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. Quantitative 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-2.1 ren-ex21_419.htm
EX-31.1 ren-ex311_6.htm
EX-31.2 ren-ex312_7.htm
EX-32.1 ren-ex321_8.htm

Resolute Energy Earnings 2017-03-31

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_20170331.htm 10-Q ren-10q_20170331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2017

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       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      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

 

  (Do not check if a small reporting company)

  

Smaller reporting company

 

 

 

 

 

 

 

 

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. 

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

As of April 28, 2017, 22,449,356 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, the anticipated closing date and the expected benefits of the Delaware Basin acquisitions; anticipated capital expenditures in 2017 and the sources of such funding; our financial condition and management of the Company in the current commodity price environment; future financial and operating results; our intention to pursue the disposition of our Aneth Field properties; liquidity and availability of capital including projections of free cash flow; 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 our acreage and projects; the prospectivity of our properties and acreage; and the anticipated accounting treatment of various activities. 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. 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, 2016, and such things as:

 

our ability to consummate and to realize the expected benefits from the interests acquired in the Delaware Basin acquisitions;

 

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;

 

our ability to successfully divest our Aneth Field properties at favorable prices and the effect of the divestiture on our results of operations and cash flows;

 

our ability to raise permanent long-term financing for our Delaware Basin Bronco acquisition on terms that are acceptable or favorable to us;

 

possible borrowing base reduction under our credit facility as a result of possible disposition of Aneth Field;

 

risks related to our level of indebtedness;

 

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

 

constraints imposed on our business and operations by our revolving credit 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;

 

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;

 

our future cash flow, liquidity and financial position;

 

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

 

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

 

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;

 

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 timing and amount of future production of oil and gas;

 

the ability to sell or otherwise monetize assets, including our Aneth Field 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 water sourcing, gathering and disposal, oil gathering and 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 waste 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;

 

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;

 

potential changes in income tax deductions 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;

 

actions, announcements and other developments in OPEC and in other 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;

 

the impact of long-term incentive programs, including performance-based awards and stock appreciation rights;

 

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 our operations;

 

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;

 

the risk of a transaction that could trigger a change of control under our debt agreements;

 

risks related to our common stock, potential declines in stock prices and potential future dilution to stockholders;

 

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 by Resolute. 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.

Production rates, including 24hour peak IP rates, 30day peak IP rates, 90day peak IP rates, 120day peak IP rates and 150-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. These rates are sometimes actual rates and sometimes extrapolated or normalized rates. As such the rates for a particular well may change as additional data becomes available.  Peak production rates are 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 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. Lateral lengths described are indicative only. Actual completed lateral lengths depend on various considerations such as leaseline offsets. Standard length laterals, sometimes referred to as 5,000 foot laterals, are laterals with completed length generally between 4,000 feet and 5,500 feet. Midlength laterals, sometimes referred to as 7,500 foot laterals, are laterals with completed length generally between 6,500 feet and 8,000 feet. Long laterals, sometimes referred to as 10,000 foot laterals, are laterals with completed length generally longer than 8,000 feet.

 

 


 

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, 2016, 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

  

20

 

 

 

 

 

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

  

33

 

 

 

 

 

Item 3.

  

Defaults Upon Senior Securities

  

33

 

 

 

 

 

Item 4.

  

Mine Safety Disclosures

  

33

 

 

 

 

 

Item 5.

  

Other Information

  

33

 

 

 

 

 

Item 6.

  

Exhibits

  

34

 

 

 

 

 

Signatures

  

35

 

 

 

 

 


 

RESOLUTE ENERGY CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share amounts)

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

1,041

 

 

$

133,089

 

Accounts receivable

 

50,698

 

 

 

55,228

 

Commodity derivative instruments

 

3,675

 

 

 

218

 

Prepaid expenses and other current assets

 

2,950

 

 

 

3,249

 

Total current assets

 

58,364

 

 

 

191,784

 

Property and equipment, at cost:

 

 

 

 

 

 

 

Oil and gas properties, full cost method of accounting

 

 

 

 

 

 

 

Unproved

 

118,081

 

 

 

121,375

 

Proved

 

1,925,489

 

 

 

1,889,111

 

Other property and equipment

 

9,774

 

 

 

9,754

 

Accumulated depletion, depreciation and amortization

 

(1,662,721

)

 

 

(1,647,120

)

Net property and equipment

 

390,623

 

 

 

373,120

 

Other assets:

 

 

 

 

 

 

 

Restricted cash

 

23,144

 

 

 

23,137

 

Other assets

 

17,426

 

 

 

332

 

Total assets

$

489,557

 

 

$

588,373

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

17,870

 

 

$

8,675

 

Accrued expenses

 

45,436

 

 

 

37,507

 

Accrued revenue payable

 

19,241

 

 

 

19,801

 

Accrued interest payable

 

14,211

 

 

 

5,784

 

Asset retirement obligations

 

690

 

 

 

895

 

Commodity derivative instruments

 

2,389

 

 

 

8,014

 

Accrued cash-settled incentive awards

 

28,143

 

 

 

27,158

 

Secured term loan facility

 

 

 

 

122,139

 

Total current liabilities

 

127,980

 

 

 

229,973

 

Long term liabilities:

 

 

 

 

 

 

 

Revolving credit facility

 

16,540

 

 

 

8,821

 

Senior notes

 

397,409

 

 

 

397,154

 

Asset retirement obligations

 

16,333

 

 

 

19,457

 

Commodity derivative instruments

 

2,096

 

 

 

4,104

 

Other long term liabilities

 

5,138

 

 

 

4,611

 

Total liabilities

 

565,496

 

 

 

664,120

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

Convertible preferred stock, $0.0001 par value; 1,000,000 shares authorized; issued and

   outstanding 62,500 shares at March 31, 2017 and December 31, 2016, respectively;

   $62.5 million liquidation preference

 

 

 

 

 

Common stock, $0.0001 par value; 45,000,000 shares authorized; issued and outstanding

   22,449,744 and 21,932,842 shares at March 31, 2017 and December 31, 2016, respectively

 

2

 

 

 

2

 

Additional paid-in capital

 

948,112

 

 

 

948,380

 

Accumulated deficit

 

(1,024,053

)

 

 

(1,024,129

)

Total stockholders’ deficit

 

(75,939

)

 

 

(75,747

)

Total liabilities and stockholders’ deficit

$

489,557

 

 

$

588,373

 

 

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,

 

 

2017

 

 

2016

 

Revenue:

 

 

 

 

 

 

 

Oil

$

57,659

 

 

$

17,795

 

Gas

 

4,957

 

 

 

978

 

Natural gas liquids

 

2,610

 

 

 

229

 

Total revenue

 

65,226

 

 

 

19,002

 

Operating expenses:

 

 

 

 

 

 

 

Lease operating

 

18,356

 

 

 

13,817

 

Production and ad valorem taxes

 

6,603

 

 

 

3,142

 

Depletion, depreciation, amortization, and asset retirement

   obligation accretion

 

16,035

 

 

 

10,361

 

Impairment of proved oil and gas properties

 

 

 

 

58,000

 

General and administrative

 

10,415

 

 

 

8,968

 

Cash-settled incentive awards

 

5,427

 

 

 

798

 

Total operating expenses

 

56,836

 

 

 

95,086

 

Income (loss) from operations

 

8,390

 

 

 

(76,084

)

Other income (expense):

 

 

 

 

 

 

 

Interest expense, net

 

(17,697

)

 

 

(13,075

)

Commodity derivative instruments gain

 

10,840

 

 

 

3,841

 

Other income (expense)

 

(60

)

 

 

6

 

Total other expense

 

(6,917

)

 

 

(9,228

)

Net income (loss)

 

1,473

 

 

 

(85,312

)

Preferred stock dividends

 

(1,397

)

 

 

 

Net income (loss) available to common shareholders

$

76

 

 

$

(85,312

)

Net income (loss) per common share:

 

 

 

 

 

 

 

Basic

$

0.01

 

 

$

(5.65

)

Diluted

 

0.01

 

 

 

(5.65

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

      Basic

 

21,738

 

 

 

15,036

 

Diluted

 

22,791

 

 

 

15,036

 

 

See notes to condensed consolidated financial statements

 

 

 

2

 


 

RESOLUTE ENERGY CORPORATION

Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

Common Stock

 

 

Preferred Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance as of January 1, 2017

 

21,933

 

 

$

2

 

 

 

63

 

 

$

 

 

$

948,380

 

 

$

(1,024,129

)

 

$

(75,747

)

Issuance of stock, restricted stock and share-based

   compensation

 

567

 

 

 

 

 

 

 

 

 

 

 

 

2,881

 

 

 

 

 

 

2,881

 

Redemption of restricted stock for employee income

   tax and restricted stock forfeitures

 

(87

)

 

 

 

 

 

 

 

 

 

 

 

(3,242

)

 

 

 

 

 

(3,242

)

Exercise of employee options to purchase common

   stock

 

37

 

 

 

 

 

 

 

 

 

 

 

 

93

 

 

 

 

 

 

93

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,397

)

 

 

(1,397

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,473

 

 

 

1,473

 

Balance as of March 31, 2017

 

22,450

 

 

$

2

 

 

 

63

 

 

$

 

 

$

948,112

 

 

$

(1,024,053

)

 

$

(75,939

)

 

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,

 

 

2017

 

 

2016

 

Operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

1,473

 

 

$

(85,312

)

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

 

 

 

 

 

 

 

Depletion, depreciation, amortization and asset retirement obligation accretion

 

16,035

 

 

 

10,361

 

Impairment of proved oil and gas properties

 

 

 

 

58,000

 

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

 

7,743

 

 

 

1,303

 

Share-based compensation

 

2,973

 

 

 

2,324

 

Commodity derivative instruments gain

 

(10,840

)

 

 

(3,841

)

Commodity derivative settlement gain (loss)

 

(250

)

 

 

27,748

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

10,497

 

 

 

2,332

 

Other current assets

 

(6

)

 

 

126

 

Accounts payable and accrued expenses

 

3,222

 

 

 

(5,001

)

Accrued interest payable

 

8,427

 

 

 

8,497

 

Net cash provided by operating activities

 

39,274

 

 

 

16,537

 

Investing activities:

 

 

 

 

 

 

 

Oil and gas exploration and development expenditures

 

(42,298

)

 

 

(23,001

)

Proceeds from sale of oil and gas properties

 

14,183

 

 

 

166

 

Deposit for Bronco acquisition

 

(16,000

)

 

 

 

Other long-term assets

 

4

 

 

 

13

 

Purchase of other property and equipment

 

(20

)

 

 

(30

)

Restricted cash

 

(737

)

 

 

(1

)

Net cash used in investing activities

 

(44,868

)

 

 

(22,853

)

Financing activities:

 

 

 

 

 

 

 

Proceeds from bank borrowings

 

73,000

 

 

 

 

Repayments of borrowings

 

(64,000

)

 

 

 

Repayment of term loan

 

(128,303

)

 

 

 

Payment of financing costs

 

(2,605

)

 

 

 

Payment of preferred dividend

 

(1,397

)

 

 

 

Redemption of restricted stock for employee income taxes

 

(3,242

)

 

 

(60

)

Proceeds from exercise of employee options to purchase common stock

 

93

 

 

 

 

Net cash used in financing activities

 

(126,454

)

 

 

(60

)

Net decrease in cash and cash equivalents

 

(132,048

)

 

 

(6,376

)

Cash and cash equivalents at beginning of period

 

133,089

 

 

 

9,297

 

Cash and cash equivalents at end of period

$

1,041

 

 

$

2,921

 

 

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. Materially all of the Company’s operating assets are comprised of properties in the Delaware Basin in west Texas (the “Permian Properties” or “Permian Basin Properties”) and Aneth Field located in the Paradox Basin in southeast Utah (the “Aneth Field Properties” or “Aneth Field”). 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, 2016. 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. Certain prior period amounts have been reclassified to conform to the current period presentation.

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, 2016. 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, 2016.

Recent Accounting Pronouncements  

In May 2014 the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which creates Topic 606 (“ASC 606”). ASC 606 supersedes existing revenue recognition requirements under GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which we expect to be entitled in exchange for transferring goods or services to a customer. Additional disclosures will be required as to the nature, timing and uncertainty of revenue and cash flows from contracts with customers. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09 for one year to annual reports beginning after December 15, 2017. Early adoption is permitted for fiscal years beginning after December 15, 2016.

In May 2016 the FASB issued ASU 2016-12: Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients (“ASU 2016-12”), which updates ASU 2014-09 to clarify core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition. This ASU is required to be adopted using either the retrospective transition method, which requires restating previously reported results or the cumulative effect (modified retrospective) transition method, which utilizes a cumulative-effect adjustment to retained earnings in the period of adoption to account for the prior period effects. We have aggregated and reviewed our contracts that are within the scope of ASC 606. Based on our evaluation to date, there will not be a material impact on our financial statements. However, we anticipate the new standard will result in more robust footnote disclosures. We cannot currently determine the extent of the new footnote disclosures as further clarification is needed for certain practices common to the industry. We will continue to evaluate the impacts that future contracts may have.


5

 


 

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.

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; the estimated fair value and allocation of the purchase price related to business combinations; share-based compensation expense; cash-settled long-term incentive 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 income tax effects.

No impairment was recorded during the three months ended March 31, 2017. However, the Company recorded a non-cash impairment of the carrying value of its oil and gas properties of $58 million as a result of the ceiling test limitation during the three months ended March 31, 2016. 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

 

Acquisition of Reeves County Properties in the Delaware Basin

Delaware Basin Bronco Acquisition

On March 3, 2017, Resolute Natural Resources Southwest, LLC (“Buyer” or “Resolute Southwest”), a wholly-owned subsidiary of the Company, entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with undisclosed private sellers (“Sellers”) pursuant to which Buyer agreed to acquire certain producing and undeveloped oil and gas properties in the Delaware Basin in Reeves County, Texas (the “Delaware Basin Bronco Acquisition” – previously referred to as the “Orla” acquisition).

Consideration for the acquisition will be $160 million in cash, subject to customary purchase price adjustments. The closing of the acquisition is expected to occur on or about May 15, 2017, and is subject to the satisfaction or waiver of certain customary conditions, including the material accuracy of the representations and warranties of Buyer and Sellers, and performance of covenants.  The Delaware Basin Bronco Acquisition has an effective date of May 1, 2017. The Purchase Agreement contains terms and conditions customary to transactions of this type. Subject to the right of Buyer to be indemnified for certain liabilities for a limited period of time and for breaches of representations, warranties and covenants, Buyer will assume substantially all liabilities associated with the acquired properties. The Purchase Agreement also contains certain customary termination rights for each of Buyer and Sellers.

 


6

 


 

The properties to be acquired include approximately 4,600 net acres in Reeves County, Texas, consisting of 2,187 net acres adjacent to the Company’s existing operating area in Reeves County and 2,405 net acres in southern Reeves County. In addition, the Company will acquire interests in (i) two operated 4,500 foot lateral horizontal Wolfcamp wells that were producing approximately 800 net Boe per day at the time the Purchase Agreement was signed, (ii) six operated drilled but uncompleted Wolfcamp wells, four of which have lateral lengths of approximately 4,500 feet and two with approximately 7,500 foot laterals; and (iii) one non-operated 10,000 foot lateral Wolfcamp A well that is currently awaiting completion.

The Company is evaluating the optimal long-term financing for the Delaware Basin Bronco Acquisition. In the interim, however, the Company entered into a commitment letter on March 3, 2017, for a $100 million unsecured bridge financing facility with BMO Capital Markets (the “Commitment Letter”). The Commitment Letter provides the Company with the ability to borrow up to $100 million, subject to satisfaction or waiver of customary conditions to closing, for the consummation of the Delaware Basin Bronco Acquisition (“Bridge Commitment”). In the event that the Bridge Commitment is not drawn in connection with the Delaware Basin Bronco Acquisition, then the obligations of the parties under the Commitment Letter terminate.

Delaware Basin Firewheel Acquisition

In October 2016 Resolute and Resolute Southwest entered into a Purchase and Sale Agreement with Firewheel Energy, LLC (“Firewheel”) pursuant to which Resolute Southwest agreed to acquire certain oil and gas interests in the Delaware Basin in Reeves County, Texas (the “Firewheel Properties”), for consideration to Firewheel consisting of $90 million in cash and 2,114,523 shares of common stock of the Company, par value $0.0001 per share, issued to Firewheel upon the closing of the purchase of the Firewheel Properties (the “Delaware Basin Firewheel Acquisition”). The closing of the Delaware Basin Firewheel Acquisition occurred on October 7, 2016.

The Company acquired the Firewheel Properties for $153.2 million. Revenue and expenses related to the acquired properties are included in the consolidated statement of operations on the closing date of the transaction. The Delaware Basin Firewheel Acquisition was accounted for using the acquisition method.

The Company completed its assessment of the fair values of the assets acquired and liabilities assumed. Accordingly, the following table presents the purchase price allocation of the Delaware Basin Firewheel Acquisition at December 31, 2016, based on the fair values of assets acquired and liabilities assumed (in thousands):

 

 

 

 

2016

 

Proved oil and gas properties

 

 

$

40,900

 

Unproved oil and gas properties

 

 

 

112,800

 

Asset retirement obligations assumed

 

 

 

(500

)

Total purchase price

 

 

$

153,200

 

Divestiture of Southeast New Mexico Properties in the Permian Basin

In February 2017 the Company closed on the sale of its Denton and South Knowles properties in the Northwest Shelf project area in Lea County, New Mexico, for approximately $14.5 million in cash, subject to customary purchase price adjustments. The effective date of this sale was October 1, 2016. The proceeds of the sale were used to reduce amounts outstanding under the Company’s Revolving Credit Facility (as defined in Note 5) and for other corporate purposes. As part of the sale, the Company was also no longer liable for asset retirement obligations of $3.6 million at March 31, 2017.

Divestiture of Midstream Assets in the Delaware Basin

In July 2016 Resolute Southwest entered into a definitive Purchase and Sale Agreement (the “Mustang Agreement”) with Caprock Permian Processing LLC and Caprock Field Services LLC, as buyers (collectively, “Caprock”) pursuant to which Resolute Southwest and an existing minority interest holder agreed to sell certain gas gathering and produced water handling and disposal systems owned by them in the Mustang project area in Reeves County, Texas, (“Mustang”) for a cash payment of $35 million, plus certain earn-out payments described below.

In July 2016 Resolute Southwest also entered into a definitive Purchase and Sale Agreement (the “Appaloosa Agreement”) with Caprock, pursuant to which Resolute Southwest agreed to sell certain gas gathering and produced water handling and disposal systems owned by Resolute Southwest in the Appaloosa project area in Reeves County, Texas, (“Appaloosa”) for a cash payment of $15 million, plus certain earn-out payments described below.

 


7

 


 

In August 2016 Resolute Southwest closed the transactions contemplated by the Mustang Agreement and the Appaloosa Agreement. Resolute Southwest received aggregate consideration of approximately $36 million (including earn-out payments earned as of the closing), of which approximately $2 million was placed in an escrow account for a period of time to secure Resolute’s indemnity obligations under the Mustang Agreement and the Appaloosa Agreement. As the sale did not significantly alter the relationship between capital costs and proved reserves, no gain or loss was recognized.

The net proceeds of the midstream sale were used to repay amounts outstanding under the Company’s Revolving Credit Facility (as defined in Note 5) and for general corporate purposes.

In July 2016, in connection with the Appaloosa Agreement and the Mustang Agreement, Resolute Southwest also entered into a definitive Earn-out Agreement (the “Earn-out Agreement”), pursuant to which Resolute Southwest will be entitled to receive certain earn-out payments based on drilling and completion activity in Appaloosa and Mustang through 2020 that will deliver gas and produced water into the system. Earn-out payments for each qualifying well will vary depending on the lateral length of the well and the year in which the well is drilled and completed. In March 2017 the Earn-out Agreement was amended by the parties to provide for an increase in earn-out payments for the wells drilled and completed in 2017. Earn-out payments are contingent on future drilling, and therefore will be recognized when received.

In connection with the closing of the transactions contemplated by the Appaloosa Agreement and the Mustang Agreement, Resolute Southwest entered into fifteen year commercial agreements with Caprock for gas gathering services and water handling and disposal services for all current and future gas and water produced by Resolute Southwest in Mustang and Appaloosa in exchange for customary fees based on the volume of gas and water produced and delivered. Resolute Southwest has agreed to dedicate and deliver all gas and water produced from its acreage in Mustang and Appaloosa to Caprock for gathering, processing, compression and disposal services for a term of fifteen years.

On April 27, 2017, Resolute Southwest entered into a Crude Oil Connection and Dedication Agreement with Caprock Permian Crude LLC, an affiliate of Caprock Permian Processing LLC and Caprock Field Services LLC. The agreement provides that Caprock will construct the gathering systems, pipelines and other infrastructure for the gathering of crude oil from our Mustang and Appaloosa operating areas in exchange for customary fees based on the volume of crude oil produced and delivered. Resolute Southwest has agreed to dedicate and deliver all crude oil produced from its acreage in Mustang and Appaloosa to Caprock for gathering for a term through July 31, 2031, coterminous with our other commercial agreements with Caprock. For the first five years of the agreement, the crude oil will be delivered to Midland Station under a joint tariff arrangement between Caprock and Plains Pipeline, L.P. On May 2, 2017, Resolute Southwest also entered into a Crude Oil Purchase Contract with Plains Marketing, L.P. providing for the sale to Plains of substantially all of the crude oil produced from the Mustang and Appaloosa areas for a price equal to an indexed market price less a $1.75 transportation differential that will cover the joint tariff payable to Caprock under the Crude Oil Connection and Dedication Agreement.

Pro Forma Financial Information

The unaudited pro forma financial information for the three months ended March 31, 2016 reflects Resolute’s results as if the Delaware Basin Firewheel Acquisition and the sale of the Delaware Basin Midstream Assets had occurred on January 1, 2016 (in thousands, except per share amounts):

 

 

Three Months Ended

 

 

 

March 31, 2016

 

Revenue

 

$

20,404

 

Loss from operations

 

 

(76,967

)

Net loss

 

 

(86,389

)

 

 

 

 

 

Net loss per share

 

 

 

 

   Basic and diluted

 

$

(5.04

)

Weighted average common shares outstanding

 

 

 

 

   Basic and diluted

 

 

17,151

 

 


8

 


 

 

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. Net income (loss) available to common stockholders is computed by deducting both the dividends declared in the period on preferred stock and the dividends accumulated for the period on cumulative preferred stock from net income. Potentially dilutive shares consist of the incremental shares and options issuable under the Company’s 2009 Performance Incentive Plan (the “Incentive Plan”) as well as common shares issuable upon the assumed conversion of the Convertible Preferred Stock (as defined in Note 7). 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,

 

 

2017

 

 

2016

 

Potential dilutive restricted stock

 

3,625

 

 

 

410

 

Anti-dilutive securities

 

2,116

 

 

 

1,137

 

 

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,

 

 

2017

 

 

2016

 

Net income (loss) available to common stockholders

$

203

 

 

$

(85,312

)

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

21,738

 

 

 

15,036

 

Add: dilutive effect of non-vested restricted stock

 

172

 

 

 

 

Add: dilutive effect of options

 

881

 

 

 

 

Diluted weighted average common shares outstanding

 

22,791

 

 

 

15,036

 

 

 

 

 

 

 

 

 

Basic and diluted net income (loss) per common share

$

0.01

 

 

$

(5.65

)

 

 

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, 2017

 

Revolving credit facility

$

19,000

 

 

$

 

 

$

(2,460

)

 

$

16,540

 

8.50% senior notes

 

400,000

 

 

 

920

 

 

 

(3,511

)

 

 

397,409

 

Total long-term debt

$

419,000

 

 

$

920

 

 

$

(5,971

)

 

$

413,949

 

 

 

Principal

 

 

Unamortized premium/

(discount)

 

 

Unamortized deferred financing costs

 

 

December 31, 2016

 

Revolving credit facility

$

10,000

 

 

$

 

 

$

(1,179

)

 

$

8,821

 

Secured term loan facility

 

128,303

 

 

 

(4,882

)

 

 

(1,282

)

 

 

122,139

 

8.50% senior notes

 

400,000

 

 

 

985

 

 

 

(3,831

)

 

 

397,154

 

Total long-term debt

$

538,303

 

 

$

(3,897

)

 

$

(6,292

)

 

$

528,114

 

    Current portion of secured term loan facility

 

128,303

 

 

 

(4,882

)

 

 

(1,282

)

 

 

122,139

 

    Long-term debt

$

410,000

 

 

$

985

 

 

$

(5,010

)

 

$

405,975

 

9

 


 

For the three months ended March 31, 2017 and 2016, the Company incurred interest expense on long-term debt of $17.7 million and $13.1 million, respectively. Approximately $9.7 million in interest expense was incurred in 2017 as a result of the extinguishment of the Secured Term Loan Facility (as defined below) on January 3, 2017. The Company capitalized $2.5 million and $0.4 million of interest expense during the three months ended March 31, 2017 and 2016, respectively.

Revolving Credit Facility

On February 17, 2017, the Company entered into the Third Amended and Restated Credit Agreement with a syndicate of banks led by Bank of Montreal, as Administrative Agent, Capital One, National Association, as syndication agent, and Barclays Bank PLC, ING Capital LLC and SunTrust Bank, as co-documentation agents (the “Revolving Credit Facility”).  In connection with entering into the Revolving Credit Facility, the Company repaid all amounts outstanding under the Second Amended and Restated Credit Agreement, dated as of April 15, 2015, by and among Resolute Energy Corporation, as borrower, certain subsidiaries of Resolute Energy Corporation, as Guarantors, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, as amended, and terminated that agreement.

The Revolving Credit Facility specifies a maximum borrowing base as determined by the lenders, which was initially set at $150 million. 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 February 2021, unless there is a maturity of material indebtedness prior to such date.

The Revolving Credit Facility includes covenants that require, among other things, that Resolute maintains a ratio of current assets to current liabilities of no less than 1.0 to 1.0 and a ratio of funded debt to EBITDA of no more than 4.0 to 1.0. The Revolving Credit Facility prohibits us from entering into derivative arrangements for more than (i) 85% of our anticipated production from proved properties in the next 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 (not to exceed a term of 60 months for any such derivative arrangement). The Revolving Credit Facility also includes customary additional terms and covenants that place limitations on certain types of activities, the payment of dividends, and that require satisfaction of certain financial tests. Resolute was in compliance with the terms and covenants of the Revolving Credit Facility at March 31, 2017.

 As of March 31, 2017, outstanding borrowings under the Revolving Credit Facility were $19 million with a weighted average interest rate of 6.0%, under a borrowing base of $150 million. Pursuant to the spring borrowing base redetermination, the borrowing base has been increased to $225 million, effective April 17, 2017.  

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 assets of the Company’s Aneth Field and Delaware Basin assets held by Resolute Aneth, LLC and Resolute Natural Resources Southwest, LLC, which are wholly-owned subsidiaries of the Company.

Each base rate borrowing under the Revolving Credit Facility accrues interest at either (a) the London Interbank Offered Rate (“LIBOR”), plus a margin that ranges from 3.0% to 4.0% 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 that ranges from 2.0% to 3.0%. Each such margin is based on the level of utilization under the borrowing base.

Secured Term Loan Agreement

In December 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”). In May 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 Facility.  

In December 2015 the Company retired $70 million of the amount outstanding under the Secured Term Loan Facility following the sale of certain properties in the Midland Basin in accordance with mandatory prepayment provisions stipulated in the Secured Term Loan Facility.

10

 


 

On January 3, 2017, the Company repaid approximately $132 million constituting all amounts due under the Term Loan Facility (including prepayment fees of $3.5 million), with a portion of the proceeds from its previously announced common stock offering that closed on December 23, 2016. In addition $6.2 million of deferred financing costs and original issue discount were expensed as part of the extinguishment. The Secured Term Loan Facility was terminated in connection with the repayment.

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 certain types of 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, 2017.

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 not less than 30 or more than 60 days’ prior notice, at redemption prices 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.

As previously disclosed in its Current Report on Form 8-K filed on April 28, 2016, during the month of February 2016 the Company was approached by certain holders of the Senior Notes to engage in discussions with the Company regarding a potential debt exchange, financing or other transaction involving the Senior Notes. The Company and the noteholders did not reach an agreement on such a transaction and the Company has terminated all discussions with noteholders regarding any such transaction but may engage in other such discussions in the future.

The fair value of the Senior Notes at March 31, 2017, was estimated to be $404.8 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, 2017 and 2016, 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.

There was no provision for income taxes during the three months ended March 31, 2017 and 2016.

 

The Company had no reserve for uncertain tax positions as of March 31, 2017. 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

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required. As a result of the Company’s analysis, it was concluded that as of March 31, 2017, a valuation allowance should be established against the Company’s net deferred tax asset. The Company recorded a valuation allowance as of March 31, 2017 and 2016, of $309.7 million and $274.7 million, respectively, 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. At March 31, 2017 and December 31, 2016, the Company had 62,500 shares of preferred stock issued and outstanding.  

In October 2016, the Company entered into a Purchase Agreement (the “Preferred Stock Purchase Agreement”) with BMO Capital Markets Corp. (“Initial Purchaser”), pursuant to which the Company agreed to issue and sell to Initial Purchaser 55,000 shares (the “Firm Securities”) of the Company’s 8⅛% Series B Cumulative Perpetual Convertible Preferred Stock, par value $0.0001 per share (the “Convertible Preferred Stock”) and, at Initial Purchaser’s option, up to 7,500 additional shares of Convertible Preferred Stock (together with the Firm Securities, collectively, the “Securities”). The Initial Purchaser exercised its over-allotment option to purchase the additional 7,500 shares of Convertible Preferred Stock in full, bringing the total shares of Convertible Preferred Stock purchased by Initial Purchaser to 62,500, for an aggregate net consideration of $60 million, before offering expenses.

Each holder has the right at any time, at its option, to convert, any or all of such holder’s shares of Convertible Preferred Stock at an initial conversion rate of 33.8616 shares of fully paid and nonassessable shares of Common Stock, per share of Convertible Preferred Stock. Additionally, at any time on or after October 15, 2021, the Company shall have the right, at its option, to elect to cause all, and not part, of the outstanding shares of Convertible Preferred Stock to be automatically converted into that number of shares of Common Stock for each share of Convertible Preferred Stock equal to the conversion rate in effect on the mandatory conversion date as such terms are defined in the Certificate of Designation.

As of March 31, 2017, the Company had accumulated undeclared preferred dividends of $1.1 million. A preferred dividend of $1.3 million was declared on April 12, 2017, and paid on April 17, 2017.

Common Stock

The authorized common stock of the Company consists of 45,000,000 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, 2017 and December 31, 2016, the Company had 22,449,744 and 21,932,842 shares of common stock issued and outstanding, respectively.

In May 2016, Resolute adopted a stockholder rights plan and in connection with such plan declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock, par value $0.0001 per share. The Rights trade with, and are inseparable from, the common stock until such time as they become exercisable on the distribution date. The Rights are evidenced only by certificates that represent shares of common stock and not by separate certificates. New Rights will accompany any new shares of common stock issued after May 27, 2016, until the earlier of the distribution date and the redemption or expiration of the rights.

Each Right allows its holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock (a “Preferred Share”) for $4.50, once the Rights become exercisable. Prior to exercise, the Right does not give its holder any dividend, voting or liquidation rights. The Rights will not be exercisable until 10 days after the public announcement that a person or group has become an “Acquiring Person” by obtaining beneficial ownership of 20% or more of our outstanding common stock, or, if earlier, 10 business days (or a later date determined by the Board before any person or group becomes an Acquiring Person) after a person or group begins a tender or exchange offer which, if completed, would result in that person or group becoming an Acquiring Person. The stockholder rights plan has been submitted for approval by the Company’s stockholders at the 2017 annual meeting scheduled to be held on May 12, 2017. In the event that the plan is not approved, then it would expire by its terms on May 16, 2017.

In June 2016 Resolute filed a certificate of amendment to its certificate of incorporation to effect the previously-announced reverse stock split of the Company’s common stock, par value $0.0001 per share, at a ratio of 1-for-5 (the “Reverse Stock Split”). The certificate of amendment also reduced the number of authorized shares of common stock from 225,000,000 to 45,000,000. The Reverse Stock Split, including the certificate of amendment, was approved by stockholders at the Company’s 2016 annual meeting of stockholders and by the Company’s Board of Directors. As a result, the Company is now in compliance with the $1.00 per share

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minimum price requirement of the New York Stock Exchange (the “NYSE”). All historical share amounts disclosed have been retroactively adjusted to reflect this Reverse Stock Split.

During the fourth quarter of 2016, the Company issued 4,370,000 shares of common stock in a public offering at $38.00 per share for net proceeds of $160.9 million, after deducting fees and estimated expenses. The net proceeds were used to repay outstanding borrowings under the Secured Term Loan Facility and Revolving Credit Facility.

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 2009 Long Term Performance Incentive Plan (“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 3,451,548 (which includes the additional 620,000 shares under Amendment No. 2 to the incentive plan approved by the Company’s stockholders in June 2015 and the 1,000,000 shares under Amendment No. 3 in the incentive plan approved by the Company’s stockholders in May 2016). An amendment to the Incentive Plan to increase the number of shares available for issuance thereunder by 1,450,000 shares has been submitted for approval by the Company’s stockholders at the 2017 annual meeting scheduled to be held on May 12, 2017.

In February 2016 the Board and its Compensation Committee 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 with a ten-year term, vesting in three equal annual installments on March 8 of 2017, 2018 and 2019 for employees and in one installment on March 8, 2017 for non-employee directors, (ii) cash-settled stock appreciation rights with a ten-year term, vesting in three equal annual installments on March 8 of 2017, 2018 and 2019 for employees and in one installment on March 8, 2017 for non-employee directors, (iii) time-vested restricted cash awards, vesting in three equal annual installments on March 8 of 2017, 2018 and 2019, and (iv) restricted stock vesting on March 8, 2017 to non-employee directors.

For the three months ended March 31, 2017 and 2016, the Company recorded expense related to the Incentive Plan as follows (in thousands):

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Time-based restricted stock awards

$

1,500

 

 

$

1,777

 

TSR awards

 

916

 

 

 

337

 

Stock option awards

 

457

 

 

 

189

 

   Total share-based compensation expense

 

2,873

 

 

 

2,303

 

 

 

 

 

 

 

 

 

Time-based restricted cash awards

 

279

 

 

 

649

 

Performance-based restricted cash awards

 

507

 

 

 

38

 

Cash-settled stock appreciation awards

 

4,641

 

 

 

111

 

   Total cash-based compensation expense

 

5,427

 

 

 

798

 

 

 

 

 

 

 

 

 

   Total Incentive Plan compensation expense

$

8,300

 

 

$

3,101

 

As of March 31, 2017, 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

$

14,608

 

 

 

2.8

 

TSR awards

 

9,302

 

 

 

2.9

 

Stock option awards

 

1,266

 

 

 

1.7

 

Total unrecognized compensation expense

$

25,176

 

 

 

 

 

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Equity Awards

Equity awards consist of service-based and performance-based restricted stock units and stock options under the Incentive Plan. All historical exercise, base and threshold prices disclosed have been retroactively adjusted to reflect the Reverse Stock Split.

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, 2017, the Company granted 372,720 shares of time-based restricted stock to employees and 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, 2017:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

Shares

 

 

Fair Value

 

Non-vested, beginning of period

 

151,781

 

 

$

25.07

 

Granted

 

372,720

 

 

 

43.92

 

Vested

 

(111,379

)

 

 

28.40

 

Forfeited

 

(1,592

)

 

 

44.26

 

Non-vested, end of period

 

411,530

 

 

$

41.17