Quick10K

PetroQuest Energy

Price	1.00		EPS	-0
Shares	9		P/E	-3
MCap	9		P/FCF	1
Net Debt	-17		EBIT	-3
TEV	-7		TEV/EBIT	2
TTM 2019-06-30, in MM, except price, ratios

10-Q	2019-06-30	Filed 2019-08-12 Print
10-Q	2019-03-31	Filed 2019-05-15 Print
10-K	2018-12-31	Filed 2019-03-28 Print
10-Q	2018-09-30	Filed 2018-11-13 Print
10-Q	2018-06-30	Filed 2018-08-07 Print
10-Q	2018-03-31	Filed 2018-05-08 Print
10-K	2017-12-31	Filed 2018-03-08 Print
10-Q	2017-09-30	Filed 2017-11-02 Print
10-Q	2017-06-30	Filed 2017-08-04 Print
10-Q	2017-03-31	Filed 2017-05-04 Print
10-K	2016-12-31	Filed 2017-03-09 Print
10-Q	2016-09-30	Filed 2016-11-04 Print
10-Q	2016-06-30	Filed 2016-08-03 Print
10-Q	2016-03-31	Filed 2016-05-04 Print
10-K	2015-12-31	Filed 2016-03-04 Print
10-Q	2015-09-30	Filed 2015-11-03 Print
10-Q	2015-06-30	Filed 2015-08-05 Print
10-Q	2015-03-31	Filed 2015-05-06 Print
10-K	2014-12-31	Filed 2015-03-06 Print
10-Q	2014-09-30	Filed 2014-11-04 Print
10-Q	2014-06-30	Filed 2014-08-05 Print
10-Q	2014-03-31	Filed 2014-05-07 Print
10-K	2013-12-31	Filed 2014-03-05 Print
10-Q	2013-09-30	Filed 2013-11-06 Print
10-Q	2013-06-30	Filed 2013-08-06 Print
10-Q	2013-03-31	Filed 2013-05-08 Print
10-K	2012-12-31	Filed 2013-03-11 Print
10-Q	2012-09-30	Filed 2012-11-09 Print
10-Q	2012-06-30	Filed 2012-08-07 Print
10-Q	2012-03-31	Filed 2012-05-09 Print
10-K	2011-12-31	Filed 2012-03-05 Print
10-Q	2011-09-30	Filed 2011-11-04 Print
10-Q	2011-06-30	Filed 2011-08-05 Print
10-Q	2011-03-31	Filed 2011-05-05 Print
10-K	2010-12-31	Filed 2011-02-28 Print
10-Q	2010-09-30	Filed 2010-11-05 Print
10-Q	2010-06-30	Filed 2010-08-05 Print
10-Q	2010-03-31	Filed 2010-05-05 Print
10-K	2009-12-31	Filed 2010-02-26 Print

8-K	2019-06-21
8-K	2019-06-19
8-K	2019-02-08
8-K	2019-01-31
8-K	2019-01-14
8-K	2018-12-18
8-K	2018-11-06
8-K	2018-11-05
8-K	2018-10-31
8-K	2018-10-19
8-K	2018-10-05
8-K	2018-09-28
8-K	2018-09-14
8-K	2018-08-31
8-K	2018-08-15
8-K	2018-08-06
8-K	2018-07-31
8-K	2018-07-10
8-K	2018-06-21
8-K	2018-05-16
8-K	2018-05-07
8-K	2018-05-07
8-K	2018-04-17
8-K	2018-03-05
8-K	2018-02-20
8-K	2018-01-31

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Balance Sheet	Income Statement	Cash Flow
CopyHistoryView Assets, Equity	CopyHistoryView Rev, G Profit, Net Income	CopyHistoryView Ops, Inv, Fin

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10-Q 1 pq6301910q.htm 10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from:                    to:                    

Commission file number: 001-32681

PETROQUEST ENERGY, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		72-1440714
(State of Incorporation)		(I.R.S. Employer Identification No.)

400 E. Kaliste Saloom Rd., Suite 6000 Lafayette, Louisiana		70508
(Address of principal executive offices)		(Zip code)

337-232-7028

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	x
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨

As of August 2, 2019, the registrant had outstanding: 9,371,120 shares of Class A Common Stock, par value $0.01 per share; one share of Class B Common Stock, par value $0.01 per share; and one share of Class C Common Stock, par value $0.01 per share.

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Table of Contents

PETROQUEST ENERGY, INC.

Table of Contents

 

Copy History

	Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets of PetroQuest Energy, Inc. as of June 30, 2019 and December 31, 2018	3
Consolidated Statements of Operations of PetroQuest Energy, Inc. for the Three Months Ended June 30, 2019 and 2018	5
Consolidated Statements of Operations of PetroQuest Energy, Inc. for the Period February 9 to June 30, 2019, the Period January 1 to February 8, 2019 and the Six Months Ended June 30, 2018	6
Consolidated Statements of Comprehensive Income (Loss) of PetroQuest Energy, Inc. for the Three Months Ended June 30, 2019 and 2018.	7
Consolidated Statements of Comprehensive Income (Loss) of PetroQuest Energy, Inc. for the Period February 9 to June 30, 2019, the Period January 1 to February 8, 2019 and the Six Months Ended June 30, 2018.	8
Consolidated Statements of Stockholders' Equity of PetroQuest Energy, Inc. for the Three Months Ended June 30, 2019 and 2018.	9
Consolidated Statements of Stockholders' Equity of PetroQuest Energy, Inc. for the Period February 9 to June 30, 2019, the Period January 1 to February 8, 2019 and the Six Months Ended June 30, 2018.	10
Consolidated Statements of Cash Flows of PetroQuest Energy, Inc. for the Period February 9 to June 30, 2019, the Period January 1 to February 8, 2019 and the Six Months Ended June 30, 2018.	11
Notes to Consolidated Financial Statements	12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3. Quantitative and Qualitative Disclosures About Market Risk	44
Item 4. Controls and Procedures	44
Part II. Other Information
Item 1. Legal Proceedings	45
Item 1A. Risk Factors	45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3. Defaults upon Senior Securities	46
Item 4. Mine Safety Disclosures	46
Item 5. Other Information	46
Item 6. Exhibits	47

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Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included in this Form 10-Q are forward looking statements. These forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected.

Among those risks, trends and uncertainties are:

•our ability to remain in compliance with a significant financial ratio under our Exit Facility (as defined below);

•	risks and uncertainties associated with our previous Chapter 11 proceedings;

•	the likelihood that our Chapter 11 proceedings may have disrupted our business;

•	the possibility that the assumptions and analyses used to develop our Chapter 11 plan of reorganization may prove to have been incorrect;

•	the likelihood that our historical financial information may no longer be indicative of our future financial performance;

•	the possibility that our new board of directors (the “Board”) may have a different strategy and plan for the Company's future;

•	our ability to attract and retain key personnel may be affected by our emergence from bankruptcy;

•	the volatility of oil and natural gas prices;

•	our indebtedness and the amount of cash required to service our indebtedness;

•	our ability to obtain adequate financing when the need arises to execute our long-term strategy and to fund our planned capital expenditures;

•

limits on our growth and our ability to finance our operations, fund our capital needs and respond to changing conditions imposed by the Term Loan Agreement dated as of February 8, 2019, by and among PQE (as defined below), as borrower, the Company, as parent, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent (the “Exit Facility”) and restrictive debt covenants;

•	the effects of a financial downturn or negative credit market conditions on our liquidity, business and financial condition;

•	our responsibility for offshore decommissioning liabilities for offshore interests we no longer own;

•	our ability to find, develop, produce and acquire additional oil and natural gas reserves that are economically recoverable;

•	the risk of severe weather, including hurricanes and tropical storms, as well as flooding, coastal erosion and sea level rise;

•	our ability to successfully develop our inventory of undeveloped acreage;

•	the possibility of a substantial lease renewal cost or the loss of our leases and prospective drilling opportunities that could result from a failure to drill sufficient wells to hold our undeveloped acreage;

•	Securities and Exchange Commission (the "SEC") rules that could limit our ability to book proved undeveloped reserves in the future;

•	the likelihood that our actual production, revenues and expenditures related to our reserves will differ from our estimates of proved reserves;

•	our ability to identify, execute or efficiently integrate future acquisitions;

•	losses and liabilities from uninsured or underinsured drilling and operating activities;

•	ceiling test write-downs resulting, and that could result in the future, from lower oil and natural gas prices;

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•	our ability to market our oil and natural gas production;

•	changes in laws and governmental regulations and increases in insurance costs or decreases in insurance availability directed toward our business;

•	regulatory initiatives relating to oil and natural gas development, hydraulic fracturing, and derivatives;

•	proposed changes to U.S. tax laws;

•	competition from larger oil and natural gas companies;

•	the operating hazards attendant to the oil and gas business;

•	governmental regulation relating to environmental compliance costs and environmental liabilities;

•	the impact of potential cybersecurity threats;

•	the loss of our information and computer systems;

•	the impact of terrorist activities on global economies;

•	the possibility that the interests of our significant stockholders could be in conflict with the interest of our other stockholders;

•	no meaningful trading market for our Class A common stock, par value $0.01 per share (the “Class A Common Stock”) and the volatility of the market price for our Class A Common Stock;

•	the restrictions in our certificate of incorporation and bylaws which could delay or prevent a change of control of our company; and

•	the restrictions on our ability to pay dividends with respect to any series of common stock.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot assure you that the expectations reflected in our forward looking statements will prove to have been correct.

When used in this Form 10-Q, the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and elsewhere in this Form 10-Q.

You should read these statements carefully because they discuss our expectations about our future performance, contain projections of our future operating results or our future financial condition, or state other “forward-looking” information. You should be aware that the occurrence of any of the events described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and elsewhere in this Form 10-Q and under “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the Year Ended December 31, 2018 (the “Form 10-K”) could substantially harm our business, results of operations and financial condition and that upon the occurrence of any of these events, the trading price of our Class A Common Stock could decline, and you could lose all or part of your investment.

We cannot guarantee any future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update any of the forward-looking statements in this Form 10-Q after the date of this Form 10-Q.

As used in this Form 10-Q, the words “we,” “our,” “us,” and the “Company” refer to PetroQuest Energy, Inc. and its subsidiaries, except as otherwise specified. Furthermore, we may refer to the Company prior to the Effective Date as the “Predecessor,” and on and after the Effective Date as the “Successor.”

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PETROQUEST ENERGY, INC.

Consolidated Balance Sheets

(Amounts in thousands, except per share data)

Copy History

	Successor				Predecessor
	June 30, 2019				December 31, 2018
	(unaudited)				(Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	16,292			$	34,502
Restricted cash	389				389
Revenue receivable	3,848				6,364
Joint interest billing receivable	19,085				4,716
Deposit for surety bonds	75				3,550
Other current assets	1,488				3,261
Total current assets	41,177				52,782
Property and equipment:
Oil and gas properties:
Oil and gas properties, full cost method	69,344				1,361,374
Unevaluated oil and gas properties	126,353				23,492
Accumulated depreciation, depletion and amortization	(6,399		)		(1,301,592		)
Oil and gas properties, net	189,298				83,274
Other property and equipment	321				9,282
Accumulated depreciation of other property and equipment	(19		)		(9,056		)
Total property and equipment	189,600				83,500
Other assets	371				1,005
Right of use asset	1,777				—
Total assets	$	232,925			$	137,287
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable to vendors	$	28,416			$	11,699
Advances from co-owners	3,543				2,020
Oil and gas revenue payable	4,132				7,765
Accrued interest	289				639
Asset retirement obligation	1,525				183
Other accrued liabilities	883				1,259
Right of use liability-short-term	921				—
Total current liabilities	39,709				23,565
Multi-draw Term Loan	45,727				49,738
10% Senior Secured PIK Notes due 2024	68,699				—
Asset retirement obligation	2,597				2,297
Deferred income taxes	694				—
Right of use liability-long-term	751				—
Total liabilities not subject to compromise	158,177				75,600
Liabilities subject to compromise	—				323,854
Total liabilities	$	158,177			$	399,454

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PETROQUEST ENERGY, INC.

Consolidated Balance Sheets

(Amounts in thousands, except per share data)

Copy History

	Successor				Predecessor
	June 30, 2019				December 31, 2018
	(unaudited)				(Note 1)
Stockholders’ equity (Predecessor):
Preferred stock, $.001 par value; authorized 5,000 shares; issued and outstanding 1,495 shares	$	—			$	1
Common stock, $.001 par value; authorized 150,000 shares; issued and outstanding 25,587 shares.	—				26
Paid-in capital	—				314,268
Accumulated deficit	—				(576,462		)
Stockholders’ equity (Successor):
Preferred stock, $.01 par value; authorized 10,000 shares	—				—
Common stock, $.01 par value; authorized 65,000 shares, issued and outstanding 9,371 shares	94				—
Paid-in capital	74,678				—
Accumulated deficit	(24		)		—
Total stockholders’ equity	74,748				(262,167		)
Total liabilities and stockholders’ equity	$	232,925			$	137,287

See accompanying Notes to Consolidated Financial Statements.

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PETROQUEST ENERGY, INC.

Consolidated Statements of Operations

(unaudited)

(Amounts in thousands, except per share data)

Copy History

	Successor				Predecessor
	Three Months Ended June 30, 2019				Three Months Ended June 30, 2018
Revenues:
Oil and gas sales	$	13,958			$	21,561
Expenses:
Lease operating expenses	4,164				4,972
Production taxes	732				334
Depreciation, depletion and amortization	4,136				6,023
Ceiling test write-down	—				—
General and administrative	3,297				4,004
Restructuring expense	1,284				—
Accretion of asset retirement obligation	46				42
Interest expense	500				7,636
Lease costs	271				—
	14,430				23,011
Other income:
Gain on sale of oil and gas properties	—				—
Other income	164				178
Derivative expense	—				(54		)
	164				124
Loss from operations	(308		)		(1,326		)
Reorganization items, net	—				—
Income tax expense	(453		)		—
Net loss	(761		)		(1,326		)
Preferred stock dividend	—				1,285
Loss available to common stockholders	$	(761	)		$	(2,611	)
Loss per common share:
Basic	$	(0.08	)		$	(0.10	)
Diluted	$	(0.08	)		$	(0.10	)
Weighted average number of common shares:
Basic	9,371				25,568
Diluted	9,371				25,568

See accompanying Notes to Consolidated Financial Statements.

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PETROQUEST ENERGY, INC.

Consolidated Statements of Operations

(unaudited)

(Amounts in thousands, except per share data)

Copy History

		Successor				Predecessor
		February 9, 2019 through June 30, 2019				January 1, 2019 through February 8, 2019				Six Months Ended June 30, 2018
Revenues:
Oil and gas sales		$	22,440			$	6,657			$	46,478
Expenses:
Lease operating expenses		6,342				2,158				12,012
Production taxes		1,175				298				1,561
Depreciation, depletion and amortization		6,418				1,796				12,528
General and administrative		4,986				2,468				7,304
Restructuring expense		1,952				—				—
Accretion of asset retirement obligation		69				17				240
Interest expense		831				307				15,117
Lease costs		453				156				—
		22,226				7,200				48,762
Other income:
Other income (expense)		215				(290		)		191
Derivative expense		—				—				(54		)
		215				(290		)		137
Income/(loss) from operations		429				(833		)		(2,147		)
Reorganization items, net		—				262,801				—
Income tax expense		(453		)		(241		)		(106		)
Net income (loss)		(24		)		261,727				(2,253		)
Preferred stock dividend		—				—				2,570
Income (loss) available to common stockholders		$	(24	)		$	261,727			$	(4,823	)
Net income (loss) per common share:
Basic		$	—			$	9.50			$	(0.19	)
Diluted		$	—			$	8.92			$	(0.19	)
Weighted average number of common shares:
Basic		9,371				25,587				25,554
Diluted		9,371				27,289				25,554

See accompanying Notes to Consolidated Financial Statements.

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PETROQUEST ENERGY, INC.

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

(Amounts in thousands)

Copy History

	Successor				Predecessor
	Three Months Ended June 30, 2019				Three Months Ended June 30, 2018
Net loss	$	(761	)		$	(1,326	)
Change in fair value of derivative instruments, accounted for as hedges, net of income tax expense of $0 and $172, respectively	—				(84		)
Comprehensive loss	$	(761	)		$	(1,410	)

See accompanying Notes to Consolidated Financial Statements.

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PETROQUEST ENERGY, INC.

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

(Amounts in thousands)

Copy History

	Successor				Predecessor
	February 9, 2019 through June 30, 2019				January 1, 2019 through February 8, 2019				Six Months Ended June 30, 2018
Net income (loss)	$	(24	)		$	261,727			$	(2,253	)
Change in fair value of derivative instruments, accounted for as hedges, net of income tax expense of $0, $0 and $106, respectively	—				—				(1,080		)
Comprehensive income (loss)	$	(24	)		$	261,727			$	(3,333	)

See accompanying Notes to Consolidated Financial Statements.

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PETROQUEST ENERGY, INC.

Consolidated Statements of Stockholders' Equity

(unaudited)

(Amounts in thousands)

Copy History

	Common Stock				Preferred Stock				Paid-In Capital				Other Comprehensive Loss				Accumulated deficit				Total Stockholders' Equity
Balance, March 31, 2018 (Predecessor)	$	26			$	1			$	313,637			$	(718	)		$	(564,754	)		$	(251,808	)
Share-based compensation expense	—				—				256				—				—				256
Derivative fair value adjustment, net of tax	—				—				—				(84		)		—				(84		)
Preferred stock dividend	—				—				—				—				(1,285		)		(1,285		)
Net loss	—				—				—				—				(1,326		)		(1,326		)
Balance, June 30, 2018 (Predecessor)	$	26			$	1			$	313,893			$	(802	)		$	(567,365	)		$	(254,247	)
Balance, March 31, 2019 (Successor)	94				—				$	73,972			$	—			$	737			$	74,803
Share-based compensation expense	—				—				706				—				—				706
Net loss	—				—				—				—				(761		)		(761		)
Balance, June 30, 2019 (Successor)	$	94			$	—			$	74,678			$	—			$	(24	)		$	74,748

See accompanying Notes to Consolidated Financial Statements.

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PETROQUEST ENERGY, INC.

Consolidated Statements of Stockholders' Equity

(unaudited)

(Amounts in thousands)

Copy History

	Common Stock				Preferred Stock				Paid-In Capital				Other Comprehensive Income (Loss)				Accumulated deficit				Total Stockholders' Equity
Balance, December 31, 2017 (Predecessor)	$	26			$	1			$	313,244			$	278			$	(562,484	)		$	(248,935	)
Issuance of shares	—				—				(11		)		—				—				(11		)
Share-based compensation expense	—				—				617				—				—				617
Issuance of shares under employee stock purchase plan	—				—				43				—				—				43
Derivative fair value adjustment, net of tax	—				—				—				(1,080		)		(58		)		(1,138		)
Preferred stock dividend	—				—				—				—				(2,570		)		(2,570		)
Net loss	—				—				—				—				(2,253		)		(2,253		)
Balance, June 30, 2018 (Predecessor)	$	26			$	1			$	313,893			$	(802	)		$	(567,365	)		$	(254,247	)
Balance, December 31, 2018 (Predecessor)	$	26			$	1			$	314,268			$	—			$	(576,462	)		$	(262,167	)
Share-based compensation expense	—				—				44				—				—				44
Net income	—				—				—				—				261,727				261,727
Cancellation of Predecessor equity	(26		)		(1		)		(314,312		)		—				314,735				396
Issuance of Successor common stock and options	92				—				72,749				—				—				72,841
Issuance of Successor common stock upon vesting of restricted stock, net of shares retired for taxes	2				—				857				—				—				859
Balance, February 8, 2019 (Predecessor)	$	94			$	—			$	73,606			$	—			$	—			$	73,700
Balance, February 8, 2019 (Successor)	$	94			$	—			$	73,606			—				$	—			$	73,700
Share-based compensation expense	—				—				1,072				—				—				1,072
Net income	—				—				—				—				(24		)		(24		)
Balance, June 30, 2019 (Successor)	$	94			$	—			$	74,678			$	—			$	(24	)		$	74,748

See accompanying Notes to Consolidated Financial Statements.

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PETROQUEST ENERGY, INC.

Consolidated Statements of Cash Flows

(unaudited)

(Amounts in Thousands)

Copy History

	Successor				Predecessor
	February 9, 2019 through June 30, 2019				January 1, 2019 through February 8, 2019				Six Months Ended June 30, 2018
Cash flows from operating activities:
Net income (loss)	$	(24	)		$	261,727			$	(2,253	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Deferred tax expense	453				241				106
Depreciation, depletion and amortization	6,418				1,796				12,528
Accretion of asset retirement obligation	69				17				240
Share-based compensation expense	1,410				44				593
Amortization costs and other	916				555				402
Non-cash interest expense on PIK Notes	—				—				2,961
Payments to settle asset retirement obligations	(158		)		(11		)		(75		)
Non-cash reorganization items, net	—				(267,585		)		—
Changes in working capital accounts:
Revenue receivable	9,856				(7,340		)		7,480
Joint interest billing receivable	(12,177		)		(2,192		)		4,078
Accounts payable and accrued liabilities	(2,971		)		8,363				(24,104		)
Advances from co-owners	180				1,343				(1,117		)
Refund of (Deposit for) surety bonds	3,475				—				(4,000		)
Other	(565		)		2,336				242
Net cash provided by (used in) operating activities	6,882				(706		)		(2,919		)
Cash flows used in investing activities:
Investment in oil and gas properties	(18,878		)		(5,290		)		(9,785		)
Investment in other property and equipment	(71		)		(36		)		(136		)
Sale of oil and gas properties	—				—				(2,428		)
Sale of unevaluated oil and gas properties	—				—				2,928
Net cash used in investing activities	(18,949		)		(5,326		)		(9,421		)
Cash flows (used in) provided by financing activities:
Net proceeds from share based compensation	—				—				43
Deferred financing costs	—				(111		)		(55		)
Costs incurred to redeem 2021 Notes	—				—				(11		)
Proceeds from borrowings	—				—				2,500
Net cash (used in) provided by financing activities	—				(111		)		2,477
Net decrease in cash and cash equivalents	(12,067		)		(6,143		)		(9,863		)
Cash, restricted cash and cash equivalents, beginning of period	28,748				34,891				15,655
Cash, restricted cash and cash equivalents, end of period	$	16,681			$	28,748			$	5,792
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of capitalized interest	$	829			$	929			$	3,304
Reorganization items, net	$	1,952			$	4,784			$	—

See accompanying Notes to Consolidated Financial Statements.

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PETROQUEST ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Basis of Presentation

PetroQuest Energy, Inc., a Delaware corporation, is an independent oil and gas company headquartered in Lafayette, Louisiana with an exploration office in The Woodlands, Texas. It is engaged in the exploration, development, acquisition and operation of oil and gas properties in Texas and Louisiana. To facilitate our financial statement presentations, we refer to the post-emergence reorganized company in these consolidated financial statements and footnotes as the “Successor” for periods subsequent to February 8, 2019, and to the pre-emergence company as “Predecessor” for periods prior to and including February 8, 2019, the Effective Date of the Plan (as defined below). As discussed in “Note 3-Emergence from Chapter 11 Reorganization” the Company and its wholly owned direct and indirect subsidiaries filed voluntary petitions for bankruptcy relief on November 6, 2018 and subsequently operated as debtors in possession, in accordance with the applicable provisions of the Bankruptcy Code, until emergence on February 8, 2019.

The consolidated financial information for the period February 9, 2019 through June 30, 2019 (Successor), for the period January 1, 2019 through February 8, 2019 (Predecessor) and for the three and six month periods ended June 30, 2018 (Predecessor), have been prepared by the Company and were not audited by its independent registered public accountants. In the opinion of management, all normal and recurring adjustments have been made to present fairly the financial position, results of operations, and cash flows of the Company at June 30, 2019 and for all reported periods. Results of operations for the interim periods presented are not necessarily indicative of the operating results for the full year or any future periods.

The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the audited financial statements and related notes thereto included in the Company’s Form 10-K. Certain prior period amounts have been reclassified to conform to current year presentation.

Principles of Consolidation

The consolidated financial statements of the Predecessor include the accounts of the Company and its subsidiaries, PetroQuest Energy, L.L.C ("PQE"), PetroQuest Oil & Gas, L.L.C, and its former subsidiaries, Pittrans, Inc. and TDC Energy LLC through and including the Effective Date. The Successor's consolidated financial statements include the accounts of the Company, PQE and PetroQuest Oil & Gas, L.L.C. All intercompany accounts and transactions have been eliminated as part of the normal course of business.

Bankruptcy Accounting and Financial Reporting

The consolidated financial statements have been prepared in accordance with Accounting Standards Codification ("ASC") 852, Reorganizations ("ASC 852"), for the period subsequent to the bankruptcy filing. ASC 852 requires that the consolidated financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that were realized or incurred in the Chapter 11 Cases (as defined below) were recorded as reorganization items, net in the consolidated statement of operations. In addition, the pre-petition obligations that may be impacted by the bankruptcy reorganization process were classified on the consolidated balance sheet as liabilities subject to compromise. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court (as defined below), even if they may be settled for lesser amounts.

Upon the Effective Date of the Plan, February 8, 2019, we applied fresh start accounting. See "Note 4-Fresh Start Accounting". As a result of the application of fresh start accounting, as well as the effects of the implementation of the Plan, a new entity for financial reporting purposes was created, and as such, the consolidated financial statements on or after February 9, 2019, are not comparable with the consolidated financial statements prior to that date. A blackline presentation has been used to delineate the lack of comparability between predecessor and successor balances. See Note 4 for additional information on the selection of the Effective Date of fresh start accounting and for further discussion.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve month period following the filing date of these consolidated financial statements.

Recently Issued Accounting Standards

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging," to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its consolidated financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current US GAAP. ASU 2017-12 is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal

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years, with earlier application permitted. The Company has adopted this new standard. As there are no outstanding derivatives, there is no effect on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses", that requires entities to estimate all expected credit losses for most financial assets held at the reporting date based on an expected loss model, which requires consideration of historical experience, current conditions, and reasonable and supportable forecasts. This ASU also requires enhanced disclosure requirements to enable users of financial statements to understand the entity's assumptions, models and methods for estimating expected credit losses. For public companies, this ASU is effective for interim and annual reporting periods beginning after December 31, 2019, with early adoption permitted. The Company does not expect this guidance to have a material impact on its financial statements.

    

Note 2—Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve month period following the date of these consolidated financial statements. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.

During 2019, the Company initiated production from three East Texas wells and has drilled but not completed two additional East Texas wells. At June 30, 2019, the Company had approximately $16.3 million in unrestricted cash and had no availability under the Exit Facility. As a result of the Company's limited liquidity position and the decline in natural gas prices, drilling operations have been suspended in East Texas, including deferring the completion of the two wells that have been drilled.

The Company continues to evaluate additional sources of liquidity in order to execute its drilling plans. Options include additional debt or equity financing, joint ventures or industry partnerships, along with evaluating potential corporate level transactions such as a merger or a sale of the Company. There is no guarantee the Company will be successful in any of its attempts to strengthen its liquidity position. While there are no pending debt maturities and the Company expects to be able to fund required payments under the Exit Facility in the near term, the Company expects production, cash flow and proved reserves to decline until drilling operations can be resumed. The decline in proved reserves will likely impact the Company's ability to remain compliant with the financial ratio contained in the Exit Facility (the "Coverage Ratio") and, if natural gas prices remain depressed, the Company will likely be out of compliance with the Coverage Ratio as of September 30, 2019 unless it receives a waiver from the lenders under the Exit Facility. As a result, there is substantial doubt about the Company's ability to continue as a going concern. See-Liquidity and Capital Resources-Successor Long-Term Debt-Exit Facility.

Note 3—Emergence from Chapter 11 Reorganization

On November 6, 2018 (the “Petition Date”), the Company, PQE and their direct and indirect wholly owned subsidiaries (collectively, the “Debtors”) filed voluntary petitions (collectively, the “Petition,” and the cases commenced thereby, the “Chapter 11 Cases”) seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”).

On January 31, 2019, the Court entered an order (the “Confirmation Order”) confirming the Debtors’ First Amended Chapter 11 Plan of Reorganization, as Immaterially Modified as of January 28, 2019 (as amended, modified or supplemented from time to time, the “Plan”) under Chapter 11 of the Bankruptcy Code. On February 8, 2019 (the “Effective Date”), the Plan became effective in accordance with its terms and the Debtors emerged from the Chapter 11 Cases. On the Effective Date, TDC Energy, LLC, Pittrans, Inc. and Sea Harvester Energy Development, L.L.C. were dissolved. The remaining Debtors (collectively, the "Reorganized Debtors") continue in existence.

On the Effective Date and pursuant to the terms of the Plan and the Confirmation Order, the Company:

•	Adopted an amended and restated certificate of incorporation and bylaws;

•	Appointed four new members to the Successor’s Board to replace all of the directors of the Predecessor, other than the director also serving as Chief Executive Officer, who was re-appointed pursuant to the Plan;

•	Canceled all of the Predecessor’s common stock and 6.875% Series B Cumulative Convertible Perpetual Preferred Stock with the former holders thereof not receiving any consideration in respect of such stock;

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•	Authorized 64,999,998 shares of the Successor's Class A Common Stock; one share of the Successor's Class B Common Stock, par value $0.01 per share (the "Class B Common Stock"); one share of the Successor's Class C Common Stock, par value $0.01 per share (the "Class C Common Stock") and 10,000,000 shares of the Successor's preferred stock;

•	Issued to the former holders of the Predecessor’s 2021 Notes and 2021 PIK Notes, (collectively, the “Old Notes”), in exchange for the cancellation and discharge of the Old Notes:

◦	8,900,000 shares of the Successor’s Class A Common Stock; and

◦	$80 million of the Successor’s 10% Senior Secured PIK Notes due 2024 (the “2024 PIK Notes”);

•	Issued 300,000 shares of the Successor’s Class A Common Stock to certain former holders of the Old Notes for their commitment to backstop the Exit Facility (as defined below);

•	Issued to the Class B Holder (as defined in the Successor’s amended and restated certificate of incorporation) one share of the Class B Common Stock, par value $0.01 per share, which confers certain rights to elect directors and certain drag-along rights;

•	Issued to the Class C Holder (as defined in the Successor’s amended and restated certificate of incorporation) one share of the Class C Common Stock, par value $0.01 per share, which confers certain rights to elect directors and certain drag-along rights;

•	Entered into a new $50 million senior secured term loan agreement (the “Exit Facility”) upon the repayment and termination of the Predecessor’s Multidraw Term Loan Agreement;

•	Entered into a registration rights agreement (the “Registration Rights Agreement”) with certain holders of the Successor’s Class A Common Stock and 2024 PIK Notes;

•	Adopted a new management incentive plan (the “2019 Long Term Incentive Plan”) for officers, directors and employees of the Successor and its subsidiary, pursuant to which 1,344,000 shares of the Successor’s Class A Common Stock were reserved for issuance. Upon emergence, 827,638 restricted stock units and 316,319 options were granted to officers and directors; and

•	the General Unsecured Creditor's (the "GUC") pool was funded in the amount of $1.2 million.

The foregoing is a summary of the substantive provisions of the Plan and related transactions and is not intended to be a complete description of, or a substitute for a full and complete reading of, the Plan and the other documents referred to above.

Effect of Filing on Creditors

Subject to certain exceptions, under the Bankruptcy Code, the filing of the Petition automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Petition Date. Absent an order of the Bankruptcy Court, substantially all of the Debtors’ prepetition liabilities were subject to settlement under the Bankruptcy Code. Although the filing of the Petition triggered defaults on the Debtors’ debt obligations, creditors were stayed from taking any actions against the Debtors as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code.

Rejection of Executory Contracts

Subject to certain exceptions, under the Bankruptcy Code, the Debtors were entitled to assume, assign or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and satisfaction of certain other conditions. Generally, the rejection of an executory contract or unexpired lease was treated as a prepetition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieved the Debtors of performing their future obligations under such executory contract or unexpired lease but entitled the contract counterparty or lessor to a prepetition general unsecured claim for damages caused by such deemed breach. Counterparties to such rejected contracts or leases may assert unsecured claims in the Bankruptcy Court against the applicable Debtors’ estate for damages. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with any of the Debtors in this Quarterly Report on Form 10-Q, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease with the applicable Debtor, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code. Further, nothing herein is or shall be deemed an admission with respect to any claim amounts or calculations arising from the rejection of any executory contract or unexpired lease and the Debtors expressly preserve

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all of their rights with respect thereto. During the bankruptcy process the Company's rejection damages were approximately $0.1 million.

Reorganization Items, net

Reorganization Items, net incurred as a result of the Chapter 11 Cases are presented separately in the accompanying unaudited consolidated statement of operations for the Predecessor period January 1, 2019 through February 8, 2019 as follows (in thousands):

Copy History

Gain on settlement of liabilities subject to compromise	$	168,952
Fresh start adjustments	102,830
Reorganization professional fees and other expenses	(5,398		)
Write-off of deferred financing costs	(370		)
Other reorganization items, net	(3,213		)
Total reorganization items, net	$	262,801

Note 4—Fresh Start Accounting

Upon emergence from bankruptcy, the Company qualified for and adopted fresh start accounting in accordance with the provisions of ASC 852 as (i) the holders of existing voting shares of the Predecessor received less than 50% of the voting shares of the Successor and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims. See "Note 3- Emergence from Chapter 11 Reorganization" for the terms of the Plan. The Company applied fresh start accounting as of February 8, 2019. Fresh start accounting required the Company to present its assets, liabilities and equity as if it were a new entity upon emergence from bankruptcy, with no beginning retained earnings or deficit as of the fresh start reporting date. As described in "Note 1-Basis of Presentation", the new entity is referred to as Successor, and includes the financial position and results of operations of the reorganized Company subsequent to February 8, 2019. References to Predecessor relate to the financial position and results of operations of the Company prior to, and including, February 8, 2019.

Reorganization Value

Under fresh start accounting, reorganization value represents the fair value of the Successor's total assets and is intended to approximate the amount a willing buyer would pay for the assets immediately after restructuring. Upon application of fresh start accounting, the Company allocated the reorganization value to its individual assets based on their estimated fair values in conformity with ASC 805, "Business Combinations" ("ASC 805").

The Company’s reorganization value is derived from an estimate of enterprise value. Enterprise value represents the estimated fair value of an entity’s long-term debt and stockholders’ equity. The Bankruptcy Court approved the Plan, which included as support the Company's estimate that the enterprise value of the core assets (as defined in the Plan) of the Successor was in the range of $104 million to $187 million without cash at emergence. The sum of the estimated range of enterprise value plus the amount of estimated cash at emergence was in the range of $117 million to $200 million. This valuation analysis was prepared using reserve information, development schedules, other financial information and financial projections and applying standard valuation techniques, including net asset value analysis, precedent transactions analyses and public comparable company analyses. Based on the estimates and assumptions used in determining the enterprise value, the Company ultimately estimated the enterprise value of the Successor's core assets to be approximately $155.2 million.

Valuation of Assets

The Company’s principal assets are its oil and gas properties, which the Company accounts for under the full cost accounting method. With the assistance of valuation experts, the Company determined the fair value of its oil and gas properties based on the discounted cash flows expected to be generated from these assets. The computations were based on market conditions and reserves in place as of the bankruptcy emergence date. 

The fair value analysis performed by independent third party valuation experts was based on the Company’s estimates of reserves as developed internally by the Company’s reserve engineers. For purposes of estimating the fair value of the Company's proved and probable reserves, an income approach was used which estimated fair value based on the anticipated cash flows associated with the Company's reserves, risked by reserve category and discounted using a weighted average cost of capital of

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13.0%. The discount factor was derived from a weighted average cost of capital computation which utilized a blended expected cost of debt and expected returns on equity for similar market participants.

Future revenues were based upon forward strip oil and natural gas prices as of the emergence date, adjusted for differentials realized by the Company, and held flat after 2023. Development and operating costs were based on the Company's recent cost trends. The discounted cash flow models also included estimates not typically included in proved reserves such as depletion, depreciation and income tax expenses. The proved reserve locations were limited to wells expected to be drilled in the Company's five year development plan.

As a result of this analysis, the Company concluded the fair value of its proved reserves was $52.1 million and the fair value of its unproven reserves was $99 million as of the Effective Date. The Company also reviewed its undeveloped leasehold acreage. An analysis of comparable market transactions indicated a fair value of undeveloped acreage totaling approximately $19.7 million. These amounts are reflected in item 2 in "Fresh Start Adjustments" below. The fair value of the Company's asset retirement obligations was estimated at $2.5 million and was based on estimated plugging and abandonment costs as of the Effective Date, adjusted for inflation and discounted at the Successor's credit-adjusted risk free rate of 10%.

See further discussion in "Fresh Start Adjustments" below for details on the specific assumptions used in the valuation of the Company’s various other assets.

The following table reconciles the enterprise value per the Plan to the estimated fair value (for fresh start accounting purposes) of the Successor's common stock as of the Effective Date (in thousands):

Copy History

	February 8, 2019
Enterprise value	$	155,246
Plus: Cash	23,073
Plus: Restricted cash	5,675
Less: Fair value of 10% PIK Notes due 2024	(65,025		)
Less: Fair value of Exit Facility	(45,269		)
Fair value of Successor common stock	$	73,700
Shares issued upon emergence	9,371
Per share value	$	7.86

The following table reconciles the enterprise value to the reorganization value as of the Effective Date (in thousands):

Copy History

	February 8, 2019
Enterprise value	$	155,246
Plus: Cash	23,073
Plus: Restricted cash	5,675
Plus: Current liabilities	39,758
Plus: Asset retirement obligations (long-term)	2,303
Plus: Other long-term liabilities	2,845
Reorganization value of Successor assets	$	228,900

Reorganization value and enterprise value were estimated using numerous projections and assumptions that are inherently subject to significant uncertainties and resolution of contingencies that are beyond our control. Accordingly, the estimates set forth herein are not necessarily indicative of actual outcomes, and there can be no assurance that the estimates, projections or assumptions will be realized.

Consolidated Balance Sheet

The adjustments set forth in the following consolidated balance sheet reflect the effects of the transactions contemplated by the Plan and carried out by the Company (reflected in the column "Reorganization Adjustments") as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column "Fresh Start Adjustments"). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities as well as significant assumptions or inputs.

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The following table reflects the reorganization and application of ASC 852 on our consolidated balance sheet as of February 8, 2019 (in thousands):

Copy History

		Predecessor				Reorganization Adjustments				Fresh Start Adjustments				Successor
Assets
Current assets:
Cash and cash equivalents		$	31,881			$	(8,808	)	(1)	$	—			$	23,073
Restricted cash		389				5,286			(2)	—				5,675
Revenue receivable		13,704				—				—				13,704
Joint interest billing receivable		6,908				—				—				6,908
Deposit for surety bonds		3,550				—				—				3,550
Other current assets		924				—				—				924
Total current assets		57,356				(3,522		)		—				53,834
Property and equipment:
Oil and gas properties:
Oil and gas properties, full cost method		1,366,884				—				(1,314,814		)	(12)	52,070
Unevaluated oil and gas properties		24,033				—				94,660			(12)	118,693
Accumulated depreciation, depletion, and amortization		(1,303,376		)		—				1,303,376			(12)	—
Oil and gas properties, net		87,541				—				83,222				170,763
Other property and equipment		9,318				—				(9,068		)	(13)	250
Accumulated depreciation of other property and equipment		(9,068		)		—				9,068			(13)	—
Total property and equipment		87,791				—				83,222				171,013
Other assets		4,151				—				(98		)	(14)	4,053
Total Assets		$	149,298			$	(3,522	)		$	83,124			$	228,900
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable to vendors		$	14,813			$	2,575		(4)	$	—			$	17,388
Advances from co-owners		3,363				—				—				3,363
Oil and gas revenue payable		16,059				—				—				16,059
Accrued interest		1,181				(1,181		)	(5)	—				—
Asset retirement obligation		183				—				—				183
Right of use liability-short-term		1,080				—				—				1,080
Other accrued liabilities		1,224				461			(6)	—				1,685
Total current liabilities		37,903				1,855				—				39,758
Multi-draw Term Loan		49,754				246			(3)	(4,731		)	(15)	45,269
10% Senior Secured PIK Notes due 2024		—				80,000			(7)	(14,975		)	(16)	65,025
Asset retirement obligation		2,303				—				—				2,303
Right of use liability-long-term		2,604				—				—				2,604
Deferred tax liability		—				—				241			(17)	241
Total liabilities not subject to compromise		92,564				82,101				(19,465		)		155,200

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Copy History

Liabilities subject to compromise		321,495				(321,495		)	(8)	—				—
Stockholder's equity:
Preferred stock (Predecessor)		1				(1		)	(9)	—				—
Common stock (Predecessor)		26				(26		)	(9)	—				—
Paid-in capital (Predecessor)		314,312				(314,312		)	(9)	—				—
Common stock (Successor)		—				94			(10)	—				94
Paid-in capital (Successor)		—				73,606			(10)	—				73,606
Accumulated deficit		(579,100		)		476,511			(11)	102,589			(18)	—
Total stockholder's equity		(264,761		)		235,872				102,589				73,700
		$	149,298			$	(3,522	)		$	83,124			$	228,900

Reorganization Adjustments (in thousands, except per share values)

1.	Reflects the cash payments made as of the Effective Date from implementation of the Plan:

Copy History

Uses:
Payment of accrued interest on the Multidraw Term Loan Agreement	$	(1,181	)
Payment of financing costs related to the Exit Facility	(124		)
Funding of the general unsecured claims administrative escrow account	(1,200		)
Cash transferred to restricted cash for professional fee escrow	(5,157		)
Cash transferred to restricted cash for consenting creditors fees	(129		)
Payment of professional fees at emergence	(1,017		)
Total:	$	(8,808	)

2.	Reflects the cash reclassified to Restricted Cash as of the Effective Date from implementation of the Plan:

Reclassifications to Restricted Cash:
Funding of the professional fee escrow account	$	5,157
Funding of the consenting creditors escrow account	129
Total:	$	5,286

3.	Reflects the payment of financing costs related to the Exit Facility and the write off of deferred financing costs related to the MultiDraw Term Loan Agreement and the Exit Facility.

4.	Represents the $3.6 million of accrued expenses related to the success fee recognized at emergence and the payment of $1.0 million of professional fees at emergence.

5.	Represents the $1.2 million of accrued interest paid at emergence related to the Predecessor's Multidraw Term Loan Agreement.

6.	Represents the accrual of the tax liability associated with the forfeiture of RSUs issued at emergence.

7.	Represents the issuance of the $80 million PIK Notes due 2024 at face value.

8.	Liabilities subject to compromise were settled as follows in accordance with the Plan:

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Copy History

10% Senior Secured Notes due 2021	$	9,427
10% Senior Secured PIK Notes due 2021	275,046
Accrued interest on Senior Secured Notes due 2021 and PIK Notes due 2021	20,624
General Unsecured Claims & Convenience Claims	1,749
Preferred stock accrued dividends	14,649
Total liabilities subject to compromise	$	321,495
Issuance of the equity to the holders of the Senior Secured Notes due 2021 and PIK Notes due 2021	(71,343		)
Issuance of Successor 10% PIK Notes	(80,000		)
GUC Administration Funding	(1,200		)
Gain on settlement of liabilities subject to compromise	$	168,952

9.	Reflects the cancellation of the Predecessor's preferred stock, common stock and additional paid-in capital to retained earnings.

10.

Reflects the issuance of equity of the Successor. In accordance with the Plan, the Successor issued 8.9 million shares of new Class A Common Stock to the holder of Second Lien 10% Senior Secured Notes due 2021 and Second Lien 10% Senior Secured PIK Notes due 2021 as part of the settlement of certain liabilities subject to compromise. In addition, 300,000 shares of new Class A Common Stock were issued to consenting creditors, as well as 263,599 shares of new Class A Common Stock issued to holders of stock awards which vested at emergence. For those shares issued to the holders of stock awards, 92,479 were surrendered for tax purposes; therefore, a net 171,120 shares were considered outstanding at emergence. Each share of Class A Common Stock has a par value of $0.01. Additionally, the Successor issued one share of Class B Common Stock and one share of Class C Common Stock on the Effective Date in accordance with the Plan.

Copy History

Common stock, par value $0.01	$	94
Issuance of the equity to the holders of the Senior Secured Notes due 2021 and PIK Notes due 2021	71,249
Issuance of the equity related to the emergence vesting of RSUs	1,318
Issuance of the equity to the consenting creditors	1,500
Total equity issued at emergence	74,161
Value of shares relinquished to satisfy taxes on the RSUs vested at emergence	(461		)
Net equity issued at emergence	$	73,700

11.	Reflects the cumulative net impact of the effects on Accumulated deficit as follows:

Copy History

Gain on settlement of liabilities subject to compromise	$	168,952
Issuance of the equity to the consenting creditors	(1,500		)
Issuance of the equity related to the emergence vesting of RSUs	(1,318		)
Success fees recognized at emergence	(3,592		)
Accelerated vesting of Predecessor stock compensation	(396		)
Write-off deferred financing costs	(370		)
Net impact to Reorganization items, net	161,776
Cancellation of Predecessor equity, including vesting	314,735
Net Impact to Accumulated deficit	$	476,511

Fresh Start Adjustments

12.	Fair value adjustments to proved oil and a gas properties, associated inventory, unproved acreage, as well as the respective reset of depletion, depreciation, and amortization balances. See above for a detailed discussion of the fair value methodology.

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13.	Adjustments to record the fair value of the well equipment, leasehold improvements, computer software, computers, as well as the reset of accumulated depreciation. The Company concluded that the net book value of the assets represented the fair value at emergence.

14.	Represents the write-down of the Indianola investment to fair value based on a five year cash flow analysis.

15.

Upon emergence, the Predecessor's Multidraw Term Loan Agreement was extinguished in the amount of $50 million and the Company entered into the Exit Facility in the amount of $50 million. This adjustment represents the fair value adjustment associated with the Exit Facility. Fair value was estimated via a discounted cash flow analysis by discounting scheduled debt service payments at a credit spread of 10.1%. The credit spread was determined by performing a synthetic credit rating analysis, considering yields on similarly-rated, energy corporate issues, and adjusting based on recovery rates for first lien debt.

16.

Represents the fair value adjustments to the 2024 PIK Notes. Fair value was estimated via a discounted cash flow analysis by discounting scheduled debt service payments at a credit spread of 11.9%. The credit spread was determined by performing a synthetic credit rating analysis, considering yields on similarly-rated, energy corporate issues, and adjusting based on recovery rates for second lien debt.

17.	Represents the net decrease in tax assets and tax liabilities associated with adjustments for fresh start accounting.

18.	Reflects the cumulative impact of the fresh start adjustments discussed above:

Copy History

Proved oil and gas properties fair value adjustment	$	(11,438	)
Unproved oil and gas properties fair value adjustment	94,660
Other asset fair value adjustment	(98		)
Exit Facility fair value adjustment	4,731
2024 PIK Notes fair value adjustment	14,975
Net gain on fresh start adjustments	102,830
Tax impact on fresh start accounting adjustments	(241		)
Net impact to Accumulated deficit	$	102,589

The net gain on fresh start adjustments has been included in Reorganization items, net in the Consolidated Statement of Operations. See "Note 3-Emergence from Chapter 11 Reorganization" for additional details of reorganization items, net.

Note 5—Acquisitions and Divestitures

Divestitures (Predecessor):

On January 31, 2018, the Company sold its Gulf of Mexico properties. The Company received no consideration from the sale of these properties and was required to contribute approximately $3.8 million towards the future abandonment costs for the properties. As a result of the sale, the Company extinguished approximately $28.2 million of its discounted asset retirement obligations. In connection with the sale, the Company received a cash refund of $12.4 million related to a depositary account that served to collateralize a portion of the Company's offshore bonds related to these properties. After finalizing purchase price adjustments, during October 2018 the Company settled the remaining liabilities related to this sale for $4.2 million. This sale was accounted for as an adjustment to the capitalized costs of oil and gas properties.

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Note 6—Equity

Predecessor Stockholder's Equity

As discussed in “Note 3-Emergence from Chapter 11 Reorganization,” on the Effective Date and pursuant to the terms of the Plan and the Confirmation Order, all of the Predecessor’s common stock and 6.875% Series B Cumulative Convertible Perpetual Preferred Stock were canceled with the former holders thereof not receiving any consideration in respect thereof. Accordingly, the following discussion relates solely to the Predecessor’s common stock and 6.875% Series B Cumulative Convertible Perpetual Preferred Stock prior to such cancellation.

Convertible Preferred Stock

The Company had 1,495,000 shares of 6.875% Series B Cumulative Convertible Perpetual Preferred Stock (the “Series B Preferred Stock”) outstanding as of February 8, 2019, all of which were canceled on the Effective Date pursuant to the Plan, including the $14.6 million of accumulated and unpaid dividends.    

Successor Stockholder's Equity

On the Effective Date, pursuant to the terms of the Plan, the Successor issued 8,900,000 shares of Class A Common Stock pro rata to the holders of the Old Notes. In addition, pursuant to the terms of the Plan, the Successor issued 300,000 shares of Class A Common Stock to certain holders of the Old Notes for their commitment to backstop the Exit Facility. See "Note 9-Long-Term Debt". Additionally, on the Effective Date, the Company:

•	Issued to the Class B Holder (as defined in the Successor’s amended and restated certificate of incorporation) one share of Class B Common Stock, which confers certain rights to elect directors and certain drag-along rights;

•	Issued to the Class C Holder (as defined in the Successor’s amended and restated certificate of incorporation) one share of Class C Common Stock, which confers certain rights to elect directors and certain drag-along rights;

•	Adopted the 2019 Long Term Incentive Plan for officers, directors and employees of the Successor and its subsidiaries, pursuant to which 1,344,000 shares of the Successor’s Class A Common Stock were reserved for issuance; and

•	authorized 10 million shares of the Successor's preferred stock.

On the Effective Date, in accordance with the Plan and the Confirmation Order, the Company entered into the Registration Rights Agreement with certain former holders of Old Notes who received Class A Common Stock and the 2024 PIK Notes distributed on the Effective Date. On June 21, 2019, the Company entered into an amended and restated registration rights agreement (the "Amended and Restated Registration Rights Agreement") with such holders, pursuant to which the holders, acting together at any time, may request (i) that the Company file with the SEC a shelf registration statement that includes the Registrable Securities (as defined in the Amended and Restated Registration Rights Agreement) and (ii) that the Company use commercially reasonable efforts to cause all shares of Class A Common Stock to be quoted on an over-the-counter securities market and to use commercially reasonable efforts to maintain such quotation.

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Note 7—Earnings Per Share

On February 8, 2019, upon emergence from Chapter 11 bankruptcy, the Predecessor equity was canceled and new equity was issued. See "Note 3-Emergence from Chapter 11 Reorganization"and "Note 6-Equity" for further details.

Successor

A reconciliation between the basic and diluted earnings per share computations (in thousands, except per share amounts) is as follows:

Copy History

For the Three Months (Successor) Ended June 30, 2019	Income (Numerator)				Shares (Denominator)			Per Share Amount
BASIC EPS
Net loss available to common stockholders	$	(761	)		9,371			$	(0.08	)
Restricted shares	—				—
Attributable to participating securities	—				—
DILUTED EPS	$	(761	)		9,371			$	(0.08	)
For the Successor Period of February 9, 2019 through June 30, 2019	Income (Numerator)				Shares (Denominator)			Per Share Amount
BASIC EPS
Net loss available to common stockholders	$	(24	)		9,371			$	—
Restricted shares	—				—
Attributable to participating securities	—				—
DILUTED EPS	$	(24	)		9,371			$	—

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Predecessor

A reconciliation between the basic and diluted earnings per share computations (in thousands, except per share amounts) is as follows:

Copy History

For the Predecessor Period of January 1, 2019 through February 8, 2019	Income (Numerator)				Shares (Denominator)			Per Share Amount
BASIC EPS
Net income available to common stockholders	$	261,727			25,587
Gain on cancellation of Preferred Shares	(14,650		)
Attributable to participating securities	(3,944		)
Net income available to common stockholders	$	243,133			25,587			$	9.50
Net income available to common stockholders	$	261,727			25,587
Gain on cancellation of Preferred Shares	(14,650		)
Effect of dilutive securities:
Preferred shares	—				1,287
Restricted shares	(3,944		)		415
Attributable to participating securities	186				—
DILUTED EPS	$	243,319			27,289			$	8.92
For the Three Months (Predecessor) Ended June 30, 2018	Loss (Numerator)				Shares (Denominator)			Per Share Amount
BASIC EPS
Net loss available to common stockholders	$	(2,611	)		25,568			$	(0.10	)
Stock options	—				—
Attributable to participating securities	—				—
DILUTED EPS	$	(2,611	)		25,568			$	(0.10	)
For the Six Months (Predecessor) Ended June 30, 2018	Loss (Numerator)				Shares (Denominator)			Per Share Amount
BASIC EPS