NORTHERN OIL & GAS, INC. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. As of December 31, 2020, our management, including our principal executive officer and principal financial officer, had evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) pursuant to Rule 13a-15(b) under the Exchange Act. Based upon and as of the date of the evaluation, our principal executive officer and principal financial officer concluded that information required to be disclosed is recorded, processed, summarized and reported within the specified periods and is accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow for timely decisions regarding required disclosure of material information required to be included in our periodic SEC reports. Based on the foregoing, our management determined that our disclosure controls and procedures were effective as of December 31, 2020. No change in our Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management’s Annual Report on Internal Control over Financial Reporting The management of Northern Oil and Gas, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our Company’s financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on our evaluation under the framework in Internal Control-Integrated Framework, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020. The effectiveness of our Company’s internal control over financial reporting as of December 31, 2020, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report. 58 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Northern Oil and Gas, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Northern Oil and Gas, Inc. (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial statements as of and for the year ended December 31, 2020, of the Company and our report dated March 12, 2021, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Minneapolis, Minnesota March 12, 2021 59 Table of Contents Item 9B. Other Information None. PART III Certain information required by this Part III is incorporated by reference from our definitive Proxy Statement for the Annual Meeting of Stockholders to be held in 2021 (the “Proxy Statement”), which we intend to file with the SEC pursuant to Regulation 14A within 120 days after December 31, 2020. Except for those portions specifically incorporated into this Annual Report on Form 10-K by reference to the Proxy Statement, no other portions of the Proxy Statement are deemed to be filed as part of this Annual Report on Form 10-K. Item 10. Directors, Executive Officers and Corporate Governance The information appearing under the headings “Proposal 1: Election of Directors,” “Corporate Governance” and “Delinquent Section 16(a) Reports” in the Proxy Statement is incorporated herein by reference. We have adopted a Code of Business Conduct and Ethics that applies to our chief executive officer, chief financial officer and persons performing similar functions. A copy is available on our website at www.northernoil.com. We intend to post on our website any amendments to, or waivers from, our Code of Business Conduct and Ethics pursuant to the rules of the SEC and NYSE American. Information About Our Executive Officers Our executive officers, their ages and offices held are as follows: Name Age Positions Nicholas O’Grady 42 Chief Executive Officer Chad Allen 39 Chief Financial Officer Adam Dirlam 37 Chief Operating Officer Michael Kelly 39 Chief Strategy Officer Erik Romslo 43 Chief Legal Officer & Secretary James Evans 37 Executive Vice President and Chief Engineer Nicholas O’Grady has served as our Chief Executive Officer since January 2020. Prior to that, he served as our Chief Financial Officer from June 2018 to September 2019, and as our Chief Financial Officer & President from September 2019 to December 2019. Mr. O’Grady has nearly two decades of finance experience, both as an investment banker and as a principal investor. Mr. O’Grady began his career in the Natural Resources investment banking group at Bank of America. Later moving to the hedge fund industry, he worked at firms such as Highbridge Capital Management. Prior to joining our company, he worked as a senior credit analyst and portfolio manager at Hudson Bay Capital Management from September 2014 to May 2018, where he focused on energy-related equities, public credit, private and direct investments. Previously, he worked as a portfolio manager at Bluecrest Capital Management from November 2013 to June 2014, and at Sigma Capital Management from April 2012 to October 2013. Mr. O’Grady holds a bachelor’s degree in both history and economics from Bowdoin College in Brunswick, Maine. Chad Allen has served as our as our Chief Financial Officer since January 2020. Prior to that, he served as our Chief Accounting Officer from August 2016 to December 2019, prior to which he served as the company’s Corporate Controller since joining Northern in August of 2013. Mr. Allen served as the company’s Interim Chief Financial Officer from January-May 2018. Prior to joining our company, Mr. Allen was in the audit practice with Grant Thornton LLP from 2010 to 2013, and in the audit practice at RSM US LLP (formerly McGladrey & Pullen, LLP) from 2004 to 2010. Mr. Allen holds a bachelor’s degree in accounting from Minnesota State University, Mankato and is a Certified Public Accountant. Adam Dirlam has served as our Chief Operating Officer since January 2020. Prior to that, he served as our Executive Vice President – Land & Operations since June 2018, prior to which he served as the company’s Senior Vice President of Land & Operations since 2013 and other various roles with the company since 2009. Prior to joining our company, Mr. Dirlam served in various finance and accounting roles for Honeywell International. Mr. Dirlam holds a bachelor’s degree from the University of St. Thomas and a master’s degree from the University of Minnesota - Carlson School of Management. 60 Table of Contents Michael Kelly has served as our Chief Strategy Officer since February 2021. Prior to that, he served as our Executive Vice President of Finance since January 2020. Prior to joining our company, Mr. Kelly was a Partner at Seaport Global Securities, where he had worked since 2011. Most recently, Mr. Kelly was the Head of E&P Research at Seaport, covering over 30 companies in the exploration and production sector. Prior to Seaport, Mr. Kelly spent over five years working as an energy analyst for Kennedy Capital Management in St. Louis. Mr. Kelly earned his MBA at Washington University’s Olin School of Business and his undergraduate degree from Trinity University in San Antonio and is a CFA charterholder. Erik Romslo has served as our Chief Legal Counsel and Secretary since January 2020. Prior to that, he served as our General Counsel and Secretary from October 2011 to December 2019 and as an Executive Vice President from January 2013 to December 2019. Prior to joining our company, Mr. Romslo practiced law in the Minneapolis office of our outside counsel, Faegre Drinker Biddle & Reath LLP (Faegre & Benson LLP), from 2005 until 2011, where he was a member of the Corporate group. Prior to joining Faegre, Mr. Romslo practiced law in the New York City office of Fried, Frank, Harris, Shriver & Jacobson LLP. Mr. Romslo holds a bachelor’s degree from St. Olaf College and a law degree from the New York University School of Law. James Evans has served as our Executive Vice President and Chief Engineer since February 2021. Prior to that, he served as our Senior Vice President of Engineering since January 2020 and as Vice President of Engineering since June 2018, prior to which he had served as the Company’s Reservoir Engineering Manager since 2015. Mr. Evans began his career as a Reservoir Engineer with Cabot Oil & Gas. Between 2009 and 2012 he worked for Cornerstone Natural Resources. More recently Mr. Evans worked for Fidelity Exploration. Mr. Evans holds a BS degree in Petroleum Engineering from Montana Tech. Item 11. Executive Compensation The information appearing under the headings “Executive Compensation” and “Compensation Committee Report,” and the information regarding compensation committee interlocks and insider participation under the heading “Corporate Governance,” in the Proxy Statement is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Securities Authorized for Issuance under Equity Compensation Plans The following table provides information with respect to our common shares issuable under our equity compensation plans as of December 31, 2020: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 2018 Equity Incentive Plan — — 908,052 Equity compensation plans not approved by security holders — — — Total — $ — 908,052 The information appearing under the heading “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement is incorporated herein by reference. 61 Table of Contents Item 13. Certain Relationships and Related Transactions, and Director Independence The information appearing under the headings “Certain Relationships and Related Transactions” and “Corporate Governance” in the Proxy Statement is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information appearing under the headings “Registered Public Accountant Fees” and “Pre-Approval Policies and Procedures of Audit Committee” in the Proxy Statement is incorporated herein by reference. 62 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules (a) Documents filed as part of this Report: 1 Financial Statements See Index to Financial Statements on page F-1. 2 Financial Statement Schedules All schedules have been omitted because they are either not applicable, not required or the information called for therein appears in the consolidated financial statements or notes thereto. (b) Exhibits: Exhibit No. Description Reference 2.1 Purchase and Sale Agreement, dated April 18, 2019, by and between VEN Bakken, LLC and Northern Oil and Gas, Inc. Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on April 22, 2019 2.2 Purchase and Sale Agreement, dated February 3, 2021, between Northern Oil and Gas, Inc. and Reliance Marcellus, LLC Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 3, 2021 3.1 Restated Certificate of Incorporation of Northern Oil and Gas, Inc. dated August 24, 2018 Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 27, 2018 3.2 Certificate of Amendment to the Restated Certificate of Incorporation of Northern Oil and Gas, Inc. dated September 18, 2020 Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 24, 2020 3.3 By-Laws of Northern Oil and Gas, Inc. Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 15, 2018 3.4 Certificate of Designations of 6.500% Series A Perpetual Cumulative Convertible Preferred Stock of Northern Oil and Gas, Inc. Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 26, 2019 3.5 Certificate of Amendment to the Certificate of Designations of 6.500% Series A Perpetual Cumulative Convertible Preferred Stock of Northern Oil and Gas, Inc., dated January 2, 2020 Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 6, 2020 3.6 Certificate of Amendment to the Certificate of Designations of 6.500% Series A Perpetual Cumulative Convertible Preferred Stock of Northern Oil and Gas, Inc., dated January 17, 2020 Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 22, 2020 4.1 Description of Northern Oil and Gas, Inc. Capital Stock Filed herewith 4.2 Form of certificate for the 6.500% Series A Perpetual Cumulative Convertible Preferred Stock Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 26, 2019 4.3 Indenture, dated May 15, 2018, between Northern Oil and Gas, Inc. and Wilmington Trust, National Association, as trustee (including Form of 8.50% Senior Secured Second Lien Notes due 2023) Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 18, 2018 4.4 First Supplemental Indenture, dated September 18, 2018, between Northern Oil and Gas, Inc. and Wilmington Trust, National Association, as trustee Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 18, 2018 4.5 Second Supplemental Indenture, dated October 5, 2018, between Northern Oil and Gas, Inc. and Wilmington Trust, National Association, as trustee Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 9, 2018 63 Table of Contents 4.6 Third Supplemental Indenture, dated November 22, 2019, between Northern Oil and Gas, Inc. and Wilmington Trust, National Association, as trustee Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 26, 2019 4. 7 Indenture, dated February 18, 2021, between the Company and Wilmington Trust, National Association, as trustee (including Form of 8.125% Senior Note due 2028) Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 23, 2021 4.8 Fourth Supplemental Indenture, dated February 18, 2021, among the Company and Wilmington Trust, National Association, as trustee and collateral agent Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 23, 2021 10.1 Letter Agreement, dated January 2, 2015 by and among Robert B. Rowling, Cresta Investments, LLC, Cresta Greenwood, LLC, TRT Holdings, Inc. and Northern Oil and Gas, Inc. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 5, 2015 10.2 Letter Agreement, dated January 25, 2017 by and among TRT Holdings, Inc., Cresta Investments, LLC, Cresta Greenwood, LLC, Robert Rowling, Michael Popejoy, Michael Frantz and Northern Oil and Gas, Inc. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 27, 2017 10.3 Amended and Restated Letter Agreement, dated as of May 15, 2018, by and among Robert B. Rowling, Cresta Investments, LLC, Cresta Greenwood, LLC, TRT Holdings, Inc., Bahram Akradi and Northern Oil and Gas, Inc. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 18, 2018 10.4 Letter Agreement, dated July 21, 2017, by and between Northern Oil and Gas, Inc. and Bahram Akradi Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 24, 2017 10.5 Registration Rights Agreement, dated as of May 15, 2018, among Northern Oil and Gas, Inc. and the holders party thereto Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 18, 2018 10.6 Registration Rights Agreement, dated as of May 15, 2018, among Northern Oil and Gas, Inc. and TRT Holdings, Inc., Cresta Investments, LLC and Cresta Greenwood, LLC Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 18, 2018 10.7 Registration Rights Agreement, dated as of May 15, 2018, among Northern Oil and Gas, Inc. and TPG Specialty Lending, Inc., TOP III Finance 1, LLC and TAO Finance 1, LLC Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 18, 2018 10.8 Registration Right Agreement, dated October 5, 2018, between Northern Oil and Gas, Inc. and RBC Capital, LLC, as representative of the Initial Purchasers Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 9, 2018 10.9 Registration Rights Agreement, dated September 17, 2018, between Pivotal Williston Basin, LP, Pivotal Williston Basin II, LP, and Northern Oil and Gas, Inc. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 18, 2018 10.10 Registration Rights Agreement, dated October 1, 2018, by and between WR Operating LLC and Northern Oil and Gas, Inc. Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 1, 2018 10.11* Employment Agreement, dated May 24, 2018, between Northern Oil and Gas, Inc. and Nicholas O’Grady Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 31, 2018 10.12* Amended and Restated Employment Agreement, dated June 1, 2018, between Northern Oil and Gas, Inc. and Erik Romslo Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 7, 2018 10.13* Amended and Restated Employment Agreement, dated June 1, 2018, between Northern Oil and Gas, Inc. and Chad Allen Incorporated by reference to Exhibit 10.13 to the Registrant’s Current Report on Form 10-Q filed with the SEC on August 9, 2018 10.14* Amended and Restated Employment Agreement, dated June 1, 2018, between Northern Oil and Gas, Inc. and Adam Dirlam Incorporated by reference to Exhibit 10.14 to the Registrant’s Current Report on Form 10-Q filed with the SEC on August 9, 2018 10.15* Employment Agreement, dated December 17, 2019, between Northern Oil and Gas, Inc. and Mike Kelly Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 10-Q filed with the SEC on May 11, 2020 64 Table of Contents 10.16 * Amended and Restated Employment Agreement, dated January 27, 2020, between Northern Oil and Gas, Inc. and James Evans Filed herewith 10.17* Northern Oil and Gas, Inc. 2013 Incentive Plan (as amended May 26, 2016) Incorporated by reference to Appendix B to the Registrant’s Definitive Proxy Statement filed with the SEC on April 22, 2016 10.18* Form of Restricted Stock Award Agreement (Double Trigger) under the Northern Oil and Gas, Inc. 2013 Incentive Plan Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 10-Q filed with the SEC on August 9, 2013 10.19* Form of Restricted Stock Award Agreement (Performance Based) under the Northern Oil and Gas, Inc. 2013 Incentive Plan Incorporated by reference to Exhibit 10.15 to the Registrant’s Current Report on Form 10-Q filed with the SEC on August 9, 2018 10.20* Northern Oil and Gas, Inc. 2018 Equity Incentive Plan Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 27, 2018 10.21* Form of Restricted Stock Award Agreement (Time-Based Single Trigger) under the Northern Oil and Gas, Inc. 2018 Equity Incentive Plan Incorporated by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 18, 2019 10.22* Form of Restricted Stock Award Agreement (Time-Based Double Trigger) under the Northern Oil and Gas, Inc. 2018 Equity Incentive Plan Incorporated by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 18, 2019 10.23* Form of Restricted Stock Award Agreement (Performance-Based Employees) under the Northern Oil and Gas, Inc. 2018 Equity Incentive Plan Incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 18, 2019 10.24* Form of Restricted Stock Award Agreement (Performance-Based Directors) under the Northern Oil and Gas, Inc. 2018 Equity Incentive Plan Incorporated by reference to Exhibit 10.37 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 18, 2019 10.25 Senior Unsecured Promissory Note, dated July 1, 2019, by and among Northern Oil and Gas, Inc. and VEN Bakken, LLC Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 2, 2019 10.26 Second Amended and Restated Credit Agreement, dated November 22, 2019, by and among Northern Oil and Gas, Inc., Wells Fargo Bank, National Association, as administrative agent, and the Lenders party thereto Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 26, 2019 10.27 First Amendment to the Second Amended and Restated Credit Agreement, dated July 8, 2020, by and among Northern Oil and Gas, Inc., Wells Fargo Bank, National Association and the Lenders party thereto Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 13, 2020 10.28 Second Amendment to the Second Amended and Restated Credit Agreement, dated February 3, 2021, by and among Northern Oil and Gas, Inc. and Wells Fargo Bank, National Association and the Lenders party thereto Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 3, 2021 10.29 Purchase Agreement, dated February 8, 2021, between Northern Oil and Gas, Inc. and BofA Securities, Inc., as representative of the several initial purchasers listed in Schedule I thereto Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 11, 2021 10.30 Exchange Agreement, dated as of February 20, 2020 among Northern Oil and Gas, Inc., TRT Holdings, Inc. and the other signatories thereto Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 21, 2021 23.1 Consent of Independent Registered Public Accounting Firm Deloitte & Touche LLP Filed herewith 23.2 Consent of Cawley, Gillespie & Associates, Inc. Filed herewith 24.1 Powers of Attorney Filed herewith 31.1 Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 65 Table of Contents 31.2 Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 32.1 Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed herewith 99.1 Report of Cawley, Gillespie & Associates Filed herewith 101.INS XBRL Instance Document Filed herewith 101.SCH XBRL Taxonomy Extension Schema Document Filed herewith 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith 101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed herewith 101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed herewith 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith 104 The cover page from Northern Oil and Gas, Inc. Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL Filed herewith * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this report. Item 16. Form 10-K Summary None. 66 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTHERN OIL AND GAS, INC. Date: March 12, 2021 By: /s/ Nicholas O’Grady Nicholas O’Grady, Chief Executive Officer; Principal Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated: Signature Title Date /s/ Nicholas O’Grady Chief Executive Officer, Principal Executive Officer March 12, 2021 Nicholas O’Grady /s/ Chad Allen Chief Financial Officer, Principal Financial & Accounting Officer March 12, 2021 Chad Allen * Director March 12, 2021 Bahram Akradi * Director March 12, 2021 Jack King * Director March 12, 2021 Robert Grabb * Director March 12, 2021 Lisa Bromiley * Director March 12, 2021 Roy Easley * Director March 12, 2021 Michael Frantz * Director March 12, 2021 Michael Popejoy * Director March 12, 2021 Stuart Lasher * Nicholas O’Grady, by signing his name hereto, does hereby sign this document on behalf of each of the above-named directors of the registrant pursuant to Powers of Attorney duly executed by such persons. By /s/ Nicholas O’Grady Nicholas O’Grady Attorney-in-fact 67 Table of Contents NORTHERN OIL AND GAS, INC. INDEX TO FINANCIAL STATEMENTS Page Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm F- 2 Balance Sheets as of December 31, 2020 and 2019 F- 4 Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018 F- 5 Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018 F- 6 Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2020, 2019 and 2018 F- 7 Notes to the Financial Statements F- 8 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Northern Oil and Gas, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Northern Oil and Gas, Inc. (the “Company”) as of December 31, 2020 and 2019, the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 12, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Proved Oil and Natural Gas Properties — Oil and Natural Gas Reserves and Impairment Expense — Refer to Note 2 to the financial statements Critical Audit Matter Description The Company follows the full cost method of accounting for crude oil and natural gas operations. Therefore, the Company’s proved oil and natural gas properties are depleted using the units-of-production method based upon production and estimates of proved reserves and are evaluated for impairment by performing a ceiling test each quarter. The ceiling test involves a comparison of net capitalized costs to the sum of the present value of the estimated future net cash flows from the Company’s oil and natural gas reserves. The estimation of the Company’s oil and natural gas reserves and the related future net cash flows requires management to make significant estimates and assumptions since, as a non-operator, the Company has limited visibility into the timing of future production quantities associated with the five-year development plan. The Company engages a third-party independent reserve engineering firm to fully engineer management’s oil and natural gas reserve quantities using these estimates and assumptions and engineering data. Changes in these estimates, assumptions, or engineering data could have significant impact on the depletion calculation and proved oil and natural gas properties impairment evaluation. The proved oil F-2 Table of Contents and natural gas properties balance was $4,393.5 million as of December 31, 2020. Depletion, depreciation, amortization, and accretion expense was $162.1 million and impairment expense was $1,066.7 million for the year ended December 31, 2020. Given the significant judgments made by management, particularly relating to the estimates and assumptions required due to limited visibility as a non-operator regarding future production quantities associated with the five-year development plan, performing audit procedures to evaluate the Company’s oil and natural gas reserve quantities and the related future net cash flows required a high degree of auditor judgment and an increased extent of effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management’s significant judgments and assumptions regarding oil and natural gas reserve quantities and the related future net cash flows included the following, among others: • We tested the operating effectiveness of controls related to the Company’s estimation of oil and natural gas reserve quantities and the related future net cash flows, including controls associated with the five-year development plan. • We evaluated the reasonableness of the future production quantities associated with management’s five-year development plan by comparing to: – Historical conversions of proved undeveloped oil and natural gas reserves into proved developed oil and natural gas reserves. – Internal communications to management and the Board of Directors. – Authorization and approval for expenditures. – External information regarding the ability of the operators of the oil and natural gas properties to develop proved undeveloped fields considering current and forecasted liquidity of the operators obtained from publicly available information, level of drilling activity by operators in areas where the Company holds leasehold interests, and length of time required to drill and complete groups of wells. • We evaluated the experience, qualifications, and objectivity of management’s expert, a third-party independent reserve engineering firm engaged to fully engineer management’s oil and natural gas reserve quantities. /s/ Deloitte & Touche LLP Minneapolis, Minnesota March 12, 2021 We have served as the Company’s auditor since 2018. F-3 Table of Contents NORTHERN OIL AND GAS, INC. BALANCE SHEETS (In thousands, except par value and share data) December 31, 2020 December 31, 2019 Assets Current Assets: Cash and Cash Equivalents $ 1,428 $ 16,068 Accounts Receivable, Net 71,015 108,274 Advances to Operators 476 893 Prepaid Expenses and Other 1,420 1,964 Derivative Instruments 51,290 5,628 Income Tax Receivable — 210 Total Current Assets 125,629 133,037 Property and Equipment: Oil and Natural Gas Properties, Full Cost Method of Accounting Proved 4,393,533 4,178,605 Unproved 10,031 11,047 Other Property and Equipment 2,451 2,157 Total Property and Equipment 4,406,015 4,191,809 Less – Accumulated Depreciation, Depletion and Impairment ( 3,670,811 ) ( 2,443,216 ) Total Property and Equipment, Net 735,204 1,748,593 Derivative Instruments 111 8,554 Deferred Income Taxes — 210 Other Noncurrent Assets, Net 11,145 15,071 Total Assets $ 872,089 $ 1,905,465 Liabilities and Stockholders' Equity (Deficit) Current Liabilities: Accounts Payable $ 35,803 $ 69,395 Accrued Liabilities 68,673 110,374 Accrued Interest 8,341 11,615 Derivative Instruments 3,078 11,298 Contingent Consideration 493 — Other Current Liabilities 1,087 795 Current Portion of Long-term Debt 65,000 — Total Current Liabilities 182,475 203,477 Long-term Debt, Net 879,843 1,118,161 Derivative Instruments 14,659 8,079 Asset Retirement Obligations 18,366 16,759 Other Noncurrent Liabilities 50 345 Total Liabilities 1,095,393 $ 1,346,822 Commitments and Contingencies Stockholders' Equity (Deficit) Preferred Stock, Par Value $ 0.001 ; 5,000,000 Authorized 2,218,732 Shares Outstanding at 12/31/2020 1,500,000 Shares Outstanding at 12/31/2019 2 2 Common Stock, Par Value $ 0.001 ; 135,000,000 * Authorized; 45,908,779 Shares Outstanding at 12/31/2020 40,608,518 * Shares Outstanding at 12/31/2019 448 406 Additional Paid-In Capital 1,556,602 1,431,438 Retained Deficit ( 1,780,356 ) ( 873,203 ) Total Stockholders’ Equity (Deficit) ( 223,304 ) 558,643 Total Liabilities and Stockholders' Equity (Deficit) $ 872,089 $ 1,905,465 ___________ * Adjusted for the 1-for-10 reverse stock split effected on September 18, 2020. See Note 5. The accompanying notes are an integral part of these financial statements. F-4 Table of Contents NORTHERN OIL AND GAS, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2020, 2019, AND 2018 December 31, (In thousands, except share and per share data) 2020 2019 2018 Revenues Oil and Gas Sales $ 324,052 $ 601,218 $ 493,909 Gain (Loss) on Derivative Instruments, Net 228,141 ( 128,837 ) 185,006 Other Revenue 17 21 9 Total Revenues 552,210 472,402 678,924 Operating Expenses Production Expenses 116,336 118,899 66,646 Production Taxes 29,783 57,771 45,302 General and Administrative Expenses 18,546 23,624 14,568 Depletion, Depreciation, Amortization and Accretion 162,120 210,201 119,780 Impairment of Other Current Assets — 6,398 — Impairment Expense 1,066,668 — — Total Operating Expenses 1,393,453 416,893 246,296 Income (Loss) From Operations ( 841,243 ) 55,509 432,628 Other Income (Expense) Interest Expense, Net of Capitalization ( 58,503 ) ( 79,229 ) ( 86,005 ) Write-off of Debt Issuance Costs ( 1,543 ) — — Loss on Unsettled Interest Rate Derivatives ( 1,019 ) — — Loss on the Extinguishment of Debt ( 3,718 ) ( 23,187 ) ( 173,430 ) Debt Exchange Derivative Gain (Loss) — 1,390 ( 598 ) Contingent Consideration Loss ( 169 ) ( 29,512 ) ( 28,968 ) Financing Expense — ( 1,447 ) ( 884 ) Other Income (Expense) ( 12 ) 158 891 Total Other Income (Expense) ( 64,964 ) ( 131,827 ) ( 288,994 ) Income (Loss) Before Income Taxes ( 906,207 ) ( 76,318 ) 143,634 Income Tax Benefit ( 166 ) — ( 55 ) Net Income (Loss) $ ( 906,041 ) $ ( 76,318 ) $ 143,689 Cumulative Preferred Stock Dividend ( 15,266 ) ( 1,029 ) — Net Income (Loss) Attributable to Common Shareholders $ ( 921,307 ) $ ( 77,347 ) $ 143,689 Net Income (Loss) Per Common Share – Basic* $ ( 21.55 ) $ ( 2.00 ) $ 6.08 Net Income (Loss) Per Common Share – Diluted* $ ( 21.55 ) $ ( 2.00 ) $ 6.07 Weighted Average Shares Outstanding – Basic* 42,744,639 38,708,460 23,620,646 Weighted Average Shares Outstanding – Diluted* 42,744,639 38,708,460 23,677,391 _________ * Adjusted for the 1-for-10 reverse stock split effected on September 18, 2020. See Note 5. The accompanying notes are an integral part of these financial statements. F-5 Table of Contents NORTHERN OIL AND GAS, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020, 2019, AND 2018 December 31, (In thousands) 2020 2019 2018 Cash Flows From Operating Activities Net Income (Loss) $ ( 906,041 ) $ ( 76,318 ) $ 143,689 Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Depletion, Depreciation, Amortization and Accretion 162,120 210,201 119,780 Amortization of Debt Issuance Costs 5,172 5,307 5,147 Write-off of Debt Issuance Costs 1,543 — — (Gain) Loss on Extinguishment of Debt 3,718 23,187 173,430 Amortization of Bond (Premium) Discount on Long-term Debt ( 1,037 ) ( 2,705 ) ( 563 ) Deferred Income Taxes 210 210 365 Unrealized (Gain) Loss on Derivative Instruments ( 38,858 ) 173,214 ( 207,892 ) Loss on Debt Exchange Derivative — ( 1,390 ) 598 Loss on Contingent Consideration 169 29,512 28,968 PIK Interest on Second Lien Notes — 1,742 2,599 Share-Based Compensation Expense 4,119 7,955 3,995 Impairment of Other Current Assets — 6,398 — Impairment Expense 1,066,668 — — Other ( 234 ) ( 41 ) ( 120 ) Changes in Working Capital and Other Items: Accounts Receivable, Net 37,637 ( 11,542 ) ( 49,122 ) Prepaid and Other Expenses 546 3,997 19,397 Accounts Payable ( 1,089 ) ( 16,928 ) ( 2,704 ) Accrued Liabilities 342 27,166 ( 3,517 ) Accrued Interest ( 3,300 ) ( 3,084 ) 10,212 Payment of Contingent Consideration — ( 37,131 ) — Net Cash Provided By Operating Activities 331,685 339,750 244,262 Cash Flows From Investing Activities Drilling and Development Capital Expenditures ( 236,691 ) ( 338,788 ) ( 216,692 ) Acquisition of Oil and Natural Gas Properties ( 46,940 ) ( 229,182 ) ( 257,807 ) Proceeds from Sale of Oil and Natural Gas Properties — — 22 Proceeds from Sale of Other Property and Equipment — — 46 Purchases of Other Property and Equipment ( 295 ) ( 1,158 ) ( 88 ) Net Cash Used For Investing Activities ( 283,926 ) ( 569,128 ) ( 474,519 ) Cash Flows From Financing Activities Advances on Revolving Credit Facility 78,000 953,000 190,000 Repayments on Revolving Credit Facility ( 126,000 ) ( 513,000 ) ( 50,000 ) Borrowings on Term Loan Credit Agreement — — 60,000 Repayments on Term Loan Credit Agreement — — ( 420,105 ) Issuance of Second Lien Notes — — 364,369 Repayments of Second Lien Notes ( 13,514 ) ( 227,470 ) — Repayments of Senior Unsecured Notes — — ( 104,215 ) Debt Issuance Costs Paid ( 446 ) ( 12,219 ) ( 26,648 ) Debt Derivative Exchange Settlements — ( 1,044 ) ( 1,769 ) Contingent Consideration Settlements — ( 11,278 ) — Issuance of Common Stock — — 141,674 Repurchases of Common Stock — ( 15,108 ) ( 22,195 ) Issuance of Preferred Stock — 70,868 — Restricted Stock Surrenders - Tax Obligations ( 439 ) ( 660 ) ( 680 ) Net Cash Provided (Used) By Financing Activities ( 62,399 ) 243,088 130,431 Net Increase (Decrease) in Cash and Cash Equivalents ( 14,640 ) 13,710 ( 99,825 ) Cash and Cash Equivalents – Beginning of Period 16,068 2,358 102,183 Cash and Cash Equivalents – End of Period $ 1,428 $ 16,068 $ 2,358 The accompanying notes are an integral part of these financial statements. F-6 Table of Contents NORTHERN OIL AND GAS, INC. STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2020, 2019, AND 2018 (In thousands, except share data) Common Stock Preferred Stock Additional Paid-In Retained Earnings Total Stockholders' Equity Shares Amount Shares Amount Capital (Deficit) (Deficit) December 31, 2017 6,679,163 67 — — 449,666 ( 940,574 ) ( 490,841 ) Issuance of Common Stock 329,530 3 — — — — 3 Restricted Stock Forfeitures ( 91,009 ) ( 1 ) — — — — ( 1 ) Share Based Compensation — — — — 4,362 — 4,362 Restricted Stock Surrenders - Tax Obligations ( 26,668 ) — — — ( 680 ) — ( 680 ) Equity Offerings, Net of Issuance Costs 9,692,602 97 — — 141,577 — 141,674 Debt Exchange Agreements 13,606,380 136 — — 327,363 — 327,499 Acquisition of Oil and Natural Gas Properties 8,373,054 84 — — 326,270 — 326,353 Net Exercise of Stock Options 6,250 — — — — — — Repurchases of Common Stock ( 735,995 ) ( 7 ) — — ( 22,188 ) — ( 22,195 ) Net Income — — — — — 143,689 143,689 December 31, 2018 37,833,307 378 — — 1,226,371 ( 796,884 ) 429,865 Issuance of Common Stock 406,920 4 — — — — 4 Restricted Stock Forfeitures ( 101,314 ) ( 1 ) — — — — ( 1 ) Share Based Compensation — — — — 8,364 — 8,364 Restricted Stock Surrenders - Tax Obligations ( 27,185 ) — — — ( 660 ) — ( 660 ) Issuance of Preferred Stock, Net of Issuance Costs — — 1,500,000 2 145,867 — 145,868 Debt Exchange Agreements 724,238 7 — — 15,742 — 15,749 Acquisition of Oil and Natural Gas Properties 560,215 6 — — 11,703 — 11,708 Contingent Consideration Settlements 1,775,837 18 — — 39,154 — 39,171 Repurchases of Common Stock ( 563,500 ) ( 6 ) — — ( 15,102 ) — ( 15,108 ) Net Loss — — — — — ( 76,318 ) ( 76,318 ) December 31, 2019 40,608,518 $ 406 1,500,000 $ 2 $ 1,431,438 $ ( 873,203 ) $ 558,643 Issuance of Common Stock 460,382 2 — — — — 2 Restricted Stock Forfeitures ( 107,071 ) — — — — — — Share Based Compensation — — — — 4,612 — 4,612 Restricted Stock Surrenders - Tax Obligations ( 39,686 ) — — — ( 438 ) — ( 439 ) Issuance of Preferred Stock, Net of Issuance Costs — — 794,702 1 81,211 — 81,212 Debt Exchange Agreements 4,164,941 34 — — 37,135 — 37,169 Series A Preferred Exchange 526,695 5 ( 75,970 ) — 1,108 ( 1,113 ) — Acquisition of Oil and Natural Gas Properties 295,000 — — — 1,537 — 1,537 Net Loss — — — — — ( 906,041 ) ( 906,041 ) December 31, 2020 45,908,779 $ 448 2,218,732 $ 2 $ 1,556,602 $ ( 1,780,357 ) $ ( 223,304 ) ___________ *Adjusted for the 1-for-10 reverse stock split effected on September 18, 2020. See Note 5. The accompanying notes are an integral part of these financial statements. F-7 Table of Contents NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2020 NOTE 1 ORGANIZATION AND NATURE OF BUSINESS Northern Oil and Gas, Inc. (the “Company,” “Northern,” “our” and words of similar import), a Delaware corporation, is an independent energy company engaged in the acquisition, exploration, exploitation, development and production of crude oil and natural gas properties. The Company’s common stock trades on the NYSE American market under the symbol “NOG”. Northern’s principal business is crude oil and natural gas exploration, development, and production with operations that primarily target the Williston and Permian Basins of the United States. The Company’s primary strategy is investing in non-operated minority working and mineral interests in oil and gas properties in the United States. NOTE 2 SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with preparing the financial statements for the year ended December 31, 2020, the Company has evaluated subsequent events for potential recognition and disclosure through the date of this filing and determined that there were no subsequent events which required recognition or disclosure in the financial statements through the date of this filing. Reverse Stock Split On September 18, 2020, the Company effected a 1-for-10 reverse stock split of its common stock. Unless otherwise noted, impacted amounts and share information included in the financial statements and notes thereto, and elsewhere in this Form 10-K, have been retroactively adjusted as if the reverse stock split occurred on the first day of the first period presented. Certain amounts may be slightly different than previously reported due to the settlement of fractional shares as a result of the reverse stock split and rounding. See Note 5 below for more information regarding the reverse stock split. Use of Estimates The preparation of financial statements under GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to proved crude oil and natural gas reserves, which includes limited control over future development plans as a non-operator, estimates relating to certain crude oil and natural gas revenues and expenses, fair value of derivative instruments, fair value of contingent consideration, acquisition date fair values of assets acquired and liabilities assumed, impairment of oil and natural gas properties, asset retirement obligations and deferred income taxes. Actual results may differ from those estimates. The Company considered the impact of the novel coronavirus 2019 (“COVID-19”) pandemic on the assumptions and estimates used by management in the financial statements for the reporting periods presented. As a result of significant fluctuations in commodity prices during the year, the Company recognized a material impairment charge during the year ended December 31, 2020 (see Note 3). Management’s estimates and assumptions were based on historical data and consideration of future market conditions. Given the uncertainty inherent in any projection, which is heightened by the possibility of unforeseen additional impacts from the COVID-19 pandemic, actual results may differ from the estimates and assumptions used, and conditions may change, which could materially affect amounts reported in the financial statements in the near term. F-8 Table of Contents Cash and Cash Equivalents Northern considers highly liquid investments with insignificant interest rate risk and original maturities to the Company of three months or less to be cash equivalents. Cash equivalents consist primarily of interest-bearing bank accounts. The Company’s cash positions represent assets held in checking and money market accounts. Cash and cash equivalents are generally available on a daily or weekly basis and are highly liquid in nature. Due to the balances being greater than $250,000, the Company does not have FDIC coverage on the entire amount of bank deposits. The Company believes this risk is minimal. In addition, the Company is subject to Security Investor Protection Corporation (“SIPC”) protection on a vast majority of its financial assets. Accounts Receivable Accounts receivable are carried on a gross basis, with no discounting. The Company regularly reviews all aged accounts receivable for collectability and establishes an allowance as necessary for individual balances. Accounts receivable not expected to be collected within the next twelve months are included within Other Noncurrent Assets, Net in the balance sheets. As of December 31, 2020 and 2019, the allowance for doubtful accounts was $ 3.9 million and $ 4.6 million, respectively. The amount charged to operations for doubtful accounts was $ 0.3 million, zero and zero for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020 and 2019, the amount charged against the allowance for doubtful accounts was $ 1.0 million and $ 0.7 million, respectively. As of December 31, 2020 and 2019, the Company included accounts receivable of $ 4.4 million and $ 4.7 million, respectively, in Other Noncurrent Assets, Net due to their long-term nature. Advances to Operators The Company participates in the drilling of crude oil and natural gas wells with other working interest partners. Due to the capital intensive nature of crude oil and natural gas drilling activities, the working interest partner responsible for conducting the drilling operations may request advance payments from other working interest partners for their share of the costs. The Company expects such advances to be applied by working interest partners against joint interest billings for its share of drilling operations within 90 days from when the advance is paid. Other Property and Equipment Property and equipment that are not crude oil and natural gas properties are recorded at cost and depreciated using the straight-line method over their estimated useful lives of three to seven years . Expenditures for replacements, renewals, and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Long-lived assets, other than crude oil and natural gas properties, are evaluated for impairment to determine if current circumstances and market conditions indicate the carrying amount may not be recoverable. The Company has no t recognized any impairment losses on non-crude oil and natural gas long-lived assets. Oil and Gas Properties Northern follows the full cost method of accounting for crude oil and natural gas operations whereby all costs related to the exploration and development of crude oil and natural gas properties are capitalized into a single cost center (“full cost pool”). Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling directly related to acquisition, and exploration activities. Internal costs that are capitalized are directly attributable to acquisition, exploration and development activities and do not include costs related to production, general corporate overhead or similar activities. Costs associated with production and general corporate activities are expensed in the period incurred. Capitalized costs are summarized as follows for the years ended December 31, 2020, 2019 and 2018, respectively: December 31, (In thousands) 2020 2019 2018 Capitalized Certain Payroll and Other Internal Costs $ 1,159 $ 995 $ 882 Capitalized Interest Costs 556 644 147 Total $ 1,716 $ 1,638 $ 1,029 F-9 Table of Contents As of December 31, 2020, the Company held leasehold interests primarily in the Williston Basin of the United States on acreage targeting the Bakken and Three Forks formations. Proceeds from property sales will generally be credited to the full cost pool, with no gain or loss recognized, unless such a sale would significantly alter the relationship between capitalized costs and the proved reserves attributable to these costs. A significant alteration would typically involve a sale of 25 % or more of the proved reserves related to a single full cost pool. In the years ended December 31, 2020, 2019 and 2018, there were no property sales that resulted in a significant alteration. Under the full cost method of accounting, the Company is required to perform a ceiling test each quarter. The test determines a limit, or ceiling, on the book value of the proved oil and gas properties. Net capitalized costs are limited to the lower of unamortized cost net of deferred income taxes, or the cost center ceiling. The cost center ceiling is defined as the sum of (a) estimated future net revenues, discounted at 10 % per annum, from proved reserves, based on the trailing twelve-month unweighted average of the first-day-of-the-month price, adjusted for any contract provisions or financial derivatives designated as hedges for accounting purposes, if any, that hedge the Company’s oil and natural gas revenue, and excluding the estimated abandonment costs for properties with asset retirement obligations recorded in the balance sheet, (b) the cost of properties not being amortized, if any, and (c) the lower of cost or market value of unproved properties included in the cost being amortized, including related deferred taxes for differences between the book and tax basis of the oil and natural gas properties. If the net book value, including related deferred taxes, exceeds the ceiling, an impairment or non-cash writedown is required. The Company recorded a ceiling test impairment of $ 1,066.7 million for the year ended December 31, 2020. The Company did no t have any ceiling test impairment for the years ended December 31, 2019 and 2018. Impairment charges affect the Company’s reported net income but do not reduce the Company’s cash flow. The Company computes the provision for depletion of oil and natural gas properties using the unit-of-production method based upon production and estimates of proved reserve quantities. Unproved costs and related carrying costs are excluded from the depletion base until the properties associated with these costs are considered proved or impaired. The following table presents depletion and depletion per BOE sold of the Company’s proved oil and natural gas properties for the periods presented: Year Ended December 31, (In thousands) 2020 2019 2018 Depletion of Proved Oil and Natural Gas Properties $ 160,643 $ 209,050 $ 118,974 Depletion per BOE Sold $ 13.27 $ 14.84 $ 12.75 The Company believes that the majority of its unproved costs will become subject to depletion within the next five years by proving up reserves relating to the acreage through exploration and development activities, by impairing the acreage that will expire before the Company can explore or develop it further or by determining that further exploration and development activity will not occur. The timing by which all other properties will become subject to depletion will be dependent upon the timing of future drilling activities and delineation of its reserves. Capitalized costs associated with impaired unproved properties and capitalized costs related to properties having proved reserves, plus the estimated future development costs and asset retirement costs, are depleted and amortized on the unit-of-production method. Under this method, depletion is calculated at the end of each period by multiplying total production for the period by a depletion rate. The depletion rate is determined by dividing the total unamortized cost base plus future development costs by net equivalent proved reserves at the beginning of the period. The costs of unproved properties are withheld from the depletion base until such time as they are either proved or impaired. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion and full cost ceiling calculations. For the years ended December 31, 2020, 2019 and 2018, the Company expired leases of $ 2.9 million, $ 3.6 million, and $ 9.4 million, respectively. F-10 Table of Contents Asset Retirement Obligations The Company accounts for its abandonment and restoration liabilities under Financial Accounting Standards Board (“FASB”) ASC Topic 410, “Asset Retirement and Environmental Obligations” (“FASB ASC 410”), which requires the Company to record a liability equal to the fair value of the estimated cost to retire an asset upon initial recognition. The asset retirement liability is recorded in the period in which the obligation meets the definition of a liability, which is generally when the asset is placed into service. When the liability is initially recorded, the Company increases the carrying amount of oil and natural gas properties by an amount equal to the original liability. The liability is accreted to its present value each period, and the capitalized cost is depreciated consistent with depletion of reserves. Upon settlement of the liability or the sale of the well, the liability is relieved. These liability amounts may change because of changes in asset lives, estimated costs of abandonment or legal or statutory remediation requirements. Business Combinations The Company accounts for its acquisitions that qualify as a business using the acquisition method under FASB ASC Topic 805, “Business Combinations.” Under the acquisition method, assets acquired and liabilities assumed are recognized and measured at their fair values. The use of fair value accounting requires the use of significant judgment since some transaction components do not have fair values that are readily determinable. The excess, if any, of the purchase price over the net fair value amounts assigned to assets acquired and liabilities assumed is recognized as goodwill. Conversely, if the fair value of assets acquired exceeds the purchase price, including liabilities assumed, the excess is immediately recognized in earnings as a bargain purchase gain. Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, receivables, payables, commodity derivative assets and liabilities, contingent consideration, debt exchange derivative liability, and long-term debt. The carrying amounts of cash equivalents, receivables and payables approximate fair value due to the highly liquid or short-term nature of these instruments. The fair values of the Company’s derivative instruments assets and liabilities are based on a third-party industry-standard pricing model using contract terms and prices and assumptions and inputs that are substantially observable in active markets throughout the full term of the instruments, including forward oil price curves, discount rates, volatility factors and credit risk adjustments. The fair values of the Company’s contingent consideration and debt exchange derivative liabilities are determined by a third-party valuation specialist using Monte Carlo simulations including significant inputs such as (i) the Company’s common stock price, (ii) risk-free rates based on U.S. Treasury rates, (iii) volatility of the Company’s common stock, and (iv) expected average daily trading volumes. The carrying amount of long-term debt associated with borrowings outstanding under the Company’s Revolving Credit Facility approximates fair value as borrowings bear interest at variable rates. The carrying amounts of the Company’s Second Lien Notes may not approximate fair value because carrying amounts are net of unamortized premiums and debt issuance costs, and the Second Lien Notes bear interest at fixed rates. See Note 11 for additional discussion. Debt Issuance Costs Debt issuance costs related to the Company’s Second Lien Notes and Unsecured VEN Bakken Note (see Note 4 below) are included as a deduction from the carrying amount of long-term debt in the balance sheets and are amortized to interest expense using the effective interest method over the term of the related debt. Debt issuance costs related to the Revolving Credit Facility are included in other noncurrent assets and are amortized to interest expense on a straight-line basis over the term of the agreement. Debt Premiums and Discounts Debt discounts and premiums related to the Company’s Second Lien Notes and Unsecured VEN Bakken Note are included as a deduction from or addition to the carrying amount of the long-term debt in the balance sheets and are amortized to interest expense using the effective interest method over the term of the related notes. F-11 Table of Contents Revenue Recognition The Company’s revenues are primarily derived from its interests in the sale of oil and natural gas production. The Company recognizes revenue from its interests in the sales of oil and natural gas in the period that its performance obligations are satisfied. Performance obligations are satisfied when the customer obtains control of product, when the Company has no further obligations to perform related to the sale, when the transaction price has been determined and when collectability is probable. The sales of oil and natural gas are made under contracts which the third-party operators of the wells have negotiated with customers, which typically include variable consideration that is based on pricing tied to local indices and volumes delivered in the current month. The Company receives payment from the sale of oil and natural gas production from one to three months after delivery. At the end of each month when the performance obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are accrued in trade receivables, net in the balance sheets. Variances between the Company’s estimated revenue and actual payments are recorded in the month the payment is received, however, differences have been and are insignificant. Accordingly, the variable consideration is not constrained. The Company does not disclose the value of unsatisfied performance obligations under its contracts with customers as it applies the practical exemption in accordance with ASC 606. The exemption, as described in ASC 606-10-50-14(a), applies to variable consideration that is recognized as control of the product is transferred to the customer. Since each unit of product represents a separate performance obligation, future volumes are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required. The Company’s oil is typically sold at delivery points under contracts terms that are common in our industry. The Company’s natural gas produced is delivered by the well operators to various purchasers at agreed upon delivery points under a limited number of contract types that are also common in our industry. Regardless of the contract type, the terms of these contracts compensate the well operators for the value of the oil and natural gas at specified prices, and then the well operators will remit payment to the Company for its share in the value of the oil and natural gas sold. A wellhead imbalance liability equal to the Company’s share is recorded to the extent that the Company’s well operators have sold volumes in excess of its share of remaining reserves in an underlying property. However, for the years ended December 31, 2020, 2019 and 2018, the Company’s natural gas production was in balance, meaning its cumulative portion of natural gas production taken and sold from wells in which it has an interest equaled its entitled interest in natural gas production from those wells. The Company’s disaggregated revenue has two revenue sources, which are oil sales and natural gas and NGL sales, and substantially all of the Company’s revenue comes from one geographic area, the Williston Basin in the United States, primarily in North Dakota and Montana. Oil sales for the years ended December 31, 2020, 2019 and 2018 were $ 305.2 million, $ 574.6 million and $ 450.1 million, respectively. Natural gas and NGL sales for the years ended December 31, 2020, 2019 and 2018 were $ 18.8 million, $ 26.6 million and $ 43.8 million, respectively. Concentrations of Market, Credit Risk and Other Risks The future results of the Company’s crude oil and natural gas operations will be affected by the market prices of crude oil and natural gas. The availability of a ready market for crude oil and natural gas products in the future will depend on numerous factors beyond the control of the Company, including weather, imports, marketing of competitive fuels, proximity and capacity of crude oil and natural gas pipelines and other transportation facilities, any oversupply or undersupply of crude oil, natural gas and liquid products, economic disruptions resulting from the COVID-19 pandemic, the regulatory environment, the economic environment, and other regional and political events, none of which can be predicted with certainty. The Company operates in the exploration, development and production sector of the crude oil and natural gas industry. The Company’s receivables include amounts due, indirectly via the third-party operators of the wells, from purchasers of its crude oil and natural gas production. While certain of these customers, as well as third-party operators of the wells, are affected by periodic downturns in the economy in general or in their specific segment of the crude oil or natural gas industry, the Company believes that its level of credit-related losses due to such economic fluctuations have been immaterial. As a non-operator, 100% of the Company’s wells are operated by third-party operating partners. As a result, the Company is highly dependent on the success of these third-party operators. If they are not successful in the development, exploitation, production and exploration activities relating to the Company’s leasehold interests, or are unable or unwilling to perform, the Company’s financial condition and results of operation could be adversely affected. These risks are heightened in the current low commodity price environment, which may present significant challenges to these third-party operators. The Company’s third-party operators will make decisions in connection with their operations that may not be in the Company’s best interests, F-12 Table of Contents and the Company may have little or no ability to exercise influence over the operational decisions of its third-party operators. For the years ended December 31, 2020, 2019 and 2018, the Company’s top four operators made up 49 %, 51 % and 55 %, respectively, of total oil and gas sales. The Company faces concentration risk due to the fact that substantially all of its oil and natural gas properties are located in the Williston Basin, primarily in North Dakota and Montana. As a result, the Company is disproportionately exposed to risks affecting this geographic area of operations. The Company manages and controls market and counterparty credit risk. In the normal course of business, collateral is not required for financial instruments with credit risk. Financial instruments which potentially subject the Company to credit risk consist principally of temporary cash balances and derivative financial instruments. The Company maintains cash and cash equivalents in bank deposit accounts which, at times, may exceed the federally insured limits. The Company has not experienced any significant losses from such investments. The Company attempts to limit the amount of credit exposure to any one financial institution or company. The Company believes the credit quality of its counterparties is generally high. In the normal course of business, letters of credit or parent guarantees may be required for counterparties which management perceives to have a higher credit risk. Stock-Based Compensation The Company records expense associated with the fair value of stock-based compensation. For fully vested stock and restricted stock grants, the Company calculates the stock-based compensation expense based upon estimated fair value on the date of grant. In determining the fair value of performance-based share awards subject to market conditions, the Company utilizes a Monte Carlo simulation prepared by an independent third party. For stock options, the Company uses the Black-Scholes option valuation model to calculate stock-based compensation at the date of grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate. Treasury Stock Treasury stock is recorded at cost, which includes incremental direct transaction costs, and is retired upon acquisition as a result of share repurchases under the share repurchase program or from the withholding of shares of stock to satisfy employee tax withholding obligations that arise upon the lapse of restrictions on their stock-based awards at the employees’ election. Stock Issuance The Company records any stock-based compensation awards issued to non-employees and other external entities for goods and services at either the fair market value of the goods received or services rendered or the instruments issued in exchange for such services, whichever is more readily determinable. Income Taxes The Company’s income tax expense, deferred tax assets and deferred tax liabilities reflect management’s best assessment of estimated current and future taxes to be paid. The Company estimates for each interim reporting period the effective tax rate expected for the full fiscal year and uses that estimated rate in providing for income taxes on a current year-to-date basis. The Company’s only taxing jurisdictions is the United States (federal and state). Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, the Company begins with historical results and incorporates assumptions about the amount of future state and federal pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates the Company is using to manage the underlying businesses. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. In assessing the need for a valuation allowance for the Company’s deferred tax assets, a significant item of negative evidence considered was the current year book loss and cumulative book losses in recent years, driven primarily by the full cost ceiling impairments over that period. F-13 Table of Contents Additionally, the Company’s revenue, profitability and future growth are substantially dependent upon prevailing and future prices for oil and natural gas. The markets for these commodities continue to be volatile. Changes in oil and natural gas prices have a significant impact on the value of the Company’s reserves and on its cash flows. Due to these factors, management has placed a lower weight on the prospect of future earnings in its overall analysis of the valuation allowance. Accordingly, the valuation allowance against the Company’s deferred tax asset at December 31, 2020 and 2019 was $ 337.5 million and $ 144.2 million, respectively. Derivative Instruments and Price Risk Management The Company uses derivative instruments to manage market risks resulting from fluctuations in the prices of crude oil. The Company enters into derivative contracts, including price swaps, caps and floors, which require payments to (or receipts from) counterparties based on the differential between a fixed price and a variable price for a fixed quantity of crude oil without the exchange of underlying volumes. The notional amounts of these financial instruments are based on expected production from existing wells. The Company may also use exchange traded futures contracts and option contracts to hedge the delivery price of crude oil at a future date. The Company follows the provisions of FASB ASC 815, “Derivatives and Hedging” as amended. It requires that all derivative instruments be recognized as assets or liabilities in the balance sheet, measured at fair value and marked-to-market at the end of each period. Any realized gains and losses on settled derivatives, as well as mark-to-market gains or losses, are aggregated and recorded to gain (loss) on derivative instruments, net on the statements of operations. See Note 12 for a description of the derivative contracts into which the Company has entered. Impairment Long-lived assets to be held and used are required to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Proved oil and natural gas properties accounted for using the full cost method of accounting are excluded from this requirement but continue to be subject to the full cost method’s impairment rules. There was no impairment of other long-lived assets recorded for the years ended December 31, 2020, 2019 and 2018. Employee Benefit Plans The Company sponsors a 401(k) defined contribution plan for the benefit of substantially all employees at the date of hire. The plan allows eligible employees to make pre-tax contributions up to 100 % of their annual compensation, not to exceed annual limits established by the federal government. Employees are 100 % vested in the employer contributions upon receipt. Net Income (Loss) Per Common Share Basic earnings per share (“EPS”) are computed by dividing net income (loss) attributable to common stockholders (the numerator) by the weighted average number of common shares outstanding for the period (the denominator). Diluted EPS is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each period. Potential common shares include shares issuable upon exercise of stock options and vesting of restricted stock awards, and shares issuable upon conversion of the Series A Preferred Stock (see Note 5). The number of potential common shares outstanding are calculated using the treasury stock or if-converted method. In those reporting periods in which the Company has reported net income available to common stockholders, anti-dilutive shares generally are comprised of the restricted stock that has average unrecognized stock compensation expense greater than the average stock price. In those reporting periods in which the Company has a net loss, anti-dilutive shares are comprised of the impact of those number of shares that would have been dilutive had the Company had net income plus the number of common stock equivalents that would be anti-dilutive had the company had net income. Restricted stock awards are excluded from the calculation of basic weighted average common shares outstanding until they vest. For restricted stock awards that vest based on achievement of performance and/or market conditions, the number of contingently issuable common shares included in diluted weighted-average common shares outstanding is based on the number of common shares, if any, that would be issuable under the terms of the arrangement if the end of the reporting period were the end of the contingency period, assuming the result would be dilutive. F-14 Table of Contents Supplemental Cash Flow Information The following reflects the Company’s supplemental cash flow information for the years ended December 31, 2020, 2019 and 2018 : December 31, (In thousands) 2020 2019 2018 Supplemental Cash Items: Cash Paid During the Period for Interest $ 55,109 $ 78,596 $ 78,865 Non-cash Operating Activities: Contingent Consideration Settlements in Excess of Acquisition-date Liabilities — 21,349 — Non-cash Investing Activities: Oil and Natural Gas Properties Included in Accounts Payable and Accrued Liabilities 88,564 161,743 129,452 Capitalized Asset Retirement Obligations 710 4,042 2,854 Contingent Consideration 324 — 32,312 Compensation Capitalized on Oil and Gas Properties 495 412 369 Issuance of Common Stock - Acquisitions of Oil and Natural Gas Properties 1,537 11,708 — Issuance of Unsecured VEN Bakken Note — 128,660 — Non-cash Financing Activities: Issuance of 8.50 % Second Lien Notes due 2023 — — 344,279 Issuance of Common Stock - fair value at issuance date — — 326,783 Issuance of Preferred Stock in Exchange for 8.5 % Second Lien Notes due 2023 81,212 75,000 — Debt Exchange Derivative Liability - fair value at issuance date — — 19,354 Issuance of 8.50 % Second Lien Notes due 2023 - PIK Interest — 3,480 — Issuance of Common Stock for 2L Notes Repurchase 37,169 — — Issuance of Common Stock for Preferred Stock Exchange 1,113 — — Debt Exchange Derivative Liability Settlements — 15,749 — Contingent Consideration Settlements — 17,822 — 8.00 % Unsecured Senior Notes due 2020 - carrying value — — ( 590,041 ) F-15 Table of Contents New Accounting Pronouncements From time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption. In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326), Measurement of credit losses on financial instruments, which requires a company immediately recognize management’s current estimated credit losses (“CECL”) for all financial instruments that are not accounted for at fair value through net income. Previously, credit losses on financial assets were only required to be recognized when they were incurred. The Company adopted ASU 2016-13 on January 1, 2020. The guidance did not have a significant impact on the financial statements or notes accompanying the financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), to modify disclosure requirements. The amendments in this ASU remove, modify, and add certain disclosure requirements as a part of the disclosure framework project, which primarily focus on improving the effectiveness of disclosures in the notes to the financial statements. The Company adopted ASU 2018-13 on January 1, 2020. The guidance did not have a significant impact on the financial statements or notes accompanying the financial statements. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as separate entity financial statements and interim recognition of enactment of tax laws or rate changes. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim reporting periods within those years. The Company adopted the new standard on January 1, 2021 on a prospective basis, which did not have a material impact on its financial position, results of operations, or cash flows. NOTE 3 CRUDE OIL AND NATURAL GAS PROPERTIES The book value of the Company’s crude oil and natural gas properties consists of all acquisition costs (including cash expenditures and the value of stock consideration), drilling costs and other associated capitalized costs. Acquisitions are accounted for as purchases and, accordingly, the results of operations are included in the accompanying statements of operations from the closing date of the acquisition. Acquired assets and liabilities assumed are recorded based on their estimated fair value at the time of the acquisition. Acquisitions have been funded with internal cash flow, bank borrowings and the issuance of debt and equity securities. Development capital expenditures and purchases of properties that were in accounts payable and not yet paid in cash at December 31, 2020 and 2019 were approximately $ 88.6 million and $ 161.7 million, respectively. 2020 Acquisitions During 2020, the Company acquired oil and natural gas properties, through a number of independent transactions, for a total of $ 21.6 million, excluding the associated development costs. 2019 Acquisitions During 2019, excluding the VEN Bakken Acquisition described below, the Company acquired oil and natural gas properties through a number of independent transactions for a total of $ 53.4 million. This amount includes $ 22.6 million of development costs that occurred prior to the closings of the acquisitions. VEN Bakken Acquisition On July 1, 2019, the Company completed its acquisition (the “VEN Bakken Acquisition”) of certain oil and gas properties and interests from VEN Bakken, LLC (“VEN Bakken”), effective as of July 1, 2019. VEN Bakken is a wholly-owned subsidiary of Flywheel Bakken, LLC. At closing the acquired assets consisted of approximately 90.1 net producing wells and 3.3 net wells in process, as well as approximately 18,000 net acres substantially all in North Dakota. The Company also assumed certain crude oil derivative contracts from VEN Bakken as part of the acquisition. The VEN Bakken Acquisition was completed pursuant to the purchase and sale agreement between the Company and VEN Bakken, dated as of April 18, 2019. F-16 Table of Contents The total estimated consideration paid by the Company was $ 315.3 million, consisting of (i) $ 174.9 million in cash, (ii) shares of Company common stock valued at $ 11.7 million, and ( iii) $ 128.7 million of value attributable to a 6.0 % unsecured promissory note due July 1, 2022 issued by the Company to VEN Bakken in the aggregate principal amount of $ 130.0 million (the “Unsecured VEN Bakken Note”) . Th e Company incurred $ 1.8 million o f transactions costs in connection with the acquisition, which are included in general and administrative expense in the statement of operations. The following table reflects the fair values of the net assets and liabilities as of the date of acquisition: (In thousands) Fair value of net assets: Proved oil and natural gas properties $ 324,974 Asset retirement cost 2,680 Total assets acquired 327,654 Asset retirement obligations ( 2,680 ) Derivative instruments ( 9,694 ) Net assets acquired $ 315,280 Fair value of consideration paid for net assets: Cash consideration $ 174,912 Issuance of common stock ( 5.6 million shares at $ 2.09 per share) 11,708 Unsecured VEN Bakken Note 128,660 Total fair value of consideration transferred $ 315,280 Pro Forma Information The following summarized unaudited pro forma statement of operations information for the year ended December 31, 2019 assumes that the VEN Bakken Acquisition occurred as of January 1, 2019. There is no pro forma information included for the year ended December 31, 2020, because the Company’s actual financial results for such period fully reflect this acquisition. The Company prepared the following summarized unaudited pro forma financial results for comparative purposes only. The summarized unaudited pro forma information may not be indicative of the results that would have occurred had the Company completed this acquisition on the date indicated, or that would be attained in the future. Year Ended December 31, (In thousands) 2019 Revenues $ 500,728 Net Loss $ ( 95,812 ) Divestitures From time-to-time the Company may divest assets. In addition, the Company may trade leasehold interests with operators to balance working interests in spacing units to facilitate and encourage a more expedited development of the Company’s acreage. Unproved Properties Unproved properties not being amortized comprise approximately 16,531 net acres and 16,464 net acres of undeveloped leasehold interests at December 31, 2020 and 2019, respectively. The Company believes that the majority of its unproved costs will become subject to depletion within the next five years by proving up reserves relating to the acreage through exploration and development activities, by impairing the acreage that will expire before the Company can explore or develop it further or by determining that further exploration and development activity will not occur. The timing by which all other properties will become subject to depletion will be dependent upon the timing of future drilling activities and delineation of its reserves. F-17 Table of Contents Excluded costs for unproved properties are accumulated by year. Costs are reflected in the full cost pool as the drilling costs are incurred or as costs are evaluated and deemed impaired. The Company anticipates these excluded costs will be included in the depletion computation over the next five years . The Company is unable to predict the future impact on depletion rates. The following is a summary of capitalized costs excluded from depletion at December 31, 2020 by year incurred. December 31, (In thousands) 2020 2019 2018 Prior Years Property Acquisition $ 308 $ 4,302 $ 4,487 $ 934 Development — — — — Total $ 308 $ 4,302 $ 4,487 $ 934 The Company historically has acquired unproved properties by purchasing individual or small groups of leases directly from mineral owners, landmen or lease brokers, which leases historically have not been subject to specified drilling projects, and by purchasing lease packages in identified project areas controlled by specific operators. The Company generally participates in drilling activities on a heads up basis by electing whether to participate in each well on a well-by-well basis at the time wells are proposed for drilling. The Company assesses all items classified as unproved property on an annual basis, or if certain circumstances exist, more frequently, for possible impairment or reduction in value. The assessment includes consideration of the following factors, among others: intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, the assignment of proved reserves, and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative 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 amortization. NOTE 4 LONG-TERM DEBT The Company’s long-term debt consists of the following: (In thousands) December 31, 2020 December 31, 2019 Revolving Credit Facility $ 532,000 $ 580,000 Second Lien Notes due 2023 287,755 417,733 Unsecured VEN Bakken Note 130,000 130,000 Total principal 949,755 1,127,733 Unamortized debt discounts and premiums 2,041 4,860 Unamortized debt issuance costs (1) ( 6,953 ) ( 14,432 ) Total debt 944,843 1,118,161 Less current portion of long-term debt ( 65,000 ) — Total long-term debt $ 879,843 $ 1,118,161 _____________________ (1) Debt issuance costs related to the Company’s revolving credit facility of $ 6.5 million and $ 9.8 million as of December 31, 2020 and 2019, are recorded in “Other Noncurrent Assets, Net” in the balance sheets. During the years ended December 31, 2020 and 2019, the Company recorded a $ 1.5 million and zero write-off of debt issuance costs as a result of the reduction in the borrowing base under the Revolving Credit Facility. Revolving Credit Facility On November 22, 2019, the Company entered into a Second Amended and Restated Credit Agreement (the “Revolving Credit Facility”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders from time to time party thereto, which amended and restated the Company’s prior revolving credit facility that was entered into on October 5, 2018. The Revolving Credit Facility is scheduled to mature on November 22, 2024, provided that the maturity date shall be 91 days prior to the scheduled maturity date of the earlier of (i) the Second Lien Notes (defined below) if any Second Lien Notes remain F-18 Table of Contents outstanding on such date or (ii) the Unsecured VEN Bakken Note if any principal amount of the Unsecured VEN Bakken Note remains outstanding on such date. The Revolving Credit Facility is subject to a borrowing base with maximum loan value to be assigned to the proved reserves attributable to the Company and its subsidiaries’ (if any) oil and gas properties. The borrowing base as of December 31, 2020 was $ 660.0 million. The borrowing base will be redetermined semiannually on or around April 1st and October 1st, with one interim “wildcard” redetermination available between scheduled redeterminations. The April 1st scheduled redetermination shall be based on a January 1st engineering report audited by a third party (reasonably acceptable by the Agent). At the Company’s option, borrowings under the Revolving Credit Facility shall bear interest at the base rate or LIBOR plus an applicable margin. Base rate loans bear interest at a rate per annum equal to the greatest of: (i) the agent bank’s prime rate; (ii) the federal funds effective rate plus 50 basis points; and (iii) the adjusted LIBOR rate for a one-month interest period plus 100 basis points. The applicable margin for base rate loans ranges from 100 to 200 basis points, and the applicable margin for LIBOR loans ranges from 200 to 300 basis points, in each case depending on the percentage of the borrowing base utilized. The Revolving Credit Facility contains negative covenants that limit the Company’s ability, among other things, to pay dividends, incur additional indebtedness, maintain excess cash liquidity, sell assets, enter into certain derivatives contracts, change the nature of its business or operations, merge, consolidate, or make certain types of investments. In addition, the Revolving Credit Facility requires that the Company comply with the following financial covenants: (i) as of the date of determination, the ratio of total net debt to EBITDAX (as defined in the Revolving Credit Facility) shall be no more than 3.50 to 1.00, measured on a pro forma rolling four quarter basis, and (ii) the current ratio (defined as consolidated current assets including unused amounts of the total commitments, but excluding non-cash assets under FASB ASC 815, divided by consolidated current liabilities excluding current non-cash obligations under FASB ASC 815 and current maturities under the Revolving Credit Facility, the Second Lien Notes and the Unsecured VEN Bakken Note) shall not be less than 1.00 to 1.00 . The Company is in compliance with these financial covenants as of December 31, 2020. The Company’s obligations under the Revolving Credit Facility may be accelerated, subject to customary grace and cure periods, upon the occurrence of certain Events of Default (as defined in the Revolving Credit Facility). Such Events of Default include customary events for a financing agreement of this type, including, without limitation, payment defaults, the inaccuracy of representations and warranties, defaults in the performance of affirmative or negative covenants, defaults on other indebtedness of us or the Company’s subsidiaries, defaults related to judgments and the occurrence of a Change in Control (as defined in the Revolving Credit Facility). The Company’s obligations under the Revolving Credit Facility are secured by mortgages on not less than 90 % of the value of proven reserves associated with the oil and gas properties included in the determination of the borrowing base. Additionally, the Company entered into a Guaranty and Collateral Agreement in favor of the Agent for the secured parties, pursuant to which the Company’s obligations under the Revolving Credit Facility are secured by a first priority security interest in substantially all of the Company’s assets. Second Lien Notes due 2023 In May 2018, the Company issued 8.500 % senior secured second lien notes due 2023 (the “Second Lien Notes”) with an aggregate principal amount of $ 344.3 million (the “Original 2L Notes”) in exchange for certain previously outstanding 8.000 % senior unsecured notes due June 1, 2020 (the “Unsecured Notes”). In October 2018, the Company issued an additional $ 350.0 million aggregate principal amount of Second Lien Notes (the “Additional 2L Notes”), the proceeds of which were used in connection with the retirement of the Company’s prior term loan credit agreement. In addition, as of and through December 31, 2020, the Company had issued another $ 4.3 million of additional aggregate principal amount of Second Lien Notes pursuant to the interest payment-in-kind provisions thereof. During 2019, the Company repurchased and retired $ 10.1 million in aggregate principal amount of Second Lien Notes in open market transactions. In November 2019, the Company completed a cash tender offer to redeem and repay $ 200.0 million principal amount of Second Lien Notes. Also in November 2019, the Company redeemed and repaid $ 70.8 million principal amount of Second Lien Notes in exchange for shares of Series A Preferred Stock. During the year ended December 31, 2020, the Company repurchased and retired $ 13.5 million in aggregate principal amount of Second Lien Notes in open market transactions for cash. During the year ended December 31, 2020, the Company also repurchased and retired $ 116.5 million in aggregate principal amount of Second Lien Notes pursuant to a number of independent, separately negotiated agreements in exchange for aggregate consideration consisting primarily of shares of Series A Preferred Stock and common stock. F-19 Table of Contents The terms of the Second Lien Notes include those stated in the Indenture entered into on May 15, 2018 by the Company and Wilmington Trust, National Association, as trustee (the “Original 2L Indenture”), as amended by the First Supplemental Indenture, dated September 18, 2018 (the “First Supplemental 2L Indenture”), the Second Supplemental Indenture, dated October 5, 2018 (the “Second Supplemental 2L Indenture”), and the Third Supplemental Indenture, dated November 22, 2019 (the “Third Supplemental 2L Indenture” and, together with the Original 2L Indenture, the First Supplemental 2L Indenture, and the Second Supplemental 2L Indenture, the “2L Indenture”). The Second Lien Notes are the senior secured obligations of the Company and rank equal in right of payment to all existing and future senior indebtedness of the Company and its subsidiaries. The Second Lien Notes are secured by second priority security interests in substantially all assets of the Company, subject to certain exceptions. The Second Lien Notes will be guaranteed by all of the Company’s direct and indirect subsidiaries that guarantee indebtedness under any other indebtedness for borrowed money of the Company or any of the Company’s subsidiary guarantors. As of December 31, 2020, the Company did not have any subsidiaries. The Second Lien Notes will mature on May 15, 2023. Interest on the Second Lien Notes accrues at a rate of 8.500 % per annum payable in cash quarterly in arrears on the first day of each calendar quarter. Additional interest may accrue depending on the Company’s total debt to EBITDAX ratio as of each December 31st and June 30th, provided that any such additional interest would be payable in kind (the “PIK Interest”). No PIK Interest will accrue so long as the Company’s total debt to EBITDAX ratio remains below 2.50 to 1.00 as of each applicable measurement date. PIK Interest of 1.00 % per annum will accrue if the Company’s total debt to EBITDAX ratio is less than 2.75 to 1.00 but equal to or greater than 2.50 to 1.00. PIK Interest of 2.00 % per annum will accrue if the Company’s total debt to EBITDAX ratio is less than 3.00 to 1.00 but equal to or greater than 2.75 to 1.00. PIK Interest of 3.00 % per annum will accrue if the Company’s total debt to EBITDAX ratio is greater than or equal to 3.00 to 1.00. No PIK has accrued since March 31, 2019. Default interest will be payable in cash on demand at the then applicable interest rate plus 3.00 % per annum. The Company may redeem all or a portion of any of the Second Lien Notes at the following redemption prices during the following time periods (plus accrued and unpaid interest on the Second Lien Notes redeemed): (i) from and after May 15, 2018 until May 15, 2021, 104 %, (ii) on and after May 15, 2021 until May 15, 2022, 102 %, and (iii) on and after May 15, 2022, 100 %. Subject to the terms of an intercreditor agreement, the Company is also required to offer to prepay the Second Lien Notes with 100 % of the net cash proceeds of asset sales, casualty events and condemnations in excess of $ 20.0 million not required to be used to pay down the loans under the Revolving Credit Facility, subject to customary exclusions and reinvestment provisions. Mandatory prepayment offers will be subject to payment of the make whole premium and redemption price set forth above, as applicable. If a change of control occurs, the Company will be required to offer to repurchase the Second Lien Notes at the repurchase price of 101 % of the principal amount of repurchased Second Lien Notes (subject to the prepayment provisions of the Revolving Credit Facility). The Second Lien Notes contain negative covenants that limit the Company’s ability, among other things, to pay cash dividends, incur additional indebtedness, sell assets, enter into certain derivatives contracts, change the nature of its business or operations, merge, consolidate, make certain types of investments, amend other debt documents, and incur any additional debt on a subordinated or junior basis to the Revolving Credit Facility and on a senior basis to the Second Lien Notes. The Second Lien Notes do not include any financial maintenance covenants. The obligations of the Company under the Second Lien Notes may be accelerated upon the occurrence of an Event of Default (as such term is defined in the 2L Indenture). Events of Default include customary events for a capital markets debt financing of this type, including, without limitation, payment defaults, the inaccuracy of representations and warranties, defaults in the performance of affirmative or negative covenants, defaults on other indebtedness of the Company or its subsidiaries, bankruptcy or related defaults, defaults related to judgments and the occurrence of a Change of Control (as such term is defined in the 2L Indenture). See Note 14 below regarding refinancing transactions that occurred subsequent to December 31, 2020. F-20 Table of Contents Unsecured VEN Bakken Note On July 1, 2019, in connection with the completion of the VEN Bakken Acquisition, the Company issued the Unsecured VEN Bakken Note in the original principal amount of $ 130.0 million (see Note 3 above). Fifty percent ( 50 %) of the original principal amount of the Unsecured VEN Bakken Note is required to be repaid by the Company on or before January 1, 2021, and the remaining unpaid principal amount is required to be repaid by the Company on or before July 1, 2022, in each case together with all accrued but unpaid interest thereon. Interest, at a rate of 6.0 % per annum, is due quarterly in arrears on the first day of each calendar quarter, commencing on October 1, 2019. The Unsecured VEN Bakken Note does not include any financial maintenance covenants and is unsecured. The obligations of the Company under the Unsecured VEN Bakken Note may be accelerated, subject to certain grace and cure periods, upon the occurrence of an event of default. Events of default include customary events, including, without limitation, payment defaults, the inaccuracy of representations and warranties, defaults in the performance of certain affirmative or negative covenants, defaults on other indebtedness of the Company, and bankruptcy or insolvency related defaults. The Unsecured VEN Bakken Note contains negative covenants that limit the Company’s ability, among other things, to pay dividends, repurchase equity, incur additional indebtedness, sell assets, terminate or unwind certain derivatives contracts, change the nature of its business or operations and merge or consolidate. In addition, the Unsecured VEN Bakken Note is subject to a mandatory prepayment offer in connection with a change of control. See Note 14 below regarding refinancing transactions that occurred subsequent to December 31, 2020. NOTE 5 COMMON AND PREFERRED STOCK Common Stock On September 18, 2020, the Company effected a 1-for-10 reverse stock split of the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”). The Company’s common stock began trading on a split‑adjusted basis when the market opened on September 21, 2020. As a result of the Reverse Stock Split, every ten shares of the Company’s issued and outstanding common stock automatically converted into one share of common stock, without any change in the par value per share. A total of 44,663,990 shares of common stock were issued and outstanding immediately after the Reverse Stock Split became effective on September 18, 2020. No fractional shares were outstanding following the Reverse Stock Split. In connection with the Reverse Stock Split, the number of authorized shares of the Company’s common stock was reduced to 135,000,000 shares of common stock, par value $ 0.001 per share. As of December 31, 2020 and 2019, the Company had 45,908,779 and 40,608,518 shares of common stock issued and outstanding, respectively. Preferred Stock The Company is authorized to issue up to 5,000,000 shares of preferred stock, par value $ 0.001 per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. As of December 31, 2020 and 2019, the Company had 2,218,732 and 1,500,000 shares of preferred stock issued and outstanding, respectively, all of which were shares of 6.500 % Series A Perpetual Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”). The terms of the Series A Preferred Stock are set forth in the Certificate of Designations for the Series A Preferred Stock (the “Certificate of Designations”), as originally filed with the Delaware Secretary of State on November 22, 2019, and as amended thereafter. The Series A Preferred Stock ranks senior to the Company’s common stock with respect to the payment of dividends and distribution of assets upon liquidation, dissolution or winding-up. Holders of the Series A Preferred Stock are entitled to receive, when, as and if declared by the board of directors of the Company, cumulative dividends in cash, at a rate of 6.500 % per annum on the sum of (i) the $ 100 liquidation preference per share of Series A Preferred Stock (the “Liquidation Preference”) and (ii) all accumulated and unpaid dividends (if any), payable semi-annually in arrears on May 15 and November 15 of each year, commencing on May 15, 2020. As of December 31, 2020, no dividends had been declared or paid, and there were $ 16.3 million of undeclared accumulated dividends on the Series A Preferred Stock. The Reverse Stock Split did not affect the number of authorized or issued and outstanding shares of the Company’s preferred stock, nor the liquidation per share preference. As a result of the Reverse Stock Split and per the terms of the Certificate of Designations, the conversion rate for the Company’s outstanding Series A Preferred Stock was automatically decreased to 4.363 shares of common stock for each share of Series A Preferred Stock (previously it was 43.63 shares of common stock). F-21 Table of Contents The effect of the Reverse Stock Split resulted in the Company recalculating its historical, basic and diluted EPS to reflect the 1-for-10 reverse stock split, effective September 18, 2020. The Series A Preferred Stock is convertible at the holders’ option (an “Optional Conversion”) into common stock at a conversion rate set forth in the Certificate of Designations, subject to customary adjustments as provided for therein. As of December 31, 2020, the conversion rate was 4.363 shares of common stock for each share of Series A Preferred Stock (which is equivalent to a conversion price of approximately $ 22.92 per share of common stock). Holders may be entitled to additional shares of common stock or cash in connection with a conversion that occurs in connection with a Fundamental Change (as defined in the Certificate of Designations). The Series A Preferred Stock is convertible at the Company’s option (a “Mandatory Conversion”) if the closing sale price of the Company’s common stock equals or exceeds 145 % of the conversion price for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days. A Mandatory Conversion would also entitle the holder to a cash payment equal to eight semi-annual dividend payments, less an amount equal to all cash dividend payments made in respect of such holder’s shares of Series A Preferred Stock prior to such Mandatory Conversion. The occurrence of any Optional Conversion or Mandatory Conversion is subject to various terms and limitations set forth in the Certificate of Designations. The Certificate of Designations also sets forth additional information relating to the payment of dividends, voting, conversion rights, consent rights, liquidation rights, the ranking of the Series A Preferred Stock in comparison with the Company’s other securities, and other matters. Stock Repurchase Program In May 2011, the Company’s board of directors approved a stock repurchase program to acquire up to $ 150.0 million of the Company’s outstanding common stock. The stock repurchase program allows the Company to repurchase its shares from time to time in the open market, block transactions and in negotiated transactions. In 2020, the Company did not repurchase shares of its common stock under the stock repurchase program. In 2019, the Company repurchased 0.6 million shares of its common stock under the stock repurchase program at a total cost of $ 16.3 million. Of the shares repurchased in 2019, $ 1.2 million was recorded as a settlement of contingent consideration liabilities in connection with a prior acquisition. The Company’s accounting policy upon the repurchase of shares is to deduct its par value from common stock and to reflect any excess of cost over par value as a deduction from Additional Paid-in Capital. All repurchased shares are now included in the Company’s pool of authorized but unissued shares. NOTE 6 STOCK-BASED COMPENSATION The Company maintains its 2018 Equity Incentive Plan (the “2018 Plan”), which replaced the Company’s prior 2013 Incentive Plan (the “2013 Plan”), for making equity-based awards to employees, directors and other eligible persons. No future awards will be made under the 2013 Plan. The 2013 Plan continues to govern awards that were made thereunder, which remain in effect pursuant to their terms. As of December 31, 2020 there were 908,052 shares available for future awards under the 2018 Plan. In connection with the Reverse Stock Split (see Note 5), the Company reduced the number of shares of common stock available for issuance under the Company’s equity incentive plans in proportion to the Reverse Stock Split ratio of 1-for-10. The Reverse Stock Split also reduced the number of shares of common stock issuable upon the vesting of its RSAs in proportion to the Reverse Stock Split ratio of 1-for-10 and caused a proportionate increase in share-based performance criteria applicable to such awards. The Reverse Stock Split has no impact on Net Income (Loss) or total Stockholders’ Equity as of, and for the years ended December 31, 2020, 2019 and 2018. The Company recognizes the fair value of stock-based compensation awards expected to vest over the requisite service period as a charge against earnings, net of amounts capitalized. The Company’s stock-based compensation awards are accounted for as equity instruments and are included in the “General and administrative expenses” line item in the statements of operations. The Company capitalizes a portion of stock-based compensation for employees who are directly involved in the acquisition of oil and natural gas properties into the full cost pool. Capitalized stock-based compensation is included in the “Oil and natural gas properties” line item in the balance sheets. F-22 Table of Contents The 2018 Plan and 2013 Plan award types are summarized as follows: Restricted Stock Awards The Company issues restricted stock awards (“RSAs”) subject to various vesting conditions as compensation to executive officers, employees and directors of the Company. RSAs issued to employees and executive officers generally vest over three years , provided that any performance and/or market conditions are also met. RSAs issued to directors generally vest over one year , provided that any performance and/or market conditions are also met. For RSAs subject to service and/or performance vesting conditions, the grant-date fair value is established based on the closing price of the Company’s common stock on such date. Stock-based compensation expense for awards subject to only service conditions is recognized on a straight-line basis over the service period. Stock-based compensation expense for awards with both service and performance conditions is recognized on a graded basis only if it is probable that the performance condition will be achieved. The Company accounts for forfeitures of awards granted under these plans as they occur in determining stock-based compensation expense. For awards subject to a market condition, the grant-date fair value is estimated using a Monte Carlo valuation model. The Company recognizes stock-based compensation expense for awards subject to market-based vesting conditions regardless of whether it becomes probable that these conditions will be achieved or not, and stock-based compensation expense for any such awards is not reversed if vesting does not actually occur. The Monte Carlo model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Expected volatility is calculated based on the historical volatility and implied volatility of the Company’s common stock, and the risk-free interest rate is based on U.S. Treasury yield curve rates with maturities consistent with the three -year vesting period. The key assumptions used in valuing these market-based awards were as follows: 2019 Risk-free interest rate 2.57 % Dividend yield — % Expected volatility 85.00 % During 2020, 2019 and 2018, 460,382 , 174,720 and 105,035 shares, respectively, of service-based RSAs were granted to executive officers, employees and directors under the 2013 and 2018 Equity Plans. The weighted average grant date fair value of service-based RSAs was $ 9.15 per share, $ 21.40 per share and $ 26.70 per share for the years ended December 31, 2020, 2019, and 2018, respectively. During 2019, RSAs subject to service, market, and performance-based vesting conditions were granted to employees and executive officers under the 2018 Plan. Vesting of these awards is contingent on the Company’s debt-adjusted cash flow per share as compared to specified targets (“2019 Performance Award I”). The weighted average grant date fair value of these service, performance, and market-based RSAs was $ 9.80 per share. Also during 2019, RSAs subject to service and market-based vesting conditions were granted to employees, executive officers, and directors under the 2018 Plan. Vesting of these awards is contingent on the Company’s stock price performance relative to specified targets (“2019 Performance Award II”). The weighted average grant date fair value of these service and market-based RSAs was $ 18.20 per share. The following table reflects the outstanding RSAs and activity related thereto for the year ended December 31, 2020: Service-based Awards Service and Performance-based Awards Service and Market-based Awards Service, Performance, and Market-based Awards Number of Shares Weighted-average Grant Date Fair Value Number of Shares Weighted-average Grant Date Fair Value Number of Shares Weighted-average Grant Date Fair Value Number of Shares Weighted-average Grant Date Fair Value Outstanding at December 31, 2019 41,398 $ 24.10 37,500 $ 27.00 118,962 $ 18.00 70,800 $ 9.80 Shares granted 460,382 9.15 — — — — — — Shares forfeited ( 271 ) 24.50 — — ( 106,800 ) 18.20 — — Shares vested ( 232,907 ) 10.32 ( 21,250 ) 27.00 ( 6,917 ) 16.70 ( 31,600 ) 9.80 Outstanding at December 31, 2020 268,602 $ 10.44 16,250 $ 27.00 5,245 $ 16.70 39,200 $ 9.80 F-23 Table of Contents At December 31, 2020, there was $ 3.1 million of total unrecognized compensation expense related to unvested RSAs. That cost is expected to be recognized over a weighted average period of 0.9 years. For the year ended December 31, 2020, 2019 and 2018, the total fair value of the Company’s restricted stock awards vested was $ 2.7 million, $ 6.6 million and $ 3.5 million, respectively. In December 2019, the compensation committee of the board of directors modified both the 2019 Performance Award I and the 2019 Performance Award II. The 2019 Performance Award I was modified to deem the debt-adjusted cash flow per share targets as having been achieved, the effect of which was to essentially convert these awards into RSAs having only service-based vesting conditions. The fair value of the modified 2019 Performance Award I was $ 18.80 per share, resulting in incremental compensation expense of $ 2.0 million as a result of the modification, which will be expensed over the requisite service periods. The 2019 Performance Award II was modified (solely for executive officers and employees, not for directors) such that the shares subject thereto now vest contingent on the Company’s average closing stock price meeting specified targets for any consecutive twenty trading day period ending on or before December 31, 2020. The fair value of the modified 2019 Performance Award II was $ 10.40 per share and was estimated using a Monte Carlo simulation. This resulted in incremental compensation expense of $ 1.1 million as a result of the modification, which will be expensed over the requisite service periods. The assumptions used to estimate the fair value of the 2019 Performance Award II granted as of the date presented are as follows: Pre-Modification At Modification January 4, 2019 December 13, 2019 December 13, 2019 Risk-free interest rate 2.57 % 1.53 % 1.53 % Dividend yield — % — % — % Expected volatility 85.00 % 65.00 % 65.00 % NOTE 7 RELATED PARTY TRANSACTIONS November 2019 Refinancing Transactions On October 21, 2019, the Company announced the commencement of (i) a cash tender offer (the “Tender Offer”) to purchase up to $ 200.0 million in aggregate principal amount of the Company’s Second Lien Notes; (ii) an exchange offer (the “Exchange Offer”) to eligible holders of Second Lien Notes to exchange up to $ 70.8 million in aggregate principal amount of Second Lien Notes for shares of the Company’s newly issued Series A Preferred Stock; (iii) a related solicitation of consents (the “Consent Solicitation”) to adopt certain proposed amendments to the indenture for the Second Lien Notes, and (iv) an offer to eligible holders of Second Lien Notes to subscribe to purchase for up to $ 75.0 million in cash additional shares of Series A Preferred Stock (the “Subscription Offer”). Parties affiliated with TRT Holdings, Inc. (collectively, the “TRT Parties”) held Second Lien Notes and thus had the right to participate in the Tender Offer, Exchange Offer, Consent Solicitation and Subscription Offer on terms identical to the terms generally offered to all holders of Second Lien Notes. These transactions closed on November 22, 2019, with the TRT Parties (i) exchanging $ 1.0 million aggregate principal amount of Second Lien Notes for 10,947 shares of Series A Preferred Stock pursuant to the Exchange Offer and (ii) acquiring 10,947 additional shares of Series A Preferred Stock for a purchase price of $ 1.1 million pursuant to the Subscription Offer. On February 20, 2020, the Company entered into an exchange agreement (the “Exchange Agreement”) with the TRT Parties related to the Series A Preferred Stock, as follows. The certificate of designations of the Series A Preferred Stock, as amended (the “Certificate of Designations”), contains limitations on the ability of the company or holders of Series A Preferred Stock to effect conversions of shares of Series A Preferred Stock for shares of the Company’s common stock if after a conversion a holder would beneficially own shares of common stock in excess of 9.99 % of the aggregate number of shares of the Company’s common stock outstanding immediately after giving pro forma effect to the issuance of shares upon such conversion (the “Conversion Cap”). As of the date of the Exchange Agreement, the TRT Parties collectively beneficially owned a number of shares of the Company’s common stock in excess of the Conversion Cap. The Exchange Agreement provides, notwithstanding anything to the contrary in the Certificate of Designations, including the Conversion Cap, for the TRT Parties to be able to exchange shares of Series A Preferred Stock for shares of the Company’s common stock in the manner otherwise contemplated by the Certificate of Designations. As of the date hereof, the TRT Parties have not exchanged or converted any shares of Series A Preferred Stock into common stock. Two of our directors, Mr. Frantz and Mr. Popejoy, are employed by the TRT Parties and the TRT Parties beneficially owned in excess of 10% of the Company’s outstanding common stock at the time of the transactions described in this paragraph. F-24 Table of Contents In January 2019, the Company repurchased 0.4 million shares of Company common stock from W Energy Partners LLC (“W Energy”) for cash consideration of $ 11.1 million. The repurchased shares were originally issued by the Company as partial consideration for an acquisition of oil and gas properties from W Energy during 2018. W Energy beneficially owned in excess of 10% of the Company’s outstanding common stock at the time of the repurchase transactions. The Company’s Audit Committee is responsible for approving all transactions involving related parties, including each of the transactions identified above. NOTE 8 COMMITMENTS & CONTINGENCIES Litigation The Company is engaged in various proceedings incidental to the normal course of business. Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to, court rulings, negotiations between affected parties and governmental intervention. Based upon the information available to the Company and discussions with legal counsel, it is the Company’s opinion that the outcome of the various legal actions and claims that are incidental to its business will not have a material impact on the Company’s financial position, results of operations or cash flows. Such matters, however, are subject to many uncertainties, and the outcome of any matter is not predictable with assurance. The Company’s interests in certain crude oil and natural gas leases from the State of North Dakota are subject to an ongoing dispute over the ownership of minerals underlying the bed of the Missouri River within the boundaries of the Fort Berthold Reservation. The ongoing dispute is between the State of North Dakota and three affiliated tribes, both of whom have purported to lease mineral rights in tracts of riverbed within the reservation boundaries. In the event the ongoing dispute results in a final judgment that is adverse to the Company’s interests, the Company would be required to reverse approximately $ 4.4 million in revenue (net of accrued taxes) that has been accrued since the first quarter of 2013 based on the Company’s purported interest in the crude oil and natural gas leases at issue. Due to the long-term nature of this title dispute, the $ 4.4 million in accounts receivable is included in “Other Noncurrent Assets, Net” in the balance sheets. The Company fully maintains the validity of its interests in the crude oil and natural gas leases. NOTE 9 ASSET RETIREMENT OBLIGATIONS The Company has asset retirement obligations associated with the future plugging and abandonment of proved properties and related facilities. Initially, the fair value of a liability for an ARO is recorded in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, an adjustment to the full cost pool is recognized. The Company has no assets that are legally restricted for purposes of settling asset retirement obligations. Inherent in the fair value calculation are numerous assumptions and judgments including the ultimate retirement costs, inflation factors, credit-adjusted risk-free discount rates, timing of retirement, and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the present value of the existing ARO, a corresponding adjustment is made to the oil and gas property balance. For example, as the Company analyzes actual plugging and abandonment information, the Company may revise its estimate of current costs, the assumed annual inflation of the costs and/or the assumed productive lives of its wells. During 2020 and 2019, there were no adjustments to the aforementioned assumptions requiring revisions of previous estimates. The following table summarizes the Company’s asset retirement obligation transactions recorded during the years ended December 31, 2020 and 2019. F-25 Table of Contents December 31, (in thousands) 2020 2019 Beginning Asset Retirement Obligations $ 17,299 $ 12,501 Liabilities Acquired During the Period — 2,680 Liabilities Incurred During the Period 688 1,361 Revision of Estimates 21 — Accretion of Discount on Asset Retirement Obligations 1,192 973 Liabilities Settled During the Period ( 20 ) ( 216 ) Ending Asset Retirement Obligations $ 19,181 $ 17,299 NOTE 10 INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carry-forwards. Under this method, deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that includes the enactment date. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law making several changes to the Internal Revenue Code. The changes include, but are not limited to: increasing the limitation on the amount of deductible interest expense, allowing companies to carryback certain net operating losses, and increasing the amount of net operating loss carryforwards that corporations can use to offset taxable income. The income tax provision (benefit) for the years ended December 31, 2020, 2019, and 2018 consists of the following: (In thousands) 2020 2019 2018 Current Federal $ ( 376 ) $ ( 210 ) $ ( 420 ) State — — — Deferred Federal ( 175,309 ) ( 16,676 ) 91,958 State ( 17,778 ) ( 3,578 ) 11,636 Valuation Allowance 193,297 20,464 ( 103,229 ) Total Tax Benefit $ ( 166 ) $ — $ ( 55 ) The following is a reconciliation of the reported amount of income tax benefit for the years ended December 31, 2020, 2019, and 2018 to the amount of income tax expenses that would result from applying the statutory rate to pretax income (loss). (In thousands) 2020 2019 2018 Income (Loss) Before Taxes and NOL $ ( 906,207 ) $ ( 76,318 ) $ 143,634 Federal Statutory Rate 21.00 % 21.00 % 21.00 % Taxes Computed at Federal Statutory Rates ( 190,303 ) ( 16,027 ) 30,163 State Taxes, Net of Federal Taxes ( 20,881 ) ( 2,630 ) 9,143 Deferred Tax Adjustment 3,686 ( 1,891 ) — Share Based Compensation Tax Deficiency — 33 316 Net Operating Loss Adjustment 12,494 — — Section 382 Limitation — — 63,573 Other 1,541 51 ( 21 ) Valuation Allowance 193,297 20,464 ( 103,229 ) Reported Tax Benefit $ ( 166 ) $ — $ ( 55 ) F-26 Table of Contents The Company’s May 15, 2018 closing under an exchange agreement and related transactions triggered an ownership change within the meaning of Section 382 of the Internal Revenue Code (“IRC”) due to the share issuances related thereto. In general, an ownership change, as defined in IRC Section 382, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50% of the outstanding stock of a company by certain stockholders or public groups. Since the Company has experienced an ownership change, utilization of net operating losses (“NOL”) and other tax carryforward attributes including, but are not limited to, interest expense limitations, are subject to an annual limitation. Accordingly, the Company reduced its net operating loss deferred tax asset and related valuation allowance by $ 63.6 million during 2018. In 2020, the Company further reduced its net operating loss deferred tax asset and related valuation allowance by $ 12.5 million due to changes from the CARES Act and the finalized IRC regulations, that increased the limitation on the amount of deductible interest expense. A valuation allowance is established to reduce deferred tax assets if it is determined that it is more likely than not that the related tax benefit will not be realized. On a quarterly basis, management evaluates the need for and adequacy of valuation allowances based on the expected realizability of the deferred tax assets and adjusts the amount of such allowances, if necessary. During 2020, in evaluating whether it was more likely than not that the Company’s net deferred tax assets were realized through future net income, management considered all available positive and negative evidence, including (i) its earnings history, (ii) its ability to recover net operating loss carry-forwards, (iii) the projected future income and results of operations, and (iv) its ability to use tax planning strategies. Based on all the evidence available, management determined it was more likely than not that the net deferred tax assets, other than the deferred tax asset related to the Company’s alternative minimum tax credit, were not realizable. The Company’s valuation allowance at December 31, 2020 was $ 337.5 million. At December 31, 2020, the Company had a net operating loss carryforward for federal income tax purposes of $ 474.5 million, which is net of the IRC Section 382 limitation, and state NOL carryforwards of $ 649.3 million. The determination of the state NOL carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and that can thereby impact the amount of such carryforwards. If unutilized, all of the federal net operating losses will expire from 2031 to 2037, except for $ 161.7 million of federal net operating losses that have an indefinite life. If unutilized, all of the state net operating losses will expire from 2020 to 2037, except for $ 104.6 million of state net operating losses that have an indefinite life. The significant components of the Company’s deferred tax assets (liabilities) were as follows: Year Ended December 31, (in thousands) 2020 2019 Net Operating Loss (NOLs) and Tax Credit Carryforwards $ 123,121 $ 91,392 Share Based Compensation 93 190 Accrued Interest 1,012 1,061 Allowance for Doubtful Accounts 902 1,117 Crude Oil and Natural Gas Properties and Other Properties 222,668 ( 11,447 ) Interest Carryforwards — 49,011 Derivative Instruments ( 10,104 ) 13,196 Other ( 198 ) ( 112 ) Total Net Deferred Tax Assets (Liabilities) Before Valuation Allowance 337,494 144,408 Valuation Allowance ( 337,494 ) ( 144,198 ) Total Net Deferred Tax Assets $ — $ 210 Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. The Company has no liabilities for unrecognized tax benefits. The Company’s policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits within income tax expense. For the years ended December 31, 2020, 2019 and 2018, the Company did no t recognize any interest or F-27 Table of Contents penalties in its statements of operations, no r did it have any interest or penalties accrued in its balance sheet at December 31, 2020 and 2019 relating to unrecognized benefits. The tax years 2020, 2019, 2018, and 2017 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject. Additionally, NOLs from 2011-2016 could be adjusted in the future when such NOLs are utilized. NOTE 11 FAIR VALUE Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Financial Assets and Liabilities As required, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2020 and 2019. Fair Value Measurements at December 31, 2020 Using (In thousands) Quoted Prices In Active Markets for Identical Assets (Liabilities) (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Commodity Derivatives – Current Assets $ — $ 51,290 $ — Commodity Derivatives – Noncurrent Assets $ — $ 111 $ — Commodity Derivatives – Current Liabilities — ( 2,504 ) — Commodity Derivatives – Noncurrent Liabilities — ( 14,214 ) — Interest Rate Derivatives – Current Liabilities — ( 574 ) — Interest Rate Derivatives – Noncurrent Liabilities — ( 445 ) — Total $ — $ 33,664 $ — F-28 Table of Contents Fair Value Measurements at December 31, 2019 Using (In thousands) Quoted Prices In Active Markets for Identical Assets (Liabilities) (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Commodity Derivatives – Current Assets $ — $ 5,628 $ — Commodity Derivatives – Current Liabilities $ — $ ( 11,298 ) $ — Commodity Derivatives – Noncurrent Assets — 8,554 — Commodity Derivatives – Noncurrent Liabilities — ( 8,079 ) — Total $ — $ ( 5,195 ) $ — Commodity Derivatives. The Level 2 instruments presented in the tables above consist of commodity derivative instruments (see Note 12). The fair value of the Company’s commodity derivative instruments is determined based upon future prices, volatility and time to maturity, among other things. Counterparty statements are utilized to determine the value of the commodity derivative instruments and are reviewed and corroborated using various methodologies and significant observable inputs. The Company’s and the counterparties’ nonperformance risk is evaluated. The fair value of commodity derivative contracts is reflected in the balance sheet. The current derivative asset and liability amounts represent the fair values expected to be settled in the subsequent twelve months. Interest Rate Derivatives. The Level 2 instruments presented in the tables above consist of interest rate derivative instruments (see Note 11). The fair value of the Company’s interest rate derivative instruments is determined based upon contracted notional amounts, active market-quoted LIBOR yield curves, and time to maturity, among other things. Counterparty statements are utilized to determine the value of the interest rate derivative instruments and are reviewed and corroborated using various methodologies and significant observable inputs. The Company’s and the counterparties’ nonperformance risk is evaluated. The fair value of interest rate derivative contracts is reflected in the balance sheets. The current derivative asset and liability amounts represent the fair values expected to be settled in the subsequent twelve months. Fair Value of Other Financial Instruments The carrying amounts of cash equivalents, receivables and payables approximate fair value due to the highly liquid or short-term nature of these instruments. Long-term debt is not presented at fair value in the balance sheets, as it is recorded at carrying value, net of unamortized debt issuance costs and unamortized premium or discount (see Note 4). The fair value of the Company’s Second Lien Notes is $ 256.1 million and $ 434.4 million at December 31, 2020 and 2019. The fair value of the Company’s Second Lien Notes are based on active market quotes, which represent Level 1 inputs. There is no active market for the Revolving Credit Facility or the Unsecured VEN Bakken Note. The recorded value of the Revolving Credit Facility approximates its fair value because of its floating rate structure based on the LIBOR spread, secured interest, and the Company’s borrowing base utilization. The recorded fair value of the VEN Bakken Note is based primarily on estimated current rates available to us for debt of the same remaining duration and adjusted for nonperformance risk and credit risk (see Note 3). The fair value of the Unsecured VEN Bakken Note is $ 129.3 million and $ 130.0 million at December 31, 2020 and 2019, respectively. The fair value measurements for the Revolving Credit Facility and the Unsecured VEN Bakken Note represent Level 2 inputs. Non-Financial Assets and Liabilities The Company estimates asset retirement obligations pursuant to the provisions of ASC 410. The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with oil and natural gas properties. Given the unobservable nature of the inputs, including plugging costs and reserve lives, the initial measurement of the asset retirement obligations liability is deemed to use Level 3 inputs. Asset retirement obligations incurred and acquired during the year ended December 31, 2020 were approximately $ 0.7 million. F-29 Table of Contents Though the Company believes the methods used to estimate fair value are consistent with those used by other market participants, the use of other methods or assumptions could result in a different estimate of fair value. There were no transfers of financial assets or liabilities between Level 1, Level 2 or Level 3 inputs for the years ended December 31, 2020 and 2019. NOTE 12 DERIVATIVE INSTRUMENTS AND PRICE RISK MANAGEMENT The Company utilizes commodity price swaps, basis swaps, swaptions and collars (purchased put options and written call options) to (i) reduce the effects of volatility in price changes on the crude oil and natural gas commodities it produces and sells, (ii) reduce commodity price risk and (iii) provide a base level of cash flow in order to assure it can execute at least a portion of its capital spending. In addition, from time to time the Company utilizes interest rate swaps to mitigate exposure to changes in interest rates on the Company’s variable-rate indebtedness. All derivative instruments are recorded in the Company’s balance sheet as either assets or liabilities measured at their fair value (see Note 11). The Company has not designated any derivative instruments as hedges for accounting purposes and does not enter into such instruments for speculative trading purposes. If a derivative does not qualify as a hedge or is not designated as a hedge, the changes in the fair value are recognized in the Company’s statements of operations as a gain or loss on derivative instruments. Mark-to-market gains and losses represent changes in fair values of derivatives that have not been settled. The Company’s cash flow is only impacted when the actual settlements under the derivative contracts result in making or receiving a payment to or from the counterparty. These cash settlements represent the cumulative gains and losses on the Company’s derivative instruments for the periods presented and do not include a recovery of costs that were paid to acquire or modify the derivative instruments that were settled. The Company has master netting agreements on individual derivative instruments with certain counterparties and therefore the current asset and liability are netted in the balance sheet and the non-current asset and liability are netted in the balance sheet for contracts with these counterparties. Commodity Derivative Instruments The following table presents settlements on commodity derivative instruments and unsettled gains and losses on open commodity derivative instruments for the periods presented which is recorded in the revenue section of our financial statements: Year ended December 31, (In thousands) 2020 2019 2018 Gain (Loss) on Settled Commodity Derivatives $ 188,264 $ 44,377 $ ( 22,886 ) Gain (Loss) on Unsettled Commodity Derivatives 39,878 ( 173,214 ) 207,892 Gain (Loss) on Derivative Instruments, Net $ 228,141 $ ( 128,837 ) $ 185,006 The following table summarizes open commodity derivative positions as of December 31, 2020, for commodity derivatives that were entered into through December 31, 2020, for the settlement period presented: F-30 Table of Contents 2021 2022 2023 Oil: WTI NYMEX - Swaps: Volume (Bbl) 7,545,124 816,250 — Weighted-Average Price ($/Bbl) $ 55.06 $ 50.49 $ — WTI NYMEX - Swaptions (1) : Volume (Bbl) — 3,131,125 1,455,000 Weighted-Average Price ($/Bbl) $ — $ 52.68 $ 47.98 Bakken Crude UHC to WTI NYMEX - Basis Swaps: Volume (Bbl) 1,523,750 — — Weighted-Average Price ($/Bbl) $ ( 2.39 ) $ — $ — Natural Gas: Henry Hub NYMEX - Swaps: Volume (MMBtu) 13,000,000 3,650,000 — Weighted-Average Price ($/MMBtu) $ 2.50 $ 2.61 $ — Waha Inside FERC to Henry Hub - Basis Swaps: Volume (MMBtu) 69,000 — — Weighted-Average Differential ($/MMBtu) $ ( 0.28 ) $ — $ — ______________ (1) Swaptions are crude oil derivative contracts that give counterparties the option to extend certain derivative contracts for additional periods. The volumes and prices reflected as Swaptions in this table will only be effective if the options are exercised by the applicable counterparties. Interest Rate Derivative Instruments The Company uses interest rate swaps to effectively convert a portion of its variable rate indebtedness to fixed rate indebtedness. As of December 31, 2020, the Company had interest rate swaps with a total notional amount of $ 200.0 million. The settlement of these derivative instruments is recognized as a component of interest expense in the statements of operations. The mark-to-market component of these derivative instruments is recognized in loss on unsettled interest rate derivatives, net in the statements of operations. F-31 Table of Contents Other Information Regarding Derivative Instruments The following table sets forth the amounts, on a gross basis, and classification of the Company’s outstanding derivative financial instruments at December 31, 2020 and 2019, respectively. Certain amounts may be presented on a net basis in the financial statements when such amounts are with the same counterparty and subject to a master netting arrangement: December 31, Estimated Fair Value Type of Commodity Derivative Contract Balance Sheet Location 2020 2019 Derivative Assets: (In thousands) Commodity Price Swap Contracts Current Assets $ 52,702 $ 20,164 Commodity Basis Swap Contracts Current Assets 37 — Commodity Price Swap Contracts Noncurrent Assets 3,479 16,069 Total Derivative Assets $ 56,218 $ 36,233 Derivative Liabilities: Commodity Price Swap Contracts Current Liabilities $ ( 3,434 ) $ ( 25,834 ) Commodity Basis Swap Contracts Current Liabilities ( 519 ) — Interest Rate Swap Contracts Current Liabilities ( 574 ) — Commodity Price Swap Contracts Noncurrent Liabilities ( 399 ) ( 5,273 ) Interest Rate Swap Contracts Noncurrent Liabilities ( 445 ) — Commodity Price Swaptions Contracts Noncurrent Liabilities ( 17,184 ) ( 10,321 ) Total Derivative Liabilities $ ( 22,554 ) $ ( 41,428 ) The use of derivative transactions involves the risk that the counterparties will be unable to meet the financial terms of such transactions. When the Company has netting arrangements with its counterparties that provide for offsetting payables against receivables from separate derivative instruments these assets and liabilities are netted in the balance sheet. The tables presented below provide reconciliation between the gross assets and liabilities and the amounts reflected in the balance sheet. The amounts presented exclude derivative settlement receivables and payables as of the balance sheet dates. Estimated Fair Value at December 31, 2020 (In thousands) Gross Amounts of Recognized Assets (Liabilities) Gross Amounts Offset in the Balance Sheet Net Amounts of Assets (Liabilities) Presented in the Balance Sheet Offsetting of Derivative Assets: Current Assets $ 52,739 $ ( 1,449 ) $ 51,290 Non-Current Assets 3,479 ( 3,369 ) 111 Total Derivative Assets $ 56,218 $ ( 4,817 ) $ 51,401 Offsetting of Derivative Liabilities: Current Liabilities $ ( 4,527 ) $ 1,449 $ ( 3,078 ) Non-Current Liabilities ( 18,028 ) 3,369 ( 14,659 ) Total Derivative Liabilities $ ( 22,554 ) $ 4,817 $ ( 17,737 ) F-32 Table of Contents Estimated Fair Value at December 31, 2019 (In thousands) Gross Amounts of Recognized Assets (Liabilities) Gross Amounts Offset in the Balance Sheet Net Amounts of Assets (Liabilities) Presented in the Balance Sheet Offsetting of Derivative Assets: Current Assets $ 20,164 $ ( 14,536 ) $ 5,628 Non-Current Assets 16,069 ( 7,515 ) 8,554 Total Derivative Assets $ 36,233 $ ( 22,051 ) $ 14,182 Offsetting of Derivative Liabilities: Current Liabilities $ ( 25,834 ) $ 14,536 $ ( 11,298 ) Non-Current Liabilities ( 15,594 ) 7,515 ( 8,079 ) Total Derivative Liabilities $ ( 41,428 ) $ 22,051 $ ( 19,377 ) All of the Company’s outstanding derivative instruments are covered by International Swap Dealers Association Master Agreements (“ISDAs”) entered into with parties that are also lenders under the Company’s Revolving Credit Facility. The Company’s obligations under the derivative instruments are secured pursuant to the Revolving Credit Facility, and no additional collateral had been posted by the Company as of December 31, 2020. The ISDAs may provide that as a result of certain circumstances, such as cross-defaults, a counterparty may require all outstanding derivative instruments under an ISDA to be settled immediately. See Note 11 for the aggregate fair value of all derivative instruments that were in a net liability position at December 31, 2020 and 2019. NOTE 13 EARNINGS PER SHARE The reconciliation of the numerators and denominators used to calculate basic EPS and diluted EPS for the years ended December 31, 2020, 2019 and 2018 are as follows: December 31, (In thousands, except share and per share data) 2020 2019 2018 Net Income (Loss) $ ( 906,041 ) $ ( 76,318 ) $ 143,689 Less: Cumulative Dividends on Preferred Stock 15,266 1,029 — Net Income (Loss) Attributable to Common Stock $ ( 921,307 ) $ ( 77,347 ) $ 143,689 Weighted Average Common Shares Outstanding: Weighted Average Common Shares Outstanding – Basic* 42,744,639 38,708,460 23,620,646 Plus: Dilutive Effect of Stock Options, Restricted Stock and Preferred Shares — — 56,745 Weighted Average Common Shares Outstanding – Diluted* 42,744,639 38,708,460 23,677,391 Net Income (Loss) per Common Share: Basic* $ ( 21.55 ) $ ( 2.00 ) $ 6.08 Diluted* $ ( 21.55 ) $ ( 2.00 ) $ 6.07 *Adjusted for the 1-for-10 reverse stock split effected on September 18, 2020. See Note 5. For the years ended December 31, 2020 and 2019, the Company’s potentially dilutive securities, which include stock options, restricted stock and convertible preferred shares, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common shareholders is the same. F-33 Table of Contents The following securities have been excluded from the calculation of diluted weighted average common shares outstanding as the inclusion of these securities would have an anti-dilutive effect: December 31, 2020 2019 2018 Restricted Stock Awards* 98,595 67,304 5,069 Series A Preferred Stock (if converted)* 9,899,376 7,079,907 — Total 9,997,971 7,147,211 5,069 *Adjusted for the 1-for-10 reverse stock split effected on September 18, 2020. See Note 5. NOTE 14 SUBSEQUENT EVENTS Reliance Acquisition On February 3, 2021, the Company entered into a purchase and sale agreement (the “Reliance PSA”) with Reliance Marcellus, LLC (“Reliance”) pursuant to which the Company agreed to acquire (the “Reliance Acquisition”) certain oil and gas properties, interests and related assets located in the Appalachian Basin (the “PSA Assets”) for an unadjusted aggregate purchase price of $ 250.0 million, plus warrants to purchase 3,250,000 shares of the Company’s common stock at an exercise price equal to $ 14.00 per share (the “Warrants”), subject to certain customary purchase price adjustments. The Reliance PSA contains customary representations and warranties, covenants and indemnification provisions and has an effective date of July 1, 2020. The obligations of the parties to complete the transactions contemplated by the Reliance PSA are subject to the satisfaction or waiver of customary closing conditions set forth therein. The anticipated closing date under the Reliance PSA is April 1, 2021. In connection with the pending Reliance Acquisition, on February 3, 2021, the Company also entered into a cooperation agreement (the “Cooperation Agreement”) with an unaffiliated third party, Arch Investment Partners, LLC (“Arch”). Pursuant to the Cooperation Agreement, the Company expects to assign an undivided 30 % interest in and to the Reliance PSA, including the right to acquire an equivalent share of the PSA Assets transferred under the Reliance PSA, to Arch, with Arch assuming the obligation to fund 30 % of the aggregate cash purchase price payable to Reliance under the Reliance PSA. As a result, if all of the PSA Assets were transferred at closing, the Company would acquire an undivided 70 % interest in those assets for an unadjusted aggregate purchase price payable by the Company comprised of $ 175.0 million in cash and the Warrants. Certain of the PSA Assets to be purchased in connection with the pending Reliance Acquisition are subject to both preferential purchase and consent rights, which, if exercised or not obtained within certain periods of time designated in the Reliance PSA, would result in the exclusion of such assets from the pending Reliance Acquisition and a reduction of the purchase price thereunder. Certain of the preferential purchase rights were exercised by third parties prior to the issuance of these financial statements, and as a result the related assets will be excluded from the assets transferred at closing. The unadjusted cash purchase price payable by the Company will be reduced by an estimated $ 48.6 million to reflect these excluded assets, from $ 175.0 million to $ 126.4 million. Additional adjustments are possible at or prior to closing. Financing Transactions Unsecured VEN Bakken Note Repayment On January 4, 2021, the Company used borrowings under the Revolving Credit Facility to repay $ 65.0 million in aggregate principal amount under the Unsecured VEN Bakken Note, which was a scheduled repayment thereunder. On February 18, 2021, the Company used proceeds from the 2028 Notes Offering (described below) to repay the remaining $ 65.0 million in aggregate principal amount outstanding under the Unsecured VEN Bakken Note, and as a result the note has been retired in full. Amendment to Revolving Credit Facility On February 3, 2021, in anticipation of the financing transactions described below, the Company entered into a second amendment (the “Amendment”) to its Revolving Credit Facility, which permits the Company to (i) issue unsecured senior debt securities in an aggregate principal amount not to exceed $ 600.0 million (which was used to issue the 2028 Notes described below) and (ii) repay the remaining outstanding balance of the Unsecured VEN Bakken Note and the Second Lien Notes. The Amendment also amended certain other provisions of the Revolving Credit Facility. F-34 Table of Contents Offering of Common Stock On February 9, 2021, the Company closed an underwritten public offering (the “Equity Offering”) of 14,375,000 shares of its common stock at a price to the public of $ 9.75 per share. The Company estimates that the Equity Offering resulted in net proceeds of approximately $ 132.4 million, after deducting underwriting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds from the Equity Offering to fund a portion of the cash purchase price for the pending Reliance Acquisition. Offering of Senior Notes due 2028 On February 18, 2021, the Company closed a private offering (the “2028 Notes Offering”) of $ 550.0 million in aggregate principal amount of new 8.125 % senior unsecured notes due 2028 (the “2028 Notes”), priced at par. The Company estimates that the 2028 Notes Offering resulted in net proceeds of approximately $ 537.0 million, after deducting the initial purchasers’ discounts and estimated offering expenses. The Company used a portion of the net proceeds on February 18, 2021, to (i) repay the remaining $ 65.0 million in aggregate principal amount outstanding under the Unsecured VEN Bakken Note, and (ii) redeem $ 272.1 million in aggregate principal amount of Second Lien Notes pursuant to the Tender Offer (defined below). The Company intends to use the remaining net proceeds to (i) fund a portion of the cash purchase price for the pending Reliance Acquisition, (ii) repay borrowings under the Revolving Credit Facility, (iii) repurchase or redeem all remaining outstanding Second Lien Notes on or before May 15, 2021, and (iv) for general corporate purposes. See “Indenture — Senior Notes due 2028” below for details regarding the terms of the 2028 Notes. Second Lien Notes — Tender Offer, Consent Solicitation and Fourth Supplemental Indenture In connection with the 2028 Notes Offering, the Company commenced a cash tender offer to purchase any and all of its outstanding Second Lien Notes (the “Tender Offer”). As of February 17, 2021 (the “Early Tender and Consent Date”), an aggregate of $ 272.1 million principal amount (or 94.6 %) of the outstanding Second Lien Notes had been validly tendered pursuant to the Tender Offer and not validly withdrawn (the “Early Tendered Notes”). On February 18, 2021, the Company purchased all of the Early Tendered Notes for an aggregate cost of approximately $ 283.3 million, including all premiums and accrued interest due in respect of such Early Tendered Notes pursuant to the Tender Offer. Immediately thereafter, there was $ 15.7 million in aggregate principal amount of Second Lien Notes remaining outstanding. In connection with the Tender Offer, the Company also solicited consents (the “Consent Solicitation”) to certain proposed amendments (the “Proposed Amendments”) to the 2L Indenture governing the Second Lien Notes. The requisite consents were obtained as of the Early Tender and Consent Date. As a result, on February 18, 2021, the Company entered into the Fourth Supplemental Indenture (the “Fourth Supplemental Indenture”) with Wilmington Trust, National Association, as trustee and as collateral agent. The Fourth Supplemental Indenture implements the Proposed Amendments which, among other things, amends the 2L Indenture to eliminate substantially all restrictive covenants and certain of the default provisions contained therein. Indenture — Senior Notes due 2028 On February 18, 2021, the Company and Wilmington Trust, National Association, as trustee, entered into an indenture (the “2028 Notes Indenture”), pursuant to which the Company issued $ 550.0 million in aggregate principal amount of the 2028 Notes. The 2028 Notes will mature on March 1, 2028. Interest on the 2028 Notes is payable semi-annually in arrears on each March 1 and September 1, commencing September 1, 2021, to holders of record on the February 15 and August 15 immediately preceding the related interest payment date, at a rate of 8.125 % per annum. Prior to March 1, 2024, the Company may redeem all or a part of the 2028 Notes at a redemption price equal to 100 % of the principal amount of the 2028 Notes redeemed, plus an applicable make-whole premium and accrued and unpaid interest to the redemption date. On or after March 1, 2024, the Company may redeem all or a part of the 2028 Notes at redemption prices (expressed as percentages of principal amount) equal to 104.063 % for the twelve-month period beginning on March 1, 2024, 102.031 % for the twelve-month period beginning on March 1, 2025, and 100 % beginning on March 1, 2026, plus accrued and unpaid interest to the redemption date. The 2028 Notes Indenture contains covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries, if any, to: (i) incur or guarantee additional indebtedness or issue certain types of preferred stock; (ii) pay dividends or distributions in respect of equity interests or redeem, repurchase or retire equity securities or subordinated indebtedness; (iii) transfer or sell certain assets; (iv) make investments; (v) create liens to secure indebtedness; (vi) enter into F-35 Table of Contents agreements that restrict dividends or other payments from any non-guarantor subsidiary to the Company; (vii) consolidate with or merge with or into, or sell substantially all of the Company’s assets to, another person; (viii) enter into transactions with affiliates; and (ix) create unrestricted subsidiaries. These covenants are subject to a number of important exceptions and qualifications, and many of these covenants will be terminated if the 2028 Notes achieve an investment grade rating from either Moody’s Investors Services, Inc. or S&P Global Ratings. The 2028 Notes Indenture contains customary events of default, including, but not limited to: (i) default for 30 days in the payment when due of interest on the 2028 Notes; (ii) default in payment when due of the principal of, or premium, if any, on the 2028 Notes; (iii) failure by the Company or certain of its subsidiaries, if any, to comply with certain of their respective obligations, covenants or agreements contained in the 2028 Notes or the 2028 Notes Indenture, subject to certain notice and grace periods; (iv) failure by the Company or any of its restricted subsidiaries to pay indebtedness within any applicable grace period or the acceleration of any such indebtedness if the total amount of such indebtedness exceeds $ 35.0 million; (v) failure by the Company or any of its restricted subsidiaries that is a Significant Subsidiary (as defined in the 2028 Notes Indenture) to pay final non-appealable judgments aggregating in excess of $ 35.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vi) except as permitted by the 2028 Notes Indenture, any guarantee of the 2028 Notes is held in any judicial proceeding to be unenforceable or invalid, or ceases for any reason to be in full force and effect, or is denied or disaffirmed by a Guarantor (as defined in the 2028 Notes Indenture); and (vii) certain events of bankruptcy or insolvency described in the 2028 Notes Indenture with respect to the Company and its restricted subsidiaries that are Significant Subsidiaries. F-36 Table of Contents SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) Oil and Natural Gas Exploration and Production Activities Oil and gas sales reflect the market prices of net production sold or transferred with appropriate adjustments for royalties, net profits interest, and other contractual provisions. Production expenses include lifting costs incurred to operate and maintain productive wells and related equipment including such costs as operating labor, repairs and maintenance, materials, supplies and fuel consumed. Production taxes include production and severance taxes. Depletion of crude oil and natural gas properties relates to capitalized costs incurred in acquisition, exploration, and development activities. Results of operations do not include interest expense and general corporate amounts. The results of operations for the Company’s crude oil and natural gas production activities are provided in the Company’s related statements of income. Costs Incurred and Capitalized Costs The costs incurred in crude oil and natural gas acquisition, exploration and development activities are highlighted in the table below. December 31, (In thousands) 2020 2019 2018 Costs Incurred for the Year: Proved Property Acquisition and Other $ 50,345 $ 375,145 $ 582,697 Unproved Property Acquisition 770 9,540 4,903 Development 162,797 369,233 260,945 Total $ 213,912 $ 753,918 $ 848,545 Excluded costs for unproved properties are accumulated by year. Costs are reflected in the full cost pool as the drilling costs are incurred or as costs are evaluated and deemed impaired. The Company anticipates these excluded costs will be included in the depletion computation over the next five years. The Company is unable to predict the future impact on depletion rates. The following is a summary of capitalized costs excluded from depletion at December 31, 2020 by year incurred. December 31, (In thousands) 2020 2019 2018 Prior Years Property Acquisition $ 308 $ 4,302 $ 4,487 $ 934 Development — — — — Total $ 308 $ 4,302 $ 4,487 $ 934 Oil and Natural Gas Reserves and Related Financial Data Information with respect to the Company’s crude oil and natural gas producing activities is presented in the following tables. Reserve quantities, as well as certain information regarding future production and discounted cash flows, were determined by Cawley, Gillespie & Associates, Inc., third-party independent reserve engineers based on information provided by the Company. F-37 Table of Contents Oil and Natural Gas Reserve Data The following tables present the Company’s third-party independent reserve engineers estimates of its proved crude oil and natural gas reserves. The Company emphasizes that reserves are approximations and are expected to change as additional information becomes available. Reservoir engineering is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. (In thousands) Natural Gas (MCF) Oil (BBLS) BOE Proved Developed and Undeveloped Reserves at December 31, 2017 78,121 62,812 75,832 Revisions of Previous Estimates 426 3,470 3,541 Extensions, Discoveries and Other Additions 28,348 28,516 33,241 Purchases of Minerals in Place 37,397 25,965 32,198 Production ( 9,225 ) ( 7,790 ) ( 9,328 ) Proved Developed and Undeveloped Reserves at December 31, 2018 135,066 112,973 135,484 Revisions of Previous Estimates ( 5,146 ) ( 15,497 ) ( 16,355 ) Extensions, Discoveries and Other Additions 22,019 19,992 23,662 Purchases of Minerals in Place 53,969 25,611 34,606 Production ( 16,591 ) ( 11,325 ) ( 14,091 ) Proved Developed and Undeveloped Reserves at December 31, 2019 189,318 131,754 163,307 Revisions of Previous Estimates ( 21,512 ) ( 33,289 ) ( 36,874 ) Extensions, Discoveries and Other Additions 8,308 6,921 8,306 Production ( 16,473 ) ( 9,361 ) ( 12,107 ) Proved Developed and Undeveloped Reserves at December 31, 2020 159,641 96,025 122,632 Proved Developed Reserves: December 31, 2017 46,518 38,593 46,346 December 31, 2018 82,315 62,497 76,216 December 31, 2019 116,846 77,160 96,634 December 31, 2020 114,060 65,135 84,145 Proved Undeveloped Reserves: December 31, 2017 31,603 24,220 29,487 December 31, 2018 52,752 50,476 59,268 December 31, 2019 72,473 54,594 66,673 December 31, 2020 45,581 30,890 38,487 Proved reserves are estimated quantities of crude oil and natural gas, which geological and engineering data indicate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are included for reserves for which there is a high degree of confidence in their recoverability and they are scheduled to be drilled within the next five years. F-38 Table of Contents Notable changes in proved reserves for the year ended December 31, 2020 included the following: • Extensions and discoveries . In 2020, total extensions and discoveries of 8.3 MMBOE were primarily attributable to successful drilling in the Williston Basin as well as the addition of proved undeveloped locations. Included in these extensions and discoveries were 3.1 MMBOE as a result of successful drilling in the Williston Basin and 5.2 MMBOE as a result of additional proved undeveloped locations. • Revisions to previous estimates . In 2020, revisions to previous estimates decreased proved developed and undeveloped reserves by a net amount of 36.9 MMBOE. Included in these revisions were 33.8 MMBOE of downward adjustments caused by lower crude oil and natural gas prices, a 0.7 MMBOE downward adjustment attributable to well performance when comparing the Company’s reserve estimates at December 31, 2020 to December 31, 2019 and 2.3 MMBOE of downward adjustments related to the removal of undeveloped drilling locations related to the 5 year rule. Notable changes in proved reserves for the year ended December 31, 2019 included the following: • Extensions and discoveries . In 2019, total extensions and discoveries of 23.7 MMBOE were primarily attributable to successful drilling in the Williston Basin as well as the addition of proved undeveloped locations. Included in these extensions and discoveries were 11.3 MMBOE as a result of successful drilling in the Williston Basin and 12.3 MMBOE as a result of additional proved undeveloped locations. • Purchases of minerals in place . In 2019, total purchases of minerals in place of 34.6 MMBOE were primarily attributable to acquisitions of oil and natural gas properties (see Note 3). • Revisions to previous estimates . In 2019, revisions to previous estimates decreased proved developed and undeveloped reserves by a net amount of 16.4 MMBOE. Included in these revisions were 9.8 MMBOE of downward adjustments caused by lower crude oil and natural gas prices, a 2.0 MMBOE downward adjustment attributable to well performance when comparing the Company’s reserve estimates at December 31, 2019 to December 31, 2018 and 4.6 MMBOE of downward adjustments related to the removal of undeveloped drilling locations related to the 5 year rule. Notable changes in proved reserves for the year ended December 31, 2018 included the following: • Extensions and discoveries . In 2018, total extensions and discoveries of 33.2 MMBOE were primarily attributable to successful drilling in the Williston Basin as well as the addition of proved undeveloped locations. Included in these extensions and discoveries were 27.6 MMBOE as a result of successful drilling in the Williston Basin and 5.6 MMBOE as a result of additional proved undeveloped locations. • Purchases of minerals in place . In 2018, total purchases of minerals in place of 32.2 MMBOE were primarily attributable to acquisitions of oil and natural gas properties (see Note 3). • Revisions to previous estimates . In 2018, revisions to previous estimates increased proved developed and undeveloped reserves by a net amount of 3.5 MMBOE. Included in these revisions were 1.4 MMBOE of upward adjustments caused by higher crude oil and natural gas prices and a 3.9 MMBOE upward adjustment attributable to well performance when comparing the Company’s reserve estimates at December 31, 2018 to December 31, 2017 which was partially offset by 2.8 MMBOE of downward adjustments related to the removal of undeveloped drilling locations related to the 5 year rule. F-39 Table of Contents Standardized Measure of Discounted Future Net Cash Inflows and Changes Therein The following table presents a standardized measure of discounted future net cash flows relating to proved crude oil and natural gas reserves and the changes in standardized measure of discounted future net cash flows relating to proved crude oil and natural gas were prepared in accordance with the provisions of ASC 932 Extractive Activities - Oil and Gas . Future cash inflows were computed by applying average prices of crude oil and natural gas for the last 12 months to estimated future production. Future production and development costs were computed by estimating the expenditures to be incurred in developing and producing the proved crude oil and natural gas reserves at the end of the year, based on year end costs and assuming continuation of existing economic conditions. Future income tax expenses were calculated by applying appropriate year end tax rates to future pretax cash flows relating to proved crude oil and natural gas reserves, less the tax basis of properties involved and tax credits and loss carry forwards relating to crude oil and natural gas producing activities. Future net cash flows are discounted at the rate of 10% annually to derive the standardized measure of discounted future cash flows. Actual future cash inflows may vary considerably, and the standardized measure does not necessarily represent the fair value of the Company’s crude oil and natural gas reserves. December 31, (In thousands) 2020 2019 2018 Future Cash Inflows $ 3,395,670 $ 7,059,586 $ 7,524,587 Future Production Costs ( 1,747,325 ) ( 2,868,762 ) ( 2,605,279 ) Future Development Costs ( 416,507 ) ( 855,041 ) ( 784,615 ) Future Income Tax Expense ( 3,273 ) ( 320,528 ) ( 611,989 ) Future Net Cash Inflows $ 1,228,565 $ 3,015,255 $ 3,522,704 10% Annual Discount for Estimated Timing of Cash Flows ( 516,554 ) ( 1,337,194 ) ( 1,643,061 ) Standardized Measure of Discounted Future Net Cash Flows $ 712,011 $ 1,678,061 $ 1,879,643 The twelve month average prices were adjusted to reflect applicable transportation and quality differentials on a well-by-well basis to arrive at realized sales prices used to estimate the Company’s reserves. The price of other liquids is included in natural gas. The prices for the Company’s reserve estimates were as follows: Natural Gas MCF Oil Bbl December 31, 2020 $ 1.61 $ 32.69 December 31, 2019 $ 2.12 $ 50.53 December 31, 2018 $ 4.50 $ 61.23 The expected tax benefits to be realized from utilization of the net operating loss and tax credit carryforwards are used in the computation of future income tax cash flows. As a result of available net operating loss carryforwards and the remaining tax basis of its assets at December 31, 2020, the Company’s future income taxes were significantly reduced. F-40 Table of Contents Changes in the Standardized Measure of Discounted Future Net Cash Flows at 10% per annum follow: December 31, (In thousands) 2020 2019 2018 Beginning of Period $ 1,678,061 $ 1,879,643 $ 753,986 Sales of Oil and Natural Gas Produced, Net of Production Costs ( 177,932 ) ( 424,548 ) ( 381,961 ) Extensions and Discoveries 52,232 282,528 549,353 Previously Estimated Development Cost Incurred During the Period 78,633 100,987 115,542 Net Change of Prices and Production Costs ( 815,278 ) ( 680,119 ) 484,122 Change in Future Development Costs ( 150,991 ) ( 174,729 ) ( 91,829 ) Revisions of Quantity and Timing Estimates ( 280,481 ) ( 226,721 ) 66,185 Accretion of Discount 182,202 218,023 75,800 Change in Income Taxes 143,438 156,621 ( 296,571 ) Purchases of Minerals in Place — 338,289 502,193 Other 2,127 208,087 19,902 End of Period $ 712,011 $ 1,678,061 $ 1,879,643 F-41