Attached files
file | filename |
---|---|
EX-32.2 - EX-32.2 - Chaparral Energy, Inc. | chap-ex322_8.htm |
EX-32.1 - EX-32.1 - Chaparral Energy, Inc. | chap-ex321_9.htm |
EX-31.2 - EX-31.2 - Chaparral Energy, Inc. | chap-ex312_6.htm |
EX-31.1 - EX-31.1 - Chaparral Energy, Inc. | chap-ex311_10.htm |
EX-10.4 - EX-10.4 - Chaparral Energy, Inc. | chap-ex104_344.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 June 30, 2018
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: 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 August 13, 2018:
Class |
|
Number of Shares |
|
|
Class A Common Stock, $0.01 par value |
|
|
38,588,902 |
|
Class B Common Stock, $0.01 par value |
|
|
7,871,512 |
|
Index to Form 10-Q
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Page |
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7 |
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7 |
|
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8 |
|
|
9 |
|
|
10 |
|
|
11 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
32 |
|
32 |
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34 |
|
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43 |
|
|
47 |
|
|
48 |
|
|
48 |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk |
|
49 |
|
52 |
|
|
|
|
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53 |
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53 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
|
53 |
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53 |
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54 |
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|
56 |
2
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, of this report and Part I, Item 1A. Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2017, 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; |
|
• |
future growth and expansion; |
|
• |
future exploration; |
|
• |
integration of existing and new technologies into operations; |
|
• |
future capital expenditures (or funding thereof) and working capital; |
3
|
• |
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; |
|
• |
legislation and regulatory initiatives |
|
• |
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; |
|
• |
environmental litigation |
|
• |
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.
4
GLOSSARY OF CERTAIN DEFINED TERMS
The terms defined in this section are used throughout this Form 10-Q:
Basin |
A low region or natural depression in the earth’s crust where sedimentary deposits accumulate. |
|
|
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. |
|
|
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. |
|
|
EOR Areas |
Areas where we previously injected and/or recycle CO2 as a means of oil recovery which were divested in November 2017. |
|
|
Exit Credit Facility |
Ninth Restated Credit Agreement, dated as of March 21, 2017, by and among us, Chaparral Energy, Inc., as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent and The Lenders and Prepetition Borrowers Party thereto. |
|
|
Exit Revolver |
A first-out revolving facility under the Exit Credit Facility. |
|
|
Exit Term Loan |
A second-out term loan under the Exit Credit Facility. |
|
|
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. |
|
|
Natural gas liquids (NGLs) |
Those hydrocarbons in natural gas that are separated from the gas as liquids through the process of absorption, condensation, 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 |
Tenth Restated Credit Agreement, dated as of December 21, 2017, by and among us, Chaparral Energy, Inc., as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent and The Lenders and Prepetition Borrowers Party thereto. |
|
|
NYMEX |
The New York Mercantile Exchange. |
5
|
|
|
|
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, Inc., as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent and The Lenders and Prepetition Borrowers Party thereto. |
Prior 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. |
|
|
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%. |
|
|
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 |
Our 8.75% senior notes due 2023. |
|
|
STACK |
An acronym standing for Sooner Trend Anadarko Canadian Kingfisher. A play in the Anadarko Basin of Oklahoma in which we operate. |
|
|
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. |
6
PART I — FINANCIAL INFORMATION
Chaparral Energy, Inc. and subsidiaries
(Unaudited)
(dollars in thousands, except share data) |
|
June 30, 2018 |
|
|
December 31, 2017 |
|
||
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
68,441 |
|
|
$ |
27,732 |
|
Accounts receivable, net |
|
|
68,619 |
|
|
|
60,363 |
|
Inventories, net |
|
|
7,457 |
|
|
|
5,138 |
|
Prepaid expenses |
|
|
2,415 |
|
|
|
2,661 |
|
Total current assets |
|
|
146,932 |
|
|
|
95,894 |
|
Property and equipment, net |
|
|
48,564 |
|
|
|
50,641 |
|
Oil and natural gas properties, using the full cost method: |
|
|
|
|
|
|
|
|
Proved |
|
|
734,880 |
|
|
|
634,294 |
|
Unevaluated (excluded from the amortization base) |
|
|
563,129 |
|
|
|
482,239 |
|
Accumulated depreciation, depletion, amortization and impairment |
|
|
(159,770 |
) |
|
|
(124,180 |
) |
Total oil and natural gas properties |
|
|
1,138,239 |
|
|
|
992,353 |
|
Derivative instruments |
|
|
56 |
|
|
|
— |
|
Other assets |
|
|
378 |
|
|
|
418 |
|
Total assets |
|
$ |
1,334,169 |
|
|
$ |
1,139,306 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
93,541 |
|
|
$ |
75,414 |
|
Accrued payroll and benefits payable |
|
|
7,771 |
|
|
|
11,276 |
|
Accrued interest payable |
|
|
235 |
|
|
|
187 |
|
Revenue distribution payable |
|
|
24,818 |
|
|
|
17,966 |
|
Long-term debt and capital leases, classified as current |
|
|
3,408 |
|
|
|
3,273 |
|
Derivative instruments |
|
|
24,096 |
|
|
|
8,959 |
|
Total current liabilities |
|
|
153,869 |
|
|
|
117,075 |
|
Long-term debt and capital leases, less current maturities |
|
|
305,300 |
|
|
|
141,386 |
|
Derivative instruments |
|
|
28,104 |
|
|
|
4,167 |
|
Deferred compensation |
|
|
975 |
|
|
|
696 |
|
Asset retirement obligations |
|
|
33,546 |
|
|
|
33,216 |
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, 5,000,000 shares authorized, none issued and outstanding |
|
|
— |
|
|
|
— |
|
Class A Common stock, $0.01 par value, 180,000,000 shares authorized; 38,845,797 issued and 38,588,902 outstanding at June 30, 2018 and 38,956,250 shares issued and outstanding at December 31, 2017 |
|
|
388 |
|
|
|
389 |
|
Class B Common stock, $0.01 par value, 20,000,000 shares authorized and 7,871,512 shares issued and outstanding at June 30, 2018 and December 31, 2017 |
|
|
79 |
|
|
|
79 |
|
Additional paid in capital |
|
|
969,117 |
|
|
|
961,200 |
|
Treasury stock, at cost, 256,895 and nil shares as of June 30, 2018 and December 31, 2017 |
|
|
(4,872 |
) |
|
|
— |
|
Accumulated deficit |
|
|
(152,337 |
) |
|
|
(118,902 |
) |
Total stockholders' equity |
|
|
812,375 |
|
|
|
842,766 |
|
Total liabilities and stockholders' equity |
|
$ |
1,334,169 |
|
|
$ |
1,139,306 |
|
The accompanying notes are an integral part of these consolidated financial statements.
7
Chaparral Energy, Inc. and subsidiaries
Consolidated statements of operations
(Unaudited)
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||||||
(in thousands, except share and per share data) |
|
Three months ended June 30, 2018 |
|
|
Three months ended June 30, 2017 |
|
|
Six months ended June 30, 2018 |
|
|
Period from March 22, 2017 through June 30, 2017 |
|
|
|
Period from January 1, 2017 through March 21, 2017 |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net commodity sales |
|
|
58,427 |
|
|
|
74,048 |
|
|
|
116,316 |
|
|
|
81,856 |
|
|
|
|
66,531 |
|
Sublease revenue |
|
|
1,198 |
|
|
|
— |
|
|
|
2,396 |
|
|
|
— |
|
|
|
|
— |
|
Total revenues |
|
|
59,625 |
|
|
|
74,048 |
|
|
|
118,712 |
|
|
|
81,856 |
|
|
|
|
66,531 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating |
|
|
15,009 |
|
|
|
23,059 |
|
|
|
29,552 |
|
|
|
27,318 |
|
|
|
|
19,941 |
|
Transportation and processing (1) |
|
|
— |
|
|
|
3,067 |
|
|
|
— |
|
|
|
3,428 |
|
|
|
|
2,034 |
|
Production taxes |
|
|
2,768 |
|
|
|
3,383 |
|
|
|
5,445 |
|
|
|
3,699 |
|
|
|
|
2,417 |
|
Depreciation, depletion and amortization |
|
|
20,407 |
|
|
|
30,851 |
|
|
|
41,513 |
|
|
|
34,265 |
|
|
|
|
24,915 |
|
General and administrative |
|
|
8,190 |
|
|
|
8,973 |
|
|
|
19,697 |
|
|
|
14,717 |
|
|
|
|
6,843 |
|
Cost reduction initiatives |
|
|
824 |
|
|
|
115 |
|
|
|
824 |
|
|
|
121 |
|
|
|
|
629 |
|
Other |
|
|
403 |
|
|
|
— |
|
|
|
1,231 |
|
|
|
— |
|
|
|
|
— |
|
Total costs and expenses |
|
|
47,601 |
|
|
|
69,448 |
|
|
|
98,262 |
|
|
|
83,548 |
|
|
|
|
56,779 |
|
Operating income (loss) |
|
|
12,024 |
|
|
|
4,600 |
|
|
|
20,450 |
|
|
|
(1,692 |
) |
|
|
|
9,752 |
|
Non-operating (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(1,739 |
) |
|
|
(5,051 |
) |
|
|
(3,110 |
) |
|
|
(5,701 |
) |
|
|
|
(5,862 |
) |
Derivative (losses) gains |
|
|
(32,286 |
) |
|
|
23,474 |
|
|
|
(48,787 |
) |
|
|
11,359 |
|
|
|
|
48,006 |
|
Gain (loss) on sale of assets |
|
|
469 |
|
|
|
(863 |
) |
|
|
(575 |
) |
|
|
(863 |
) |
|
|
|
206 |
|
Other income, net |
|
|
19 |
|
|
|
312 |
|
|
|
104 |
|
|
|
307 |
|
|
|
|
1,167 |
|
Net non-operating (expense) income |
|
|
(33,537 |
) |
|
|
17,872 |
|
|
|
(52,368 |
) |
|
|
5,102 |
|
|
|
|
43,517 |
|
Reorganization items, net |
|
|
(480 |
) |
|
|
(1,070 |
) |
|
|
(1,517 |
) |
|
|
(1,690 |
) |
|
|
|
988,727 |
|
(Loss) income before income taxes |
|
|
(21,993 |
) |
|
|
21,402 |
|
|
|
(33,435 |
) |
|
|
1,720 |
|
|
|
|
1,041,996 |
|
Income tax expense |
|
|
— |
|
|
|
37 |
|
|
|
— |
|
|
|
38 |
|
|
|
|
37 |
|
Net (loss) income |
|
$ |
(21,993 |
) |
|
$ |
21,365 |
|
|
$ |
(33,435 |
) |
|
$ |
1,682 |
|
|
|
$ |
1,041,959 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic for Class A and Class B |
|
$ |
(0.49 |
) |
|
$ |
0.47 |
|
|
$ |
(0.74 |
) |
|
$ |
0.04 |
|
|
|
* |
|
|
Diluted for Class A and Class B |
|
$ |
(0.49 |
) |
|
$ |
0.47 |
|
|
$ |
(0.74 |
) |
|
$ |
0.04 |
|
|
|
* |
|
|
Weighted average shares used to compute earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic for Class A and Class B |
|
|
45,338,650 |
|
|
|
44,982,142 |
|
|
|
45,241,513 |
|
|
|
44,982,142 |
|
|
|
* |
|
|
Diluted for Class A and Class B |
|
|
45,338,650 |
|
|
|
44,982,142 |
|
|
|
45,241,513 |
|
|
|
44,982,142 |
|
|
|
* |
|
____________________________________________________________
(1) See “Note 5—Revenue Recognition.”
* Item not disclosed. See “Note 2—Earnings per share.”
The accompanying notes are an integral part of these consolidated financial statements.
8
Chaparral Energy, Inc. and subsidiaries
Consolidated statements of stockholders’ equity
(Unaudited)
|
|
Common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(dollars in thousands) |
|
Shares outstanding |
|
|
Amount |
|
|
Additional paid in capital |
|
|
Treasury stock |
|
|
Accumulated deficit |
|
|
Total |
|
||||||
Balance at December 31, 2017 |
|
|
46,827,762 |
|
|
$ |
468 |
|
|
$ |
961,200 |
|
|
$ |
— |
|
|
$ |
(118,902 |
) |
|
$ |
842,766 |
|
Stock-based compensation |
|
|
55,000 |
|
|
|
— |
|
|
|
7,917 |
|
|
|
— |
|
|
|
— |
|
|
|
7,917 |
|
Restricted stock forfeited |
|
|
(165,453 |
) |
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
Repurchase of common stock |
|
|
(256,895 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,872 |
) |
|
|
— |
|
|
|
(4,872 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(33,435 |
) |
|
|
(33,435 |
) |
Balance at June 30, 2018 |
|
|
46,460,414 |
|
|
$ |
467 |
|
|
$ |
969,117 |
|
|
$ |
(4,872 |
) |
|
$ |
(152,337 |
) |
|
$ |
812,375 |
|
The accompanying notes are an integral part of these consolidated financial statements.
9
Chaparral Energy, Inc. and subsidiaries
Consolidated statements of cash flows
(Unaudited)
|
|
Successor |
|
|
|
Predecessor |
|
||||||
|
|
|
|
|
|
Period from |
|
|
|
Period from |
|
||
|
|
Six months |
|
|
March 22, 2017 |
|
|
|
January 1, 2017 |
|
|||
|
|
ended |
|
|
through |
|
|
|
through |
|
|||
(in thousands) |
|
June 30, 2018 |
|
|
June 30, 2017 |
|
|
|
March 21, 2017 |
|
|||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(33,435 |
) |
|
$ |
1,682 |
|
|
|
$ |
1,041,959 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash reorganization items |
|
|
— |
|
|
|
— |
|
|
|
|
(1,012,090 |
) |
Depreciation, depletion and amortization |
|
|
41,513 |
|
|
|
34,265 |
|
|
|
|
24,915 |
|
Derivative losses (gains) |
|
|
48,787 |
|
|
|
(11,359 |
) |
|
|
|
(48,006 |
) |
Loss (gain) on sale of assets |
|
|
575 |
|
|
|
863 |
|
|
|
|
(206 |
) |
Other |
|
|
3,578 |
|
|
|
1,120 |
|
|
|
|
645 |
|
Change in assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(7,660 |
) |
|
|
(11,973 |
) |
|
|
|
198 |
|
Inventories |
|
|
(3,162 |
) |
|
|
1,596 |
|
|
|
|
466 |
|
Prepaid expenses and other assets |
|
|
286 |
|
|
|
1,830 |
|
|
|
|
(497 |
) |
Accounts payable and accrued liabilities |
|
|
(4,221 |
) |
|
|
(14,098 |
) |
|
|
|
8,733 |
|
Revenue distribution payable |
|
|
7,243 |
|
|
|
1,983 |
|
|
|
|
(1,875 |
) |
Deferred compensation |
|
|
6,566 |
|
|
|
582 |
|
|
|
|
143 |
|
Net cash provided by operating activities |
|
|
60,070 |
|
|
|
6,491 |
|
|
|
|
14,385 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property, plant, and equipment and oil and natural gas properties |
|
|
(176,275 |
) |
|
|
(61,198 |
) |
|
|
|
(31,179 |
) |
Proceeds from asset dispositions |
|
|
6,591 |
|
|
|
1,929 |
|
|
|
|
1,884 |
|
(Payments) proceeds from derivative instruments |
|
|
(9,769 |
) |
|
|
8,355 |
|
|
|
|
1,285 |
|
Net cash used in investing activities |
|
|
(179,453 |
) |
|
|
(50,914 |
) |
|
|
|
(28,010 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
116,000 |
|
|
|
18,000 |
|
|
|
|
270,000 |
|
Repayment of long-term debt |
|
|
(243,391 |
) |
|
|
(720 |
) |
|
|
|
(444,785 |
) |
Proceeds from Senior Notes |
|
|
300,000 |
|
|
|
— |
|
|
|
|
— |
|
Proceeds from rights offering, net |
|
|
— |
|
|
|
— |
|
|
|
|
50,031 |
|
Principal payments under capital lease obligations |
|
|
(1,329 |
) |
|
|
(713 |
) |
|
|
|
(568 |
) |
Payment of debt issuance costs and other financing fees |
|
|
(6,316 |
) |
|
|
— |
|
|
|
|
(2,410 |
) |
Treasury stock purchased |
|
|
(4,872 |
) |
|
|
— |
|
|
|
|
— |
|
Net cash provided by (used in) financing activities |
|
|
160,092 |
|
|
|
16,567 |
|
|
|
|
(127,732 |
) |
Net increase (decrease) in cash, cash equivalents, and restricted cash |
|
|
40,709 |
|
|
|
(27,856 |
) |
|
|
|
(141,357 |
) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
27,732 |
|
|
|
45,123 |
|
|
|
|
186,480 |
|
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
68,441 |
|
|
$ |
17,267 |
|
|
|
$ |
45,123 |
|
The accompanying notes are an integral part of these consolidated financial statements.
10
Chaparral Energy, Inc. and subsidiaries
Condensed notes to consolidated financial statements (unaudited)
(dollars in thousands, except per share amounts)
Note 1: Nature of operations and summary of significant accounting policies
Nature of operations
Chaparral Energy, Inc. and its subsidiaries (collectively, “we”, “our”, “us”, or the “Company”) are involved in the acquisition, exploration, development, production and operation of oil and natural gas properties. Our properties are located primarily in Oklahoma and our commodity products include crude oil, natural gas and natural gas liquids.
Reorganization, fresh start accounting and comparability of financial statements to prior periods
On May 9, 2016, the Company and ten of its subsidiaries filed voluntary petitions seeking relief under Title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) commencing cases for relief under Chapter 11 of the Bankruptcy Code.
On March 10, 2017, the Bankruptcy Court confirmed our Reorganization Plan and on March 21, 2017 (the “Effective Date”), the Reorganization Plan became effective and we emerged from bankruptcy. Upon emergence, all existing equity was cancelled and we issued new common stock to the previous holders of our Prior Senior Notes and certain general unsecured creditors whose claims were impaired as a result of our bankruptcy, as well as to certain other parties as set forth in the Reorganization Plan, including to parties participating in a rights offering.
Additionally, upon emergence we qualified for and applied fresh start accounting to our financial statements in accordance with the provisions set forth in FASB Accounting Standards Codification (ASC) 852: Reorganizations, as (i) the holders of existing voting shares of the Company prior to its emergence received less than 50% of the voting shares of the Company outstanding following its emergence from bankruptcy and (ii) the reorganization value of our assets immediately prior to confirmation of the Reorganization Plan was less than the post-petition liabilities and allowed claims.
As a result of the application of fresh start accounting, as well as the effects of the implementation of the Reorganization Plan, the Company’s consolidated financial statements after March 21, 2017, are not comparable with the consolidated financial statements prior to that date. To facilitate our financial statement presentations, we refer to the post-emergence reorganized company in these consolidated financial statements and footnotes as the “Successor” for periods subsequent to March 21, 2017, and to the pre-emergence company as “Predecessor” for periods prior to and including March 21, 2017.
Interim financial statements
The accompanying unaudited consolidated interim financial statements of the Company have been prepared in accordance with the rules and regulations of the SEC and do not include all of the financial information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. These financial statements and the notes thereto should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017.
The financial information as of June 30, 2018 (Successor), for the three and six months ended June 30, 2018 (Successor), the periods of March 22, 2017, through June 30, 2017 (Successor), and the three months ended June 30, 2017 (Successor), is unaudited. The financial information as of December 31, 2017 (Successor), and the period of January 1, 2017, through March 21, 2017 (Predecessor), have been derived from the audited financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017. In management’s opinion, such information contains all adjustments considered necessary for a fair presentation of the results of the interim periods. The results of operations for the three and six months ended June 30, 2018 (Successor) are not necessarily indicative of the results of operations that will be realized for the year ended December 31, 2018.
Certain reclassifications have been made to prior period financial statements to conform to current period presentation. The reclassifications had no effect on our previously reported results of operations.
Cash and cash equivalents
We maintain cash and cash equivalents in bank deposit accounts and money market funds which may not be federally insured. As of June 30, 2018, cash with a recorded balance totaling approximately $66,977 was held at JP Morgan Chase Bank, N.A. We have not experienced any losses in such accounts and believe we are not exposed to any significant credit risk on such accounts.
11
Chaparral Energy, Inc. and subsidiaries
Condensed notes to consolidated financial statements (unaudited)
(dollars in thousands, except per share amounts)
We have receivables from joint interest owners and oil and natural gas purchasers which are generally uncollateralized. Accounts receivable consisted of the following:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2018 |
|
|
2017 |
|
||
Joint interests |
|
$ |
31,846 |
|
|
$ |
29,032 |
|
Accrued commodity sales |
|
|
33,984 |
|
|
|
26,516 |
|
Derivative settlements |
|
|
— |
|
|
|
157 |
|
Other |
|
|
3,498 |
|
|
|
5,326 |
|
Allowance for doubtful accounts |
|
|
(709 |
) |
|
|
(668 |
) |
|
|
$ |
68,619 |
|
|
$ |
60,363 |
|
Inventories
Inventories consisted of the following:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2018 |
|
|
2017 |
|
||
Equipment inventory |
|
$ |
6,659 |
|
|
$ |
4,163 |
|
Commodities |
|
|
977 |
|
|
|
1,154 |
|
Inventory valuation allowance |
|
|
(179 |
) |
|
|
(179 |
) |
|
|
$ |
7,457 |
|
|
$ |
5,138 |
|
Oil and natural gas properties
Costs associated with unevaluated oil and natural gas properties are excluded from the amortizable base until a determination has been made as to the existence of proved reserves. Unevaluated leasehold costs are transferred to the amortization base with the costs of drilling the related well upon proving up reserves of a successful well or upon determination of a dry or uneconomic well under a process that is conducted each quarter. Furthermore, unevaluated oil and natural gas properties are reviewed for impairment if events and circumstances exist that indicate a possible decline in the recoverability of the carrying amount of such property. The impairment assessment is conducted at least once annually and whenever there are indicators that impairment has occurred. In assessing whether impairment has occurred, we consider factors such as intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; assignment of proved reserves; and economic viability of development if proved reserves are assigned. Upon determination of impairment, all or a portion of the associated leasehold costs are transferred to the full cost pool and become subject to amortization. The processes above are applied to unevaluated oil and natural gas properties on an individual basis or as a group if properties are individually insignificant. Our future depreciation, depletion and amortization rate would increase if costs are transferred to the amortization base without any associated reserves.
In the past, the costs associated with unevaluated properties typically related to acquisition costs of unproved acreage. As a result of the application of fresh start accounting on the Effective Date, a substantial portion of the carrying value of our unevaluated properties are the result of a fair value increase to reflect the value of our acreage in our STACK play.
The costs of unevaluated oil and natural gas properties consisted of the following:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2018 |
|
|
2017 |
|
||
Leasehold acreage |
|
$ |
533,729 |
|
|
$ |
466,711 |
|
Capitalized interest |
|
|
5,648 |
|
|
|
2,134 |
|
Wells and facilities in progress of completion |
|
|
23,752 |
|
|
|
13,394 |
|
Total unevaluated oil and natural gas properties excluded from amortization |
|
$ |
563,129 |
|
|
$ |
482,239 |
|
Ceiling Test. In accordance with the full cost method of accounting, the net capitalized costs of oil and natural gas properties are not to exceed their related PV-10 value, net of tax considerations, plus the cost of unproved properties not being amortized.
Our estimates of oil and natural gas reserves as of June 30, 2018, and the related PV-10 value, were prepared using an average price for oil and natural gas on the first day of each month for the prior twelve months as required by the SEC.
12
Chaparral Energy, Inc. and subsidiaries
Condensed notes to consolidated financial statements (unaudited)
(dollars in thousands, except per share amounts)
Producer imbalances. We account for natural gas production imbalances using the sales method, whereby we recognize revenue on all natural gas sold to our customers regardless of our proportionate working interest in a well. Liabilities are recorded for imbalances greater than our proportionate share of remaining estimated natural gas reserves. Our aggregate imbalance positions at June 30, 2018, and December 31, 2017, were immaterial.
Income taxes
In December 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the “Act”), making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate of 21%, additional limitations on executive compensation, and limitations on the deductibility of interest. The FASB issued Accounting Standards Update (“ASU”) 2018-05, Income Taxes (Topic 740): "Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (“SAB”) No. 118" to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act.
As of June 30, 2018, we had not completed our accounting with regard to Section 162(m) provisions under the Act, and anticipate completing our analysis prior to filing our 2017 tax return in the fourth quarter of 2018, which is within the one year measurement period permitted under SAB 118. We have not made any material adjustments to the provisional estimate recorded under SAB 118 at December 31, 2017. We have estimated our provision for income taxes in accordance with the Act and guidance available as of the date of this filing.
Despite the Company’s net loss for the three and six months ended June 30, 2018, we did not record any net deferred tax benefit, as any deferred tax asset arising from the benefit is reduced by a valuation allowance as utilization of the loss carryforwards and realization of other deferred tax assets cannot be reasonably assured.
A valuation allowance for deferred tax assets, including net operating losses, is recognized when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. To assess that likelihood, we use estimates and judgment regarding our future taxable income, as well as the jurisdiction in which such taxable income is generated, to determine whether a valuation allowance is required. Such evidence can include our current financial position, our results of operations, both actual and forecasted, the reversal of deferred tax liabilities, and tax planning strategies as well as the current and forecasted business economics of our industry.
We will continue to evaluate whether the valuation allowance is needed in future reporting periods. The valuation allowance will remain until we can determine that the net deferred tax assets are more likely than not to be realized. Future events or new evidence which may lead us to conclude that it is more likely than not that our net deferred tax assets will be realized include, but are not limited to, cumulative historical pre-tax earnings, improvements in oil prices, and taxable events that could result from one or more transactions. The valuation allowance does not prevent future utilization of the tax attributes if we recognize taxable income. As long as we conclude that the valuation allowance against our net deferred tax assets is necessary, we likely will not have any additional deferred income tax expense or benefit.
The benefit of an uncertain tax position taken or expected to be taken on an income tax return is recognized in the consolidated financial statements at the largest amount that is more likely than not to be sustained upon examination by the relevant taxing authority. Interest and penalties, if any, related to uncertain tax positions would be recorded in interest expense and other expense, respectively. There were no uncertain tax positions at June 30, 2018, or December 31, 2017.
Elements of the Reorganization Plan provided that our indebtedness related to Prior Senior Notes and certain general unsecured claims were exchanged for Successor common stock in settlement of those claims. Absent an exception, a debtor recognizes cancellation of indebtedness income (“CODI”) upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The Internal Revenue Code of 1986, as amended (“IRC”), provides that a debtor in a Chapter 11 bankruptcy case may exclude CODI from taxable income but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is determined based on the fair market value of the consideration received by the creditors in settlement of outstanding indebtedness. As a result of the market value of equity upon emergence from Chapter 11 bankruptcy proceedings, the estimated amount of CODI is approximately $61,000, which will reduce the value of the Company’s net operating losses. The actual reduction in tax attributes does not occur until the first day of the Company’s tax year subsequent to the date of emergence, or January 1, 2018. The reduction of net operating losses is expected to be fully offset by a corresponding decrease in valuation allowance.
The IRC provides an annual limitation with respect to the ability of a corporation to utilize its tax attributes, as well as certain built-in-losses, against future taxable income in the event of a change in ownership. Emergence from Chapter 11 bankruptcy proceedings resulted in a change in ownership for purposes of the IRC Section 382. We analyzed alternatives available within the IRC
13
Chaparral Energy, Inc. and subsidiaries
Condensed notes to consolidated financial statements (unaudited)
(dollars in thousands, except per share amounts)
to taxpayers in Chapter 11 bankruptcy proceedings in order to minimize the impact of the ownership change and CODI on our tax attributes. Upon filing our 2017 U.S. Federal income tax return, we plan to elect an available alternative which would likely result in the Company experiencing a limitation that subjects existing tax attributes at emergence to an IRC Section 382 limitation that could result in some or all of the remaining net operating loss carryforwards expiring unused. However, we will continue to evaluate the remaining available alternatives which would not subject existing tax attributes to an IRC Section 382 limitation.
Other
Other consisted of the following:
|
|
Three months ended June 30, 2018 |
|
|
Six months ended June 30, 2018 |
|
||
Restructuring |
|
$ |
— |
|
|
$ |
425 |
|
Subleases |
|
|
403 |
|
|
|
806 |
|
Total other expense |
|
$ |
403 |
|
|
$ |
1,231 |
|
Restructuring. We previously incurred exit costs in conjunction with our EOR asset divestiture, which are predominantly comprised of one-time severance and termination benefits for the affected employees. The expense recorded in 2018 is a result of termination benefits for the final slate of employees terminated as a result of the divestiture.
Subleases. Our subleases are comprised of CO2 compressors that were previously utilized in our EOR operations and leased as capital and operating leases from U.S. Bank but are now subleased to the purchaser of our EOR assets (the “Sublessee”). Minimum payments under the subleases are equal to the original leases. Subsequent to the execution of the subleases, all payments received from the Sublessee are reflected as revenues on our statement of operations. Payments we make to U.S. Bank on the original operating leases are reflected in “Other” on our statement of operations while payments on the original capital leases are a reduction of debt and recognition of interest expense. With respect to the capital leases, we have reclassified the amount associated with these leases from the full cost amortization base to plant, property and equipment on our balance sheet and are amortizing the asset on a straight line basis prospectively. Please see “Note 1— Nature of operations and summary of significant accounting policies”,” Note 8— Debt”, and “Note 16— Commitments and contingencies” in Item 8. Financial Statement and Supplementary Data of our Annual Report on Form 10-K for the year ended December 31, 2017, which contains additional information about our leases.
Joint development agreement
On September 25, 2017, we entered into a joint development agreement (“JDA”) with BCE Roadrunner LLC, a wholly-owned subsidiary of Bayou City Energy Management, LLC (“BCE”), pursuant to which BCE will fund 100 percent of our drilling, completion and equipping costs associated with 30 joint venture STACK wells, subject to average well cost caps that vary by well-type across location and targeted formations, approximately between $3,400 and $4,000 per gross well. The JDA wells, which will be drilled and operated by us, include 17 wells in Canadian County and 13 wells in Garfield County. The JDA provides us with a means to accelerate the delineation of our position within our Garfield and Canadian County acreage, realizing further efficiencies and holding additional acreage by production, and potentially adding reserves. In exchange for funding, BCE will receive wellbore-only interest in each well totaling an 85% carve-out working interest from our original working interest (and we retain 15%) until the program reaches a 14% internal rate of return. Once achieved, ownership interest in all JDA wells will revert such that we will own a 75% working interest and BCE will retain a 25% working interest. We will retain all acreage and reserves outside of the wellbore, with both parties entitled to revenues and paying lease operating expenses based on their working interest.
Our drilling and completion costs to date have been exceeding well cost caps specified under the JDA primarily due to inflation in the cost of oilfield services as a result of the rebound in industry conditions. In our negotiation with BCE to cover the inflationary cost increases, BCE had indicated willingness to increase the per well cost caps on remaining wells in exchange for adding more wells to the current program. Since we have achieved our goals to utilize the JDA as a means to delineate our acreage Garfield and Canadian counties, Oklahoma, we do not currently plan for any expansion of the JDA. We have therefore recognized $6,423 in cumulative drilling and completion costs on JDA wells that have exceeded the well cost caps specified under the JDA.
14
Chaparral Energy, Inc. and subsidiaries
Condensed notes to consolidated financial statements (unaudited)
(dollars in thousands, except per share amounts)
Cost reduction initiatives include expenses related to our efforts to reduce our capital, operating and administrative costs in response to industry conditions. The expense consists of costs for one-time severance and termination benefits in connection with our reductions in force and third party legal and professional services we have engaged to assist in our cost savings initiatives as follows:
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||||||
|
|
Three months ended June 30, 2018 |
|
|
Three months ended June 30, 2017 |
|
|
Six months ended June 30, 2018 |
|
|
Period from March 22, 2017 through June 30, 2017 |
|
|
|
Period from January 1, 2017 through March 21, 2017 |
|
|||||
One-time severance and termination benefits |
|
$ |
824 |
|
|
$ |
111 |
|
|
$ |
824 |
|
|
$ |
112 |
|
|
|
$ |
608 |
|
Professional fees |
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
9 |
|
|
|
|
21 |
|
Total cost reduction initiatives expense |
|
$ |
824 |
|
|
$ |
115 |
|
|
$ |
824 |
|
|
$ |
121 |
|
|
|
$ |
629 |
|
Reorganization items
Reorganization items reflect, where applicable, expenses, gains and l