ABRAXAS PETROLEUM: Administration report and evaluation of the monetary place and working outcomes (type 10-Q)

The next is a dialogue and evaluation of our monetary situation, outcomes
of operations, liquidity and capital assets and ought to be learn in conjunction
with our consolidated monetary statements and the notes thereto, included in
this Quarterly Report on Kind 10-Q and the consolidated monetary statements and
notes thereto as of and for the yr ended December 31, 2020 and the
associated Administration's Dialogue and Evaluation of Monetary Situation and Outcomes
of Operations, each of that are contained in our Annual Report on Kind 10-Ok for
the yr ended December 31, 2020 filed with the SEC on Might 6, 2021. Please see
"Ahead Trying Info" above.



Except in any other case indicated, all desk quantities are in 1000’s, besides unit values.



Important Accounting Insurance policies



There have been no adjustments from the Important Accounting Insurance policies described in
our Annual Report on Kind 10-Ok for the yr ended December 31, 2020, apart from
the adoption of Accounting Requirements Replace 2016-13, Monetary Devices -
Credit score Losses which was efficient January 1, 2020. See "Not too long ago Issued
Accounting Requirements" for extra data.



Common


We’re an impartial vitality firm primarily engaged within the acquisition, improvement and manufacturing of oil and gasoline in United States. Traditionally, we have now grown by way of acquisition and additional improvement

 of manufacturing properties, principally by way of the event of shale or tight
oil reservoirs in areas recognized to be productive of oil and gasoline using new
applied sciences resembling fashionable log evaluation and reservoir modeling methods as
properly as 3-D seismic surveys and horizontal drilling and stage fracturing. As a
results of these actions, we imagine that we have now a lot of improvement
alternatives on our properties.



COVID-19 Overview



Within the first quarter of 2020, a brand new pressure of coronavirus ("COVID-19") emerged,
creating a worldwide well being emergency that has been categorized by the World Well being
Group as a pandemic. Because of the COVID-19 pandemic, client
demand for each oil and gasoline decreased as a direct results of journey restrictions
positioned by governments in an effort to curtail the unfold of COVID-19 and its
variants. As well as, in March 2020, members of Group of Petroleum
Exporting International locations ("OPEC")   did not agree on manufacturing ranges, which
brought on an elevated provide of oil and gasoline and led to a considerable lower in
oil costs and an more and more risky market. OPEC agreed to chop international
petroleum output however didn't go far sufficient to offset the influence of COVID-19 on
demand. Because of this lower in demand and enhance in provide, the value
of oil and gasoline decreased, which has affected our liquidity. Since that point,
demand and the value of oil and gasoline have elevated, however each stay risky and
uncertainty associated to the pandemic brought on by COVID-19 and its variant strains
persists. Whereas the Firm's commodity hedges protected its money flows in 2020
from such worth decline and whereas costs have slowly risen in current months, if
oil or pure gasoline costs stay depressed or decline once more the Firm will likely be
required to file oil and gasoline property write-downs.



In early March 2020, international oil and pure gasoline costs declined sharply, have
since been risky, rising in current months, however might decline once more. The
Firm expects ongoing oil and gasoline worth volatility over the quick time period. The
full influence of COVID-19 and its variants and the volatility in oil costs
continues to evolve as of the date of this report. As such, it's unsure as
to the complete magnitude that may have on the Firm. Administration is actively
monitoring the worldwide state of affairs and the influence on the Firm's future
operations, monetary place and liquidity in fiscal yr 2021. In response to
the value volatility, the Firm has taken motion to cut back normal and
administrative prices, in addition to  shutting in manufacturing in mid-March 2020,
however subsequently began restoring manufacturing in mid-June, a majority of such
wells had been again on manufacturing in early September 2020. Now we have additionally suspended
our capital expenditures indefinitely.



Elements Affecting Our Monetary Outcomes

Our monetary outcomes are depending on many components that considerably have an effect on our outcomes of operations, together with the next:


  • commodity costs and the effectiveness of our hedging preparations;




  • the extent of whole gross sales volumes of oil and gasoline;



• the provision and our capacity to lift extra capital and

    present liquidity to satisfy money movement wants;




  • the extent of and rates of interest on borrowings; and




  • the extent and success of exploration and improvement exercise.



Commodity costs and hedging agreements.



The outcomes of our operations are extremely dependent upon the costs acquired for
our oil and gasoline manufacturing. The costs we obtain for our manufacturing are
dependent upon spot market costs, differentials and the effectiveness of our
spinoff contracts, which we typically consult with as hedging preparations.
Considerably all of our gross sales of oil and gasoline are made within the spot market, or
pursuant to contracts based mostly on spot market costs, and never pursuant to
long-term, fixed-price contracts. Accordingly, the costs acquired for our oil
and gasoline manufacturing are dependent upon quite a few components past our management.
Important declines in costs for oil and gasoline might have a cloth adversarial
impact on our monetary situation, outcomes of operations, money flows and
portions of reserves recoverable on an financial foundation.



Oil and gasoline costs have been risky and are anticipated to proceed to be
risky.  Because of the numerous uncertainties related to the world
political surroundings, worldwide provides of oil, NGL and gasoline, the provision
of different worldwide vitality provides and the relative aggressive relationships of
the assorted vitality sources within the view of customers, we're unable to foretell
what adjustments might happen in oil, NGL and gasoline costs sooner or later.  The market
worth of oil and condensate, NGL and gasoline in 2021 will influence the amount of money
generated from working actions, which can in flip influence our monetary
place.



                                       27

————————————————– ——————————

Contents



Throughout the six months ended June 30, 2021, the NYMEX future worth for oil
averaged $62.22 per Bbl as in comparison with $37.26 per Bbl in the identical interval of
2020. Throughout the six months ended June 30, 2021, the NYMEX future spot worth for
gasoline averaged $2.85 per MMBtu in comparison with $1.81 per MMBtu in the identical interval of
2020. Costs closed on June 30, 2021 at $73.47 per Bbl of oil and $3.65 per
MMBtu of gasoline, in comparison with closing on June 30, 2020 at $20.48 per Bbl of oil and
$1.64 per MMBtu of gasoline.  On August 11, 2021, costs closed at $69.25 per Bbl of
oil and $4.06 per MMBtu of gasoline.  If commodity costs decline, our income and
money movement from operations will even possible decline. As well as, decrease commodity
costs might additionally scale back the quantity of oil and gasoline that we are able to produce
economically. If oil and gasoline costs decline, our revenues, profitability and
money movement from operations will even possible lower which might trigger us to
alter our enterprise plans, together with decreasing our drilling actions. Such
declines have required, and in future durations might additionally require us to write down
down the carrying worth of our oil and gasoline belongings which might additionally trigger a
discount in internet revenue. The costs that we obtain are additionally impacted by foundation
differentials, which might be vital, and are depending on precise supply
factors. Lastly, low commodity costs will possible trigger a discount of our
proved reserves.



The realized costs we obtain for our manufacturing differ from the NYMEX futures and spot costs, primarily because of:


  • foundation differentials that are depending on precise supply location;




  • changes for BTU content material;




  • high quality of the hydrocarbons; and




  • gathering, processing and transportation prices.



The next desk exhibits our common differentials for the six-month durations ended. June 30, 2021 and 2020:



                                 Oil - NYMEX             Fuel - NYMEX
                              2021        2020        2021        2020
Common realized worth (1)   $ 57.86$ 37.59$  1.72$  0.11
Common NYMEX worth            62.22       37.26        2.85        1.81
Differential                 $ (4.36 )$  0.33$ (1.13 )$ (1.70 )

(1) Excluding the influence of spinoff actions.



At June 30, 2021, our spinoff contracts consisted of NYMEX-based mounted worth
swaps. Underneath mounted worth swaps, we obtain a hard and fast worth for our manufacturing and
pay a variable market worth to the contract counter-party.



The vast majority of our spinoff contracts had been terminated in April 2021. Our
remaining spinoff contract equates to roughly 29% of the estimated oil
manufacturing from our internet proved developed producing reserves (based mostly on reserve
estimates at June 30, 2021) from July 1, 2021 by way of December 31, 2021. None of
our manufacturing subsequent to 2021 is roofed by spinoff contracts.  When
prevailing market costs are increased than our contract costs, we is not going to
notice elevated money movement. Now we have previously and can sooner or later maintain
losses on our spinoff contracts if market costs are increased than our contract
costs. Conversely, when prevailing market costs are decrease than our contract
costs, we are going to maintain positive factors on our commodity spinoff contracts. For the six
months ended June 30, 2021, we realized a lack of $32.6  million on our
spinoff contracts, together with a lack of $7.1 ensuing from the termination of
our spinoff contracts in April 2021. For the six months ended June 30, 2020,
we realized a achieve of $59.8 million on our spinoff contracts.  Now we have not
designated any of those spinoff contracts as hedges as prescribed by
relevant accounting guidelines. Considerably all of our spinoff contracts had been
terminated in April 2021, because of our default on our credit score services.
See Notice 10 "Occasions of Default".



The next desk exhibits our spinoff contracts at June 30, 2021:


                                          Oil - WTI
Contract Durations        Day by day Quantity (Bbl)       Swap Value (per Bbl)
Fastened Swaps
2021 July - December                    750     $                52.50



TO June 30, 2021, the mixture truthful market worth of our commodity spinoff contracts was a internet legal responsibility of roughly $ 3.0 million.

Virtually all of our spinoff contracts had been terminated in April 2021.



Manufacturing Volumes. Our proved reserves will decline as oil and gasoline is produced,
until we discover, purchase or develop extra properties containing proved
reserves or conduct profitable exploration and improvement actions. Primarily based on
the reserve data set forth in our reserve report as of December 31, 2020,
our common annual estimated decline price for our internet proved developed producing
reserves is 41%; 19%; 15%; 12% and 11% in 2021, 2022, 2023, 2024 and 2025,
respectively, 8% within the following 5 years, and roughly 8% thereafter.
 These charges of decline are estimates and precise manufacturing declines might be
materially completely different. Whereas we have now had some success to find, buying and
growing extra reserves, we have now not all the time been in a position to absolutely substitute
the manufacturing volumes misplaced from pure discipline declines and property gross sales. Our
capacity to amass or discover extra reserves sooner or later will likely be dependent,
partially, upon the quantity of obtainable funds for acquisition, exploration and
improvement initiatives. As well as, the 1L Modification limits capex to $3.0 million
over any 4 consecutive quarters starting with the quarter ended June 30,
2020. This restrict is efficient till the First Lien Credit score Facility is paid down
to $50.0 million, which can additional restrict our capacity to interchange manufacturing
volumes.



                                       28

————————————————– ——————————

Contents

We had capital expenditures throughout the six months ended June 30, 2021 of
$ 393,000 associated to our present properties. Now we have not established a capital funds for 2021 because of restrictions imposed by our credit score facility.

 Administration and the board of administrators are additionally contemplating extra working
and overhead value efficiencies that might be realized in reference to the
2021 funds. The amendments to our credit score services, described within the
"Liquidity and Capital Assets" part under, restrict our capital expenditures
to $3.0 million in any 4 consecutive quarters, starting with the quarter
ended June 30, 2020.  Our capital expenditures won't be able to offset oil
and gasoline manufacturing decreases brought on by pure discipline declines.



The next desk presents the historic internet manufacturing volumes for the three and 6 months ended. June 30, 2021, and 2020:


                                         Three Months Ended June 30,           Six Months Ended June 30,
                                          2021                2020              2021               2020
Complete manufacturing (MBoe)                         526                 156            1,025                773
Common day by day manufacturing (Boepd)              5,785               1,718            5,664              4,247
% Oil                                            47 %                60 %             50 %               60 %




The next desk presents our internet oil, gasoline and NGL manufacturing, the typical
gross sales worth per Bbl of oil and NGL and per Mcf of gasoline produced and the typical
value of manufacturing per Boe of manufacturing bought, for the three and 6 months
ended June 30, 2021 and 2020, by our main working areas:



                                         Three Months Ended June 30,           Six Months Ended June 30,
                                          2021                2020              2021               2020
Oil manufacturing (MBbls)
Rocky Mountain                                  119                  59              252                239
Permian/Delaware Basin                          130                  35              261                227
Complete                                           249                  94              513                466
Fuel manufacturing (MMcf)
Rocky Mountain                                  456                 135              913                635
Permian/Delaware Basin                          448                  70              789                315
Complete                                           904                 205            1,702                950
NGL manufacturing (MBbls)
Rocky Mountain                                   96                  22              176                112
Permian/Delaware Basin                           30                   6               52                 37
Complete                                           126                  28              228                149
Complete manufacturing (MBoe) (1)                     526                 156            1,025                773
Common gross sales worth per Bbl of oil
(2)
Rocky Mountain                        $       62.03$       23.69$      56.05$      35.53
Permian/Delaware Basin                        64.36                16.2            59.60              39.95
Composite                                     63.25               20.92            57.86              37.59
Common gross sales worth per Mcf of gasoline
(2)
Rocky Mountain                        $        1.12$        0.02$       1.17$       0.12
Permian/Delaware Basin                         1.67                0.29             2.36               0.11
Composite                                      1.39                0.11             1.72               0.11
Common gross sales worth per Bbl of NGL
Rocky Mountain                        $       10.31$       (0.43 )$      10.18$       0.80
Permian/Delaware Basin                        13.96                2.09            13.28               0.28
Composite                                     11.18                0.10            10.89               0.68
Common gross sales worth per Boe (2)       $       35.03$       12.76$      34.24$      22.92
Common value of manufacturing per Boe
produced (3)
Rocky Mountain                        $        6.34$       10.50$       6.23$       7.08
Permian/Delaware Basin                         9.56               35.52            10.97              16.26
Composite                                      7.78               18.93             8.29              10.85



(1) Oil and gasoline was mixed by changing gasoline to Boe based mostly on 6 Mcf of

      gasoline to 1 Bbl of oil.


  (2) Earlier than the influence of hedging actions.

(3) Manufacturing prices embody direct rental working prices however exclude advert valorem

      taxes and manufacturing taxes.




                                       29

————————————————– ——————————

Contents



Availability of Capital. As described extra absolutely underneath "Liquidity and Capital
Assets" under, our sources of capital are money movement from working
actions, proceeds from the sale of properties, monetizing of spinoff
devices, and if an applicable alternative presents itself, the sale of debt
or fairness securities, though we might not be capable of full any asset gross sales or
financing on phrases acceptable to us, if in any respect.  Our credit score services had been
amended in June 2020, leading to no accessible borrowing base underneath our First
Lien Credit score Facility. Moreover, any extra money, as outlined within the First
Lien Credit score Facility, will likely be utilized to the excellent stability on a month-to-month
foundation, and the borrowing base will likely be diminished to the brand new excellent stability. As
a outcome, apart from $3.0 million of funds accessible for working
capital functions, we count on to have restricted accessible capital.



Borrowings and Curiosity. At June 30, 2021, we had a complete of $88.5 million
excellent underneath our First Lien Credit score Facility, $132.1 million underneath our
Second Lien Credit score facility, together with a $10.0  million exit price, and whole
indebtedness of $223.3 million (together with the present portion). Moreover, we
have an obligation of roughly $9.9 million associated to terminated hedging
agreements. If curiosity expense will increase because of increased rates of interest
or elevated borrowings, additional cash movement from operations can be used to satisfy
debt service necessities. Though as famous above, underneath the phrases of the
amended Second Lien Credit score Facility, curiosity underneath the 2nd Lien Notes is now
paid-in-kind.  We're in default on each of our credit score services, see Notice 10
"Occasions of Default" for additional clarification.



Exploration and Improvement Exercise. We imagine that our top quality asset
base, excessive diploma of operational management and stock of drilling initiatives
place us for future progress ought to oil and gasoline costs rebound sooner or later.
At December 31, 2020, we operated properties accounting for nearly all of our
PV-10, giving us substantial management over the timing and incurrence of working
and capital expenditures. Now we have recognized quite a few extra drilling
areas on our present leaseholds, the profitable improvement of which we
imagine might considerably enhance our manufacturing and proved reserves.
Nonetheless, the amendments to our First Lien Credit score Facility and Second Lien Credit score
facility place extreme restrictions on our future capital expenditures and we
have restricted deliberate exercise for 2021.



Our future oil and gasoline manufacturing, and due to this fact our success, is extremely
dependent upon our capacity to search out, purchase and develop extra reserves that
are worthwhile to supply. The speed of manufacturing from our oil and gasoline
properties and our proved reserves will decline as our reserves are produced
until we purchase extra properties containing proved reserves, conduct
profitable improvement and exploration actions or, by way of engineering
research, establish extra behind-pipe zones or secondary restoration reserves.
We can't guarantee you that we'll have any vital exploration and
improvement actions within the close to time period or that they are going to end in will increase in
our proved reserves. If our proved reserves decline sooner or later, our
manufacturing can also decline and, consequently, our money movement from operations
will decline.  We will likely be unable to amass or develop extra reserves or
develop our present undeveloped reserves, through which case our outcomes of
operations and monetary situation are anticipated to be adversely affected.
Moreover, as a result of uncertainty to stay a "going concern" and the dearth of
liquidity resulted within the removing of all of our proved undeveloped reserves from
our books.



                                       30

————————————————– ——————————

  Desk of Contents



Outcomes of Operations


Chosen working knowledge. The next desk presents working knowledge for persevering with operations for the durations introduced.



                                            Three Months Ended June 30,             Six Months Ended June 30,
                                            2021                 2020               2021                2020
Working income (1):
Oil gross sales                               $      15,768       $         1,970     $     29,693$       17,505
Fuel gross sales                                       1,259                    22            2,929                  108
NGL gross sales                                       1,414                     3            2,483                  100
Different                                               2                    (2 )              8                    6
Complete working revenues                $      18,443       $         1,993     $     35,113$       17,719
Working revenue (loss)                 $       6,056$       (61,474 )$     10,899$      (91,255 )
Oil gross sales (MBbls)                                 249                    94              513                  466
Fuel gross sales (MMcf)                                  904                   205            1,702                  950
NGL gross sales (MBbls)                                 126                    28              228                  149
Oil equivalents (MBoe)                            526                   156            1,025                  773

Common promoting worth of oil (per Bbl) (1) $ 63.25 $ 20.92

     $      57.86$        37.59
Common gasoline gross sales worth (per Mcf)(1)    $        1.39       $          0.11     $       1.72       $         0.11
Common NGL gross sales worth (per Bbl)       $       11.18       $          0.10     $      10.89       $         0.68
Common oil equal gross sales worth
(Boe) (1)                               $       35.03       $         12.76     $      34.24$        22.92


___________________
  (1) Income and common gross sales costs are earlier than the influence of hedging
      actions.



Comparability of the three accomplished months June 30, 2021 at three months over June 30, 2020



Working Income. Throughout the three months ended June 30, 2021, working
income elevated to $18.4 million from $2.0 million for a similar interval of
2020. The rise in income was primarily because of increased commodity costs as
properly as increased gross sales volumes for all merchandise throughout the three months ended June
30, 2021 as in comparison with the identical interval of 2020.  Greater gross sales volumes for all
merchandise contributed $11.8 million to income whereas increased realized costs
added $4.6 million.to working income for the three months ended June 30,
2021.



Oil gross sales volumes elevated to 249 MBbl throughout the three months ended June 30,
2021 from 94 MBbl for a similar interval of 2020. The rise in gross sales quantity was
primarily because of having wells that had been shut in throughout 2020 again onto
manufacturing.  Fuel gross sales volumes elevated to 904 MMcf for the three months ended
June 30, 2021 from 206 MMcf for a similar interval of 2020. The rise in gasoline
volumes was the results of bringing deep gasoline wells again on manufacturing that had
been shut in since 2019 because of low gasoline costs.



Lease Working Bills ("LOE"). LOE for the three months ended June 30, 2021
elevated to $4.1 million from $3.1 million for a similar interval of 2020. The
enhance in LOE was primarily because of extra discipline expense related to
bringing shut in wells again on manufacturing. We had value financial savings  because of this
of decreasing our work power in North Dakota in Might 2020 and eradicated
considerably all discipline extra time. LOE per Boe for the three months ended June
30, 2021 was $7.72 in comparison with $19.56 for a similar interval of 2020. The lower
per Boe was due primarily to increased  gross sales volumes, offset by increased whole
prices for the three months ended June 30, 2021 as in comparison with the identical interval of
2020.



Manufacturing and Advert Valorem Taxes. Manufacturing and advert valorem taxes for the three
months ended June 30, 2021 elevated to $1.7  million from $0.6 million for the
identical interval of 2020.  Manufacturing and advert valorem taxes for the three months ended
June 30, 2021 had been 9% of whole oil, gasoline and NGL gross sales as in comparison with 28% for the
identical interval of 2020.  The excessive proportion for 2020 was primarily because of Advert
Valorem taxes that don't range with manufacturing volumes.



                                       31

————————————————– ——————————

Contents



Common and Administrative ("G&A") Expense. G&A bills, excluding stock-based
compensation,  elevated to $2.1 million for the three months ended June 30,
2021 as in comparison with $1.6 million in the identical interval of 2020. The rise in
whole G&A expense was primarily because of increased group insurance coverage and wage
expense. G&A per Boe, excluding stock-based compensation, was $3.92 for the
quarter ended June 30, 2021 in comparison with $10.18 for a similar interval of 2020. 

the

lower in G&A per Boe, excluding inventory based mostly compensation, was primarily due
to increased gross sales volumes partially offset by increased value for the three months
ended June 30, 2021 as in comparison with the identical interval of 2020.



Inventory-Primarily based Compensation. Choices granted to workers and administrators are valued
on the date of grant and expense is acknowledged over the choices' vesting interval.
Along with choices, restricted shares of our frequent inventory have been granted
and are valued on the date of grant and expense is acknowledged over their vesting
interval. For the three months ended June 30, 2021, stock-based compensation
expense was $0.2 million in comparison with $0.4 million for a similar interval of 2020.
The vast majority of our inventory based mostly compensation has been absolutely amortized and no new
grants had been issued throughout the six month interval ended June 30, 2021.



Depreciation, Depletion and Amortization ("DD&A") Expense. DD&A expense,
excluding accretion of future web site restoration, for the three months ended June
30, 2021  elevated to $4.2 million from $2.8 million for a similar interval of
2020. The rise was primarily because of increased manufacturing volumes offset by 

a

decrease full value pool because of the impairments recorded in 2020 in addition to
decrease future improvement value included within the June 30, 2021 inner reserve
report given the removing of proved undeveloped reserves. Proved  undeveloped
reserves had been eliminated as a result of uncertainty of the Firm's capacity to be
a "going concern"  and the dearth of liquidity to develop the reserves.   DD&A
expense per Boe for the three months ended June 30, 2021 was $7.91 in comparison with
$16.95 in the identical interval of 2020. The lower in DD&A expense per Boe was
primarily because of a decrease full value pool as the results of the impairment incurred
in 2020.



Ceiling Limitation Write-Down. We file the carrying worth of our oil and gasoline
properties utilizing the complete value methodology of accounting for oil and gasoline properties.
Underneath this methodology, we capitalize the associated fee to amass, probe for and develop
oil and gasoline properties. Underneath the complete value accounting guidelines, the web
capitalized value of oil and gasoline properties much less associated deferred taxes, are
restricted by nation, to the decrease of the unamortized value or the associated fee ceiling,
outlined because the sum of the current worth of estimated unescalated future revenues
from proved reserves, discounted at 10%, plus the price of properties not being
amortized, if any, plus the decrease of value or estimated truthful worth of unproved
properties included within the prices being amortized, if any, much less associated revenue
taxes. If the web capitalized value of oil and gasoline properties exceeds the ceiling
restrict, we're topic to a ceiling limitation write-down to the extent of such
extra. A ceiling limitation write-down is a cost to earnings which doesn't
influence money movement from working actions. Nonetheless, such write-downs do influence
the quantity of our stockholders' fairness and reported earnings. As of June 30,
2021, our internet capitalized prices of oil and gasoline properties didn't exceed the
value ceiling of our estimated proved reserves, As of June 30, 2020, our internet
capitalized prices of oil and gasoline properties exceeded the associated fee ceiling of our
estimated proved reserves ,ensuing within the recognition of an impairment
of $54.9  million for the three months ended June 30, 2020.



The chance that we'll be required to write-down the carrying worth of our oil
and gasoline belongings will increase when oil and gasoline costs are depressed or risky. In
addition, write-downs might happen if we have now substantial downward revisions in our
estimated proved reserves. We can't guarantee you that we'll not expertise
extra write-downs sooner or later.



Curiosity Expense. Curiosity expense for the three months ended June 30,
2021 elevated to $7.7 million in comparison with $5.5 million for a similar interval of
2020. The rise in curiosity expense in 2021 was because of increased ranges of debt
throughout the three months ended June 30, 2021 as in comparison with the identical interval
of 2020. The rise in debt ranges was primarily because of curiosity paid in variety
on our Second Lien Credit score Facility. For the three months ended June 30,
2021, the rate of interest on our First Lien Credit score Facility averaged 8.0% as
in comparison with 4.7%  for a similar interval of 2020. The rise within the common price
on the First Lien Credit score Facility was the results of a default rate of interest of
8.75% starting April 22, 2021. The rate of interest on our Second Lien Credit score
Facility averaged 15.8%  for the three months ended June 30, 2021 and 2020  We
anticipate increased rates of interest and elevated curiosity expense sooner or later as
a results of the amendments to our credit score services. For the three months ended
June 30, 2021, roughly $4.9 million in curiosity expense on our Second Lien
Credit score Facility was paid in variety.



Loss (Acquire) on Spinoff Contracts. Spinoff positive factors or losses are decided
by precise spinoff settlements throughout the interval and on the periodic mark to
market valuation of spinoff contracts in place at interval finish. Now we have elected
to not apply hedge accounting to our spinoff contracts; due to this fact,
fluctuations available in the market worth of the spinoff contracts are acknowledged in
earnings throughout the present interval. Our spinoff contracts consisted of
NYMEX-based mounted worth swaps and foundation differential swaps as of June 30, 2021,
and June 30, 2020. The web estimated worth of our commodity spinoff contracts
was a internet legal responsibility of roughly $3.0 million as of June 30, 2021. When our
spinoff contract costs are increased than prevailing market costs, we incur
positive factors and, conversely, when our spinoff contract costs are decrease than
prevailing market costs, we incur losses. For the three months ended June 30,
2021, we acknowledged a loss on our commodity spinoff contracts
of $9.9 million, together with a lack of $7.1 referring to the termination of our
spinoff contracts in April 2021. For the three months ended June 30, 2020, we
acknowledged a loss on our commodity spinoff contracts of $15.9 million.



Earnings Tax Expense. For the three months ended June 30, 2021 and June 30, 2020
there was no revenue tax expense acknowledged because of our NOL carryforwards. The
Coronavirus Support, Reduction, and Financial Safety Act (the "CARES Act"), that was
enacted March 27, 2020, contains revenue tax provisions that permit internet working
losses ("NOLs") to be carried again, permits curiosity expense to be deducted as much as
the next proportion of adjusted taxable revenue, and modifies tax depreciation of
certified enchancment property, amongst different provisions.  These provisions did
not have a cloth influence on the Firm.



                                       32

————————————————– ——————————

Contents

Comparability of the finished six months June 30, 2021 at six months over June 30, 2020



Working Income. Throughout the six months ended June 30, 2021, working income
elevated to $35.1 million from $17.7 million for a similar interval of 2020. The
enhance in income was primarily because of increased commodity costs in addition to
increased gross sales volumes throughout the six months ended June 30, 2021 as in comparison with
the identical interval of 2020. Greater realized commodity costs for all merchandise
contributed  $13.4 million in working income,  and better gross sales volumes for
all merchandise added $4.0 million to working income for the six months ended
June 30, 2021.



Oil gross sales volumes elevated to 513 MBbl throughout the six months ended June 30,
2021, from 466 MBbl for a similar interval of 2020. General manufacturing was increased
in 2021, because of bringing wells again on manufacturing that had been shut in
throughout a lot of the second quarter of 2020 because of the COVID-19 virus and
different geopolitical points affecting the provision and demand for oil and pure
gasoline, and accordingly the costs we acquired. We made the choice to start
shutting in wells in mid-March 2020. The vast majority of our oil manufacturing was shut
in from mid-March by way of mid-June, 2020 when costs had recovered considerably. We
started bringing wells again on manufacturing in mid-June, and had a big
quantity of our oil manufacturing again on line in July 2020. The lower in gasoline
manufacturing was primarily because of shut in wells, as mentioned above.
Moreover, we have now introduced  a lot of dry gasoline wells in west Texas again on
manufacturing which were shut in since roughly April 2019 because of adverse
gasoline costs.



Lease Working Bills ("LOE"). LOE for the six months ended June 30,
2021 elevated to $8.4 million from $8.3 million for a similar interval of 2020.
The rise was primarily because of bills associated to having wells again on
manufacturing that had been shut in, as mentioned above. LOE per Boe for the six months
ended June 30, 2021 was $8.24 in comparison with $10.80 for a similar interval of 2020.
The lower per Boe was because of primarily to increased gross sales volumes, partially
offset by increased whole prices for the six months ended June 30, 2021, as in contrast
to the identical interval of 2020.



Manufacturing and Advert Valorem Taxes. Manufacturing and advert valorem taxes for the six
months ended June 30, 2021 elevated to $3.1  million from $2.1 million for the
identical interval of 2020.  Manufacturing and advert valorem taxes for the six months ended
June 30, 2021 had been 9% of whole oil, gasoline and NGL gross sales as in comparison with 12% for the
identical interval of 2020. The upper proportion of income in 2020 was because of advert
valorem taxes that don't fluctuate with manufacturing volumes.



Common and Administrative ("G&A") Expense. G&A bills, excluding stock-based
compensation, was basically flat at roughly $3.8 million for the six
months ended June 30, 2021  and 2020. G&A expense per Boe, excluding stock-based
compensation, was $3.71 for the quarter ended June 30, 2021 in contrast
to $4.93 for a similar interval of 2020. The lower per Boe was primarily because of
increased gross sales volumes.



Inventory-Primarily based Compensation. Choices granted to workers and administrators are valued
on the date of grant and expense is acknowledged over the choices' vesting interval.
Along with choices, restricted shares of our frequent inventory have been granted
and are valued on the date of grant and expense is acknowledged over their vesting
interval. For the six months ended June 30, 2021, stock-based compensation expense
was $0.5 million in comparison with $0.6 million for a similar interval of 2020. The
lower was primarily as a result of cancellation, forfeiture of restricted inventory
and choices. Considerably all expense associated to inventory choices, restricted
inventory and efficiency based mostly shares has been  absolutely amortized with no new grants
having been issued throughout the six months ended June 30, 2021.



                                       33

————————————————– ——————————

Contents



Depreciation, Depletion and Amortization ("DD&A") Expense. DD&A expense,
excluding accretion of future web site improvement, for the six months ended June
30, 2021  decreased to $8.0 million from  $11.8 million for a similar interval of
2020. The lower was primarily because of decrease future improvement value included
within the June 30, 2021 inner reserve report, in addition to decrease manufacturing
volumes throughout the six months ended June 30, 2021, as in comparison with the identical
interval of 2020. DD&A expense per Boe for the six months ended June 30, 2021 was
$7.76 in comparison with $15.30 in the identical interval of 2020. The lower in DD&A
expense per Boe was primarily because of a decrease full value pool as the results of the
impairment incurred throughout 2020.



Ceiling Limitation Write-Down. We file the carrying worth of our oil and gasoline
properties utilizing the complete value methodology of accounting for oil and gasoline properties.
Underneath this methodology, we capitalize the associated fee to amass, probe for, and develop
oil and gasoline properties. Underneath the complete value accounting guidelines, the web
capitalized value of oil and gasoline properties much less associated deferred taxes, are
restricted by nation, to the decrease of the unamortized value or the associated fee ceiling,
outlined because the sum of the current worth of estimated unescalated future revenues
from proved reserves, discounted at 10%, plus the price of properties not being
amortized, if any, plus the decrease of value or estimated truthful worth of unproved
properties included within the prices being amortized, if any, much less associated revenue
taxes. If the web capitalized value of oil and gasoline properties exceeds the ceiling
restrict, we're topic to a ceiling limitation write-down to the extent of such
extra. A ceiling limitation write-down is a cost to earnings which doesn't
influence money movement from working actions. Nonetheless, such write-downs do influence
the quantity of our stockholders' fairness and reported earnings. As of June 30,
2021, our internet capitalized prices of oil and gasoline properties didn't exceed the
value ceiling of our estimated proved reserves.  As of June 30, 2020, our internet
capitalized prices of oil and gasoline properties exceeded the associated fee ceiling of our
estimated proved reserves, ensuing within the recognition of an impairment
of $81.6  million for the six months ended June 30, 2020.



The chance that we'll be required to write-down the carrying worth of our oil
and gasoline belongings will increase when oil and gasoline costs are depressed or risky. In
addition, write-downs might happen if we have now substantial downward revisions in our
estimated proved reserves. We can't guarantee you that we'll not expertise
extra write-downs sooner or later. The volatility in commodity costs because of
COVID-19 and geopolitical points affecting provide and demand, might end in
our proved reserves being revised downward, requiring  additional write-down of the
carrying worth of our oil and gasoline properties throughout the the rest of 2021.



Curiosity Expense. Curiosity expense for the six months ended June 30,
2021 elevated to $13.7 million in comparison with $9.9 million for a similar interval of
2020. The rise in curiosity expense in 2021 was because of increased ranges of debt
throughout the six months ended June 30, 2021, as in comparison with the identical interval in
2020, in addition to increased total rates of interest in 2021 as in comparison with 2020. For
the six months ended June 30, 2021 the rate of interest on our First Lien Credit score
Facility averaged 5.0% as in comparison with 4.3%  for a similar interval of 2020. For the
six months ended June 30, 2021, the rate of interest on our Second Lien Credit score
Facility averaged 15.9%, as in comparison with 15.8% for a similar interval of 2020. We
anticipate increased rates of interest and elevated curiosity expense sooner or later as
a results of the amendments to our credit score services. For the six months ended
June 30, 2021, roughly $9.4 million of the curiosity paid on the Second
Lien Credit score Facility was paid in variety.



Loss (Acquire) on Spinoff Contracts. Spinoff positive factors or losses are decided
by precise spinoff settlements throughout the interval and on the periodic mark to
market valuation of spinoff contracts in place at interval finish. Now we have elected
to not apply hedge accounting to our spinoff contracts; due to this fact,
fluctuations available in the market worth of the spinoff contracts are acknowledged in
earnings throughout the present interval. Our spinoff contracts consisted of
NYMEX-based mounted worth swaps and foundation differential swaps as of June 30, 2021,
and June 30, 2020. The web estimated worth of our commodity spinoff contracts
was a legal responsibility of roughly $3.0 million as of June 30, 2021. When our
spinoff contract costs are increased than prevailing market costs, we incur
positive factors and, conversely, when our spinoff contract costs are decrease than
prevailing market costs, we incur losses. For the six months ended June 30,
2021, we acknowledged a loss on our commodity spinoff contracts of $32.6
million together with a lack of $7.1. because of the termination of our
spinoff contracts in April 2021. For the six months ended June 30, 2020, we
acknowledged a achieve on our commodity spinoff contracts of $59.8 million.



Earnings Tax Expense. For the six months ended June 30, 2021 and June 30, 2020,
there was no revenue tax expense acknowledged because of our NOL carryforwards. The
CARES Act, that was enacted March 27, 2020 contains revenue tax provisions that
permit internet working losses (NOLs) to be carried again, permits curiosity expense to
be deducted as much as the next proportion of adjusted taxable revenue, and modifies
tax depreciation of certified enchancment property, amongst different provisions.
These provisions didn't have a cloth influence on the Firm.



                                       34

————————————————– ——————————

Contents

Liquidity and capital assets



Common. The oil and gasoline trade is a extremely capital intensive and cyclical
enterprise. Our capital necessities are pushed principally by our obligations to
service debt and to fund the next:



• the event and exploration of present properties, together with drilling and

    completion prices of wells;


  •  acquisition of pursuits in extra oil and gasoline properties; and


  • manufacturing and transportation services.




The quantity of capital expenditures we're in a position to make has a direct influence on
our capacity to extend money movement from operations and, thereby, will instantly
have an effect on our capacity to service our debt obligations and to develop the enterprise
by way of the event of present properties and the acquisition of recent
properties. As a result of drastic lower in oil costs that started in early March
2020 because of  the OPEC worth battle and the COVID-19 pandemic, we suspended
capital expenditures for 2020 and 2021. Moreover, our amended credit score
services restrict capital expenditures to $3.0 million for the trailing 4
quarters.



Our principal sources of capital are money flows from operations, proceeds from
the sale of properties, and if a possibility presents itself, the sale of debt
or fairness securities, though we might not be capable of promote properties or full
any financings on phrases acceptable to us, if in any respect. We imagine that our money
movement from these sources going ahead, will likely be satisfactory to fund our operations.
In June 2020, our First Lien Credit score Facility was amended and has no additional
availability. Moreover, any extra money, as outlined within the First Lien Credit score
Facility, will likely be utilized to the excellent stability on a month-to-month foundation, and the
borrowing base will likely be diminished to the brand new excellent stability.



Working Capital (Deficit). At June 30, 2021, our present
liabilities of $237.2 million exceeded our present belongings $22.9  million,
leading to a working capital deficit of $214.3 million. This compares to a
working capital deficit of $195.3 million at December 31, 2020. Present belongings
as of June 30, 2021 primarily consisted of money of $8.0 million, accounts
receivable of $14.0 million and different present belongings of $1.0 million. Present
liabilities at June 30, 2021 primarily consisted of commerce payables of
$2.1 million, revenues due third events of $11.6 million, present maturities of
long-term debt of $209.2 million, the present portion of our spinoff
legal responsibility of $3.0 million, accrued curiosity of $0.3 million, hedge legal responsibility
ensuing from termination of spinoff contracts of  $9.9 million and different
accrued bills of $0.8 million.



Capital expenditure. Capital expenditure for the six months ended June 30, 2021 and 2020 had been $ 0.4 million and $ 6.1 million, respectively.

The desk under exhibits the parts of those capital expenditures:


                               Six Months Ended June 30,
                             2021                  2020
                                    (In 1000's)
Expenditure class:
Exploration/Improvement   $       387         $         5,969
Amenities and different                6                     134
Complete                     $       393         $         6,103




Throughout the six months ended June 30, 2021 and 2020, our capital expenditures
had been totally on our present properties. Money foundation capital expenditures for
the six months ended June 30, 2021 of $393,000 contains $30,000 for a lower
in capital expenditures in accounts payable, a lower in future web site
restoration of $2.7 million, leading to internet accrual foundation capital expenditures
of ($2.3) million.  As beforehand described, our amended credit score services restrict
capital expenditures to $3.0 million for any 4 consecutive quarters starting
with the quarter ended June 30, 2020. Primarily based on our  capital expenditure limits,
the Firm won't be able to offset oil and gasoline manufacturing decreases brought on
by pure discipline declines.



                                       35

————————————————– ——————————

Contents

Sources of capital. The web funds offered by and / or utilized in every of the working, investing and financing actions are summarized within the following desk and mentioned in additional element under:


                                                            Six Months Ended June 30,
                                                            2021                 2020
                                                                 (In 1000's)
Internet money offered by working actions              $       10,646$        5,492
Internet money utilized in investing actions                             (24 )            (10,581 )
Internet money (utilized in) offered by financing actions            (5,433 )              5,089
Complete                                                  $        5,189       $            -




Working actions for the six months ended June 30, 2021 offered $10.6
million in money in comparison with offering $5.5 million in the identical interval of 2020.
Losses on derivatives, non-cash curiosity expense, non money termination of hedge
legal responsibility, and adjustments in working belongings and liabilities accounted for many of
these funds. Investing actions used $24,000 throughout the six months ended June
30, 2021, totally on our present properties. Investing actions additionally
included a discount in future web site restoration of  associated to belongings bought
of $2.7 million and a discount in accounts payable associated to capital
expenditures of $0.03 million. Investing actions used $10.6 million throughout
the six months ended June 30, 2020, primarily for the event of our
present properties. Financing actions used $5.4 million for the six months
ended June 30, 2021 in comparison with offering $5.1 million for a similar interval of
2020. Funds used throughout the three months ended June 30, 2021 had been funds on
long run debt. Funds offered throughout the six months ended June 30, 2020  had been
primarily internet proceeds from borrowings underneath our credit score facility.



Future Capital Assets.



 Our principal sources of capital going ahead, are money flows from operations,
proceeds from the sale of properties, monetizing of spinoff devices and
if a possibility presents itself, the sale of debt or fairness securities,
though we might not be capable of full financing on phrases acceptable to us, if
in any respect.



Money from working actions depends upon commodity costs and manufacturing
volumes. A lower in commodity costs from present ranges would possible scale back
our money flows from operations. This might trigger us to change our enterprise plans,
together with decreasing our exploration and improvement plans. Except we in any other case
increase and develop reserves, our manufacturing volumes might decline as reserves are
produced. Sooner or later we might proceed to promote producing properties, which
might additional scale back our manufacturing volumes. To offset the loss in manufacturing
volumes ensuing from pure discipline declines and gross sales of manufacturing properties,
we should conduct profitable exploration and improvement actions, purchase
extra producing properties or establish and develop extra behind-pipe
zones or secondary restoration reserves. We imagine our quite a few drilling
alternatives will permit us to extend our manufacturing volumes; nevertheless, our
drilling actions are topic to quite a few dangers, together with the chance that no
commercially productive oil and gasoline reservoirs will likely be discovered. If our proved
reserves decline sooner or later, our manufacturing will even decline and,
consequently, our money flows from operations will decline.



Contractual obligations. We’re dedicated to creating money funds sooner or later on the next sorts of agreements:


  • Lengthy-term debt, and


  • Working leases.



Under is a schedule of future funds that we’re required to make on the premise of the agreements in power at June 30, 2021:


                                                          Funds due in twelve month durations ending:
                                                                           June 30,
    Contractual Obligations          Complete            June 30, 2022      

2023-2024 June thirtieth, 2025-2026 Subsequently Lengthy-term debt (1)

                $    233,228$       230,866$      2,362     $                 -     $          -
Curiosity on long-term debt (2)           7,886                 7,771              115                                        -
Paid in variety curiosity on
long-term debt (3)                      19,234                19,234                -                       -                -
Lease obligations                          243                    50               84                      14               95
Complete                             $    260,591$       257,921$      2,561     $                14     $         95




  (1) These quantities signify the balances excellent underneath our credit score

services and actual property lien be aware. These funds assume that we’ll

not borrow extra funds.

(2) Curiosity expense assumes our senior credit score facility balances and

Actual property Notice of privilege on the finish of the interval and in impact

rate of interest.

Represents curiosity expense paid in variety on our senior credit score facility,

(3) accrued curiosity is added to the unpaid stability and is payable at

      maturity.




We keep a reserve for prices related to future web site restoration associated
to the retirement of tangible long-lived belongings. At June 30, 2021, our reserve
for these obligations totaled $4.8 million for which no contractual commitments
exist. For extra data referring to this obligation, see Notice 1 of the
Notes to Condensed Consolidated Monetary Statements.



                                       36

————————————————– ——————————

Contents



Off-Steadiness Sheet Preparations. At June 30, 2021, we had no present off-balance
sheet preparations, as outlined underneath SEC laws, which have, or are
fairly prone to have a present or future materials impact on our monetary
situation, revenues or bills, outcomes of operations, liquidity, capital
expenditures or capital assets which can be materials to buyers.



Contingencies. Every so often, we turn out to be concerned in litigation referring to claims arising from our actions within the regular course of enterprise. TO June 30, 2021, we have now not been engaged in any authorized proceedings which, individually or as a complete, ought to have a cloth adversarial impact on us.

Paycheque Safety Program Mortgage



On Might 4, 2020, the Firm entered into an unsecured mortgage with the U.S. Small
Enterprise Administration (the "SBA") within the quantity of $1.4 million underneath the
Paycheck Safety Program (the "PPP Mortgage") with an rate of interest of 1.0% and
maturity date two years from the efficient date of the PPP Mortgage.  The Paycheck
Safety Program was established underneath the CARES Act and is run by
the SBA. Funds are required to be made in seventeen month-to-month installments of
principal and curiosity, with the primary cost being due on the date that's
seven months after the date of the PPP Mortgage. Underneath the CARES Act, as amended by
the Paycheck Safety Program Flexibility Act of 2020, the PPP Mortgage is
eligible for forgiveness for the portion of the PPP Mortgage proceeds used for
payroll prices and different designated working bills, offered at the very least 60% of
the PPP Mortgage's proceeds are used for payroll prices and the Firm meets all
essential standards for forgiveness. Receipt of those funds requires the Firm
to, in good religion, certify that the PPP Mortgage was essential to help ongoing
operations of the Firm throughout the financial uncertainty created by the
COVID-19 pandemic. This certification additional requires the Firm to take into
account present enterprise exercise and the power to entry different sources of
liquidity adequate to help ongoing operations in a fashion that's not
considerably detrimental to the enterprise. This mortgage was forgiven in January
2021. On March 18, 2021 the Firm entered into a further unsecured mortgage
with the SBA within the quantity of $1.3 million. The phrases of this mortgage are the identical
because the Might 4, 2020 mortgage mentioned above. The SBA gives no assurance that the
Firm will get hold of forgiveness of the PPP Mortgage in complete or partially.



Lengthy-Time period Indebtedness.



The next sections relating to the First Lien Credit score Facility and Second Lien
Credit score Facility are certified of their entirety by the disclosure contained in
Notice 1 Foundation of Presentation, "Going Concern" .  Resulting from sure of covenant
violations underneath our credit score services as of December 31, 2020, and the
potential for future violations, all the debt associated to our credit score
services has been categorized as present liabilities.



Lengthy-term debt consisted of the next (in 1000’s):


                                                        June 30, 2021       December 31, 2020

First Lien Credit score Facility                             $        88,500     $            95,000
Second Lien Credit score Facility                                    122,120                 112,695
Exit price - Second Lien Credit score Facility                          10,000                  10,000
Actual property lien be aware                                            2,664                   2,810
                                                               223,284                 220,505
Much less present maturities                                       (209,244 )              (202,751 )
                                                                14,040                  17,754
Deferred financing charges and debt issuance value, internet            (11,678 )               (15,239 )
Complete long-term debt, internet of deferred financing charges
and debt issuance prices                                $         2,362     $             2,515




The next sections relating to the First Lien Credit score Facility and Second Lien
Credit score Facility are certified of their entirety by the disclosure contained Notice
1 Foundation of Presentation, "going concern", which is expressly integrated within the
sections under. Resulting from sure covenant violations as of December 31, 2020 and
June 30, 2021, and the potential for future violations, all the debt associated
to our credit score services has been categorized as present liabilities.



First Lien Credit score Facility


The Firm has a senior secured senior credit score facility with Société Générale, as administrative agent and issuing lender, and sure different lenders. From June 30, 2021, $ 88.5 million was excellent underneath the Senior Credit score Facility.



Excellent quantities underneath the First Lien Credit score Facility accrue curiosity at a
price every year equal to (a)(i) for borrowings that we elect to accrue curiosity
on the reference price  on the better of (x) the reference price introduced from
time to time by Société Générale, (y) the federal funds price plus 0.5%, and (z)
day by day one-month LIBOR plus, in every case, 1.5%-2.5%, relying on the
utilization of the borrowing base, and (ii) for borrowings that  we elect to
accrue curiosity on the Eurodollar price, LIBOR plus 2.5%-3.5% relying on the
utilization of the borrowing base and (b) at any time an occasion of default
exists, 3.0% plus the quantities set forth above. At June 30, 2021, the curiosity
price on the First Lien Credit score Facility was roughly 8.75%.



Topic to earlier termination rights and occasions of default, the said maturity
date of the First Lien Credit score Facility is Might 16, 2022. Curiosity is payable
quarterly on reference price advances and never lower than quarterly on LIBOR
advances. The Firm is permitted to terminate the First Lien Credit score Facility
and is ready, every so often, to completely scale back the lenders' mixture
dedication underneath the First Lien Credit score Facility in compliance with sure
discover and greenback increment necessities.



                                       37

————————————————– ——————————

Contents



Every of the Firm's subsidiaries has assured our obligations underneath the
First Lien Credit score Facility on a senior secured foundation. Obligations underneath the
First Lien Credit score Facility are secured by a primary precedence perfected safety
curiosity, topic to sure permitted encumbrances, in all the Firm and
its subsidiary guarantors' materials property and belongings. As of June 30, 2021,
the collateral is required to incorporate properties comprising at the very least 90% of the
PV-9 of the Firm's confirmed reserves and 95% of the PV-9 of
the Firm's PDP reserves.



Underneath the First Lien Credit score Facility, the Firm is topic to customary
covenants, together with monetary covenants and reporting covenants. The modification
to the First Lien Credit score Facility (the "1L Modification") modified sure
provisions of the First Lien Credit score Facility, together with (i) the addition of
month-to-month obligatory prepayments from extra money (outlined as accessible money minus
sure money set-asides and a $3.0 million working capital reserve) with
corresponding reductions to the borrowing base; (ii) the elimination of
scheduled redeterminations (which had been beforehand made each six months) and
interim redeterminations (which had been beforehand made on the request of the
lenders not more than as soon as within the six month interval between scheduled
redeterminations) of the borrowing base; (iii) the alternative of whole debt
leverage ratio and minimal asset ratio covenants with a primary lien debt leverage
ratio covenant (evaluating the excellent debt of the First Lien Credit score Facility
to the consolidated EBITDAX of the Firm and requiring that the ratio not
exceed 2.75 to 1.00 as of the final day of every fiscal quarter) and a minimal
first lien asset protection ratio covenant (evaluating the sum of, with out
duplication, (A) the PV-15 of manufacturing and developed confirmed reserves of the
Firm, (B) the PV-9 of the Firm's hydrocarbon hedging agreements and (C)
the PV-15 of proved reserves of the Firm categorized as "drilled uncompleted"
(as much as 20% of the sum of (A), (B) and (C)) to the excellent debt of the First
Lien Credit score Facility and requiring that the ratio exceed 1.15 to 1.00 as of the
final day of every fiscal quarter ending on or earlier than December 31, 2020, and 1.25
to 1.00 for fiscal quarters ending thereafter); (iv) the elimination of present
ratio and curiosity protection ratio covenants; (v) extra restrictions on (A)
capital expenditures (limiting capital expenditures to $3.0 million in any 4
fiscal quarter interval (commencing with the 4 fiscal quarter interval ended June
30, 2020 and calculated on an annualized foundation for the 1, 2 and three quarter
durations ended on June 30, 2020, September 30, 2020 and December 31, 2020,
respectively, topic to sure exceptions, together with capital expenditures
financed with the proceeds of newly permitted, structurally subordinated
debt and capital expenditures made when (1) the primary lien asset protection ratio
is at the very least 1.60 to 1.00, (2) the Firm is in compliance with the primary lien
leverage ratio, (3) the quantities excellent underneath the First Lien Credit score Facility
are lower than $50.0 million, (4) no default exists underneath the First Lien Credit score
Facility, and (5) and all representations and warranties within the First Lien
Credit score Facility and the associated credit score paperwork are true and proper in all
materials respects), (B) excellent accounts payable (limiting all excellent
and undisputed accounts payable to $7.5 million, undisputed accounts payable
excellent for greater than 60 days to $2.0 million and undisputed accounts
payable excellent for greater than 90 days to $1.0 million, and (C) normal and
administrative bills (limiting money normal and administrative bills the
Firm might make or turn out to be legally obligated to make in any 4 fiscal quarter
interval to $9.0 million for the 4 fiscal quarter interval ended June 30, 2020,
$8.25 million for the 4 fiscal quarter interval ended September 30, 2020, $6.9
million for the 4 fiscal quarter interval ended December 31, 2020, and
$6.5 million for the fiscal quarter from March 31, 2021 by way of December 31,
2021 and $5.0 million thereafter; in all circumstances, normal and administrative
expense excludes as much as $1.0 million in sure authorized {and professional} charges; and
(vi) permission for as much as a further $25.0 million in structurally
subordinated debt to finance capital expenditures. Underneath the 1L Modification, the
borrowing base was adjusted from $135.0 million to $102.0 million. The borrowing
base will likely be diminished by any obligatory prepayments from extra money movement (in an
quantity equal to such prepayment) and upon the disposition of the Firm's oil
and gasoline properties.


From June 30, 2021, we weren’t in compliance with the monetary covenants underneath the senior credit score facility.

The Senior Credit score Facility comprises a lot of covenants which, amongst different issues, limit our capacity to:


  • incur or assure extra indebtedness;
  • switch or promote belongings;


    •  create liens on belongings;
    •  pay dividends or make different distributions on capital inventory or make
       different restricted funds;

• enter into transactions with associates aside from on an “arm’s size” foundation;

  • make any change within the principal nature of our enterprise; and


  • allow a change of management.




The First Lien Credit score Facility additionally comprises customary occasions of default,
together with nonpayment of principal or curiosity, violations of covenants, cross
default and cross acceleration to sure different indebtedness, chapter and
materials judgments and liabilities.



Occasions of default have occurred, or are fairly prone to happen, underneath the
First Lien Credit score Facility because of (i) our failure to well timed ship
audited monetary statements and not using a "going concern"  or like qualification
for the fiscal yr ended December 31, 2020, (ii) our incapability to adjust to
the primary lien debt to consolidated EBITDAX ratio for the fiscal quarter ended
December 31, 2020, (iii) our failure to trigger sure deposit accounts to be
topic to manage agreements in favor of the executive agent for the First
Lien Credit score Facility and (iv) sure cross-defaults which have occurred, or might
happen, because of the occasions of default underneath the First Lien Credit score
Settlement and corresponding cross-defaults underneath the Second Lien Credit score Facility
and cross-defaults or related termination occasions underneath our hedging contracts.



Second Lien Credit score Facility


On November 13, 2019, we have now entered into the time period credit score settlement with
Angelo Gordon Vitality Servicer, LLC, as an administrative agent, and sure different lenders who’re social gathering to it, which we name the senior credit score facility.

 The Second Lien Credit score Facility was amended on June 25, 2020. The Second Lien
Credit score Facility has a most dedication of $100.0 million. On November 13,
2019, $95.0 million of the web proceeds obtained from the Second Lien Credit score
Facility had been used to completely scale back the borrowings excellent on the
Second Lien Credit score Facility.  As of June 30, 2021, the excellent stability on
the Second Lien Credit score Facility was $132.1  million, together with an exit price of
$10.0 million.



The said maturity date of the Second Lien Credit score Facility is November 13,
2022. Previous to the most recent amendments to the Second Lien Credit score Facility, accrued
curiosity was payable quarterly on reference price loans and on the finish of every
three-month curiosity interval on Eurodollar loans. We're permitted to prepay the
loans in complete or partially, in compliance with sure discover and greenback
increment necessities.



Every of our subsidiaries has assured our obligations underneath the Second Lien
Credit score Facility. Obligations underneath the Second Lien Credit score Facility are secured
by a primary precedence perfected safety curiosity, topic to sure permitted
liens, together with these securing the indebtedness underneath the First Lien Credit score
Facility to the extent permitted by the Intercreditor Settlement, of even date
with the Second Lien Credit score Facility, amongst us, our subsidiaries, Angelo Gordon
Vitality Servicer, LLC and Société Générale, in all of our subsidiary guarantors'
materials property and belongings. As of September 30, 2020, the collateral is
required to incorporate properties comprising at the very least 90% of the PV-9 of the
Firm's confirmed reserves and 95% of the PV-9 of the Firm's PDP reserves.



                                       38

————————————————– ——————————

Contents



Underneath the Second Lien Credit score Facility, the Firm is topic to customary
covenants, together with monetary covenants and reporting covenants. The modification
to the Second Lien Credit score Facility dated June 25, 2020 (the "2L Modification")
modified sure provisions of the Second Lien Credit score Facility, together with (i) a
requirement that, whereas the obligations underneath the First Lien Credit score Facility are
excellent, scheduled funds of accrued curiosity underneath the Second Lien Credit score
Facility will likely be paid within the type of capitalized curiosity; (ii) a rise in
the rate of interest by 200bps for curiosity payable in money and 500bps for curiosity
payable in variety; (iii) modification of the minimal asset ratio covenant to be
the sum of, with out duplication, (A) the PV-15 of manufacturing and developed confirmed
reserves of the Firm, (B) the PV-9 of the Firm's hydrocarbon
hedging agreements and (C) the PV-15 of proved reserves of the Firm
categorized as "drilled uncompleted" (as much as 20% of the sum of (A), (B) and (C))
to the overall excellent debt of the Firm and requiring that the ratio not
exceed 1.45 to 1.00 as of the final day of every fiscal quarter ending between
September 30, 2021 to December 31, 2021, and 1.55 to 1.00 for fiscal quarters
ending thereafter); (iv) modification of the overall leverage ratio covenant to
set the primary check date to happen on September 30, 2021; (v) modification of the
present ratio to remove the exclusion of sure valuation accounts
related to hedging agreements from present belongings and from present
liabilities, (vi) extra restrictions on (A) capital expenditures (limiting
capital expenditures to these expenditures set forth in a plan of improvement
accredited by Angelo Gordon Vitality Servicer, LLC, topic to sure exceptions,
together with capital expenditures financed with the proceeds of newly permitted,
structurally subordinated debt), (B) excellent accounts payable (limiting all
excellent and undisputed accounts payable to $7.5 million, undisputed accounts
payable excellent for greater than 60 days to $2.0 million and undisputed
accounts payable excellent for greater than 90 days to $1.0 million and (C)
normal and administrative bills (limiting money normal and administrative
bills the Firm might make or turn out to be legally obligated to make in any 4
fiscal quarter interval to $9.0 million for the 4 fiscal quarter interval
ended June 30, 2020, $8.25 million for the 4 fiscal quarter interval
ended September 30, 2020, $6.5 million for fiscal quarter interval from March 31,
2021 by way of December 31, 2021 and $5.0 million thereafter.



From June 30, 2021, we weren’t in compliance with the monetary covenants underneath the second rating credit score facility, as amended.

The Senior Credit score Facility comprises a lot of covenants which, amongst different issues, limit our capacity to:


  • incur or assure extra indebtedness;
  • switch or promote belongings;
  • create liens on belongings;

• pay dividends or make different distributions on share capital or make different

restricted funds;

• enter into transactions with associates aside from on an “arm’s size” foundation;

  • make any change within the principal nature of our enterprise; and
  • allow a change of management.




The Second Lien Credit score Facility additionally comprises customary occasions of default,
together with nonpayment of principal or curiosity, violation of covenants, cross
default and cross acceleration to sure different indebtedness, chapter and
materials judgments and liabilities.



In reference to the modification to the Second Lien Credit score Facility on June 25,
2020, the Firm entered into  an Exit Payment and Warrant Settlement, topic to
NASDAQ approval for the issuance of sure warrants. This settlement was
finalized on August 11, 2020 at which era the Firm issued a warrant to the
lender to buy a complete of 33,445,792 shares of frequent inventory at an train
worth of $0.01 per share. On October 19, 2020, the Firm effected a reverse
inventory break up of the Firm's approved, issued and excellent shares of frequent
inventory at a ratio of 1-for-20, thus the warrant was adjusted to offer that the
lender might buy a complete of 1,672,290 shares of frequent inventory at an train
worth of $0.20 per share. The warrant is exercisable instantly in complete or in
half, on or earlier than 5 years from the issuance date. The truthful worth of the
warrant and exit price had been recorded as debt issuance prices, introduced within the
consolidated stability sheets as a deduction from the carrying quantity of the be aware
payable, and are being amortized over the mortgage time period. The  Exit Payment shall be due
and payable in money on the earliest to happen of maturity of the duty underneath
the Second Lien Credit score Facility or the sooner acceleration or cost in full
of the identical. The 2L Modification, together with the influence of the Exit Payment and Warrant
Settlement finalized on August 11, 2020, resulted within the 2L Modification assembly the
standards of debt extinguishment underneath the steering of ASC 470: Debt.
Accordingly, all debt issuance value, together with the unique low cost of the
authentic Second Lien Credit score Facility, had been charged to debt extinguishment
loss within the accompanying Condensed Consolidated Assertion of Operation within the
quantity of $4.1 million.



                                       39

————————————————– ——————————

  Desk of Contents

  Desk of Contents



Actual Property Lien Notice



Now we have an actual property lien be aware secured by a primary lien deed of belief on the
property and enhancements which serves as our company headquarters. The be aware
was modified on June 20, 2018 to a hard and fast price of 4.9% and is payable in month-to-month
installments of $35,672. The maturity date of the be aware is July 20, 2023. As of
June  30, 2021, and December 31, 2020, $2.7 million and $2.8 million,
respectively, had been excellent on the be aware.



Hedging Actions



Our outcomes of operations are considerably affected by fluctuations in
commodity costs and we search to cut back our publicity to cost volatility by
hedging our manufacturing by way of swaps, choices and different commodity spinoff
devices. We had entered into commodity swaps on roughly 29% of our
estimated oil manufacturing from our internet proved developed producing reserves (based mostly
on reserve estimates at June 30, 2021) from July  by way of December 31, 2021, and
nothing thereafter as a result of termination of considerably all of our hedging
preparations in April 2021. See Notice 10 "Occasions of Default".



By eradicating a portion of worth volatility on our future oil and gasoline manufacturing,
we imagine that we'll mitigate, however not remove, the potential results of
altering commodity costs on our money movement from operations. Nonetheless, when
prevailing market costs are increased than our contract costs, we is not going to
notice elevated money movement on the portion of the manufacturing that has been
hedged. Now we have sustained, and sooner or later, will maintain, losses on our
spinoff contracts when market costs are increased than our contract costs.
Conversely, when prevailing market costs are decrease than our contract costs, we
will maintain positive factors on our commodity spinoff contracts.



If the disparity between our contract costs and market costs continues, we
will maintain positive factors or losses on our spinoff contracts. Whereas positive factors and losses
ensuing from the periodic mark to market of our open contracts don't influence
our money movement from operations, positive factors and losses from settlements of our closed
contracts do influence our money movement from operations.



If the costs at which we hedge future manufacturing are considerably decrease than
our present spinoff contracts, our future money movement from operations would
possible be materially decrease.



                                       40

————————————————– ——————————

Contents

© Edgar on-line, supply Previews

About Edith J.

Check Also

Omega Healthcare: Be grasping when others are afraid (OHI)

shining stars / E+ by way of Getty Pictures Funding thesis and background Omega Healthcare …