Company Quick10K Filing
Resolute Energy
Price37.52 EPS-1
Shares23 P/E-27
MCap869 P/FCF6
Net Debt707 EBIT-10
TEV1,576 TEV/EBIT-159
TTM 2018-09-30, in MM, except price, ratios
10-Q 2018-09-30 Filed 2018-11-05
10-Q 2018-06-30 Filed 2018-08-06
10-Q 2018-03-31 Filed 2018-05-07
10-K 2017-12-31 Filed 2018-03-12
10-Q 2017-09-30 Filed 2017-11-06
10-Q 2017-06-30 Filed 2017-08-07
10-Q 2017-03-31 Filed 2017-05-03
10-K 2016-12-31 Filed 2017-03-13
10-Q 2016-09-30 Filed 2016-11-07
10-Q 2016-06-30 Filed 2016-08-08
10-Q 2016-03-31 Filed 2016-05-09
10-K 2015-12-31 Filed 2016-03-07
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-05
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-11
10-Q 2014-03-31 Filed 2014-05-12
10-K 2013-12-31 Filed 2014-03-10
10-Q 2013-09-30 Filed 2013-11-05
10-Q 2013-06-30 Filed 2013-08-05
10-Q 2013-03-31 Filed 2013-05-06
10-Q 2012-06-30 Filed 2012-08-06
10-Q 2012-03-31 Filed 2012-05-08
10-Q 2011-09-30 Filed 2011-11-07
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-06
10-K 2010-12-31 Filed 2011-03-15
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-12
10-Q 2010-03-31 Filed 2010-05-11
10-K 2009-12-31 Filed 2010-03-30
8-K 2019-03-01
8-K 2019-02-22
8-K 2019-02-14
8-K 2019-02-11
8-K 2018-11-19
8-K 2018-11-18
8-K 2018-10-11
8-K 2018-09-30
8-K 2018-09-14
8-K 2018-06-30
8-K 2018-06-19
8-K 2018-06-11
8-K 2018-05-15
8-K 2018-05-09
8-K 2018-04-05
8-K 2018-03-31
8-K 2018-03-16
8-K 2018-03-12
8-K 2018-02-26
8-K 2018-02-13
8-K 2018-02-08
8-K 2018-01-01

REN 10Q Quarterly Report

Note 1 - Organization and Nature of Business
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Note 3 - Acquisitions and Divestitures
Note 4 - Earnings per Share
Note 5 - Long Term Debt
Note 6 - Income Taxes
Note 7 - Stockholders' Equity and Long-Term Employee Incentive Plan
Note 8 - Asset Retirement Obligation
Note 9 - Derivative Instruments
Note 10 - Commitments and Contingencies
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitive and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 ren-ex101_510.htm
EX-31.1 ren-ex311_8.htm
EX-31.2 ren-ex312_7.htm
EX-32.1 ren-ex321_6.htm

Resolute Energy Earnings 2016-03-31

Balance SheetIncome StatementCash Flow
1.71.30.90.40.0-0.42013201520172019
Assets, Equity
0.20.10.0-0.0-0.1-0.22013201520172019
Rev, G Profit, Net Income
0.30.20.0-0.1-0.3-0.42013201520172019
Ops, Inv, Fin

10-Q 1 ren-10q_20160331.htm 10-Q ren-10q_20160331.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

þ

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

For the quarterly period ended March 31, 2016

OR

¨

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

Commission File No. 001-34464

 

RESOLUTE ENERGY CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

27-0659371

(State or other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

 

 

1700 Lincoln Street, Suite 2800 Denver, CO

 

80203

(Address of Principal Executive Offices)

 

(Zip Code)

(303) 534-4600

(Registrant’s telephone number, including area code)

 

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   þ    No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  þ    No  ¨

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

 

Large accelerated filer

 

¨

 

Accelerated filer

 

þ

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

 

Smaller reporting company

 

¨

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

As of April 29, 2016, 77,048,763 shares of the Registrant’s $0.0001 par value Common Stock were outstanding.

 

 

 

 

 

 

 


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. The use of any statements containing the words “anticipate,” “intend,” “believe,” “estimate,” “project,” “expect,” “plan,” “should” or similar expressions are intended to identify such statements. Forward-looking statements included in this report relate to, among other things, our production and cost guidance for 2016; anticipated capital expenditures in 2016 and the sources of such funding; availability of alternative oil purchase markets and oil takeaway systems; our financial condition and management of the Company in the current commodity price environment; future financial and operating results; our intention to evaluate and pursue liquidity enhancing and de-levering transactions, including a mid-stream asset monetization, joint ventures and asset sales; liquidity and availability of capital including projections of free cash flow; additional future potential full cost ceiling impairments; future downward adjustments in estimated proved reserves as a result of low commodity prices; future borrowing base adjustments and the effect thereof; future production, reserve growth and decline rates; our plans and expectations regarding our development activities including drilling, deepening, recompleting, fracing and refracing wells, the number of such potential projects, locations and productive intervals, the rates of return on such projects and the resource potential of such projects; and the prospectivity of our properties and acreage.  Although we believe that these statements are based upon reasonable current assumptions, no assurance can be given that the future results covered by the forward-looking statements will be achieved. Forward-looking statements can be subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by the forward-looking statements. The forward-looking statements in this report are primarily, although not exclusively, located under the heading “Risk Factors.” All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement. Factors that could cause actual results to differ materially from our expectations include, among others, those factors referenced in the “Risk Factors” section of this report, if any, in our Annual Report on Form 10-K for the year ended December 31, 2015, and such things as:

 

·

volatility of oil and gas prices, including extended periods of depressed prices that would adversely affect our revenue, income, cash flow from operations and liquidity and the discovery, estimation and development of, and our ability to replace oil and gas reserves;

 

·

a lack of available capital and financing, including the capital needed to pursue our operations and other development plans for our properties, on acceptable terms, including as a result of a reduction in the borrowing base under our revolving credit facility;

 

·

risks related to our level of indebtedness;

 

·

our ability to fulfill our obligations under our revolving credit facility, secured term loan facility, the senior notes and any additional indebtedness we may incur;

 

·

constraints imposed on our business and operations by our revolving credit facility, secured term loan facility and senior notes may limit our ability to execute our business strategy;

 

·

future write downs of reserves and the carrying value of our oil and gas properties;

 

·

our future cash flow, liquidity and financial position;

 

·

the success of our business and financial strategy, derivative strategies and plans;

 

·

risks associated with rising interest rates;

 

·

risks associated with all of our Aneth Field oil production being purchased by a single customer and connected to such customer with a pipeline that we do not own or control;

 

·

inaccuracies in reserve estimates;

 

·

the completion, timing and success of drilling on our properties;

 

·

operational problems, or uninsured or underinsured losses affecting our operations or financial results;

 

·

the amount, nature and timing of our capital expenditures, including future development costs;

 

·

anticipated CO2 supply, which is currently sourced exclusively from Kinder Morgan CO2 Company, L.P. under a contract with take or pay obligations;

 

·

the effectiveness and results of our CO2 flood program at Aneth Field;

 

·

our relationship with the Navajo Nation, the local community in the area where we operate Aneth Field, and Navajo Nation Oil and Gas Company, as well as certain purchase rights held by Navajo Nation Oil and Gas Company;

 

 


 

 

·

the impact of any U.S. or global economic recession;  

 

·

the success of the development plan for and production from our oil and gas properties;

 

·

the timing and amount of future production of oil and gas;

 

·

the ability to sell or otherwise monetize assets at values and on terms that are advantageous to us;

 

·

availability of, or delays related to, drilling, completion and production, personnel, supplies and equipment;

 

·

risks and uncertainties in the application of available horizontal drilling and completion techniques;

 

·

uncertainty surrounding occurrence and timing of identifying drilling locations and necessary capital to drill such locations;

 

·

our ability to fund and develop our estimated proved undeveloped reserves;

 

·

the effect of third party activities on our oil and gas operations, including our dependence on third party owned gas gathering and processing systems;

 

·

our operating costs and other expenses;

 

·

our success in marketing oil and gas;

 

·

the impact and costs related to compliance with, or changes in, laws or regulations governing our oil and gas operations, including changes in Navajo Nation laws, and the potential for increased regulation of drilling and completion techniques, underground injection or fracing operations;

 

·

our relationship with the local communities in the areas where we operate;

 

·

the availability of water and our ability to adequately treat and dispose of water while and after drilling and completing wells;

 

·

regulation of salt water injection intended to address seismic activity;

 

·

the concentration of our producing properties in a limited number of geographic areas;

 

·

potential changes to regulations affecting derivatives instruments;

 

·

environmental liabilities under existing or future laws and regulations;

 

·

the impact of climate change regulations on oil and gas production and demand;

 

·

potential changes in income tax deduction and credits currently available to the oil and gas industry;

 

·

the impact of weather and the occurrence of disasters, such as fires, explosions, floods and other events and natural disasters;

 

·

competition in the oil and gas industry and failure to keep pace with technological development;

 

·

developments in oil and gas producing countries;

 

·

risks relating to our joint interest partners’ and other counterparties’ inability to fulfill their contractual commitments;

 

·

loss of senior management or key technical personnel;

 

·

timing of issuance of permits and rights of way, including the effects of any government shut-downs;

 

·

potential power supply limitations in the electrical infrastructure serving Aneth Field;

 

·

timing of installation of gathering infrastructure in areas of new exploration and development;

 

·

potential breakdown of equipment and machinery relating to the Aneth compression facility;

 

·

losses possible from pending or future litigation;

 

·

cybersecurity risks;

 

·

risks related to our common stock including potential delisting from the NYSE, complication of “penny stock” rules and potential declines in our stock prices and dilution to stockholders;

 

 


 

 

·

the risk of a transaction that could trigger a change of control under our debt agreements and the higher likelihood of such a transaction of such a transaction occurring due to our current low stock price;  

 

·

acquisitions and other business opportunities (or lack thereof) that may be presented to and pursued by us, and the risk that any opportunity currently being pursued will fail to consummate or encounter material complications;

 

·

our ability to achieve the growth and benefits we expect from our acquisitions;

 

·

risks associated with unanticipated liabilities assumed, or title, environmental or other problems resulting from, our acquisitions;

 

·

risk factors discussed or referenced in this report; and

 

·

other factors, many of which are beyond our control.

Additionally, the Securities and Exchange Commission (“SEC”) requires oil and gas companies, in filings made with the SEC, to disclose proved reserves, which are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, under existing economic conditions, operating methods and governmental regulations. The SEC permits the optional disclosure of “probable” and “possible” reserves. From time to time, we may elect to disclose probable reserves and possible reserves, excluding their valuation, in our SEC filings, press releases and investor presentations. The SEC defines “probable” reserves as “those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are likely as not to be recovered.” The SEC defines “possible” reserves as “those additional reserves that are less certain to be recovered than probable reserves.” The Company applies these definitions when estimating probable and possible reserves. Statements of reserves are only estimates and may not correspond to the ultimate quantities of oil and gas recovered. Any reserves estimates or potential resources disclosed in our public filings, press releases and investor presentations that are not specifically designated as being estimates of proved reserves may include estimated reserves not necessarily calculated in accordance with, or contemplated by, the SEC’s reserves reporting guidelines.

SEC rules prohibit us from including resource estimates in our public filings with the SEC. Our potential resource estimates include estimates of hydrocarbon quantities for (i) new areas for which we do not have sufficient information to date to classify as proved, probable or possible reserves, (ii) other areas to take into account the level of certainty of recovery of the resources and (iii) uneconomic proved, probable or possible reserves. Potential resource estimates do not take into account the certainty of resource recovery and are therefore not indicative of the expected future recovery and should not be relied upon for such purpose. Potential resources might never be recovered and are contingent on exploration success, technical improvements in drilling access, commerciality and other factors. In our press releases and investor presentations, we sometimes include estimates of quantities of oil and gas using certain terms, such as “resource,” “resource potential,” “EUR,” “oil in place,” or other descriptions of volumes of reserves, which terms include quantities of oil and gas that may not meet the SEC definition of proved, probable and possible reserves. These estimates are by their nature more speculative than estimates of proved reserves and accordingly are subject to substantially greater risk of being recovered. The Company believes its potential resource estimates are reasonable, but such estimates have not been reviewed by independent engineers. Furthermore, estimates of potential resources may change significantly as development provides additional data, and actual quantities that are ultimately recovered may differ substantially from prior estimates.

Finally, 24-hour peak IP rates and 30-day peak IP rates for both our wells and for those wells that are located near to our properties are limited data points in each well’s productive history and not necessarily indicative or predictive of future production rates, EUR or economic rates of return from such wells and should not be relied upon for such purpose. Equally, the way we calculate and report 24-hour and 30-day peak IP rates and the methodologies employed by others may not be consistent, and thus the values reported may not be directly and meaningfully comparable.

You are urged to consider closely the disclosure in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2015, in particular the factors described under “Risk Factors.”

 

 

 

 

 


 

TABLE OF CONTENTS

 

PART I -

  

FINANCIAL INFORMATION

  

 

 

 

 

 

 

Item 1.

  

Financial Statements

  

1

 

 

 

 

 

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

19

 

 

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

29

 

 

 

 

 

Item 4.

  

Controls and Procedures

  

31

 

 

 

 

 

PART II -

  

OTHER INFORMATION

  

32

 

 

 

 

 

Item 1.

  

Legal Proceedings

  

32

 

 

 

 

 

Item 1 A.

  

Risk Factors

  

32

 

 

 

 

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

32

 

 

 

 

 

Item 3.

  

Defaults Upon Senior Securities

  

32

 

 

 

 

 

Item 4.

  

Mine Safety Disclosures

  

32

 

 

 

 

 

Item 5.

  

Other Information

  

32

 

 

 

 

 

Item 6.

  

Exhibits

  

33

 

 

 

 

 

Signatures

  

34

 

 

 

 

 


 

RESOLUTE ENERGY CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share amounts)

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

2,921

 

 

$

9,297

 

Accounts receivable

 

34,801

 

 

 

37,100

 

Commodity derivative instruments

 

71,035

 

 

 

92,431

 

Prepaid expenses and other current assets

 

1,261

 

 

 

1,387

 

Total current assets

 

110,018

 

 

 

140,215

 

Property and equipment, at cost:

 

 

 

 

 

 

 

Oil and gas properties, full cost method of accounting

 

 

 

 

 

 

 

Unproved

 

27,733

 

 

 

21,264

 

Proved

 

1,755,485

 

 

 

1,732,707

 

Other property and equipment

 

9,678

 

 

 

9,648

 

Accumulated depletion, depreciation and amortization

 

(1,608,370

)

 

 

(1,540,447

)

Net property and equipment

 

184,526

 

 

 

223,172

 

Other assets:

 

 

 

 

 

 

 

Restricted cash

 

21,498

 

 

 

21,497

 

Commodity derivative instruments

 

3,664

 

 

 

3,463

 

Other assets

 

1,995

 

 

 

2,636

 

Total assets

$

321,701

 

 

$

390,983

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

12,775

 

 

$

7,101

 

Accrued expenses

 

40,816

 

 

 

45,496

 

Accrued interest payable

 

14,261

 

 

 

5,764

 

Asset retirement obligations

 

1,068

 

 

 

891

 

Commodity derivative instruments

 

120

 

 

 

 

Total current liabilities

 

69,040

 

 

 

59,252

 

Long term liabilities:

 

 

 

 

 

 

 

Secured term loan facility

 

119,723

 

 

 

118,944

 

Senior notes

 

396,340

 

 

 

396,051

 

Asset retirement obligations

 

18,614

 

 

 

18,347

 

Commodity derivative instruments

 

2,592

 

 

 

 

Other long term liabilities

 

1,688

 

 

 

1,670

 

Total liabilities

 

607,997

 

 

 

594,264

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding

 

 

 

 

 

Common stock, $0.0001 par value; 225,000,000 shares authorized; issued and outstanding

   77,055,646 and 77,210,735 shares at March 31, 2016 and December 31, 2015, respectively

 

8

 

 

 

8

 

Additional paid-in capital

 

661,415

 

 

 

659,118

 

Accumulated deficit

 

(947,719

)

 

 

(862,407

)

Total stockholders’ deficit

 

(286,296

)

 

 

(203,281

)

Total liabilities and stockholders’ deficit

$

321,701

 

 

$

390,983

 

 

See notes to condensed consolidated financial statements

 

 

 

1

 


 

RESOLUTE ENERGY CORPORATION

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

 

 

Three Months Ended March 31,

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

Oil

$

17,795

 

 

$

36,344

 

Gas

 

978

 

 

 

3,814

 

Natural gas liquids

 

229

 

 

 

975

 

Total revenue

 

19,002

 

 

 

41,133

 

Operating expenses:

 

 

 

 

 

 

 

Lease operating

 

13,817

 

 

 

20,356

 

Production and ad valorem taxes

 

3,142

 

 

 

5,890

 

Depletion, depreciation, amortization, and asset retirement

   obligation accretion

 

10,361

 

 

 

31,912

 

Impairment of proved oil and gas properties

 

58,000

 

 

 

220,000

 

General and administrative

 

8,968

 

 

 

7,311

 

Cash-settled incentive awards

 

798

 

 

 

 

Total operating expenses

 

95,086

 

 

 

285,469

 

Loss from operations

 

(76,084

)

 

 

(244,336

)

Other income (expense):

 

 

 

 

 

 

 

Interest expense, net

 

(13,075

)

 

 

(11,156

)

Commodity derivative instruments gain

 

3,841

 

 

 

24,910

 

Other income

 

6

 

 

 

6

 

Total other income (expense)

 

(9,228

)

 

 

13,760

 

Loss before income taxes

 

(85,312

)

 

 

(230,576

)

Income tax benefit (expense)

 

 

 

 

22,354

 

Net loss

$

(85,312

)

 

$

(208,222

)

Net loss per common share:

 

 

 

 

 

 

 

Basic and diluted

$

(1.13

)

 

$

(2.80

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic and diluted

 

75,182

 

 

 

74,284

 

 

See notes to condensed consolidated financial statements

 

 

 

2

 


 

RESOLUTE ENERGY CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Stockholders’

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Equity

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance as of January 1, 2016

 

77,211

 

 

$

8

 

 

$

659,118

 

 

$

(862,407

)

 

$

(203,281

)

Issuance of stock, restricted stock and share-based compensation

 

226

 

 

 

 

 

 

2,357

 

 

 

 

 

 

2,357

 

Redemption of restricted stock for employee income tax and

  restricted stock forfeitures

 

(381

)

 

 

 

 

 

(60

)

 

 

 

 

 

(60

)

Net loss

 

 

 

 

 

 

 

 

 

 

(85,312

)

 

 

(85,312

)

Balance as of March 31, 2016

 

77,056

 

 

$

8

 

 

$

661,415

 

 

$

(947,719

)

 

$

(286,296

)

 

See notes to condensed consolidated financial statements

 

 

 

3

 


 

RESOLUTE ENERGY CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

Three Months Ended March 31,

 

 

2016

 

 

2015

 

Operating activities:

 

 

 

 

 

 

 

Net loss

$

(85,312

)

 

$

(208,222

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Depletion, depreciation, amortization and asset retirement obligation accretion

 

10,361

 

 

 

31,912

 

Impairment of proved oil and gas properties

 

58,000

 

 

 

220,000

 

Amortization of deferred financing costs and long-term debt premium and discount

 

1,303

 

 

 

1,497

 

Share-based compensation

 

2,324

 

 

 

3,034

 

Commodity derivative instruments gain

 

(3,841

)

 

 

(24,910

)

Commodity derivative settlement gains

 

27,748

 

 

 

24,190

 

Deferred income tax benefit

 

 

 

 

(22,354

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

2,332

 

 

 

12,872

 

Other current assets

 

126

 

 

 

(66

)

Accounts payable and accrued expenses

 

(5,001

)

 

 

(15,820

)

Accrued interest payable

 

8,497

 

 

 

8,500

 

Net cash provided by operating activities

 

16,537

 

 

 

30,633

 

Investing activities:

 

 

 

 

 

 

 

Oil and gas exploration and development expenditures

 

(23,001

)

 

 

(34,054

)

Proceeds from sale of oil and gas properties and other

 

166

 

 

 

518

 

Purchase of other property and equipment

 

(30

)

 

 

(32

)

Restricted cash

 

(1

)

 

 

(1,636

)

Other

 

13

 

 

 

13

 

Net cash used in investing activities

 

(22,853

)

 

 

(35,191

)

Financing activities:

 

 

 

 

 

 

 

Proceeds from bank borrowings

 

 

 

 

60,000

 

Repayments of borrowings

 

 

 

 

(55,375

)

Payment of financing costs

 

 

 

 

(3,687

)

Redemption of restricted stock for employee income taxes

 

(60

)

 

 

(152

)

Net cash provided by (used in) financing activities

 

(60

)

 

 

786

 

Net decrease in cash and cash equivalents

 

(6,376

)

 

 

(3,772

)

Cash and cash equivalents at beginning of period

 

9,297

 

 

 

4,352

 

Cash and cash equivalents at end of period

$

2,921

 

 

$

580

 

 

See notes to condensed consolidated financial statements

 

 

 

4

 


 

RESOLUTE ENERGY CORPORATION

Notes to Condensed Consolidated Financial Statements

 

Note 1 — Organization and Nature of Business

Resolute Energy Corporation (“Resolute” or the “Company”), is an independent oil and gas company engaged in the exploitation, development, exploration for and acquisition of oil and gas properties. The Company’s operating assets are comprised primarily of properties in Aneth Field located in the Paradox Basin in southeast Utah (the “Aneth Field Properties” or “Aneth Field”) and the Permian Basin in west Texas and southeast New Mexico (the “Permian Properties” or “Permian Basin Properties”). The Company conducts all of its activities in the United States of America.

Resolute Energy Corporation, the stand-alone parent entity, has insignificant independent assets and no operations. There are no restrictions on the Company’s ability to obtain cash dividends or other distributions of funds from its subsidiaries, except those imposed by applicable law.

 

Note 2 — Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include Resolute and its subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and Regulation S-X for interim financial reporting. Except as disclosed herein, there has been no material change in our basis of presentation from the information disclosed in the notes to Resolute’s consolidated financial statements for the year ended December 31, 2015. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation of the interim financial information have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. All significant intercompany transactions have been eliminated upon consolidation.

In connection with the preparation of the condensed consolidated financial statements, Resolute evaluated subsequent events that occurred after the balance sheet date, through the date of filing.

Significant Accounting Policies

The significant accounting policies followed by Resolute are set forth in Resolute’s consolidated financial statements for the year ended December 31, 2015. These unaudited condensed consolidated financial statements are to be read in conjunction with the consolidated financial statements appearing in Resolute’s Annual Report on Form 10-K and related notes for the year ended December 31, 2015.

Recent Accounting Pronouncements

In March 2016 the FASB issued new authoritative guidance related to the simplification of several aspects of accounting for share-based payment transactions. The main provisions require that all excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the income statement. The adoption of this guidance in the first quarter of 2016 had no prior period effect.

In February 2016 the FASB issued new authoritative guidance related to the accounting of leases. The main provisions require that lessees recognize both a lease liability and a right-of-use asset at the commencement date. This authoritative accounting guidance is effective for the annual period beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2018. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In August 2014 the FASB issued new authoritative accounting guidance related to management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern. This authoritative accounting guidance is effective for the annual period beginning after December 15, 2016, and interim periods within annual periods beginning after December 31, 2016. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

5

 


 

Assumptions, Judgments and Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make various assumptions, judgments and estimates to determine the reported amounts of assets, liabilities, revenue and expenses, and in the disclosures 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. Accordingly, actual results could differ from amounts previously established.

Significant estimates with regard to the condensed consolidated financial statements include proved oil and gas reserve volumes and the related present value of estimated future net cash flows used in the ceiling test applied to capitalized oil and gas properties; asset retirement obligations; valuation of derivative assets and liabilities; share-based compensation expense; depletion, depreciation and amortization; accrued liabilities; revenue and related receivables and income taxes.

Oil and Gas Properties

Pursuant to full cost accounting rules, Resolute is required to perform a quarterly “ceiling test” calculation to test its oil and gas properties for possible impairment. The primary components impacting the calculation are commodity prices, reserve quantities added and produced, overall exploration and development costs and depletion expense. If the net capitalized cost of the Company’s oil and gas properties subject to amortization (the “carrying value”) exceeds the ceiling limitation, the excess would be charged to expense. The ceiling limitation is equal to the sum of the present value discounted at 10% of estimated future net cash flows from proved reserves, the cost of properties not being amortized, the lower of cost or estimated fair value of unproven properties included in the costs being amortized, and all related tax income effects.

For the three months ended March 31, 2016 and 2015, the Company recorded non-cash impairments of the carrying value of its oil and gas properties of $58 million and $220 million, respectively, as a result of the ceiling test limitation. If in future periods a negative impact continues on one or more of the components of the calculation, including market prices of oil and gas (based on a trailing twelve-month unweighted average of the oil and gas prices in effect on the first day of each month), differentials from posted prices, future drilling and capital plans, operating costs or expected production, the Company may incur further full cost ceiling impairment related to its oil and gas properties in such periods.

 

Note 3 — Acquisitions and Divestitures

Divestiture of Gardendale Properties in the Midland Basin

In December 2015 the Company sold its Gardendale properties in the Midland Basin in Midland and Ector counties, Texas, for approximately $172 million. The sale was consummated on December 22, 2015, with an effective date of September 1, 2015. The net proceeds of the sale were used to reduce debt under the Company’s revolving credit facility and secured term loan facility (both as defined in Note 5). As part of the sale, the Company was no longer liable for asset retirement obligations of $5.6 million at December 31, 2015.

Divestiture of Hilight Field Properties in the Powder River Basin

In October 2015, the Company sold its Hilight Field Properties in the Powder River Basin for approximately $55 million. The sale was consummated on October 6, 2015, with an effective date of July 1, 2015. The net proceeds under this sale were used to pay down amounts outstanding under the revolving credit facility (as defined in Note 5). As a part of the sale, the Company was no longer liable for asset retirement obligations of $8.1 million at December 31, 2015.

6

 


 

Divestiture of Howard and Martin County Properties

In May 2015, the Company sold its Howard and Martin County properties in the Permian Basin for approximately $42 million. The sale was consummated on May 1, 2015, with an effective date of March 1, 2015. The net proceeds under this sale were used to pay down amounts outstanding under the revolving credit facility (as defined in Note 5). As part of the sale, the Company was no longer liable for asset retirement obligations of $1.3 million at December 31, 2015.

The unaudited pro forma financial information for the three months ended March 31, 2015 reflects Resolute’s results as if the Gardendale, Hilight Field, and Howard and Martin County properties were sold on January 1, 2015 (in thousands, except per share amounts):

 

 

Three Months Ended

 

 

March 31, 2015

 

Revenue

$

31,057

 

Loss from operations

 

(246,562

)

Net loss

 

(207,512

)

 

 

 

 

Basic and diluted net loss per share

$

(2.79

)

 

Note 4 — Earnings per Share

The Company computes basic net income (loss) per share using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of shares of common stock and, if dilutive, potential shares of common stock outstanding during the period. Potentially dilutive shares consist of the incremental shares and options issuable under the Company’s 2009 Performance Incentive Plan (the “Incentive Plan”). The treasury stock method is used to measure the dilutive impact of potentially dilutive shares.

The following table details the potential weighted average dilutive and anti-dilutive securities for the periods presented (in thousands):

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Potential dilutive restricted stock

 

2,051

 

 

 

2,245

 

Anti-dilutive securities

 

5,683

 

 

 

4,103

 

 

The following table sets forth the computation of basic and diluted net income (loss) per share of common stock for the periods presented (in thousands, except per share amounts):

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Net loss

$

(85,312

)

 

$

(208,222

)

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

75,182

 

 

 

74,284

 

Add: dilutive effect of non-vested restricted stock

 

 

 

 

 

Diluted weighted average common shares outstanding

 

75,182

 

 

 

74,284

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

$

(1.13

)

 

$

(2.80

)

 

7

 


 

 

Note 5 — Long Term Debt

As of the dates indicated, the Company’s long-term debt consisted of the following (in thousands):

 

 

Principal

 

 

Unamortized premium/

(discount)

 

 

Unamortized deferred financing costs

 

 

March 31, 2016

 

Revolving credit facility

$

 

 

$

 

 

$

(1,886

)

 

$

(1,886

)

Secured term loan facility

 

128,303

 

 

 

(6,667

)

 

 

(1,913

)

 

 

119,723

 

8.50% senior notes

 

400,000

 

 

 

1,173

 

 

 

(4,833

)

 

 

396,340

 

Total long-term debt

$

528,303

 

 

$

(5,494

)

 

$

(8,632

)

 

$

514,177

 

 

 

Principal

 

 

Unamortized premium/

(discount)

 

 

Unamortized deferred financing costs

 

 

December 31, 2015

 

Revolving credit facility

$

 

 

$

 

 

$

(2,121

)

 

$

(2,121

)

Secured term loan facility

 

128,303

 

 

 

(7,223

)

 

 

(2,136

)

 

 

118,944

 

8.50% senior notes

 

400,000

 

 

 

1,233

 

 

 

(5,182

)

 

 

396,051

 

Total long-term debt

$

528,303

 

 

$

(5,990

)

 

$

(9,439

)

 

$

512,874

 

Unamortized deferred financing costs associated with the Revolving Credit Facility (as defined below) at March 31, 2016 and December 31, 2015, of $1.9 million and $2.1 million, respectively, have been included in other assets.

For the three months ended March 31, 2016 and 2015, the Company incurred interest expense on long-term debt of $13.1 million and $11.2 million, respectively. The Company capitalized $0.4 million and $4.5 million of interest expense during the three months ended March 31, 2016 and 2015, respectively.

Revolving Credit Facility

Resolute’s revolving credit facility is with a syndicate of banks led by Wells Fargo Bank, National Association, as Administrative Agent, and Bank of Montreal, as Syndication Agent (the “Revolving Credit Facility”) with Resolute as the borrower. The Revolving Credit Facility specifies a maximum borrowing base as determined by the lenders. The determination of the borrowing base takes into consideration the estimated value of Resolute’s oil and gas properties in accordance with the lenders’ customary practices for oil and gas loans. The borrowing base is redetermined semi-annually, and the amount available for borrowing could be increased or decreased as a result of such redeterminations. Under certain circumstances, either Resolute or the lenders may request an interim redetermination. The Revolving Credit Facility matures in March 2018.

The Revolving Credit Facility includes covenants that require, among other things, maintenance of certain ratios, measured on a quarterly basis, as follows: (i) secured debt to EBITDA of no more than 3.5 to 1.0, (ii) PV-10 of total proved reserves to total secured debt of at least 1.5 to 1.0, and (iii) PV-10 of proved developed reserves to total secured debt of at least 1.0 to 1.0. Our Revolving Credit Facility also requires us to enter into derivative agreements covering at least 70% of our anticipated production from proved developed producing properties on a rolling twenty-four month basis, but prohibits us from entering into derivative arrangements for more than (i) 85% of our anticipated production from proved properties in the subsequent two years and (ii) the greater of 75% of our anticipated production from proved properties or 85% of our production from projected proved developed producing properties after such two year period, using economic parameters specified in our Revolving Credit Facility.

In March 2016 the Company completed its spring borrowing base redetermination, and the borrowing base was set at $105 million. As of March 31, 2016, outstanding borrowings under the Revolving Credit Facility were $0. The borrowing base availability had been reduced by $3.6 million in conjunction with letters of credit issued at March 31, 2016.

To the extent that the borrowing base, as adjusted from time to time, exceeds the outstanding balance, no repayments of principal are required prior to maturity. However, should the borrowing base be set at a level below the outstanding balance, Resolute would be required to eliminate that excess within 120 days following that determination. The Revolving Credit Facility is guaranteed by all of Resolute’s subsidiaries and is collateralized by substantially all of the proved oil and gas assets of Resolute Aneth, LLC and Resolute Natural Resources Southwest, LLC, which are wholly-owned subsidiaries of the Company.

8

 


 

Each base rate borrowing under the Revolving Credit Facility accrues interest at either (a) the London Interbank Offered Rate (“LIBOR”), plus a margin which varies from 1.50% to 2.50% or (b) the alternative Base Rate defined as the greater of (i) the Administrative Agent’s Prime Rate (ii) the Federal Funds effective Rate plus 0.5% or (iii) an adjusted London Interbank Offered Rate plus a margin which ranges from 0.50% to 1.50%. Each such margin is based on the level of utilization under the borrowing base.

The Revolving Credit Facility includes customary terms and covenants that place limitations on certain types of activities, the payment of dividends, and require satisfaction of certain financial tests. Resolute was in compliance with the terms and covenants of the Revolving Credit Facility at March 31, 2016.

Secured Term Loan Agreement

On December 30, 2014, Resolute and certain of its subsidiaries, as guarantors, entered into a second lien Secured Term Loan Agreement with Bank of Montreal, as administrative agent, and the lenders party thereto, pursuant to which the Company borrowed $150 million (the “Secured Term Loan Facility”). Initial funding of the Secured Term Loan Facility occurred on December 31, 2014, with net proceeds of approximately $135 million after payment of transaction-related fees, expenses and discounts. Net proceeds were used to repay amounts outstanding under the Revolving Credit Facility. The Secured Term Loan Facility will mature on the date that is six months after the maturity of the Company’s existing Revolving Credit Facility, but in no event later than November 1, 2019.

 

On May 18, 2015, Resolute and certain of its subsidiaries, as guarantors, entered into an Amendment to the Secured Term Loan Agreement and Increased Facility Activation Notice-Incremental Term Loans (the “Amendment”) with Bank of Montreal, as administrative agent, and the lenders party thereto, pursuant to which the Company borrowed an additional $50 million of second lien term debt (the “Incremental Term Loans”) under its Secured Term Loan Agreement dated December 30, 2014.  Funding of the Incremental Term Loans occurred on May 19, 2015.  The Incremental Term Loans have the same terms as the existing second lien borrowings under the Secured Term Loan Agreement, adjusted for the date of the closing. The $50 million of Incremental Term Loans was placed with the same lenders that participated in the initial $150 million second lien closing in December 2014. Net proceeds from the Incremental Term Loans of approximately $46 million after payment of transaction-related fees, expenses and discounts, were used to repay amounts outstanding under the Revolving Credit Facility.

  

Obligations under the Secured Term Loan Facility are guaranteed by certain of the Company’s subsidiaries and secured by second priority liens on substantially all of the assets of the Company and its subsidiaries that serve as collateral under the Revolving Credit Facility.

Borrowings under the Secured Term Loan Facility will generally bear interest at adjusted LIBOR plus 10%, with a 1% LIBOR floor. The covenants in the Secured Term Loan Facility require, among other things, maintenance of certain ratios, measured on a quarterly basis, as follows: (i) secured debt to EBITDA of no more than 3.5 to 1.0, (ii) PV-10 of total proved reserves to total secured debt of at least 1.5 to 1.0, and (iii) PV-10 of proved developed reserves to total secured debt of at least 1.0 to 1.0. Resolute was in compliance with the terms and covenants of the Secured Term Loan Facility at March 31, 2016.

The Company may prepay all or a portion of the Secured Term Loan Facility at any time. The Secured Term Loan Facility is subject to mandatory prepayments of 75% of the net cash proceeds from asset sales after any mandatory repayment of first lien debt, subject to a limited right to reinvest proceeds in oil and gas activities and subject to the right of the lenders to waive prepayment. Prepayments made out of proceeds from asset sales are not subject to prepayment premiums. Mandatory repayments are required of 100% of the net cash proceeds of certain debt or equity issuances. Such prepayments are subject to a premium of between 10% declining to 2% during the first 36 months after closing. To the extent not otherwise achieved, aggregate repayments that substantially pay off principal amounts under the second lien facility shall include an additional payment sufficient to ensure that the lenders achieve a 1.25 to 1.0 minimum multiple of their invested capital. During December 2015, the Company retired $70 million of the amount outstanding under the Secured Term Loan Facility following the sale of the Gardendale properties in Midland Basin on December 22, 2015.

Due to the lack of an active market, quoted market prices for the Company’s Secured Term Loan Facility or similar debt are not available.  The Company used valuation techniques that relied on unobservable inputs, current information including LIBOR interest rates and the specific terms of the Secured Term Loan Facility to estimate the fair value (a Level 3 fair value measurement).  The fair value of the Company’s Secured Term Loan Facility at March 31, 2016, was estimated to be $121.6 million, which approximates its the principal less the unamortized discount.

9

 


 

Senior Notes

In 2012 the Company consummated two private placements of senior notes with principal totaling $400 million (the “Senior Notes”). The Senior Notes are due May 1, 2020, and bear an annual interest rate of 8.50% with the interest on the Senior Notes payable semiannually in cash on May 1 and November 1 of each year.

The Senior Notes were issued under an Indenture (the “Indenture”) among the Company and the Company’s existing subsidiaries (the “Guarantors”) in a private transaction not subject to the registration requirements of the Securities Act of 1933. In March 2013, the Company registered the Senior Notes with the Securities and Exchange Commission by filing an amendment to the registration statement on Form S-4 enabling holders of the Senior Notes to exchange the privately placed Senior Notes for publically registered Senior Notes with substantially identical terms. The Indenture contains affirmative and negative covenants that, among other things, limit the Company’s and the Guarantors’ ability to make investments, incur additional indebtedness or issue preferred stock, create liens, sell assets, enter into agreements that restrict dividends or other payments by restricted subsidiaries, consolidate, merge or transfer all or substantially all of the assets of the Company, engage in transactions with the Company’s affiliates, pay dividends or make other distributions on capital stock or prepay subordinated indebtedness and create unrestricted subsidiaries. The Indenture also contains customary events of default. Upon occurrence of events of default arising from certain events of bankruptcy or insolvency, the Senior Notes shall become due and payable immediately without any declaration or other act of the trustee or the holders of the Senior Notes. Upon the occurrence of certain other events of default, the trustee or the holders of the Senior Notes may declare all outstanding Senior Notes to be due and payable immediately. The Company was in compliance with all financial covenants under its Senior Notes as of March 31, 2016.

The Senior Notes are general unsecured senior obligations of the Company and guaranteed on a senior unsecured basis by the Guarantors. The Senior Notes rank equally in right of payment with all existing and future senior indebtedness of the Company, will be subordinated in right of payment to all existing and future senior secured indebtedness of the Guarantors, will rank senior in right of payment to any future subordinated indebtedness of the Company and will be fully and unconditionally guaranteed by the Guarantors on a senior basis.

The Senior Notes are redeemable by the Company on or after May 1, 2016, on not less than 30 or more than 60 days’ prior notice, at redemption prices set forth in the Indenture. The Senior Notes may be redeemed at any time prior to May 1, 2016, at the option of the Company at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed plus the applicable premium, and accrued and unpaid interest and additional interest, if any, to the applicable redemption date as set forth in the Indenture. If a change of control occurs, each holder of the Senior Notes will have the right to require that the Company purchase all of such holder’s Senior Notes in an amount equal to 101% of the principal of such Senior Notes, plus accrued and unpaid interest, if any, to the date of the purchase.

The fair value of the Senior Notes at March 31, 2016, was estimated to be $123 million based upon data from independent market makers (Level 2 fair value measurement).

 

Note 6 — Income Taxes

Income tax benefit (expense) during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income (loss), plus any significant unusual or infrequently occurring items that are recorded in the interim period. The provision for income taxes for the three months ended March 31, 2016 and 2015, differs from the amount that would be provided by applying the statutory U.S. federal income tax rate of 35% to income before income taxes. This difference relates primarily to the valuation allowance established, in addition to state income taxes and estimated permanent differences.

The following table summarizes the components of the provision for income taxes (in thousands):

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Current income tax benefit (expense)

$

 

 

$

 

Deferred income tax benefit (expense)

 

 

 

 

22,354

 

Total income tax benefit (expense)

$

 

 

$

22,354

 

 

 


10

 


 

The Company had no reserve for uncertain tax positions as of March 31, 2016. The Company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will be realized. The Company considers all available evidence (both positive and negative) in determining whether a valuation allowance is required. As a result of the Company’s analysis, it was concluded that as of March 31, 2016 a valuation allowance should be established against the Company’s net deferred tax asset. The Company recorded a valuation allowance as of March 31, 2016 of $275 million on its long-term deferred tax asset. The Company will continue to monitor facts and circumstances in the reassessment of the likelihood that the deferred tax assets will be realized.

 

Note 7 — Stockholders’ Equity and Long-term Employee Incentive Plan

Preferred Stock

The Company is authorized to issue up to 1,000,000 shares of preferred stock, par value $0.0001 with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. No shares were issued and outstanding as of March 31, 2016, or December 31, 2015.

 

Common Stock

The authorized common stock of the Company consists of 225,000,000 shares. The holders of the common shares are entitled to one vote for each share of common stock. In addition, the holders of the common stock are entitled to receive dividends when, as and if declared by the Board of Directors. At March 31, 2016 and December 31, 2015, the Company had 77,055,646 and 77,210,735 shares of common stock issued and outstanding, respectively.

 

Resolute’s common stock trading price is currently below the $1.00 per share minimum price requirement of the New York Stock Exchange (the “NYSE”). The Company was notified of non-compliance with the $1.00 per share requirement in July 2015.  In consultation with the NYSE, the Company confirmed that NYSE policies permit the Company a period up until the 2016 annual stockholder meeting to bring the trading price of the Company’s common stock back up to the $1.00 continued listing standard.  In order to maintain its listing the Company has submitted for approval by its stockholders at the 2016 annual meeting a proposal for a reverse stock split, and intends to consummate the reverse stock split promptly following the 2016 annual meeting assuming such proposal is approved.

 

Resolute also received notification on November 30, 2015, from the NYSE that the Company’s market capitalization was below the NYSE’s continued listing standard. The Company is considered below criteria established by the NYSE because the Company’s average market capitalization fell below $50 million over a trailing consecutive 30 trading-day period and its last reported stockholders’ equity was less than $50 million. In accordance with NYSE procedures, the Company had 45 days from the receipt of the notice to submit a business plan to the NYSE demonstrating how it intends to regain compliance with the NYSE’s continued listing standards within eighteen months. Resolute developed and submitted such a business plan within the required time frame and the NYSE accepted the plan. The Company will be subject to quarterly monitoring for compliance with the business plan and the Company’s common stock will continue to trade on the NYSE during the eighteen month period, subject to the Company’s compliance with other NYSE continued listing requirements. The NYSE may choose to shorten the usual compliance period if prior to the end of the eighteen months the Company’s market capitalization is over $50 million for two consecutive quarters.

 

Long Term Employee Incentive Plan

The Company accounts for share-based compensation in accordance with FASB ASC Topic 718, Stock Compensation.

In July 2009, the Company adopted the Incentive Plan, providing for long-term share-based awards intended as a means for the Company to attract, motivate, retain and reward directors, officers, employees and other eligible persons through the grant of awards and incentives for high levels of individual performance and improved financial performance of the Company. The share-based awards are also intended to further align the interests of award recipients and the Company’s stockholders. The maximum number of shares of common stock that may be issued under the Incentive Plan is 12,257,744 (which includes the additional 3,100,000 shares under Amendment No. 2 to the incentive plan approved by the Company’s stockholders on June 8, 2015). The Company has submitted for approval by its stockholders at the 2016 annual meeting a proposal for the amendment of the Incentive Plan to increase the number of shares available for issuance thereunder by 5,000,000 shares.

In May 2015, the Board and its Compensation Committee approved a long-term incentive program for 2015 under the Incentive Plan consisting of grants of (i) options to purchase shares of common stock of the Company, vesting in equal annual installments on each of the first three anniversaries of the date of grant, with an exercise price of $1.35 per share and a ten year term, (ii) time-vested restricted cash awards of $5.2 million, vesting in equal annual installments on each of the first three anniversaries of the date of grant, and (iii) performance-vested restricted cash awards of $2.9 million, as described below.

11

 


 

 

In September 2015, the Board and its Compensation Committee approved a grant consistent with the terms defined above of options to purchase shares of common stock of the Company, vesting in equal annual installments on each of the first three anniversaries of the date of grant, with an exercise price of $0.42 per share and a ten year term.

 

In February 2016, the Board of Directors and Compensation Committee of the Company approved long-term incentive awards to employees and non-employee directors for 2016 consisting of a combination of stock options, cash-settled stock appreciation rights and restricted cash grants under the Incentive Plan.  The 2016 long-term incentive awards to employees and non-employee directors consisted of grants of (i) options to purchase 3,707,524 shares of common stock of the Company with a ten-year term, vesting in three equal annual installments on March 8 of 2017, 2018 and 2019, with exercise prices of $0.53 per share (as to 1,677,130 shares) and $0.583 per share (as to 2,030,394 shares), (ii) 8,514,381 cash-settled stock appreciation rights with a ten-year term, vesting in three equal annual installments on March 8 of 2017, 2018 and 2019, with a base price of $0.53 per share (as to 2,431,964 rights) and $0.583 per share (as to 6,082,417 rights), (iii) $5,329,870 time-vested restricted cash awards, vesting in three equal annual installments on March 8 of 2017, 2018 and 2019, and (iv) 225,748 shares of restricted stock vesting on March 8, 2017.

For the three months ended March 31, 2016 and 2015, the Company recorded expense related to the Incentive Plan as follows (in thousands):

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Time-based restricted stock awards

$

1,777

 

 

$

2,281

 

TSR awards

 

337

 

 

 

702

 

Stock appreciation awards

 

 

 

 

11

 

Stock option awards

 

189

 

 

 

 

Time-based restricted cash awards

 

649

 

 

 

 

Performance-based restricted cash awards

 

38

 

 

 

 

Cash-settled stock appreciation awards

 

111

 

 

 

 

Total Incentive Plan compensation expense

$

3,101

 

 

$

2,994

 

As of March 31, 2016 the Company held unrecognized share-based compensation expense (in thousands) which is expected to be recognized over a weighted-average period as follows:

 

 

 

 

 

Weighted

 

 

Unrecognized

 

 

Average

 

 

Compensation

 

 

Years

 

 

Expense

 

 

Remaining

 

Time-based restricted stock awards

$

3,610

 

 

 

0.8

 

TSR awards

 

1,325

 

 

 

0.9

 

Stock option awards

 

2,468

 

 

 

2.7

 

Total unrecognized compensation expense

$

7,403

 

 

 

 

 

Equity Awards

Equity awards consist of service-based and performance-based restricted stock units and stock options under the Incentive Plan.

 

Stock Option Awards

Options issued to employees to purchase shares of common stock vest in three equal annual installments at specified dates based on continued employment with a ten year term. The compensation expense to be recognized for the option awards was measured based on the Company’s estimated fair value at the date of grant using a Black-Scholes pricing model as well as estimated forfeiture rates between 0% and 15%, no dividends, expected stock price volatility ranging from 63% to 67% and a risk free rate ranging between 1.75% and 2.27%. During the three months ended March 31, 2016, the Company granted 3,707,524 options, with a weighted-average exercise price of $0.56 per share, to employees to purchase shares of common stock, pursuant to the Incentive Plan.

 


12

 


 

The following table summarizes the changes in non-vested option awards for the three months ended March 31, 2016:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

Shares

 

 

Fair Value

 

Non-vested, beginning of period

 

1,982,502

 

 

$

0.92

 

Granted

 

3,707,524

 

 

 

0.39

 

Vested

 

 

 

 

 

Forfeited

 

(6,972

)

 

 

0.97

 

Non-vested, end of period

 

5,683,054

 

 

$

0.57

 

Time-Based Restricted Stock Awards

Shares of time-based restricted stock issued to employees generally vest in three or four equal annual installments at specified dates based on continued employment. Shares issued to non-employee directors vest in one year based on continued service. The compensation expense to be recognized for the time-based restricted stock awards was measured based on the Company’s closing stock price on the dates of grant, utilizing estimated forfeiture rates between 0% and 15% which are updated periodically based on actual employee turnover. During the three months ended March 31, 2016 the Company granted 225,748 shares of time-based restricted stock to non-employee directors, pursuant to the Incentive Plan.

The following table summarizes the changes in non-vested time-based restricted stock awards for the three months ended March 31, 2016:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

Shares

 

 

Fair Value

 

Non-vested, beginning of period

 

1,428,974

 

 

$

8.42

 

Granted

 

225,748

 

 

 

0.53

 

Vested

 

(723,041

)

 

 

9.83

 

Forfeited

 

(6,426

)

 

 

9.28

 

Non-vested, end of period

 

925,255

 

 

$

5.38

 

 

Stock Appreciation Awards

 

At March 31, 2016, no share-settled stock appreciation awards remain outstanding as all remaining awards expired on December 31, 2015.

TSR Awards

In 2013 and 2014 the Compensation Committee and Board awarded performance-based restricted shares to executive officers of the Company under the Incentive Plan. The restricted stock grants vest only upon achievement of thresholds of cumulative total shareholder return (“TSR”) as compared to a specified peer group (the “Performance-Vested Shares”). A TSR percentile (the “TSR Percentile”) is calculated based on the change in the value of the Company’s common stock between the grant date and the applicable vesting date, including any dividends paid during the period, as compared to the respective TSRs of a specified group of seventeen peer companies. The Performance-Vested Shares vest in three installments to the extent that the applicable TSR Percentile ranking thresholds are met upon the one-, two- and three-year anniversaries of the grant date. Performance-Vested Shares that are eligible to vest on a vesting date, but do not qualify for vesting, become eligible for vesting again on the next vesting date. All Performance-Vested Shares that do not vest as of the final vesting date will be forfeited on such date.


13

 


 

The Compensation Committee also granted rights to earn additional shares of common stock upon achievement of a higher TSR Percentile (“Outperformance Shares”). The Outperformance Shares are earned in increasing increments based on a TSR Percentile attained over a specified threshold. Outperformance Shares may be earned on any vesting date to the extent that the applicable TSR Percentile ranking thresholds are met in three installments on the one-, two- and three-year anniversaries of the grant date. Outperformance Shares that are earned at a vesting date will be issued to the recipient; however, prior to such issuance, the recipient is not entitled to stockholder rights with respect to Outperformance Shares. Outperformance Shares that are eligible to be earned but remain unearned on a vesting date become eligible to be earned again on the next vesting date. The right to earn any theretofore unearned Outperformance Shares terminates immediately following the final vesting date. The Performance-Vested Shares and the Outperformance Shares are referred to as the “TSR Awards.”

The compensation expense to be recognized for the TSR Awards was measured based on the estimated fair value at the date of grant using a Monte Carlo simulation model and utilizes estimated forfeiture rate of 4% which is updated periodically based on actual employee turnover.

 

          The following table summarizes the changes in non-vested TSR Awards for the three month period ended March 31, 2016:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

Shares

 

 

Fair Value

 

Non-vested, beginning of period

 

764,598

 

 

$

14.26

 

Granted

 

 

 

 

 

Vested

 

 

 

 

 

Forfeited

 

 

 

 

 

Expired

 

(276,779

)

 

 

15.91

 

Non-vested, end of period

 

487,819

 

 

$

13.32

 

 

Liability Awards

 

Liability awards consist of awards that are settled in cash instead of shares, as discussed below.

 

Cash-settled Stock Appreciation Rights

 

A stock appreciation right is the right to receive an amount in cash equal to the excess, if any, of the fair market value of a share of common stock on the date on which the right is exercised over its base price. The February 2016 grants of cash-settled stock appreciation rights hold base prices of $0.53 per share (as to 2,431,964 rights) and $0.583 per share (as to 6,082,417 rights). These awards vest in three equal annual installments and have a ten-year term. The fair value of the cash-settled stock appreciation rights as of grant date and March 31, 2016, was $3.3 million and $3.0 million, respectively, of which $0.1 million has been accrued as of March 31, 2016.

 

Time-Based Restricted Cash Awards

Awards of time-based restricted cash issued to employees vest in three equal annual increments at specified dates based on continued employment. Time based restricted cash issued to non-employee directors vests in one year based on continued service. The compensation expense to be recognized for the time-based restricted cash awards was measured utilizing estimated forfeiture rates between 0% and 15% which will be updated periodically based on actual employee turnover. The total estimated future liability of the time-based restricted cash awards as of March 31, 2016, was $9.1 million, of which $1.6 million has been accrued.


14

 


 

Performance-Based Restricted Cash Awards

The performance criteria for the performance-based restricted cash awards granted in May 2015 are based on future prices of the Company’s common stock trading at or above specified thresholds. If and as certain stock price thresholds are met, using a 60 trading day average, various multiples of the performance-vested cash award will be attained. The first stock price hurdle is at $2.00 at which the award would be payable at 1x, and the highest stock price hurdle would be $8.00 at which the award would be payable at a multiple of 6x. Interim hurdles and multiples between these end points are set forth in the governing agreements. The performance-based cash awards have a ten year term (i.e., the Company’s obligation would be triggered at any time the defined stock price multiples are met over a ten year period, subject to the initial three year vesting period, described below, and provided the employee continues to be employed by the Company). A time vesting element will apply to the performance-vested cash awards such that attained multiples will not be paid out earlier than upon satisfaction of a three-year vesting timetable from the date of grant. In order for an award to be paid, both the performance criteria and the time criteria would need to be satisfied. Once a time vesting date passes, the employee is entitled to be paid one third, two thirds or 100%, as applicable, of whatever multiples have been achieved. Any multiples achieved following 100% time vesting would be paid within 60 days of such achievement.

The estimated fair value of the performance-based restricted cash awards as of March 31, 2016 was $0.5 million of which $0.3 million has been accrued as of March 31, 2016 based upon the three-year vesting. The fair value was estimated using an option pricing model for a cash or nothing call, an estimated forfeiture rate of 5% and an average effective term of seven years. As the fair value of liability awards is required to be re-measured at each period end, amounts recognized in future periods will vary.

 

Note 8 — Asset Retirement Obligation

Resolute’s estimated asset retirement obligation liability is based on estimated economic lives, estimates as to the cost to abandon the wells and facilities in the future, and federal and state regulatory requirements. The liability is discounted using a credit-adjusted risk-free rate estimated at the time the liability is incurred or revised, that ranges between 7% and 12%. Revisions to the liability could occur due to changes in estimated abandonment costs or well economic lives, or if federal or state regulators enact new requirements regarding the abandonment of wells. Asset retirement obligations are valued utilizing Level 3 fair value measurement inputs.

The following table provides a reconciliation of Resolute’s asset retirement obligations for the periods presented (in thousands):

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Asset retirement obligations at beginning of period

$

19,238

 

 

$

31,340

 

Additional liability incurred / acquired

 

8

 

 

 

 

Accretion expense

 

437

 

 

 

723

 

Liabilities settled

 

(1

)

 

 

(16

)

Revisions to previous estimates

 

 

 

 

217

 

Asset retirement obligations at end of period

 

19,682

 

 

 

32,264

 

Less: current asset retirement obligations

 

(1,068

)

 

 

(631

)

Long-term asset retirement obligations

$

18,614

 

 

$

31,633

 

 

 

Note 9 — Derivative Instruments

Resolute enters into commodity derivative contracts to manage its exposure to oil and gas price volatility. Resolute has not elected to designate derivative instruments as cash flow hedges under the provisions of FASB ASC Topic 815, Derivatives and Hedging. As a result, these derivative instruments are marked to market at the end of each reporting period and changes in the fair value are recorded in the accompanying consolidated statements of operations. Gains and losses on commodity derivative instruments from Resolute’s price risk management activities are recognized in other income (expense). The cash flows from derivatives are reported as cash flows from operating activities unless the derivative contract is deemed to contain a financing element. Derivatives deemed to contain a financing element are reported as financing activities in the condensed consolidated statement of cash flows.


15

 


 

The Company utilizes fixed price swaps, basis swaps, option contracts and two-and three-way collars. These instruments generally entitle Resolute (the floating price payer in most cases) to receive settlement from the counterparty (the fixed price payer in most cases) for each calculation period in amounts, if any, by which the settlement price for the scheduled trading days applicable to each calculation period is less than the fixed strike price or floor price. The Company would pay the counterparty if the settlement price for the scheduled trading days applicable to each calculation period exceeds the fixed strike price or ceiling price. The amount payable by Resolute, if the floating price is above the fixed or ceiling price is the product of the notional contract quantity and the excess of the floating price over the fixed or ceiling price per calculation period. The amount payable by the counterparty, if the floating price is below the fixed or floor price, is the product of the notional contract quantity and the excess of the fixed or floor price over the floating price per calculation period. A three-way collar consists of a two-way collar contract combined with a put option contract sold by the Company with a strike price below the floor price of the two-way collar. The Company receives price protection at the purchased put option floor price of the two-way collar if commodity prices are above the sold put option strike price. If commodity prices fall below the sold put option strike price, the Company receives the cash market price plus the variance between the put price and the floor price. This type of instrument captures more value in a rising commodity price environment, but limits the benefits in a downward commodity price environment. Basis swaps, when used in connection with fixed price swaps, to fix the price differential between the NYMEX Commodity price and the index price at which the gas production is sold.

As of March 31, 2016, the fair value of the Company’s commodity derivatives was a net asset of $72.0 million (Level 2 fair value measurement).

The following table represents Resolute’s commodity swap contracts as of March 31, 2016:

 

 

 

 

 

 

 

Oil (NYMEX WTI)

 

 

Gas (NYMEX Henry Hub)

 

Remaining Term

 

 

 

 

 

Bbl per Day

 

 

Weighted Average Swap Price per Bbl

 

 

MMBtu per Day

 

 

Weighted Average  Swap Price per MMBtu

 

April – December 2016

 

 

 

 

 

 

6,538

 

 

$

80.21

 

 

 

4,935

 

 

$