a)

On October 13, 2017, we entered into a purchase and sale agreement with Perdure Petroleum, LLC., for the sale of our EOR Assets for total cash consideration, subject to normal and customary closing adjustments, of $170,000 plus certain contingent payments. The sale closed on November 17, 2017, and based on preliminary estimates of closing adjustments, we received proceeds of $163,380. The effective date of the purchase is June 1, 2017.

b)

We utilized the proceeds received from the sale to repay in full the outstanding balance on our second- out term loan (the “Term Loan”)  of $149,192 and to repay $10,900 on our first-out revolving facility (the “Revolver”), both components of our  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 (the “Credit Facility”)

c)

Pursuant to full-cost accounting rules, we have determined that the divestiture would significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to our single cost center if no adjustment were made for the gain or loss on the divestiture. Consequently we have calculated the book value of oil and natural gas assets divested based on the relative fair values of assets sold versus those retained in order to recognize the corresponding loss on sale.

(in thousands, except share data)

As Reported

Pro Forma

Adjustments

As Adjusted

Assets

Current assets:

Cash and cash equivalents

$

22,395

$

1,768

(1)

$

24,163

Accounts receivable, net

63,952

—

63,952

Inventories, net

4,207

(220

)

(2)

3,987

Prepaid expenses

2,161

—

2,161

Derivative instruments

8,130

—

8,130

Total current assets

100,845

1,548

102,393

Property and equipment, net

52,766

(70

)

(2) (7)

52,696

Oil and natural gas properties, using the full cost method:

Proved

707,938

(176,816

)

(2) (6) (7)

531,122

Unevaluated (excluded from the amortization base)

599,885

(30,072

)

(6)

569,813

Accumulated depreciation, depletion, amortization and impairment

(59,157

)

—

(59,157

)

Total oil and natural gas properties

1,248,666

(206,888

)

1,041,778

Derivative instruments

5,990

—

5,990

Other assets

3,082

(1,477

)

(2)

1,605

Total assets

$

1,411,349

$

(206,887

)

$

1,204,462

Liabilities and stockholders’ equity (deficit)

Current liabilities:

Accounts payable and accrued liabilities

$

65,069

$

(5,011

)

(2)

$

60,058

Accrued payroll and benefits payable

9,466

2,024

(3)

11,490

Accrued interest payable

404

—

404

Revenue distribution payable

15,574

—

15,574

Long-term debt and capital leases, classified as current

4,758

(1,500

)

(1)

3,258

Derivative instruments

—

—

Total current liabilities

95,271

(4,487

)

90,784

Long-term debt and capital leases, less current maturities

319,696

(157,941

)

(1) (4)

161,755

Derivative instruments

—

—

—

Deferred compensation

561

—

561

Asset retirement obligations

60,614

(27,144

)

(2)

33,470

Liabilities subject to compromise

—

—

—

Commitments and contingencies

Stockholders’ equity (deficit):

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

—

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

—

79

Successor additional paid in capital

952,172

952,172

Accumulated deficit

(17,433

)

(17,315

)

(5)

(34,748

)

Total stockholders' equity (deficit)

935,207

(17,315

)

917,892

Total liabilities and stockholders' equity (deficit)

$

1,411,349

$

(206,887

)

$

1,204,462

Successor

Predecessor

(in thousands)

Period from

March 22, 2017

through

September 30, 2017

As Reported

Period from

January 1, 2017

through

March 21, 2017

As Reported

Pro Forma

Adjustments

As Adjusted

Revenues - commodity sales

$

157,803

$

66,531

$

(78,185

)

(8)

$

146,149

Costs and expenses:

Lease operating

51,527

19,941

(32,181

)

(8)

39,287

Transportation and processing

6,370

2,034

(4

)

(8)

8,400

Production taxes

8,235

2,417

(4,764

)

(8)

5,888

Depreciation, depletion and amortization

66,432

24,915

(38,103

)

(9)

53,244

Loss on impairment of oil and gas assets

—

—

—

—

Loss on impairment of other assets

—

—

—

—

General and administrative

24,641

6,843

—

31,484

Liability management

—

—

—

—

Cost reduction initiatives

155

629

—

784

Total costs and expenses

157,360

56,779

(75,052

)

139,087

Operating income (loss)

443

9,752

(3,133

)

7,062

Non-operating (expense) income:

Interest expense

(10,984

)

(5,862

)

5,996

(10)

(10,850

)

Derivative (losses) gains

(4,089

)

48,006

—

43,917

Write-off of Senior Note issuance costs, discount and premium

—

—

—

—

Other (expense) income, net

(180

)

1,373

2,612

(11)

3,805

Net non-operating (expense) income

(15,253

)

43,517

8,608

36,872

Reorganization items, net

(2,548

)

988,727

—

(13)

986,179

(Loss) income before income taxes

(17,358

)

1,041,996

5,475

1,030,113

Income tax expense

75

37

—

(12)

112

Net (loss) income

$

(17,433

)

$

1,041,959

$

5,475

$

1,030,001

(in thousands)

As Reported

Pro Forma

Adjustments

As Adjusted

Revenues - commodity sales

$

252,152

$

(90,877

)

(8)

$

161,275

Costs and expenses:

Lease operating

90,533

(41,952

)

(8)

48,581

Transportation and processing

8,845

(5

)

(8)

8,840

Production taxes

9,610

(4,582

)

(8)

5,028

Depreciation, depletion and amortization

122,928

(49,437

)

(9)

73,491

Loss on impairment of oil and gas assets

281,079

—

281,079

Loss on impairment of other assets

1,393

—

1,393

General and administrative

20,953

—

20,953

Liability management

9,396

—

9,396

Cost reduction initiatives

2,879

—

2,879

Total costs and expenses

547,616

(95,976

)

451,640

Operating (loss) income

(295,464

)

5,099

(290,365

)

Non-operating (expense) income:

Interest expense

(64,242

)

7,208

(10)

(57,034

)

Gain on extinguishment of debt

—

—

—

Non-hedge derivative (losses) gains

(22,837

)

—

(22,837

)

Write-off of Senior Note issuance costs, discount and premium

(16,970

)

—

(16,970

)

Other income, net

411

3,482

(11)

3,893

Net non-operating (expense) income

(103,638

)

10,690

(92,948

)

Reorganization items, net

(16,720

)

—

(13)

(16,720

)

(Loss) income before income taxes

(415,822

)

15,789

(400,033

)

Income tax (benefit) expense

(102

)

—

(12)

(102

)

Net (loss) income

$

(415,720

)

$

15,789

$

(399,931

)

(1)

The funds flow reflects proceeds received on the sale of the EOR Assets, net of estimated closing adjustments and the utilization of the proceeds to repay in full the outstanding balance on our Term Loan and to pay down the outstanding balance on our Revolver.

Gross cash proceeds

$

170,000

Less estimated closing and post-closing adjustments

(6,620

)

Net proceeds

163,380

Less selling costs

(1,520

)

Repayment of Term Loan (a)

(149,192

)

Repayment of Revolving Credit Facility

(10,900

)

Net cash

$

1,768

(a)

The current portion of the Term Loan is $1,500.

(2)

Reflects the application of net proceeds from the sale and the resulting loss on disposition.

Net proceeds

$

163,380

Selling costs

(1,520

)

Net investment in commodity inventory

(220

)

Net investment in property and equipment

(14,451

)

Book value of oil and natural gas properties sold based on fair value allocation

(192,507

)

Net investment in other assets

(1,477

)

Asset retirement obligations (a)

32,155

Net loss on disposition of assets

$

(14,640

)

(a)

The current portion of the related asset retirement obligation is $5,011.

(3)

Reflects our accrual for the estimated incremental severance costs for employees terminated as a result of the divestiture.

(4)

Reflects the write-off of original issue discount of $651 on the Term Loan currently reflected as a contra amount within “Long-term debt and capital leases, less current maturities.”

(5)

Reflects the net impact to retained earnings as follows:

Net loss on disposition of assets

$

(14,640

)

Severance costs accrued

(2,024

)

Writeoff original issue discount on the Term Loan

(651

)

$

(17,315

)

(6)

Reflects the transfer of the amount within unproved oil and gas property related to the EOR assets from unproved properties to the amortization base of $30,072.

(7)

We have operating leases and capital leases for CO₂ compressors utilized in EOR operations. In conjunction with the sale, we have entered into subleases with the Buyer for all our leased compressors, although we will remain the primary obligor on the leases. The subleases, all of which are to be treated as operating leases, have been structured such that payments received from the sublessee will equal payments we make to the original lessor and hence we will not incur a sublease loss. As they will no longer be providing service with respect to our exploration and production activities, the compressors under our capital leases will be reclassified out of the full cost pool into property plant and equipment on our pro forma consolidated balance sheets. The amount reclassified of $14,381 represents the hypothetical book value of these compressors assuming they had been a component of plant, property and equipment when they were initially placed in service.    

(8)

Reflects adjustments to remove direct revenues and expenses associated with the EOR Assets sold.

(9)

Reflects reductions in units of production amortization of our oil and natural gas reserves, depreciation of plant, property and equipment and accretion of asset retirement obligations partially offset by depreciation of CO₂ compressors subleased to the buyer (see item (7) above).  Amortization of our oil and natural gas reserves would have been lower due to decreased production volumes and a lower amortization rate upon adjustments to remove the oil and natural gas reserves, future development costs, book value of oil and gas assets sold as determined by fair value allocation, and the CO₂ compressors under capital leases.  Depreciation of plant, property and equipment and accretion of asset retirement obligations would have been lower due to the due to the conveyance of the associated assets and liabilities to the Buyer.

(10)

Reflects a reduction in interest expense as a result of lower outstanding debt balance upon utilization of the sale proceeds to repay debt.

(11)

As a result of the CO₂ compressor subleases we have entered into (described in item (7) above), we will receive rental revenue which will be recorded as a component of other income. Expenses with respect to our original operating leases will be recorded as a component of other income. Expenses with respect to our original capital leases are in the form of depreciation and interest. The revenue and expense components of our subleases are as follows:

Year ended

Nine months ended

December 31, 2016

September 30, 2017

Sublease revenue recorded to other income (a)

$

4,669

$

3,596

Operating lease payments to lessor

(1,187

)

(984

)

Adjustment to  other income

$

3,482

$

2,612

Expenses associated with capital leases

Interest expense (b)

$

690

$

456

Depreciation on capital lease asset (c)

2,530

1,898

(a)

Represents sublease revenue on CO₂ compressors for which we remain the primary obligor under both operating and capital leases.

(b)

Interest expense on our capital lease obligations are reflected in the historical amounts in our statements of operations.

(c)

See item (9) above

(12)

Our historical income taxes expense during the Successor and Predecessor periods in 2017 as well as during the Predecessor 12 months ended December 31, 2016, reflect our obligation for Texas margin tax on gross revenues less certain deductions.

The impact of the EOR Asset sale will not result in a material change to the historical amounts and therefore no adjustments have been made. The Company currently has sufficient net operating loss carryforwards to offset any pro forma net income contemplated herein although the net operating loss carryforwards are currently fully offset by a valuation allowance. Similarly, deferred tax assets that arise from any pro forma contemplated net losses will be subject to a full valuation allowance. Therefore no pro forma adjustments to income tax expense are necessary.

(13)

Pursuant to the Securities and Exchange Commission’s requirement that infrequent or nonrecurring items included in the underlying historical financial statements that are not directly affected by the transaction be left intact instead of being eliminated, we did not adjust “Reorganization items, net” for the potential effects the EOR Asset sale may have had on our fresh start valuations upon our emergence from bankruptcy, nor do we believe such adjustment to be meaningful.