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-10.1 ren-ex101_697.htm
EX-10.2 ren-ex102_696.htm
EX-31.1 ren-ex311_8.htm
EX-31.2 ren-ex312_7.htm
EX-32.1 ren-ex321_9.htm

Resolute Energy Earnings 2017-06-30

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_20170630.htm 10-Q ren-10q_20170630.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 June 30, 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 July 31, 2017, 22,478,996 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; anticipated production in 2017; anticipated gas to oil ratios in 2017; anticipated capital expenditures and activity 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; the proposed disposition of our Aneth Field properties and the timing of executing definitive documents and closing thereof; liquidity and availability of capital; future borrowing base adjustments and the effect thereof; expected timing of drilling and completion of pad wells and the timing of the production contribution thereof; future production, reserve growth and decline rates; our plans and expectations regarding our development activities including drilling and completing wells, the number of such potential projects, locations and productive intervals, the rates of return on our acreage and projects; the potential impact of well interference and the effectiveness of operational adjustments to mitigate it; 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:

 

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 achieve the growth and benefits we expect from our acquisitions;

 

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

 

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

 

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

 

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

 

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;

 

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;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;

 

 


 

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 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;

 

the concentration of our credit risk as the result of depending on one primary oil purchaser in the Delaware Basin for the next five years;

 

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

  

21

 

 

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

32

 

 

 

 

 

Item 4.

  

Controls and Procedures

  

34

 

 

 

 

 

PART II -

  

OTHER INFORMATION

  

35

 

 

 

 

 

Item 1.

  

Legal Proceedings

  

35

 

 

 

 

 

Item 1 A.

  

Risk Factors

  

35

 

 

 

 

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

36

 

 

 

 

 

Item 3.

  

Defaults Upon Senior Securities

  

36

 

 

 

 

 

Item 4.

  

Mine Safety Disclosures

  

36

 

 

 

 

 

Item 5.

  

Other Information

  

36

 

 

 

 

 

Item 6.

  

Exhibits

  

37

 

 

 

 

 

Signatures

  

38

 

 

 

 

 


RESOLUTE ENERGY CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share amounts)

 

June 30,

 

 

December 31,

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

1,099

 

 

$

133,089

 

Accounts receivable

 

73,443

 

 

 

55,228

 

Commodity derivative instruments

 

7,770

 

 

 

218

 

Prepaid expenses and other current assets

 

2,377

 

 

 

3,249

 

Total current assets

 

84,689

 

 

 

191,784

 

Property and equipment, at cost:

 

 

 

 

 

 

 

Oil and gas properties, full cost method of accounting

 

 

 

 

 

 

 

Unproved

 

246,421

 

 

 

121,375

 

Proved

 

2,046,355

 

 

 

1,889,111

 

Other property and equipment

 

12,150

 

 

 

9,754

 

Accumulated depletion, depreciation and amortization

 

(1,684,673

)

 

 

(1,647,120

)

Net property and equipment

 

620,253

 

 

 

373,120

 

Other assets:

 

 

 

 

 

 

 

Restricted cash

 

23,162

 

 

 

23,137

 

Commodity derivative instruments

 

412

 

 

 

 

Other assets

 

33

 

 

 

332

 

Total assets

$

728,549

 

 

$

588,373

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

24,333

 

 

$

8,675

 

Accrued expenses

 

68,254

 

 

 

37,507

 

Accrued revenue payable

 

24,645

 

 

 

19,801

 

Accrued cash-settled incentive awards

 

22,941

 

 

 

27,158

 

Accrued interest payable

 

7,779

 

 

 

5,784

 

Asset retirement obligations

 

1,354

 

 

 

895

 

Commodity derivative instruments

 

1,217

 

 

 

8,014

 

Secured term loan facility

 

 

 

 

122,139

 

Total current liabilities

 

150,523

 

 

 

229,973

 

Long term liabilities:

 

 

 

 

 

 

 

Revolving credit facility

 

96,883

 

 

 

8,821

 

Senior notes

 

522,998

 

 

 

397,154

 

Asset retirement obligations

 

16,835

 

 

 

19,457

 

Commodity derivative instruments

 

1,974

 

 

 

4,104

 

Other long term liabilities

 

1,568

 

 

 

4,611

 

Total liabilities

 

790,781

 

 

 

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 June 30, 2017 and December 31, 2016;

   $62.5 million liquidation preference

 

 

 

 

 

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

   22,465,108 and 21,932,842 shares at June 30, 2017 and December 31, 2016, respectively

 

2

 

 

 

2

 

Additional paid-in capital

 

951,129

 

 

 

948,380

 

Accumulated deficit

 

(1,013,363

)

 

 

(1,024,129

)

Total stockholders’ deficit

 

(62,232

)

 

 

(75,747

)

Total liabilities and stockholders’ deficit

$

728,549

 

 

$

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 June 30,

 

 

Six Months Ended June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

$

60,703

 

 

$

33,483

 

 

$

118,362

 

 

$

51,278

 

Gas

 

7,216

 

 

 

1,210

 

 

 

12,173

 

 

 

2,188

 

Natural gas liquids

 

3,107

 

 

 

697

 

 

 

5,717

 

 

 

926

 

Total revenue

 

71,026

 

 

 

35,390

 

 

 

136,252

 

 

 

54,392

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating

 

19,890

 

 

 

15,689

 

 

 

38,246

 

 

 

29,506

 

Production and ad valorem taxes

 

6,331

 

 

 

4,248

 

 

 

12,934

 

 

 

7,390

 

Depletion, depreciation, amortization, and asset retirement

   obligation accretion

 

22,333

 

 

 

10,865

 

 

 

38,368

 

 

 

21,226

 

Impairment of proved oil and gas properties

 

 

 

 

 

 

 

 

 

 

58,000

 

General and administrative

 

9,472

 

 

 

7,530

 

 

 

19,887

 

 

 

16,498

 

Cash-settled incentive awards

 

(1,413

)

 

 

1,435

 

 

 

4,014

 

 

 

2,233

 

Total operating expenses

 

56,613

 

 

 

39,767

 

 

 

113,449

 

 

 

134,853

 

Income (loss) from operations

 

14,413

 

 

 

(4,377

)

 

 

22,803

 

 

 

(80,461

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(8,779

)

 

 

(12,983

)

 

 

(26,476

)

 

 

(26,058

)

Commodity derivative instruments gain (loss)

 

7,458

 

 

 

(19,552

)

 

 

18,298

 

 

 

(15,711

)

Other income

 

136

 

 

 

6

 

 

 

76

 

 

 

12

 

Total other expense

 

(1,185

)

 

 

(32,529

)

 

 

(8,102

)

 

 

(41,757

)

Net income (loss)

 

13,228

 

 

 

(36,906

)

 

 

14,701

 

 

 

(122,218

)

Preferred stock dividends

 

(2,538

)

 

 

 

 

 

(3,935

)

 

 

 

Net income (loss) available to common shareholders

$

10,690

 

 

$

(36,906

)

 

$

10,766

 

 

$

(122,218

)

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.49

 

 

$

(2.44

)

 

$

0.49

 

 

$

(8.10

)

Diluted

 

0.47

 

 

 

(2.44

)

 

$

0.47

 

 

$

(8.10

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Basic

 

21,917

 

 

 

15,155

 

 

 

21,828

 

 

 

15,096

 

Diluted

 

22,894

 

 

 

15,155

 

 

 

22,836

 

 

 

15,096

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

5,867

 

 

 

 

 

 

5,867

 

Redemption of restricted stock for employee income

   tax and restricted stock forfeitures

 

(89

)

 

 

 

 

 

 

 

 

 

 

 

(3,295

)

 

 

 

 

 

(3,295

)

Exercise of employee options to purchase common

   stock

 

54

 

 

 

 

 

 

 

 

 

 

 

 

177

 

 

 

 

 

 

177

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,935

)

 

 

(3,935

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,701

 

 

 

14,701

 

Balance as of June 30, 2017

 

22,465

 

 

$

2

 

 

 

63

 

 

$

 

 

$

951,129

 

 

$

(1,013,363

)

 

$

(62,232

)

 

See notes to condensed consolidated financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 


RESOLUTE ENERGY CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

Six Months Ended June 30,

 

 

2017

 

 

2016

 

Operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

14,701

 

 

$

(122,218

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depletion, depreciation, amortization and asset retirement obligation accretion

 

38,368

 

 

 

21,226

 

Impairment of proved oil and gas properties

 

 

 

 

58,000

 

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

 

8,263

 

 

 

2,610

 

Share-based compensation

 

5,951

 

 

 

3,733

 

Commodity derivative instruments (gain) loss

 

(18,298

)

 

 

15,711

 

Commodity derivative settlement gain

 

1,406

 

 

 

48,292

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(11,366

)

 

 

(5,338

)

Other current assets

 

(113

)

 

 

(400

)

Accounts payable and accrued expenses

 

11,252

 

 

 

1,828

 

Accrued interest payable

 

1,995

 

 

 

29

 

Net cash provided by operating activities

 

52,159

 

 

 

23,473

 

Investing activities:

 

 

 

 

 

 

 

Oil and gas exploration and development expenditures

 

(118,484

)

 

 

(60,568

)

Purchase of oil and gas properties

 

(161,264

)

 

 

 

Proceeds from sale of oil and gas properties

 

20,292

 

 

 

(32

)

Purchase of other property and equipment

 

(2,396

)

 

 

(69

)

Restricted cash

 

(25

)

 

 

(1,638

)

Other long-term assets

 

8

 

 

 

25

 

Net cash used in investing activities

 

(261,869

)

 

 

(62,282

)

Financing activities:

 

 

 

 

 

 

 

Proceeds from bank borrowings

 

213,000

 

 

 

57,500

 

Repayments of borrowings

 

(123,000

)

 

 

(27,500

)

Proceeds from issuance of senior notes

 

126,875

 

 

 

 

Repayment of term loan

 

(128,303

)

 

 

 

Payment of financing costs

 

(5,068

)

 

 

 

Payment of preferred dividend

 

(2,666

)

 

 

 

Redemption of restricted stock for employee income taxes

 

(3,295

)

 

 

(64

)

Proceeds from exercise of employee options to purchase common stock

 

177

 

 

 

 

Net cash provided by financing activities

 

77,720

 

 

 

29,936

 

Net decrease in cash and cash equivalents

 

(131,990

)

 

 

(8,873

)

Cash and cash equivalents at beginning of period

 

133,089

 

 

 

9,297

 

Cash and cash equivalents at end of period

$

1,099

 

 

$

424

 

 

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 of properties in the Delaware Basin in west Texas (the “Delaware 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 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 January 2017 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to assist entities with evaluating when a set of transferred assets and activities is deemed to be a business. Determining whether a transferred set constitutes a business is important because the accounting for a business combination differs from that of an asset acquisition. The definition of a business also affects the accounting for dispositions. Under the new standard, when substantially all of the fair value of assets acquired is concentrated in a single asset, or a group of similar assets, the assets acquired would not represent a business and business combination accounting would not be required. The standard is effective for interim and annual periods beginning after December 15, 2017 and shall be applied prospectively. Early adoption is permitted. The Company has elected to early adopt this standard in the second quarter of 2017.

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.


5

 


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.

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.

Accounts Receivable

The Company’s accounts receivable consist of the following as of the dates indicated (in thousands):

 

 

June 30, 2017

 

 

December 31, 2016

 

Trade receivables

 

$

24,564

 

 

$

14,898

 

Revenue receivables

 

 

40,323

 

 

 

32,817

 

Derivative receivables

 

 

1,098

 

 

 

5,695

 

Other receivables

 

 

7,458

 

 

 

1,818

 

   Total accounts receivable

 

$

73,443

 

 

$

55,228

 

The Company’s accounts receivable consist mainly of receivables from oil, gas, and natural gas liquids (“NGL”) purchasers and from joint interest owners on properties the Company operates. For receivables from joint interest owners, the Company typically has the ability to withhold future revenue disbursements to recover non-payment of joint interest billings. Generally, the Company’s oil and gas receivables are due within fifteen days and are collected in less than two months, and the Company historically has had limited receivables that were not collected.

The Company routinely assesses the recoverability of all material trade and other receivables to determine their collectability. As of June 30, 2017 and December 31, 2016, the Company had no allowance for doubtful accounts recorded.

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 and associated production, 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.


6

 


No impairment was recorded for the three and six months ended June 30, 2017. For the three and six months ended June 30, 2016, the Company recorded non-cash impairments of its oil and gas properties of $0 and $58 million, respectively, as a result of the ceiling test limitation. If in future periods a negative factor impacts 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 (“Resolute Southwest”), a wholly owned subsidiary of the Company, entered into a Purchase and Sale Agreement with CP Exploration II, LLC and Petrocap CPX, LLC pursuant to which Resolute Southwest agreed to acquire certain undeveloped and developed oil and gas properties in the Delaware Basin in Reeves County, Texas (the “Delaware Basin Bronco Acquisition”). The closing of the Delaware Basin Bronco Acquisition occurred on May 15, 2017, with an effective date of May 1, 2017.

The acquisition was accounted for as an asset acquisition, and therefore, the properties were recorded based on the fair value of the total consideration transferred on the acquisition date and transaction costs were capitalized as a component of the cost of the assets acquired. The Company acquired these properties for $161.3 million, which it financed substantially with proceeds received from the offering of $125 million of 8.50% Senior Notes due 2020 (as defined in Note 5) that closed in May 2017. The Company recorded $144.8 million of the total consideration transferred as unproved oil and gas property.

The properties acquired include approximately 4,600 net acres in Reeves County, Texas, which were considered predominantly unproved, 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.    

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 as a business combination 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 the indicated date below, based on the fair values of assets acquired and liabilities assumed (in thousands):

 

 

December 31, 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.


7

 


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.

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). 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 earned.

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.

In April 2017, Resolute Southwest entered into a Crude Oil Connection and Dedication Agreement with Caprock Permian Crude LLC (“Caprock Crude”), an affiliate of Caprock. The agreement provides that Caprock Crude 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 Crude for gathering for a term through July 31, 2031, coterminous with our other commercial agreements with Caprock Crude. For the first five years of the agreement, the crude oil will be delivered to Midland Station under a joint tariff arrangement between Caprock Crude and Plains Pipeline, L.P. In April 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 Crude under the Crude Oil Connection and Dedication Agreement.

8

 


Pro Forma Financial Information

The unaudited pro forma financial information for the three and six months ended June 30, 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

 

 

Six Months Ended

 

 

 

June 30, 2016

 

 

June 30, 2016

 

Revenue

 

$

38,319

 

 

$

58,723

 

Loss from operations

 

 

(4,142

)

 

 

(81,783

)

Net loss

 

 

(36,865

)

 

 

(123,929

)

 

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

 

 

   Basic and diluted

 

$

(2.13

)

 

$

(7.20

)

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

   Basic and diluted

 

 

17,270

 

 

 

17,211

 

 

 

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

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Potential dilutive restricted stock

 

3,782

 

 

 

917

 

 

 

3,704

 

 

 

663

 

Anti-dilutive securities

 

2,116

 

 

 

1,474

 

 

 

2,116

 

 

 

1,305

 

 

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

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income (loss) available to common stockholders

$

10,690

 

 

$

(36,906

)

 

$

10,766

 

 

$

(122,218

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

21,917

 

 

 

15,155

 

 

 

21,828

 

 

 

15,096

 

Add: dilutive effect of non-vested restricted stock

 

118

 

 

 

 

 

 

138

 

 

 

 

Add: dilutive effect of options

 

859

 

 

 

 

 

 

870

 

 

 

 

Diluted weighted average common shares outstanding

 

22,894

 

 

 

15,155

 

 

 

22,836

 

 

 

15,096

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per common share

$

0.49

 

 

$

(2.44

)

 

$

0.49

 

 

$

(8.10

)

Diluted net income (loss) per common share

$

0.47

 

 

$

(2.44

)

 

$

0.47

 

 

$

(8.10

)

 

9

 


 

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

 

 

June 30, 2017

 

Revolving credit facility

$

100,000

 

 

$

 

 

$

(3,117

)

 

$

96,883

 

8.50% senior notes

 

525,000

 

 

 

2,650