Chaparral Energy, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EX-32.2 - Chaparral Energy, Inc.	cpr-ex322_9.htm
EX-32.1 - EX-32.1 - Chaparral Energy, Inc.	cpr-ex321_7.htm
EX-31.2 - EX-31.2 - Chaparral Energy, Inc.	cpr-ex312_6.htm
EX-31.1 - EX-31.1 - Chaparral Energy, Inc.	cpr-ex311_8.htm

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 September 30, 2017

☐	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: 333-134748

Chaparral Energy, Inc.

(Exact name of registrant as specified in its charter)

Delaware		73-1590941
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

701 Cedar Lake Boulevard Oklahoma City, Oklahoma		73114
(Address of principal executive offices)		(Zip code)

(405) 478-8770

(Registrant’s telephone number, including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☐


Non-accelerated filer (Do not check if a smaller reporting company)	☒

Smaller reporting company	☐

Emerging growth company	☐

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

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

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 outstanding of each of the issuer’s classes of common stock as of November 14, 2017:

Class	Number of Shares
Class A Common Stock, $0.01 par value		38,943,766
Class B Common Stock, $0.01 par value		7,871,512

CHAPARRAL ENERGY, INC.

Index to Form 10-Q

		Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements		7
Consolidated Balance Sheets		7
Consolidated Statements of Operations		9
Consolidated Statements of Stockholders' Equity (Deficit)		11
Consolidated Statements of Cash Flows		12
Condensed Notes to Consolidated Financial Statements		13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		39
Overview		39
Results of Operations		43
Liquidity and Capital Resources		53
Non-GAAP Financial Measure and Reconciliation		58
Critical Accounting Policies		59
Recent Accounting Pronouncements		60
Item 3. Quantitative and Qualitative Disclosures about Market Risk		60
Item 4. Controls and Procedures		62
Part II. OTHER INFORMATION
Item 1. Legal Proceedings		62
Item 1A. Risk Factors		63
Item 3. Defaults Upon Senior Securities		63
Item 5. Other Information		63
Item 6. Exhibits		63
Signatures		64

CAUTIONARY NOTE

REGARDING FORWARD-LOOKING STATEMENTS

This report includes statements that constitute forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties. These statements may relate to, but are not limited to, information or assumptions about us, our capital and other expenditures, dividends, financing plans, capital structure, cash flow, pending legal and regulatory proceedings and claims, including environmental matters, future economic performance, operating income, cost savings, and management’s plans, strategies, goals and objectives for future operations and growth. These forward-looking statements generally are accompanied by words such as “intend,” “anticipate,” “believe,” “estimate,” “expect,” “should,” “seek,” “project,” “plan” or similar expressions. Any statement that is not a historical fact is a forward-looking statement. It should be understood that these forward-looking statements are necessarily estimates reflecting the best judgment of senior management, not guarantees of future performance. They are subject to a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements in this report may include, for example, statements about:

•

fluctuations in demand or the prices received for oil and natural gas;

•

the amount, nature and timing of capital expenditures;

•

drilling, completion and performance of wells;

•

competition and government regulations;

•

timing and amount of future production of oil and natural gas;

•

costs of exploiting and developing properties and conducting other operations, in the aggregate and on a per-unit equivalent basis;

•

changes in proved reserves;

•

operating costs and other expenses;

•

our future financial condition, results of operations, revenue, cash flows and expenses;

•

estimates of proved reserves;

•

exploitation of property acquisitions; and

•

marketing of oil and natural gas.

These forward-looking statements represent intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In addition to the risk factors described in Part II, Item 1A. Risk Factors, our Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2017, and Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016, the factors include:

•

the ability to operate our business following emergence from bankruptcy;

•

worldwide supply of and demand for oil and natural gas;

•

volatility and declines in oil and natural gas prices;

•

drilling plans (including scheduled and budgeted wells);

•

our new capital structure and the adoption of fresh start accounting, including the risk that assumptions and factors used in estimating enterprise value vary significantly from current values;

•

the number, timing or results of any wells;

•

changes in wells operated and in reserve estimates;

•

supply of CO₂ ;

•

future growth and expansion;

•

future exploration;

•

integration of existing and new technologies into operations;

•

future capital expenditures (or funding thereof) and working capital;

•

risks related to the concentration of our operations in the mid-continent geographic area;

•

borrowings and capital resources and liquidity;

•

changes in strategy and business discipline, including our post-emergence business strategy;

•

future tax matters;

•

any loss of key personnel;

•

geopolitical events affecting oil and natural gas prices;

•

outcome, effects or timing of legal proceedings;

•

the effect of litigation and contingencies;

•

the ability to generate additional prospects; and

•

the ability to successfully complete merger, acquisition or divestiture plans, regulatory or other limitations imposed as a result of a merger, acquisition or divestiture, and the success of the business following a merger, acquisition or divestiture.

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

Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements contained herein. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

GLOSSARY OF CERTAIN DEFINED TERMS

The terms defined in this section are used throughout this Form 10-Q:

Active EOR Areas	Areas where we are currently or where we plan to inject and/or recycle CO₂ as a means of oil recovery.

Basin	A low region or natural depression in the earth’s crust where sedimentary deposits accumulate.

Bankruptcy Court	United States Bankruptcy Court for the District of Delaware

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

BBtu	One billion British thermal units.

Boe	Barrels of oil equivalent using the ratio of six thousand cubic feet of natural gas to one barrel of oil.

Boe/d	Barrels of oil equivalent per day.

Btu	British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.

Completion	The process of treating a drilled well followed by the installation of permanent equipment for the production of oil or natural gas, or in the case of a dry well, the reporting to the appropriate authority that the well has been abandoned.

CO₂	Carbon dioxide.

Developed acreage	The number of acres that are assignable to productive wells.

Dry well or dry hole	An exploratory, development or extension well that proves to be incapable of producing either oil or natural gas in sufficient quantities to justify completion as an oil or natural gas well.

Enhanced oil recovery (EOR)	The use of any improved recovery method, including injection of CO₂ or polymer, to remove additional oil after Secondary Recovery.

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

MBbls	One thousand barrels of crude oil, condensate, or natural gas liquids.

MBoe	One thousand barrels of crude oil equivalent.

Mcf	One thousand cubic feet of natural gas.

MMBtu	One million British thermal units.

MMcf	One million cubic feet of natural gas.

MMcf/d	Millions of cubic feet per day.

Natural gas liquids (NGLs)	Those hydrocarbons in natural gas that are separated from the gas as liquids through the process of absorption, condensation, adsorption or other methods in gas processing or cycling plants. Natural gas liquids primarily include propane, butane, isobutane, pentane, hexane and natural gasoline.

New Credit Facility	Ninth Restated Credit Agreement, dated as of March 21, 2017, by and among, Chaparral Energy, Inc., as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent and The Lenders and Prepetition Borrowers Party thereto.
New Revolver	A first-out revolving facility under the New Credit Facility.

New Term Loan	A second-out term loan under the New Credit Facility.
NYMEX	The New York Mercantile Exchange.

Play	A term describing an area of land following the identification by geologists and geophysicists of reservoirs with potential oil and natural gas reserves.

Prior Credit Facility	Eighth Restated Credit Agreement, dated as of April 12, 2010, by and among us, Chaparral Energy, L.L.C., in its capacity as Borrower Representative for the Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent and each of the Lenders named therein, as amended.

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

Proved reserves	The quantities of oil and natural gas 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.

Proved undeveloped reserves	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.

PV-10 value	When used with respect to oil and natural gas reserves, PV-10 value means the estimated future gross revenue to be generated from the production of proved reserves, net of estimated production and future development costs, excluding escalations of prices and costs based upon future conditions, before income taxes, and without giving effect to non-property-related expenses, discounted to a present value using an annual discount rate of 10%.

Registration Rights Agreement	Registration Rights Agreement, dated as of March 21, 2017, by and among Chaparral Energy, Inc. and the Stockholders named therein.

Reorganization Plan	First Amended Joint Plan of Reorganization for Chaparral Energy, Inc. and its Affiliate Debtors under Chapter 11 of the Bankruptcy Code.

SEC	The Securities and Exchange Commission.

Secondary Recovery	The recovery of oil and natural gas through the injection of liquids or gases into the reservoir, supplementing its natural energy. Secondary Recovery methods are often applied when production slows due to depletion of the natural pressure.

Senior Notes	Collectively, our 9.875% senior notes due 2020, 8.25% senior notes due 2021, and 7.625% senior notes due 2022, of which all obligations have been discharged upon consummation of our Reorganization Plan.

STACK	An acronym standing for Sooner Trend Anadarko Canadian Kingfisher. A play in the Anadarko Basin of Oklahoma in which we operate.

Undeveloped acreage	Lease acreage on which wells have not been drilled or completed to a point that would permit the production of economic quantities of oil or natural gas regardless of whether such acreage contains proved reserves.

Unit	The joining of all or substantially all interests in a reservoir or field, rather than a single tract, to provide for development and operation without regard to separate property interests. Also, the area covered by a unitization agreement.

PART I — FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Chaparral Energy, Inc. and subsidiaries

Consolidated balance sheets

	Successor			Predecessor
	September 30,			December 31,
(dollars in thousands, except share data)	2017			2016
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	22,395		$	186,480
Accounts receivable, net		63,952			46,226
Inventories, net		4,207			7,351
Prepaid expenses		2,161			3,886
Derivative instruments		8,130			—
Total current assets		100,845			243,943
Property and equipment, net		52,766			41,347
Oil and natural gas properties, using the full cost method:
Proved		707,938			4,323,964
Unevaluated (excluded from the amortization base)		599,885			20,353
Accumulated depreciation, depletion, amortization and impairment		(59,157	)		(3,789,133	)
Total oil and natural gas properties		1,248,666			555,184
Derivative instruments		5,990			—
Other assets		3,082			5,513
Total assets	$	1,411,349		$	845,987

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

Chaparral Energy, Inc. and subsidiaries

Consolidated balance sheets—continued

	Successor			Predecessor
	September 30,			December 31,
(dollars in thousands, except share data)	2017			2016
	(unaudited)
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable and accrued liabilities	$	65,069		$	42,442
Accrued payroll and benefits payable		9,466			3,459
Accrued interest payable		404			732
Revenue distribution payable		15,574			9,426
Long-term debt and capital leases, classified as current		4,758			469,112
Derivative instruments		—			7,525
Total current liabilities		95,271			532,696
Long-term debt and capital leases, less current maturities		319,696			—
Derivative instruments		—			5,844
Deferred compensation		561			—
Asset retirement obligations		60,614			65,456
Liabilities subject to compromise		—			1,284,144
Commitments and contingencies (Note 11)
Stockholders’ equity (deficit):
Predecessor preferred stock, 600,000 shares authorized, none issued and outstanding as of December 31, 2016		—			—
Predecessor Class A Common stock, $0.01 par value, 10,000,000 shares authorized and 333,686 shares issued and outstanding as of December 31, 2016		—			4
Predecessor Class B Common stock, $0.01 par value, 10,000,000 shares authorized and 344,859 shares issued and outstanding as of December 31, 2016		—			3
Predecessor Class C Common stock, $0.01 par value, 10,000,000 shares authorized and 209,882 shares issued and outstanding as of December 31, 2016		—			2
Predecessor Class E Common stock, $0.01 par value, 10,000,000 shares authorized and 504,276 shares issued and outstanding as of December 31, 2016		—			5
Predecessor Class F Common stock, $0.01 par value, 1 share authorized, issued, and outstanding as of December 31, 2016		—			—
Predecessor Class G Common stock, $0.01 par value, 3 shares authorized and 2 shares issued and outstanding as of December 31, 2016		—			—
Predecessor additional paid in capital		—			425,231
Successor preferred stock, 5,000,000 shares authorized, none issued and outstanding as of September 30, 2017		—			—
Successor Class A Common stock, $0.01 par value, 180,000,000 shares authorized and 38,907,573 shares issued and outstanding as of September 30, 2017		389			—
Successor Class B Common stock, $0.01 par value, 20,000,000 shares authorized and 7,871,512 shares issued and outstanding as of September 30, 2017		79			—
Successor additional paid in capital		952,172			—
Accumulated deficit		(17,433	)		(1,467,398	)
Total stockholders' equity (deficit)		935,207			(1,042,153	)
Total liabilities and stockholders' equity (deficit)	$	1,411,349		$	845,987

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

Chaparral Energy, Inc. and subsidiaries

Consolidated statements of operations

(Unaudited)

	Successor			Predecessor
	Three months			Three months
	ended			ended
(in thousands, except share and per share data)	September 30, 2017			September 30, 2016
Revenues - commodity sales	$	75,947		$	65,847
Costs and expenses:
Lease operating		24,209			22,291
Transportation and processing		2,942			2,429
Production taxes		4,536			2,174
Depreciation, depletion and amortization		32,167			29,624
Loss on impairment of other assets		—			202
General and administrative		9,924			1,519
Cost reduction initiatives		34			89
Total costs and expenses		73,812			58,328
Operating income		2,135			7,519
Non-operating (expense) income:
Interest expense		(5,283	)		(7,436	)
Derivative (losses) gains		(15,448	)		—
Other income (expense), net		376			(129	)
Net non-operating (expense) income		(20,355	)		(7,565	)
Reorganization items, net		(858	)		(5,504	)
Loss before income taxes		(19,078	)		(5,550	)
Income tax expense (benefit)		37			(59	)
Net loss	$	(19,115	)	$	(5,491	)
Earnings per share:
Basic for Class A and Class B	$	(0.42	)	*
Diluted for Class A and Class B	$	(0.42	)	*
Weighted average shares used to compute earnings per share:
Basic for Class A and Class B		44,982,142		*
Diluted for Class A and Class B		44,982,142		*

____________________________________________________________

* Item not disclosed. See “Note 2—Earnings per share.”

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

Chaparral Energy, Inc. and subsidiaries

Consolidated statements of operations—continued

(Unaudited)

	Successor			Predecessor
	Period from			Period from
	March 22, 2017			January 1, 2017			Nine months
	through			through			ended
(in thousands, except share and per share data)	September 30, 2017			March 21, 2017			September 30, 2016
Revenues - commodity sales	$	157,803		$	66,531		$	180,076
Costs and expenses:
Lease operating		51,527			19,941			68,462
Transportation and processing		6,370			2,034			6,493
Production taxes		8,235			2,417			6,812
Depreciation, depletion and amortization		66,432			24,915			94,396
Loss on impairment of oil and gas assets		—			—			281,079
Loss on impairment of other assets		—			—			1,461
General and administrative		24,641			6,843			14,812
Liability management		—			—			9,396
Cost reduction initiatives		155			629			3,228
Total costs and expenses		157,360			56,779			486,139
Operating income (loss)		443			9,752			(306,063	)
Non-operating (expense) income:
Interest expense		(10,984	)		(5,862	)		(57,243	)
Derivative (losses) gains		(4,089	)		48,006			(9,468	)
Write-off of Senior Note issuance costs, discount and premium		—			—			(16,970	)
Other (expense) income, net		(180	)		1,373			217
Net non-operating (expense) income		(15,253	)		43,517			(83,464	)
Reorganization items, net		(2,548	)		988,727			(10,859	)
(Loss) income before income taxes		(17,358	)		1,041,996			(400,386	)
Income tax expense		75			37			165
Net (loss) income	$	(17,433	)	$	1,041,959		$	(400,551	)
Earnings per share:
Basic for Class A and Class B	$	(0.39	)	*			*
Diluted for Class A and Class B	$	(0.39	)	*			*
Weighted average shares used to compute earnings per share:
Basic for Class A and Class B		44,982,142		*			*
Diluted for Class A and Class B		44,982,142		*			*

____________________________________________________________

* Item not disclosed. See “Note 2—Earnings per share.”

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

Chaparral Energy, Inc. and subsidiaries

Consolidated statements of stockholders’ equity (deficit)

(Unaudited)

							Additional
	Common stock						paid in			Accumulated
(dollars in thousands)	Shares			Amount			capital			deficit			Total
Balance at December 31, 2016 - Predecessor		1,392,706		$	14		$	425,231		$	(1,467,398	)	$	(1,042,153	)
Restricted stock forfeited		(1,454	)		—			—			—			—
Restricted stock cancelled		(8,964	)		—			—			—			—
Stock-based compensation		—			—			194			—			194
Net income		—			—			—			1,041,959			1,041,959
Balance at March 21, 2017 - Predecessor		1,382,288			14			425,425			(425,439	)		—
Cancellation of Predecessor equity		(1,382,288	)		(14	)		(425,425	)		425,439			—
Balance at March 21, 2017 - Predecessor		—		$	—		$	—		$	—		$	—


Issuance of Successor common stock - rights offering		4,197,210		$	42		$	49,985		$	—		$	50,027
Issuance of Successor common stock - backstop premium		367,030			4		—				—			4
Issuance of Successor common stock - settlement of claims		40,417,902			404			898,510			—			898,914
Issuance of Successor warrants	—				—			118			—			118
Balance at March 21, 2017 - Successor		44,982,142			450			948,613			—			949,063
Stock-based compensation		1,796,943			18			3,559			—			3,577
Net income		—			—			—			(17,433	)		(17,433	)
Balance at September 30, 2017 - Successor		46,779,085		$	468		$	952,172		$	(17,433	)	$	935,207

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

Chaparral Energy, Inc. and subsidiaries

Consolidated statements of cash flows

(Unaudited)

	Successor			Predecessor
	Period from			Period from
	March 22, 2017			January 1, 2017			Nine months
	through			through			ended
(in thousands)	September 30, 2017			March 21, 2017			September 30, 2016
Cash flows from operating activities
Net (loss) income	$	(17,433	)	$	1,041,959		$	(400,551	)
Adjustments to reconcile net loss to net cash provided by operating activities
Non-cash reorganization items		—			(1,012,090	)		—
Depreciation, depletion and amortization		66,432			24,915			94,396
Loss on impairment of assets		—			—			282,540
Write-off of Senior Note issuance costs, discount and premium		—			—			16,970
Derivative losses (gains)		4,089			(48,006	)		9,468
Loss (gain) on sale of assets		876			(206	)		128
Other		1,300			645			2,832
Change in assets and liabilities
Accounts receivable		(16,082	)		198			(4,866	)
Inventories		2,683			466			2,758
Prepaid expenses and other assets		2,560			(497	)		(370	)
Accounts payable and accrued liabilities		(13,369	)		8,733			24,026
Revenue distribution payable		4,549			(1,875	)		1,173
Deferred compensation		2,565			143			(5,384	)
Net cash provided by operating activities		38,170			14,385			23,120
Cash flows from investing activities
Expenditures for property, plant, and equipment and oil and natural gas properties		(114,358	)		(31,179	)		(119,994	)
Proceeds from asset dispositions		7,791			1,884			954
Proceeds from derivative instruments		15,143			1,285			90,590
Cash in escrow		42			—			49
Net cash used in investing activities		(91,382	)		(28,010	)		(28,401	)
Cash flows from financing activities
Proceeds from long-term debt		33,000			270,000

Chaparral Energy, Inc. - FORM 10-Q - November 13, 2017

Attached files