Company Quick10K Filing
Quick10K
Rosehill Resources
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$4.39 44 $194
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-06-07 Officers, Exhibits
8-K 2019-05-21 Shareholder Vote
8-K 2019-05-14 Earnings, Exhibits
8-K 2019-04-02
8-K 2019-03-11 Regulation FD, Exhibits
8-K 2018-11-08 Earnings, Exhibits
8-K 2018-09-27 Enter Agreement, Exhibits
8-K 2018-09-24 Other Events
8-K 2018-08-29 Officers, Regulation FD, Exhibits
8-K 2018-08-13 Earnings, Exhibits
8-K 2018-07-23 Officers, Exhibits
8-K 2018-05-22 Shareholder Vote
8-K 2018-05-02 Officers, Regulation FD, Exhibits
8-K 2018-04-26 Other Events, Exhibits
8-K 2018-04-17 Earnings, Exhibits
8-K 2018-04-16 Shareholder Vote
8-K 2018-03-28 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-01-18 Earnings, Exhibits
8-K 2018-01-03 Regulation FD
GPS Gap 9,470
MSG Madison Square Garden 7,040
EHTH Ehealth 1,410
SWM Schweitzer Mauduit 982
SNCR Synchronoss 227
EIGR Eiger Biopharmaceuticals 210
RNWK Realnetworks 85
ATOM Atomera 61
GYRO Gyrodyne 28
TRIL Trillium Therapeutics 15
ROSE 2019-06-30
Part I - Financial Information
Item 1. Financial Statements.
Note 1 - Organization and Basis of Presentation
Note 2 - Summary of Significant Accounting Policies and Recently Issued Accounting Standards
Note 3 - Earnings (Loss) per Share
Note 4 - Accounts Receivable
Note 5 - Derivative Instruments
Note 6 - Fair Value Measurements
Note 7 - Property and Equipment
Note 8 - Asset Retirement Obligations
Note 9 - Accrued Liabilities and Other
Note 10 - Long-Term Debt, Net
Note 11 - 10% Series B Redeemable Preferred Stock
Note 12 - Income Taxes
Note 13 - Stockholders' Equity
Note 14 - Stock-Based Compensation
Note 15 - Transactions with Related Parties
Note 16 - Commitments and Contingencies
Note 17- Revenue From Contracts with Customers
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. Internal 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 6. Exhibits
EX-31.1 exhibit311063019.htm
EX-31.2 exhibit312063019.htm
EX-32.1 exhibit321063019.htm
EX-32.2 exhibit322063019.htm

Rosehill Resources Earnings 2019-06-30

ROSE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 rose10-q06302019.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2019
 
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                to              
Commission file number: 001-37712
 
ROSEHILL RESOURCES INC.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
 
47-5500436
(State or Other Jurisdiction of Incorporation or Organization)
 
(IRS Employer Identification No.)
 
16200 Park Row, Suite 300
Houston, Texas 77084
(Address of principal executive offices)
 (281) 675-3400
 
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ý   No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý   No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
ý   
Smaller reporting company
ý
 
 
Emerging growth company
ý
 
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 Securities Exchange Act of 1934). Yes ☐ No ý

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock
ROSE
The NASDAQ Capital Market
Class A Common Stock Public Warrants
ROSEW
The NASDAQ Capital Market
Class A Common Stock Public Units
ROSEU
The NASDAQ Capital Market


As of August 1, 2019, 14,450,980 shares of Class A common stock, par value $0.0001 per share, and 29,807,692 shares of Class B common stock, par value $0.0001 per share, were issued and outstanding.




ROSEHILL RESOURCES INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2019
 
TABLE OF CONTENTS
 

 
 
Page
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2
 
 
 
Item 6.
 
 
 


1



PART I - FINANCIAL INFORMATION 
Item 1. Financial Statements.


2



ROSEHILL RESOURCES INC. 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
 
 
June 30, 2019
 
December 31, 2018
ASSETS
 
 
 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
4,684

 
$
20,157

Accounts receivable
 
26,810

 
32,260

Accounts receivable, related parties
 

 
78

Derivative assets
 
3,352

 
30,819

Prepaid and other current assets
 
1,936

 
1,371

Total current assets
 
36,782

 
84,685

Property and equipment:
 
 

 
 

Oil and natural gas properties (successful efforts), net
 
731,636

 
666,797

Other property and equipment, net
 
2,251

 
2,592

Total property and equipment, net
 
733,887

 
669,389

Other assets, net
 
5,591

 
4,678

Derivative assets
 
29,464

 
58,314

Total assets
 
$
805,724

 
$
817,066

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
 
 
 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
20,961

 
$
21,013

Accounts payable, related parties
 
63

 
287

Derivative liabilities
 
11,755

 

Accrued liabilities and other
 
27,570

 
27,335

Accrued capital expenditures
 
22,813

 
30,529

Total current liabilities
 
83,162

 
79,164

Long-term liabilities:
 
 
 
 
Long-term debt, net
 
334,889

 
288,298

Asset retirement obligations
 
13,709

 
13,524

Deferred tax liabilities
 
14,101

 
9,278

Derivative liabilities
 
1,627

 
696

Other liabilities
 
3,652

 
3,658

Total long-term liabilities
 
367,978

 
315,454

Total liabilities
 
451,140

 
394,618

Commitments and contingencies (Note 16)
 


 


Mezzanine equity
 
 
 
 
Series B Preferred Stock; $0.0001 par value, 10.0% Redeemable, $1,000 per share liquidation preference; of the 1,000,000 shares of Preferred Stock authorized, 210,000 shares designated, 156,746 shares issued and outstanding as of June 30, 2019 and December 31, 2018
 
159,008

 
155,111

Stockholders’ equity
 
 

 
 

Series A Preferred Stock; $0.0001 par value, 8.0% Cumulative Perpetual Convertible, $1,000 per share liquidation preference; of the 1,000,000 shares of Preferred Stock authorized, 150,000 shares designated, 101,669 shares issued and outstanding as of June 30, 2019 and December 31, 2018
 
84,631

 
84,631

Class A Common Stock; $0.0001 par value, 250,000,000 shares authorized and 14,450,980 and 13,760,136 shares issued and outstanding as of June 30, 2019 and December 31, 2018
 
1

 
1

Class B Common Stock; $0.0001 par value, 30,000,000 shares authorized, 29,807,692 shares issued and outstanding as of June 30, 2019 and December 31, 2018
 
3

 
3

Additional paid-in capital
 
35,957

 
42,271

Retained earnings
 
7,686

 
26,661

Total common stockholders’ equity
 
43,647

 
68,936

Noncontrolling interest
 
67,298

 
113,770

Total stockholders’ equity
 
195,576

 
267,337

Total liabilities, mezzanine and stockholders’ equity
 
$
805,724

 
$
817,066


The accompanying notes are an integral part of these condensed consolidated financial statements.

3



ROSEHILL RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts) 

 
 
Three Months
 
Six Months
 
 
Ended June 30,
 
Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 

 
 
 
 

 
 

Oil sales
 
$
66,840

 
$
73,061

 
$
132,693

 
$
124,615

Natural gas sales
 
(649
)
 
2,308

 
825

 
4,053

Natural gas liquids sales
 
3,192

 
5,158

 
7,725

 
7,645

Total revenues
 
69,383

 
80,527

 
141,243

 
136,313

Operating expenses:
 
 

 
 

 
 

 
 

Lease operating expenses
 
8,435

 
11,225

 
18,805

 
20,110

Production taxes
 
2,992

 
3,841

 
6,495

 
6,481

Gathering and transportation
 
1,320

 
1,207

 
3,681

 
1,919

Depreciation, depletion, amortization and accretion
 
32,661

 
36,506

 
68,625

 
57,315

Exploration costs
 
1,113

 
1,875

 
2,368

 
2,311

General and administrative
 
9,344

 
7,930

 
18,399

 
15,027

(Gain) loss on disposition of property and equipment
 
(11,123
)
 
163

 
(11,114
)
 
296

Total operating expenses
 
44,742

 
62,747

 
107,259

 
103,459

Operating income
 
24,641

 
17,780

 
33,984

 
32,854

Other income (expense):
 
 

 
 

 
 

 
 

Interest expense, net
 
(6,010
)
 
(4,662
)
 
(11,610
)
 
(8,529
)
Gain (loss) on commodity derivative instruments, net
 
28,377

 
(19,954
)
 
(76,194
)
 
(41,239
)
Other income, net
 
31

 
290

 
93

 
422

Total other income (expense), net
 
22,398

 
(24,326
)
 
(87,711
)
 
(49,346
)
Income (loss) before income taxes
 
47,039

 
(6,546
)
 
(53,727
)
 
(16,492
)
Income tax expense (benefit)
 
1,517

 
(15,210
)
 
4,823

 
(17,400
)
Net income (loss)
 
45,522

 
8,664

 
(58,550
)
 
908

Net income (loss) attributable to noncontrolling interest
 
26,444

 
(8,347
)
 
(47,465
)
 
(22,423
)
Net income (loss) attributable to Rosehill Resources Inc. before preferred stock dividends
 
19,078

 
17,011

 
(11,085
)
 
23,331

Series A Preferred Stock dividends and deemed dividends
 
2,027

 
1,968

 
4,033

 
3,897

Series B Preferred Stock dividends, deemed dividends, and return
 
5,863

 
5,844

 
11,671

 
11,576

Net income (loss) attributable to Rosehill Resources Inc. common stockholders
 
$
11,188

 
$
9,199

 
$
(26,789
)
 
$
7,858

Earnings (loss) per common share:
 
 

 
 

 
 

 
 

Basic
 
$
0.78

 
$
1.43

 
$
(1.90
)
 
$
1.24

Diluted
 
$
0.54

 
$
(0.32
)
 
$
(1.90
)
 
$
(0.70
)
Weighted average common shares outstanding:
 
 

 
 

 
 

 
 

Basic
 
14,382

 
6,430

 
14,108

 
6,327

Diluted
 
24,562

 
36,238

 
14,108

 
36,135


The accompanying notes are an integral part of these condensed consolidated financial statements.

4



ROSEHILL RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share amounts)
Three Months Ended June 30, 2019:
 
 
Preferred Stock Series A
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A
 
Class B
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Value
 
Shares
 
Value
 
Shares
 
Value
 
Additional
Paid-in Capital
 
Retained Earnings (Accumulated Deficit)
 
Total
Common Stockholders’ Equity
 
Non-
controlling
Interest
 
Total Equity
Balance at March 31, 2019
 
101,669

 
$
84,631

 
14,287,321

 
$
1

 
29,807,692

 
$
3

 
$
35,256

 
$
(3,502
)
 
$
31,758

 
$
39,947

 
$
156,336

Net income
 

 

 

 

 

 

 

 
19,078

 
19,078

 
26,444

 
45,522

Restricted stock issued
 

 

 
201,335

 

 

 

 

 

 

 

 

Restricted stock withheld for taxes
 

 

 
(37,676
)
 

 

 

 
(157
)
 

 
(157
)
 

 
(157
)
Stock-based compensation
 

 

 

 

 

 

 
1,765

 

 
1,765

 

 
1,765

Series A Preferred Stock dividends
 

 

 

 

 

 

 

 
(2,027
)
 
(2,027
)
 

 
(2,027
)
Series B Preferred Stock dividends, deemed dividends and return
 

 

 

 

 

 

 

 
(5,863
)
 
(5,863
)
 

 
(5,863
)
Equity shift
 

 

 

 

 

 

 
(907
)
 

 
(907
)
 
907

 

Balance at June 30, 2019
 
101,669

 
$
84,631

 
14,450,980

 
$
1

 
29,807,692

 
$
3

 
$
35,957

 
$
7,686

 
$
43,647

 
$
67,298

 
$
195,576


Three Months Ended June 30, 2018:
 
 
Preferred Stock Series A
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A
 
Class B
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Value
 
Shares
 
Value
 
Shares
 
Value
 
Additional
Paid-in Capital
 
Retained Earnings (Accumulated Deficit)
 
Total
Common Stockholders’ Equity
 
Non-
controlling
Interest
 
Total Equity
Balance at March 31, 2018
 
98,662

 
$
81,624

 
6,222,299

 
$
1

 
29,807,692

 
$
3

 
$
29,107

 
$

 
$
29,111

 
$
(1,062
)
 
$
109,673

Net income (loss)
 

 

 

 

 

 

 

 
17,011

 
17,011

 
(8,347
)
 
8,664

Restricted stock issued
 

 

 
352,330

 

 

 

 

 

 

 

 

Restricted stock withheld for taxes
 

 

 
(32,261
)
 

 

 

 
(261
)
 

 
(261
)
 

 
(261
)
Stock based compensation
 

 

 

 

 

 

 
1,826

 

 
1,826

 

 
1,826

Series A Preferred stock dividends
 
985

 
985

 

 

 

 

 

 
(1,969
)
 
(1,969
)
 

 
(984
)
Series B Preferred stock dividends, deemed dividends and return
 

 

 

 

 

 

 
1,341

 
(7,184
)
 
(5,843
)
 

 
(5,843
)
Equity shift
 

 

 

 

 

 

 
(1,383
)
 

 
(1,383
)
 
1,383

 

Balance at June 30, 2018
 
99,647

 
$
82,609

 
6,542,368

 
$
1

 
29,807,692

 
$
3

 
$
30,630

 
$
7,858

 
$
38,492

 
$
(8,026
)
 
$
113,075


The accompanying notes are an integral part of these condensed consolidated financial statements.

5



ROSEHILL RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
(Unaudited)
(In thousands, except share amounts)

Six Months Ended June 30, 2019:
 
 
Preferred Stock Series A
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A
 
Class B
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Value
 
Shares
 
Value
 
Shares
 
Value
 
Additional
Paid-in Capital
 
Retained Earnings (Accumulated Deficit)
 
Total
Common Stockholders’ Equity
 
Non-
controlling
Interest
 
Total Equity
Balance at December 31, 2018
 
101,669

 
$
84,631

 
13,760,136

 
$
1

 
29,807,692

 
$
3

 
$
42,271

 
$
26,661

 
$
68,936

 
$
113,770

 
$
267,337

Net loss
 

 

 

 

 

 

 

 
(11,085
)
 
(11,085
)
 
(47,465
)
 
(58,550
)
Restricted stock issued
 

 

 
759,574

 

 

 

 

 

 

 

 

Restricted stock withheld for taxes
 

 

 
(68,730
)
 

 

 

 
(246
)
 

 
(246
)
 

 
(246
)
Stock-based compensation
 

 

 

 

 

 

 
2,739

 

 
2,739

 

 
2,739

Series A Preferred Stock dividends
 

 

 

 

 

 

 
(2,006
)
 
(2,027
)
 
(4,033
)
 

 
(4,033
)
Series B Preferred Stock dividends, deemed dividends and return
 

 

 

 

 

 

 
(5,808
)
 
(5,863
)
 
(11,671
)
 

 
(11,671
)
Equity shift
 

 

 

 

 

 

 
(993
)
 

 
(993
)
 
993

 

Balance at June 30, 2019
 
101,669

 
$
84,631

 
14,450,980

 
$
1

 
29,807,692

 
$
3

 
$
35,957

 
$
7,686

 
$
43,647

 
$
67,298

 
$
195,576


Six Months Ended June 30, 2018:
 
 
Preferred Stock
Series A
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A
 
Class B
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Value
 
Shares
 
Value
 
Shares
 
Value
 
Additional
Paid-in Capital
 
Retained Earnings (Accumulated Deficit)
 
Total
Common Stockholders’ Equity
 
Non-controlling Interest
 
Total Equity
Balance at December 31, 2017
 
97,698

 
$
80,660

 
6,222,299

 
$
1

 
29,807,692

 
$
3

 
$
29,946

 
$

 
$
29,950

 
$
12,054

 
$
122,664

Net income (loss)
 

 

 

 

 

 

 

 
23,331

 
23,331

 
(22,423
)
 
908

Restricted stock issued
 

 

 
352,330

 

 

 

 

 

 

 

 

Restricted stock withheld for taxes
 

 

 
(32,261
)
 

 

 

 
(261
)
 

 
(261
)
 

 
(261
)
Stock based compensation
 

 

 

 

 

 

 
3,288

 

 
3,288

 

 
3,288

Series A Preferred stock dividends
 
1,949

 
1,949

 

 

 

 

 

 
(3,897
)
 
(3,897
)
 

 
(1,948
)
Series B Preferred stock dividends, deemed dividends and return
 

 

 

 

 

 

 

 
(11,576
)
 
(11,576
)
 

 
(11,576
)
Equity shift
 

 

 

 

 

 

 
(2,343
)
 

 
(2,343
)
 
2,343

 

Balance at June 30, 2018
 
99,647

 
$
82,609

 
6,542,368

 
$
1

 
29,807,692

 
$
3

 
$
30,630

 
$
7,858

 
$
38,492

 
$
(8,026
)
 
$
113,075

The accompanying notes are an integral part of these condensed consolidated financial statements. 

6



ROSEHILL RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) 
 
 
Six Months Ended June 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 

Net income (loss)
 
$
(58,550
)
 
$
908

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

Depreciation, depletion, amortization, accretion and impairment of oil and gas properties
 
68,625

 
57,315

Deferred income taxes
 
4,823

 
(17,400
)
Stock-based compensation
 
2,924

 
3,288

(Gain) loss on disposition of property and equipment
 
(11,114
)
 
296

Loss on derivative instruments
 
76,170

 
41,082

Net cash paid in settlement of derivative instruments
 
(7,167
)
 
(12,194
)
Amortization of debt issuance costs
 
906

 
1,319

Settlement of asset retirement obligations
 
(8
)
 
(283
)
Changes in operating assets and liabilities:
 
 
 
 
(Increase) decrease in accounts receivable and accounts receivable, related parties
 
5,533

 
(11,976
)
Increase in prepaid and other assets
 
(565
)
 
(369
)
Increase (decrease) in accounts payable and accrued liabilities and other
 
(4,600
)
 
12,056

Increase (decrease) in accounts payable, related parties
 
(224
)
 
553

Net cash provided by operating activities
 
76,753

 
74,595

Cash flows from investing activities:
 
 

 
 

Additions to oil and natural gas properties
 
(148,861
)
 
(204,275
)
Acquisition of White Wolf
 

 
(4,005
)
Acquisition of land and leasehold, royalty and mineral interest
 
(1,133
)
 
(14,725
)
Proceeds received - Tatanka Asset sale
 
22,000

 

Additions to other property and equipment
 
(88
)
 
(1,634
)
Net cash used in investing activities
 
(128,082
)
 
(224,639
)
Cash flows from financing activities:
 
 

 
 

Proceeds from revolving credit facility
 
66,000

 
213,000

Repayment on revolving credit facility
 
(20,000
)
 
(68,000
)
Debt issuance costs
 
(658
)
 
(2,380
)
Dividends paid on preferred stock
 
(9,232
)
 
(4,129
)
Restricted stock used for tax withholdings
 
(247
)
 
(261
)
Payment on capital lease obligation
 
(7
)
 
(13
)
Net cash provided by financing activities
 
35,856

 
138,217

Net decrease in cash, cash equivalents, and restricted cash
 
(15,473
)
 
(11,827
)
Cash and cash equivalents beginning of period
 
20,157

 
24,682

Cash and cash equivalents end of period
 
$
4,684

 
$
12,855


The accompanying notes are an integral part of these condensed consolidated financial statements. 

7



ROSEHILL RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited) 
(In thousands)

Supplemental cash flow information and noncash activity:
 
 
Six Months Ended June 30,
 
 
2019
 
2018
Supplemental disclosures:
 
 
 
 
Cash paid for interest
 
$
8,954

 
$
3,748

 
 
 
 
 
Supplemental noncash activity:
 
 
 
 
Asset retirement obligations incurred
 
$
(7
)
 
$
2,793

Changes in accrued capital expenditures
 
(7,716
)
 
(16,971
)
Changes in accounts payable for capital expenditures
 
1,211

 
3,161

Series A Preferred Stock dividends paid-in-kind
 

 
1,949

Series A Preferred Stock cash dividends declared and payable
 
2,027

 
984

Series B Preferred Stock dividends paid-in-kind
 

 
3,004

Series B Preferred Stock cash dividends declared and payable
 
3,908

 
2,275

Series B Preferred Stock return
 
3,156

 
3,438

Series B Preferred Stock deemed dividend
 
741

 
631



The accompanying notes are an integral part of these condensed consolidated financial statements.

8



ROSEHILL RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1 – Organization and Basis of Presentation
 
Organization

Rosehill Resources Inc. (the “Company” or “Rosehill”) is an independent oil and natural gas company focused on the acquisition, exploration, development and production of unconventional oil and associated liquids-rich natural gas reserves in the Permian Basin. The Company’s assets are concentrated in the Delaware Basin, a sub-basin of the Permian Basin.

The Company was incorporated in Delaware on September 21, 2015 as a special purpose acquisition company under the name of KLR Energy Acquisition Corp. (“KLRE”) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving the Company and one or more businesses. On April 27, 2017, the Company acquired a portion of the equity of Rosehill Operating Company, LLC (“Rosehill Operating”), in a transaction structured as a reverse recapitalization (the “Transaction”), into which Tema Oil & Gas Company (“Tema”), a wholly owned subsidiary of Rosemore, Inc. (“Rosemore”), contributed certain assets and liabilities. At the closing of the Transaction, the Company became the sole managing member of Rosehill Operating. Following the Transaction, the Company changed its name to Rosehill Resources Inc.

As the sole managing member of Rosehill Operating, the Company, through its officers and directors, is responsible for all operational and administrative decision-making and control of all of the day-to-day business affairs of Rosehill Operating without the approval of any other member, unless specified in the Second Amended and Restated Limited Liability Company Agreement of Rosehill Operating (the “LLC Agreement”).

Basis of Presentation

The condensed consolidated financial results of the Company consist of the financial results of Rosehill and Rosehill Operating, its consolidated subsidiary. As of June 30, 2019, the Company owns approximately 32.7% of the common units of Rosehill Operating (the “Rosehill Operating Common Units”) and Tema owns approximately 67.3% of the Rosehill Operating Common Units.

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K. The unaudited condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the results of operations for the interim periods.

Variable Interest Entities

Rosehill Operating is a variable interest entity. The Company determined that it is the primary beneficiary of Rosehill Operating as the Company is the sole managing member and has the power to direct the activities most significant to Rosehill Operating’s economic performance as well as the obligation to absorb losses and receive benefits that are potentially significant. The Company consolidated 100% of Rosehill Operating’s assets and liabilities and results of operations in the Company’s condensed consolidated financial statements. Although Tema had a larger ownership interest in Rosehill Operating, because it has disproportionately fewer voting rights, Tema is shown as a noncontrolling interest holder of Rosehill Operating. For further discussion, see Noncontrolling Interest in Note 13 - Stockholders’ Equity.


9

ROSEHILL RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 2 – Summary of Significant Accounting Policies and Recently Issued Accounting Standards

The significant accounting policies followed by the Company are set forth in Note 2 – Summary of Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Accounting Standards Adopted in 2019

Revenue Recognition. ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and industry-specific guidance in Subtopic 932-605, Extractive Activities-Oil and Gas-Revenue Recognition and requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, as clarifying guidance to improve the operability and understandability of the implementation guidance on principal versus agent considerations.

ASC 606 became effective for the Company on January 1, 2019, and the Company has elected to adopt it using the modified retrospective method. The Company has completed its review of the impact of ASC 606 on its significant contracts and determined that the Company was not required to record a cumulative effect adjustment to retained earnings. The implementation of ASC 606 did result in changes to the presentation of “Revenues” and “Gathering and transportation” on the Company’s Condensed Consolidated Statement of Operations, but there was no impact to net income. See Note 17 - Revenue from Contracts with Customers.

Financial Assets and Financial Liabilities. In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The pronouncement requires, among other things, public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset. For the Company, these changes became effective on January 1, 2019. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which clarifies certain aspects of the guidance issued in ASU 2016-01 including: the ability to irrevocably elect to change the measurement approach for equity securities measured using the practical expedient (at cost plus or minus observable transactions less impairment) to a fair value method in accordance with Topic 820, Fair Value Measurement; clarification that if an observable transaction occurs for such securities, the adjustment is as of the observable transaction date; clarification that the prospective transition approach for equity securities without a readily determinable fair value is meant only for instances in which the practical expedient is elected; and various other clarifications. The adoption of ASU 2016-01 and ASU 2018-03 has been evaluated by the Company and the adoption does not have a significant impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

Leases. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current U.S. GAAP. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, which provides clarifying guidance regarding land easements and adds practical expedients. In July 2018, further amendments were issued under ASU 2018-10, Codification Improvements to Topic 842, Leases. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities with an additional transition method in which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2016-02 and its related updates are effective for the Company for fiscal years beginning after December 15, 2019. The Company is currently evaluating the method of adoption and the impact of the adoption of this guidance on its condensed consolidated financial statements and disclosures.
 
Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments requiring the measurement of all expected credit losses for financial assets, which include trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The guidance in this ASU is effective for the Company for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021 with early adoption permitted for interim and annual periods beginning after December 15, 2018. The evaluation of this standard and its impact on the Company’s condensed consolidated financial statements and related disclosures is currently being assessed.

10

ROSEHILL RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Derivatives and Hedging. In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. ASU 2017-12 is effective for the Company for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this guidance on its condensed consolidated financial statements.

Fair Value Measurement Disclosures. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies and adds disclosure requirements on fair value measurements. ASU 2018-13 is effective for the Company for fiscal years beginning after December 15, 2019 and the Company is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the impact of the adoption of this guidance on its disclosures.

Note 3 – Earnings (Loss) Per Share 
 
The following table sets forth the calculation of basic and diluted weighted average shares outstanding and earnings (loss) per share for the indicated periods:
 
 
Three Months
 
Six Months
 
Ended June 30,
 
Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands, except per share data)
Net income (loss) (numerator):
 

 
 

 
 
 
 

Net income (loss) attributable to common stockholders of Rosehill Resources Inc. - basic
$
11,188

 
$
9,199

 
$
(26,789
)
 
$
7,858

Add: Dividends on Series A Preferred Stock
2,027

 

 

 

Add: Net loss attributable to the noncontrolling interest, net of taxes

 
(20,898
)
 

 
(33,122
)
Net income (loss) attributable to common stockholders of Rosehill Resources Inc. - diluted
$
13,215

 
$
(11,699
)
 
$
(26,789
)
 
$
(25,264
)
 
 
 
 
 
 
 
 
Weighted average shares (denominator):
 

 
 

 
 
 
 

Weighted average shares – basic
14,382

 
6,430

 
14,108

 
6,327

Add: Dilutive effects of equity awards
1,339

 

 

 

Add: Dilutive effects of Series A Preferred Stock
8,841

 

 

 

Add: Dilutive effects of Class B Common Stock

 
29,808

 

 
29,808

Weighted average shares – diluted
24,562

 
36,238

 
14,108

 
36,135

 
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
0.78

 
$
1.43

 
$
(1.90
)
 
$
1.24

Diluted earnings (loss) per share
$
0.54

 
$
(0.32
)
 
$
(1.90
)
 
$
(0.70
)
 

11

ROSEHILL RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

For the three months ended June 30, 2019, the Company excluded 29.8 million shares of Class A Common Stock issuable upon exchange of the Company’s Class B Common Stock, 25.6 million shares of Class A Common Stock issuable upon exercise of the Company’s warrants and 1.4 million shares of Class A Common Stock issuable upon vesting of awards under the Company’s Long-Term Incentive Plan (as amended and restated on May 22, 2018, the “LTIP”) from the computation of diluted earnings per share because the effect of such events was anti-dilutive. For the six months ended June 30, 2019, the Company excluded 29.8 million shares of Class A Common Stock issuable upon exchange of the Company’s Class B Common Stock, 25.6 million shares of Class A Common Stock issuable upon exercise of the Company’s warrants, 8.8 million shares of Class A Common Stock issuable upon conversion of the Company’s 8% Series A Cumulative Perpetual Convertible Preferred Stock (the “Series A Preferred Stock”) and 2.4 million shares of Class A Common Stock issuable upon vesting of awards under the LTIP from the computation of diluted earnings per share because the effect of such events was anti-dilutive.

For the three months ended June 30, 2018, the Company excluded 25.6 million shares of Class A Common Stock issuable upon exercise of the Company’s warrants, 8.6 million shares of Class A Common Stock issuable upon conversion of the Company’s Series A Preferred Stock and 0.2 million shares of Class A Common Stock issuable upon vesting under the Company’s LTIP from the computation of diluted earnings per share because the effect of such events was anti-dilutive. For the six months ended June 30, 2018, the Company excluded 25.6 million shares of Class A Common Stock issuable upon exercise of the Company’s warrants, 8.5 million shares of Class A Common Stock issuable upon conversion of the Company’s Series A Preferred Stock and 0.1 million shares of Class A Common Stock issuable upon vesting under the Company’s LTIP from the computation of diluted earnings per share because the effect of such events was anti-dilutive.

Note 4 – Accounts Receivable
 
Accounts receivable is comprised of the following:

 
 
June 30, 2019
 
December 31, 2018
 
 
(In thousands)
Revenue receivable
 
$
25,342

 
$
28,876

Realized derivative receivable
 
741

 
2,229

Joint interest billings
 
80

 
640

Other
 
647

 
515

Accounts receivable
 
$
26,810

 
$
32,260


Note 5 – Derivative Instruments
 
Commodity derivatives. The Company enters into various derivative instruments primarily to mitigate a portion of the exposure to potentially adverse market changes in oil and natural gas commodity prices and the associated impact on cash flows. All contracts are entered into for other-than-trading purposes. Oil and natural gas commodity derivative instruments are recorded on the condensed consolidated balance sheets at fair value as either an asset or a liability with changes in fair value recognized currently in earnings. While commodity derivative instruments are utilized to manage the price risk attributable to expected oil and natural gas production, the Company’s commodity derivative instruments are not designated as accounting hedges under the accounting guidance. The related cash flow impact of the commodity derivative activities is reflected as cash flows from operating activities unless they are determined to have a significant financing element at inception, in which case they are classified within financing activities.

Series B Preferred Stock bifurcated derivative - In the event of a change of control, the Company shall redeem in cash all of the outstanding shares of Series B Preferred Stock, excluding Series B PIK Shares, each as defined in Note 11 - 10% Series B Redeemable Preferred Stock, for a price per share equal to the Base Return Amount as defined in Note 11 - 10% Series B Redeemable Preferred Stock. The Company assessed the change of control feature and determined that the redemption of the outstanding shares of Series B Preferred Stock, excluding Series B PIK Shares, for a price per share equal to the Base Return Amount was a bifurcated derivative. See Note 11 - 10% Series B Redeemable Preferred Stock for defined terms and more detail.

12

ROSEHILL RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following tables summarize the location and fair value amounts of all the Company’s derivative instruments in the Condensed Consolidated Balance Sheets, as well as the gross recognized derivative assets, liabilities and offset amounts in the Condensed Consolidated Balance Sheets:

 
 
June 30, 2019
 
 
Gross Fair Value
 
Gross Amounts Offset (1)
 
Net Recognized Fair Value
 
 
(In thousands)
Assets
 
 
 
 
 
 
     Commodity derivatives - current
 
$
26,289

 
$
(22,937
)
 
$
3,352

     Commodity derivatives - non-current
 
98,379

 
(68,915
)
 
29,464

Total assets
 
$
124,668

 
$
(91,852
)
 
$
32,816

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
     Commodity derivatives - current
 
$
(34,692
)
 
$
22,937

 
$
(11,755
)
     Commodity derivatives - non-current
 
(69,869
)
 
68,915

 
(954
)
Series B Preferred Stock bifurcated derivative - non-current
 
(673
)
 

 
(673
)
Total liabilities
 
$
(105,234
)
 
$
91,852

 
$
(13,382
)

(1)
The Company has agreements in place with all of its counterparties that allow for the financial right of offset for derivative assets and liabilities.

 
 
December 31, 2018
 
 
Gross Fair Value
 
Gross Amounts Offset (1)
 
Net Recognized Fair Value
 
 
(In thousands)
Assets
 
 
 
 
 
 
     Commodity derivatives - current
 
$
46,972

 
$
(16,153
)
 
$
30,819

     Commodity derivatives - non-current
 
88,008

 
(29,694
)
 
58,314

Total assets
 
$
134,980

 
$
(45,847
)
 
$
89,133

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
     Commodity derivatives - current
 
$
(16,153
)
 
$
16,153

 
$

     Commodity derivatives - non-current
 
(29,694
)
 
29,694

 

Series B Preferred Stock bifurcated derivative - non-current
 
(696
)
 

 
(696
)
Total liabilities
 
$
(46,543
)
 
$
45,847

 
$
(696
)

(1)
The Company has agreements in place with all of its counterparties that allow for the financial right of offset for derivative assets and liabilities.


13

ROSEHILL RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

As of June 30, 2019, the open commodity derivative positions with respect to future production were as follows:
 
 
2019
 
2020
 
2021
 
2022
Commodity derivative swaps
Oil:
 
 
 
 
 
 
 
 
Notional volume (Bbls) (1)(2)
1,332,000

 
1,960,000

 

 

 
Weighted average fixed price ($/Bbl)
$
53.59

 
$
60.09

 
$

 
$

Natural gas:
 
 
 
 
 
 
 
 
Notional volume (MMBtu)
1,682,646

 
1,970,368

 
1,615,792

 
1,276,142

 
Weighted average fixed price ($/MMbtu)
$
2.87

 
$
2.75

 
$
2.79

 
$
2.85

Ethane:
 
 
 
 
 
 
 
 
Notional volume (Gallons)
7,027,524

 

 

 

 
Weighted average fixed price ($/Gallons)
$
0.28

 
$

 
$

 
$

Propane:
 
 
 
 
 
 
 
 
Notional volume (Gallons)
4,685,058

 

 

 

 
Weighted average fixed price ($/Gallons)
$
0.79

 
$

 
$

 
$

Pentanes:
 
 
 
 
 
 
 
 
Notional volume (Gallons)
1,561,896

 

 

 

 
Weighted average fixed price ($/Gallons)
$
1.47

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
Commodity derivative two-way collars
Oil:
 
 
 
 
 
 
 
 
Notional volume (Bbls)
210,000

 

 

 

 
Weighted average ceiling price ($/Bbl)
$
60.03

 
$

 
$

 
$

 
Weighted average floor price ($/Bbl)
$
53.14

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
Commodity derivative three-way collars
Oil:
 
 
 
 
 
 
 
 
Notional volume (Bbls)
1,095,258

 
3,294,000

 
4,200,000

 
2,000,000

 
Weighted average ceiling price ($/Bbl)
$
65.86

 
$
70.29

 
$
60.40

 
$
61.45

 
Weighted average floor price ($/Bbl)
$
60.61

 
$
57.50

 
$
54.49

 
$
55.00

 
Weighted average sold put option price ($/Bbl)
$
45.57

 
$
47.50

 
$
45.51

 
$
45.00

 
 
 
 
 
 
 
 
 
Crude oil basis swaps
Midland / Cushing:
 
 
 
 
 
 
 
 
Notional volume (Bbls)
2,637,258

 
5,254,000

 
3,160,000

 
2,100,000

 
Weighted average fixed price ($/Bbl)
$
(4.65
)
 
$
(0.83
)
 
$
0.48

 
$
0.54

 
 
 
 
 
 
 
 
 
Natural gas basis swaps
EP Permian:
 
 
 
 
 
 
 
 
Notional volume (MMBtu)
1,711,062

 
2,096,160

 

 

 
Weighted average fixed price ($/MMBtu)
$
(1.13
)
 
$
(1.03
)
 
$

 
$

(1)
During the second quarter of 2019, the Company entered into commodity derivative swaps where it bought 2,160,000 barrels of crude oil at a weighted average fixed price of $50.48 per barrel to offset commodity derivative swaps it previously sold of 2,160,000 barrels of crude oil at a weighted average fixed price of $61.21 per barrel.
(2)
During the second quarter of 2019, the Company entered into commodity derivative swaps where it bought 1,100,000 barrels of crude oil at a weighted average fixed price of $50.55 per barrel to offset commodity derivative swaps it previously sold of 1,100,000 barrels of crude oil at a weighted average fixed price of $58.42 per barrel.

14

ROSEHILL RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


For the three and six months ended June 30, 2019 and 2018, the effect of the derivative activity on the Company’s Condensed Consolidated Statements of Operations was as follows:
 
Three Months
 
Six Months
 
Ended June 30,
 
Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Realized gain (loss) on derivatives
 

 
 

 
 

 
 

Commodity derivative options
$
(165
)
 
$

 
$
1,335

 
$
19

Commodity derivative swaps
(5,181
)
 
(9,151
)
 
(7,704
)
 
(12,213
)
Total realized gain (loss) on derivatives
$
(5,346
)
 
$
(9,151
)
 
$
(6,369
)
 
$
(12,194
)
 
 
 
 
 
 
 
 
Unrealized gain (loss) on derivatives
 

 
 

 
 

 
 

Commodity derivative options
$
3,217

 
$
1,795

 
$
(22,349
)
 
$
(14,165
)
Commodity derivative swaps
30,506

 
(12,598
)
 
(47,476
)
 
(14,880
)
Total
33,723

 
(10,803
)
 
(69,825
)
 
(29,045
)
Series B Preferred Stock bifurcated derivative
(58
)
 
57

 
23

 
157

Total unrealized gain (loss) on derivatives
$
33,665

 
$
(10,746
)
 
$
(69,802
)
 
$
(28,888
)
 
The gains and losses resulting from the cash settlement and mark-to-market of the commodity derivatives are included within “Gain (loss) on commodity derivative instruments, net” in the Condensed Consolidated Statements of Operations. The gains and losses resulting from mark-to-market of the Series B Preferred Stock bifurcated derivative are included within “Other income (expense), net” in the Condensed Consolidated Statements of Operations.

Note 6 – Fair Value Measurements
 
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Fair value measurements are classified and disclosed within the following fair value hierarchy:
 
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Active markets are those in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
 
Level 2 – Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that are valued using observable market data.
 
Level 3 – Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources. Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment.
 
Observable data is considered to be market data if it is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by multiple, independent sources that are actively involved in the relevant market. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment. However, the determination of what constitutes “observable” requires significant judgment. The categorization of an investment within the hierarchy is based upon the pricing transparency of the investment and does not necessarily correspond to the perceived risk of that investment.

15

ROSEHILL RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Financial Instruments
 
The financial instruments measured at fair value on a recurring basis consist of the following:
 
 
 
June 30,
 
December 31,
 
 
2019
 
2018

 
(In thousands)
Derivative assets
 
 

 
 

Derivative assets - current
 
$
3,352

 
$
30,819

Derivative assets - non-current
 
29,464

 
58,314

Total derivative assets
 
32,816

 
89,133

 
 
 
 
 
Derivative liabilities
 
 
 
 
Derivative liabilities - current
 
(11,755
)
 

Derivative liabilities - non-current
 
(1,627
)
 
(696
)
Total derivative liabilities
 
(13,382
)
 
(696
)
 
 
 
 
 
Total derivative assets (liabilities), net
 
$
19,434

 
$
88,437

 
Derivative assets and liabilities primarily represent unsettled amounts related to commodity derivative positions, including swaps and options. Derivative liabilities also include the Series B Preferred Stock bifurcated derivative for the various redemption amounts that the Company could incur if a change of control event occurs. The Company utilizes Level 3 assumptions to estimate the probability of a change of control occurring and when that would occur as the timing impacts the Base Return Amount as defined in Note 11 - 10% Series B Redeemable Preferred Stock.

The tables below, set forth by level within the fair value hierarchy, represent the net components of the assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018. These net balances are intended solely to provide information on sources of inputs to fair value and proportions of fair value involving objective versus subjective valuations and do not represent either the actual credit exposure or net economic exposure.
 
 
 
June 30, 2019
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In thousands)
Derivative assets
 
 
 
 
 
 
 
 
Commodity derivative assets - current
 
$

 
$
3,352

 
$

 
$
3,352

Commodity derivative assets - non-current
 

 
29,464

 

 
29,464

Total derivative assets
 
$

 
$
32,816

 
$

 
$
32,816