−Removed: Oil and natural gas prices are volatile, and low prices could have a material adverse impact on our business.
−Removed: Our revenues, profitability, future growth and the carrying value of our properties depend substantially on prevailing oil and natural gas prices.
−Removed: Prices also affect the amount of cash flow we have available for capital expenditures and our ability to borrow and raise additional capital.
−Removed: The amount we are able to borrow under our Senior Credit Agreement is subject to periodic redeterminations based in part on the value of our estimated proved reserves, which reflect current oil and natural gas prices, and on changing expectations of future prices.
−Removed: Lower prices may also reduce the amount of oil and natural gas that we can economically produce and have an adverse effect on the value of our properties.
−Removed: Oil and natural gas prices are volatile.
−Removed: Among the factors that affect volatility are:
−Removed: domestic and foreign supplies of oil and natural gas;
−Removed: the ability of members of the Organization of Petroleum Exporting Countries and other oil exporting countries, including Russia, to agree upon and maintain production quotas;
−Removed: social unrest and political instability, particularly in major oil and natural gas producing regions outside the United States, such as the Middle East, and armed conflict or terrorist attacks;
−Removed: the level of consumer demand for oil and natural gas, including demand growth in developing countries, such as China and India;
−Removed: labor unrest in oil and natural gas producing regions;
−Removed: weather conditions, including hurricanes and other natural occurrences that affect the supply and/or demand for oil and natural gas;
−Removed: the price and availability of alternative fuels and energy sources;
−Removed: the price and availability of foreign imports and domestic exports;
−Removed: worldwide and regional economic and political conditions impacting the global supply and demand for oil and natural gas, which may be driven by many factors, including health epidemics (such as the current global COVID-19 coronavirus outbreak).
−Removed: These external factors and the volatile nature of the energy markets make it difficult to estimate future prices of oil and natural gas.
−Removed: We may have difficulty financing our planned capital expenditures which could adversely affect our growth.
−Removed: Our business requires substantial capital expenditures primarily to fund our drilling program.
−Removed: We may also continue to selectively increase our core acreage position, which would require capital in addition to the capital necessary to drill on our existing acreage.
−Removed: In addition, it is possible that we will acquire acreage in other areas that we believe are prospective for oil and natural gas production and expend capital to develop such acreage.
−Removed: We expect to use borrowings under our Senior Credit Agreement and proceeds from potential future capital markets transactions, if necessary, to fund capital expenditures that are in excess of our operating cash flow and cash on hand.
−Removed: Our Senior Credit Agreement limits our borrowings to the lesser of the borrowing base and the total commitments.
−Removed: As of December 31, 2019 (Successor), our Senior Credit Agreement had a borrowing base of $240.0 million.
−Removed: As of December 31, 2019 (Successor), we had $144.0 million of indebtedness outstanding, approximately $2.3 million of letters of credit outstanding and approximately $93.7 million of borrowing capacity available under our Senior Credit Agreement.
−Removed: A reduction in our borrowing base could require us to repay borrowings, if any, in excess of the borrowing base.
−Removed: Our Senior Credit Agreement also contains certain financial covenants, including the maintenance of (i) a Total Net Indebtedness Leverage Ratio and (ii) a Current Ratio, each as defined in the Senior Credit Agreement.
−Removed: We have periodically sought amendments to the covenants contained in the Predecessor Credit Agreement, including the financial covenants, where we have anticipated difficulty in maintaining compliance.
−Removed: In the event we have difficulty in the future meeting the covenants under our Senior Credit Agreement, we would be required to seek additional relief, and there is no assurance that it would be granted.
−Removed: Failure to comply with the covenants in the Senior Credit Agreement may limit our ability to borrow, result in an event of default and cause amounts outstanding under the Senior Credit Agreement to become immediately due and payable.
−Removed: If we are not able to borrow sufficient amounts under our Senior Credit Agreement, or otherwise, and are unable to raise sufficient capital to fund our capital expenditures, we may be required to curtail our drilling, development, land acquisitions and other activities, which could result in a decrease in our production of oil and natural gas, forfeiture of leasehold interests if we are unable or unwilling to renew them, and could force us to sell some of our assets on an unfavorable basis, each of which could have a material adverse effect on our results and future operations.
+Added: COVID-19 Risk Factors
+Added: Events beyond our control, including a global or domestic health crisis, may result in unexpected adverse operating and financial results.
+Added: In response to the novel coronavirus (COVID-19) pandemic governments around the world, including U.S.
+Added: federal and state governments, have imposed restrictions intended to limit the extent and spread of the virus, including travel restrictions, quarantines and business closures.
+Added: These and other actions could, among other things, impact the ability of our employees and contractors to perform their duties, cause increased technology and security risk due to extended and company-wide telecommuting and lead to disruptions in our permitting activities and critical business relationships.
+Added: Additionally, the COVID-19 outbreak and governmental restrictions have significantly impacted economic activity and markets and have dramatically reduced current and anticipated demand for oil and natural gas, adversely impacting the prices we receive for our production.
+Added: The severity and duration of the current COVID-19 outbreak and the potential for future outbreaks are uncertain and difficult to predict.
+Added: COVID-19 or another similar outbreak may negatively impact our business in numerous ways, including, but not limited to, the following:
+Added: ● reducing our revenues if the outbreak results in a substantial or prolonged decrease in demand for oil and natural gas due to an economic downturn or recession;
+Added: ● disrupting our operations if our employees or contractors are unable to work due to illness or if our field operations are suspended or temporarily shut-down or restricted due to measures designed to contain the outbreak;
+Added: ● disrupting the operations of our midstream service providers, on whom we rely for the gathering, processing and transportation of our production, due to measures designed to contain the outbreak, and/or the difficult economic environment may lead to capital spending constraints, bankruptcy, the closing of facilities or inability to maintain infrastructure, which may adversely affect our ability to market our production, increase our costs, lower the prices we receive, or result in the shut-in of our producing wells or a delay or discontinuation of our development plans;
+Added: ● the disruption and instability in the financial markets and the uncertainty in the general business environment may affect our ability to access capital, monetize assets and successfully execute our plans.
+Added: The COVID-19 pandemic may also have the effect of heightening many of the other risks set forth below.
+Added: Any of these factors could have a material adverse effect on our business, operations, financial results and liquidity.
+Added: Recently, oil and natural gas prices declined to historically low levels and we reduced our planned capital expenditures, delayed our drilling and completion plans and temporarily shut-in some of our producing wells, among other responses.
+Added: We are unable to predict the ultimate adverse impact of COVID-19 on our business, which will depend on numerous evolving factors and future developments, including the length of time that the pandemic continues, its ongoing effect on the demand for oil and natural gas and the response of the overall economy and the financial markets after governmental restrictions are eased.
A financial downturn could negatively affect our business, results of operations, financial condition and liquidity.
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All of the foregoing may adversely affect our business, financial condition, results of operations, cash flows and, potentially, the borrowing capacity under our Senior Credit Agreement.
−Removed: Unless we replace our reserves, our reserves and production will decline, which would adversely affect our financial condition, results of operations and cash flows.
−Removed: Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors.
−Removed: Decline rates are typically greatest early in the productive life of a well.
−Removed: Estimates of the decline rate of an oil or natural gas well are inherently imprecise, and are less precise with respect to new or emerging oil and natural gas formations with limited production histories than for more developed formations with established production histories.
−Removed: Our production levels and the reserves that we currently expect to recover from our wells will change if production from our existing wells declines in a different manner than we have estimated and can change under other circumstances.
−Removed: Our future oil and natural gas reserves and production and, therefore, our cash flows and results of operations are highly dependent upon our success in efficiently developing and exploiting our current properties and economically finding or acquiring additional recoverable reserves.
−Removed: We may not be able to develop, find or acquire additional reserves to replace our current and future production at acceptable costs.
−Removed: If we are unable to replace our current and future production, our cash flows and the value of our reserves may decrease, adversely affecting our business, financial condition, results of operations, cash flows and potentially the borrowing capacity under our Senior Credit Agreement.
−Removed: Our actual financial results may vary materially from the projections that we filed with the bankruptcy court in connection with the confirmation of our plan of reorganization.
−Removed: In connection with the disclosure statement we filed with the bankruptcy court, and the hearing to consider confirmation of our plan of reorganization, we prepared projected financial information to demonstrate to the bankruptcy court the feasibility of the plan of reorganization and our ability to continue operations upon our emergence from bankruptcy.
−Removed: Those projections were prepared solely for the purpose of the bankruptcy proceedings and have not been, and will not be, updated on an ongoing basis and should not be relied upon by investors.
−Removed: At the time they were prepared, the projections reflected numerous assumptions concerning our anticipated future performance and with respect to prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not materialize.
−Removed: Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks and the assumptions underlying the projections and/or valuation estimates may prove to be wrong in material respects.
−Removed: Actual results will likely vary significantly from those contemplated by the projections.
−Removed: As a result, investors should not rely on these projections.
−Removed: Our historical financial information may not be indicative of our future financial performance.
−Removed: Our capital structure was significantly altered under the Plan.
−Removed: We adopted fresh-start accounting effective October 1, 2019, as an accounting convenience date to coincide with the timing of our normal fourth quarter reporting, and as a result, our assets and liabilities were adjusted to fair values and our accumulated deficit was restated to zero.
−Removed: Further, as a result of the implementation of our plan of reorganization and the transactions contemplated thereby, our historical financial information may not be indicative of our future financial performance.
−Removed: Accordingly, our financial condition and results of operations following our emergence from chapter 11 are not comparable to the financial condition and results of operations reflected in our historical financial statements.
−Removed: Upon our emergence from bankruptcy, the composition of our Board of Directors changed significantly.
−Removed: Under the Plan, the composition of our Board of Directors (the Board) changed significantly from an eight member Board with three classes with terms of three years to, upon emergence, a seven member Board, structured into two classes with the first class serving until the 2020 Annual Meeting and the second class serving until the 2021 Annual Meeting.
−Removed: Commencing with the 2021 Annual Meeting, each nominee for director shall stand for election to a one-year term expiring at the next annual meeting of stockholders.
−Removed: None of our current directors served on our Board pre-emergence from bankruptcy.
−Removed: Our new directors have different backgrounds, experiences and perspectives from those individuals who previously served on the Board and, thus, may have different views on the issues that will determine the future of the Company.
−Removed: As a result, the future strategy and plans of the Company may differ materially from those of the past.
−Removed: There may be circumstances in which the interests of our significant stockholders could be in conflict with the interests of our other stockholders.
−Removed: Funds advised by Luminus Management, LLC, Oaktree Capital Management, LP and LSP Investment Advisors, LLC, held approximately 40.5%, 24.6% and 16.3%, respectively, of our post-reorganization common stock as of March 20, 2020 (Successor).
−Removed: Circumstances may arise in which these stockholders may have an interest in pursuing or preventing acquisitions, divestitures or other transactions, including the issuance of additional equity securities or debt, that, in their judgment, could enhance their investment in us or another company in which they invest.
−Removed: Such transactions might adversely affect us or other holders of our common stock.
−Removed: In addition, our significant concentration of share ownership may adversely affect the trading price of our common shares because investors may perceive disadvantages in owning shares in companies with significant stockholders.
−Removed: Future sales of our common stock in the public market or the issuance of securities senior to our common stock, or the perception that these sales may occur, could adversely affect the trading price of our common stock and our ability to raise funds in stock offerings.
−Removed: A large percentage of our shares of common stock are held by a relatively small number of investors.
−Removed: Further, we entered into a registration rights agreement with certain of those investors pursuant to which we have agreed to file a registration statement with the SEC to facilitate potential future sales of such shares by them.
−Removed: Sales by us or our stockholders of a substantial number of shares of our common stock in the public markets, or even the perception that these sales might occur (such as upon the filing of the aforementioned registration statement), could cause the market price of our common stock to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities.
−Removed: We are currently authorized to issue 100.0 million shares of common stock and 1.0 million shares of preferred stock, with such designations, rights, preferences, privileges and restrictions as determined by the Board.
−Removed: As of March 20, 2020 (Successor), we had outstanding approximately 16.2 million shares of common stock, and warrants, options and restricted stock units to purchase or receive an aggregate of 8.2 million shares of our common stock.
−Removed: As of March 20, 2020, we have also reserved an additional 0.2 million shares for future issuance to our directors, officers and employees under our 2020 Long-Term Incentive Plan.
−Removed: The potential issuance of such additional shares of common stock may create downward pressure on the trading price of our common stock.
−Removed: We may issue common stock or other equity securities senior to our common stock in the future for a number of reasons, including to finance acquisitions, to adjust our leverage ratio, and to satisfy our obligations upon the exercise of warrants, or for other reasons.
−Removed: We cannot predict the effect, if any, that future sales or issuances of shares of our common stock or other equity securities, or the availability of shares of common stock or such other equity securities for future sale or issuance, will have on the trading price of our common stock.
+Added: Operational Risk Factors
We are substantially dependent upon our drilling success on our Delaware Basin properties.
2 unchanged sentences
Such events could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
−Removed: Borrowings under our Senior Credit Agreement are limited by our borrowing base, which is subject to periodic redetermination.
−Removed: The borrowing base under our Senior Credit Agreement is currently $240 million and is redetermined at least semiannually on each May 1 and November 1, with us and the lenders each having the right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations.
−Removed: The borrowing base takes into account the estimated value of our oil and natural gas properties, proved reserves, total indebtedness and such other information as
−Removed: lenders deem appropriate in their sole credit discretion and consistent with the normal and customary standards and practices they use for determining the value of oil and gas properties and criteria for reserve based oil and gas lending as it exists at the time.
−Removed: Accordingly, the borrowing base is influenced by many factors and our lenders have significant discretion in establishing it.
−Removed: Under our Senior Credit Agreement, any proposed increase in the borrowing base must be approved by all lenders while maintaining or decreasing the borrowing base requires the approval only of lenders holding two thirds of unused commitments under the facility.
−Removed: Bank of Montreal currently holds substantially all of the commitments under our Senior Credit Agreement and, therefore, at present, has the sole ability to determine the borrowing base.
−Removed: To facilitate syndication of our Senior Credit Agreement with additional lenders, we previously agreed to reduce the borrowing base from $275 million to the current $240 million and to reduce the Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit Agreement) from 4.00 to 1.00 to 3.50 to 1.00, and to make certain other changes.
−Removed: We have also agreed that to the extent necessary to facilitate syndication of the Senior Credit Agreement, Bank of Montreal may increase the applicable interest rates under our Senior Credit Agreement by not more than 50 basis points per annum.
−Removed: If Bank of Montreal is unsuccessful in syndicating our Senior Credit Agreement, we may find it necessary to agree to further changes to the terms of such facility, including a further reduction to the borrowing base, tightening of covenants or increase in applicable interest rates.
−Removed: Whether or not Bank of Montreal is successful in syndicating our Senior Credit Agreement, the borrowing base could be reduced upon a redetermination, particularly to the extent recent substantial declines in oil and natural gas prices in response to actions by Saudi Arabia and Russia negatively impact future price expectations.
−Removed: If the borrowing base under our Senior Credit Agreement is reduced, it could negatively impact our liquidity and require us to repay outstanding borrowings to the extent such borrowings exceed the redetermined borrowing base.
−Removed: We may not have sufficient funds to make such payments, which could result in a default under the terms of the Senior Credit Agreement and acceleration of our obligations thereunder, or to fund our business or planned capital expenditures.
−Removed: We could be required to seek additional capital, which may not be available to us or may be more costly, and we may be required to curtail our drilling, development, land acquisition and other activities, which could result in a decrease in our production of oil and natural gas, forfeiture of leasehold interests to the extent we are unable or unwilling to renew them and could force us to sell assets on an untimely or unfavorable basis, each of which could have a material adverse effect on our results and future operations.
Our exploration and development drilling efforts and the operation of our wells may not be profitable or achieve our targeted rates of return.
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If we are unable to accurately predict and control the costs of drilling and completing a well, we may be forced to limit, delay or cancel drilling operations.
−Removed: Historically, we have had substantial indebtedness and we may incur substantially more debt in the future.
−Removed: Higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business.
−Removed: We have approximately $144.0 million principal amount of debt as of December 31, 2019 (Successor).
−Removed: As a result of our indebtedness, we will need to use a portion of our cash flow to pay interest, which will reduce the amount of cash flow we will have available to finance our operations and other business activities and could limit our flexibility in planning for or reacting to changes or adverse developments in our business or economic downturns impacting the industry in which we operate.
−Removed: Indebtedness under our Senior Credit Agreement is at a variable interest rate, and so a rise in interest rates will generate greater interest expense to the extent we do not have hedging arrangements that are effective in offsetting interest rate fluctuations.
−Removed: Currently, certain borrowings under our Senior Credit Agreement may bear interest at LIBOR, however financial regulators are working to transition away from LIBOR as a benchmark by the end of 2021.
−Removed: It is currently unclear whether new methods of calculating LIBOR will be established after 2021, or whether different benchmark rates to price indebtedness will develop.
−Removed: At this time, the impact on our borrowing costs, if any, under an alternative benchmark to LIBOR is uncertain.
−Removed: We may incur substantially more debt in the future.
−Removed: At December 31, 2019 (Successor), we had approximately $93.7 million of additional borrowing capacity available under our Senior Credit Agreement.
−Removed: Our ability to meet our debt obligations and other expenses will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors, many of which we are unable to control.
−Removed: If our cash flow is not sufficient to service our debt, we may be required to refinance debt, sell assets or sell additional shares of common or preferred stock on terms that we may not find attractive if it may be done at all.
−Removed: Further, our failure to comply with the financial and other restrictive covenants relating to our indebtedness could result in a default under that indebtedness, which could adversely affect our business, financial condition and results of operations.
−Removed: Estimates of proved oil and natural gas reserves involve assumptions and any material inaccuracies in these assumptions will materially affect the quantities and the value of our reserves.
−Removed: This Annual Report on Form 10‑K contains estimates of our proved oil and natural gas reserves.
−Removed: The process of estimating oil and natural gas reserves in accordance with SEC requirements is complex, involving significant estimates and assumptions in the evaluation of available geological, geophysical, engineering and economic data.
−Removed: Accordingly, these estimates are inherently imprecise.
−Removed: Actual future production, oil and natural gas prices, revenues, taxes, capital expenditures, operating expenses and quantities of recoverable oil and natural gas reserves most likely will vary from those estimated.
−Removed: Any significant variance could materially affect the estimated quantities and the value of our reserves.
−Removed: In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development, prevailing oil and natural gas prices and other factors, many of which are beyond our control.
−Removed: The estimates of our reserves as of December 31, 2019 (Successor) are based upon various assumptions about future production levels, prices and costs that may not prove to be correct over time.
−Removed: In particular, in accordance with SEC requirements, estimates of oil and gas reserves, future net revenue from proved reserves and the present value of our oil and gas properties are based on the assumption that future oil and gas prices remain the same as the twelve month first-day-of-the-month average oil and gas prices for the year ended December 31, 2019 (Successor).
−Removed: Average prices for oil and natural gas for the 12-month period were as follows:
−Removed: WTI crude oil spot price of $55.85 per Bbl, adjusted by lease or field for quality, transportation fees, and market differentials and a Henry Hub natural gas spot price of $2.578 per MMBtu, adjusted by lease or field for energy content, transportation fees, and market differentials.
−Removed: Any significant variance in the actual future prices from these assumptions could materially affect the estimated quantity and value of our reserves set forth in this report.
−Removed: In addition, at December 31, 2019 (Successor), approximately 39% of our estimated proved reserves were classified as proved undeveloped.
−Removed: Recovery of proved undeveloped reserves requires significant capital expenditures and successful drilling operations.
−Removed: Estimated proved reserves as of December 31, 2019 (Successor) assume that we will make future capital expenditures of approximately $261.7 million in the aggregate primarily from 2020 through 2024,
−Removed: which are necessary to develop and realize the value of proved reserves on our properties.
−Removed: The estimates of these oil and natural gas reserves and the costs associated with development of these reserves have been prepared in accordance with SEC regulations, however, actual capital expenditures will likely vary from estimated capital expenditures, development may not occur as scheduled and actual results may not be as estimated.
We may not be able to drill wells on a substantial portion of our acreage.
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We may not generate enough cash flow from operations or be able to raise sufficient capital to do so.
−Removed: Commodities pricing may also make drilling some acreage uneconomic.
+Added: Commodities pricing may also make drilling
+Added: some acreage uneconomic.
Our actual drilling activities and future drilling budget will depend on drilling results, oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, lease expirations, gathering system and pipeline transportation constraints, regulatory approvals and other factors.
8 unchanged sentences
As a non-operating leaseholder we have less control over the timing of drilling and are therefore subject to additional risk of expirations.
−Removed: We depend on the continued presence of key personnel for critical management decisions.
−Removed: Retaining and understanding historical knowledge from our key personnel is critical to allowing our new management team to more effectively progress our business plan.
−Removed: As part of the restructuring, there were a number of positions that were consolidated and/or replaced.
−Removed: While it is important to have the new team focused on the future, retaining and understanding the decisions that were made in the past allows for a more seamless transition into the future.
−Removed: Anytime personnel are replaced, there is a risk that there may be a loss of service, albeit temporary, that could result in an adverse effect on the business.
−Removed: Our oil and natural gas activities are subject to various risks which are beyond our control.
+Added: Our oil and natural gas activities are subject to various risks that are beyond our control.
Our operations are subject to many risks and hazards incident to exploring and drilling for, producing, transporting, marketing and selling oil and natural gas.
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Safely handling H2S gas requires highly skilled operations and field personnel as well as specialized infrastructure, treating facilities, disposal facilities, and/or third party sour gas takeaway.
−Removed: If we are unable to attract and retain qualified and highly skilled personnel, whether as a result of uncertainty associated with our restructuring in bankruptcy or otherwise, our ability to effectively manage this and other risks may be adversely impacted.
+Added: If we are unable to attract and retain qualified and highly skilled personnel our ability to effectively manage this and other risks may be adversely impacted.
Additionally, if we are unable to successfully operate our specialized treating facilities or secure adequate sour gas takeaway capacity from third parties when and if necessary, our ability to effectively manage the H2S levels we see in our natural gas production may be adversely impacted.
15 unchanged sentences
Cost increases may also result from a variety of factors beyond our control, such as increases in the cost of electricity, steel and other materials that we and our vendors rely upon and increases in the cost of services to process, treat and transport our production.
−Removed: Recently, for instance, the President exercised his authority to impose significant tariffs on imports of steel and aluminum from a number of countries.
−Removed: Steel is extensively used by us and those in oil and gas industry generally, including for such items as tubulars, flanges, fittings and tanks, among many other items.
−Removed: As a result of the imposition of such tariffs, we will be paying significantly more for most or all of these items in the near term.
Any escalation or expansion of tariffs could result in higher costs and affect a greater range of materials we rely upon in our business.
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If demand for drilling rigs and pressure pumping equipment subside during the period covered by these contracts, the price we are required to pay may be significantly more than the market rate for similar services.
+Added: Our strategy involves drilling in shale formations, using horizontal drilling and modern completion techniques.
+Added: The results of our drilling program using these techniques may be subject to more uncertainties than conventional drilling programs.
+Added: These uncertainties could result in an inability to meet our expectations for reserves and production.
+Added: The drilling of long horizontal laterals and the use of modern completion techniques with multi-stage fracture stimulation in shale formations involves certain risks and complexities that do not exist in conventional wells.
+Added: Such risks include, but are not limited to, landing the horizontal wellbore in the desired drilling zone, maintaining the desired drilling zone while drilling horizontally through the wellbore formation, running casing through the full span of the wellbore, and being able to run tools and other necessary equipment consistently throughout the horizontal wellbore.
+Added: Additionally, horizontal drilling and completion techniques may result in faster production decline rates relative to conventional drilling methods.
+Added: The ultimate success of our drilling and completion strategies and techniques will be better evaluated over time as more wells are drilled and production profiles are better established.
+Added: If our drilling results are less than anticipated our investment in these areas may not be as attractive as we anticipate and could result in material write-downs of unevaluated properties and future declines in the value of our undeveloped acreage.
+Added: Title to the properties in which we have an interest may be impaired by title defects.
+Added: We generally obtain title opinions on significant properties that we drill or acquire.
+Added: However, there is no assurance that we will not suffer a monetary loss from title defects or title failure.
+Added: Additionally, undeveloped acreage has greater risk of title defects than developed acreage.
+Added: Generally, under the terms of the operating agreements affecting our properties, any monetary loss is to be borne by all parties to any such agreement in proportion to their interests in such property.
+Added: If there are any title defects or defects in assignment of leasehold rights in properties in which we hold an interest, we will suffer a financial loss.
+Added: We depend substantially on the continued presence of key personnel for critical management decisions and industry contacts.
+Added: Our success depends upon the continued contributions of our executive officers and key employees, particularly with respect to providing the critical management decisions and contacts necessary to manage and maintain growth within a highly competitive industry.
+Added: Competition for qualified personnel can be intense, particularly in the oil and natural gas industry, and there are a limited number of people with the requisite knowledge and experience.
+Added: Under these conditions, we could be unable to attract and retain these personnel.
+Added: The loss of the services of any of our executive officers or other key employees for any reason could have a material adverse effect on our business, operating results, financial condition and cash flows.
+Added: Financial and Liquidity Risk Factors
+Added: Oil and natural gas prices are volatile, and low prices could have a material adverse impact on our business.
+Added: Our revenues, profitability, future growth and the carrying value of our properties depend substantially on prevailing oil and natural gas prices.
+Added: Prices also affect the amount of cash flow we have available for capital expenditures and our ability to borrow and raise additional capital.
+Added: The amount we are able to borrow under our Senior Credit Agreement is subject to periodic redeterminations based in part on the value of our estimated proved reserves, which reflect current oil and natural gas prices, and on changing expectations of future prices.
+Added: Lower prices may also reduce the amount of oil and natural gas that we can economically produce and have an adverse effect on the value of our properties.
+Added: Oil and natural gas prices are volatile.
+Added: Among the factors that affect volatility are:
+Added: ● domestic and foreign supplies of oil and natural gas;
+Added: ● the ability of members of the Organization of Petroleum Exporting Countries and other oil exporting countries, including Russia, to agree upon and maintain production quotas;
+Added: ● social unrest and political instability, particularly in major oil and natural gas producing regions outside the United States, such as the Middle East, and armed conflict or terrorist attacks;
+Added: ● the level of consumer demand for oil and natural gas, including demand growth in developing countries, such as China and India;
+Added: ● labor unrest in oil and natural gas producing regions;
+Added: ● weather conditions, including hurricanes and other natural occurrences that affect the supply and/or demand for oil and natural gas;
+Added: ● the price and availability of alternative fuels and energy sources;
+Added: ● the price and availability of foreign imports and domestic exports;
+Added: ● worldwide and regional economic and political conditions impacting the global supply and demand for oil and natural gas, which may be driven by many factors, including health epidemics (such as the current global COVID-19 coronavirus outbreak).
+Added: These external factors and the volatile nature of the energy markets make it difficult to estimate future prices of oil and natural gas.
+Added: We may have difficulty financing our planned capital expenditures which could adversely affect our growth.
+Added: Our business requires substantial capital expenditures primarily to fund our drilling program.
+Added: We may also continue to selectively increase our core acreage position, which would require capital in addition to the capital necessary to drill on our existing acreage.
+Added: It is possible that we will acquire acreage in other areas that we believe are prospective for oil and natural gas production and expend capital to develop such acreage.
+Added: We expect to use borrowings under our Senior Credit Agreement and proceeds from potential future capital markets transactions, if necessary, to fund capital expenditures that are in excess of our operating cash flow and cash on hand.
+Added: Our Senior Credit Agreement limits our borrowings to the lesser of the borrowing base and the total commitments.
+Added: As of December 31, 2020 (Successor), our Senior Credit Agreement had a borrowing base of $190.0 million.
+Added: As of December 31, 2020 (Successor), we had $158.0 million of indebtedness outstanding, approximately $4.7 million of letters of credit outstanding and approximately $27.3 million of borrowing capacity available under our Senior Credit Agreement.
+Added: A reduction in our borrowing base could require us to repay borrowings, if any, in excess of the borrowing base.
+Added: Our Senior Credit Agreement also contains certain financial covenants, including the maintenance of (i) a Total Net Indebtedness Leverage Ratio and (ii) a Current Ratio, each as defined in the Senior Credit Agreement.
+Added: We have periodically sought amendments to the covenants under our revolving credit agreements, including the financial covenants, where we have anticipated difficulty in maintaining compliance.
+Added: In the event we have difficulty in the future meeting the covenants under our Senior Credit Agreement, we would be required to seek additional relief, and there is no assurance that it would be granted.
+Added: Failure to comply with the covenants in our Senior Credit Agreement may limit our ability to borrow, result in an event of default and cause amounts outstanding under our Senior Credit Agreement to become immediately due and payable.
+Added: Additionally, certain segments of the investor community have developed negative sentiment towards investing in our industry, with some investors and investment advisors adopting policies negatively impacting investment in the oil and gas sector based on social and environmental considerations.
+Added: Commercial and investment banks have also come under pressure to stop financing oil and gas production and related infrastructure projects.
+Added: Such developments, including environmental activism and initiatives aimed at limiting climate change and reducing air pollution, could potentially result in a reduction of available capital funding for development projects, thus impacting future financial results.
+Added: If we are not able to borrow sufficient amounts under our Senior Credit Agreement, or otherwise, and are unable to raise sufficient capital to fund our capital expenditures, we may be required to curtail our drilling, development, land acquisitions and other activities, which could result in a decrease in our production of oil and natural gas, forfeiture of leasehold interests if we are unable or unwilling to renew them, and could force us to sell some of our assets on an unfavorable basis, each of which could have a material adverse effect on our results and future operations.
+Added: Unless we replace our reserves, our reserves and production will decline, which would adversely affect our financial condition, results of operations and cash flows.
+Added: Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors.
+Added: Decline rates are typically greatest early in the productive life of a well.
+Added: Estimates of the decline rate of an oil or natural gas well are inherently imprecise, and are less precise with respect to new or emerging oil and natural gas formations with limited production histories than for more developed formations with established production histories.
+Added: Our production levels and the reserves that we currently expect to recover from our wells will change if production from our existing wells declines in a different manner than we have estimated and can change under other circumstances.
+Added: Our future oil and natural gas reserves and production and, therefore, our cash flows and results of operations are highly dependent upon our success in efficiently developing and exploiting our current properties and economically finding or acquiring additional recoverable reserves.
+Added: We may not be able to develop, find or acquire additional reserves to replace our current and future production at acceptable costs.
+Added: If we are unable to replace our current and future production, our cash flows and the value of our reserves may decrease, adversely affecting our business, financial condition, results of operations, cash flows and potentially the borrowing capacity under our Senior Credit Agreement.
+Added: Borrowings under our Senior Credit Agreement are limited by our borrowing base, which is subject to periodic redetermination, and our Senior Credit Agreement is currently funded substantially by one financial institution with plans to exit the United States oil and gas investment banking business.
+Added: The borrowing base under our Senior Credit Agreement is currently $190.0 million and is redetermined at least semiannually on each May 1 and November 1, with us and the lenders each having the right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations.
+Added: The borrowing base takes into account the estimated value of our oil and natural gas properties, proved reserves, total indebtedness and such other information as lenders deem appropriate in their sole credit discretion and consistent with the normal and customary standards and practices they use for determining the value of oil and gas properties and criteria for reserve based oil and gas lending as it exists at the time.
+Added: Accordingly, the borrowing base is influenced by many factors and our lenders have significant discretion in establishing it.
+Added: Under our Senior Credit Agreement, any proposed increase in the borrowing base must be approved by all lenders while maintaining or decreasing the borrowing base requires the approval only of lenders holding two thirds of unused commitments under the facility.
+Added: Bank of Montreal, who recently announced its plans to exit the United States oil and gas investment banking business, currently holds substantially all of the commitments under our Senior Credit Agreement and, therefore, at present, has the sole ability to determine the borrowing base.
+Added: The borrowing base could be reduced upon a redetermination, particularly to the extent recent substantial declines in oil and natural gas prices in response to actions by Saudi Arabia and Russia negatively impact future price expectations.
+Added: If the borrowing base under our Senior Credit Agreement is further reduced, it could negatively impact our liquidity and require us to repay outstanding borrowings to the extent such borrowings exceed the redetermined borrowing base.
+Added: We may not have sufficient funds to make such payments, which could result in a default under the terms of our Senior Credit Agreement and acceleration of our obligations thereunder, or to fund our business or planned capital expenditures.
+Added: We could be required to seek additional capital, which may not be available to us or may be more costly, and we may be required to curtail our drilling, development, land acquisition and other activities, which could result in a decrease in our production of oil and natural gas, forfeiture of leasehold interests to the extent we are unable or unwilling to renew them and could force us to sell assets on an untimely or unfavorable basis, each of which could have a material adverse effect on our results and future operations.
+Added: Bank of Montreal’s decision to exit investment banking in the United States oil and gas industry could lead to similar decisions with regard to its participation in oil and gas lending in the United States, resulting in the sale of our Senior Credit Agreement to another financial institution, hedge fund, or other third party, without our approval or consent, and could also lead us to seek alternative forms of financing, the terms of which may be more costly, provide less liquidity, or impose more restrictive covenants, each of which could have a material adverse effect on our results and future operations.
+Added: Historically, we have had substantial indebtedness and we may incur substantially more debt in the future.
+Added: Higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business.
+Added: We have approximately $158.0 million principal amount of debt as of December 31, 2020 (Successor).
+Added: As a result of our indebtedness, we will need to use a portion of our cash flow to pay interest, or potentially outstanding principal, which will reduce the amount of cash flow we will have available to finance our operations and other business activities and could limit our flexibility in planning for or reacting to changes or adverse developments in our business or economic downturns impacting the industry in which we operate.
+Added: Indebtedness under our Senior Credit Agreement is at a variable interest rate, and so a rise in interest rates will generate greater interest expense to the extent we do not have hedging arrangements that are effective in offsetting interest rate fluctuations.
+Added: Currently, certain borrowings under our Senior Credit Agreement may bear interest at LIBOR, however financial regulators are working to transition away from LIBOR as a benchmark by the end of 2021.
+Added: It is currently unclear whether new methods of calculating LIBOR will be established after 2021, or whether different benchmark rates to price indebtedness will develop.
+Added: At this time, the impact on our borrowing costs, if any, under an alternative benchmark to LIBOR is uncertain.
+Added: We may incur substantially more debt in the future.
+Added: At December 31, 2020 (Successor), we had approximately $27.3 million of additional borrowing capacity available under our Senior Credit Agreement.
+Added: Our ability to meet our debt obligations and other expenses will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors, many of which we are unable to control.
+Added: If our cash flow is not sufficient to service our debt, we may be required to refinance debt, sell assets or sell additional shares of common or preferred stock on terms that we may not find attractive if it may be done at all.
+Added: Further, our failure to comply with the financial and other restrictive covenants relating to our indebtedness could result in a default under that indebtedness, which could adversely affect our business, financial condition and results of operations.
+Added: Estimates of proved oil and natural gas reserves involve assumptions and any material inaccuracies in these assumptions will materially affect the quantities and the value of our reserves.
+Added: This Annual Report on Form 10-K contains estimates of our proved oil and natural gas reserves.
+Added: The process of estimating oil and natural gas reserves in accordance with SEC requirements is complex, involving significant estimates and assumptions in the evaluation of available geological, geophysical, engineering and economic data.
+Added: Accordingly, these estimates are inherently imprecise.
+Added: Actual future production, oil and natural gas prices, revenues, taxes, capital expenditures, operating expenses and quantities of recoverable oil and natural gas reserves most likely will vary from those estimated.
+Added: Any significant variance could materially affect the estimated quantities and the value of our reserves.
+Added: In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development, prevailing oil and natural gas prices and other factors, many of which are beyond our control.
+Added: The estimates of our reserves as of December 31, 2020 (Successor) are based upon various assumptions about future production levels, prices and costs that may not prove to be correct over time.
+Added: In particular, in accordance with SEC requirements, estimates of oil and gas reserves, future net revenue from proved reserves and the present value of our oil and gas properties are based on the assumption that future oil and gas prices remain the same as the 12-month first-day-of-the-month average oil and gas prices for the year ended December 31, 2020 (Successor).
+Added: Average prices for oil and natural gas for the 12-month period were as follows:
+Added: WTI crude oil spot price of $39.54 per Bbl, adjusted by lease or field for quality, transportation fees, and market differentials and a Henry Hub natural gas spot price of $1.99 per MMBtu, adjusted by lease or field for energy content, transportation fees, and market differentials.
+Added: Any significant variance in the actual future prices from these assumptions could materially affect the estimated quantity and value of our reserves set forth in this report.
+Added: In addition, at December 31, 2020 (Successor), approximately 43% of our estimated proved reserves were classified as proved undeveloped.
+Added: Recovery of proved undeveloped reserves requires significant capital expenditures and successful drilling operations.
+Added: Estimated proved reserves as of December 31, 2020 (Successor) assume that we will make future capital expenditures of approximately $315.1 million in the aggregate primarily from 2021 through 2025, which are necessary to develop and realize the value of proved reserves on our properties.
+Added: The estimates of these oil and natural gas reserves and the costs associated with development of these reserves have been prepared in accordance with
+Added: SEC regulations, however, actual capital expenditures will likely vary from estimated capital expenditures, development may not occur as scheduled and actual results may not be as estimated.
We are subject to various contractual limitations that affect the discretion of our management in operating our business.
−Removed: Our Senior Credit Agreement contains various provisions that may limit our management’s discretion in certain respects.
−Removed: In particular, the Senior Credit Agreement limits our and our subsidiaries’
−Removed: ability to, among other things:
+Added: Our Senior Credit Agreement contains various provisions that may limit our management’s discretion in certain respects.
+Added: In particular, the Senior Credit Agreement limits our and our subsidiaries’ ability to, among other things:
● pay dividends on, redeem or repurchase shares of our common stock and any other capital stock we may issue;
3 unchanged sentences
● create certain liens;
+Added: ● sell assets;
● enter into agreements that restrict dividends or other payments from our restricted subsidiaries to us;
1 unchanged sentence
● engage in transactions with affiliates;
−Removed: enter into hedging contracts;
+Added: ● increase our exposure to commodity price fluctuations;
● create unrestricted subsidiaries;
3 unchanged sentences
In addition, lenders may be able to terminate any commitments they had made to make further funds available to us.
−Removed: Our business is highly competitive.
−Removed: The oil and natural gas industry is highly competitive, including identification of attractive oil and natural gas properties for acquisition, drilling and development, securing financing for such activities and obtaining the necessary equipment and personnel to conduct such operations and activities.
−Removed: In seeking suitable opportunities, we compete with a number of other companies, including large oil and natural gas companies and other independent operators with greater financial resources, larger numbers of personnel and facilities, and, in some cases, with more expertise.
−Removed: There can be no assurance that we will be able to compete effectively with these entities.
+Added: Federal legislation and rulemaking could have an adverse impact on our ability to use derivative instruments to reduce the effects of commodity prices, interest rates and other risks associated with our business.
+Added: The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act establishes, among other provisions, federal oversight and regulation of the over-the-counter derivatives market and entities that participate in that market.
+Added: The Dodd-Frank Act also establishes margin requirements and certain transaction clearing and trade execution requirements.
+Added: The Dodd-Frank Act may require us to comply with margin requirements in our derivative activities, although the application of those provisions to us is uncertain at this time.
+Added: The counterparties to our derivative instruments may also spin off some of their derivatives activities to separate entities, which may not be as creditworthy as the current counterparties.
+Added: The Dodd-Frank Act and any new regulations could significantly increase the cost of some commodity derivative contracts (including through requirements to post collateral, which could adversely affect our available liquidity), materially alter the terms of some commodity derivative contracts, limit our ability to trade some derivatives to hedge risks, reduce the availability of some derivatives to protect against risks we encounter, and reduce our ability to monetize or restructure our existing commodity derivative contracts.
+Added: If we reduce our use of derivatives as a consequence, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.
+Added: We cannot be certain that the insurance coverage maintained by us will be adequate to cover all losses that may be sustained in connection with all oil and natural gas activities.
+Added: We maintain general and excess liability policies, which we consider to be reasonable and consistent with industry standards.
+Added: These policies generally cover:
+Added: ● personal injury;
+Added: ● bodily injury;
+Added: ● third party property damage;
+Added: ● medical expenses;
+Added: ● legal defense costs;
+Added: ● pollution in some cases;
+Added: ● well blowouts in some cases;
+Added: ● workers compensation.
+Added: As is common in the oil and natural gas industry, we will not insure fully against all risks associated with our business either because such insurance is not available or because we believe the premium costs are prohibitive.
+Added: A loss not fully covered by insurance could have a material effect on our financial position, results of operations and cash flows.
+Added: Our ability to use net operating loss carryforwards and realized built in losses to offset future taxable income for U.S.
+Added: federal income tax purposes is subject to limitation.
+Added: In general, under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses (NOLs), and realized built in losses (RBILS), to offset future taxable income.
+Added: In general, an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5% stockholders, applying certain look-through rules) increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years).
+Added: We experienced ownership changes in December 2018 and October 2019 and we may experience additional ownership changes in the future.
+Added: Limitations imposed on our ability to use NOLs and RBILS to offset future taxable income may cause U.S.
+Added: federal income taxes to be paid earlier than otherwise would be paid if such limitations were not in effect and could cause such NOLs and RBILS to expire unused, in each case reducing or eliminating the benefit of such NOLs and RBILS.
+Added: Similar rules and limitations may apply for state income tax purposes.
+Added: We may be required to take non-cash asset write-downs.
+Added: We may be required under full cost accounting rules to write-down the carrying value of oil and natural gas properties if oil and natural gas prices decline or if there are substantial downward adjustments to our estimated proved reserves, increases in our estimates of development costs or deterioration in our exploration results.
+Added: We utilize the full cost method of accounting for oil and natural gas exploration and development activities.
+Added: Under full cost accounting, we are required by SEC regulations to perform a ceiling test each quarter.
+Added: The ceiling test is an impairment test and generally establishes a maximum, or “ceiling,” of the book value of oil and natural gas properties that is equal to the expected after tax present value (discounted at 10%) of the future net cash flows from proved reserves, including the effect of cash flow hedges when hedge accounting is applied, calculated using the unweighted arithmetic average of the first day of each month for the 12-month period ending at the balance sheet date.
+Added: If the net book value of oil and natural gas properties (reduced by any related net deferred income tax liability and asset retirement obligation) exceeds the ceiling limitation, SEC regulations require us to impair or “write-down” the book value of our oil and natural gas properties.
+Added: During the year ended December 31, 2020 (Successor), we recorded cumulative full cost ceiling impairments of $215.1 million, primarily driven by a decline in the average pricing used in the valuation of our reserves.
+Added: As ceiling test
+Added: computations depend upon the calculated unweighted arithmetic average prices, it is impossible to predict the likelihood, timing and magnitude of any future impairments.
+Added: Depending on the magnitude, a ceiling test write-down could negatively affect our results of operations.
+Added: Costs associated with unevaluated properties, which were approximately $75.5 million at December 31, 2020 (Successor), are not initially subject to the ceiling test limitation.
+Added: Rather, we assess all items classified as unevaluated property on a quarterly basis for possible impairment or reduction in value based upon our intentions with respect to drilling on such properties, the remaining lease term, geological and geophysical evaluations, drilling results, the assignment of proved reserves, and the economic viability of development if proved reserves are assigned.
+Added: These factors are significantly influenced by our expectations regarding future commodity prices, development costs, and access to capital at acceptable cost.
+Added: During any period in which these factors indicate impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and the ceiling test limitation.
+Added: Accordingly, a significant change in these factors, many of which are beyond our control, may shift a significant amount of cost from unevaluated properties into the full cost pool that is subject to depletion and the ceiling test limitation.
+Added: Hedging transactions may limit our potential gains and increase our potential losses.
+Added: In order to manage our exposure to price risks in the marketing of our oil, natural gas, and natural gas liquids production and comply with the requirements of our Senior Credit Agreement, we have entered into oil, natural gas, and natural gas liquids price hedging arrangements with respect to a portion of our anticipated production and we may enter into additional hedging transactions in the future.
+Added: While intended to reduce the effects of volatile commodity prices, such transactions may limit our potential gains and increase our potential losses if commodity prices were to rise substantially over the price established by the hedge.
+Added: In addition, such transactions may expose us to the risk of loss in certain circumstances, including instances in which:
+Added: ● our production is less than expected;
+Added: ● there is a widening of price differentials between delivery points for our production;
+Added: ● the counterparties to our hedging agreements fail to perform under the contracts.
+Added: Investment in Securities Risk Factors
+Added: There may be circumstances in which the interests of our significant stockholders could be in conflict with the interests of our other stockholders.
+Added: Funds advised by Luminus Management, LLC, Oaktree Capital Management, LP and LSP Investment Advisors, LLC, held approximately 37.8%, 24.5% and 14.6%, respectively, of our common stock as of March 4, 2021 (Successor).
+Added: Circumstances may arise in which these stockholders may have an interest in pursuing or preventing acquisitions, divestitures or other transactions, including the issuance of additional equity securities or debt, that, in their judgment, could enhance their investment in us or another company in which they invest.
+Added: Such transactions might adversely affect us or other holders of our common stock.
+Added: In addition, our significant concentration of share ownership may adversely affect the trading price of our common shares because investors may perceive disadvantages in owning shares in companies with significant stockholders.
+Added: Future sales of our common stock in the public market or the issuance of securities senior to our common stock, or the perception that these sales may occur, could adversely affect the trading price of our common stock and our ability to raise funds in stock offerings.
+Added: A large percentage of our shares of common stock are held by a relatively small number of investors.
+Added: Further, we entered into a registration rights agreement with certain of those investors pursuant to which we have agreed to file a registration statement with the SEC to facilitate potential future sales of such shares by them.
+Added: Sales by us or our stockholders of a substantial number of shares of our common stock in the public markets, or even the perception that these sales might occur (such as upon the filing of the aforementioned registration statement), could cause the market
+Added: price of our common stock to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities.
+Added: We are currently authorized to issue 100.0 million shares of common stock and 1.0 million shares of preferred stock, with such designations, rights, preferences, privileges and restrictions as determined by the Board.
+Added: As of March 4, 2021 (Successor), we had outstanding approximately 16.3 million shares of common stock, and warrants, options and restricted stock units to purchase or receive an aggregate of 8.2 million shares of our common stock.
+Added: As of March 4, 2021 (Successor), we have also reserved an additional 0.2 million shares for future issuance to our directors, officers and employees under our 2020 Long-Term Incentive Plan.
+Added: The potential issuance of such additional shares of common stock may create downward pressure on the trading price of our common stock.
+Added: We may issue common stock or other equity securities senior to our common stock in the future for a number of reasons, including to finance acquisitions, to adjust our leverage ratio, and to satisfy our obligations upon the exercise of warrants, or for other reasons.
+Added: We cannot predict the effect, if any, that future sales or issuances of shares of our common stock or other equity securities, or the availability of shares of common stock or such other equity securities for future sale or issuance, will have on the trading price of our common stock.
+Added: Regulatory Risk Factors
We are subject to complex federal, state, local and other laws and regulations that frequently are amended to impose more stringent requirements that could adversely affect the cost, manner or feasibility of doing business.
17 unchanged sentences
Moreover, the laws governing our operations or the enforcement thereof could change in ways that substantially increase our costs of doing business.
+Added: For example, negative public perception regarding us and/or our industry may lead to increased regulatory scrutiny, which may, in turn, lead to new state and federal safety and environmental laws, regulations, guidelines and enforcement interpretations.
Any such liabilities, penalties, suspensions, terminations or regulatory changes could materially and adversely affect our business, financial condition and results of operations.
Under environmental, health and safety laws and regulations, we also could be held liable for personal injuries, property damage (including site clean-up and restoration costs) and other damages including the assessment of natural resource damages.
−Removed: Such laws may impose strict as well as joint and several liability for environmental contamination, which could subject us to liability for the conduct of others or for our own actions that were in compliance with all applicable laws at the time such actions were taken.
+Added: Such laws may impose strict as well as joint and several liability for environmental contamination,
+Added: which could subject us to liability for the conduct of others or for our own actions that were in compliance with all applicable laws at the time such actions were taken.
Environmental and other governmental laws and regulations also increase the costs to plan, design, drill, install, operate and abandon oil and natural gas wells.
6 unchanged sentences
By way of example, in 2015 the EPA lowered the primary national ambient air quality standard for ozone from 75 parts per billion to 70 parts per billion.
−Removed: Implementation will take place over several years;
−Removed: however, the new standard eventually could result in more stringent emissions controls and additional permitting obligations for our operations.
−Removed: Our strategy involves drilling in shale formations, using horizontal drilling and completion techniques.
−Removed: The results of our drilling program using these techniques may be subject to more uncertainties than conventional drilling programs, especially in areas that are new and emerging.
−Removed: These uncertainties could result in an inability to meet our expectations for reserves and production.
−Removed: The results of our drilling in shale formations are more uncertain initially than drilling results in areas that are more developed and have a longer history of established production.
−Removed: Newer or emerging formations and areas have limited or no production history;
−Removed: consequently our predictions of drilling results in these areas are more uncertain.
−Removed: In addition, the use of horizontal drilling and completion techniques used in shale formations involve certain risks and complexities that do not exist in conventional wells.
−Removed: The ultimate success of our drilling and completion strategies and techniques will be better evaluated over time as more wells are drilled and production profiles are better established.
−Removed: If our drilling results are less than anticipated our investment in these areas may not be as attractive as we anticipate and could result in material write‑downs of unevaluated properties and future declines in the value of our undeveloped acreage.
+Added: Implementation, which has been ongoing, eventually could result in more stringent emissions controls and additional permitting obligations for our operations.
Federal, state and local legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.
1 unchanged sentence
Federal, state and local governments have been adopting or considering restrictions on or prohibitions of fracturing in areas where we currently conduct operations, or may in the future, plan to conduct operations.
−Removed: Consequently, we could be subject to additional levels of regulation, operational delays or increased
−Removed: operating costs and could have additional regulatory burdens imposed upon us that could make it more difficult to perform hydraulic fracturing and increase our costs of compliance and doing business.
+Added: Consequently, we could be subject to additional levels of regulation, operational delays or increased operating costs and could have additional regulatory burdens imposed upon us that could make it more difficult to perform hydraulic fracturing and increase our costs of compliance and doing business.
From time to time, for example, legislation has been proposed in Congress to require more stringent federal control or outright bans of hydraulic fracturing.
9 unchanged sentences
Regulation related to global warming and climate change could have an adverse effect on our operations and demand for oil and natural gas.
−Removed: Studies over recent years have indicated that emissions of certain gases may be contributing to warming of the Earth’s atmosphere.
+Added: Studies over recent years have indicated that emissions of certain gases may be contributing to warming of the Earth’s atmosphere.
In response, governments increasingly have been adopting domestic and international climate change regulations that require reporting and reductions of the emission of such greenhouse gases.
−Removed: Methane, a primary component of natural gas, and carbon dioxide, a byproduct of burning oil, natural gas and refined petroleum products, are considered greenhouse gases.
+Added: Methane, a primary component of natural gas, and carbon dioxide, a byproduct of burning oil, natural gas and refined petroleum products,
+Added: are considered greenhouse gases.
Internationally, the United Nations Framework Convention on Climate Change, the Kyoto Protocol and the Paris Agreement address greenhouse gas emissions, and international negotiations over climate change and greenhouse gases are continuing.
Meanwhile, several countries, including those comprising the European Union, have established greenhouse gas regulatory systems.
−Removed: In the United States, many states, either individually or through multi‑state regional initiatives, have begun implementing legal measures to reduce emissions of greenhouse gases, primarily through emission inventories, emission targets, greenhouse gas cap and trade programs or incentives for renewable energy generation, while others have considered adopting such greenhouse gas programs.
+Added: In the United States, many states, either individually or through multi-state regional initiatives, have been implementing legal measures to reduce emissions of greenhouse gases, primarily through emission inventories, emission targets, greenhouse gas cap and trade programs or incentives for renewable energy generation, while others have considered adopting such greenhouse gas programs.
At the federal level, the Obama Administration addressed climate change through a variety of administrative actions.
The EPA thus issued greenhouse gas monitoring and reporting regulations that cover oil and natural gas facilities, among other industries.
−Removed: Beyond measuring and reporting, the EPA issued an “Endangerment Finding”
−Removed: under section 202(a) of the Clean Air Act, concluding certain greenhouse gas pollution threatens the public health and welfare of current and future generations.
+Added: Beyond measuring and reporting, the EPA issued an “Endangerment Finding” under section 202(a) of the Clean Air Act, concluding certain greenhouse gas pollution threatens the public health and welfare of current and future generations.
The finding served as the first step to issuing regulations that require permits for and reductions in greenhouse gas emissions for certain facilities.
2 unchanged sentences
In addition, the BLM promulgated standards for reducing venting and flaring on public lands.
−Removed: The Trump Administration has been trying to roll back many of the Obama‑era climate change policies and rules, but those efforts have resulted in court challenges.
−Removed: At this point, the long‑term direction of federal climate regulation is uncertain.
+Added: The Trump Administration tried to roll back many of the Obama- era climate change policies and rules.
+Added: But shortly after his inauguration, President Biden accepted the Paris Agreement on behalf of the United States, declared climate considerations an essential part of the United States’ foreign policy, issued a moratorium on new oil and gas leases on federal lands, and directed federal agencies to incorporate climate change considerations in their operation.
+Added: Thus, new federal programs relating to climate change appear to be likely over at least the next four years.
In the courts, several decisions have been issued that may increase the risk of claims being filed by governments and private parties against companies that have or contribute to significant greenhouse gas emissions.
Such cases may seek emissions reductions, challenge air emissions or other permits or request damages for alleged climate change impacts to the environment, people, and property.
−Removed: The direction of future U.S.
−Removed: climate change regulation is difficult to predict given the current uncertainties surrounding the policies of the Trump Administration.
−Removed: The EPA may or may not continue developing regulations to reduce greenhouse gas emissions from the oil and gas industry.
−Removed: Even in the absence of federal efforts in this area, states may continue pursuing climate regulations.
−Removed: Any laws or regulations that may be adopted to restrict or reduce emissions of greenhouse gases could require us to incur additional operating costs, such as costs to purchase and operate emissions controls, to obtain emission allowances or to pay emission taxes, and reduce demand for our products.
+Added: Any new initiatives that may be adopted to reduce emissions of greenhouse gases could require us to incur additional operating costs, such as costs to purchase and operate emissions controls, to obtain emission allowances or to pay emission taxes, and reduce demand for our products.
Our operations substantially depend on the availability of water.
5 unchanged sentences
Any new environmental initiatives or regulations that restrict injection of fluids, including, but not limited to, produced water, drilling fluids and other wastes associated with the exploration, development or production of oil and gas, or that limit the withdrawal, storage or use of surface water or ground water necessary for hydraulic fracturing of our wells, could increase our operating costs and cause delays, interruptions or cessation of our operations, the extent of which cannot be predicted, and all of which would have an adverse effect on our business, financial condition, results of operations and cash flows.
−Removed: The ongoing implementation of federal legislation enacted in 2010 could have an adverse impact on our ability to use derivative instruments to reduce the effects of commodity prices, interest rates and other risks associated with our business.
−Removed: We have entered into a number of commodity derivative contracts in order to hedge a portion of our oil and natural gas production.
−Removed: On July 21, 2010, then President Obama signed into law the Dodd‑Frank Wall Street Reform and Consumer Protection Act, or the Dodd‑Frank Act, which requires the SEC and the Commodity Futures Trading Commission (or CFTC), along with other federal agencies, to promulgate regulations implementing the new legislation.
−Removed: The CFTC has finalized many regulations implementing the Dodd‑Frank Act’s provisions regarding trade reporting, margin, clearing, and trade execution;
−Removed: however, some regulations remain to be finalized and it is not possible at this time to predict when the CFTC will adopt final rules.
−Removed: For example, the CFTC has re‑proposed regulations setting position limits for certain futures and option contracts in the major energy markets and for swaps that are their economic equivalents.
−Removed: Certain bona fide hedging transactions are expected to be made exempt from these limits.
−Removed: Also, it is possible under margin rules that are being phased in between 2016 and 2020, some registered swap dealers may require us to post margin in connection with certain swaps not subject to central clearing.
−Removed: The Dodd‑Frank Act and any additional implementing regulations could significantly increase the cost of some commodity derivative contracts (including through requirements to post collateral, which could adversely affect our available liquidity), materially alter the terms of some commodity derivative contracts, limit our ability to trade some derivatives to hedge risks, reduce the availability of some derivatives to protect against risks we encounter, and reduce our ability to monetize or restructure our existing commodity derivative contracts.
−Removed: If we reduce our use of derivatives as a consequence, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.
−Removed: Increased volatility may make us less attractive to certain types of investors.
−Removed: Finally, the Dodd‑Frank Act was intended, in part, to reduce the volatility of oil and natural gas prices, which some legislators attributed to speculative trading in derivatives and commodity instruments
−Removed: related to oil and natural gas.
−Removed: If the implementing regulations result in lower commodity prices, our revenues could be adversely affected.
−Removed: Any of these consequences could adversely affect our business, financial condition and results of operations.
−Removed: We cannot be certain that the insurance coverage maintained by us will be adequate to cover all losses that may be sustained in connection with all oil and natural gas activities.
−Removed: We maintain general and excess liability policies, which we consider to be reasonable and consistent with industry standards.
−Removed: These policies generally cover:
−Removed: personal injury;
−Removed: bodily injury;
−Removed: third party property damage;
−Removed: medical expenses;
−Removed: legal defense costs;
−Removed: pollution in some cases;
−Removed: well blowouts in some cases;
−Removed: workers compensation.
−Removed: As is common in the oil and natural gas industry, we will not insure fully against all risks associated with our business either because such insurance is not available or because we believe the premium costs are prohibitive.
−Removed: A loss not fully covered by insurance could have a material effect on our financial position, results of operations and cash flows.
−Removed: There can be no assurance that the insurance coverage that we maintain will be sufficient to cover claims made against us in the future.
−Removed: Title to the properties in which we have an interest may be impaired by title defects.
−Removed: We generally obtain title opinions on significant properties that we drill or acquire.
−Removed: However, there is no assurance that we will not suffer a monetary loss from title defects or title failure.
−Removed: Additionally, undeveloped acreage has greater risk of title defects than developed acreage.
−Removed: Generally, under the terms of the operating agreements affecting our properties, any monetary loss is to be borne by all parties to any such agreement in proportion to their interests in such property.
−Removed: If there are any title defects or defects in assignment of leasehold rights in properties in which we hold an interest, we will suffer a financial loss.
−Removed: Our ability to use net operating loss carryforwards and realized built in losses to offset future taxable income for U.S.
−Removed: federal income tax purposes is subject to limitation.
−Removed: In general, under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change”
−Removed: is subject to limitations on its ability to utilize its pre‑change net operating losses (NOLs), and realized built in losses (RBILS), to offset future taxable income.
−Removed: In general, an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5% stockholders, applying certain look‑through rules) increases by more than 50 percentage points over such stockholders’
−Removed: lowest percentage ownership during the testing period (generally three years).
−Removed: An ownership change was experienced in December 2018 due to the aggregate stock ownership of certain stockholders increasing by more than 50 percentage points over their lowest percentage ownership during the testing period (see discussion above).
−Removed: We experienced an ownership change in October 2019 as a result of the consummation of our plan of reorganization under chapter 11 of the U.S.
−Removed: Bankruptcy Code and we may experience additional ownership changes in the future.
−Removed: Limitations imposed on our ability to use NOLs and RBILS to offset future taxable income may cause U.S.
−Removed: federal income taxes to be paid earlier than otherwise would be paid if such limitations were not in effect and could cause such NOLs and RBILS to expire unused, in each case reducing or eliminating the benefit of such NOLs and RBILS.
−Removed: Similar rules and limitations may apply for state income tax purposes.
−Removed: We may be required to take non‑cash asset write‑downs.
−Removed: We may be required under full cost accounting rules to write‑down the carrying value of oil and natural gas properties if oil and natural gas prices decline or if there are substantial downward adjustments to our estimated proved reserves, increases in our estimates of development costs or deterioration in our exploration results.
−Removed: We utilize the full cost method of accounting for oil and natural gas exploration and development activities.
−Removed: Under full cost accounting, we are required by SEC regulations to perform a ceiling test each quarter.
−Removed: The ceiling test is an impairment test and generally establishes a maximum, or “ceiling,”
−Removed: of the book value of oil and natural gas properties that is equal to the expected after tax present value (discounted at 10%) of the future net cash flows from proved reserves, including the effect of cash flow hedges when hedge accounting is applied, calculated using the unweighted arithmetic average of the first day of each month for the 12‑month period ending at the balance sheet date.
−Removed: If the net book value of oil and natural gas properties (reduced by any related net deferred income tax liability and asset retirement obligation) exceeds the ceiling limitation, SEC regulations require us to impair or “write‑down”
−Removed: the book value of our oil and natural gas properties.
−Removed: As of December 31, 2019 (Successor), our net book value of oil and natural gas properties did not exceed our ceiling amount using the WTI unweighted 12-month average spot price $55.85 per Bbl for oil and natural gas liquids and the Henry Hub unweighted 12-month average spot price of $2.578 per MMBtu for natural gas.
−Removed: As ceiling test computations depend upon the calculated unweighted arithmetic average prices, it is impossible to predict the likelihood, timing and magnitude of any future impairments.
−Removed: Depending on the magnitude, a ceiling test write-down could negatively affect our results of operations.
−Removed: Costs associated with unevaluated properties, which were approximately $105.0 million at December 31, 2019 (Successor), are not initially subject to the ceiling test limitation.
−Removed: Rather, we assess all items classified as unevaluated property on a quarterly basis for possible impairment or reduction in value based upon our intentions with respect to drilling on such properties, the remaining lease term, geological and geophysical evaluations, drilling results, the assignment of proved reserves, and the economic viability of development if proved reserves are assigned.
−Removed: These factors are significantly influenced by our expectations regarding future commodity prices, development costs, and access to capital at acceptable cost.
−Removed: During any period in which these factors indicate impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and the ceiling test limitation.
−Removed: Accordingly, a significant change in these factors, many of which are beyond our control, may shift a significant amount of cost from unevaluated properties into the full cost pool that is subject to depletion and the ceiling test limitation.
−Removed: Hedging transactions may limit our potential gains and increase our potential losses.
−Removed: In order to manage our exposure to price risks in the marketing of our oil, natural gas, and natural gas liquids production, we have entered into oil, natural gas, and natural gas liquids price hedging arrangements with respect to a portion of our anticipated production and we may enter into additional hedging transactions in the future.
−Removed: While intended to reduce the effects of volatile commodity prices, such transactions may limit our potential gains and increase our
−Removed: potential losses if commodity prices were to rise substantially over the price established by the hedge.
−Removed: In addition, such transactions may expose us to the risk of loss in certain circumstances, including instances in which:
−Removed: our production is less than expected;
−Removed: there is a widening of price differentials between delivery points for our production;
−Removed: the counterparties to our hedging agreements fail to perform under the contracts.
+Added: Cybersecurity Risk Factors
We depend on computer, telecommunications and information technology systems to conduct our business, and failures, disruptions, cyber-attacks or other breaches in data security could significantly disrupt our business operations, create liability and increase our costs.
8 unchanged sentences
We generally do not maintain insurance coverage for the costs associated with cyber-security events.
−Removed: We will be subject to risks in connection with acquisitions, and the integration of significant acquisitions may be difficult and may involve unexpected costs or delays.
−Removed: We have completed in the past and may complete in the future significant acquisitions of reserves, properties, prospects and leaseholds and other strategic transactions that appear to fit within our overall business strategy, which may include the acquisition of asset packages of producing properties, undeveloped acreage or existing companies or businesses operating in our industry.
−Removed: The successful acquisition of assets in our industry requires an assessment of several factors, including:
−Removed: recoverable reserves;
−Removed: future oil, natural gas and natural gas liquids prices and their appropriate differentials;
−Removed: development and operating costs;
−Removed: potential environmental and other liabilities.
−Removed: The accuracy of these assessments is inherently uncertain.
−Removed: In connection with these assessments, we perform a review of the subject properties that we believe to be generally consistent with industry practices.
−Removed: Our review will not
−Removed: reveal all existing or potential problems nor will it permit us to become sufficiently familiar with the properties to fully assess their deficiencies and potential recoverable reserves.
−Removed: Inspections may not always be performed on every well or well site, and environmental problems are not necessarily observable even when an inspection is undertaken.
−Removed: Even when problems are identified, the seller may be unwilling or unable to provide effective contractual protection against all or part of the problems.
−Removed: We are generally not able to obtain contractual indemnification for environmental liabilities and normally acquire properties on an “as is”
−Removed: Significant acquisitions of existing companies or businesses and other strategic transactions may involve additional risks, including:
−Removed: diversion of our management’s attention to evaluating, negotiating and integrating significant acquisitions and strategic transactions;
−Removed: the challenge and cost of integrating acquired operations, information management and other technology systems and business cultures with our own while carrying on our ongoing business;
−Removed: difficulty associated with coordinating geographically separate organizations;
−Removed: the challenge of integrating environmental compliance systems to meet requirements of rapidly changing regulations;
−Removed: the challenge of attracting and retaining personnel associated with acquired operations;
−Removed: failure to realize the full benefit that we expect in estimated proved reserves, production volume, cost savings from operating synergies or other benefits anticipated from an acquisition, or to realize these benefits within our expected time frame.
−Removed: The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of our business.
−Removed: Members of our senior management may be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage our business.
−Removed: If our senior management is not able to manage the integration process effectively, or if any significant business activities are interrupted as a result of the integration process, our business could be materially and adversely affected.
+Added: Risk Factors Relating to Our Prior Restructuring
+Added: Our actual financial results may vary materially from the projections that we filed with the bankruptcy court in connection with the confirmation of our plan of reorganization.
+Added: In connection with the disclosure statement we filed with the bankruptcy court, and the hearing to consider confirmation of our plan of reorganization, we prepared projected financial information to demonstrate to the bankruptcy court the feasibility of the plan of reorganization and our ability to continue operations upon our emergence from bankruptcy.
+Added: Those projections were prepared solely for the purpose of the bankruptcy proceedings and have not been, and will not be, updated on an ongoing basis and should not be relied upon by investors.
+Added: At the time they were prepared, the projections reflected numerous assumptions concerning our anticipated future performance and with respect to prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not materialize.
+Added: Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks and the assumptions underlying the projections and/or valuation estimates may prove to be wrong in material respects.
+Added: As a result, investors should not rely on these projections.
+Added: Our historical financial information may not be indicative of our future financial performance.
+Added: Our capital structure was significantly altered under the Plan.
+Added: We adopted fresh-start accounting effective October 1, 2019, as an accounting convenience date to coincide with the timing of our normal fourth quarter reporting, and as a result, our assets and liabilities were adjusted to fair values and our accumulated deficit was restated to zero.
+Added: Further, as a result of the implementation of our plan of reorganization and the transactions contemplated thereby, our historical financial information may not be indicative of our future financial performance.
+Added: Accordingly, our financial condition and results of operations following our emergence from chapter 11 are not comparable to the financial condition and results of operations reflected in our historical financial statements.
UNRESOLVED STAFF COMMENTS
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.