NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2019
1. Organization
HighPoint Resources Corporation, a Delaware corporation, together with its wholly-owned subsidiary (collectively, the "Company"), is an independent oil and gas company engaged in the exploration, development and production of oil, natural gas and natural gas liquids ("NGLs"). The Company became the successor to Bill Barrett Corporation ("Bill Barrett"), on March 19, 2018, upon closing of the transactions contemplated by the Agreement and Plan of Merger, dated December 4, 2017 (the "Merger Agreement"), pursuant to which Bill Barrett combined with Fifth Creek Energy Operating Company, LLC ("Fifth Creek") (the "Merger"). As a result of the Merger, Bill Barrett became a wholly-owned subsidiary of HighPoint Resources Corporation and subsequently Bill Barrett changed its name to HighPoint Operating Corporation. The Company currently conducts its activities principally in the Denver Julesburg Basin ("DJ Basin") in Colorado. Except where the context indicates otherwise, references herein to the "Company" with respect to periods prior to the completion of the Merger refer to Bill Barrett and its subsidiaries.
2
. Summary of Significant Accounting Policies
Basis of Presentation.
The accompanying Unaudited Consolidated Financial Statements include the accounts of the Company. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying consolidated financial statements include all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly, in all material respects, the Company's interim results. However, operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. The Company's Annual Report on Form 10-K for the year ended December 31, 2018 includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report on Form 10-Q. Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K.
Use of Estimates.
In the course of preparing the Company's financial statements in accordance with GAAP, management makes various assumptions, judgments and estimates to determine the reported amount of assets, liabilities, revenues and expenses and in the disclosure of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts initially established.
Areas requiring the use of assumptions, judgments and estimates relate to volumes of oil, natural gas and NGL reserves used in calculating depreciation, depletion and amortization ("DD&A"), the amount of expected future cash flows used in determining possible impairments of oil and gas properties and the amount of future capital costs used in these calculations. Assumptions, judgments and estimates also are required in determining the fair values of assets acquired and liabilities assumed in business combinations, asset retirement obligations, right-of-use assets and lease liabilities, deferred tax assets, the timing of dry hole costs, impairments of proved and unproved oil and gas properties and fair values of derivative instruments and stock-based payment awards.
Accounts Receivable.
Accounts receivable is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
|
|
(in thousands)
|
|
Oil, gas and NGL sales
|
$
|
45,626
|
|
|
$
|
44,860
|
|
|
Due from joint interest owners
|
10,543
|
|
|
27,435
|
|
|
Other
|
1,410
|
|
|
754
|
|
|
Allowance for doubtful accounts
|
(106
|
)
|
|
(106
|
)
|
|
Total accounts receivable
|
$
|
57,473
|
|
|
$
|
72,943
|
|
Oil and Gas Properties.
The Company's oil, gas and NGL exploration and production activities are accounted for using the successful efforts method. Under this method, all property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending determination of whether the well has found proved reserves. If an exploratory well does not find proved reserves, the costs of drilling the well are charged to expense and remain within cash flows from investing activities in the Unaudited Consolidated Statements of Cash Flows. If an exploratory well does find proved reserves, the costs remain capitalized and are included within additions to oil and gas properties and remain within cash flows from investing activities in the Unaudited Consolidated Statements of Cash Flows. The costs of development wells are capitalized whether proved reserves are added or not. Oil and gas lease acquisition costs are also capitalized. Upon sale or retirement of depreciable or depletable property, the cost and related accumulated DD&A are eliminated from the accounts and the resulting gain or loss is recognized.
Other exploration costs, including certain geological and geophysical expenses and delay rentals for oil and gas leases, are charged to expense as incurred. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate. Maintenance and repairs are charged to expense, and renewals and betterments are capitalized to the appropriate property and equipment accounts.
Unproved oil and gas property costs are transferred to proved oil and gas properties if the properties are subsequently determined to be productive or are assigned proved reserves. Proceeds from sales of partial interests in unproved leases are accounted for as a recovery of cost without recognizing any gain until all costs are recovered. Unproved oil and gas properties are assessed periodically for impairment based on remaining lease terms, drilling results, reservoir performance, commodity price outlooks, future plans to develop acreage, recent sales prices of comparable properties and other relevant matters.
Materials and supplies consist primarily of tubular goods and well equipment to be used in future drilling operations or repair operations and are carried at the lower of cost or market value.
The following table sets forth the net capitalized costs and associated accumulated DD&A and non-cash impairments relating to the Company's oil, natural gas and NGL producing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
|
|
(in thousands)
|
|
Proved properties
|
$
|
667,346
|
|
|
$
|
663,485
|
|
|
Wells and related equipment and facilities
|
1,518,824
|
|
|
1,438,092
|
|
|
Support equipment and facilities
|
88,901
|
|
|
75,392
|
|
|
Materials and supplies
|
21,600
|
|
|
18,341
|
|
|
Total proved oil and gas properties
|
$
|
2,296,671
|
|
|
$
|
2,195,310
|
|
|
Unproved properties
|
328,377
|
|
|
328,409
|
|
|
Wells and facilities in progress
|
162,491
|
|
|
139,799
|
|
|
Total unproved oil and gas properties, excluded from amortization
|
$
|
490,868
|
|
|
$
|
468,208
|
|
|
Accumulated depreciation, depletion, amortization and impairment
|
(714,237
|
)
|
|
(642,645
|
)
|
|
Total oil and gas properties, net
|
$
|
2,073,302
|
|
|
$
|
2,020,873
|
|
The Company reviews oil and natural gas properties for impairment on a quarterly basis or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. The Company estimates the expected undiscounted future net cash flows of its oil and gas properties using proved and risked probable and possible reserves based on the Company's development plans and best estimate of future production, commodity pricing, reserve risking, gathering and transportation deductions, production tax rates, lease operating expenses and future development costs. The Company compares such undiscounted future net cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable. If the undiscounted future net cash flows exceed the carrying amount of the oil and gas properties, no impairment is taken. If the carrying amount of a property exceeds the undiscounted future net cash flows, the Company will impair the carrying value to fair value based on an analysis of quantitative and qualitative factors existing as of the balance sheet date. The factors used to determine fair value may include, but are not limited to, recent sales prices of comparable properties, indications from marketing activities, the present value of future revenues, net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the projected cash flows.
The provision for DD&A of oil and gas properties is calculated on a field-by-field basis using the unit-of-production method. Natural gas and NGLs are converted to an oil equivalent, Boe, at the standard rate of six Mcf to one Boe and forty-two gallons to one Boe, respectively. Estimated future dismantlement, restoration and abandonment costs are taken into consideration by this calculation.
Accounts Payable and Other Accrued Liabilities.
Accounts payable and other accrued liabilities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
|
|
(in thousands)
|
|
Accrued drilling, completion and facility costs
|
$
|
92,905
|
|
|
$
|
69,830
|
|
|
Accrued lease operating, gathering, transportation and processing expenses
|
7,308
|
|
|
6,970
|
|
|
Accrued general and administrative expenses
|
6,513
|
|
|
8,774
|
|
|
Accrued interest payable
|
18,930
|
|
|
6,758
|
|
|
Accrued merger transaction expenses
|
682
|
|
|
550
|
|
|
Prepayments from partners
|
794
|
|
|
862
|
|
|
Trade payables
|
1,192
|
|
|
31,057
|
|
|
Operating lease liability
|
517
|
|
|
—
|
|
|
Other
|
6,921
|
|
|
6,578
|
|
|
Total accounts payable and other accrued liabilities
|
$
|
135,762
|
|
|
$
|
131,379
|
|
Environmental Liabilities.
Environmental expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation are expensed. Environmental liabilities are accrued when environmental assessments and/or clean-ups are probable, and the costs can be reasonably estimated. Recent case law in Wyoming has exposed the Company to potential obligations for plugging and abandoning wells, and associated reclamation, for assets that were sold to other industry parties in prior years. When such third parties are unable to fulfill their contractual obligations to the Company as provided for in purchase and sale agreements, landowners, as well as the Bureau of Land Management, may demand that the Company perform such activities.
Revenue Recognition.
All of the Company's sales of oil, gas and NGLs are made under contracts with customers, whereby revenues are recognized when the Company satisfies its performance obligations and the customer obtains control of the product. Performance obligations under the Company's contracts with customers are typically satisfied at a point-in-time through monthly delivery of oil, gas and/or NGLs. Accordingly, at the end of the reporting period, the Company does not have any unsatisfied performance obligations. The Company's contracts with customers typically include variable consideration based on monthly pricing tied to local indices and volumes delivered in the current month. The nature of the Company's contracts with customers does not require the Company to constrain variable consideration for accounting purposes. As of
March 31, 2019
, the Company had open contracts with customers with terms of
1 month
to
19 years
, as well as evergreen contracts that renew on a periodic basis if not canceled by the Company or the customer. The Company's contracts with customers typically require payment within
one month
of delivery.
Under the Company's contracts with customers, natural gas and its components, including NGLs, are either sold to a midstream entity (which processes the natural gas and subsequently sells the resulting residue gas and NGLs) or are sold to a gas or NGL purchaser after being processed by a third party for a fee. Regardless of the contract structure type, the terms of these contracts compensate the Company for the value of the residue gas and NGLs at current market prices for each product. The Company's oil is sold to multiple oil purchasers at specific delivery points at or near the wellhead. All costs incurred to gather, transport and/or process the Company's oil, gas and NGLs after control has transferred to the customer are considered components of the consideration received from the customer and thus recorded in oil, gas and NGL production revenues in the Unaudited Consolidated Statements of Operations. All costs incurred prior to the transfer of control to the customer are included in gathering, transportation and processing expense in the Unaudited Consolidated Statements of Operations.
Gas imbalances from the sale of natural gas are recorded on the basis of gas actually sold by the Company. If the Company's aggregate sales volumes for a well are greater (or less) than its proportionate share of production from the well, a liability (or receivable) is established to the extent there are insufficient proved reserves available to make-up the overproduced (or underproduced) imbalance. Imbalances have not been significant in the periods presented.
Derivative Instruments and Hedging Activities.
The Company periodically uses derivative financial instruments to achieve a more predictable cash flow from its oil, natural gas and NGL sales by reducing its exposure to price fluctuations. Derivative instruments are recorded at fair market value and are included in the Unaudited Consolidated Balance Sheets as assets or liabilities.
Income Taxes.
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently payable plus deferred income taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred income tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when assets are recovered or liabilities are settled. Deferred income taxes also include tax credits and net operating losses that are available to offset future income taxes. Deferred income taxes are measured by applying currently enacted tax rates. A valuation allowance is recorded if it is more likely than not that all or some portion of the Company's deferred tax assets will not be realized. The Company regularly assesses the realizability of the deferred tax assets considering all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, planning strategies and results of recent operations. The assumptions about future taxable income require significant judgment to determine if a valuation allowance is required. Changes to the Company's development plans, increases in market prices for hydrocarbons, improvements in operating results, or other factors could change the valuation allowance in future periods, resulting in recognition of a tax expense or benefit.
The Company accounts for uncertainty in income taxes for tax positions taken or expected to be taken in a tax return. Only tax positions that meet the more-likely-than-not recognition threshold are recognized. The Company does not have any uncertain tax positions recorded as of
March 31, 2019
.
Comprehensive Income.
The Company has no elements of other comprehensive income, therefore, the Company's net income (loss) on the Unaudited Consolidated Statements of Operations represents comprehensive income.
Earnings/Loss Per Share.
Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to common stock by the weighted average number of common shares outstanding during each period. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to common stock by the weighted average number of common shares outstanding and other dilutive securities. Potentially dilutive securities for the diluted net income per common share calculations consist of nonvested shares of common stock. As the Company was in a net loss position, all potentially dilutive securities were anti-dilutive for the
three
months ended
March 31, 2019
and
2018
.
The following table sets forth the calculation of basic and diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
|
(in thousands, except per share amounts)
|
|
Net income (loss)
|
$
|
(96,229
|
)
|
|
$
|
(24,937
|
)
|
|
Basic weighted-average common shares outstanding in period
|
209,932
|
|
|
123,596
|
|
|
Diluted weighted-average common shares outstanding in period
|
209,932
|
|
|
123,596
|
|
|
Basic net income (loss) per common share
|
$
|
(0.46
|
)
|
|
$
|
(0.20
|
)
|
|
Diluted net income (loss) per common share
|
$
|
(0.46
|
)
|
|
$
|
(0.20
|
)
|
New Accounting Pronouncements.
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-13,
Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement
. The objective of this update is to improve the effectiveness of fair value measurement disclosures. ASU 2018-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The standard will only impact the Company's disclosures.
In June 2018, the FASB issued ASU 2018-07,
Stock Compensation-Improvements to Non-employee Share-Based Payment Accounting
. The objective of this update was to simplify several aspects of the accounting for non-employee share-based payment transactions resulting from expanding the scope of Topic 718,
Compensation- Stock Compensation
, to include share-based payment transactions for acquiring goods and services from non-employees. ASU 2018-07 was effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The standard was adopted on January 1, 2019 and did not have a material impact on the Company's disclosures and financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases,
followed by additional accounting standards updates that provided additional practical expedients and policy election options (collectively, Accounting Standards Codification Topic 842 ("ASC 842")). The objective of ASC 842 was to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. ASC 842 was effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The Company adopted ASC 842 effective January 1, 2019 using the modified retrospective method and elected the option to not apply ASC 842 to comparative periods. The Company also elected the following practical expedients:
|
|
|
|
•
|
not to recognize lease assets or liabilities on the balance sheet when lease terms are less than 12 months,
|
|
|
|
|
•
|
carryforward previous conclusions related to current lease classification under the previous lease accounting standard to lease classification for these existing leases under ASC 842,
|
|
|
|
|
•
|
exclude from evaluation under ASC 842 land easements that existed or expired before adoption of ASC 842, and
|
|
|
|
|
•
|
to combine lease and non-lease components for certain asset classes.
|
The adoption of ASC 842 resulted in the recognition of right-of-use assets of
$8.6 million
, and current and noncurrent lease liabilities of
$0.3 million
and
$13.7 million
, respectively, on the Unaudited Consolidated Balance Sheet as of January 1, 2019. The difference between the right-of-use assets and the total lease liability was related to lease incentives and deferred rent balances of
$5.4 million
, which were required to be netted against the right-of-use assets as of the implementation date of January 1, 2019. The Company's leases included office leases and other equipment, all classified as operating leases. The adoption of ASC 842 had no impact on the Company's Unaudited Consolidated Statements of Operations or Cash Flows. See Note
11
for additional information.
3. Supplemental Disclosures of Cash Flow Information
Supplemental cash flow information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Cash paid for interest
|
$
|
868
|
|
|
$
|
395
|
|
|
Cash paid for income taxes
|
—
|
|
|
—
|
|
|
Cash paid for amounts included in the measurements of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
229
|
|
|
—
|
|
|
Non-cash operating activities:
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations
|
|
|
|
|
Operating leases
(1)
|
14,667
|
|
|
—
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
Accrued liabilities - oil and gas properties
|
92,702
|
|
|
67,047
|
|
|
Change in asset retirement obligations, net of disposals
|
933
|
|
|
7,513
|
|
|
Retirement of treasury stock
|
(1,484
|
)
|
|
(1,462
|
)
|
|
Issuance of common stock for Merger
|
—
|
|
|
484,000
|
|
|
|
|
|
(1)
|
Excludes the reclassifications of lease incentives and deferred rent balances.
|
4. Merger
2018 Merger with Fifth Creek Energy Operating Company, LLC
On March 19, 2018, the Company completed the Merger with Fifth Creek. The Merger was effected through the issuance of
100 million
shares of the Company's common stock, with a fair value of
$484.0 million
on the date of closing, and the repayment of
$53.9 million
of Fifth Creek debt. In connection with the Merger, the Company incurred costs of
$19.2 million
of severance, consulting, advisory, legal and other merger-related fees, all of which were expensed and included in merger transaction expense in the Company's Consolidated Statements of Operations.
Purchase Price Allocation
The transaction was accounted for as a business combination, using the acquisition method, with the Company being the acquirer for accounting purposes. The following table represents the allocation of the total purchase price to the identifiable assets acquired and the liabilities assumed based on the estimated fair values at the acquisition date. The following table sets forth the Company's purchase price allocation:
|
|
|
|
|
|
|
|
|
|
|
March 19, 2018
|
|
|
|
(in thousands)
|
|
Purchase Price:
|
|
|
|
Fair value of common stock issued
|
|
$
|
484,000
|
|
|
Plus: Repayment of Fifth Creek debt
|
|
53,900
|
|
|
Total purchase price
|
|
537,900
|
|
|
|
|
|
|
Plus Liabilities Assumed:
|
|
|
|
Accounts payable and accrued liabilities
|
|
25,782
|
|
|
Current unfavorable contract
|
|
2,651
|
|
|
Other current liabilities
|
|
13,797
|
|
|
Asset retirement obligations
|
|
7,361
|
|
|
Long-term deferred tax liability
|
|
137,707
|
|
|
Long-term unfavorable contract
|
|
4,449
|
|
|
Other noncurrent liabilities
|
|
2,354
|
|
|
Total purchase price plus liabilities assumed
|
|
$
|
732,001
|
|
|
|
|
|
|
Fair Value of Assets Acquired:
|
|
|
|
Cash
|
|
543
|
|
|
Accounts receivable
|
|
7,831
|
|
|
Oil and Gas Properties:
|
|
|
|
Proved oil and gas properties
|
|
105,702
|
|
|
Unproved oil and gas properties
|
|
609,568
|
|
|
Asset retirement obligations
|
|
7,361
|
|
|
Furniture, equipment and other
|
|
931
|
|
|
Other noncurrent assets
|
|
65
|
|
|
Total asset value
|
|
$
|
732,001
|
|
The fair value measurements of oil and natural gas properties and asset retirement obligations are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of proved oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of oil and natural gas properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate. The fair value of unproved properties was determined using a market approach utilizing recent transactions of a similar nature in the same basin. These inputs required significant judgments and estimates by management at the time of the valuation and are the most sensitive to possible future changes.
The results of operations attributable to the merged companies are included in the Consolidated Statements of Operations beginning on March 19, 2018. The Company generated revenues of approximately
$2.1 million
and expenses of approximately
$1.8 million
from the Fifth Creek assets during the period March 19, 2018 to March 31, 2018.
Pro Forma Financial Information
The following pro forma condensed combined financial information was derived from the historical financial statements of the Company and Fifth Creek and gives effect to the acquisition as if it had occurred on January 1, 2018. The below information reflects pro forma adjustments based on available information and certain assumptions that the Company believes are reasonable, including (i) the repayment of Fifth Creek's debt, (ii) depletion of Fifth Creek's fair-valued proved crude oil and natural gas properties, and (iii) the estimated tax impacts of the pro forma adjustments.
Additionally, pro forma earnings for the
three
months ended
March 31, 2019
and
2018
were adjusted to exclude merger-related costs of
$2.4 million
and
$4.8 million
, respectively, incurred by the Company and
zero
and
$4.0 million
, respectively, incurred by Fifth Creek. The pro forma results of operations do not include any cost savings or other synergies that may have occurred as a result of the acquisition or any estimated costs that have been incurred by the Company to integrate the Fifth Creek assets. The pro forma condensed combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the acquisition taken place on January 1, 2018; furthermore, the financial information is not intended to be a projection of future results.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
|
(in thousands, except per share data)
|
|
Revenues
|
$
|
101,980
|
|
|
$
|
96,742
|
|
|
Net Income (Loss)
|
(93,815
|
)
|
|
(24,104
|
)
|
|
Net Income (Loss) per Common Share, Basic
|
(0.45
|
)
|
|
(0.12
|
)
|
|
Net Income (Loss) per Common Share, Diluted
|
(0.45
|
)
|
|
(0.12
|
)
|
5
. Long-Term Debt
The Company's outstanding debt is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
|
|
Maturity Date
|
Principal
|
|
Debt Issuance Costs
|
|
Carrying
Amount
|
|
Principal
|
|
Debt Issuance Costs
|
|
Carrying
Amount
|
|
|
|
(in thousands)
|
|
Amended Credit Facility
(1)
|
September 14, 2023
|
$
|
70,000
|
|
|
$
|
—
|
|
|
$
|
70,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
7.0% Senior Notes
(2)
|
October 15, 2022
|
350,000
|
|
|
(3,000
|
)
|
|
347,000
|
|
|
350,000
|
|
|
(3,210
|
)
|
|
346,790
|
|
|
8.75% Senior Notes
(3)
|
June 15, 2025
|
275,000
|
|
|
(4,232
|
)
|
|
270,768
|
|
|
275,000
|
|
|
(4,403
|
)
|
|
270,597
|
|
|
Lease Financing Obligation
(4)
|
August 10, 2020
|
—
|
|
|
—
|
|
|
—
|
|
|
1,859
|
|
|
—
|
|
|
1,859
|
|
|
Total Debt
|
|
$
|
695,000
|
|
|
$
|
(7,232
|
)
|
|
$
|
687,768
|
|
|
$
|
626,859
|
|
|
$
|
(7,613
|
)
|
|
$
|
619,246
|
|
|
Less: Current Portion of Long-Term Debt
(5)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,859
|
|
|
—
|
|
|
1,859
|
|
|
Total Long-Term Debt
|
|
$
|
695,000
|
|
|
$
|
(7,232
|
)
|
|
$
|
687,768
|
|
|
$
|
625,000
|
|
|
$
|
(7,613
|
)
|
|
$
|
617,387
|
|
|
|
|
|
(1)
|
The recorded value of the Amended Credit Facility approximates its fair value due to its floating rate structure and on financing terms currently available to the Company.
|
|
|
|
|
(2)
|
The aggregate estimated fair value of the
7.0%
Senior Notes was approximately
$332.7 million
and
$329.7 million
as of
March 31, 2019
and
December 31, 2018
, respectively, based on reported market trades of these instruments.
|
|
|
|
|
(3)
|
The aggregate estimated fair value of the
8.75%
Senior Notes was approximately
$263.3 million
and
$264.7 million
as of
March 31, 2019
and
December 31, 2018
, respectively, based on reported market trades of these instruments.
|
|
|
|
|
(4)
|
The aggregate estimated fair value of the Lease Financing Obligation was approximately
$1.8 million
as of
December 31, 2018
, based on market-based parameters of comparable term secured financing instruments. The Company exercised the early buyout option and purchased the equipment for
$1.8 million
on February 10, 2019.
|
|
|
|
|
(5)
|
As of
December 31, 2018
, the current portion of long-term debt included the Lease Financing Obligation, which was settled on February 10, 2019.
|
Amended Credit Facility
The Company's revolving bank credit facility (the "Amended Credit Facility"), has a maturity date of
September 14, 2023
, a maximum credit amount of
$1.5 billion
, an initial elected commitment amount of
$500.0 million
and an initial borrowing base of
$500.0 million
. The Company had
$70.0 million
and
zero
outstanding under the Amended Credit Facility as of
March 31, 2019
and
December 31, 2018
, respectively. As credit support for future payments under a contractual obligation, a
$26.0 million
letter of credit has been issued under the Amended Credit Facility, which reduced the available borrowing capacity under the Amended Credit Facility as of
March 31, 2019
to
$404.0 million
.
Interest rates are either adjusted LIBOR plus applicable margins of
1.5%
to
2.5%
or an alternate base rate plus applicable margins of
0.5%
to
1.5%
, and the unused commitment fee is between
0.375%
and
0.5%
. The applicable margin and the unused commitment fee rate are determined based on borrowing base utilization. The weighted average annual interest rate incurred on the Amended Credit Facility was
4.0%
for the
three
months ended
March 31, 2019
.
Senior Notes
The issuer of the
7.0%
Senior Notes and the
8.75%
Senior Notes is HighPoint Operating Corporation (f/k/a Bill Barrett). Pursuant to supplemental indentures entered into in connection with the Merger, HighPoint Resources Corporation became a guarantor of the
7.0%
Senior Notes and the
8.75%
Senior Notes in March 2018. All covenants in the indentures governing the notes limit the activities of HighPoint Operating Corporation, including limitations on the ability to pay dividends, incur additional indebtedness, make restricted payments, create liens, sell assets or make loans to HighPoint Resources Corporation, but in most cases the covenants in the indentures are not applicable to HighPoint Resources Corporation. HighPoint Operating Corporation is currently in compliance with all covenants and has complied with all covenants since issuance.
Nothing in the indentures governing the
7.0%
Senior Notes or the
8.75%
Senior Notes prohibits the Company from repurchasing any of the notes from time to time at any price in open market purchases, negotiated transactions or by tender offer or otherwise without any notice to or consent of the holders.
Lease Financing Obligation Due 2020
The Company had a lease financing obligation with a balance of
$1.9 million
as of December 31, 2018 resulting from the Company's sale and subsequent lease back of certain compressors and related facilities owned by the Company (the "Lease Financing Obligation"). The Company elected to exercise the early buyout option and purchased the equipment for
$1.8 million
on February 10, 2019.
6. Asset Retirement Obligations
A reconciliation of the Company's asset retirement obligations for the
three
months ended
March 31, 2019
is as follows (in thousands):
|
|
|
|
|
|
|
|
As of December 31, 2018
|
$
|
29,655
|
|
|
Liabilities incurred
|
864
|
|
|
Liabilities settled
|
(258
|
)
|
|
Disposition of properties
|
(73
|
)
|
|
Accretion expense
|
384
|
|
|
Revisions to estimate
|
400
|
|
|
As of March 31, 2019
|
$
|
30,972
|
|
|
Less: Current asset retirement obligations
|
3,648
|
|
|
Long-term asset retirement obligations
|
$
|
27,324
|
|
7. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. These inputs can be readily observable, market corroborated or generally unobservable. A fair value hierarchy was established that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Level 1
– Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2
– Quoted prices are available in active markets for similar assets or liabilities and in non-active markets for identical or similar instruments. Model-derived valuations have inputs that are observable or whose significant value drivers are observable. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 –
Pricing inputs include significant inputs that are generally less observable than objective sources. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value. At each balance sheet date, the Company performs an analysis of all applicable instruments and includes in Level 3 all of those whose fair value is based on significant unobservable inputs.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Certain assets and liabilities are measured at fair value on a recurring basis in the Company's consolidated balance sheet. The following methods and assumptions were used to estimate the fair values:
Cash equivalents
– The highly liquid cash equivalents are recorded at fair value. Carrying value approximates fair value, which represents a Level 1 input.
Deferred compensation plan
– The Company maintains a non-qualified deferred compensation plan which allows certain management employees to defer receipt of a portion of their compensation. The Company maintains assets for the deferred compensation plan in a rabbi trust. The assets of the rabbi trust are invested in publicly traded mutual funds and are recorded in other current and other long-term assets in the Unaudited Consolidated Balance Sheets. The deferred compensation plan financial assets are reported at fair value based on active market quotes, which represent Level 1 inputs.
Commodity derivatives
– The fair value of crude oil, natural gas and NGL swaps and costless collars are valued based on an income approach using various assumptions, such as quoted forward prices for commodities and time value factors. These assumptions are observable in the marketplace throughout the full term of the contract, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace, and are, therefore, designated as Level 2 inputs. The Company utilizes its counterparties' valuations to assess the reasonableness of its own valuations. At times, the Company utilizes an independent third party to perform the valuation.
The commodity derivatives have been adjusted for non-performance risk. For applicable financial assets carried at fair value, the credit standing of the counterparties is analyzed and factored into the fair value measurement of those assets. In addition, the fair value measurement of a liability has been adjusted to reflect the nonperformance risk of the Company.
The following tables set forth by level within the fair value hierarchy the Company's non-financial assets and liabilities that were measured at fair value on a recurring basis in the Unaudited Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(in thousands)
|
|
As of March 31, 2019
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
37,762
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37,762
|
|
|
Deferred compensation plan
|
1,679
|
|
|
—
|
|
|
—
|
|
|
1,679
|
|
|
Commodity derivatives
|
—
|
|
|
15,431
|
|
|
—
|
|
|
15,431
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
—
|
|
|
16,817
|
|
|
—
|
|
|
16,817
|
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
Cash equivalents
|
12,188
|
|
|
—
|
|
|
—
|
|
|
12,188
|
|
|
Deferred compensation plan
|
1,392
|
|
|
—
|
|
|
—
|
|
|
1,392
|
|
|
Commodity derivatives
|
—
|
|
|
109,494
|
|
|
—
|
|
|
109,494
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
—
|
|
|
1,039
|
|
|
—
|
|
|
1,039
|
|
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis in the Company's consolidated balance sheets. The following methods and assumptions were used to estimate the fair values:
Oil and gas properties
–
Oil and gas property costs are evaluated for impairment and reduced to fair value when there is an indication that the carrying costs may not be recoverable. If an impairment is necessary, the fair value is estimated by using either a market approach based on recent sales prices of comparable properties and/or indications from marketing activities or by using the income valuation technique, which involves calculating the present value of future net revenues. The present value, net of estimated operating and development costs, is calculated using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the projected cash flows, predominantly all of which are designated as Level 3 inputs within the fair value hierarchy. No properties were reduced to fair value during either of the three month periods ended
March 31, 2019
and
2018
.
Additional Fair Value Disclosures
Long-term Debt
– Long-term debt is not presented at fair value on the Unaudited Consolidated Balance Sheets, as it is recorded at carrying value, net of unamortized debt issuance costs. The fair values of the Company's fixed rate
7.0%
Senior Notes and
8.75%
Senior Notes totaled
$596.0 million
and
$594.4 million
as of
March 31, 2019
and
December 31, 2018
, respectively. The fair values of the Company's fixed rate Senior Notes are based on active market quotes, which represent Level 1 inputs.
There is no active, public market for the Amended Credit Facility. The recorded value of the Amended Credit Facility approximates its fair value due to its floating rate structure based on the LIBOR spread, secured interest, and the Company's borrowing base utilization. The Amended Credit Facility had a balance of
$70.0 million
as of
March 31, 2019
and
zero
as of
December 31, 2018
. The fair value measurements for the Amended Credit Facility represent Level 2 inputs.
8. Derivative Instruments
The Company uses financial derivative instruments as part of its price risk management program to achieve a more predictable cash flow from its production revenues by reducing its exposure to commodity price fluctuations. The Company has entered into financial commodity swap contracts and costless collars related to the sale of a portion of the Company's production. The Company does not enter into derivative instruments for speculative or trading purposes.
In addition to financial contracts, the Company may at times be party to various physical commodity contracts for the sale of oil, natural gas and NGLs that have varying terms and pricing provisions. These physical commodity contracts qualify for the normal purchase and normal sale exception and, therefore, are not subject to hedge or mark-to-market accounting. The
financial impact of physical commodity contracts is included in oil, natural gas and NGL production revenues at the time of settlement.
All derivative instruments, other than those that meet the normal purchase and normal sale exception, as mentioned above, are recorded at fair value and included on the Unaudited Consolidated Balance Sheets as assets or liabilities. The following table summarizes the location, as well as the gross and net fair value amounts, of all derivative instruments presented on the Unaudited Consolidated Balance Sheets as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
Balance Sheet
|
|
Gross Amounts of
Recognized Assets
|
|
Gross Amounts
Offset in the Balance
Sheet
|
|
Net Amounts of
Assets Presented in
the Balance Sheet
|
|
|
|
(in thousands)
|
|
Derivative assets (current)
|
|
$
|
9,815
|
|
|
$
|
(8,396
|
)
|
(1)
|
$
|
1,419
|
|
|
Derivative assets (noncurrent)
|
|
5,616
|
|
|
(1,677
|
)
|
(1)
|
3,939
|
|
|
Total derivative assets
|
|
$
|
15,431
|
|
|
$
|
(10,073
|
)
|
|
$
|
5,358
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts of
Recognized Liabilities
|
|
Gross Amounts
Offset in the Balance
Sheet
|
|
Net Amounts of
Liabilities Presented in
the Balance Sheet
|
|
|
|
(in thousands)
|
|
Derivative liabilities
|
|
$
|
(14,246
|
)
|
|
$
|
8,396
|
|
(1)
|
$
|
(5,850
|
)
|
|
Other noncurrent liabilities
|
|
(2,571
|
)
|
|
1,677
|
|
(1)
|
(894
|
)
|
|
Total derivative liabilities
|
|
$
|
(16,817
|
)
|
|
$
|
10,073
|
|
|
$
|
(6,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
Balance Sheet
|
|
Gross Amounts of
Recognized Assets
|
|
Gross Amounts
Offset in the Balance
Sheet
|
|
Net Amounts of
Assets Presented in
the Balance Sheet
|
|
|
|
(in thousands)
|
|
Derivative assets (current)
|
|
$
|
82,205
|
|
|
$
|
(1,039
|
)
|
(1)
|
$
|
81,166
|
|
|
Derivative assets (noncurrent)
|
|
27,289
|
|
|
—
|
|
(1)
|
27,289
|
|
|
Total derivative assets
|
|
$
|
109,494
|
|
|
$
|
(1,039
|
)
|
|
$
|
108,455
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts of
Recognized Liabilities
|
|
Gross Amounts
Offset in the Balance
Sheet
|
|
Net Amounts of
Liabilities Presented in
the Balance Sheet
|
|
|
|
(in thousands)
|
|
Derivative liabilities
|
|
$
|
(1,039
|
)
|
|
$
|
1,039
|
|
(1)
|
$
|
—
|
|
|
Other noncurrent liabilities
|
|
—
|
|
|
—
|
|
(1)
|
—
|
|
|
Total derivative liabilities
|
|
$
|
(1,039
|
)
|
|
$
|
1,039
|
|
|
$
|
—
|
|
|
|
|
|
(1)
|
Asset and liability balances with the same counterparty are presented as a net asset or liability on the Unaudited Consolidated Balance Sheets.
|
As of
March 31, 2019
, the Company had swap contracts in place to hedge the following volumes for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April – December 2019
|
|
For the year 2020
|
|
|
Derivative
Volumes
|
|
Weighted Average Price
|
|
Derivative Volumes
|
|
Weighted Average Price
|
|
Oil (Bbls)
|
4,646,533
|
|
|
$
|
59.07
|
|
|
4,024,000
|
|
|
$
|
59.42
|
|
|
Natural Gas (MMbtu)
|
1,925,000
|
|
|
$
|
2.11
|
|
|
—
|
|
|
$
|
—
|
|
As of
March 31, 2019
, the Company had cashless collars (purchased put options and written call options) in place to hedge the following volumes for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April – December 2019
|
|
|
Derivative
Volumes
|
|
Weighted Average Floor Price
|
|
Weighted Average Ceiling Price
|
|
Oil (Bbls)
|
552,000
|
|
|
$
|
55.00
|
|
|
$
|
77.56
|
|
The Company's derivative financial instruments are generally executed with major financial or commodities trading institutions. The instruments expose the Company to market and credit risks and may, at times, be concentrated with certain counterparties or groups of counterparties. The Company had derivatives in place with
10
different counterparties as of
March 31, 2019
. Although notional amounts are used to express the volume of these contracts, the amounts potentially subject to credit risk in the event of non-performance by the counterparties are substantially smaller. The creditworthiness of counterparties is subject to continual review by management, and the Company believes all of these institutions currently are acceptable credit risks. Full performance is anticipated, and the Company has no past due receivables from any of its counterparties.
It is the Company's policy to enter into derivative contracts with counterparties that are lenders in the Amended Credit Facility, affiliates of lenders in the Amended Credit Facility or potential lenders in the Amended Credit Facility. The Company's derivative contracts are documented using an industry standard contract known as a Schedule to the Master Agreement and International Swaps and Derivative Association, Inc. ("ISDA") Master Agreement or other contracts. Typical terms for these contracts include credit support requirements, cross default provisions, termination events and set-off provisions. The Company is not required to provide any credit support to its counterparties other than cross collateralization with the properties securing the Amended Credit Facility. The Company has set-off provisions in its derivative contracts with lenders under its Amended Credit Facility which, in the event of a counterparty default, allow the Company to set-off amounts owed to the defaulting counterparty under the Amended Credit Facility or other obligations against monies owed to the Company under derivative contracts. Where the counterparty is not a lender under the Company's Amended Credit Facility, the Company may not be able to set-off amounts owed by the Company under the Amended Credit Facility, even if such counterparty is an affiliate of a lender under such facility. The Company does not have any derivative balances that are offset by cash collateral.
9. Income Taxes
The Company accounts for uncertainty in income taxes for tax positions taken or expected to be taken in a tax return in accordance with the FASB's rules on income taxes. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities. During the
three
months ended
March 31, 2019
and
2018
, the Company had no uncertain tax positions.
The Company's policy is to classify accrued penalties and interest related to unrecognized tax benefits in the Company's income tax provision. The Company did not record any accrued interest or penalties associated with unrecognized tax benefits during the
three
months ended
March 31, 2019
and
2018
.
Income tax benefit for the
three
months ended
March 31, 2019
and
2018
differs from the amounts that would be provided by applying the U.S. statutory income tax rates to pretax income or loss principally due to the effect of deferred tax asset valuation allowances, stock-based compensation, political lobbying expense, political contributions, nondeductible officer compensation and state income taxes. For the
three
months ended
March 31, 2019
the Company recognized
$29.7 million
of income tax benefit.
No
income tax expense or benefit was recognized for the
three
months ended
March 31, 2018
as a result of recording a full valuation allowance against the deferred tax asset balance. The Company considers all available evidence (both positive and negative) to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. Such evidence includes the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment, and judgment is required in considering the relative weight of negative and positive evidence. The Company continues to monitor facts and circumstances in the reassessment of the likelihood that operating loss carryforwards, credits and other deferred tax assets will be utilized prior to their expiration.
10
. Equity Incentive Compensation Plans and Other Long-term Incentive Programs
The Company maintains various stock-based compensation plans and other employee benefits as discussed below. Stock-based compensation is measured at the grant date based on the value of the awards, and the fair value is recognized on a straight-line basis over the requisite service period (usually the vesting period). Nonvested shares of common stock generally vest ratably over a
three
year service period, and nonvested shares of common stock units vest over a
one year
service period.
Cash-based compensation is measured at fair value at each reporting date and is recognized on a straight-line basis over the requisite service period (usually the vesting period). Cash-based awards generally have a cliff vest of
three years
.
The following table presents the long-term equity and cash incentive compensation related to awards for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Nonvested common stock
(1)
|
$
|
1,796
|
|
|
$
|
1,330
|
|
|
Nonvested common stock units
(1)
|
294
|
|
|
170
|
|
|
Nonvested performance cash units
(2)(3)
|
632
|
|
|
(73
|
)
|
|
Total
|
$
|
2,722
|
|
|
$
|
1,427
|
|
|
|
|
|
(1)
|
Unrecognized compensation expense as of
March 31, 2019
was
$11.2 million
, which related to grants of nonvested shares of common stock that are expected to be recognized over a weighted-average period of
2.1 years
.
|
|
|
|
|
(2)
|
The nonvested performance-based cash units are accounted for as liability awards with
$1.0 million
and
$0.3 million
in other noncurrent liabilities as of
March 31, 2019
and
December 31, 2018
, respectively, in the Unaudited Consolidated Balance Sheets.
|
|
|
|
|
(3)
|
Liability awards are fair valued at each reporting date. The expense for the period will increase or decrease based on updated fair values of these awards at each reporting date.
|
Nonvested Equity and Cash Awards.
The following tables present the equity and cash awards granted pursuant to the Company's various stock compensation plans. A summary of the Company's nonvested common stock awards for the
three
months ended
March 31, 2019
and
2018
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Three Months Ended March 31, 2018
|
|
Nonvested Common Stock Awards
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
Outstanding at January 1,
|
|
2,912,166
|
|
|
$
|
5.27
|
|
|
1,394,868
|
|
|
$
|
7.00
|
|
|
Granted
|
|
1,835,700
|
|
|
2.64
|
|
|
796,423
|
|
|
5.00
|
|
|
Modified
(1)
|
|
—
|
|
|
—
|
|
|
1,146,305
|
|
|
4.84
|
|
|
Vested
|
|
(1,299,599
|
)
|
|
5.19
|
|
|
(652,208
|
)
|
|
8.35
|
|
|
Forfeited or expired
|
|
(16,487
|
)
|
|
4.74
|
|
|
(27,853
|
)
|
|
6.62
|
|
|
Outstanding at March 31,
|
|
3,431,780
|
|
|
3.90
|
|
|
2,657,535
|
|
|
5.14
|
|
|
|
|
|
(1)
|
Due to the closing of the Merger, the 2016 and 2017 Performance Cash Programs were converted from nonvested performance-based cash units to nonvested common stock awards, resulting in an increase in nonvested common stock awards for the
three
months ended
March 31, 2018
.
|
A summary of the Company's nonvested common stock unit awards for the
three
months ended
March 31, 2019
and
2018
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Three Months Ended March 31, 2018
|
|
Nonvested Common Stock Unit Awards
|
|
Units
|
|
Weighted Average
Grant Date
Fair Value
|
|
Units
|
|
Weighted Average
Grant Date
Fair Value
|
|
Outstanding at January 1,
|
|
311,237
|
|
|
$
|
7.26
|
|
|
272,559
|
|
|
$
|
6.37
|
|
|
Granted
|
|
14,704
|
|
|
2.21
|
|
|
3,198
|
|
|
5.08
|
|
|
Vested
|
|
(14,704
|
)
|
|
2.21
|
|
|
(3,198
|
)
|
|
5.08
|
|
|
Outstanding at March 31,
|
|
311,237
|
|
|
7.26
|
|
|
272,559
|
|
|
6.37
|
|
A summary of the Company's nonvested performance-based cash unit awards for the
three
months ended
March 31, 2019
and
2018
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Three Months Ended March 31, 2018
|
|
Nonvested Performance-Based Cash Unit Awards
|
|
Units
|
|
Weighted Average
Fair Value
|
|
Units
|
|
Weighted Average
Fair Value
|
|
Outstanding at January 1,
|
|
909,585
|
|
|
|
|
1,548,083
|
|
|
|
|
Granted
|
|
2,026,521
|
|
|
|
|
796,423
|
|
|
|
|
Performance goal adjustment
(1)
|
|
—
|
|
|
|
|
11,289
|
|
|
|
|
Modified
(2)
|
|
—
|
|
|
|
|
(1,211,478
|
)
|
|
|
|
Vested
|
|
—
|
|
|
|
|
(286,652
|
)
|
|
|
|
Forfeited or expired
|
|
(67,472
|
)
|
|
|
|
(61,242
|
)
|
|
|
|
Outstanding at March 31,
|
|
2,868,634
|
|
|
$
|
2.21
|
|
|
796,423
|
|
|
$
|
5.08
|
|
|
|
|
|
(1)
|
The 2015 Program vested at
104.1%
in excess of target level and resulted in additional units vesting in March 2018. These units are included in the vested line item for the
three
months ended
March 31, 2018
.
|
|
|
|
|
(2)
|
Due to the closing of the Merger, the 2016 and 2017 Performance Cash Programs were converted from nonvested performance-based cash units to nonvested common stock awards, resulting in a decrease in nonvested performance-based cash units for the
three
months ended
March 31, 2018
. The 2016 Program awards were converted based on performance through March 19, 2018, which resulted in
89%
of the units converting to nonvested common stock awards or a reduction of
65,173
units converting to nonvested common stock awards.
|
Performance Cash Program
2019 Program.
In February 2019, the Compensation Committee of the Board of Directors of the Company approved a performance cash program (the "2019 Program") granting performance cash units that will settle in cash and are accounted for as liability awards. The performance-based awards contingently vest in February 2022, depending on the level at which the performance goal is achieved. The performance goal, which will be measured over the
three
-year period ending December 31, 2021, will be the Company's total shareholder return ("TSR") based on a matrix measurement of (1) the Company's absolute performance and (2) the Company's ranking relative to a defined peer group's individual TSRs ("Relative TSR"). The Company's absolute performance is measured against the December 31, 2018 closing share price of
$2.49
. If the Company's absolute performance is less than
50%
, the payout is
zero
. If the Company's absolute performance is
50%
, the payout is
50%
. If the Company's absolute performance is
100%
, the payout is
100%
, which is the maximum payout for this portion. If the Company's Relative TSR is less than
30%
, the payout is
zero
. If the Company's Relative TSR is
30%
or greater, the payout is equal to the Company's percentile rank up to
100%
of the original grant. The Company's combined absolute performance and Relative TSR have a maximum vest of up to
200%
of the original grant.
11
. Leases
The Company adopted ASC 842 effective January 1, 2019 using the modified retrospective method and elected the option to not apply ASC 842 to comparative periods. See Note 2 - New Accounting Pronouncements for the impacts of adopting this new standard.
The Company currently has leases for office space and other equipment, all classified as operating leases. Under ASC 842, a contract is or contains a lease when, (1) the contract contains an explicitly or implicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. The Company assesses whether an arrangement is or contains a lease at inception of the contract. For all leases, other than those that qualify for the short-term recognition exemption, the Company recognizes as of the lease commencement date on the balance sheet a liability for its obligation related to the lease and a corresponding asset representing the Company's right to use the underlying asset over the period of use.
The Company's leases have remaining terms of up to
nine
years. Certain lease agreements contain options to extend or early terminate the agreement. These options are used to calculate right-of-use asset and lease liability balances when it is reasonably certain that the Company will exercise these options.
The discount rate used to calculate the present value of the future minimum lease payments is the rate implicit in the lease, when readily determinable. As most of the Company's leases do not provide an implicit rate, the Company utilizes its incremental borrowing rate.
The Company has elected, for all classes of underlying assets, to not apply the balance sheet recognition requirements of ASC 842 to leases with a term of one year or less, and instead, the Company recognizes the lease payments in the income statement on a straight-line basis over the lease term. The Company has also made the election, for certain classes of underlying assets, to combine lease and non-lease components. However, for the majority of its leases, the Company accounts for lease and non-lease components separately.
For the three months ended
March 31, 2019
, lease cost was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Lease Cost
|
|
2019
|
|
|
|
(in thousands)
|
|
Operating lease cost
(1)(3)
|
|
$
|
548
|
|
|
Short-term lease cost
(2)(3)
|
|
6,219
|
|
|
Total lease cost
|
|
$
|
6,767
|
|
|
|
|
|
(1)
|
Operating lease cost was primarily included in general and administrative expense or lease operating expense on the Unaudited Consolidated Statements of Operations.
|
|
|
|
|
(2)
|
Short-term lease cost primarily includes leases for drilling rigs, which were capitalized to property, plant and equipment on the Unaudited Consolidated Balance Sheets.
|
|
|
|
|
(3)
|
A portion of the operating lease cost and a majority of the short-term lease cost represent gross amounts that the Company was financially committed to pay. However, the Company recorded in the financial statements its proportionate share based on the Company's working interest, which varies from property to property.
|
Supplemental balance sheet information related to leases as of
March 31, 2019
, was as follows:
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
As of March 31, 2019
|
|
|
|
(in thousands)
|
|
Right-of-use assets
(1)
|
|
$
|
9,255
|
|
|
Accumulated amortization
(2)
|
|
(352
|
)
|
|
Total right-of-use assets
(5)
|
|
$
|
8,903
|
|
|
Current lease liabilities
(3)
|
|
(517
|
)
|
|
Noncurrent lease liabilities
(4)
|
|
(14,117
|
)
|
|
Total lease liabilities
(5)
|
|
$
|
(14,634
|
)
|
|
Weighted average remaining lease term
|
|
|
|
Operating leases (in years)
|
|
8.4
|
|
|
Weighted average discount rate
|
|
|
|
Operating leases
|
|
5.6
|
%
|
|
|
|
|
(1)
|
Included in furniture, equipment and other in the Unaudited Consolidated Balance Sheets.
|
|
|
|
|
(2)
|
Included in accumulated depreciation, depletion, amortization and impairment in the Unaudited Consolidated Balance Sheets.
|
|
|
|
|
(3)
|
Included in accounts payable and accrued liabilities in the Unaudited Consolidated Balance Sheets.
|
|
|
|
|
(4)
|
Included in other noncurrent liabilities in the Unaudited Consolidated Balance Sheets.
|
|
|
|
|
(5)
|
The difference between the right-of-use assets and total lease liabilities was primarily related to lease incentives and deferred rent balances, which were required to be netted against the right-of-use assets as of the implementation date of January 1, 2019.
|
Maturities of lease liabilities as of
March 31, 2019
were as follows:
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
|
(in thousands)
|
|
2019
|
$
|
1,026
|
|
|
2020
|
1,938
|
|
|
2021
|
2,230
|
|
|
2022
|
1,992
|
|
|
2023
|
2,024
|
|
|
Thereafter
|
9,654
|
|
|
Total
|
$
|
18,864
|
|
|
Less: Interest
|
(4,230
|
)
|
|
Present value of lease liabilities
|
$
|
14,634
|
|
Minimum future contractual payments for operating leases under the scope of ASC 840 as of
December 31, 2018
were as follows:
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
(in thousands)
|
|
2019
|
$
|
2,583
|
|
|
2020
|
3,032
|
|
|
2021
|
3,331
|
|
|
2022
|
3,263
|
|
|
2023
|
3,036
|
|
|
Thereafter
|
13,112
|
|
|
Total
|
$
|
28,357
|
|
12
. Commitments and Contingencies
Firm Transportation Agreements.
The Company is party to
two
firm transportation contracts, through July 2021, to provide capacity on natural gas pipeline systems. The contracts require the Company to pay transportation charges regardless of the amount of pipeline capacity utilized by the Company. These monthly transportation payments are included in unused commitments expense in the Unaudited Consolidated Statements of Operations. As a result of previous divestitures in 2013 and 2014, the Company will likely not utilize the firm capacity on the natural gas pipelines.
The amounts in the table below represent the Company's future minimum transportation charges:
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
|
(in thousands)
|
|
2019
|
$
|
13,206
|
|
|
2020
|
18,400
|
|
|
2021
|
10,733
|
|
|
Thereafter
|
—
|
|
|
Total
|
$
|
42,339
|
|
Gas Gathering and Processing Agreements.
The Company is party to
one
minimum volume commitment and
one
reimbursement obligation. The minimum volume commitment requires the Company to deliver a minimum volume of natural gas to a midstream entity for gathering and processing. The contract requires the Company to pay a fee associated with the contracted volumes regardless of the amount delivered. The reimbursement obligation requires the Company to pay a monthly gathering and processing fee per Mcf of production over a
one
year period to reimburse a midstream entity for its costs to construct gas gathering and processing facilities. If the costs are not reimbursed by the Company via the monthly gathering and processing fees through August 2019, the Company must pay the difference. The amounts in the table below represent the Company's future minimum charges under both agreements:
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
|
(in thousands)
|
|
2019
(1)
|
$
|
8,275
|
|
|
2020
|
2,167
|
|
|
2021
|
1,997
|
|
|
Thereafter
|
—
|
|
|
Total
|
$
|
12,439
|
|
|
|
|
|
(1)
|
Includes
$6.5 million
associated with the reimbursement obligation discussed above.
|
Other Commitments.
The Company is party to
one
minimum volume commitment for fresh water. The minimum volume commitment requires the Company to purchase a minimum volume of fresh water from a water supplier. The contract requires the Company to pay a fee associated with the contracted volumes regardless of the amount delivered. The Company also has non-cancellable agreements for information technology and geological and geophysical services. Future minimum annual payments under these agreements are as follows:
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
|
(in thousands)
|
|
2019
|
$
|
4,453
|
|
|
2020
|
1,490
|
|
|
2021
|
745
|
|
|
2022
|
745
|
|
|
2023
|
744
|
|
|
Thereafter
|
—
|
|
|
Total
|
$
|
8,177
|
|
Litigation.
The Company is subject to litigation, claims and governmental and regulatory proceedings arising in the ordinary course of business. It is the opinion of the Company's management that current claims and litigation involving the Company are not likely to have a material adverse effect on its Unaudited Consolidated Balance Sheet, Cash Flows or Statements of Operations.
13. Parent Guarantor
The condensed consolidating financial information as of and for the periods ended
March 31, 2019
and
2018
presents the results of operations, financial position and cash flows of HighPoint Resources Corporation, or parent guarantor, and HighPoint Operating Corporation (f/k/a Bill Barrett), or subsidiary issuer, as well as the consolidating adjustments necessary to present HighPoint Resources Corporation's results on a consolidated basis. The parent guarantor fully and unconditionally guarantees the debt securities of the subsidiary issuer. The indentures governing those securities limit the ability of the subsidiary issuer to pay dividends or otherwise provide funding to the parent guarantor.
For the purpose of the following financial information, investments in subsidiaries are reflected in accordance with the equity method of accounting. The financial information may not necessarily be indicative of results of operations, cash flows, or financial position had the parent and the subsidiary operated as independent entities.
Condensed Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
44,658
|
|
|
$
|
—
|
|
|
$
|
44,658
|
|
|
Accounts receivable, net of allowance for doubtful accounts
|
—
|
|
|
57,473
|
|
|
—
|
|
|
57,473
|
|
|
Other current assets
|
—
|
|
|
4,914
|
|
|
—
|
|
|
4,914
|
|
|
Property and equipment, net
|
—
|
|
|
2,096,160
|
|
|
—
|
|
|
2,096,160
|
|
|
Investment in subsidiaries
|
1,116,475
|
|
|
—
|
|
|
(1,116,475
|
)
|
|
—
|
|
|
Noncurrent assets
|
—
|
|
|
9,331
|
|
|
—
|
|
|
9,331
|
|
|
Total assets
|
$
|
1,116,475
|
|
|
$
|
2,212,536
|
|
|
$
|
(1,116,475
|
)
|
|
$
|
2,212,536
|
|
|
Liabilities and Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Accounts payable and other accrued liabilities
|
$
|
—
|
|
|
$
|
135,762
|
|
|
$
|
—
|
|
|
$
|
135,762
|
|
|
Other current liabilities
|
—
|
|
|
113,993
|
|
|
—
|
|
|
113,993
|
|
|
Long-term debt
|
—
|
|
|
687,768
|
|
|
—
|
|
|
687,768
|
|
|
Deferred income taxes
|
—
|
|
|
109,823
|
|
|
—
|
|
|
109,823
|
|
|
Other noncurrent liabilities
|
—
|
|
|
48,715
|
|
|
—
|
|
|
48,715
|
|
|
Stockholders' equity
|
1,116,475
|
|
|
1,116,475
|
|
|
(1,116,475
|
)
|
|
1,116,475
|
|
|
Total liabilities and stockholders' equity
|
$
|
1,116,475
|
|
|
$
|
2,212,536
|
|
|
$
|
(1,116,475
|
)
|
|
$
|
2,212,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
32,774
|
|
|
$
|
—
|
|
|
$
|
32,774
|
|
|
Accounts receivable, net of allowance for doubtful accounts
|
—
|
|
|
72,943
|
|
|
—
|
|
|
72,943
|
|
|
Other current assets
|
—
|
|
|
84,064
|
|
|
—
|
|
|
84,064
|
|
|
Property and equipment, net
|
—
|
|
|
2,029,523
|
|
|
—
|
|
|
2,029,523
|
|
|
Investment in subsidiaries
|
1,212,098
|
|
|
—
|
|
|
(1,212,098
|
)
|
|
—
|
|
|
Noncurrent assets
|
—
|
|
|
33,156
|
|
|
—
|
|
|
33,156
|
|
|
Total assets
|
$
|
1,212,098
|
|
|
$
|
2,252,460
|
|
|
$
|
(1,212,098
|
)
|
|
$
|
2,252,460
|
|
|
Liabilities and Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Accounts payable and other accrued liabilities
|
$
|
—
|
|
|
$
|
131,379
|
|
|
$
|
—
|
|
|
$
|
131,379
|
|
|
Other current liabilities
|
—
|
|
|
116,806
|
|
|
—
|
|
|
116,806
|
|
|
Long-term debt
|
—
|
|
|
617,387
|
|
|
—
|
|
|
617,387
|
|
|
Deferred income taxes
|
—
|
|
|
139,534
|
|
|
—
|
|
|
139,534
|
|
|
Other noncurrent liabilities
|
—
|
|
|
35,256
|
|
|
—
|
|
|
35,256
|
|
|
Stockholders' equity
|
1,212,098
|
|
|
1,212,098
|
|
|
(1,212,098
|
)
|
|
1,212,098
|
|
|
Total liabilities and stockholders' equity
|
$
|
1,212,098
|
|
|
$
|
2,252,460
|
|
|
$
|
(1,212,098
|
)
|
|
$
|
2,252,460
|
|
Condensed Consolidating Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Operating and other revenues
|
$
|
—
|
|
|
$
|
101,980
|
|
|
$
|
—
|
|
|
$
|
101,980
|
|
|
Operating expenses
|
—
|
|
|
(94,290
|
)
|
|
—
|
|
|
(94,290
|
)
|
|
General and administrative
|
—
|
|
|
(12,660
|
)
|
|
—
|
|
|
(12,660
|
)
|
|
Merger transaction expense
|
—
|
|
|
(2,414
|
)
|
|
—
|
|
|
(2,414
|
)
|
|
Interest expense
|
—
|
|
|
(13,679
|
)
|
|
—
|
|
|
(13,679
|
)
|
|
Interest income and other income (expense)
|
—
|
|
|
(104,877
|
)
|
|
—
|
|
|
(104,877
|
)
|
|
Income (loss) before income taxes and equity in earnings (loss) of subsidiaries
|
—
|
|
|
(125,940
|
)
|
|
—
|
|
|
(125,940
|
)
|
|
(Provision for) benefit from income taxes
|
—
|
|
|
29,711
|
|
|
—
|
|
|
29,711
|
|
|
Equity in earnings (loss) of subsidiaries
|
(96,229
|
)
|
|
—
|
|
|
96,229
|
|
|
—
|
|
|
Net income (loss)
|
$
|
(96,229
|
)
|
|
$
|
(96,229
|
)
|
|
$
|
96,229
|
|
|
$
|
(96,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Operating and other revenues
|
$
|
—
|
|
|
$
|
80,810
|
|
|
$
|
—
|
|
|
$
|
80,810
|
|
|
Operating expenses
|
—
|
|
|
(58,145
|
)
|
|
—
|
|
|
(58,145
|
)
|
|
General and administrative
|
—
|
|
|
(10,107
|
)
|
|
—
|
|
|
(10,107
|
)
|
|
Merger transaction expense
|
—
|
|
|
(4,763
|
)
|
|
—
|
|
|
(4,763
|
)
|
|
Interest expense
|
—
|
|
|
(13,090
|
)
|
|
—
|
|
|
(13,090
|
)
|
|
Interest income and other income (expense)
|
—
|
|
|
(19,642
|
)
|
|
—
|
|
|
(19,642
|
)
|
|
Income (loss) before income taxes and equity in earnings (loss) of subsidiaries
|
—
|
|
|
(24,937
|
)
|
|
—
|
|
|
(24,937
|
)
|
|
(Provision for) benefit from income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Equity in earnings (loss) of subsidiaries
|
(24,937
|
)
|
|
—
|
|
|
24,937
|
|
|
—
|
|
|
Net income (loss)
|
$
|
(24,937
|
)
|
|
$
|
(24,937
|
)
|
|
$
|
24,937
|
|
|
$
|
(24,937
|
)
|
Condensed Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Cash flows from operating activities
|
$
|
—
|
|
|
$
|
77,683
|
|
|
$
|
—
|
|
|
$
|
77,683
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Additions to oil and gas properties, including acquisitions
|
—
|
|
|
(130,862
|
)
|
|
—
|
|
|
(130,862
|
)
|
|
Additions to furniture, fixtures and other
|
—
|
|
|
(1,309
|
)
|
|
—
|
|
|
(1,309
|
)
|
|
Other investing activities
|
—
|
|
|
(273
|
)
|
|
—
|
|
|
(273
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
—
|
|
|
70,000
|
|
|
—
|
|
|
70,000
|
|
|
Principal payments on debt
|
—
|
|
|
(1,859
|
)
|
|
—
|
|
|
(1,859
|
)
|
|
Other financing activities
|
—
|
|
|
(1,496
|
)
|
|
—
|
|
|
(1,496
|
)
|
|
Change in cash and cash equivalents
|
—
|
|
|
11,884
|
|
|
—
|
|
|
11,884
|
|
|
Beginning cash and cash equivalents
|
—
|
|
|
32,774
|
|
|
—
|
|
|
32,774
|
|
|
Ending cash and cash equivalents
|
$
|
—
|
|
|
$
|
44,658
|
|
|
$
|
—
|
|
|
$
|
44,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Intercompany
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Cash flows from operating activities
|
$
|
—
|
|
|
$
|
54,317
|
|
|
$
|
—
|
|
|
$
|
54,317
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Additions to oil and gas properties, including acquisitions
|
—
|
|
|
(88,854
|
)
|
|
—
|
|
|
(88,854
|
)
|
|
Additions to furniture, fixtures and other
|
—
|
|
|
(122
|
)
|
|
—
|
|
|
(122
|
)
|
|
Payment of acquiree's debt associated with merger, net of cash acquired
|
—
|
|
|
(53,357
|
)
|
|
—
|
|
|
(53,357
|
)
|
|
Other investing activities
|
—
|
|
|
(157
|
)
|
|
—
|
|
|
(157
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Principal payments on debt
|
—
|
|
|
(116
|
)
|
|
—
|
|
|
(116
|
)
|
|
Other financing activities
|
—
|
|
|
(1,485
|
)
|
|
—
|
|
|
(1,485
|
)
|
|
Change in cash and cash equivalents
|
—
|
|
|
(89,774
|
)
|
|
—
|
|
|
(89,774
|
)
|
|
Beginning cash and cash equivalents
|
—
|
|
|
314,466
|
|
|
—
|
|
|
314,466
|
|
|
Ending cash and cash equivalents
|
$
|
—
|
|
|
$
|
224,692
|
|
|
$
|
—
|
|
|
$
|
224,692
|
|