What changed in this filing

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Item 1. Financial Statements

2020-08-03 compared with 2020-05-04 · 227 added, 156 removed, 530 unchanged (42% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

March 31, 2020

June 30, 2020

December 31, 2019

33 unchanged sentences

Common stock, $0.0001 par value, 620,000,000 shares authorized:

281,530,821 shares issued and 276,037,796 shares outstanding at March 31, 2020 and 280,650,341 shares issued and 275,811,346 shares outstanding at December 31, 2019

282,209,347 shares issued and 277,283,494 shares outstanding at June 30, 2020 and 280,650,341 shares issued and 275,811,346 shares outstanding at December 31, 2019

Class C (Convertible):

1,034,119 shares issued and outstanding at March 31, 2020 and December 31, 2019

No shares issued and outstanding at June 30, 2020 and 1,034,119 shares issued and outstanding at December 31, 2019

Additional paid-in capital

7 unchanged sentences

(in thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating revenues

13 unchanged sentences

Interest expense

Gain on exchange of debt

Net gain (loss) on derivative instruments

2 unchanged sentences

Income (loss) before income taxes

Income tax benefit

Income tax (expense) benefit

Net income (loss)

6 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

4 unchanged sentences

Impairment and abandonment expense

Deferred tax benefit

Deferred tax expense (benefit)

Net (gain) loss on sale of long-lived assets

1 unchanged sentence

Amortization of debt issuance costs and discount

Gain on exchange of debt

Changes in operating assets and liabilities:

13 unchanged sentences

Proceeds from issuance of senior notes

Debt issuance costs

Debt exchange and debt issuance costs

Restricted stock used for tax withholdings

7 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental cash flow information

7 unchanged sentences

Right-of-use assets recognized (derecognized) with offsetting operating lease liabilities

Change in Senior Notes from debt exchange

Senior Secured Notes issued in the debt exchange, net of debt discount

2026 Senior Notes extinguished in the debt exchange, net of unamortized debt issue costs

2027 Senior Notes extinguished in the debt exchange, net of unamortized discount and debt issue costs

Reconciliation of cash, cash equivalents and restricted cash presented on the Consolidated Statements of Cash Flows for the periods presented:

Three Months Ended March 31,

Six Months Ended June 30,

Cash and cash equivalents

9 unchanged sentences

Retained Earnings (Accumulated Deficit)

Total Shareholder's Equity

Total Shareholders’ Equity

Non-controlling Interest

7 unchanged sentences

Balance at March 31, 2020

Restricted stock issued

Restricted stock forfeited

Restricted stock used for tax withholding

Stock-based compensation

Conversion of common stock from Class C to Class A, net of tax

Net income (loss)

Balance at June 30, 2020

CENTENNIAL RESOURCE DEVELOPMENT, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited) (continued)

(in thousands)

Preferred Stock

Additional Paid-In Capital

Retained Earnings (Accumulated Deficit)

Total Shareholders ’ Equity

Non-controlling Interest

Balance at December 31, 2018

5 unchanged sentences

Balance at March 31, 2019

Restricted stock issued

Restricted stock forfeited

Restricted stock used for tax withholding

Stock-based compensation

Net income (loss)

Balance at June 30, 2019

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

15 unchanged sentences

Operating results for the periods presented are not necessarily indicative of expected results for the full year.

The consolidated financial statements include the accounts of the Company and its majority owned subsidiary CRP, and CRP’s wholly-owned subsidiaries.

The consolidated financial statements include the accounts of the Company and its subsidiary CRP, and CRP’s wholly-owned subsidiaries.

Noncontrolling interest represents third-party ownership in CRP and is presented as a component of equity.

As of March 31, 2020 and December 31, 2019 , the noncontrolling interest ownership of CRP was 0.4 % .

As of December 31, 2019, the noncontrolling interest ownership of CRP was 0.4 % .

On April 2, 2020, the legacy owners of CRP converted all of their remaining 1,034,119 CRP Common Units (and corresponding shares of Class C Common Stock) into Class A Common Stock (the “Conversion”), which eliminated the noncontrolling interest ownership in CRP.

As a result, CRP was a wholly-owned subsidiary of Centennial Resource Development, Inc.

for the three month period ended June 30, 2020 .

No cash proceeds were received by the Company in connection with the Conversion, and deferred tax expense of $ 2.2 million was recorded in equity with an offsetting deferred tax liability for the same amount, upon conversion.

Use of Estimates

3 unchanged sentences

(i) oil and natural gas reserves;

(ii) cash flow estimates used in impairment tests of long-lived assets;

(ii) cash flow estimates used in impairment tests for long-lived assets;

(iii) impairment expense of unproved properties;

6 unchanged sentences

and (x) deferred income taxes.

Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to the Company’s year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period.

Historically, CRP has been treated as a partnership for U.S.

federal and most applicable state and local income tax purposes.

As a partnership, CRP was not subject to U.S.

federal and certain state and local income taxes, and any taxable income or loss generated by CRP was passed through to and included in the taxable income or loss of its members, including Centennial Resource Development, Inc., on a pro rata basis.

Following the Conversion, CRP is no longer a partnership for tax purposes.

As a result, the deferred tax assets and liabilities previously recorded within the partnership, and previously reported by the Company as a net deferred tax balance related to its investment in the CRP partnership, are now directly included within the Company’s

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

deferred tax assets and liabilities.

Further, the Company is now subject to U.S.

federal and applicable state and local income taxes for its entire consolidated taxable income or loss.

Income tax expense recognized during interim periods is based on applying an estimated annual effective income tax rate to the Company’s year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various state jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated.

The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information becomes known or as the tax environment changes.

As of March 31, 2020, the Company determined that it is more-likely-than-not that a portion of its deferred tax assets will not be realized.

Accordingly, a valuation allowance against its deferred tax assets in the amount of $ 55.6 million was recognized as of March 31, 2020, which caused the Company’s provision for income taxes for the three months ended March 31, 2020 to differ from the amounts that would be provided by applying the statutory U.S.

During the first half of 2020, the Company determined that it is more-likely-than-not that a portion of its deferred tax assets will not be realized.

Accordingly, a valuation allowance against its deferred tax assets in the amount of $ 49.7 million was recognized as of June 30, 2020 , which caused the Company’s provision for income taxes for the three and six months ended June 30, 2020 to differ from the amounts that would be provided by applying the statutory U.S.

federal income tax rate of 21 % to pre-tax book loss.

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Risks and Uncertainties

The prices received for oil, natural gas and NGL production heavily influences the Company’s revenue, profitability, liquidity, access to capital, future rate of growth and carrying value of its properties.

The prices received for oil, natural gas and NGL production heavily influence the Company’s revenue, profitability, liquidity, access to capital, future rate of growth and carrying value of its properties.

Oil, natural gas and NGLs are commodities, and their prices have been volatile in response to recent changes in global and domestic supply, the global COVID-19 pandemic and demand, and market uncertainty.

1 unchanged sentence

The Company expects to be able to fund its operations, planned capital expenditures and working capital requirements during the next 12 months and the foreseeable future.

However, continued volatility of oil and gas prices could have an adverse effect on the Company’s future business, financial condition, results of operations, operating cash flows, liquidity and quantities of oil and gas reserves that may be economically produced, which could in turn impact the Company’s ability to comply with the financial covenants under CRP’s credit agreement and the Senior Notes which could also limit the amount of borrowings available to fund the Company’s capital expenditures and potential acquisitions.

Additionally, if forward prices decline, the Company could incur additional impairments of its oil and gas assets and be subject to negative impacts to its production levels.

However, continued volatility of oil and gas prices could have an adverse effect on the Company’s future business, financial condition, results of operations, operating cash flows, liquidity, production levels and quantities of oil and gas reserves that may be economically produced, which could in turn impact the Company’s ability to comply with the financial covenants under its borrowing agreements and could also limit the amount of borrowings available to fund the Company’s capital expenditures and potential acquisitions.

Additionally, if forward prices decline, the Company could incur additional impairments of its oil and gas assets.

Note 2—Property Divestiture

On February 24, 2020, the Company entered into a purchase and sale agreement to sell its water disposal assets for a base sale price of approximately $ 150.0 million in cash at closing with up to an additional $ 75.0 million in deferred incentive payments based on future drilling activity (all amounts being subject to post-closing adjustments).

The water disposal assets include certain saltwater disposal wells and the associated water infrastructure located in Reeves and Ward counties in Texas.

The original closing date of the sale was March 31, 2020, however, the transaction has been delayed.

While the transaction currently remains pending, either party may terminate the transaction if closing does not occur on or before May 15, 2020.

The purchase and sale agreement required the purchaser to deposit $ 10.0 million of cash in an escrow account.

This amount will be applied to the sales price upon closing, or alternatively, it will be distributed to the Company or the purchaser in accordance with the remedy provisions of the purchase and sale agreement, if the agreement is terminated prior to closing.

On February 24, 2020, the Company entered into a purchase and sale agreement (the “Agreement”) to sell certain of its water disposal assets.

On May 15, 2020, the Agreement was terminated after the purchaser failed to close the transaction as set forth in the Agreement.

The purchaser deposited $ 10.0 million of cash in an escrow account (the “Deposit”) which, in the event of termination, was to be distributed to the Company or the purchaser in accordance with the remedy provisions of the Agreement.

Centennial believes it has a right to receive the Deposit, pursuant to the terms of the Agreement.

However, the purchaser a dvised the Company that it disputes this position, and as a result, the distribution of the Deposit is under ongoing litigation between the Company and the purchaser.

Note 3—Accounts Receivable, Accounts Payable and Accrued Expenses

1 unchanged sentence

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

2 unchanged sentences

Accounts receivable, net

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts payable and accrued expenses are comprised of the following:

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

Accrued interest

Accrued derivative settlements payable

Accrued employee compensation and benefits

1 unchanged sentence

Accounts payable and accrued expenses

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4—Long-Term Debt

1 unchanged sentence

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

Credit Facility due 2023

8.00% Senior Secured Notes due 2025

5.375% Senior Notes due 2026

5 unchanged sentences

Credit Agreement

On May 4, 2018 , CRP, the Company’s consolidated subsidiary, entered into an amended and restated credit agreement with a syndicate of banks that as of March 31, 2020 , had a borrowing base of $ 1.2 billion and elected commitments of $ 800.0 million .

The credit agreement provides for a five -year secured revolving credit facility, maturing on May 4, 2023 .

As of March 31, 2020 , the Company had $ 235.0 million in borrowings outstanding and $ 564.2 million in available borrowing capacity, which was net of $ 0.8 million in letters of credit outstanding.

Refer to Note 14—Subsequent Events for additional information on the spring 2020 redetermination and the amendments to the credit facility, inclusive of its redetermined borrowing base and corresponding level of elected commitments.

The amount available to be borrowed under CRP’s credit agreement is equal to the lesser of (i) the borrowing base, (ii) aggregate elected commitments, or (iii) $ 1.5 billion .

CRP, the Company’s consolidated subsidiary, has a credit agreement with a syndicate of banks that provides for a five-year secured revolving credit facility, maturing on May 4, 2023 (the “Credit Agreement”).

On May 1, 2020 , CRP, as borrower, and the Company, as parent guarantor, entered into the second and third amendments to the Credit Agreement (the “2020 Amendments”), which, among other things, established a new borrowing base and level of elected commitments of $ 700.0 million .

The 2020 Amendments that the lenders approved also permitted the issuance of the Senior Secured Notes in connection with the Debt Exchange (defined below), and they implemented an availability blocker equal to 25 % of the newly issued amount of Senior Secured Notes.

As of June 30, 2020 , the Company had $ 370.0 million in borrowings outstanding and $ 290.0 million in available borrowing capacity, which was net of $ 8.2 million in letters of credit outstanding and the availability blocker of $ 31.8 million .

The amount available to be borrowed under CRP’s Credit Agreement is equal to the lesser of (i) the borrowing base less the availability blocker, (ii) aggregate elected commitments, which was set at $ 700.0 million pursuant to the 2020 Amendments, or (iii) $ 1.5 billion .

The borrowing base is redetermined semi-annually in the spring and fall by the lenders in their sole discretion.

1 unchanged sentence

The borrowing base depends on, among other things, the quantities of CRP’s proved oil and natural gas reserves, estimated cash flows from these reserves, and the Company’s commodity hedge positions.

Upon a redetermination of the borrowing base, if actual borrowings exceed the revised borrowing capacity, CRP could be required to immediately repay a portion of its debt outstanding under the credit agreement.

Borrowings under CRP’s revolving credit facility are guaranteed by certain of its subsidiaries.

Borrowings under CRP’s revolving credit facility may be base rate loans or LIBOR loans.

Upon a redetermination of the borrowing base, if actual borrowings exceed the revised borrowing capacity, CRP could be required to immediately repay a portion of its debt outstanding.

Borrowings under the Credit Agreement are guaranteed by certain of CRP’s subsidiaries and the Company.

Borrowings under the Credit Agreement may be base rate loans or LIBOR loans.

Interest is payable quarterly for base rate loans and at the end of the applicable interest period for LIBOR loans.

LIBOR loans bear interest at LIBOR (adjusted for statutory reserve requirements) plus an applicable margin, which ranged from 125 to 225 basis points as of March 31, 2020 , depending on the percentage of the borrowing base utilized.

LIBOR loans bear interest at LIBOR (adjusted for statutory reserve requirements and subject to 1% floor) plus an applicable margin, which ranged from 200 to 300 basis points as of June 30, 2020 , depending on the percentage of the borrowing base utilized.

Base rate loans bear interest at a rate per annum equal to the greatest of:

1 unchanged sentence

(ii) the federal funds effective rate plus 50 basis points;

or (iii) the adjusted LIBOR rate for a one-month interest period plus 100 basis points, plus an applicable margin, which ranged from 25 to 125 basis points as of March 31, 2020 , depending on the percentage of the borrowing base utilized.

or (iii) the adjusted LIBOR rate for a one-month interest period plus 100 basis points, plus an applicable margin, which ranged from 100 to 200 basis

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

points as of June 30, 2020 , depending on the percentage of the borrowing base utilized.

CRP also pays a commitment fee of 37.5 to 50 basis points on unused amounts under its facility.

The applicable margins for the LIBOR loans and base rate loans referenced above reflect interest rate reductions that became effective on April 26, 2019 and are applicable as long as CRP’s total leverage ratio (as described below) is less than or equal to 3.0 to 1.0 .

If CRP’s total leverage ratio exceeds 3.0 to 1.0 in the future, the original applicable margins under the credit agreement would revert to the range from 150 to 250 basis points for LIBOR loans and 50 to 150 basis points for base rate loans, in each case depending on the percentage of the borrowing base utilized.

CRP’s Credit Agreement contains restrictive covenants that limit its ability to, among other things:

9 unchanged sentences

CRP’s Credit Agreement also requires it to maintain compliance with the following financial ratios:

(i) a current ratio, which is the ratio of CRP’s consolidated current assets (including unused commitments under its revolving credit facility and excluding non-cash derivative assets and certain restricted cash) to its consolidated current liabilities (excluding the current portion of long-term debt under the credit agreement and non-cash derivative liabilities), of not less than 1.0 to 1.0 ;

and (ii) a leverage ratio, which is the ratio of Total Funded Debt (as defined in CRP’s credit agreement) to consolidated EBITDAX (as defined in CRP’s credit agreement) for the rolling four fiscal quarter period ending on such day, of not greater than 4.0 to 1.0 .

(i) a current ratio, which is the ratio of CRP’s consolidated current assets (including unused commitments under its revolving credit facility and excluding non-cash derivative assets and certain restricted cash) to its consolidated current liabilities (excluding any current portion of long-term debt due under the credit agreement and non-cash derivative liabilities), of not less than 1.0 to 1.0 ;

(ii) a first lien leverage ratio, as defined within the Credit Agreement as the ratio of first lien debt to EBITDAX for the rolling four fiscal quarter period, which may not exceed 2.75 to 1.00 beginning with the quarter ending June 30, 2020 and extending through the quarter ending December 31, 2021, after which the maximum ratio shall decrease to 2.50 to 1.00 for each of the quarters ending in 2022;

(iii) a leverage ratio, as also defined in the Credit Agreement as the ratio of total funded debt to consolidated EBITDAX for the rolling four fiscal quarter period.

Pursuant to the 2020 Amendments, the leverage ratio is suspended until March 31, 2022, at which time, the ratio may not exceed 5.00 to 1.00 , with such maximum ratio declining at a rate of 0.25 for each succeeding quarter until March 31, 2023 when the ratio is set at not greater than 4.0 to 1.0 .

CRP was in compliance with the covenants and the financial ratios described above as of June 30, 2020 and through the filing of this Quarterly Report.

Senior Unsecured Note Debt Exchange

On May 22, 2020 , CRP completed its private exchange of debt pursuant to which a $ 254.2 million aggregate principal amount of Senior Unsecured Notes (defined below) was validly tendered and exchanged by certain eligible bondholders for consideration consisting of $ 127.1 million aggregate principal amount (the “Debt Exchange”) of newly issued 8.00 % second lien senior secured notes due 2025 (the “Senior Secured Notes”).

Whether a debt exchange should be accounted for pursuant to Financial Accounting Standards Board’s Accounting Standard Codification (“ASC”) Topic 470-60, Troubled Debt Restructurings by Debtors , or pursuant to ASC Topic 470-50, Modifications and Extinguishments, requires judgments to be made with respect to whether or not an entity is experiencing financial difficulty.

As it was determined that Centennial was not experiencing financial difficulty and could obtain funds at market rates it could afford (i.e.

non-investment grade but nontroubled debtor rates), the Company’s Debt Exchange was accounted for as an extinguishment of debt in accordance with ASC 470-50 .

As a result, a gain on the exchange of debt of $ 143.4 million was recognized in the Consolidated Statement of Operations, which consisted of the carrying values of the Senior Unsecured Notes exchanged less the aggregate principal amount of new Senior Secured Notes issued, net of their associated debt discount of $ 21.0 million (which was based on the notes’ estimated fair value on the exchange date).

Senior Secured Notes

In connection with the Debt Exchange, on May 22, 2020, the Company issued $ 127.1 million aggregate principal amount of Senior Secured Notes.

The Senior Secured Notes were recorded at their fair value on the date of issuance equal to 83.44 % of par (a debt discount of $ 21.0 million ) and net of their associated debt issuance costs of $ 4.2 million .

The Senior Secured Notes bear interest at an annual rate of 8.00 % and are due on June 1, 2025 .

Interest is payable semi-annually in arrears on each June 1 and December 1, commencing on December 1, 2020 .

The Senior Secured Notes are guaranteed, subject to certain exceptions, by the Company and each of CRP’s subsidiaries and are secured on a second-priority basis (subject in priority only to certain exceptions) by substantially all of the assets of CRP and the Company, including deposit accounts and substantially all proved reserves and undeveloped acreage.

The Company has the option to redeem all (but not less than all) of the Senior Secured Notes, at any time prior to May 22, 2021 on a single occasion, at a redemption price equal to 100 % of the principal amount, plus accrued and unpaid interest to the date of redemption, if such redemption is made entirely with proceeds from equity offerings or the issuance of unsecured indebtedness.

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

compliance with the covenants and the financial ratios described above as of March 31, 2020 and through the filing of this Quarterly Report.

At any time prior to June 1, 2022 , the Company has the option to redeem the Senior Secured Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount of the Senior Secured Notes redeemed plus accrued and unpaid interest and a “make-whole” premium.

The Senior Secured Notes are redeemable at the Company’s option, in whole or in part, at any time on or after June 1, 2022 , at specified redemption prices, together with accrued and unpaid interest.

In addition, at any time prior to June 1, 2022 , the Company may redeem up to 35 % of the aggregate principal amount of each of the Senior Secured Notes, including any permitted additional Senior Secured Notes, with an amount of cash not greater than the net proceeds of certain equity offerings at a redemption price equal to 108 % of the principal amount of such Senior Secured Notes, plus any accrued and unpaid interest to, but excluding, the redemption date.

Senior Unsecured Notes

On March 15, 2019 , CRP issued $ 500.0 million of 6.875 % senior notes due 2027 (the “2027 Senior Notes”) in a 144A private placement at a price equal to 99.235 % of par that resulted in net proceeds to CRP of $ 489.0 million , after deducting the original issuance discount of $ 3.8 million and debt issuance costs of $ 7.2 million .

Interest is payable on the 2027 Senior Notes semi-annually in arrears on each April 1 and October 1 , commencing October 1, 2019 .

On November 30, 2017 , CRP issued at par $ 400.0 million of 5.375 % senior notes due 2026 (the “2026 Senior Notes” and collectively with the 2027 Senior Notes, the “Senior Notes”) in a 144A private placement that resulted in net proceeds to CRP of $ 391.0 million , after deducting $ 9.0 million in debt issuance costs.

Interest is payable on the 2027 Senior Notes semi-annually in arrears on each April 1 and October 1 , which commenced on October 1, 2019 .

In May 2020 in connection with the Debt Exchange, $ 143.7 million aggregate principal amount of the 2027 Senior Notes was exchanged for Senior Secured Notes.

As of June 30, 2020, the remaining aggregate principal amount of 2027 Senior Notes outstanding was $ 356.4 million .

On November 30, 2017 , CRP issued at par $ 400.0 million of 5.375 % senior notes due 2026 (the “2026 Senior Notes” and collectively with the 2027 Senior Notes, the “Senior Unsecured Notes”) in a 144A private placement that resulted in net proceeds to CRP of $ 391.0 million , after deducting $ 9.0 million in debt issuance costs.

Interest is payable on the 2026 Senior Notes semi-annually in arrears on each January 15 and July 15 , which commenced on July 15, 2018 .

The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of CRP’s current subsidiaries that guarantee CRP’s revolving credit facility.

The Senior Notes are not guaranteed by the Company, nor is the Company subject to the terms of the indentures governing the Senior Notes.

At any time prior to January 15, 2021 (for the 2026 Senior Notes) and April 1, 2022 (for the 2027 Senior Notes), the “Optional Redemption Dates,” CRP may, on any one or more occasions, redeem up to 35 % of the aggregate principal amount of either series of Senior Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings at a redemption price equal to 105.375 % (for the 2026 Senior Notes) and 106.875 % (for the 2027 Senior Notes) of the principal amount of the Senior Notes of the applicable series redeemed, plus any accrued and unpaid interest to the date of redemption;

provided that at least 65 % of the aggregate principal amount of each such series of Senior Notes remains outstanding immediately after such redemption, and the redemption occurs within 180 days of the closing date of such equity offering.

At any time prior to the Optional Redemption Dates, CRP may, on any one or more occasions, redeem all or a part of the Senior Notes at a redemption price equal to 100 % of the principal amount of the Senior Notes redeemed, plus a “make-whole” premium, and any accrued and unpaid interest as of the date of redemption.

On and after the Optional Redemption Dates, CRP may redeem the Senior Notes, in whole or in part, at redemption prices expressed as percentages of principal amount plus accrued and unpaid interest to the redemption date.

If CRP experiences certain defined changes of control (and, in some cases, followed by a ratings decline), each holder of the Senior Notes may require CRP to repurchase all or a portion of its Senior Notes for cash at a price equal to 101 % of the aggregate principal amount of such Senior Notes, plus any accrued but unpaid interest to the date of repurchase.

In May 2020 in connection with the Debt Exchange, $ 110.6 million aggregate principal amount of the 2026 Senior Notes was exchanged for Senior Secured Notes.

As of June 30, 2020, the remaining aggregate principal amount of 2026 Senior Notes outstanding was $ 289.4 million .

The Senior Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and each of CRP’s current subsidiaries that guarantee CRP’s revolving credit facility.

At any time prior to January 15, 2021 (for the 2026 Senior Notes) and April 1, 2022 (for the 2027 Senior Notes), the “Optional Redemption Dates,” CRP may, on any one or more occasions, redeem up to 35 % of the aggregate principal amount of either series of Senior Unsecured Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings at a redemption price equal to 105.375 % (for the 2026 Senior Notes) and 106.875 % (for the 2027 Senior Notes) of the principal amount of the Senior Unsecured Notes of the applicable series redeemed, plus any accrued and unpaid interest to the date of redemption;

provided that at least 65 % of the aggregate principal amount of each such series of Senior Unsecured Notes remains outstanding immediately after such redemption, and the redemption occurs within 180 days of the closing date of such equity offering.

At any time prior to the Optional Redemption Dates, CRP may, on any one or more occasions, redeem all or a part of the Senior Unsecured Notes at a redemption price equal to 100 % of the principal amount of the Senior Unsecured Notes redeemed, plus a “make-whole” premium, and any accrued and unpaid interest as of the date of redemption.

On and after the Optional Redemption Dates, CRP may redeem the Senior Unsecured Notes, in whole or in part, at redemption prices expressed as percentages of principal amount plus accrued and unpaid interest to the redemption date.

The following section discusses the general terms of the indentures applicable to the Company’s Senior Unsecured Notes and the Senior Secured Notes (collectively, the “Senior Notes”).

The indentures governing the Senior Notes contain covenants that, among other things and subject to certain exceptions and qualifications, limit CRP’s ability and the ability of CRP’s restricted subsidiaries to:

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and (ix) create unrestricted subsidiaries.

CRP was in compliance with these covenants as of March 31, 2020 and through the filing of this Quarterly Report.

CRP was in compliance with these covenants as of June 30, 2020 and through the filing of this Quarterly Report.

Upon an Event of Default (as defined in the indentures governing the Senior Notes), the trustee or the holders of at least 25 % of the aggregate principal amount of then outstanding Senior Notes may declare the Senior Notes immediately due and payable.

In addition, a default resulting from certain events of bankruptcy or insolvency with respect to CRP, any restricted subsidiary of CRP that is a significant subsidiary, or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary, will automatically cause all outstanding Senior Notes to become due and payable.

On April 22, 2020, the Company commenced exchange offers to all eligible holders of its Senior Notes.

Refer to Note 14—Subsequent Events for additional information on the Senior Notes exchanges.

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5—Asset Retirement Obligations

The following table summarizes the changes in the Company’s asset retirement obligations (“ARO”) associated with its working interests in oil and gas properties for the three months ended March 31, 2020 :

The following table summarizes changes in the Company’s asset retirement obligations (“ARO”) associated with its working interests in oil and gas properties for the six months ended June 30, 2020 :

(in thousands)

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Accretion expense

Revisions to estimated cash flows

Asset retirement obligations, end of period

5 unchanged sentences

On October 7, 2016, the stockholders of the Company approved the Centennial Resource Development, Inc.

2016 Long Term Incentive Plan (the “LTIP”).

An aggregate of 16,500,000 shares of Class A Common Stock were authorized for issuance under the LTIP, and as of March 31, 2020 , the Company had 4,196,761 shares of Class A Common Stock available for future grants.

2016 Long Term Incentive Plan (the “LTIP”), which authorized an aggregate of 16,500,000 shares of Class A Common Stock for issuance.

On April 29, 2020, the stockholders of the Company approved the amended and restated LTIP, which, among other things, increased the number of shares of Class A Common Stock authorized for issuance by 8,250,000 shares.

As of June 30, 2020 , the Company had 14,763,345 shares of Class A Common Stock available for future grants.

The LTIP provides for grants of restricted stock, stock options (including incentive stock options and nonqualified stock options), restricted stock units, stock appreciation rights and other stock or cash-based awards.

During the three months ended June 30, 2020 , as a result of the decline in crude oil and natural gas prices, ongoing uncertainty regarding the oil supply-demand macro environment and the related suspension of the Company’s drilling and completion activities, the Company implemented a reduction to its workforce.

In connection with this reduction, the Compensation Committee of the Company’s Board of Directors approved an accelerated partial vesting of certain unvested stock options and restricted stock awards held by 32 of the terminated employees.

The acceleration changed the terms of the vesting conditions and are therefore treated as modifications in accordance with ASC Topic 718, Compensation-Stock Compensation .

The modification resulted in a decrease to total stock-based compensation expense of $ 2.5 million associated with the decrease in the fair value of the modified awards compared to the original awards’ fair value.

The shares and options that were accelerated are included within the vested line item in the below tables.

Stock-based compensation expense is recognized within both General and administrative expenses and Exploration expense in the Consolidated Statements of Operations.

The Company accounts for forfeitures of awards granted under the LTIP as they occur in determining compensation expense.

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes stock-based compensation expense recognized for the periods presented:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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In May 2019, an aggregate of 2,000,000 shares were authorized by stockholders for issuance under the ESPP, which became effective on July 1, 2019.

As of March 31, 2020 , the Company had 1,940,801 shares of Class A Common Stock available for future issuance.

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2020 , the Company had 1,940,801 shares of Class A Common Stock available for future issuance.

Restricted Stock

The following table provides information about restricted stock activity during the three months ended March 31, 2020 :

The following table provides information about restricted stock activity during the six months ended June 30, 2020 :

Weighted Average Grant-Date Fair Value

Unvested balance as of December 31, 2019

Unvested balance as of March 31, 2020

Unvested balance as of June 30, 2020

The Company grants service-based restricted stock awards to executive officers and employees, which vest ratably over a three -year service period, and to directors, which vest over a one -year service period.

Compensation cost for the service-based restricted stock awards is based on the closing market price of the Company’s Class A common stock on the grant date, and such costs are recognized ratably over the applicable vesting period.

The weighted average grant-date fair value for restricted stock awards granted was $ 2.76 and $ 12.51 per share for the three months ended March 31, 2020 and 2019 , respectively.

The total fair value of restricted stock awards that vested during the three months ended March 31, 2020 and 2019 was $ 3.8 million and $ 1.4 million , respectively.

Unrecognized compensation cost related to restricted shares that were unvested as of March 31, 2020 was $ 29.0 million , which the Company expects to recognize over a weighted average period of 2.1 years.

The weighted average grant-date fair value for restricted stock awards granted during the period was $ 2.53 and $ 12.48 per share for the six months ended June 30, 2020 and 2019 , respectively.

The total fair value of restricted stock awards that vested during the six months ended June 30, 2020 and 2019 was $ 4.6 million and $ 1.5 million , respectively, and includes awards with vesting terms that were accelerated as discussed above.

Unrecognized compensation cost related to restricted shares that were unvested as of June 30, 2020 was $ 21.7 million , which the Company expects to recognize over a weighted average period of 1.9 years.

Stock Options

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Treasury bond rates in effect at the grant date for its risk-free interest rates.

The following table summarizes the assumptions and related information used to determine the grant-date fair value of stock options awarded during the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the assumptions and related information used to determine the grant-date fair value of stock option awards for the periods presented:

Six Months Ended June 30,

Weighted average grant-date fair value per share

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Risk-free interest rate

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides information about stock option awards outstanding during the three months ended March 31, 2020 :

The following table provides information about stock option awards outstanding during the six months ended June 30, 2020 :

Weighted Average Exercise Price

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Outstanding as of December 31, 2019

Outstanding as of March 31, 2020

Exercisable as of March 31, 2020

The total fair value of stock options that vested during the three months ended March 31, 2020 and 2019 was $ 3.5 million and $ 3.4 million , respectively.

There were no stock options exercised during either the three months ended March 31, 2020 or 2019 .

As of March 31, 2020 , there was $ 3.1 million of unrecognized compensation cost related to unvested stock options, which the Company expects to recognize on a pro-rata basis over a weighted-average period of 1.6 years .

Outstanding as of June 30, 2020

Exercisable as of June 30, 2020

The total fair value of stock options that vested during the six months ended June 30, 2020 and 2019 was $ 4.2 million and $ 4.1 million , respectively, and includes awards with vesting terms that were accelerated as discussed above.

There were no stock options exercised during either the six months ended June 30, 2020 or 2019 .

As of June 30, 2020 , there was $ 1.8 million of unrecognized compensation cost related to unvested stock options, which the Company expects to recognize on a pro-rata basis over a weighted-average period of 1.4 years .

Performance Stock Units

During the three months ended March 31, 2020 and 2019 , there was no significant performance stock units activity.

As of March 31, 2020 , there was $ 4.7 million of unrecognized compensation cost related to performance stock units that were unvested, which the Company expects to recognize on a pro-rata basis over a weighted average period of 1.7 years.

During the six months ended June 30, 2020 and 2019 , there was no significant performance stock units activity.

As of June 30, 2020 , there was $ 3.7 million of unrecognized compensation cost related to performance stock units that were unvested, which the Company expects to recognize on a pro-rata basis over a weighted average period of 1.6 years.

Note 7—Derivative Instruments

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the approximate volumes and average contract prices of swap contracts the Company had in place as of March 31, 2020 :

The following table summarizes the approximate volumes and average contract prices of swap contracts the Company had in place as of June 30, 2020 :

Volume (Bbls)

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Crude oil swaps

April 2020 - June 2020

July 2020 - September 2020

October 2020 - December 2020

Volume (Bbls)

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Crude oil basis swaps

April 2020 - June 2020

July 2020 - September 2020

October 2020 - December 2020

These crude oil swap transactions are settled based on the NYMEX WTI price as of the specified settlement date.

These crude oil swap transactions are settled based on the NYMEX WTI price on each trading day within the specified monthly settlement period.

These oil basis swap transactions are settled based on the difference between the arithmetic average of ARGUS MIDLAND WTI and ARGUS WTI CUSHING indices, during each applicable settlement period.

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Natural gas swaps

April 2020 - June 2020

July 2020 - September 2020

October 2020 - December 2020

January 2021 - March 2021

Volume (MMBtu)

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Natural gas basis swaps

April 2020 - June 2020

July 2020 - September 2020

October 2020 - December 2020

These natural gas swap contracts are settled based on NYMEX Henry Hub price as of the specified settlement date.

These natural gas swap contracts are settled based on the NYMEX Henry Hub price on each trading day within the specified monthly settlement period.

These natural gas basis swap contracts are settled based on the difference between the Inside FERC’s West Texas WAHA price and the NYMEX price of natural gas, during each applicable settlement period.

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The following table presents the impact of the Company’s derivative instruments in its Consolidated Statements of Operations for the periods presented:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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(in thousands)

March 31, 2020

June 30, 2020

Derivative Assets

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Recurring Fair Value Measurements

The Company follows the Financial Accounting Standards Board’s Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurement and Disclosure, which establishes a three-level valuation hierarchy for disclosure of fair value measurements.

The Company follows ASC Topic 820, Fair Value Measurement and Disclosure, which establishes a three-level valuation hierarchy for disclosure of fair value measurements.

The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement.

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(in thousands)

March 31, 2020

June 30, 2020

Total liabilities

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and (v) a market participant-based weighted average cost of capital rate.

These inputs require significant judgments and estimates by the Company’s management and all available information was considered at the date of the review.

These inputs require significant judgments and estimates by the Company’s management.

The impairment test performed by the Company indicated that a proved property impairment had occurred with respect to certain of its oil and gas fields, and therefore a non-cash impairment charge to reduce the carrying value of the impaired property to its fair value was recorded.

Proved oil and natural gas properties with a previous carrying value of $ 771.4 million were partially written down to their fair value of $ 179.6 million , resulting in a non-cash impairment charge of $ 591.8 million being recorded during the three months ended March 31, 2020.

The Company performed an impairment assessment of all its proved oil and gas properties as of March 31, 2020.

All of the Company’s proved oil and gas properties were included in the impairment assessment performed as of March 31, 2020.

Two of the Company’s fields were subject to an impairment write-down as quantified above, but the remaining five fields were not impaired due to their undiscounted cash flows exceeding their carrying values by 30 % to over 100 % .

The Company did not recognize any impairment write-downs with respect to its proved property during the comparable 2019 period.

There were no triggering event identified as of June 30, 2020 or 2019 and therefore the Company did not recognize any impairment write-downs with respect to its proved property for the three months ended June 30, 2020 and for the three and six months ended June 30, 2019 .

Impairment expense for proved properties is presented as part of Impairment and Abandonment Expense in the Consolidated Statements of Operations.

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Refer to Note 5—Asset Retirement Obligations for additional information on the Company’s ARO.

Senior Secured Notes .

The Company’s Senior Secured Notes were measured and recorded at their fair value on the date of issuance equal to 83.44 % of par.

The fair value was determined utilizing the Black-Derman-Toy binomial lattice model, which is a one-factor binomial lattice model that determines the future evolution of the relevant yields.

For each node on the lattice, it is determined whether it is preferable to redeem, or not, based on the yields.

The model utilizes bot h a yield curve and a yield volatility as of the valuation date, both of which are estimated based on yields of comparable debt instruments and are inputs that are not observable for the Senior Secured Notes for the term of the debt instrument (a Level 3 classification in the fair value hierarchy).

The fair value was measured by the model using the following inputs:

(i) the treasury yield curve as of the valuation date, (ii) 12 % credit spread, (iii) 45 % yield volatility, and (iv) a corporate credit rating of B.

The Company has not elected the fair value option, which would require remeasurement at fair value each period, to account for this debt instrument.

Other Financial Instruments

The carrying amounts of the Company’s cash, cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate their fair values because of the short-term maturities and/or liquid nature of these assets and liabilities.

The Company’s Senior Notes and borrowings under its credit agreement are recorded at cost.

The following table summarizes the fair values and carrying values of these instruments as of the dates indicated:

March 31, 2020

The Company’s Senior Notes and borrowings under its credit agreement are accounted for at cost, and the cost basis of the Company’s Senior Secured Notes issued in the Debt Exchange was measured based on their fair value on the date of the exchange, as discussed above.

The following table summarizes the carrying values, principal amounts and fair values of these instruments as of the dates indicated:

June 30, 2020

December 31, 2019

Carrying Value

Principal Amount

Carrying Value

Principal Amount

Credit facility due 2023 (1)

8.00% Senior Secured Notes due 2025 (2)

5.375% Senior Notes due 2026 (2)

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The carrying values of the amounts outstanding under CRP’s credit agreement approximate fair value because its variable interest rates are tied to current market rates and the applicable credit spreads represent current market rates for the credit risk profile of the Company.

The Senior Notes’ carrying values include associated unamortized debt issuance costs and any discounts.

The Senior Notes’ fair values were determined using quoted market prices for these debt securities, a Level 1 classification in the fair value hierarchy.

The carrying values include associated unamortized debt issuance costs and any debt discounts as reflected in the Consolidated Balance Sheets.

The fair values are determined using quoted market prices for these debt securities, a Level 1 classification in the fair value hierarchy, and are based on the aggregate principal amount of the Senior Notes outstanding.

CENTENNIAL RESOURCE DEVELOPMENT, INC.

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Diluted EPS is calculated by dividing adjusted net income available to Class A Common Stock by the weighted average shares of diluted Class A Common Stock outstanding, which includes the effect of potentially dilutive securities.

Potentially dilutive securities for the diluted EPS calculation consists of (i) unvested restricted stock and performance stock units, outstanding stock options, withholding amounts from employee stock purchase plan and warrants using the treasury stock method, and (ii) the Company’s Class C Common Stock using the “if-converted” method, which is net of tax.

When a loss from continuing operations exists, all dilutive securities and potentially dilutive securities are anti-dilutive and are therefore excluded from the computation of diluted earnings per share.

Potentially dilutive securities for the diluted EPS calculation consists of (i) unvested restricted stock and performance stock units, outstanding stock options, withholding amounts from employee stock purchase plan and warrants using the treasury stock method, and (ii) the Company’s Class C Common Stock outstanding prior to the Conversion using the “if-converted” method, which is net of tax.

The following table reflects the allocation of net income to common shareholders and EPS computations for the periods indicated based on a weighted average number of common shares outstanding for the period:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except per share data)

Net income (loss) attributable to Class A Common Stock

Income from conversion of Class C Common Stock

Adjusted net income (loss) attributable to Class A Common Stock

Basic weighted average shares of Class A Common Stock outstanding

Dilutive effects of potential common stock

Dilutive effects of conversion of Class C Common Stock

Diluted weighted average shares of Class A Common Stock outstanding

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Diluted net earnings (loss) per share of Class A Common Stock

The Company recognized a net loss during the three months ended March 31, 2020 and 2019 .

The Company recognized a net loss during the six months ended June 30, 2020 .

As a result, all potential common shares were anti-dilutive and were excluded from the calculation of diluted net earnings per share.

The following table presents shares excluded from the diluted earnings per share calculation for the periods presented as their impact was anti-dilutive:

Three Months Ended March 31,

T he following table presents shares excluded from the diluted earnings per share calculation for the periods presented as their impact was anti-dilutive:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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Note 10—Transactions with Related Parties

Riverstone and its affiliates beneficially own more than 10% equity interest in the Company and are therefore considered related parties.

Riverstone and its affiliates (“Riverstone”) beneficially own a more than 10% equity interest in the Company and are therefore considered related parties.

The Company has a marketing agreement with Lucid Energy Delaware, LLC (“Lucid”), an affiliate of Riverstone.

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The following table summarizes the revenues recognized and the associated processing fees incurred from this marketing agreement as presented in the Consolidated Statements of Operations for the periods indicated as well as the related net receivables outstanding as of the balance sheet dates:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

Accounts receivable, net (1)

(1) This accounts receivable represents amounts due from Lucid and are presented net of unpaid processing fees due Lucid as of the indicated period end date.

Receivable from (payable to) Lucid (1)

(1) Represents amounts due from or payable to Lucid and are presented net of unpaid processing fees as of the indicated period end date.

Senior Secured Notes

During 2020, Riverstone acquired an aggregate of $ 100.7 million and $ 111.9 million of the Company’s 2026 Senior Notes and 2027 Senior Notes, respectively, in open market purchases.

Subsequently, on May 22, 2020, Riverstone participated in the Company’s Debt Exchange, discussed in Note 4—Long-Term Debt , and exchanged all of its Senior Unsecured Notes for $ 106.3 million of the Company’s Senior Secured Notes.

Riverstone’s participation in the Debt Exchange represented $ 106.3 million (or 74 % ) of the total extinguishment gain recognized in the consolidated statements of operations.

Note 11—Commitments and Contingencies

The Company routinely enters into or extends operating agreements in the ordinary course of business.

During the three months ended March 31, 2020, the Company amended one of its firm crude oil sales agreements, which moved the start date of its physical delivery commitments of 30,000 Bbls/d from 2020 to January 1, 2021, and affirmed May 31, 2025 as the end of the initial term of the agreement.

There has been no other material, non-routine changes in commitments during the three months ended March 31, 2020 .

The Company routinely enters into, extends or amends operating agreements in the ordinary course of business.

During the six months ended June 30, 2020 , the Company amended one of its firm crude oil sales agreements, which moved the start date of its physical delivery commitments of 30,000 Bbls/d from 2020 to January 1, 2021, and affirmed May 31, 2025 as the end of the initial term of the agreement.

There has been no other material, non-routine changes in commitments during the six months ended June 30, 2020 .

Please refer to Note 13—Commitments and Contingencies included in Part II, Item 8 in the Company’s 2019 Annual Report.

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Virtually all of the Company’s contract pricing provisions are tied to a market index, with certain adjustments based on, among other factors, transportation costs to an active spot market and quality differentials.

As a result, the Company’s realized price of oil, natural gas, and NGLs fluctuates to remain competitive with other available oil, natural gas, and NGLs supplies both globally (in the case of crude oil) and locally.

As a result, the Company’s realized prices of oil, natural gas, and NGLs fluctuate to remain competitive with other available oil, natural gas, and NGLs supplies both globally (in the case of crude oil) and locally.

CENTENNIAL RESOURCE DEVELOPMENT, INC.

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Oil and gas revenues presented within the Consolidated Statements of Operations relate to the sale of oil, natural gas and NGLs as shown below:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating revenues (in thousands):

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However, payment is unconditional once the performance obligations have been satisfied.

At this time, the volume and price can be reasonably estimated and amounts due from customers are accrued in Accounts receivable, net in the Consolidated Balance Sheets.

As of March 31, 2020 and December 31, 2019 , such receivable balances were $ 36.1 million and $ 76.6 million , respectively.

At such time, the volumes delivered and sales prices can be reasonably estimated and amounts due from customers are accrued in Accounts receivable, net in the Consolidated Balance Sheets.

As of June 30, 2020 and December 31, 2019 , such receivable balances were $ 41.5 million and $ 76.6 million , respectively.

The Company records any differences between its estimates and the actual amounts received for product sales in the month that payment is received from the purchaser.

Historically, any identified differences between revenue estimates and actual revenue received have not been significant.

For the three months ended March 31, 2020 and 2019 , revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods were not material.

For the six months ended June 30, 2020 and 2019 , revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods were not material.

Transaction price allocated to remaining performance obligations

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Currently, the Company has operating leases for drilling rig contracts, office rental agreements, and other wellhead equipment.

As of March 31, 2020 , these leases have remaining lease terms ranging from two months to two years , some of which include options to extend the lease term for up to five years , and some of which include options to early terminate.

The Company has operating leases for drilling rig contracts, office rental agreements, and other wellhead equipment.

As of June 30, 2020 , these leases have remaining lease terms ranging from two months to two years , some of which include options to extend the lease term for up to five years , and some of which include options to early terminate.

These options are considered in determining the lease term and are included in the present value of future payments that are recorded for leases when the Company is reasonably certain to exercise the option.

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The table below summarizes the Company’s weighted-average discount rate and weighted-average remaining lease term as of the period presented.

As of March 31, 2020

As of June 30, 2020

Weighted-average discount rate

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The following table presents the various components of the Company’s lease expenses for the periods presented.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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Therefore, the lease costs presented in the above table represent the total gross costs the Company incurs, which are not comparable to the Company’s net costs recorded to the Consolidated Statements of Operations, Consolidated Statements of Cash Flows or capitalized in the Consolidated Balance Sheets, as amounts therein are reflected net of amounts billed to the Company’s working interest partners.

Includes drilling rig lease costs of $ 11.2 million which may not necessarily be recurring in these amounts in the near-term based on the Company’s current drilling plan discussed in Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operational Highlights .

Includes drilling rig lease costs of $ 4.6 million and $ 15.8 million for the three and six months ended June 30, 2020 , which may not necessarily be recurring in these amounts in the near-term based on the Company’s reduction in its drilling plan.

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maturities of the Company’s long-term operating lease liabilities by fiscal year as of March 31, 2020 are as follows:

Maturities of the Company’s long-term operating lease liabilities by fiscal year as of June 30, 2020 are as follows:

(in thousands)

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Present value of lease liabilities (3)

Excludes payments made during the three months ended March 31, 2020 .

Excludes payments made during the six months ended June 30, 2020 .

Total lease payments exclude variable lease payments which can be charged under the terms of the lease agreements.

Of the total present value of lease liabilities, $ 6.4 million was recorded to current Operating lease liabilities and $ 2.6 million was recorded in noncurrent Operating lease liabilities in the Consolidated Balance Sheets as of March 31, 2020 .

Of the total present value of lease liabilities, $ 3.6 million was recorded to current Operating lease liabilities and $ 1.8 million was recorded in noncurrent Operating lease liabilities in the Consolidated Balance Sheets as of June 30, 2020 .

Note 14—Subsequent Events

Nasdaq listing Notice

On April 21, 2020, the Company received written notification (the “Notice”) from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the last thirty consecutive business days, the bid price for the Company’s Class A Common Stock had closed below the minimum $ 1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”).

The Notice has no immediate effect on the listing or trading of the Company’s common stock on the Nasdaq Capital Market.

The Company was provided an initial period of 180 calendar days, or until October 19, 2020, to regain compliance.

However, due to recent market turmoil, Nasdaq has filed a rule change which has the effect of extending the Company’s compliance period until December 28, 2020.

If the Company does not regain compliance with the Minimum Bid Requirement by December 28, 2020, the Company may be eligible for an additional 180 calendar day compliance period.

The Company intends to actively monitor the closing bid price of its Common Stock and will evaluate available options to regain compliance with the Minimum Bid Requirement, as necessary.

Senior Notes Exchange

On April 22, 2020, the Company commenced offers to all eligible holders of its Senior Notes to exchange any and all of their Senior Notes held for up to $ 250.0 million aggregate principal amount of newly issued 8 % Second Lien Senior Secured Notes due 2025 and up to $ 200.0 million aggregate principal amount of newly issued 8 % Third Lien Senior Secured Notes due 2027 (the “Exchange Offers”).

In accordance with the Exchange Offers, the eligible holders of the Senior Notes can early tender their holdings on or before May 5, 2020 or can normally tender on or before May 19, 2020 .

The transaction is currently expected to close on May 22, 2020 , subject to customary closing conditions.

Amendments to the Credit Agreement

On May 1, 2020 , the Company and CRP entered into amendments to CRP’s amended and restated credit agreement (the “Amendments”) with the lenders to its existing credit agreement.

Pursuant to the Amendments, the borrowing base and elected commitments were reduced to $ 700.0 million .

In addition, to the extent that the Exchange Offers close, the Amendments introduce a minimum availability condition to borrowing at the lesser of $ 100.0 million and 25 % of the aggregate principal amount of the new second and third lien senior secured notes outstanding from the Exchange Offers discussed above.

If the minimum availability condition to borrowing were to be determined at its maximum level of $ 100.0 million , it would have the resulting effect of limiting the amount of borrowings that CRP could draw against its $ 700.0 million credit facility to $ 600.0 million .

Among other things, the Amendments also suspended the total funded debt to EBITDAX ratio (as specified in the Company’s existing credit agreement) through year-end 2021, introduced a new financial covenant testing the ratio of first lien debt to EBITDAX, and permitted the issuance of new senior secured notes in connection with the Exchange Offers described above.

CENTENNIAL RESOURCE DEVELOPMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amendment to 2016 LTIP

Class C Common Stock Conversion to Class A Common Stock

On April 2, 2020, the legacy owners of CRP exchanged all of their remaining 1,034,119 CRP Common Units (and corresponding shares of Class C Common Stock) for Class A Common Stock, and as a result, the Company currently owns all of the membership interests in CRP .

No cash proceeds were received by the Company in connection with this exchange.

In July 2020, the Company redeemed its one outstanding share of Series A Preferred Stock, par value $ 0.0001 per share (the “Series A Preferred Stock”), held by NGP X US Holdings, L.P.

(“NGP”), a former indirect equity owner of CRP.

The Series A Preferred Stock became redeemable by the Company as NGP ceased to own at least 5,000,000 shares of Class A Common Stock.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements