.  Any shares forfeited under the 2020 Equity Plan will be available for future issuance under the 2020 Equity Plan.  However, shares netted for tax withholding under the 2020 Equity Plan will be cancelled and will not be available for future issuance.  Under the 2020 Equity Plan, during any calendar year no non-employee director participant may be granted awards having a grant date fair value in excess of $500,000.  As of March 31, 2021, 3,050,034 shares of common stock remained available for grant under the 2020 Equity Plan.

Historically, the Company has granted service-based restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) to executive officers and employees, which generally vest ratably over a two, three or five-year service period.  The Company has granted service-based RSAs and RSUs to directors, which generally vest over a one-year service period.  In addition, the Company has granted performance share awards (“PSAs”) and performance share units (“PSUs”) to executive officers that are subject to market-based vesting criteria, which generally vest over a three-year service period.  The Company accounts for forfeitures of awards granted under these plans as they occur in determining compensation expense.  The Company recognizes compensation expense for all awards subject to market-based vesting conditions regardless of whether it becomes probable that these conditions will be achieved or not, and compensation expense for share-settled awards is not reversed if vesting does not actually occur.

Successor Awards

During September and October 2020, 89,021 shares of service-based RSUs were granted to executive officers and directors under the 2020 Equity Plan.  The Company determines compensation expense for these share-settled awards using their fair value at the grant date based on the closing bid price of the Company’s common stock on such date.  The weighted average grant date fair value of these RSUs was $17.47 per share.

In September 2020, 189,900 shares of market-based RSUs were granted to executive officers under the 2020 Equity Plan.  The awards will vest upon the Successor’s common stock trading for 20 consecutive trading days above a certain daily volume weighted average price (“VWAP”) as follows: 50% will vest if the VWAP exceeds $32.57 per share, an additional 25% if the daily VWAP exceeds $48.86 per share and the final 25% if the daily VWAP exceeds $65.14 per share.  The Company recognizes compensation expense based on the fair value as determined by a Monte Carlo valuation model (the “Monte Carlo Model”) over the expected vesting period, which is estimated to be between 1.8 and 3.8 years.  The weighted average grant date fair value of these RSUs was $6.54 per share.  More information on the inputs of the Monte Carlo Model are explained below.  During the three months ended March 31, 2021, the first 50% of these awards vested as the Company’s VWAP exceeded $32.57 per share for 20 consecutive trading days during the period.

During the three months ended March 31, 2021, 358,123 shares of service-based RSUs were granted to executive officers and employees under the 2020 Equity Plan, which vest ratably over either a two or three-year service period.  Additionally, during the three months ended March 31, 2021, 117,607 shares of service-based RSUs were granted to executive officers under the 2020 Equity Plan, which

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