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EX-32.1 - EX-32.1 - LILIS ENERGY, INC.llexq-ex321_7.htm
EX-31.1 - EX-31.1 - LILIS ENERGY, INC.llexq-ex311_6.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, 2020

 

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

 

Commission file number: 001-35330

Lilis Energy, Inc.

(Name of registrant as specified in its charter)

 

Nevada

 

74-3231613

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1600 West 7th Street, Suite 400, Fort Worth, TX 76102

(Address of principal executive offices, including zip code)

(817) 720-9585

(Registrant’s telephone number including area code)

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

 

Title of each Class

Trading Symbol(s)

Name of each exchange on which registered

N/A

N/A

N/A

 

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:

Yes    No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act: Yes  No 

Indicate by check mark if 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 past 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 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 or a smaller reporting company, or emerging growth company (as defined in Rule 12b-2 of the Act):

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

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 

As of November 6, 2020, 95,097,919 shares of the registrant’s common stock were issued and outstanding.

 

 


 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

4

 

Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

5

 

Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Three and Nine Months Ended September 30, 2020 and 2019

6

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2020 and 2019

7

 

Notes to the Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

35

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

50

Item 4.

Controls and Procedures

52

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

53

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

58

Item 3.

Defaults Upon Senior Securities

58

Item 4.

Mine Safety Disclosures

58

Item 5.

Other information

58

Item 6.

Exhibits

60

 

 

 

SIGNATURES

62

 

 

 

2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements may include the words “may,” “should,” “could,” “estimate,” “intend,” “plan,” “project,” “continue,” “believe,” “predict,” “expect,” “anticipate,” “goal,” “forecast,” “target” or other similar words.

All statements, other than statements of historical fact, that are included in this Quarterly Report, including such statements that address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements, including, but not limited to, statements regarding the voluntary cases (the “Chapter 11 Cases”) filed by the Company and certain of its subsidiaries under Chapter 11 of the United States Bankruptcy Code, the provision of debtor-in-possession financing facilities, the effects of the Chapter 11 Cases on our liquidity or results of operations or business prospects, the expected terms of one or more sales of substantially all of our assets followed by a joint liquidating Chapter 11 plan, our ability to confirm and consummate a joint liquidating Chapter 11 plan, our ability to continue operating in the ordinary course while the Chapter 11 Cases are pending, the treatment of our creditors and other stakeholders (including holders of our common stock) under a joint liquidating Chapter 11 plan, the potential impact of epidemics and pandemics, including the COVID-19 coronavirus (“COVID-19”), any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning future production, reserves or other resource development opportunities; any projected well performance or economics, or potential joint ventures or strategic partnerships; any statements regarding future economic conditions or performance; any statements regarding future capital-raising activities; any statements of belief; commodity price risk management activities and the impact on our average realized price; and any statements of assumptions underlying any of the foregoing.

Although we believe that the expectations, plans, and intentions reflected in or suggested by our forward-looking statements are reasonable, we can give no assurance that these plans, intentions, or expectations will be achieved, and our actual results could differ materially from those projected or assumed in any of our forward-looking statements.

Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, many of which are beyond our control. Some of the factors, which could affect our future results and could cause results to differ materially from those expressed in our forward-looking statements include but are not limited to, risks and uncertainties regarding the Company’s ability to complete a liquidation or reorganization process under Chapter 11 of the United States Bankruptcy Code, including consummation of one or more sales of substantially all of our assets followed by a joint liquidating Chapter 11 plan; potential adverse effects of the Chapter 11 Cases on the Company’s liquidity and results of operations; the Company’s ability to obtain timely approval by the bankruptcy court regarding the motions filed in the Chapter 11 Cases; objections to the Company’s liquidation or restructuring process, the debtor-in-possession financing facilities, or other pleadings filed that could protract the Chapter 11 Cases; employee attrition and the Company’s ability to retain senior management and other key personnel due to the distractions and uncertainties, including the Company’s ability to provide adequate compensation and benefits during the Chapter 11 Cases; the Company’s ability to comply with the restrictions imposed by the debtor-in-possession facilities and other financing arrangements; the Company’s ability to maintain relationships with suppliers, customers, employees and other third parties and regulatory authorities because of the Chapter 11 filing; the effects of the Chapter 11 Cases on the Company and on the interests of various constituents, including holders of the Company’s common stock; the effects of the Chapter 11 Cases on the market price of the Company’s common stock and on the Company’s ability to access the capital markets; the bankruptcy court’s rulings in the Chapter 11 Cases, including the approval of the terms of one or more sales of substantially all of our assets followed by a joint liquidating Chapter 11 plan, and the outcome of the Chapter 11 Cases generally; the time that the Company will operate under Chapter 11 protection and the continued availability of operating capital during the pendency of the Chapter 11 Cases; risks associated with third party motions in the Chapter 11 Cases, which may interfere with the Company’s ability to consummate one or more sales of substantially all of its assets or an alternative restructuring; increased administrative and legal costs related to the Chapter 11 process; potential delays in the Chapter 11 process due to the effects of the COVID-19 coronavirus; and other litigation and inherent risks involved in a bankruptcy process; the impacts of COVID-19 on our business, financial condition and results of operations; the significant fall in the price of oil since the beginning of 2020; other conditions and events that raise doubts about our ability to continue as a going concern, and the other Risk Factors set forth in the Annual Report on Form 10-K for the year ended December 31, 2019, and updated in this Quarterly Report, in Part I, “Item 1A. Risk Factors.”  Should one or more of the risks or uncertainties described in the Annual Report, as updated in this Quarterly Report, occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those in any forward-looking statements.

The forward-looking statements in this Quarterly Report present our estimates and assumptions only as of the date of this Quarterly Report. Except as required by law, we specifically disclaim all responsibility to publicly update any information contained in any forward-looking statement and, therefore, disclaim any resulting liability for potentially related damages. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

Unless the context otherwise requires, all references in this report to “Lilis,” “we,” “us,” “our,” “ours,” or “the Company” are to Lilis Energy, Inc. and its subsidiaries.

3


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Lilis Energy, Inc. and Subsidiaries

Debtor in-Possession

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share data)

 

 

 

September 30, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,344

 

 

$

3,753

 

Accounts receivables, net of allowance of $1,473 and $448, respectively

 

 

7,852

 

 

 

18,146

 

Derivative instruments

 

 

-

 

 

 

427

 

Prepaid expenses and other current assets

 

 

1,896

 

 

 

4,438

 

Total current assets

 

 

29,092

 

 

 

26,764

 

Property and equipment:

 

 

 

 

 

 

 

 

Oil and natural gas properties, full cost method of accounting, net

 

 

108,465

 

 

 

228,855

 

Other property and equipment, net

 

 

256

 

 

 

421

 

Total property and equipment, net

 

 

108,721

 

 

 

229,276

 

Right-of-use assets

 

 

586

 

 

 

1,722

 

Other assets

 

 

664

 

 

 

837

 

Total assets

 

$

139,063

 

 

$

258,599

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

-

 

 

$

115,000

 

Debtor in-possession facility

 

 

30,000

 

 

 

-

 

Accounts payable

 

 

2,867

 

 

 

24,834

 

Accrued liabilities and other

 

 

10,774

 

 

 

13,972

 

Revenue payable

 

 

13,387

 

 

 

11,442

 

Derivative instruments

 

 

-

 

 

 

5,044

 

Total current liabilities

 

 

57,028

 

 

 

170,292

 

Asset retirement obligations

 

 

3,534

 

 

 

3,423

 

Derivative instruments

 

 

-

 

 

 

2,439

 

Long-term lease liabilities

 

 

325

 

 

 

1,323

 

Long-term deferred revenue and other liabilities

 

 

71,829

 

 

 

73,749

 

Total liabilities not subject to compromise

 

 

132,716

 

 

 

251,226

 

Liabilities subject to compromise

 

 

101,229

 

 

 

-

 

Total liabilities

 

 

233,945

 

 

 

251,226

 

Commitments and Contingencies (Note 19)

 

 

 

 

 

 

 

 

Mezzanine Equity:

 

 

 

 

 

 

 

 

Series C-1 9.75% Participating Preferred Stock, 100,000 shares issued and outstanding with a stated value of $1,293 and $1,203, per share, as of September 30, 2020 and December 31, 2019, respectively

 

 

86,382

 

 

 

80,446

 

Series C-2 9.75% Participating Preferred Stock, 25,000 shares issued and outstanding with a stated value of $1,212 and $1,128, per share, as of September 30, 2020 and December 31, 2019, respectively

 

 

20,249

 

 

 

18,857

 

Series D 8.25% Participating Preferred Stock, 39,254 shares issued and outstanding with a stated value of $1,177 and $1,107, per share, as of September 30, 2020 and December 31, 2019, respectively

 

 

30,893

 

 

 

29,082

 

Series E 8.25% Convertible Participating Preferred Stock, 60,000 shares issued and outstanding with a stated value of $1,137 and $1,069, per share, as of September 30, 2020 and December 31, 2019, respectively

 

 

68,959

 

 

 

66,285

 

Series F 9.00% Participating Preferred Stock, 55,000 shares issued and outstanding with a stated value of $1,150 and $1,076, per share, as of September 30, 2020 and December 31, 2019, respectively

 

 

53,554

 

 

 

50,861

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value per share; 150,000,000 shares authorized 95,097,919 and 91,584,460 issued and outstanding as of September 30, 2020 and December 31, 2019, respectively, of which 253,598 shares are being held in treasury stock

 

 

10

 

 

 

9

 

Additional paid-in capital

 

 

329,178

 

 

 

342,382

 

Treasury stock, 253,598 shares at cost

 

 

(997

)

 

 

(997

)

Accumulated deficit

 

 

(683,110

)

 

 

(579,552

)

Total stockholders’ equity (deficit)

 

 

(354,919

)

 

 

(238,158

)

Total liabilities, mezzanine equity and stockholders’ equity (deficit)

 

$

139,063

 

 

$

258,599

 

 

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

4


 

Lilis Energy, Inc. and Subsidiaries

Debtor in-Possession

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil sales

$

8,250

 

 

$

10,206

 

 

$

25,917

 

 

$

44,890

 

Natural gas sales

 

995

 

 

 

694

 

 

 

1,284

 

 

 

2,570

 

Natural gas liquid sales

 

742

 

 

 

697

 

 

 

1,138

 

 

 

3,408

 

Total revenues

 

9,987

 

 

 

11,597

 

 

 

28,339

 

 

 

50,868

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production costs

 

1,630

 

 

 

4,243

 

 

 

8,752

 

 

 

12,866

 

Gathering, processing and transportation

 

824

 

 

 

942

 

 

 

1,514

 

 

 

3,355

 

Production taxes

 

482

 

 

 

543

 

 

 

1,259

 

 

 

2,568

 

General and administrative

 

3,375

 

 

 

4,852

 

 

 

15,541

 

 

 

23,913

 

Depreciation, depletion, accretion and amortization

 

4,254

 

 

 

5,420

 

 

 

9,999

 

 

 

22,762

 

Impairment of oil and natural gas properties

 

62,206

 

 

 

16,580

 

 

 

94,900

 

 

 

16,580

 

Total operating expenses

 

72,771

 

 

 

32,580

 

 

 

131,965

 

 

 

82,044

 

Loss from operations

 

(62,784

)

 

 

(20,983

)

 

 

(103,626

)

 

 

(31,176

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on early extinguishment of debt

 

-

 

 

 

(1,299

)

 

 

-

 

 

 

(1,299

)

Gain (loss) from commodity derivatives, net

 

167

 

 

 

3,943

 

 

 

16,299

 

 

 

(3,733

)

Change in fair value of financial instruments

 

-

 

 

 

-

 

 

 

3,238

 

 

 

(335

)

Interest expense

 

(2,178

)

 

 

(2,186

)

 

 

(7,582

)

 

 

(8,859

)

Reorganization items, net

 

(9,526

)

 

 

-

 

 

 

(11,883

)

 

 

-

 

Other income (expense)

 

(82

)

 

 

116

 

 

 

(4

)

 

 

31

 

Total other income (expense)

 

(11,619

)

 

 

574

 

 

 

68

 

 

 

(14,195

)

Net loss before income taxes

 

(74,403

)

 

 

(20,409

)

 

 

(103,558

)

 

 

(45,371

)

Income tax expense

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

(74,403

)

 

 

(20,409

)

 

 

(103,558

)

 

 

(45,371

)

Dividends on preferred stock

 

(7,504

)

 

 

(7,185

)

 

 

(22,010

)

 

 

(18,385

)

Net loss attributable to common stockholders

$

(81,907

)

 

$

(27,594

)

 

$

(125,568

)

 

$

(63,756

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share-basic and diluted: (Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.86

)

 

$

(0.30

)

 

$

(1.32

)

 

$

(0.74

)

Diluted

$

(0.86

)

 

$

(0.30

)

 

$

(1.32

)

 

$

(0.74

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

95,097,919

 

 

 

91,349,994

 

 

 

94,907,590

 

 

 

86,734,449

 

Diluted

 

95,097,919

 

 

 

91,349,994

 

 

 

94,907,590

 

 

 

86,734,449

 

 

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

 

5


 

Lilis Energy, Inc. and Subsidiaries

Debtor in-Possession

Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit)

(Unaudited)

(In thousands, except share data)

For the Three Months Ended September 30, 2020 and 2019:

 

 

 

Common Shares

 

 

Additional

Paid In

 

 

Treasury Shares

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Total

 

Balance, June 30, 2020

 

 

95,097,919

 

 

$

10

 

 

$

329,066

 

 

 

(253,598

)

 

$

(997

)

 

$

(608,707

)

 

$

(280,628

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

114

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

114

 

Common stock withheld for taxes on stock-based compensation

 

 

-

 

 

 

-

 

 

 

(2

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(74,403

)

 

 

(74,403

)

Balance, September 30, 2020

 

 

95,097,919

 

 

$

10

 

 

$

329,178

 

 

 

(253,598

)

 

$

(997

)

 

$

(683,110

)

 

$

(354,919

)

 

 

 

Common Shares

 

 

Additional

Paid In

 

 

Treasury Shares

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Total

 

Balance, June 30, 2019

 

 

91,451,836

 

 

$

9

 

 

$

356,210

 

 

 

(253,598

)

 

$

(997

)

 

$

(332,393

)

 

$

22,829

 

Stock-based compensation

 

 

422,789

 

 

 

-

 

 

 

332

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

332

 

Common stock withheld for taxes on stock-based compensation

 

 

(77,661

)

 

 

-

 

 

 

(42

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(42

)

Dividends on preferred stock

 

 

-

 

 

 

-

 

 

 

(7,185

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,185

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(20,409

)

 

 

(20,409

)

Balance, September 30, 2019

 

 

91,796,964

 

 

$

9

 

 

$

349,315

 

 

 

(253,598

)

 

$

(997

)

 

$

(352,802

)

 

$

(4,475

)

 

For the Nine Months Ended September 30, 2020 and 2019:

 

 

 

Common Shares

 

 

Additional

Paid In

 

 

Treasury Shares

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Total

 

Balance, December 31, 2019

 

 

91,584,460

 

 

$

9

 

 

$

342,382

 

 

 

(253,598

)

 

$

(997

)

 

$

(579,552

)

 

$

(238,158

)

Stock-based compensation

 

 

3,645,559

 

 

 

1

 

 

 

1,341

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,342

 

Common stock withheld for taxes on stock-based compensation

 

 

(132,100

)

 

 

 

 

 

 

(39

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(39

)

Dividends on preferred stock

 

 

-

 

 

 

-

 

 

 

(14,506

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(14,506

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(103,558

)

 

 

(103,558

)

Balance, September 30, 2020

 

 

95,097,919

 

 

$

10

 

 

$

329,178

 

 

 

(253,598

)

 

$

(997

)

 

$

(683,110

)

 

$

(354,919

)

 

 

 

Common Shares

 

 

Additional

Paid In

 

 

Treasury Shares

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Total

 

Balance, December 31, 2018

 

 

71,182,016

 

 

$

7

 

 

$

321,753

 

 

 

(253,598

)

 

$

(997

)

 

$

(307,431

)

 

$

13,332

 

Stock-based compensation

 

 

3,260,275

 

 

 

-

 

 

 

6,333

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,333

 

Common stock withheld for taxes on stock-based compensation

 

 

(286,965

)

 

 

-

 

 

 

(452

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(452

)

Common stock issued for extinguishment of debt

 

 

17,641,638

 

 

 

2

 

 

 

32,988

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32,990

 

Gain on extinguishment of debt

 

 

-

 

 

 

-

 

 

 

7,078

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,078

 

Dividends on preferred stock

 

 

-

 

 

 

-

 

 

 

(18,385

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(18,385

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(45,371

)

 

 

(45,371

)

Balance, September 30, 2019

 

 

91,796,964

 

 

$

9

 

 

$

349,315

 

 

 

(253,598

)

 

$

(997

)

 

$

(352,802

)

 

$

(4,475

)

 

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

 

6


 

Lilis Energy, Inc. and Subsidiaries

Debtor in-Possession

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

For the Nine Months Ended September 30,

 

(In thousands)

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(103,558

)

 

$

(45,371

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Stock based compensation

 

 

1,342

 

 

 

6,333

 

Bad debt expense (recovery)

 

 

1,026

 

 

 

(14

)

Amortization of debt issuance cost and debt discount

 

 

858

 

 

 

2,295

 

Deferred income realized

 

 

(2,268

)

 

 

-

 

Payable in-kind interest

 

 

-

 

 

 

1,590

 

Loss on early extinguishment of debts

 

 

-

 

 

 

1,299

 

(Gain) loss from commodity derivatives, net

 

 

(16,299

)

 

 

3,733

 

Net cash settlement paid for commodity derivative contracts

 

 

14,364

 

 

 

(2,594

)

Change in fair value of financial instruments

 

 

(3,238

)

 

 

335

 

Impairment of oil and natural gas properties

 

 

94,900

 

 

 

16,580

 

Non-cash reorganization items, net

 

 

8,613

 

 

 

-

 

Depreciation, depletion, amortization and accretion of asset retirement obligation

 

 

9,999

 

 

 

22,762

 

Other

 

 

61

 

 

 

12

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

7,649

 

 

 

(3,769

)

Prepaid expenses and other assets

 

 

90

 

 

 

(670

)

Accounts payable and accrued liabilities

 

 

58

 

 

 

(47,406

)

Proceeds from contract incentive

 

 

-

 

 

 

2,500

 

Net cash provided by (used in) operating activities

 

 

13,597

 

 

 

(42,385

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from the sale of unproved oil and natural gas properties

 

 

24,063

 

 

 

16,911

 

Capital expenditures

 

 

(11,218

)

 

 

(55,628

)

Net cash provided by (used in) investing activities

 

 

12,845

 

 

 

(38,717

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from debtor in-possession facility

 

 

30,000

 

 

 

-

 

Proceeds from revolving credit agreement

 

 

-

 

 

 

48,000

 

Debt issuance costs

 

 

(736

)

 

 

(874

)

Repayment of revolving credit agreement

 

 

(40,076

)

 

 

(18,000

)

Proceeds from the Värde financing arrangement, net of transaction costs

 

 

-

 

 

 

38,230

 

Partial repayment of the Värde financing arrangement

 

 

-

 

 

 

(2,600

)

Payment for tax withholding on stock-based compensation

 

 

(39

)

 

 

(452

)

Net cash provided by (used in) financing activities

 

 

(10,851

)

 

 

64,304

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

15,591

 

 

 

(16,798

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

3,753

 

 

 

21,137

 

Cash, cash equivalents and restricted cash at end of period

 

$

19,344

 

 

$

4,339

 

Supplemental disclosure:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

4,273

 

 

$

4,829

 

Cash paid for reorganization items

 

$

3,270

 

 

$

-

 

 

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

 

7


 

Lilis Energy, Inc. and Subsidiaries

Debtor in-Possession

Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 1 - ORGANIZATION

Lilis Energy, Inc., a Nevada corporation, is an independent oil and natural gas exploration and production company focused on the Delaware Basin in Winkler, Loving, and Reeves Counties, Texas and Lea County, New Mexico. Unless otherwise specified or the context otherwise requires, all references in these notes to “we”, “our”, “Lilis” or the “Company” are to Lilis Energy, Inc. and its consolidated subsidiaries.

NOTE 2 - CHAPTER 11 FILING, LIQUIDITY AND GOING CONCERN

Voluntary Petitions under Chapter 11 of the Bankruptcy Code

On June 28, 2020 (the “Petition Date”), Lilis Energy, Inc. and its consolidated subsidiaries Brushy Resources, Inc., ImPetro Operating LLC, ImPetro Resources, LLC, Lilis Operating Company, LLC and Hurricane Resources LLC (collectively, the “Debtors”) filed voluntary petitions seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”) commencing cases for relief under Chapter 11 of the Bankruptcy Code (the “Chapter 11 Cases”). The Chapter 11 Cases are being jointly administered under the caption In re Lilis Energy, Inc., et al., Case No. 20-33274. We are currently operating our business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court, in accordance with the applicable provisions of the Bankruptcy Code.

To maintain and continue uninterrupted ordinary course operations during the bankruptcy proceedings, the Debtors filed a variety of “first day” motions seeking approval from the Bankruptcy Court for various forms of customary relief  designed to minimize the effect of bankruptcy on the Debtors’ operations, customers and employees. On June 29, 2020, the Bankruptcy Court entered orders approving all requested “first day” relief. As a result, we are able to conduct normal business activities and pay all associated obligations for the period following our bankruptcy filing and (subject to caps applicable to payments of certain pre-petition obligations) certain pre-petition obligations, including, but not limited to: employee wages and benefits, pre-petition amounts owed to certain lienholders and critical vendors and funds belonging to third parties, including royalty interest and working interest holders and partners. During the pendency of the Chapter 11 Cases, all transactions outside the ordinary course of our business require the prior approval of the Bankruptcy Court.

On June 28, 2020, the Debtors entered into a restructuring support agreement (the “RSA”) with (i) the lenders  under our Revolving Credit Facility (other than Värde) (each as defined below) (the “Consenting RBL Lenders”) and (ii) certain investment funds and entities affiliated with Värde Partners, Inc. (collectively, “Värde”) which collectively own all of our outstanding preferred stock and a subordinated participation in that certain Second Amended and Restated Senior Secured Revolving Credit Agreement dated as of October 10, 2018 (as amended, the “Revolving Credit Agreement” and the loan facility, the “Revolving Credit Facility”), by and among Lilis Energy, Inc., as borrower, the other Debtors, as guarantors, BMO Harris Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders party thereto (“RBL Lenders”), which contemplated (a) a dual-track path in the Chapter 11 Cases whereby the Debtors would simultaneously pursue a plan of reorganization funded, in part, by a $55 million new money equity commitment (the “Värde Equity Investment”) from Värde in its sole discretion while also preparing for a potential process to sell substantially all of the Debtors’ assets in the event a definitive agreement and an executed commitment for the Värde Equity Investment could not be achieved by fifty (50) days after the commencement of the Chapter 11 Cases (the “Sales Process”), (b) a Senior Secured Super-Priority Debtor-in-Possession Credit Agreement (the “DIP Credit Agreement”) and related super-priority senior secured debtor-in-possession credit facility (the “DIP Facility”), (c) the terms of a replacement debtor-in-possession credit agreement and replacement DIP credit facility and (d) the form of an equity commitment letter contemplating the Värde Equity Commitment in Värde’s sole discretion.

On August 17, 2020, the Company announced that Värde had declined to pursue the Värde Equity Investment to sponsor a Chapter 11 plan of reorganization. Immediately thereafter, the Company and the other Debtors began solely pursuing the Sales Process. In connection with Värde’s election to not pursue the Värde Equity Investment, the Debtors, the Consenting RBL Lenders and Värde entered into that certain Mutual Termination of the RSA, dated August 21, 2020 (the “Mutual Termination”). Pursuant to the RSA and the Mutual Termination, certain provisions of the RSA survive the Mutual Termination, in particular, certain commitments and obligations related to the Sales Process that will remain in full force and effect notwithstanding the Mutual Termination.

On September 3, 2020 and October 13, 2020, respectively, the Debtors filed a joint liquidating Chapter 11 plan (as amended from time to time, the “Plan”) and a first amended Plan with the Bankruptcy Court. On October 14, 2020, the Bankruptcy Court approved the Debtors’ disclosure statement with respect to the Plan, which authorized the Debtors to commence votes to accept or

8


 

reject the Plan. On October 16, 2020, the Debtors completed such solicitation. On October 16, 2020, the Debtors received an initial round of bids from third parties interested in acquiring substantially all of the Debtors’ assets in connection with the Sales Process.  An auction in connection with the Sales Process was held on November 5, 2020, and a hearing before the Bankruptcy Court is scheduled for November 9, 2020, to consider approval of the winning bid(s) from the auction.

On October 12, 2020, the Debtors, the DIP Facility Lenders, the Non-Affiliated RBL Lenders, the Värde Parties, and the Committee (collectively, the “Settlement Parties”) reached an agreement on a global settlement (the “Global Settlement”), which resolves various actual and potential disputes between the Settlement Parties.  On October 12, 2020, the Debtors filed the Emergency Motion of Debtors for Entry of an Order (I) Approving the Terms of, and Authorizing the Debtors to Enter Into and Perform Under, the Settlement Agreement and (II) Granting Related Relief [Docket No. 462] (the “Settlement Motion”) seeking approval of certain aspects of the Global Settlement.  On October 22, 2020, the Bankruptcy Court entered an order approving the Settlement Motion.  Certain other aspects of the Global Settlement are being implemented through the Plan.

There can be no assurance that the Debtors will confirm the Plan with the Bankruptcy Court and consummate a sale of substantially all of their assets pursuant to the Sales Process or complete an alternative Chapter 11 plan. For the duration of our Chapter 11 Cases, our operations and our ability to develop and execute a business plan are subject to risks and uncertainties associated with bankruptcy.

DIP Facility.

Upon the interim approval of the Bankruptcy Court, the Debtors, as borrower and guarantors, the Consenting RBL Lenders (in that capacity, “DIP Lenders”) and the Administrative Agent entered into the DIP Credit Agreement, under which the DIP Lenders provide the DIP Facility providing for an aggregate principal amount of (i) $15.0 million of new money revolving commitments, of which up to $5.0 million was available upon entry of the interim order, with the remainder available upon entry of the final order, plus (ii) a tranche of roll-up term loans to refinance $15.0 million of the outstanding loans under the Revolving Credit Facility, including $1.5 million pre-petition bridge loans that the Non-Affiliate RBL Lenders advanced to the Company on June 17, 2020, of which $1.5 million of roll-up term loans were incurred upon entry of an interim order, and the remaining $13.5 million incurred upon entry of the final order. On June 29, 2020, the Bankruptcy Court entered an order (the “Interim DIP Order”) granting interim approval of the DIP Facility, thereby permitting the Company to incur up to $5.0 million new money loans on an interim basis. The DIP Credit Agreement was entered into on June 30, 2020.  On August 21, 2020, the Bankruptcy Court entered an order granting final approval of the DIP Facility, thereby permitting the Company to borrow an additional $10.0 million.  Also on August 21, 2020, the Company used $13.5 million in roll-up term loans under the DIP Facility to refinance $13.5 million of the outstanding loan under the Revolving Credit Facility.  As of September 30, 2020, there was $30.0 million outstanding balance under the DIP Credit Agreement.

In connection with the Debtors’ transition to the Sales Process, the Debtors, the Administrative Agent and the DIP Facility Lenders executed several amendments between August 17, 2020 and October 30, 2020 to the DIP Credit Agreement to extend certain milestones in the DIP Facility as the Debtors pivoted to the Sales Process. The proceeds of the DIP Facility are being used to pay fees, expenses and other expenditures of the Debtors set forth in rolling budgets prepared as part of the Chapter 11 Cases, which are subject to approval by the DIP Lenders.

Acceleration of Our Existing Debt and Automatic Stay Due to Chapter 11 Filing

As of September 30, 2020, we had $74.9 million of indebtedness outstanding under our Revolving Credit Agreement including $25.7 million of such principal held by an affiliate of Värde which was subordinated to the indebtedness of the other RBL Lenders under the Revolving Credit Agreement.   

On June 5, 2020, the Debtors, the Administrative Agent, and certain lenders entered into a Limited Forbearance Agreement to the Revolving Credit Agreement (the “Forbearance Agreement”).

Pursuant to the Forbearance Agreement, the Administrative Agent and the Majority Lenders agreed to refrain from exercising certain of their rights and remedies under the Revolving Credit Agreement and related documents arising solely as a result of the occurrence or continuance of certain specified defaults and events of default under the Revolving Credit Agreement (the “Specified Defaults”) during the Forbearance Period (as defined below). The Specified Defaults include the Company’s failure to make the borrowing base deficiency payment due June 5, 2020, deliver certain financial statements when due, failure to comply with requirements related to the status of trade payables and related liens and failure to maintain the leverage ratio and asset coverage ratio required by the Revolving Credit Agreement as of the fiscal quarter ended March 31, 2020.  The “Forbearance Period” expired on June 26, 2020. The Company did not make the borrowing base deficiency payment.

9


 

The Forbearance Agreement also deferred the scheduled spring redetermination of the borrowing base under the Revolving Credit Agreement from on or about June 5, 2020 to on or about June 26, 2020.  The redetermination did not happen as a result of the Chapter 11 filing.

The Forbearance Agreement permitted the lenders under the Revolving Credit Agreement, or the RBL Lenders, in their capacity as counterparties to the Company’s commodity swap agreements to unwind and liquidate such swap arrangements during the Forbearance Period and to apply any net proceeds to pay down the outstanding obligations under the Revolving Credit Agreement. The swap positions of such lenders were liquidated on June 9, 2020, for net proceeds of approximately $9.3 million, which was applied to reduce the outstanding obligations of the Company under the Revolving Credit Agreement. On June 17, 2020, certain of the RBL Lenders permitted the Company to borrow $1.5 million under the Revolving Credit Agreement.  As of the filing of the Chapter 11 Cases, the remaining outstanding principal on our Revolving Credit Agreement was $89.9 million, including $25.7 million of such principal held by an affiliate of Värde which was subordinated to the indebtedness of the other RBL Lenders under the Revolving Credit Agreement.

Our remaining derivative contracts were with counterparties that were not our RBL Lenders and were governed by master agreements which generally specify that a default under any of our indebtedness as well as any bankruptcy filing is an event of default which may result in early termination of the derivative contracts. As a result of our debt defaults and our bankruptcy petition, we were in default under these remaining derivative contracts. In July 2020, the remaining derivative contracts were terminated in conjunction with our bankruptcy proceedings. Furthermore, since we are in default on our indebtedness and have a bankruptcy filing, we will no longer be able to represent that we comply with the credit default or bankruptcy covenants under our derivative master agreements and thus may not be able to enter into new hedging transactions.

The commencement of a voluntary proceeding in bankruptcy constitutes an immediate event of default under the Revolving Credit Agreement, resulting in the automatic and immediate acceleration of all of the Company’s outstanding debt. The Company has classified its outstanding balance under the Revolving Credit Facility as liabilities subject to compromise on its condensed consolidated balance sheet as of September 30, 2020.

Subject to certain exceptions, under the Bankruptcy Code, the filing of the bankruptcy petitions on the Petition Date automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or the filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Petition Date. Creditors are stayed from taking any actions against the Debtors as a result of debt defaults, subject to certain limited exceptions permitted by the Bankruptcy Code

Ability to Continue as a Going Concern

We have experienced losses and working capital deficiencies, and in the past, significant negative cash flows from operations.  Additionally, our liquidity and operating forecasts have been negatively impacted by the recent decrease in commodity prices and resulting temporary shut-in of wells, which has negatively impacted our ability to comply with debt covenants under our Revolving Credit Agreement.  Commodity price volatility, as well as concerns about the COVID-19 pandemic, has significantly decreased worldwide demand for oil and natural gas. These factors have restricted our access to liquidity and lead the company to seek relief through filing our Chapter 11 cases.  As a result, the Company has concluded these matters raise substantial doubt about the Company’s ability to continue as a going concern.

Fluctuations in oil and natural gas prices have a material impact on our financial position, results of operations, cash flows and quantities of oil, natural gas and NGL reserves that may be economically produced. Historically, oil and natural gas prices have been volatile, and may be subject to wide fluctuations in the future. If continued depressed prices persist, the Company will continue to experience impairment of oil and natural gas properties, operating losses, negative cash flows from operating activities, and negative working capital.

We face uncertainty regarding the adequacy of our liquidity and capital resources and have extremely limited access to additional financing. The Interim DIP Order entered by the Bankruptcy Court on June 29, 2020 approved the DIP Facility on an interim basis, thereby allowing us to borrow up to $5.0 million under the DIP Facility which we borrowed June 30, 2020. The final order by the Bankruptcy Court approving the DIP Facility and the DIP Credit Agreement allowed us to borrow the additional $10.0 million new money loans under the DIP Facility.  There is no remaining available borrowing capacity under the DIP Facility as of September 30, 2020.  In addition to the cash requirement necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with preparation for the Chapter 11 Cases and expect that we will continue to incur significant professional fees, costs and other expenses throughout our Chapter 11 Cases.

The Company’s operations and its ability to develop and execute its business plan are subject to a high degree of risk and uncertainty associated with the Chapter 11 Cases. The outcome of the Chapter 11 Cases is subject to a high degree of uncertainty and is dependent upon factors that are outside of the Company’s control, including actions of the Bankruptcy Court and the Company’s

10


 

creditors. There can be no assurance that the Debtors will confirm the Plan with the Bankruptcy Court and consummate a sale of substantially all of their assets pursuant to the Sales Process or complete an alternative Chapter 11 plan.  

These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and other commitments in the normal course of business for the twelve-month period following the date of issuance of these consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amount, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.

COVID-19

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency due to the COVID-19 outbreak, which originated in Wuhan, China, and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

In addition, in March 2020, members of OPEC failed to agree on production levels which has caused increased supply and led to a substantial decrease in oil prices and an increasingly volatile market.  The oil price war ended with a deal to cut global petroleum output but did not go far enough to offset the impact of COVID-19 on demand. If depressed pricing continues it will lead to i) reductions in availability under any reserve-based lending arrangements we may enter into or limitations in the ability to enter into reserve-based lending arrangements, ii) additional reductions in reserves, and iii) additional impairment of proved and unproved oil and gas properties.  We also expect disclosures of supplemental oil and gas information to be impacted by price declines.

The substantial decrease, and continued suppression, in oil prices has resulted in a full-cost ceiling impairment of $62.2 million and $94.9 million, respectively, during the three and nine months ended September 30, 2020.

In response to recent commodity prices and our efforts to strengthen our capital through reducing operating costs, during April 2020 the Company elected to shut-in 12 wells which were identified as uneconomic as a result of the continued decline in commodity prices in 2020 and 19 additional wells were identified for short term shut-in through May and June 2020.  In late May, 2020, 16 of the shut-in wells were back on production.  Another 12 shut-in wells were back on production in early June 2020.  In June 2020, the Company also laid off a significant number of employees to further reduce general and administrative costs.

The full impact of the COVID-19 outbreak and the oversupply of oil and resulting decrease in oil prices continues to evolve as of the date of these financial statements. As such, it is uncertain as to the full magnitude that they will have on the Company’s financial condition, liquidity, and future results of operations.

Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2020.

These matters could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown, which the Company expects would further impair the Company’s asset values, including reserve estimates.  Further, consumer demand has decreased since the spread of the outbreak and new travel restrictions placed by governments in an effort to curtail the spread of the coronavirus. Although the Company cannot estimate the length or gravity of the impacts of these events at this time, if the pandemic and/or decreased oil prices continue, they will have a material adverse effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2020.

 

11


 

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

 

Bankruptcy Accounting

 

As discussed in Note 2, on June 28, 2020, the Debtors filed voluntary petitions seeking relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Houston Division commencing cases for relief under Chapter 11 of the Bankruptcy Code. During the Chapter 11 proceedings, the Debtors operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. The consolidated financial statements have been prepared as if the Company is a going concern and reflect the application of Accounting Standards Codification 852 “Reorganizations” (“ASC 852”). ASC 852 requires that the financial statements, for periods subsequent to the Chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that are realized or incurred in the bankruptcy proceedings are recorded in “reorganization items, net” on our statements of operations. In addition, prepetition unsecured and under-secured obligations that may be impacted by the bankruptcy process have been classified as “liabilities subject to compromise” on our balance sheet at September 30, 2020. These liabilities are reported at the amounts expected to be allowed as claims by the Bankruptcy Court, although they may be settled for less. The accompanying financial statements do not purport to reflect or provide for the consequences of the Chapter 11 proceedings. In particular, the financial statements do not purport to show: (i) the realizable value of assets on a liquidation basis or their availability to satisfy liabilities; (ii) the amount of prepetition liabilities that may be allowed for claims or contingencies, or the status and priority thereof; (iii) the effect on stockholders’ deficit accounts of any changes that may be made to our capitalization; or (iv) the effect on operations of any changes that may be made to our business. While operating as debtor-in-possession under Chapter 11 of the Bankruptcy Code, we may se