What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-12 compared with 2020-11-05 · 126 added, 166 removed, 102 unchanged (74% of the section changed)

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• Critical Accounting Policies and Estimates

The financial information with respect to the three and nine-month periods ended September 30, 2020, and 2019, discussed below, is unaudited.

The financial information with respect to the three-month periods ended March 31, 2021, and 2020, discussed below, is unaudited.

In the opinion of management, this information contains all adjustments, which consist only of normal recurring adjustments unless otherwise disclosed, necessary to state fairly the accompanying unaudited condensed consolidated financial statements.

The results of operations for the interim periods are not necessarily indicative of the results of operations for the full fiscal year.

We are an oil and natural gas company with a principal focus on the acquisition, development and production of hydrocarbon resources in the United States.

Given current economic conditions, we have reduced our capital expenditures budget for 2020 to $4.6 million, which is exclusively comprised of capital workovers.

We did not drill or complete any wells during the three and nine-month periods ended September 30, 2020, and do not expect to drill or complete any wells during 2020.

During the nine-month period ended September 30, 2019, we drilled nine and 21 gross wells and 13.5 net wells.

11 of the gross wells drilled in the nine-month period ended September 30, 2019 were located in the Mid-Continent.

The remaining 10 gross wells drilled in the nine-month period ended September 30, 2019 were located in the North Park Basin.

The chart below shows production by product for the three and nine-month periods ended September 30, 2020 and 2019:

We are an independent oil and natural gas company with a principal focus on acquisition, development and production activities in the U.S.

Mid-Continent.

Prior to February 5, 2021, we held assets in the North Park Basin of Colorado, which have been sold in their entirety.

The charts below shows production by product for the three-month periods ended March 31, 2021 and 2020:

(1) For the year three-months ended March 31, 2021, Mid-Continent production was 832 MBoe of natural gas, 521 MBoe of NGLs and 221 MBoe of oil totaling 1,574 MBoe.

North Park Basin had 67 MBoe of oil production.

(2) For the year three-months ended March 31, 2020, Mid-Continent production was 1,116 MBoe of natural gas, 769 MBoe of NGLs and 354 MBoe of oil totaling 2,239 MBoe.

North Park Basin had 328 MBoe of oil production.

Total production for the three-month periods ended March 31, 2021 was comprised of approximately 17.6% oil, 50.7% natural gas and 31.7% NGLs compared to 26.6% oil, 43.4% natural gas and 30.0% NGLs in 2020.

Tabl e of Contents

Mid-continent production for the three-months ended March 31, 2021 was comprised of approximately 14.0% oil, 52.9% natural gas and 33.1% NGLs compared to 15.8% oil, 49.9% natural gas and 34.3% NGLs in 2020.

The decline in Mid-Continent production was primarily due to pro-active well shut-ins in response to a drop in commodity prices in the second quarter of 2020, as well as regular production declines.

Recent Events

• SandRidge Mississippian Trust I:

We are party to the Amended and Restated Trust Agreement of SandRidge Mississippian Trust I (the “SDT Trust”), dated April 12, 2011, by and among the Company, the Bank of New York Mellon Trust Company, N.A., and the Corporation Trust Company (the “Trust Agreement”).

Pursuant to the Trust Agreement, we have a right of first refusal with respect to any sale of assets of the SDT Trust to a third party following the occurrence of certain events (a “Triggering Event”).

On October 23, 2020, the SDT Trust announced the Trust will be required to dissolve and commence winding up beginning as of the close of business on November 13, 2020.

• On September 10, 2020, the Company closed on the acquisition of the overriding royalty interest of SandRidge Mississippian Trust II for a gross purchase price of $5.25 million (net purchase price of $3.28 million, given the Company's 37.6% ownership of the Trust).

• On August 31, 2020, SandRidge Realty, LLC, a wholly owned subsidiary of the Company, closed on the previously announced sale of the Company's 30-story office tower and annex with parking and ancillary uses located at 123 Robert S.

Kerr, Oklahoma City, Oklahoma 73102, for net proceeds of approximately $35.4 million.

• Effective July 29, 2020, the Board, upon recommendation of the Board's Nominating and Governance Committee, appointed Mr.

Giesler, Jr., the Company's President and Chief Executive Officer, to serve as a member of the Board.

Giesler's initial term as a member of the Board will end at the annual meeting of stockholders to be held in 2021.

Giesler was appointed as President and Chief Executive Officer effective April 6, 2020.

Giesler most recently served as the Chief Executive Officer and a Director of Jones Energy, Inc.

from July 20, 2018 until January of 2020.

Jones Energy, Inc.

filed for protection under Chapter 11 of the US Bankruptcy Code on April 14, 2019.

Giesler previously served as the Chief Executive Officer and a Director of Glacier Oil & Gas Corp (“Glacier”) and its predecessor companies since September 2014.

Immediately prior to joining Glacier, Mr.

Giesler served as a Managing Director with Harbinger Group Inc.

where he led its oil & gas investment efforts since October 2011.

Prior to joining Harbinger Group Inc., Mr.

Giesler served in various oil & gas principal investing, financial and other roles with Harbinger Capital Partners, AIG FP, Morgan Stanley and Bain & Company.

In addition to serving as a Director of Glacier and its predecessor companies, Mr.

Giesler has also served on the boards of Compass Production Partners, LP (private) and North American Energy Partners, Inc.

Giesler received his Bachelor of Arts from the University of Virginia and his Juris Doctorate from Harvard Law School.

He is also a CFA Charterholder.

• On July 1, 2020, the Board declared a dividend distribution of one right (a “Right”) for each outstanding share of Company common stock, par value $0.001 per share to stockholders of record at the close of business on July 13, 2020.

Each Right entitles its holder, under certain circumstances, to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock of the Company, par value $0.001 per share, at an exercise price of $5.00 per Right, subject to adjustment.

The description and terms of the Rights are set forth in the tax benefits preservation plan, dated as of July 1, 2020, between the Company and American Stock Transfer & Trust Company, LLC, as rights agent (and any successor rights agent, the “Rights Agent”).

• Effective July 1, 2020, the Board appointed Mr.

Salah Gamoudi as the Company’s Chief Financial Officer and Chief Accounting Officer.

Gamoudi, age 34, most recently served as the Company’s Vice President of Accounting and Finance beginning April 27, 2020.

Prior to joining the Company, Mr.

Gamoudi served as a Vice President and Chief Accounting Officer at Jones Energy, Inc.

from October 2018 to April 2020.

Jones Energy, Inc.

filed for protection under Chapter 11 of the U.S.

Bankruptcy Code on April 14, 2019.

Immediately before serving as Vice President and Chief Accounting Officer at Jones Energy, Inc., Mr.

Gamoudi served as Chief Accounting Officer and Controller of Remora Petroleum, L.P.

from 2017 to 2018.

From 2015 to 2017, he served as Corporate Controller of Glacier Oil & Gas and its predecessor entity.

From 2013 to 2015, he served as SOX and Internal Audit Manager of LRR Energy, L.P.

and Lime Rock Resources.

Prior to that, he served as an auditor for Deloitte and for Ernst & Young LLP.

Gamoudi has a Bachelor of Arts in Accounting from Portland State University and is a Certified Public Accountant.

The COVID-19 pandemic and other pricing volatility caused by the announcement of production increases by Saudi Arabia-led OPEC and Russia caused a steep decline in oil prices in March 2020, which further decreased to historic lows in April 2020.

Although we cannot reasonably estimate what the full impact of the COVID-19 pandemic and other market volatility will have on our business, we expect it will have a material, adverse impact on near-term future revenues and overall profitability.

As a result, we have withdrawn our guidance from February 2020 and reduced our 2020 capital expenditures budget from $25.9 million to $4.6 million.

• On April 22, 2021, we announced the acquisition of all the overriding royalty interest assets of SandRidge Mississippian Trust I (the “Trust”).

The gross purchase price is $4.9 million (net $3.6 million, given our 26.9% ownership of the Trust).

• On March 3, 2021, we named Mr.

Grayson Pranin, formerly its Vice President for Reserves and Engineering, as Senior Vice President and Chief Operating Officer.

We also named Mr.

Salah Gamoudi, our Chief Financial Officer and Chief Accounting Officer, as a Senior Vice President.

We also named Mr.

Dean Parrish, formerly our Director of Operations, as our Vice President of Operations.

• On February 5, 2021, we sold all of our oil and natural gas properties and related assets of the North Park Basin ("NPB") in Colorado for a purchase price of $47 million in cash.

We will focus on maximizing free cash flow in 2021 through a combination of cost control measures and the continued exercise of financial discipline and prudent capital allocation, which includes limiting our capital projects to projects we believe will provide high rates of return in the current commodity price environment.

As a result, our planned capital expenditures for 2021 will be similar to our 2020 levels.

Given this expected level of capital expenditures, our oil, natural gas and NGL production will likely decline in 2021.

We will consider expanding our capital program after assessing all factors, including commodity prices.

We will also continue our pursuit of acquisitions and business combinations which provide high margin properties with attractive returns at current commodity prices.

The COVID-19 pandemic reduced global economic activity and negatively impacted energy demand during the previous twelve months.

Demand for oil and natural gas is slowly returning to pre-pandemic levels as COVID-19 vaccination rates and economic activity have increased.

Additionally, we have implemented several additional initiatives to maximize free cash flow, reduce our debt level, maximize our liquidity position and, ultimately realize greater shareholder value.

These initiatives included personnel and non-personnel cost reductions, the sale of the company headquarters, and entering into additional commodity derivative contracts for natural gas during the remainder of calendar year 2020 and in year 2021.

These initiatives included personnel and non-personnel cost reductions, along with the sale of the Company's headquarters during 2020.

Prior to February 5, 2021, we held assets in the North Park Basin, which have been sold in their entirety.

Consolidated Results of Operations

The majority of our consolidated revenues and cash flow are generated from the production and sale of oil, natural gas and NGLs.

Our revenues, profitability and future growth depend substantially on prices received for our production, the quantity of oil, natural gas and NGLs we produce, our ability to find and economically develop and produce our reserves, and changes in the fair value of our commodity derivative contracts.

Our revenues, profitability and future growth depend substantially on prevailing prices received for our production, the quantity of oil, natural gas and NGLs we produce, and our ability to find and economically develop and produce our reserves.

Prices for oil, natural gas and NGLs fluctuate widely and are difficult to predict.

To provide information on the general trend in pricing, the average NYMEX prices for oil and natural gas during the three and nine-month periods ended September 30, 2020, and 2019 are shown in the table below:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

To provide information on the general trend in pricing, the average New York Mercantile Exchange "NYMEX" prices for oil and natural gas are shown in the table below:

Three month periods ended

March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020

NYMEX Oil (per Bbl) $ 58.09 $ 42.58 $ 40.92 $ 28.00

NYMEX Natural gas (per MMBtu) $ 2.72 $ 2.76 $ 2.12 $ 1.75

To reduce our exposure to price fluctuations, from time to time we enter into commodity derivative contracts for a portion of our anticipated future oil and natural gas production depending on the Company's view of opportunities under then-prevailing market conditions as discussed in “Item 3.

Quantitative and Qualitative Disclosures About Market Risk.” Reducing our exposure to price volatility helps mitigate the risk that we will not have adequate funds available for our capital expenditure and other programs.

During periods where the strike prices for our commodity derivative contracts are below market prices at the time of settlement, we may not fully benefit from increases in the market price of oil and natural gas.

Conversely, during periods of declining oil and natural gas market prices, our commodity derivative contracts may partially offset declining revenues and cash flow to the extent strike prices for our contracts are above market prices at the time of settlement.

Consolidated revenues for the three and nine-month periods ended September 30, 2020, and 2019 are presented in the table below (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

In order to reduce our exposure to price fluctuations, we have historically entered into commodity derivative contracts for a portion of our anticipated future oil and natural gas production as discussed in “Item 3.

Quantitative and Qualitative Disclosures About Market Risk.” As of March 31, 2021, we had no open commodity derivative contracts and there was no commodity derivative activity during the quarter ended March 31, 2021.

Tabl e of Contents

Consolidated revenues for the three-month periods ended March 31, 2021, and 2020 are presented in the table below (in thousands):

Three Months Ended March 31,

Oil $ 15,548 $ 28,654

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Natural gas 9,219 5,551

Other 129 181 526 561

Total revenues (1) $ 33,623 $ 40,329

(1) Mid-Continent represented $30.4 million, or 90.6% and $27.5 million, or 68.4% of total consolidated revenues for the three-months ended March 31, 2021 and 2020, respectively.

NPB represented $3.2 million, or 9.4% and $12.8 million, or 31.6% of total consolidated revenues for the three-months ended March 31, 2021 and 2020, respectively.

Oil, Natural Gas and NGL Production and Pricing

The Company's production and pricing information for the three and nine-month periods ended September 30, 2020, and 2019 is shown in the table below:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

The Company's production and pricing information for the three-month periods ended March 31, 2021, and 2020 is shown in the table below:

Three Months Ended March 31,

Production data

Oil (MBbls) 288 682

646 629 2,096 2,335

Natural gas (MMcf) 4,993 6,695

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(1) Prices represent actual average sales prices for the periods presented and do not include effects of derivatives.

The table below presents production by area of operation for the three and nine-month periods ended September 30, 2020, and 2019:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Production (MBoe)

Mississippian Lime 1,719 83.9 % 2,213 77.7 % 5,566 82.3 % 7,331 79.3 %

NW STACK 126 6.2 % 274 9.6 % 447 6.6 % 820 8.9 %

Tabl e of Contents

The table below presents production by area of operation for the three-month periods ended March 31, 2021, and 2020:

Three Months Ended March 31,

Production (MBoe) % of Total Production (MBoe)

Mid-Continent 1,574 95.9 % 2,239 87.2 %

North Park Basin 67 4.1 % 328 12.8 %

Total 1,641 100.0 % 2,567 100.0 %

Variances in oil, natural gas and NGL revenues attributable to changes in the average prices received for our production and total production volumes sold for the three and nine-month periods ended September 30, 2020, and 2019 are shown in the table below (in thousands):

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020

Variances in oil, natural gas and NGL revenues attributable to changes in the average prices received for our production and total production volumes sold for the three-month periods ended March 31, 2021, and 2020 are shown in the table below (in thousands):

Three Months Ended March 31, 2021

2020 oil, natural gas and NGL revenues $ 40,139

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2021 oil, natural gas and NGL revenues $ 33,623

Revenues from oil, natural gas and NGL sales decreased $30.7 million, or 52.6% for the quarter ended September 30, 2020 as compared to the quarter ended September 30, 2019.

Revenues from oil, natural gas and NGL sales decreased $122.3 million or 59.1% for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

The average prices for oil, natural gas and NGL's declined significantly during both periods, due largely to an increase in anticipated global supplies of these commodities after a pledged increase in oil production from Saudi Arabia-led OPEC, and the reduction in demand stemming from the COVID-19 pandemic.

See “ Item 1A.

Risk Factors ” included in Part II of this Quarterly Report for additional discussion of the potential impact these events may have on our future revenues.

The decline in production between the three months ended September 30, 2020 and 2019, as well as the nine months ended September 30, 2020 and 2019 largely resulted from the absence of newly drilled wells in 2020 and natural production declines in our existing producing wells in the Mississippian Lime, and to a lesser extent, the NW STACK and North Park Basin.

Revenues from oil, natural gas and NGL sales decreased $6.5 million or 16.2%for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Revenue has declined primarily due to the divestiture of the North Park Basin properties and natural production declines in our existing producing wells in the Mid-Continent partially offset by increased realized commodity prices.

Mid-Continent represented $30.4 million, or 90.6% and $27.5 million, or 68.4% of total consolidated revenues for the three-months ended March 31, 2021 and 2020, respectively.

NPB represented $3.2 million, or 9.4% and $12.8 million, or 31.6% of total consolidated revenues for the three-months ended March 31, 2021 and 2020, respectively.

See "Item 1A—Risk Factors" included in the Company's 2020 Form 10-K for additional discussion of the potential impact these events may have on our future revenues.

Operating Expenses

Operating expenses for the three and nine-month periods ended September 30, 2020, and 2019 consisted of the following (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Operating expenses for the three-month periods ended March 31, 2021, and 2020 consisted of the following (in thousands):

Three Months Ended March 31,

Lease operating expenses $ 7,954 $ 15,642

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Production, ad valorem, and other taxes (% of oil, natural gas, and NGL revenue) 6.5 % 8.0 %

Lease operating expenses decreased by $15.8 million or $4.43/Boe for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.

Lease operating expenses decreased by $39.3 million or $2.97/Boe for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019 .

These decreases primarily resulted from field personnel reductions in force, in addition to the shut-in of wells that had become uneconomic due to natural production declines and deteriorating pricing in the three and nine - month periods ended September 30, 2020.

Lease operating expenses decreased by $7.7 million or $1.24/Boe for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020 .

These decreases primarily resulted from field personnel reductions in force, the sale of NPB and the shut-in of wells that had become uneconomic due to natural production declines.

NPB represented $0.9 million, or 11.6% and $3.5 million, or 22.7% of consolidated Lease operating expense for the three months ended March 31, 2021 and 2020, respectively.

Tabl e of Contents

Production, ad valorem, and other taxes have continued to decrease primarily due to declining production and revenues as discussed above.

Further, they have increased as a percentage of oil, natural gas, and NGL revenue for the three and nine months ended September 30, 2020 as compared to comparable periods in 2019, primarily due to ad valorem taxes remaining consistent throughout 2020 while revenues have declined during 2020.

The average depreciation and depletion rate for our oil and natural gas properties for the three months ended September 30, 2020 decreased by $9.96/Boe from the three months ended September 30, 2019.

The average depreciation and depletion rate for our oil and natural gas properties for the nine months ended September 30, 2020 decreased by $5.66/Boe from the nine months ended September 30, 2019.

These decreases were primarily due to the full cost ceiling test impairments recorded in the third and fourth quarters of 2019, as well as the first and second quarters of 2020.

In the three-month period ended September 30, 2020, we recorded a total impairment charge of $44.0 million, relating to a full cost ceiling limitation impairment charge.

In the nine - month period ended September 30, 2020, we recorded a total impairment charge of $253.8 million, which included a full cost ceiling limitation impairment charge of $215.8 million, and an impairment charge of $38.0 million to w rite down the value of the Company's office headquarters, classified as assets held for sale, to its estimated fair value less estimated costs to sell the building.

The ceiling limitation impairment charges recorded in the three and nine-month periods ended September 30, 2020 resulted from various factors including a decrease in the trailing twelve-month weighted average natural gas price in 2020.

No impairment charges were recorded in the three and nine month periods ended September 30, 2019.

Calculation of the full cost ceiling test is based on, among other factors, average prices for the trailing twelve-month period determined by reference to the first-day-of-the-month index prices (“SEC prices”) as adjusted for price differentials and other contractual arrangements.

The SEC prices utilized in the calculation of proved reserves included in the full cost ceiling test at September 30, 2020 were $43.40 per barrel of oil and $1.97 per Mcf of natural gas, before price differential adjustments.

Based on the SEC prices over the eleven months ended October 13, 2020, as well as the short-term pricing outlook for the remainder of the fourth quarter 2020, we anticipate the SEC prices utilized in the September 30, 2020 full cost ceiling test may be $39.54 per barrel of oil and $2.01 per Mcf of natural gas, (the "estimated fourth quarter prices").

Applying these estimated fourth quarter prices, and holding all other inputs constant to those used in the calculation of our September 30, 2020 ceiling test, we expect to incur an additional impairment charge of approximately $22.4 million in the fourth quarter of 2020.

Any actual full cost ceiling limitation impairment recognized in future quarters may fluctuate significantly from projected amounts based on the outcome of numerous other factors such as additional declines in the actual trailing twelve-month SEC prices, changes in estimated future development costs and operating expenses, and other adjustments to our levels of proved reserves.

Further, they have decreased as a percentage of oil, natural gas, and NGL revenue for the three months ended March 31, 2021 as compared to the same period in 2020, primarily due to decreases in ad valorem taxes as a result of credits and deductions earned on production taxes.

NPB represented $0.2 million, or 11.4% and $0.8 million, or 24.1% of consolidated Production, ad valorem and other taxes for the three months ended March 31, 2021 and 2020, respectively.

The average depreciation and depletion rate for our oil and natural gas properties for the three months ended March 31, 2021 decreased by $8.15/Boe from the three months ended March 31, 2020.

This decrease is primarily due to the sale of the North Park Basin properties and full cost ceiling test impairments recorded during 2020, which lowered the net cost basis of oil and gas properties significantly.

We did not record a full cost ceiling limitation impairment during the three months ended March 31, 2021.

We recorded a full cost ceiling limitation impairment of $8.0 million during the three months ended March 31, 2020, which resulted from various factors including a decrease in the trailing twelve-month weighted average natural gas price in the first quarter of 2020.

Calculation of the full cost ceiling test is based on, among other factors, trailing twelve-month (“SEC prices”) as adjusted for price differentials and other contractual arrangements.

The SEC prices utilized in the calculation of proved reserves included in the full cost ceiling test at March 31, 2021 were $40.01 per barrel of oil and $2.16 per Mcf of natural gas, before price differential adjustments.

Based on the SEC prices over the eleven months ended May 1, 2021, as well as one month of NYMEX strip pricing for June of 2021 as of May 7, 2021 we anticipate the SEC prices utilized in the June 30, 2021 full cost ceiling test may be $49.54 per barrel of oil and $2.44 per Mcf of natural gas, (the "estimated second quarter prices").

Applying these estimated second quarter prices, and holding all other inputs constant to those used in the calculation of our March 31, 2021 ceiling test, we expect that no full cost ceiling limitation impairment is indicated for the second quarter of 2021.

Any actual full cost ceiling limitation impairment recognized in future quarters may fluctuate significantly from projected amounts based on the outcome of numerous other factors such as additional declines in the actual trailing twelve-month SEC prices, lower NGL pricing, changes in estimated future development costs and operating expenses, and other adjustments to our levels of proved reserves.

Any such ceiling test impairments in 2021 could be material to our net earnings.

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Other Operating Expenses

Other operating expenses for the three and nine-month periods ended September 30, 2020, and 2019 consisted of the following (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Other operating expenses for the three-month periods ended March 31, 2021, and 2020 consisted of the following (in thousands):

Three Months Ended March 31,

General and administrative $ 2,090 $ 5,483

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(Gain) loss on derivative contracts — (10,226)

Other operating expense (116) 23 269 142

Total other operating expenses $ 12,059 $ 4,505 $ 15,465 $ 29,321

General and administrative expenses decreased by $3.7 million for the three months ended September 30, 2020, compared to the same period in 2019.

General and administrative expenses decreased by $14.0 million for the nine months ended September 30, 2020, compared to the same period in 2019.

These decreases resulted primarily from a reduction in compensation related costs after completing reductions in force during the second quarter of 2019 and the first three quarters of 2020.

(Gain) loss on sale of assets (19,713) —

Other operating (income) expense (48) 277

Total non-operating expenses $ (15,568) $ (1,212)

General and administrative expenses decreased by $3.4 million for the three months ended March 31, 2021, compared to the same period in 2020.

These decreases resulted primarily from a reduction in compensation related costs after completing reductions in force during 2020, significant reductions in information technology and software costs and overhead related to the Company's previously held corporate headquarters building.

Part of the decrease is also due to reductions in professional costs such as legal expenses, audit fees and consulting services.

Restructuring expenses represent fees and costs associated with our outsourcing and relocation of certain corporate specific functions that are of a non-recurring nature.

Employee termination benefits for the three and nine-month periods ended September 30, 2020 and 2019 include cash and share-based severance costs incurred for the reduction in force in the relevant periods.

General and administrative expenses for the first three months of 2021 were impacted by a refund of a $0.4 million legal retainer related to prior periods.

Tabl e of Contents

Restructuring expenses represent fees and costs associated with the 2016 bankruptcy and exit from North Park Basin in Colorado.

Restructuring expenses included payments of $1.3 million to settle general unsecured claims related to our 2016 bankruptcy during the quarter ended March 31, 2021.

Employee termination benefits for the three-month periods ended March 31, 2021 and 2020 include cash and share-based severance costs incurred for the reduction in force, sale of NPB and other employee terminations in the relevant periods.

See “ Note 12 - Employee Termination Benefits ” in the accompanying unaudited condensed consolidated financial statements for additional discussion of these expenses.

The following table summarizes derivative activity for the three and nine-month periods ended September 30, 2020, and 2019 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

The following table summarizes derivative activity for the three-month periods ended March 31, 2021, and 2020 (in thousands):

Three Months Ended March 31,

(Gain) loss on commodity derivative contracts $ — $ (10,226)

Cash received on settlements $ 619 $ 622 $ 11,197 $ 5,700

Our derivative contracts are not designated as accounting hedges and, as a result, changes in their fair values are recorded each quarter as a component of operating expenses.

Internally, management views the settlement of commodity derivative contracts at contractual maturity as adjustments to the price received for oil and natural gas production to determine “effective prices.” In general, cash is received on settlement of contracts due to lower oil and natural gas prices at the time of settlement compared to the contract price for our commodity derivative contracts, and cash is paid on settlement of contracts due to higher oil and natural gas prices at the time of settlement compared to the contract price for our commodity derivative contracts.

Cash (received) paid on settlements $ — $ (4,087)

There were no open commodity derivative contracts during the three months ended March 31, 2021.

As applicable, our derivative contracts were not designated as accounting hedges and, as a result, changes in their fair values were recorded each quarter as a component of operating expenses.

Internally, management has historically viewed the settlement of commodity derivative contracts at contractual maturity as adjustments to the price received for oil and natural gas production to determine “effective prices.” In general, cash is received on settlement of contracts due to lower oil and natural gas prices at the time of settlement compared to the contract price for our commodity derivative contracts, and cash is paid on settlement of contracts due to higher oil and natural gas prices at the time of settlement compared to the contract price for our commodity derivative contracts.

See further discussion of derivative contracts in “Item 3.

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Other Income (Expense)

The Company’s other income (expense) for the three and nine-month periods ended September 30, 2020, and 2019 are presented in the table below (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

The Company’s other income (expense) for the three-month periods ended March 31, 2021, and 2020 are presented in the table below (in thousands):

Three Months Ended March 31,

Other income (expense)

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Other income (expense), net

(129) 827 5 370

Total other expense

$ (19) $ (561)

Interest expense incurred during the three-month period ended March 31, 2021 is primarily comprised of interest paid on the New Credit Facility.

Interest expense incurred during the three-month period ended March 31, 2020 is primarily comprised of interest and fees paid on the prior credit facility that was terminated on November 30, 2020.

Interest expense is net of amounts capitalized.

Liquidity and Capital Resources

As of September 30, 2020, we had cash and cash equivalents, excluding restricted cash, of $11.2 million.

Additionally, we had $12.0 million outstanding under our $75.0 million credit facility which matures on April 1, 2021, and $4.3 million in outstanding letters of credit, which reduce the amount available under the credit facility on a dollar-for dollar basis.

This leaves an additional $58.7 million available to be borrowed under the credit facility.

Amounts outstanding under the credit facility after April 1, 2020 are classified as short-term borrowings under GAAP.

We are actively working to refinance the outstanding borrowings under our credit facility.

As discussed in “ — Recent Events ” and “— Outlook” above, we have undertaken several initiatives in the second and third quarter of 2020 which we believe have the potential to positively impact our ability to repay our outstanding credit facility borrowings at or before maturity.

These initiatives are also expected to maximize free cash flow, maximize our liquidity position and, ultimately realize greater shareholder value to address the negative impact of the COVID-19 pandemic and commodity price volatility on our financial position and future liquidity.

These initiatives included personnel and non-personnel cost reductions, the sale of our corporate headquarters, and entering into commodity derivative contracts for natural gas to reduce our exposure to near term commodity price volatility.

As a result of implementing these initiatives we were able to alleviate prior conditions that gave rise to substantial doubt about our ability to continue as a going concern.

We are unable to project the full impact the COVID-19 pandemic will have on our financial position and results of operations at this time, but these measures, along with amounts available to be drawn on our credit facility, cash on hand, and other cash flows from operations are expected to provide ample liquidity for the next 12 months.

As of March 31, 2021, we had cash and cash equivalents, excluding restricted cash, of $73.9 million.

Additionally, we had a $20.0 million term loan outstanding and $10.0 million available under our $30.0 million New Credit Facility, which matures on November 30, 2023.

See "Note—8 Long-Term Debt" to the accompanying condensed consolidated financial statements in Item 1 of this report.

As of May 7, 2021, we had approximately $81.2 million of cash on hand, excluding restricted cash, $20.0 million outstanding under its term loan facility and no balance outstanding under the $10.0 million revolving loan facility.

For the next twelve months, we expect to have ample liquidity with amounts available to be drawn on our New Credit Facility, cash on hand, and cash from operations.

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Working Capital and Sources and Uses of Cash

Our principal sources of liquidity for the next year include cash flows from operations, cash on hand and amounts available under our credit facility.

As discussed in “ — Outlook ” above to the accompanying unaudited condensed consolidated financial statements and “Item 1A.

Risk Factors” included in Part II of this Quarterly Report, we expect the COVID-19 pandemic and other market volatility factors including production decisions made by OPEC and its affiliate countries to have a material, adverse impact on future revenue growth and overall profitability for the foreseeable future.

We had a working capital deficit of $50.4 million at September 30, 2020, as compared to a deficit of $49.8 million at December 31, 2019.

The change was largely due to the negative impact on working capital resulting from the reclassification of our credit facility from long-term debt to current maturities of long-term debt.

Further, working capital was negatively impacted by a decrease in accounts receivable for oil and gas sales as revenues continue to decline, and was positively impacted by an increase in cash and cash equivalents at September 30, 2020 as a result of proceeds from asset sales and cash from operations.

Management is pursuing an agreement to refinance the outstanding borrowings under the credit facility.

Our cash flows from operations, which impact our ability to fund our capital expenditures, are substantially dependent on current and future prices for oil and natural gas, which historically have been, and may continue to be, volatile.

Our principal sources of liquidity for the next year include cash flows from operations, cash on hand and amounts available under our New Credit Facility, as discussed in “Note 8—Long-Term Debt” to the accompanying unaudited condensed consolidated financial statements and “Item 1A.

Risk Factors” included in Part I of the Company's Form 10-K Report, we expect market volatility factors to have a material, adverse impact on future revenue growth and overall profitability for the foreseeable future.

Our working capital increased to $39.8 million at March 31, 2021, compared to a deficit of $18.1 million at December 31, 2020, the positive impact on working capital resulted primarily from an increase in cash and cash equivalents at March 31, 2021 as a result of proceeds from the sale of NPB and cash from operations.

In addition, accounts payable and accrued liabilities decreased due to our continuous cost reduction efforts, the sale of NPB and the timing of payments.

Our cash flows from operations are substantially dependent on current and future prices for oil and natural gas, which historically have been, and may continue to be, volatile.

Cash flows from operations are also affected by timing of cash receipts and disbursements and changes in other working capital assets and liabilities.

Our cash flows for the nine-month periods ended September 30, 2020, and 2019 are presented in the following table and discussed below (in thousands):

Nine Months Ended September 30,

Cash flows provided by operating activities $ 27,356 $ 95,529

Our cash flows for the three-month periods ended March 31, 2021, and 2020 are presented in the following table and discussed below (in thousands):

Three Months Ended March 31,

Cash flows provided by (used in ) operating activities $ 14,331 $ 18,103

Cash flows provided by (used in) investing activities 34,085 (4,463)

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Cash Flows from Operating Activities

The $68.2 million decrease in cash flows from operating activities for the nine-month period ended September 30, 2020 compared to the same period in 2019, is primarily due to the significant decline in revenues, which was partially offset by reductions in general and administrative costs and lease operating expenses as well as the other changes in working capital discussed previously.

The $3.8 million decrease in operating cash flows for the three-month period ended March 31, 2021 compared to the same period in 2020, is primarily due to the declines in revenues, partially offset by reduction in accounts payable and accrued expenses and reductions in expenses due to our cost reduction efforts.

See “—Condensed Consolidated Results of Operations” for further analysis of the changes in revenues and operating expenses, and see “Note 13—Employee Termination Benefits” to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this report for additional detail on cash paid for employee termination benefits.

Cash Flows from Investing Activities

Our cash flows used in investing activities during the nine-month period ended September 30, 2020 primarily reflects $35.4 million net cash proceeds from the sale of the corporate office building offset by cash payments made for capital expenditures accrued at December 31, 2019 (as shown in the table below) coupled with the acquisition of overriding royalty interests for $3.3 million.

See Note 6 ("Acquisitions and Disposal of Assets") for more information.

The Company As previously discussed, we have significantly reduced our 2020 capital expenditures program due to current commodity price and demand volatility.

During the nine-month period ended September 30, 2019, cash flows used in investing activities primarily consisted of proceeds from the sale of assets offset by payments for the acquisition of assets and capital expenditures for drilling and completion activities.

Capital expenditures for the nine-month periods ended September 30, 2020, and 2019 are summarized below (in thousands):

Nine Months Ended September 30,

Our cash flows provided in investing activities during the three-month period ended March 31, 2021 primarily reflects $37.2 million of net cash proceeds from the sale of assets offset by capital expenditures of $3.1 million.

See "Note 6 — Acquisitions and Divestitures" to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this report for additional information.

During the three-month period ended March 31, 2020, cash flows used in investing activities primarily reflects cash payments made for capital expenditures accrued at December 31, 2019.

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Capital expenditures for the three-month periods ended March 31, 2021, and 2020 are summarized below (in thousands):

Three Months Ended March 31,

Capital Expenditures

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Leasehold and geophysical 111 503

Other - corporate — 245

Capital expenditures, excluding acquisitions (on an accrual basis) 2,148 1,928

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__________________

Reflects cash paid or adjustments to accruals during the period presented for expenditures related to prior period capital expenditures.

Reflects cash paid or adjustments to accruals during the period presented for expenditures related to prior period capital expenditures program.

Cash Flows from Financing Activities

Cash provided by financing activities for the nine-month period ended September 30, 2020 consisted primarily of net borrowings under the credit facility.

See “— Recent Events,” “Note 7 - Debt” to the accompanying unaudited condensed consolidated financial statements for additional discussion of our credit facility's terms and covenant restrictions.

Cash used in financing activities for the three-month period ended March 31, 2021 consisted primarily of finance lease payments and cash paid for tax obligations on vested awards.

See “Note 8—Long-Term Debt” to the accompanying unaudited condensed consolidated financial statements for additional discussion of the Company's debt at March 31, 2021 and December 31, 2020.

Contractual Obligations and Off-Balance Sheet Arrangements

At September 30, 2020, our contractual obligations included asset retirement obligations, long-term debt obligations and leases and other individually insignificant obligations.

Additionally, we have certain financial instruments representing potential commitments that were incurred in the normal course of business to support our operations, including standby letters of credit and surety bonds.

At March 31, 2021, our contractual obligations included asset retirement obligations, long-term debt obligations and short-term leases and other individually insignificant obligations.

Additionally, we have certain financial instruments representing potential commitments that were incurred in the normal course of business to support our operations, including surety bonds.

The underlying liabilities insured by these instruments are reflected in our balance sheets, where applicable.

Therefore, no additional liability is reflected for the letters of credit and surety bonds.

Our credit facility outstanding balance decreased by $45.5 million, from $57.5 million at December 31, 2019 to $12.0 million at September 30, 2020, due to repayments of a portion of the borrowings previously drawn, which matures in April 2021.

Therefore, no additional liability is reflected for the surety bonds or other instruments.

There were no other significant changes in total contractual obligations and off-balance sheet arrangements from those reported in the 2020 Form 10-K.

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For a discussion of recent accounting pronouncements, newly adopted and recent accounting pronouncements not yet adopted, see “Note 1 - Basis of Presentation” to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report.

We did not have any material changes in critical accounting policies, estimates, judgments and assumptions during the first nine months of 2020.

We did not have any material changes in critical accounting policies, estimates, judgments and assumptions during the first three months of 2021.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis