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 - Derivative Instruments
Note 9 -Revenue
Note 10 - Subsequent Events
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-10.5 ren-ex105_537.htm
EX-31.1 ren-ex311_7.htm
EX-31.2 ren-ex312_6.htm
EX-32.1 ren-ex321_9.htm

Resolute Energy Earnings 2018-03-31

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_20180331.htm 10-Q ren-10q_20180331.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, 2018

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 30, 2018, 23,160,922 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 “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “poised,” “believes,” “predicts,” “potential,” “continue,” or similar expressions are intended to identify such statements; however the absence of these words does not mean the statements are not forward-looking. Forward-looking statements included in this report relate to, among other things, anticipated production in 2018; anticipated capital expenditures and activity in 2018; future leverage ratios; the impact and amount of contingency payments from the Aneth Field purchaser; potential proceeds from a midstream transaction with the Bronco properties; future earnout payments; future infrastructure and other capital projects; our financial condition and management of the Company in the current commodity price environment, including expectations regarding price fluctuations; future financial and operating results; liquidity and availability of capital; future borrowing base adjustments and the effect thereof; future pad drilling timing and plans and expected resulting cost savings and production impact; 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 anticipated acreage held by production by the end of 2018; 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. The forward-looking statements in this report are primarily, although not exclusively, located under the heading “Risk Factors.” All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement. Factors that could cause actual results to differ materially from our expectations include, among others, those factors referenced in the “Risk Factors” section of this report, if any, in our Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2017, and such things as:

 

uncertainties regarding future actions that may be taken by Monarch Alternative Capital LP in furtherance of its nomination of director candidates for election at the Company’s 2018 annual meeting of stockholders;

 

potential operational disruption caused by the actions of stockholder activists;

 

the Company’s ability to successfully implement its strategy to create long-term stockholder value;

 

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 achieve the benefits we expect from the Aneth Field Sale (defined below);

 

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 potential for downspacing, infill or multi-lateral drilling in the Permain Basin or obstacles thereto;

 

the completion and success of exploratory drilling on our properties;

 

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

 

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 which 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, hedging strategies and plans;

 

risks associated with rising interest rates;

 

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;

 

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

 

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

 

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

 

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

 

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

 

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

 

the effect of third party activities on our oil and gas operations, including our dependence on third party-owned 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 and one primary gas purchaser in the Delaware Basin;

 

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 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;

 

potential regulation of waste water injection intended to address seismic activity;

 

the concentration of our producing properties in a single geographic area;

 

potential changes to regulations affecting derivatives instruments;

 

environmental liabilities under existing or future laws and regulations;

 

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

 

potential changes in income tax 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 disruptions or 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 gathering and compression infrastructure;

 

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 “early time” rates, 24-hour peak IP rates, 30-day peak IP rates, 60-day peak IP rates, 90-day peak IP rates, 120-day 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 and represent three stream gross production. 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 6,000 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, 2017, in particular the factors described under “Risk Factors.”


 

 


 

TABLE OF CONTENTS

 

PART I -

  

FINANCIAL INFORMATION

  

1

 

 

 

 

 

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

  

35

 

 

 

 

 

Item 3.

  

Defaults Upon Senior Securities

  

35

 

 

 

 

 

Item 4.

  

Mine Safety Disclosures

  

35

 

 

 

 

 

Item 5.

  

Other Information

  

35

 

 

 

 

 

Item 6.

  

Exhibits

  

36

 

 

 

 

 

Signatures

  

37

 

 

 

 

 


 

RESOLUTE ENERGY CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share amounts)

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

617

 

 

$

3,762

 

Accounts receivable

 

58,577

 

 

 

63,420

 

Commodity derivative instruments

 

3,757

 

 

 

526

 

Contingent payment derivative instrument

 

5,671

 

 

 

8,311

 

Prepaid expenses and other current assets

 

2,115

 

 

 

1,856

 

Total current assets

 

70,737

 

 

 

77,875

 

Property and equipment, at cost:

 

 

 

 

 

 

 

Oil and gas properties, full cost method of accounting

 

 

 

 

 

 

 

Unproved

 

266,391

 

 

 

248,059

 

Proved

 

2,083,859

 

 

 

2,030,316

 

Other property and equipment

 

12,672

 

 

 

12,879

 

Accumulated depletion, depreciation and amortization

 

(1,759,912

)

 

 

(1,737,116

)

Net property and equipment

 

603,010

 

 

 

554,138

 

Other assets:

 

 

 

 

 

 

 

Contingent payment derivative instrument

 

12,253

 

 

 

9,635

 

Other Assets

 

274

 

 

 

274

 

Total assets

$

686,274

 

 

$

641,922

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

25,532

 

 

$

16,077

 

Accrued expenses

 

67,067

 

 

 

53,754

 

Accrued revenue payable

 

24,730

 

 

 

28,255

 

Accrued cash-settled incentive awards

 

39,541

 

 

 

34,317

 

Accrued interest payable

 

18,742

 

 

 

7,574

 

Commodity derivative instruments

 

24,735

 

 

 

20,822

 

Total current liabilities

 

200,347

 

 

 

160,799

 

Long term liabilities:

 

 

 

 

 

 

 

Revolving credit facility

 

37,802

 

 

 

27,487

 

Senior notes

 

523,462

 

 

 

523,240

 

Commodity derivative instruments

 

2,433

 

 

 

990

 

Other long term liabilities

 

3,824

 

 

 

3,815

 

Total liabilities

 

767,868

 

 

 

716,331

 

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, 2018 and December 31, 2017;

   $62.5 million liquidation preference

 

 

 

 

 

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

   23,152,313 and 22,527,652 shares at March 31, 2018 and December 31, 2017, respectively

 

2

 

 

 

2

 

Additional paid-in capital

 

964,367

 

 

 

957,426

 

Accumulated deficit

 

(1,045,963

)

 

 

(1,031,837

)

Total stockholders’ deficit

 

(81,594

)

 

 

(74,409

)

Total liabilities and stockholders’ deficit

$

686,274

 

 

$

641,922

 

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,

 

 

2018

 

 

2017

 

Revenue:

 

 

 

 

 

 

 

Oil

$

59,651

 

 

$

57,659

 

Gas

 

6,360

 

 

 

4,352

 

Natural gas liquids

 

8,707

 

 

 

2,581

 

Total revenue

 

74,718

 

 

 

64,592

 

Operating expenses:

 

 

 

 

 

 

 

Lease operating

 

11,665

 

 

 

18,356

 

Production and ad valorem taxes

 

5,540

 

 

 

5,969

 

Depletion, depreciation and amortization

 

23,537

 

 

 

16,035

 

General and administrative

 

21,067

 

 

 

10,415

 

Cash-settled incentive awards

 

11,341

 

 

 

5,427

 

Total operating expenses

 

73,150

 

 

 

56,202

 

Income from operations

 

1,568

 

 

 

8,390

 

Other income (expense):

 

 

 

 

 

 

 

Interest expense, net

 

(7,568

)

 

 

(17,697

)

Commodity derivative instruments gain (loss)

 

(9,402

)

 

 

10,840

 

Contingent payment derivative instrument gain

 

2,579

 

 

 

 

Other expense

 

(34

)

 

 

(60

)

Total other expense

 

(14,425

)

 

 

(6,917

)

Income (loss) before income taxes

 

(12,857

)

 

 

1,473

 

Income tax benefit (expense)

 

 

 

 

 

Net income (loss)

 

(12,857

)

 

 

1,473

 

Preferred stock dividends

 

(1,269

)

 

 

(1,397

)

Net income (loss) available to common stockholders

$

(14,126

)

 

$

76

 

Net loss per common share:

 

 

 

 

 

 

 

Basic and diluted

$

(0.64

)

 

$

0.01

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

22,038

 

 

 

21,738

 

Diluted

 

22,038

 

 

 

22,791

 

 

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, 2018

 

22,528

 

 

$

2

 

 

 

63

 

 

$

 

 

$

957,426

 

 

$

(1,031,837

)

 

$

(74,409

)

Issuance of stock, restricted stock and stock-based

   compensation

 

546

 

 

 

 

 

 

 

 

 

 

 

 

8,850

 

 

 

 

 

 

8,850

 

Redemption of restricted stock for employee income

   tax and restricted stock forfeitures

 

(65

)

 

 

 

 

 

 

 

 

 

 

 

(2,114

)

 

 

 

 

 

(2,114

)

Exercise of employee options to purchase common

   stock

 

143

 

 

 

 

 

 

 

 

 

 

 

 

205

 

 

 

 

 

 

205

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,269

)

 

 

(1,269

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,857

)

 

 

(12,857

)

Balance as of March 31, 2018

 

23,152

 

 

$

2

 

 

 

63

 

 

$

 

 

$

964,367

 

 

$

(1,045,963

)

 

$

(81,594

)

 

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,

 

 

2018

 

 

2017

 

Operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

(12,857

)

 

$

1,473

 

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

 

 

 

 

 

 

 

Depletion, depreciation and amortization

 

23,537

 

 

 

16,035

 

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

 

537

 

 

 

7,743

 

Stock-based compensation

 

8,850

 

 

 

2,973

 

Commodity derivative instruments (gain) loss

 

9,402

 

 

 

(10,840

)

Commodity derivative settlement gain

 

(7,277

)

 

 

(250

)

Unrealized contingent payment derivative instrument gain

 

(2,579

)

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

7,443

 

 

 

10,497

 

Other current assets

 

(259

)

 

 

(6

)

Accounts payable and accrued expenses

 

7,925

 

 

 

3,222

 

Accrued interest payable

 

11,168

 

 

 

8,427

 

Net cash provided by operating activities

 

45,890

 

 

 

39,274

 

Investing activities:

 

 

 

 

 

 

 

Oil and gas exploration and development expenditures

 

(57,513

)

 

 

(42,298

)

Proceeds from sale of oil and gas properties

 

2,450

 

 

 

14,183

 

Deposit for Bronco acquisition

 

 

 

 

(16,000

)

Purchase of other property and equipment

 

(794

)

 

 

(20

)

Restricted cash

 

 

 

 

(737

)

Other long-term assets

 

 

 

 

4

 

Net cash used in investing activities

 

(55,857

)

 

 

(44,868

)

Financing activities:

 

 

 

 

 

 

 

Proceeds from bank borrowings

 

67,000

 

 

 

73,000

 

Repayments of borrowings

 

(57,000

)

 

 

(64,000

)

Repayment of term loan

 

 

 

 

(128,303

)

Payment of financing costs

 

 

 

 

(2,605

)

Payment of preferred dividend

 

(1,269

)

 

 

(1,397

)

Redemption of restricted stock for employee income taxes

 

(2,114

)

 

 

(3,242

)

Proceeds from exercise of employee options to purchase common stock

 

205

 

 

 

93

 

Net cash provided by (used in) financing activities

 

6,822

 

 

 

(126,454

)

Net decrease in cash and cash equivalents

 

(3,145

)

 

 

(132,048

)

Cash and cash equivalents at beginning of period

 

3,762

 

 

 

133,089

 

Cash and cash equivalents at end of period

$

617

 

 

$

1,041

 

 

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”). The Company closed on the sale of Aneth Field, located in the Paradox Basin in southeast Utah (the “Aneth Field Properties” or “Aneth Field”), on November 6, 2017. All 2017 periods presented include the results related to Aneth Field, prior to the disposition. 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. Its guarantees are full and unconditional and joint and several, and there are no subsidiaries of the parent company other than the Guarantors (defined below). 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, 2017. 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, 2017. 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, 2017.

Effective January 1, 2018, we have adopted ASC 606, Revenue from Contracts with Customers, utilizing the modified retrospective method. See Note 9 for further details related to the Company’s adoption of this standard and revenue recognition accounting policy.

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; the estimated fair value and allocation of the purchase price related to business combinations; stock-based compensation expense; cash-settled long-term incentive expense; depletion, depreciation, and amortization; accrued liabilities; and revenue and related receivables.

5

 


 

Accounts Receivable

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

 

 

March 31, 2018

 

 

December 31, 2017

 

Trade receivables

 

$

15,509

 

 

$

18,079

 

Revenue receivables

 

 

36,227

 

 

 

43,136

 

Contingent payment derivative receivable

 

 

4,160

 

 

 

1,560

 

Other receivables

 

 

2,681

 

 

 

645

 

   Total accounts receivable

 

$

58,577

 

 

$

63,420

 

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 between fifteen and thirty days and are collected in less than two months, and the Company has had minimal bad debts.

The Company routinely assesses the recoverability of all material trade and other receivables to determine their collectability. As of March 31, 2018 and December 31, 2017, 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 and all related income tax effects.

No impairment was recorded for the three months ended March 31, 2018 and 2017. 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 full cost ceiling impairment related to its oil and gas properties in such periods.

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. Early adoption is permitted. The standard is effective for annual reporting periods beginning after December 15, 2017. The Company 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 (Topic 606), which is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. ASC 606 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new standard became effective for the Company and was adopted on January 1, 2018. The Company elected the modified retrospective transition method. The adoption of this standard had no impact on the Company’s consolidated financial statements. See Note 9 for further details related to the Company’s adoption of this standard.

6

 


 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to present nearly all leasing arrangements on the balance sheet as liabilities along with a corresponding right-of-use asset.  The ASU will replace most existing lease guidance in GAAP when it becomes effective.  The new standard becomes effective for the Company on January 1, 2019.  Although early application is permitted, the Company does not plan to early adopt the ASU.  The standard requires the use of the modified retrospective transition method.  The Company is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures. We believe that adoption of the standard will result in increases to our assets and liabilities on our consolidated balance sheet.  However, we have not yet determined the extent of the adjustments that will be required upon implementation of the standard.  We continue to monitor relevant industry guidance regarding the implementation of ASU 2016-02 and will adjust our implementation strategies as necessary.

Note 3 — Acquisitions and Divestitures

Acquisition of Reeves County Properties in the Delaware Basin

Delaware Basin Bronco Acquisition

In May 2017 Resolute Natural Resources Southwest, LLC (“Resolute Southwest”), a wholly owned subsidiary of the Company, closed on a Purchase and Sale Agreement with CP Exploration II, LLC and Petrocap CPX, LLC pursuant to which Resolute Southwest acquired certain undeveloped and developed oil and gas properties in the Delaware Basin in Reeves County, Texas (the “Delaware Basin Bronco Acquisition”).

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 included 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.

Divestiture of Aneth Field

In November 2017, Resolute and certain of its wholly-owned subsidiaries closed on a Purchase and Sale Agreement pursuant to which the Company sold its respective equity interests in Resolute Aneth, LLC, the entity which holds all of Resolute’s interest in Aneth Field, and certain other assets associated with Aneth Field operations, to an affiliate of Elk Petroleum Limited (the “Aneth Field Sale”).

Under the terms of the Purchase and Sale Agreement, the buyer funded a performance deposit of $10 million which was creditable against the purchase price. In addition to the performance deposit, Resolute received cash consideration of $150 million at closing, subject to normal purchase price adjustments. Additionally, Resolute is entitled to receive additional cash consideration of up to $35 million if oil prices exceed certain levels in the three years after closing, as follows: buyer will pay Resolute $40,000 for each week day in the twelve months after closing that the WTI spot oil price exceeds $52.50 per barrel (up to $10 million); $50,000 for each week day in the twelve months following the first anniversary of closing that the oil price exceeds $55.00 per barrel (up to $10 million) and $60,000 for each week day in the twelve months following the second anniversary of closing that the oil price exceeds $60.00 per barrel (up to $15 million). As of closing, the fair value of the additional consideration was $16.0 million. 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. Under seller accounting for contingent consideration, the Company has determined that this arrangement meets the definition of a derivative. See Note 8 – Derivative Instruments, for additional information regarding the contingent payment derivative instrument. As the sale did not significantly alter the relationship between capital costs and proved reserves, no gain or loss was recognized.

In conjunction with the closing of the sale of Aneth Field, certain management members resigned from their positions effective January 1, 2018. In connection with their resignation, these individuals and the Company entered into separation agreements. The material terms of the separation agreements, including compensation payable thereunder and treatment of long-term incentive awards, are consistent with their respective employment agreements with the Company dated January 1, 2017, and various long-term incentive award agreements. Effective January 1, 2018, all awards held were modified contemporaneously with the termination of their employment.

7

 


 

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 (the “New Mexico Properties”), for approximately $14.5 million in cash, subject to customary purchase price adjustments. 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.

Divestiture of Midstream Assets in the Delaware Basin

In 2016, in connection with the Purchase and Sale Agreement with Caprock Permian Processing LLC and Caprock Field Services LLC, as buyers (collectively, “Caprock”) of the Mustang and Appaloosa project areas in Reeve County, Texas (“Mustang” and “Appaloosa,” respectively), 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 wells drilled and completed in 2017. Earn-out payments are contingent on future drilling, and therefore will be recognized when earned. As of March 31, 2018, we have earned $30.9 million of earn-out payments, $2.2 million of this total was earned in the first quarter 2018.

In connection with the closing of the transactions contemplated by the Purchase and Sale Agreement related to the Mustang and Appaloosa project areas, 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. Pursuant to the agreement, Caprock Crude constructed 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. 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. (“Plains”) 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 differential that will cover the joint tariff payable to Caprock Crude 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, 2017 reflects Resolute’s results as if the divestiture of Aneth Field had occurred on January 1, 2017 (in thousands, except per share amounts):

 

 

Three Months Ended

 

 

 

March 31, 2017

 

Revenue

 

$

41,865

 

Income from operations

 

 

5,448

 

Net loss available to common stockholders

 

 

(2,693

)

 

 

 

 

 

Net loss per share

 

 

 

 

   Basic and diluted

 

$

(0.12

)

Weighted average common shares outstanding

 

 

 

 

   Basic and diluted

 

 

21,738

 

 

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 (loss). 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,

 

 

2018

 

 

2017

 

Potential dilutive securities

 

3,894

 

 

 

3,625

 

Anti-dilutive securities

 

3,894

 

 

 

2,116

 

 

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,

 

 

2018

 

 

2017

 

Net loss available to common stockholders

$

(14,126

)

 

$

76

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

22,038

 

 

 

21,738

 

Add: dilutive effect of non-vested restricted stock

 

 

 

 

172

 

Add: dilutive effect of options

 

 

 

 

881

 

Diluted weighted average common shares outstanding

 

22,038

 

 

 

22,791

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

$

(0.64

)

 

$

0.01

 

 

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, 2018

 

Revolving credit facility

$

40,000

 

 

$

 

 

$

(2,198

)

 

$

37,802

 

8.50% senior notes

 

525,000

 

 

 

2,001

 

 

 

(3,539

)

 

 

523,462

 

Total long-term debt

$

565,000

 

 

$

2,001

 

 

$

(5,737

)

 

$

561,264

 

 

 

Principal

 

 

Unamortized premium/

(discount)

 

 

Unamortized deferred financing costs

 

 

December 31, 2017

 

Revolving credit facility

$

30,000

 

 

$

 

 

$

(2,513

)

 

$

27,487

 

8.50% senior notes

 

525,000

 

 

 

2,222

 

 

 

(3,982

)

 

 

523,240

 

Total long-term debt

$

555,000

 

 

$

2,222

 

 

$

(6,495

)

 

$

550,727

 

For the three months ended March 31, 2018 and 2017, the Company reported interest expense on long-term debt of $7.6 million and $17.7 million, respectively. The Company capitalized $5.3 million and $2.5 million of interest expense during the three months ended March 31, 2018 and 2017, respectively. During the three months ended March 31, 2018 and 2017, the Company paid cash for interest expense in the amount of $1.1 million and $4.0 million, respectively.

9

 


 

Revolving Credit Facility

In February 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 (defined below), 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’ sole discretion. 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, Resolute to maintain a ratio of current assets to current liabilities of no less than 1.00 to 1.00 and a ratio of funded debt to EBITDA (as defined in the Revolving Credit Facility) of no more than 4.00 to 1.00. The Revolving Credit Facility also includes customary additional terms and covenants that place limitations on certain types of activities, hedging, the payment of dividends, and that require satisfaction of certain financial tests.

In March 2018, the Company entered into the Third Amendment to the Third Amended and Restated Credit Agreement. The Third Amendment, among other things, amended the definition of Applicable Margin so that if the ratio of total funded debt to EBITDA for the period ending June 30, 2018, exceeds 4.00:1.00, then each applicable rate per annum shall be increased by 0.25% per annum until the date such ratio is calculated for the quarter ending September 30, 2018. It also amended the definition of EBITDA to include certain costs incurred by the Company in connection with activist investor campaigns and provides for certain amendments to the calculation of EBITDA, and amended the covenant governing the ratio of funded debt to EBITDA so that for the quarter ended March 31, 2018, that ratio shall be 4.00:1.00, for the quarter ending June 30, 2018, that ratio shall be 4.25:1.00, and for quarters ending thereafter, that ratio shall be 4.00:1.00. Lastly, the Third Amendment also provided that the borrowing base shall automatically be reduced by 25% of all unsecured indebtedness of the Company in excess of $600 million. In April 2018, the borrowing base was reaffirmed at $210.0 million. Resolute was in compliance with the terms and covenants of the Revolving Credit Facility at March 31, 2018.

As of March 31, 2018, outstanding borrowings under the Revolving Credit Facility were $40 million with a weighted average interest rate of 4.74%, under a borrowing base of $210 million. The borrowing base availability had been reduced by $2.6 million in conjunction with letters of credit issued at March 31, 2018.

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 and its wholly-owned subsidiaries.

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.  

10

 


 

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.

In January 2017, the Company repaid approximately $132 million constituting all amounts due under the Secured Term Loan Facility (including prepayment fees), with a portion of the proceeds from its common stock offering that closed on December 23, 2016. 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 “Original Senior Notes”). The Original Senior Notes are due May 1, 2020, and bear an annual interest rate of 8.50% with the interest on the Original Senior Notes payable semiannually in cash on May 1 and November 1 of each year.

In May 2017, the Company consummated a private placement of senior notes totaling an additional $125 million aggregate principal amount of the Company’s  8.50% Senior Notes due 2020 (the “Incremental Senior Notes”), under the same Indenture as the Original Senior Notes that were previously issued (collectively referred to as the “Senior Notes”). The net proceeds of the offering of the Incremental Senior Notes, after reflecting the purchasers’ discounts and commissions, and estimated offering expenses, were approximately $125.1 million. The closing of the Incremental Senior Notes occurred on May 12, 2017.

The Senior Notes were issued under an Indenture (the “Indenture”) among the Company and all of the Company’s subsidiaries, each of which is 100% owned by the Company (the “Guarantors”) in a private transaction not subject to the registration requirements of the Securities Act of 1933. In March 2013 and July 2017 the Company registered the exchange of the Original Senior Notes and the Incremental Senior Notes, respectively, with the SEC pursuant to registration statements on Form S-4 that enabled holders of the Senior Notes to exchange the privately placed Senior Notes for registered Senior Notes with substantially identical terms. All of the Original Senior Notes and Incremental Senior Notes have been exchanged for publically registered Senior Notes. 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, 2018.

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 a redemption price of 102.125%, reducing to 100.000% at May 1, 2018. If a change of control occurs, each holder of the Senior Notes will have the right to require that the Company purchase all of such holder’s Senior Notes in an amount equal to 101% of the principal of such Senior Notes, plus accrued and unpaid interest, if any, to the date of the purchase.

The fair value of the Senior Notes at March 31, 2018, was estimated to be $524.7 million based upon data from independent market makers (Level 2 fair value measurement).

An additional placement of Senior Notes was consummated in April 2018, see Note 10 – Subsequent Events, for a description of the notes.

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, 2018 and 2017, differs from the amount that would be provided by applying the statutory U.S. federal income tax rate of 21% and 35%, respectively to income before income taxes. This difference relates primarily to the valuation allowance established, in addition to state income taxes and estimated permanent differences.

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There was no provision for income taxes during the three months ended March 31, 2018 and 2017.

The Company had no reserve for uncertain tax positions as of March 31, 2018 or 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 required.  As a result of the Company's analysis, it was concluded that as of March 31, 2018 a valuation allowance should be established against the Company's deferred tax asset.  The Company recorded a valuation allowance as of March 31, 2018 and 2017 of $197.7 million and $309.7 million, respectively, on its 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, 2018 and December 31, 2017, 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.

A preferred dividend of $1.3 million was declared on March 21, 2018, and paid on April 16, 2018, to holders of record at the close of business on April 1, 2018.

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, 2018, and December 31, 2017, the Company had 23,152,313 and 22,527,652 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 was approved by the Company’s stockholders at the 2017 annual meeting in May 2017.

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Long Term Employee Incentive Plan

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

In July 2009, the Company adopted the 2009 Performance Incentive Plan, providing for long-term stock-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 stock-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 4,901,548 (which includes the additional 620,000 shares under Amendment No. 2 to the Incentive Plan approved by the Company’s stockholders in June 2015, the 1,000,000 shares under Amendment No. 3 to the Incentive Plan approved by the Company’s stockholders in May 2016 and the 1,450,000 shares under Amendment No. 4 to the Incentive Plan approved by the Company’s stockholders in May 2017).

For the three months ended March 31, 2018 and 2017, the Company recorded expense related to the Incentive Plan as follows (in thousands):

 

Three Months Ended March 31,

 

 

2018

 

 

2017

 

Time-based restricted stock awards

$

3,474

 

 

$

1,500

 

TSR awards

 

1,712

 

 

 

916

 

Stock option awards

 

3,664

 

 

 

457

 

   Total stock-based compensation expense

 

8,850

 

 

 

2,873

 

 

 

 

 

 

 

 

 

Time-based restricted cash awards

 

1,282

 

 

 

279

 

Performance-based restricted cash awards

 

808

 

 

 

507

 

Cash-settled stock appreciation awards

 

9,251

 

 

 

4,641

 

   Total cash-based compensation expense

 

11,341

 

 

 

5,427

 

 

 

 

 

 

 

 

 

   Total Incentive Plan compensation expense

$

20,191

 

 

$

8,300

 

As of March 31, 2018, the Company holds unrecognized stock-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

$

18,403

 

 

 

2.3

 

TSR awards

 

13,492

 

 

 

2.6

 

Stock option awards

 

328

 

 

 

0.7

 

Total unrecognized compensation expense

$

32,223

 

 

 

 

 

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Equity Awards

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

Time-Based Restricted Stock Awards

Shares of time-based restricted stock issued to employees generally vest in three 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, 2018, the Company granted 361,619 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, 2018:

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

Shares

 

 

Fair Value

 

Non-vested, beginning of period

 

407,487

 

 

$

41.62

 

Granted

 

361,619

 

 

 

32.90

 

Vested

 

(182,274

)

 

 

43.97

 

Forfeited

 

(2,386

)

 

 

43.92

 

Non-vested, end of period

 

584,446

 

 

$

35.48

 

The weighted average grant date fair value of shares granted during the three months ended March 31, 2018 and 2017 was $32.90 and $43.92, respectively.

TSR Awards

In February 2017 and 2018 the Board and its Compensation Committee awarded performance-based restricted shares to senior employees and executive officers of the Company under the Incentive Plan. The restricted stock grants vest only upon achievement of thresholds of cumulative total shareholder return (“TSR”) as compared to a specified peer group (the “Performance-Vested Shares”). A TSR percentile (the “TSR Percentile”) is calculated based on the change in the value of the Company’s common stock between the grant date and the applicable vesting date, including any dividends paid during the period, as compared to the respective TSRs of a specified group of eleven peer companies in 2017 and fifteen companies in 2018. The Performance-Vested Shares vest in three installments to the extent that the applicable TSR Percentile ranking thresholds are met upon the one-, two- and three-year anniversaries of the grant date. Performance-Vested Shares that are eligible to vest on a vesting date, but do not qualify for vesting, become eligible for vesting again on the next vesting date. All Performance-Vested Shares that do not vest as of the final vesting date will be forfeited on such date.

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

The compensation expense to be recognized for the TSR Awards was measured based on the estimated fair value at the date of grant using a Monte Carlo simulation model and utilizes estimated forfeiture rates between 0% and 2% which are updated periodically based on actual employee turnover.

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The valuation model for TSR Awards used the following assumptions:

Grant Year

 

Average Expected

Volatility

 

Expected Dividend

Yield

 

 

Risk-Free

Interest Rate

2017

 

49.07% - 108.21%

 

0%

 

 

0.83% - 1.45%

2018

 

35.19% - 197.75%

 

0%

 

 

1.96% - 2.31%

The following table summarizes the changes in non-vested TSR Awards for the three months ended March 31, 2018:

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average