What changed in this filing

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Item 1A. Risk Factors

2022-03-07 compared with 2021-03-08 · 88 added, 91 removed, 294 unchanged (38% of the section changed)

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Events beyond our control, including a global or domestic health crisis, may result in unexpected adverse operating and financial results.

In response to the novel coronavirus (COVID-19) pandemic governments around the world, including U.S.

federal and state governments, have imposed restrictions intended to limit the extent and spread of the virus, including travel restrictions, quarantines and business closures.

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.

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.

The severity and duration of the current COVID-19 outbreak and the potential for future outbreaks are uncertain and difficult to predict.

COVID-19 or another similar outbreak may negatively impact our business in numerous ways, including, but not limited to, the following:

In 2020, in response to the novel coronavirus (COVID-19) pandemic governments around the world, including U.S.

federal and state governments, imposed restrictions intended to limit the extent and spread of the virus, including travel restrictions, quarantines and business closures.

The COVID-19 outbreak and governmental restrictions significantly impacted economic activity and markets and dramatically reduced current and anticipated demand for oil and natural gas, adversely impacting the prices we receive for our production, resulting in us temporarily shutting in producing wells.

During 2021, widespread availability of COVID-19 vaccines in the United States and elsewhere combined with accommodative governmental monetary and fiscal policies and other factors, led to a rebound in demand for oil and natural gas and increases in oil and natural gas prices.

However, there remains the potential for demand for oil and natural gas to be adversely impacted by the economic effects of the ongoing COVID-19 pandemic, including as a consequence of the circulation of more infectious “variants” of the disease, vaccine hesitancy, waning vaccine effectiveness or other factors.

As a consequence, we are unable to predict the impact of these factors which may negatively impact our business in numerous ways, including, but not limited to, the following:

● 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;

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● 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.

The COVID-19 pandemic may also have the effect of heightening many of the other risks set forth below.

The ongoing COVID-19 pandemic may also have the effect of heightening many of the other risks set forth below.

Any of these factors could have a material adverse effect on our business, operations, financial results and liquidity.

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.

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.

In 2020, 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.

We are unable to predict the ultimate adverse impact of the ongoing COVID-19 on our business, which will continue to 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.

Actual or anticipated declines in domestic or foreign economic growth rates, regional or worldwide increases in tariffs or other trade restrictions, turmoil affecting the U.S.

or global financial system and markets and a severe economic contraction either regionally or worldwide, resulting from current efforts to contain the COVID-19 coronavirus or other factors, could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price we receive for our oil and natural gas production, inhibiting our lenders from funding borrowings under our Senior Credit Agreement or resulting in our lenders reducing the borrowing base under our Senior Credit Agreement.

or global financial system and markets and a severe economic contraction either regionally or worldwide, resulting from current efforts to contain the ongoing COVID-19 coronavirus or other factors, could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price we receive for our oil and natural gas production.

Negative economic conditions could also adversely affect the collectability of our trade receivables or performance by our vendors and suppliers or cause our commodity hedging arrangements to be ineffective if our counterparties are unable to perform their obligations.

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.

All of the foregoing may adversely affect our business, financial condition, results of operations and cash flows.

Operational Risk Factors

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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.

Increasing attention to environmental, social and corporate governance (ESG) matters may impact our business.

Companies conducting oil and natural gas activities, along with companies across other industries, are facing increased scrutiny from stakeholders related to their ESG policies and practices.

Stakeholder expectations and standards around ESG are evolving and companies that do not adapt or comply with those expectations and standards, regardless of whether there is a legal requirement to do so, may be adversely impacted.

Increased attention to ESG matters may

impact our business by increasing costs, reducing demand for oil and natural gas, reducing profits, increasing regulations and litigation, and impending our access to capital or may negatively impact our stock price.

In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their ESG approaches.

Currently, there are no universal standards for scores or ratings;

however, the importance of sustainability evaluations is becoming more broadly accepted and utilized by investors and stockholders.

Unfavorable ratings or assessment of our ESG practices may lead to negative investor sentiment toward us, which could have a negative impact on our stock price and our access to capital.

We could experience periods of higher costs for various reasons, including due to higher commodity prices, increased drilling activity in the Delaware Basin and trade disputes or inflation that affect the costs of steel and other raw materials that we and our vendors rely upon, which could adversely affect our ability to execute our exploration and development plans on a timely basis and within budget.

Our industry is cyclical.

When oil, natural gas and natural gas liquids prices increase, shortages of drilling rigs, equipment, supplies, water or qualified personnel may result.

During these periods, the costs and delivery times of rigs, equipment and supplies are substantially greater.

In addition, the demand for, and wage rates of, qualified drilling rig crews rise as the number of active rigs in service increases.

Increasing levels of exploration and production, particularly in the Delaware Basin, likewise may increase demand for oilfield services and equipment, and the costs of these services and equipment may increase, while the quality of these services and equipment may suffer.

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.

Any escalation or expansion of tariffs could result in higher costs and affect a greater range of materials we rely upon in our business.

The unavailability or high cost of drilling rigs, pressure pumping equipment, tubulars and other supplies, and of qualified personnel can materially and adversely affect our operations and profitability.

In order to secure drilling rigs and pressure pumping equipment and related services, we may enter into contracts that extend over several months or years.

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.

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.

Commodities pricing may also make drilling

some acreage uneconomic.

Commodities pricing may also make drilling 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.

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Certain of our undeveloped leasehold acreage is subject to leases that will expire over the next several years unless production is established on units containing the acreage.

As of December 31, 2020 (Successor), we owned leasehold interests in approximately 41,700 net acres in the Delaware Basin in West Texas of which approximately 13,600 net acres are undeveloped.

As of December 31, 2021, we owned leasehold interests in approximately 40,400 net acres in the Delaware Basin in West Texas of which approximately 11,100 net acres are undeveloped.

Unless production in paying quantities is established on units containing these leases during their terms or unless we pay (to the extent we have the contractual right to pay) delay rentals or obtain other extensions to maintain the leases, these leases will expire.

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Our drilling plans are subject to change based upon various factors, many of which are beyond our control, including drilling results, oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, gathering system and pipeline transportation constraints, and regulatory approvals.

Further, some of our acreage is located in sections where we do not hold the majority of the acreage and therefore it is likely that we will not be named operator of these sections.

Further, some of our acreage is located in sections where we do not hold the majority of the acreage and

therefore it is likely that we will not be named operator of these sections.

As a non-operating leaseholder we have less control over the timing of drilling and are therefore subject to additional risk of expirations.

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Or, in the case of oil and condensate, it will be necessary for us to rely more heavily on trucks or trains to transport our production, which is more expensive and less efficient than transportation via pipeline.

The construction of new pipelines and gathering systems is capital intensive and construction may be postponed, interrupted or cancelled in response to changing economic conditions, the availability and cost of capital, regulatory restrictions and judicial challenges.

In addition, capital constraints could limit our ability to build gathering systems to transport our production to transportation pipelines.

In such event, costs to transport our production may increase materially or we might have to shut in our wells awaiting a pipeline connection or capacity and/or sell our production at much lower prices than market or than we currently expect, which would adversely affect our results of operations.

In such event, costs to transport

our production may increase materially or we might have to shut in our wells awaiting a pipeline connection or capacity and/or sell our production at much lower prices than market or than we currently expect, which would adversely affect our results of operations.

A portion of our production may also be interrupted, or shut in, from time to time for numerous other reasons, including as a result of weather conditions (which may worsen due to climate changes), accidents, loss of pipeline or gathering system access, field labor issues or strikes, or we might voluntarily curtail production in response to market conditions.

If a substantial amount of our production is interrupted at the same time, it could adversely affect our cash flow.

We could experience periods of higher costs for various reasons, including due to higher commodity prices, increased drilling activity in the Delaware Basin and trade disputes that affect the costs of steel and other raw materials that we and our vendors rely upon, which could adversely affect our ability to execute our exploration and development plans on a timely basis and within budget.

Our industry is cyclical.

When oil, natural gas and natural gas liquids prices increase, shortages of drilling rigs, equipment, supplies, water or qualified personnel may result.

During these periods, the costs and delivery times of rigs, equipment and supplies are substantially greater.

In addition, the demand for, and wage rates of, qualified drilling rig crews rise as the number of active rigs in service increases.

Any escalation or expansion of tariffs could result in higher costs and affect a greater range of materials we rely upon in our business.

In order to secure drilling rigs and pressure pumping equipment and related services, we may enter into contracts that extend over several months or years.

Our strategy involves drilling in shale formations, using horizontal drilling and modern completion techniques.

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Our revenues, profitability, future growth and the carrying value of our properties depend substantially on prevailing oil and natural gas prices.

Prices also affect the amount of cash flow we have available for capital expenditures and our ability to borrow and raise additional capital.

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.

Prices also affect the amount of cash flow we have available for capital expenditures and our

ability to borrow and raise additional capital.

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.

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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.

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.

Our Senior Credit Agreement limits our borrowings to the lesser of the borrowing base and the total commitments.

As of December 31, 2020 (Successor), our Senior Credit Agreement had a borrowing base of $190.0 million.

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.

A reduction in our borrowing base could require us to repay borrowings, if any, in excess of the borrowing base.

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.

We expect to use borrowings under our Term Loan Agreement and proceeds from potential future capital markets transactions, if necessary, and which may be difficult or limited to access, to fund capital expenditures that are in excess of our operating cash flow and cash on hand.

Our Term Loan Agreement limits our borrowings.

As of December 31, 2021, our Term Loan Agreement had an initial borrowing availability of $200.0 million.

As of December 31, 2021, we had $200.0 million of indebtedness outstanding, approximately $0.3 million of letters of credit outstanding and approximately $35.0 million in delayed draw term loans available to be drawn under our Term Loan Agreement, subject to the satisfaction of certain conditions defined in the agreement.

Under the Term Loan Agreement, we are required to make scheduled amortization payments in the aggregate amount of $120.0 million from the fiscal quarter ending March 31, 2023 through the fiscal quarter ending September 30, 2025.

Our Term Loan Agreement also contains certain financial covenants, including the maintenance of (i) an Asset Coverage Ratio, (ii) a Total Net Leverage Ratio and (iii) a Current Ratio, each as defined in the Term Loan Agreement.

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.

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.

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.

In the event we have difficulty in the future meeting the covenants under our Term Loan Agreement, we would be required to seek additional relief, and there is no assurance that it would be granted.

Failure to comply with the covenants in our Term Loan Agreement may limit our ability to borrow, result in an event of default and cause amounts outstanding under our Term Loan Agreement to become immediately due and payable.

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.

Commercial and investment banks have also come under pressure to stop financing oil and gas production and related infrastructure projects.

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.

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.

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.

If borrowings under our Term Loan Agreement become insufficient and we 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 the sale of some of our assets on an unfavorable basis, each of which could have a material adverse effect on our results and future operations.

Unless we replace our reserves, our reserves and production will decline, which would adversely affect our financial condition, results of operations and cash flows.

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We may not be able to develop, find or acquire additional reserves to replace our current and future production at acceptable costs.

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.

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.

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.

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.

Accordingly, the borrowing base is influenced by many factors and our lenders have significant discretion in establishing it.

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.

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.

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.

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.

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.

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.

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.

Historically, we have had substantial indebtedness and we may incur substantially more debt in the future.

Higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business.

We have approximately $158.0 million principal amount of debt as of December 31, 2020 (Successor).

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.

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.

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.

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.

At this time, the impact on our borrowing costs, if any, under an alternative benchmark to LIBOR is uncertain.

We have approximately $200.1 million principal amount of debt, including current portions, as of December 31, 2021.

As a result of our indebtedness, we will need to use a portion of our cash flow to pay interest, and outstanding principal beginning in the fiscal quarter ending March 31, 2023, 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.

Indebtedness under our Term Loan 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.

Currently, borrowings under our Term Loan Agreement bear interest at a margin over LIBOR.

Financial regulators are working to transition away from LIBOR as a benchmark, and in March 2021, confirmed that the publication of the one-week and two-month LIBOR would cease after December 31, 2021, and all remaining LIBOR tenors will cease after June 30, 2023.

If a published LIBOR rate is unavailable, the interest rate on our Term Loan Agreement will be determined using another applicable reference rate and the impact on our borrowing costs, if any, under the alternative rate is uncertain and could have an adverse effect on our cash flows.

We may incur substantially more debt in the future.

At December 31, 2020 (Successor), we had approximately $27.3 million of additional borrowing capacity available under our Senior Credit Agreement.

At December 31, 2021, we had approximately $35.0 million of delayed draw term loans available to be drawn under our Term Loan Agreement, subject to the satisfaction of certain conditions defined in the agreement.

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.

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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.

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.

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).

The estimates of our reserves as of December 31, 2021 are based upon various assumptions about future production levels, prices and costs that may not prove to be correct over time.

Average prices for oil and natural gas for the 12-month period were as follows:

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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.

In addition, at December 31, 2020 (Successor), approximately 43% of our estimated proved reserves were classified as proved undeveloped.

In addition, at December 31, 2021, approximately 56% of our estimated proved reserves were classified as proved undeveloped.

Recovery of proved undeveloped reserves requires significant capital expenditures and successful drilling operations.

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.

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.

Estimated proved reserves as of December 31, 2021 assume that we will make future capital expenditures of approximately $540.6 million in the aggregate primarily from 2022 through 2026, which are necessary to develop and realize the value of proved reserves on our properties.

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 are subject to various contractual limitations that affect the discretion of our management in operating our business.

Our Senior Credit Agreement contains various provisions that may limit our management’s discretion in certain respects.

In particular, the Senior Credit Agreement limits our and our subsidiaries’ ability to, among other things:

Our Term Loan Agreement contains various provisions that may limit our management’s discretion in certain respects.

In particular, the Term Loan 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;

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Compliance with these and other limitations may limit our ability to operate and finance our business and engage in certain transactions in the manner we might otherwise.

In addition, if we fail to comply with the limitations under our Senior Credit Agreement, our creditors, to the extent the agreement so provides, may accelerate the related indebtedness as well as any other indebtedness to which a cross-acceleration or cross-default provision applies.

In addition, if we fail to comply with the limitations under our Term Loan Agreement, our creditors, to the extent the agreement so provides, may accelerate the related indebtedness as well as any other indebtedness to which a cross-acceleration or cross-default provision applies.

In addition, lenders may be able to terminate any commitments they had made to make further funds available to us.

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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.

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).

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).

We experienced ownership changes in December 2018 and October 2019 and we may experience additional ownership changes in the future.

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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.

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.

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.

During the year ended December 31, 2020, 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.

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.

Depending on the magnitude, a ceiling test write-down could negatively affect our results of operations.

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.

Costs associated with unevaluated properties, which were approximately $64.3 million at December 31, 2021, are not initially subject to the ceiling test limitation.

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.

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Hedging transactions may limit our potential gains and increase our potential losses.

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.

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 Term Loan Agreement, we have entered into oil and natural gas hedging arrangements with respect to a portion of our anticipated production and we may enter into additional hedging transactions in the future.

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.

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There may be circumstances in which the interests of our significant stockholders could be in conflict with the interests of our other stockholders.

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).

Funds advised by Luminus Management, LLC, Oaktree Capital Management, LP and LSP Investment Advisors, LLC, held approximately 37.7%, 24.4% and 14.5%, respectively, of our common stock as of March 3, 2022.

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.

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A large percentage of our shares of common stock are held by a relatively small number of investors.

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.

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.

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, 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.

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.

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.

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.

As of March 3, 2022, 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 8.1 million shares of our common stock.

As of March 3, 2022, we have also reserved an additional 0.5 million shares for future issuance to our directors, officers and employees under our 2020 Long-Term Incentive Plan.

The potential issuance of such additional shares of common stock may create downward pressure on the trading price of our common stock.

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.

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.

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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.

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.

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.

Environmental and other governmental laws and regulations also increase the costs to plan, design, drill, install, operate and abandon oil and natural gas wells.

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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.

Implementation, which has been ongoing, eventually could result in more stringent emissions controls and additional permitting obligations for our operations.

Implementation 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.

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Other governmental reviews have also been conducted that focus on environmental aspects of hydraulic fracturing.

Such activities eventually could result in additional regulatory scrutiny that could make it more difficult to perform hydraulic fracturing and increase our costs of compliance and doing business.

Such activities eventually could result in additional regulatory scrutiny

that could make it more difficult to perform hydraulic fracturing and increase our costs of compliance and doing business.

Certain states, including Texas where we conduct our operations, likewise are considering or have adopted more stringent requirements for various aspects of hydraulic fracturing operations, such as permitting, disclosure, air emissions, well construction, seismic monitoring, waste disposal and water use.

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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.

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.

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.

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.

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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.

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.

Thus, new federal programs relating to climate change appear to be likely through at least 2024.

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 cause 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.

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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.

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.

court the feasibility of the plan of reorganization and our ability to continue operations upon our emergence from bankruptcy.

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.

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Our historical financial information may not be indicative of our future financial performance.

Our capital structure was significantly altered under the Plan.

Our capital structure was significantly altered under the plan of reorganization.

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.

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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.

What changed 10-K

Item 1A. Risk Factors