Company Quick10K Filing
Whiting Petroleum
Price7.95 EPS-1
Shares91 P/E-8
MCap726 P/FCF1
Net Debt2,884 EBIT27
TEV3,610 TEV/EBIT135
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-30 Filed 2019-11-06
10-Q 2019-06-30 Filed 2019-08-01
10-Q 2019-03-31 Filed 2019-05-02
10-K 2018-12-31 Filed 2019-02-28
10-Q 2018-09-30 Filed 2018-10-31
10-Q 2018-06-30 Filed 2018-08-01
10-Q 2018-03-31 Filed 2018-05-01
10-K 2017-12-31 Filed 2018-02-22
10-Q 2017-09-30 Filed 2017-10-26
10-Q 2017-06-30 Filed 2017-07-27
10-Q 2017-03-31 Filed 2017-04-27
10-K 2016-12-31 Filed 2017-02-23
10-Q 2016-09-30 Filed 2016-10-27
10-Q 2016-06-30 Filed 2016-07-28
10-Q 2016-03-31 Filed 2016-04-28
10-K 2015-12-31 Filed 2016-02-25
10-Q 2015-09-30 Filed 2015-10-29
10-Q 2015-06-30 Filed 2015-07-30
10-Q 2015-03-31 Filed 2015-04-30
10-K 2014-12-31 Filed 2015-02-27
10-Q 2014-09-30 Filed 2014-10-30
10-Q 2014-06-30 Filed 2014-07-31
10-Q 2014-03-31 Filed 2014-05-01
10-K 2013-12-31 Filed 2014-02-28
10-Q 2013-09-30 Filed 2013-10-25
10-Q 2013-06-30 Filed 2013-07-26
10-Q 2013-03-31 Filed 2013-04-26
10-K 2012-12-31 Filed 2013-02-28
10-Q 2012-09-30 Filed 2012-10-25
10-Q 2012-06-30 Filed 2012-07-27
10-Q 2012-03-31 Filed 2012-04-27
10-K 2011-12-31 Filed 2012-02-23
10-Q 2011-09-30 Filed 2011-11-03
10-Q 2011-06-30 Filed 2011-07-29
10-Q 2011-03-31 Filed 2011-04-29
10-K 2010-12-31 Filed 2011-02-24
10-Q 2010-09-30 Filed 2010-10-29
10-Q 2010-06-30 Filed 2010-07-30
10-Q 2010-03-31 Filed 2010-04-29
10-K 2009-12-31 Filed 2010-03-01
8-K 2020-04-23 Enter Agreement, Regulation FD, Exhibits
8-K 2020-04-14 Regulation FD, Exhibits
8-K 2020-03-27 Other Events, Exhibits
8-K 2020-03-26
8-K 2020-03-26 Enter Agreement, Shareholder Rights, Amend Bylaw, Other Events, Exhibits
8-K 2020-02-27 Earnings, Exhibits
8-K 2019-11-05 Earnings, Exhibits
8-K 2019-09-13 Off-BS Arrangement, Exhibits
8-K 2019-08-21 Officers
8-K 2019-07-31 Earnings, Exhibits
8-K 2019-07-15 Officers, Exhibits
8-K 2019-05-01 Shareholder Vote
8-K 2019-05-01 Earnings, Exhibits
8-K 2019-02-26 Earnings, Exhibits
8-K 2019-02-08 Officers
8-K 2018-11-15 Officers, Exhibits
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-08-24 Officers, Exhibits
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-05-25 Other Events, Exhibits
8-K 2018-05-01 Shareholder Vote
8-K 2018-04-30 Earnings, Exhibits
8-K 2018-04-12 Off-BS Arrangement, Exhibits
8-K 2018-04-12 Officers
8-K 2018-02-21 Earnings, Exhibits

WLL 10Q Quarterly Report

Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements
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 6. Exhibits
EX-10.3 wll-20200331ex1035b617c.htm
EX-10.4 wll-20200331ex1043e2148.htm
EX-31.1 wll-20200331ex3110762b1.htm
EX-31.2 wll-20200331ex312f60f88.htm
EX-32.1 wll-20200331ex321555e25.htm
EX-32.2 wll-20200331ex3222afad2.htm

Whiting Petroleum Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
151296302012201420172020
Assets, Equity
0.90.3-0.2-0.8-1.3-1.92012201420172020
Rev, G Profit, Net Income
0.90.50.1-0.3-0.7-1.12012201420172020
Ops, Inv, Fin

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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, 2020

or

        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: 001-31899

Graphic

WHITING PETROLEUM CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

    

20-0098515

(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer
Identification No.)

1700 Lincoln Street, Suite 4700
Denver, Colorado

80203-4547

(Address of principal executive offices)

(Zip code)

(303) 837-1661

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.001 par value

Preferred Stock Purchase Rights

WLL

N/A

New York Stock Exchange

New York Stock Exchange

(Title of each class)

(Trading symbol)

(Name of each exchange on which registered)

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, 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      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

Smaller reporting company

Accelerated filer

Emerging growth company

Non-accelerated filer

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).   Yes      No  

Number of shares of the registrant’s common stock outstanding at May 1, 2020: 91,412,448 shares.

TABLE OF CONTENTS

Glossary of Certain Definitions

1

PART I – FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

5

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

5

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019

6

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

7

Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2020 and 2019

9

Notes to Condensed Consolidated Financial Statements

10

Item 2.

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

27

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

Item 4.

Controls and Procedures

40

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 6.

Exhibits

46

Table of Contents

GLOSSARY OF CERTAIN DEFINITIONS

Unless the context otherwise requires, the terms “we”, “us”, “our” or “ours” when used in this Quarterly Report on Form 10-Q refer to Whiting Petroleum Corporation, together with its consolidated subsidiaries.  When the context requires, we refer to these entities separately.

We have included below the definitions for certain terms used in this report:

“ASC” Accounting Standards Codification.

“Bankruptcy Code” Title 11 of the United States Code.

“Bankruptcy Court” United States Bankruptcy Court for the Southern District of Texas.

“Bbl” One stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to oil, NGLs and other liquid hydrocarbons.

“Bcf” One billion cubic feet, used in reference to natural gas.

“BOE” One stock tank barrel of oil equivalent, computed on an approximate energy equivalent basis that one Bbl of crude oil equals six Mcf of natural gas and one Bbl of crude oil equals one Bbl of natural gas liquids.

“Btu” or “British thermal unit” The quantity of heat required to raise the temperature of one pound of water one degree Fahrenheit.

“completion” The process of preparing an oil and gas wellbore for production through the installation of permanent production equipment, as well as perforation and fracture stimulation to optimize production.

“costless collar” An option position where the proceeds from the sale of a call option at its inception fund the purchase of a put option at its inception.  A collar can also contain an additional sold put option.  Refer to “three-way collar” for more information.

“deterministic method” The method of estimating reserves or resources using a single value for each parameter (from the geoscience, engineering or economic data) in the reserves calculation.

“development well” A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

“differential” The difference between a benchmark price of oil and natural gas, such as the NYMEX crude oil spot price, and the wellhead price received.

“FASB” Financial Accounting Standards Board.

“field” An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.  There may be two or more reservoirs in a field that are separated vertically by intervening impervious strata, or laterally by local geologic barriers, or both.  Reservoirs that are associated by being in overlapping or adjacent fields may be treated as a single or common operational field.  The geological terms “structural feature” and “stratigraphic condition” are intended to identify localized geological features as opposed to the broader terms of basins, trends, provinces, plays, areas of interest, etc.

“GAAP” Generally accepted accounting principles in the United States of America.

“ISDA” International Swaps and Derivatives Association, Inc.

“lease operating expense” or “LOE” The expenses of lifting oil or gas from a producing formation to the surface, constituting part of the current operating expenses of a working interest, and also including labor, superintendence, supplies, repairs, short-lived assets,

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maintenance, allocated overhead costs and other expenses incidental to production, but not including lease acquisition or drilling or completion expenses.

“LIBOR” London interbank offered rate.

“MBbl” One thousand barrels of oil, NGLs or other liquid hydrocarbons.

“MBbl/d” One MBbl per day.

“MBOE” One thousand BOE.

“MBOE/d” One MBOE per day.

“Mcf” One thousand cubic feet, used in reference to natural gas.

“MMBbl” One million barrels of oil, NGLs, or other liquid hydrocarbons.

“MMBOE” One million BOE.

“MMBtu” One million British Thermal Units, used in reference to natural gas.

“MMcf” One million cubic feet, used in reference to natural gas.

“MMcf/d” One MMcf per day.

“net production” The total production attributable to our fractional working interest owned.

“NGL” Natural gas liquid.

“NYMEX” The New York Mercantile Exchange.

“plugging and abandonment” Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or to the surface.  Regulations of most states legally require plugging of abandoned wells.

“probabilistic method” The method of estimating reserves using the full range of values that could reasonably occur for each unknown parameter (from the geoscience and engineering data) to generate a full range of possible outcomes and their associated probabilities of occurrence.

“prospect” A property on which indications of oil or gas have been identified based on available seismic and geological information.

“proved developed reserves” Proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well.

“proved reserves” Those reserves 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 and under existing economic conditions, operating methods and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.  The project to extract the hydrocarbons must have commenced, or the operator must be reasonably certain that it will commence the project, within a reasonable time.

The area of the reservoir considered as proved includes all of the following:

a.The area identified by drilling and limited by fluid contacts, if any, and

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b.Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

Reserves that can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when both of the following occur:

a.Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based, and
b.The project has been approved for development by all necessary parties and entities, including governmental entities.

Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined.  The price shall be the average price during the 12-month period before the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

“proved undeveloped reserves” or “PUDs” Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.  Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.  Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless specific circumstances justify a longer time.  Under no circumstances shall estimates of proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.

“reasonable certainty” If deterministic methods are used, reasonable certainty means a high degree of confidence that the quantities will be recovered.  If probabilistic methods are used, there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimate.  A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical and geochemical) engineering, and economic data are made to estimated ultimate recovery with time, reasonably certain estimated ultimate recovery is much more likely to increase or remain constant than to decrease.

“reserves” Estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations.  In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

“reservoir” A porous and permeable underground formation containing a natural accumulation of producible crude oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

“resource play” An expansive contiguous geographical area with known accumulations of crude oil or natural gas reserves that has the potential to be developed uniformly with repeatable commercial success due to advancements in horizontal drilling and completion technologies.

“royalty” The amount or fee paid to the owner of mineral rights, expressed as a percentage or fraction of gross income from crude oil or natural gas produced and sold, unencumbered by expenses relating to the drilling, completing or operating of the affected well.

“SEC” The United States Securities and Exchange Commission.

“three-way collar” A combination of options: a sold call, a purchased put and a sold put.  The sold call establishes a maximum price (ceiling) to be received for the volumes under contract.  The purchased put establishes a minimum price (floor), unless the market price

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falls below the sold put (sub-floor), at which point the minimum price would be NYMEX plus the difference between the purchased put and the sold put strike price.  

“working interest” The interest in a crude oil and natural gas property (normally a leasehold interest) that gives the owner the right to drill, produce and conduct operations on the property and to a share of production, subject to all royalties, overriding royalties and other burdens and to all costs of exploration, development and operations and all associated risks.

“workover” Operations on a producing well to restore or increase production.

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PART I – FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share and per share data)

March 31,

December 31,

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$

566,273

$

8,652

Accounts receivable trade, net

245,909

308,249

Derivative assets

179,340

886

Prepaid expenses and other

35,801

13,196

Total current assets

1,027,323

330,983

Property and equipment:

Oil and gas properties, successful efforts method

6,023,766

12,812,007

Other property and equipment

179,019

178,689

Total property and equipment

6,202,785

12,990,696

Less accumulated depreciation, depletion and amortization

(2,760,812)

(5,735,239)

Total property and equipment, net

3,441,973

7,255,457

Other long-term assets

57,007

50,281

TOTAL ASSETS

$

4,526,303

$

7,636,721

LIABILITIES AND EQUITY

Current liabilities:

Current portion of long-term debt

$

3,423,352

$

-

Accounts payable trade

66,724

80,100

Revenues and royalties payable

192,381

202,010

Accrued capital expenditures

63,746

64,263

Accrued liabilities and other

52,211

74,722

Accrued lease operating expenses

33,284

38,262

Accrued interest

32,961

53,928

Taxes payable

13,764

26,844

Derivative liabilities

-

10,285

Total current liabilities

3,878,423

550,414

Long-term debt

-

2,799,885

Asset retirement obligations

132,633

131,208

Operating lease obligations

30,147

31,722

Deferred income taxes

69,847

73,593

Other long-term liabilities

20,550

24,928

Total liabilities

4,131,600

3,611,750

Commitments and contingencies

Equity:

Common stock, $0.001 par value, 225,000,000 shares authorized; 91,636,883 issued and 91,412,448 outstanding as of March 31, 2020 and 91,743,571 issued and 91,326,469 outstanding as of December 31, 2019

92

92

Additional paid-in capital

6,408,294

6,409,991

Accumulated deficit

(6,013,683)

(2,385,112)

Total equity

394,703

4,024,971

TOTAL LIABILITIES AND EQUITY

$

4,526,303

$

7,636,721

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

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WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except per share data)

Three Months Ended March 31,

    

2020

    

2019

OPERATING REVENUES

Oil, NGL and natural gas sales

$

244,846

$

389,489

OPERATING EXPENSES

Lease operating expenses

72,340

84,077

Transportation, gathering, compression and other

8,963

9,841

Production and ad valorem taxes

22,423

28,156

Depreciation, depletion and amortization

183,968

198,132

Exploration and impairment

3,753,457

19,749

General and administrative

47,167

34,974

Derivative (gain) loss, net

(231,371)

62,905

(Gain) loss on sale of properties

(864)

23

Amortization of deferred gain on sale

(2,037)

(2,371)

Total operating expenses

3,854,046

435,486

LOSS FROM OPERATIONS

(3,609,200)

(45,997)

OTHER INCOME (EXPENSE)

Interest expense

(45,250)

(48,099)

Gain on extinguishment of debt

25,883

-

Interest income and other (expense)

(4)

316

Total other expense

(19,371)

(47,783)

LOSS BEFORE INCOME TAXES

(3,628,571)

(93,780)

INCOME TAX BENEFIT

Current

3,746

-

Deferred

(3,746)

(24,855)

Total income tax benefit

-

(24,855)

NET LOSS

$

(3,628,571)

$

(68,925)

INCOME (LOSS) PER COMMON SHARE

Basic

$

(39.70)

$

(0.76)

Diluted

$

(39.70)

$

(0.76)

WEIGHTED AVERAGE SHARES OUTSTANDING

Basic

91,390

91,235

Diluted

91,390

91,235

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

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WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Three Months Ended March 31,

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss

$

(3,628,571)

$

(68,925)

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

Depreciation, depletion and amortization

183,968

198,132

Deferred income tax benefit

(3,746)

(24,855)

Amortization of debt issuance costs, debt discount and debt premium

4,536

7,818

Stock-based compensation

2,068

4,651

Amortization of deferred gain on sale

(2,037)

(2,371)

(Gain) loss on sale of properties

(864)

23

Oil and gas property impairments

3,745,092

9,843

Gain on extinguishment of debt

(25,883)

-

Non-cash derivative (gain) loss

(199,550)

64,435

Other, net

805

828

Changes in current assets and liabilities:

Accounts receivable trade, net

62,289

11,775

Prepaid expenses and other

(22,624)

2,178

Accounts payable trade and accrued liabilities

(55,561)

(19,011)

Revenues and royalties payable

(9,629)

(32,990)

Taxes payable

(13,080)

(3,022)

Net cash provided by operating activities

37,213

148,509

CASH FLOWS FROM INVESTING ACTIVITIES

Drilling and development capital expenditures

(146,299)

(188,848)

Acquisition of oil and gas properties

(350)

(823)

Other property and equipment

(985)

(6,095)

Proceeds from sale of properties

27,453

299

Net cash used in investing activities

(120,181)

(195,467)

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings under credit agreement

1,185,000

570,000

Repayments of borrowings under credit agreement

(490,000)

(530,000)

Repurchase of 1.25% Convertible Senior Notes due 2020

(52,890)

-

Restricted stock used for tax withholdings

(304)

(3,693)

Principal payments on finance lease obligations

(1,217)

(1,264)

Net cash provided by financing activities

$

640,589

$

35,043

(Continued)

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WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Three Months Ended March 31,

2020

2019

NET CHANGE IN CASH AND CASH EQUIVALENTS

$

557,621

$

(11,915)

CASH AND CASH EQUIVALENTS

Beginning of period

8,652

13,607

End of period

$

566,273

$

1,692

NONCASH INVESTING ACTIVITIES

Accrued capital expenditures and accounts payable related to property additions

$

88,424

$

123,827

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

(Concluded)

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WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

(in thousands)

Additional

Common Stock

Paid-in

Accumulated

Total

Shares

Amount

Capital

Deficit

Equity

BALANCES - January 1, 2019

92,067

$

92

$

6,414,170

$

(2,143,946)

$

4,270,316

Net loss

-

-

-

(68,925)

(68,925)

Restricted stock forfeited

(106)

-

-

-

-

Restricted stock used for tax withholdings

(130)

-

(3,693)

-

(3,693)

Stock-based compensation

-

-

4,651

-

4,651

BALANCES - March 31, 2019

91,831

$

92

$

6,415,128

$

(2,212,871)

$

4,202,349

BALANCES - January 1, 2020

91,744

$

92

$

6,409,991

$

(2,385,112)

$

4,024,971

Net loss

-

-

-

(3,628,571)

(3,628,571)

Adjustment to equity component of 2020 Convertible Senior Notes upon extinguishment

-

-

(3,461)

-

(3,461)

Restricted stock issued

185

-

-

-

-

Restricted stock forfeited

(238)

-

-

-

-

Restricted stock used for tax withholdings

(54)

-

(304)

-

(304)

Stock-based compensation

-

-

2,068

-

2,068

BALANCES - March 31, 2020

91,637

$

92

$

6,408,294

$

(6,013,683)

$

394,703

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

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WHITING PETROLEUM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.          BASIS OF PRESENTATION

Description of Operations—Whiting Petroleum Corporation, a Delaware corporation, is an independent oil and gas company engaged in the development, production, acquisition and exploration of crude oil, NGLs and natural gas primarily in the Rocky Mountains region of the United States.  Unless otherwise specified or the context otherwise requires, all references in these notes to “Whiting” or the “Company” are to Whiting Petroleum Corporation and its consolidated subsidiaries, Whiting Oil and Gas Corporation (“Whiting Oil and Gas”), Whiting US Holding Company, Whiting Canadian Holding Company ULC, Whiting Resources Corporation and Whiting Programs, Inc.

Voluntary Reorganization under Chapter 11 of the Bankruptcy Code—On April 1, 2020 (the “Petition Date”), Whiting Petroleum Corporation, Whiting Oil and Gas, Whiting US Holding Company, Whiting Canadian Holding Company ULC and Whiting Resources Corporation (collectively, the “Debtors”) commenced voluntary cases (the “Chapter 11 Cases”) under chapter 11 of the Bankruptcy Code.  The Debtors continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court, in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.  To ensure ordinary course operations, the Debtors have obtained approval from the Bankruptcy Court for certain “first day” motions, including motions to obtain customary relief intended to continue ordinary course operations after the Petition Date.  In addition, the Debtors have received authority to use cash collateral of the lenders under Whiting Oil and Gas’ credit agreement (the “Credit Agreement”) on an interim basis.

The commencement of a voluntary proceeding in bankruptcy constitutes an immediate event of default under the Credit Agreement and the indentures governing the Company’s senior notes, resulting in the automatic and immediate acceleration of all of the Company’s debt outstanding.  Accordingly, the Company has classified all of its outstanding debt as a current liability on its condensed consolidated balance sheet as of March 31, 2020.  

On April 23, 2020, the Debtors entered into a restructuring support agreement (the “RSA”) with certain holders of the Company’s senior notes to support a restructuring in accordance with the terms set forth in the Company’s chapter 11 plan of reorganization (the “Plan”).  The Plan and the related disclosure statement were each filed with the Bankruptcy Court on April 23, 2020.  Below is a summary of the treatment that the stakeholders of the Company would receive under the Plan:

Holders of Credit Agreement Claims. The holders of obligations under the Credit Agreement would have such obligations refinanced or repaid in full in cash upon the Debtors’ emergence from chapter 11.
Holders of Senior Notes, Rejection Damages Claims and Litigation Claims. The holders of Whiting’s senior notes and other general unsecured claims (including rejection damages claims and litigation claims) would receive 97% of the reorganized company’s equity interests.  
Trade and Other Claims. The holders of the Debtors’ other secured, priority and trade vendor claims would receive payment in full in cash following emergence.
Existing Equity Holders. The holders of the Company’s existing stock would receive (a) 3% of the reorganized company’s equity interests and (b) warrants on the terms set forth in the Plan.

Ability to Continue as a Going Concern—The accompanying condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

As discussed above, the filing of the Chapter 11 Cases constitutes an event of default under the Company’s outstanding debt agreements, resulting in the automatic and immediate acceleration of all of the Company’s debt outstanding.  The Company projects that it will not have sufficient cash on hand or available liquidity to repay such debt.  These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.  

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As part of the Chapter 11 Cases, the Company submitted to the Bankruptcy Court a plan of reorganization.  The Company’s operations and its ability to develop and execute its business plan are subject to a high degree of risk and uncertainty associated with the Chapter 11 Cases.  The outcome of the Chapter 11 Cases is subject to a high degree of uncertainty and is dependent upon factors that are outside of the Company’s control, including actions of the Bankruptcy Court and the Company’s creditors.  There can be no assurance that the Company will confirm and consummate the Plan as contemplated by the RSA or complete another plan of reorganization with respect to the Chapter 11 Cases.  As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Condensed Consolidated Financial Statements—The unaudited condensed consolidated financial statements include the accounts of Whiting Petroleum Corporation and its consolidated subsidiaries.  Investments in entities which give Whiting significant influence, but not control, over the investee are accounted for using the equity method.  Under the equity method, investments are stated at cost plus the Company’s equity in undistributed earnings and losses.  All intercompany balances and transactions have been eliminated upon consolidation.  These financial statements have been prepared in accordance with GAAP and the SEC rules and regulations for interim financial reporting.  In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly, in all material respects, the Company’s interim results.  However, operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year.  The condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q should be read in conjunction with Whiting’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2019.  Except as disclosed herein, there have been no material changes to the information disclosed in the notes to consolidated financial statements included in the Company’s 2019 Annual Report on Form 10-K.

ReclassificationsCertain prior period balances in the condensed consolidated balance sheets have been combined pursuant to Rule 10-01(a)(2) of Regulation S-X of the SEC. Such reclassifications had no impact on net loss, cash flows or shareholders’ equity previously reported.

Cash and Cash EquivalentsCash equivalents consist of demand deposits and highly liquid investments which have an original maturity of three months or less.  Cash and cash equivalents potentially subject the Company to a concentration of credit risk as substantially all of its deposits held in financial institutions were in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits as of March 31, 2020 and December 31, 2019.  The Company maintains its cash and cash equivalents in the form of money market and checking accounts with financial institutions that are also lenders under the Credit Agreement.  The Company has not experienced any losses on its deposits of cash and cash equivalents.

Accounts Receivable TradeWhiting’s accounts receivable trade consist mainly of receivables from oil and gas purchasers and joint interest owners on properties the Company operates.  The Company’s collection risk is inherently low based on the viability of its oil and gas purchasers as well as its general ability to withhold future revenue disbursements to recover any non-payment of joint interest billings.  The Company’s oil and gas receivables are generally collected within two months, and to date, the Company has not experienced material credit losses.

The Company routinely evaluates expected credit losses for all material trade and other receivables to determine if an allowance for credit losses is warranted.  Expected credit losses are estimated based on (i) historic loss experience for pools of receivable balances with similar characteristics, (ii) the length of time balances have been outstanding and (iii) the economic status of each counterparty.  These loss estimates are then adjusted for current and expected future economic conditions, which may include an assessment of the probability of non-payment, financial distress or expected future commodity prices.  At March 31, 2020 and December 31, 2019, the Company had an allowance for credit losses of $12 million and $9 million, respectively.

Reorganization AccountingEffective April 1, 2020, as a result of the filing of the Chapter 11 Cases, the Company began accounting and reporting according to FASB ASC Topic 852 – Reorganizations, which specifies the accounting and financial reporting requirements for entities reorganizing through chapter 11 bankruptcy proceedings.  These requirements include distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business.

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2.          OIL AND GAS PROPERTIES

Net capitalized costs related to the Company’s oil and gas producing activities at March 31, 2020 and December 31, 2019 are as follows (in thousands):

March 31,

December 31,

    

2020

    

2019

Costs of completed wells and facilities

$

5,372,157

$

9,847,159

Proved leasehold costs

421,666

2,702,236

Wells and facilities in progress

139,231

159,334

Unproved leasehold costs

90,712

103,278

Total oil and gas properties, successful efforts method

6,023,766

12,812,007

Accumulated depletion

(2,681,635)

(5,656,929)

Oil and gas properties, net

$

3,342,131

$

7,155,078

Impairment expense for unproved properties totaled $12 million and $3 million for the three months ended March 31, 2020 and 2019, respectively, and is reported in exploration and impairment expense in the condensed consolidated statement of operations.

3.          ACQUISITIONS AND DIVESTITURES

2020 Acquisitions and Divestitures

On January 9, 2020, the Company completed the divestiture of its interests in 30 non-operated, producing oil and gas wells and related undeveloped acreage located in McKenzie County, North Dakota for aggregate sales proceeds of $25 million (before closing adjustments).

There were no significant acquisitions during the three months ended March 31, 2020.

2019 Acquisitions and Divestitures

On July 29, 2019, the Company completed the divestiture of its interests in 137 non-operated, producing oil and gas wells located in the McKenzie, Mountrail and Williams counties of North Dakota for aggregate sales proceeds of $27 million (before closing adjustments).

On August 15, 2019, the Company completed the divestiture of its interests in 58 non-operated, producing oil and gas wells located in Richland County, Montana and Mountrail and Williams counties of North Dakota for aggregate sales proceeds of $26 million (before closing adjustments).  

There were no significant acquisitions during the three months ended March 31, 2019.

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4.          LONG-TERM DEBT

Long-term debt, including the current portion, consisted of the following at March 31, 2020 and December 31, 2019 (in thousands):

March 31,

December 31,

    

2020

    

2019

Credit Agreement

$

1,070,000

$

375,000

1.25% Convertible Senior Notes due 2020

186,592

262,075

5.75% Senior Notes due 2021

773,609

773,609

6.25% Senior Notes due 2023

408,296

408,296

6.625% Senior Notes due 2026

1,000,000

1,000,000

Total principal

3,438,497

2,818,980

Unamortized debt discounts and premiums

202

(2,575)

Unamortized debt issuance costs on notes

(15,347)

(16,520)

Total debt

3,423,352

2,799,885

Less current portion of long-term debt (1)

(3,423,352)

-

Total long-term debt

$

-

$

2,799,885

(1)Due to uncertainties as of March 31, 2020 regarding default and the commencement of the Chapter 11 Cases on April 1, 2020, the Company has classified all of its outstanding debt as a current liability as of March 31, 2020.  Refer to the “Basis of Presentation” footnote for more information on the Chapter 11 Cases.

Chapter 11 Cases and Effect of Automatic Stay

On April 1, 2020, the Debtors filed for relief under chapter 11 of the Bankruptcy Code.  The commencement of a voluntary proceeding in bankruptcy constitutes an immediate event of default under the Credit Agreement and the indentures governing the Company’s senior notes, resulting in the automatic and immediate acceleration of all of the Company’s outstanding debt.  In conjunction with the filing of the Chapter 11 Cases, the Company did not make the $187 million principal payment due on the Company’s 1.25% 2020 Convertible Senior Notes due April 1, 2020 (the “2020 Convertible Senior Notes”). Any efforts to enforce payment obligations related to the acceleration of the Company’s debt have been automatically stayed as a result of the filing of the Chapter 11 Cases, and the creditors’ rights of enforcement are subject to the applicable provisions of the Bankruptcy Code. Refer to the “Basis of Presentation” footnote for more information on the Chapter 11 Cases.

Credit Agreement

Whiting Oil and Gas, the Company’s wholly owned subsidiary, has a credit agreement with a syndicate of banks that had a borrowing base of $2.05 billion and aggregate commitments of $1.75 billion as of March 31, 2020.  As of March 31, 2020, the Company had $1.07 billion of borrowings outstanding under the Credit Agreement.  As a result of the commencement of the Chapter 11 Cases, the Company is no longer in compliance with the covenants under the Credit Agreement and the lender’s commitments under the Credit Agreement have been terminated.  The Company is therefore unable to make additional borrowings or issue additional letters of credit under the Credit Agreement.

Prior to default, a portion of the Credit Agreement in an aggregate amount not to exceed $50 million was available to issue letters of credit for the account of Whiting Oil and Gas or other designated subsidiaries of the Company.  As of March 31, 2020, $2 million in letters of credit were outstanding under the agreement.

The borrowing base under the Credit Agreement is determined at the discretion of the lenders, based on the collateral value of the Company’s proved reserves that have been mortgaged to such lenders, and is subject to regular redeterminations on May 1 and November 1 of each year, as well as special redeterminations described in the Credit Agreement.  Such redeterminations are not expected to occur for the duration of the Chapter 11 Cases.

The Credit Agreement provides for interest only payments until maturity, when the Credit Agreement expires and all outstanding borrowings are due.  Interest under the Credit Agreement accrues at the Company’s option at either (i) a base rate for a base rate loan

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plus a margin between 0.50% and 1.50% based on the ratio of outstanding borrowings to the borrowing base, where the base rate is defined as the greatest of the prime rate, the federal funds rate plus 0.5% per annum, or an adjusted LIBOR rate plus 1.0% per annum, or (ii) an adjusted LIBOR rate for a Eurodollar loan plus a margin between 1.50% and 2.50% based on the ratio of outstanding borrowings to the borrowing base.  Additionally, the Company incurs commitment fees of 0.375% or 0.50% based on the ratio of outstanding borrowings to the borrowing base on the unused portion of the aggregate commitments of the lenders under the Credit Agreement, which are included as a component of interest expense.  At March 31, 2020, the weighted average interest rate on the outstanding principal balance under the Credit Agreement was 3.0%.  During the chapter 11 proceedings, all amounts outstanding under the Credit Agreement will bear interest per annum at the applicable rate stated in the agreement plus a 2.0% default rate.

Prior to default, the Credit Agreement had a maturity date of April 12, 2023, provided that if at any time and for so long as any senior notes (other than the 2020 Convertible Senior Notes) had a maturity date prior to 91 days after April 12, 2023, the maturity date shall be the date that is 91 days prior to the maturity of such senior notes.  

The Credit Agreement contains restrictive covenants that may limit the Company’s ability to, among other things, incur additional indebtedness, sell assets, make loans to others, make investments, enter into mergers, enter into hedging contracts, incur liens and engage in certain other transactions without the prior consent of its lenders.  Except for limited exceptions, the Credit Agreement also restricts the Company’s ability to make any dividend payments or distributions on its common stock.  These restrictions apply to all of the Company’s restricted subsidiaries (as defined in the Credit Agreement).  As of March 31, 2020, there were no retained earnings free from restrictions.  The Credit Agreement requires the Company, as of the last day of any quarter, to maintain the following ratios (as defined in the Credit Agreement): (i) a consolidated current assets to consolidated current liabilities ratio (which includes an add back of the available borrowing capacity under the credit agreement) of not less than 1.0 to 1.0 and (ii) a total debt to last four quarters’ EBITDAX ratio of not greater than 4.0 to 1.0.

Under the Credit Agreement, a cross-default provision provides that a default under certain other debt of the Company or certain of its subsidiaries in an aggregate principal amount exceeding $100 million may constitute an event of default under such Credit Agreement.  Additionally, under the indentures governing the Company’s senior notes and senior convertible notes, a cross-default provision provides that a default under certain other debt of the Company or certain of its subsidiaries in an aggregate principal amount exceeding $100 million (or $50 million in the case of the senior notes due in 2021) may constitute an event of default under such indenture.

The obligations of Whiting Oil and Gas under the Credit Agreement are collateralized by a first lien on substantially all of Whiting Oil and Gas’ and Whiting Resource Corporation’s properties.  The Company has guaranteed the obligations of Whiting Oil and Gas under the Credit Agreement and has pledged the stock of its subsidiaries as security for its guarantee.

Senior Notes and Convertible Senior Notes

Senior Notes—In September 2013, the Company issued at par $800 million of 5.75% Senior Notes due March 15, 2021 and issued at 101% of par an additional $400 million of 5.75% Senior Notes due March 15, 2021 (collectively, the “2021 Senior Notes”).  The debt premium recorded in connection with the issuance of the 2021 Senior Notes is being amortized to interest expense over the term of the notes using the effective interest method, with an effective interest rate of 5.5% per annum.

In March 2015, the Company issued at par $750 million of 6.25% Senior Notes due April 1, 2023 (the “2023 Senior Notes”).

In December 2017, the Company issued at par $1.0 billion of 6.625% Senior Notes due January 15, 2026 (the “2026 Senior Notes” and together with the 2021 Senior Notes and the 2023 Senior Notes, the “Senior Notes”).

During 2016, the Company exchanged $326 million aggregate principal amount of 2021 Senior Notes and $342 million aggregate principal amount of 2023 Senior Notes for the same aggregate principal amount of convertible notes.  Subsequently during 2016, all $668 million aggregate principal amount of these convertible notes was converted into approximately 16.3 million shares of the Company’s common stock pursuant to the terms of the notes.

Repurchases of 2021 Senior Notes. In September 2019, the Company paid $24 million to repurchase $25 million aggregate principal amount of the 2021 Senior Notes, which payment consisted of the average 94.708% purchase price plus all accrued and unpaid interest on the notes.  The Company financed the repurchases with borrowings under the Credit Agreement.  As a result of the repurchases, the

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Company recognized a $1 million gain on extinguishment of debt, which included a non-cash charge for the acceleration of unamortized debt issuance costs and debt premium on the notes.

In October 2019, the Company paid an additional $72 million to repurchase $75 million aggregate principal amount of the 2021 Senior Notes, which payment consisted of the average 95.467% purchase price plus all accrued and unpaid interest on the notes.  The Company financed the repurchases with borrowings under the Credit Agreement.  As a result of the repurchases, the Company recognized a $3 million gain on extinguishment of debt, which included a noncash charge for the acceleration of unamortized debt issuance costs and debt premium on the notes.  As of March 31, 2020, $774 million of 2021 Senior Notes remained outstanding.

2020 Convertible Senior Notes—In March 2015, the Company issued at par $1.25 billion of the 2020 Convertible Senior Notes for net proceeds of $1.2 billion, net of initial purchasers’ fees of $25 million.  During 2016, the Company exchanged $688 million aggregate principal amount of its 2020 Convertible Senior Notes for the same aggregate principal amount of new mandatory convertible senior notes.  Subsequently during 2016, all $688 million aggregate principal amount of these mandatory convertible notes was converted into approximately 17.8 million shares of the Company’s common stock pursuant to the terms of the notes.

In September 2019, the Company paid $299 million to complete a cash tender offer for $300 million aggregate principal amount of the 2020 Convertible Senior Notes, which payment consisted of the 99.0% purchase price plus all accrued and unpaid interest on the notes, which were allocated to the liability and equity components based on their relative fair values.  The Company financed the tender offer with borrowings under the Credit Agreement.  As a result of the tender offer, the Company recognized a $4 million gain on extinguishment of debt, which was net of a $7 million charge for the non-cash write-off of unamortized debt issuance costs and debt discount and a $1 million charge for transaction costs.  In addition, the Company recorded an $8 million reduction to the equity component of the 2020 Convertible Senior Notes.  There was no deferred tax impact associated with this reduction due to the full valuation allowance in effect as of September 30, 2019.

In March 2020, the Company paid $53 million to repurchase $73 million aggregate principal amount of the 2020 Convertible Senior Notes, which payment consisted of the average 72.5% purchase price plus all accrued and unpaid interest on the notes, which were allocated to the liability and equity components based on their relative fair values.  The Company financed the repurchases with borrowings under the Credit Agreement.  As a result of these repurchases, the Company recognized a $23 million gain on extinguishment of debt, which was net of a $0.2 million charge for the non-cash write-off of unamortized debt issuance costs and debt discount.  In addition, the Company recorded a $3 million reduction to the equity component of the 2020 Convertible Senior Notes.  There was no deferred tax impact associated with this reduction due to the full valuation allowance in effect as of March 31, 2020.

Prior to January 1, 2020, the 2020 Convertible Senior Notes were convertible only upon the achievement of certain contingent market conditions, which were not met.  After January 1, 2020, the 2020 Convertible Senior Notes were convertible at any time until the second scheduled trading day immediately preceding the April 1, 2020 maturity date of the notes and holders of $3 million aggregate principal amount of 2020 Convertible Senior Notes timely elected to convert.  Upon conversion, such holders of the converted 2020 Convertible Senior Notes were entitled to receive an insignificant cash payment on April 1, 2020, which the Company did not pay.  As a result of such conversion the Company recognized a $3 million gain on extinguishment of debt for the three months ended March 31, 2020.  Additionally, at maturity, the Company was obligated to pay in cash the $187 million outstanding principal amount of the 2020 Convertible Senior Notes that did not convert, which the Company did not pay.  Under the Bankruptcy Code, the holders of the 2020 Convertible Senior Notes and the prior holders that converted their notes are stayed from taking any action against the Company as a result of the Company’s non-payment.  Refer to “Chapter 11 Cases and Effect of Automatic Stay” above for more information.  

Upon issuance, the Company separately accounted for the liability and equity components of the 2020 Convertible Senior Notes.  The liability component was recorded at the estimated fair value of a similar debt instrument without the conversion feature.  The difference between the principal amount of the 2020 Convertible Senior Notes and the estimated fair value of the liability component was recorded as a debt discount and was amortized to interest expense over the term of the notes using the effective interest method, with an effective interest rate of 5.6% per annum.  The fair value of the liability component of the 2020 Convertible Senior Notes as of the issuance date was estimated at $1.0 billion, resulting in a debt discount at inception of $238 million.  The equity component, representing the value of the conversion option, was computed by deducting the fair value of the liability component from the initial proceeds of the 2020 Convertible Senior Notes issuance.  This equity component was recorded, net of deferred taxes and issuance costs, in additional paid-in capital within shareholders’ equity, and will not be remeasured as long as it continues to meet the conditions for equity classification.

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Transaction costs related to the 2020 Convertible Senior Notes issuance were allocated to the liability and equity components based on their relative fair values.  Issuance costs attributable to the liability component were recorded as a reduction to the carrying value of long-term debt on the consolidated balance sheet and are being amortized to interest expense over the term of the notes using the effective interest method.  Issuance costs attributable to the equity component were recorded as a charge to additional paid-in capital within shareholders’ equity.

The 2020 Convertible Senior Notes consisted of the following at March 31, 2020 and December 31, 2019 (in thousands):

March 31,

December 31,

    

2020

    

2019

Liability component

Principal

$

186,592

$

262,075

Less: unamortized note discount

-

(2,829)

Less: unamortized debt issuance costs

-

(220)

Net carrying value

$

186,592

$

259,026

Equity component (1)

$

125,009

$

128,452

(1)Recorded in additional paid-in capital, net of $5 million of issuance costs and $50 million of deferred taxes.

Interest expense recognized on the 2020 Convertible Senior Notes related to the stated interest rate and amortization of the debt discount totaled $3 million and $7 million for the three months ended March 31, 2020 and 2019, respectively.

Security and Guarantees

The Senior Notes and the 2020 Convertible Senior Notes are unsecured obligations of Whiting Petroleum Corporation and these unsecured obligations are subordinated to all of the Company’s secured indebtedness, which consists of the Credit Agreement.

The Company’s obligations under the Senior Notes and the 2020 Convertible Senior Notes are guaranteed by the Company’s 100%-owned subsidiaries, Whiting Oil and Gas, Whiting US Holding Company, Whiting Canadian Holding Company ULC and Whiting Resources Corporation (the “Guarantors”).  These guarantees are full and unconditional and joint and several among the Guarantors.  Any subsidiaries other than these Guarantors are minor subsidiaries as defined by Rule 3-10(h)(6) of Regulation S-X of the SEC.  Whiting Petroleum Corporation has no assets or operations independent of this debt and its investments in its consolidated subsidiaries.

5.          ASSET RETIREMENT OBLIGATIONS

The Company’s asset retirement obligations represent the present value of estimated future costs associated with the plugging and abandonment of oil and gas wells, removal of equipment and facilities from leased acreage, and land restoration (including removal of certain onshore and offshore facilities in California) in accordance with applicable local, state and federal laws.  The current portions as of March 31, 2020 and December 31, 2019 were $4 million and have been included in accrued liabilities and other in the consolidated balance sheets.  The following table provides a reconciliation of the Company’s asset retirement obligations for the three months ended March 31, 2020 (in thousands):

Asset retirement obligation at January 1, 2020

$

134,893

Additional liability incurred

27

Revisions to estimated cash flows

10

Accretion expense

3,027

Obligations on sold properties

(652)

Liabilities settled

(679)

Asset retirement obligation at March 31, 2020

$

136,626

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6.          DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to certain risks relating to its ongoing business operations, and it uses derivative instruments to manage its commodity price risk.  In addition, the Company periodically enters into contracts that contain embedded features which are required to be bifurcated and accounted for separately as derivatives.

Commodity Derivative ContractsHistorically, prices received for crude oil and natural gas production have been volatile because of supply and demand factors, worldwide political factors, general economic conditions and seasonal weather patterns.  Whiting primarily enters into derivative contracts such as crude oil collars, swaps and options to achieve a more predictable cash flow by reducing its exposure to commodity price volatility, thereby ensuring adequate funding for the Company’s capital programs and facilitating the management of returns on drilling programs and acquisitions.  The Company does not enter into derivative contracts for speculative or trading purposes.

Crude Oil Collars, Swaps and Options.  Collars are designed to establish floor and ceiling prices on anticipated future oil or gas production, while swaps and options establish a fixed price for anticipated future oil or gas production.  While the use of these derivative instruments limits the downside risk of adverse price movements, they may also limit future revenues from favorable price movements.

The table below details the Company’s collar, swap and option derivatives entered into to hedge forecasted crude oil production revenues as of March 31, 2020.

Weighted Average Prices

Commodity

Settlement Period

Index

Derivative Instrument

Contracted Crude Oil Volumes (Bbl)

Swap Price

Sub-Floor

Floor

Ceiling

Crude Oil

2020

NYMEX WTI

Fixed Price Swaps

3,660,000

$54.97

-

-

-

Crude Oil

2020

NYMEX WTI

Two-way Collars

2,477,000

-

-

$55.11

$62.38

Crude Oil

2020

NYMEX WTI

Three-way Collars (1)

2,107,000

-

$43.31

$53.68

$63.06

Crude Oil

2021

NYMEX WTI

Three-way Collars (1)

1,825,000

-

$43.50

$53.50

$59.45

Crude Oil

2021

NYMEX WTI

Call Option (2)

365,000

-

-

-

$65.00

Total

10,434,000

(1)The Company is contracted to pay deferred premiums related to certain three-way collars at each settlement date.  The weighted average premium for all three-way collars was $0.51 per Bbl as of March 31, 2020.
(2)This derivative instrument is a sold call option.

Effect of Chapter 11 Cases—The commencement of the Chapter 11 Cases constitutes a termination event with respect to the Company’s derivative instruments, which permits the counterparties to such derivative instruments to terminate their outstanding hedges.  Such termination events are not stayed under the Bankruptcy Code.  During April 2020, certain of the lenders under the Credit Agreement elected to terminate their master ISDA agreements and outstanding hedges with the Company for aggregate settlement proceeds of $145 million.  The proceeds from these terminations along with $13 million of March 2020 hedge settlement proceeds received in April 2020 were applied to the outstanding borrowings under the Credit Agreement.  An additional $23 million of settlement proceeds from terminated derivative positions will be held in escrow until the completion of the Chapter 11 Cases.  After the April 2020 terminations, the remaining active contracts consisted of swap contracts for 639,000 Bbl for the remainder of 2020 at a weighted average price of $58.63.  

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Derivative Instrument Reporting—All derivative instruments are recorded in the condensed consolidated financial statements at fair value, other than derivative instruments that meet the “normal purchase normal sale” exclusion or other derivative scope exceptions.  The following table summarizes the effects of derivative instruments on the condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 (in thousands):

(Gain) Loss Recognized in Income

Not Designated as

Statement of Operations

Three Months Ended March 31,

ASC 815 Hedges

Classification

2020

2019

Commodity contracts

Derivative (gain) loss, net

$

(231,371)

$

62,905

Total

$

(231,371)

$

62,905

Offsetting of Derivative Assets and Liabilities.  The Company nets its financial derivative instrument fair value amounts executed with the same counterparty pursuant to ISDA master agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract.  The following tables summarize the location and fair value amounts of all the Company’s derivative instruments in the consolidated balance sheets, as well as the gross recognized derivative assets, liabilities and amounts offset in the consolidated balance sheets (in thousands):

March 31, 2020 (1)

Net

Gross

Recognized

Recognized

Gross

Fair Value

Not Designated as 

Assets/

Amounts

Assets/

ASC 815 Hedges

    

Balance Sheet Classification

    

Liabilities

    

Offset 

    

Liabilities

Derivative assets

Commodity contracts - current

Derivative assets

$

216,285

$

(36,945)

$

179,340

Commodity contracts - non-current

Other long-term assets

23,499

(13,573)

9,926

Total derivative assets

$

239,784

$

(50,518)

$

189,266

Derivative liabilities

Commodity contracts - current

Accrued liabilities and other

$

36,945

$

(36,945)

$

-

Commodity contracts - non-current

Other long-term liabilities

13,573

(13,573)

-

Total derivative liabilities

$

50,518

$

(50,518)

$

-

December 31, 2019 (1)

Net

Gross

Recognized

Recognized

Gross

Fair Value

Not Designated as 

Assets/

Amounts

Assets/

ASC 815 Hedges

    

Balance Sheet Classification

    

Liabilities

    

Offset 

    

Liabilities

Derivative assets

Commodity contracts - current

Derivative assets

$

75,654

$

(74,768)

$

886

Commodity contracts - non-current

Other long-term assets

5,648

(5,648)

-

Total derivative assets

$

81,302

$

(80,416)

$

886

Derivative liabilities

Commodity contracts - current

Accrued liabilities and other

$

85,053

$

(74,768)

$

10,285

Commodity contracts - non-current

Other long-term liabilities

6,534

(5,648)

886

Total derivative liabilities

$

91,587

$

(80,416)

$

11,171

(1)Because counterparties to the Company’s financial derivative contracts subject to master netting arrangements are lenders under the Credit Agreement, which eliminates its need to post or receive collateral associated with its derivative positions, columns for cash collateral pledged or received have not been presented in these tables.

Contingent Features in Financial Derivative Instruments.  None of the Company’s derivative instruments contain credit-risk-related contingent features.  Counterparties to the Company’s financial derivative contracts are high credit-quality financial institutions that are

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lenders under the Credit Agreement.  The Company uses only Credit Agreement participants to hedge with, since these institutions are secured equally with the holders of Whiting’s bank debt, which eliminates the potential need to post collateral when Whiting is in a derivative liability position.  As a result, the Company is not required to post letters of credit or corporate guarantees for its derivative counterparties in order to secure contract performance obligations.

7.          FAIR VALUE MEASUREMENTS

The Company follows FASB ASC Topic 820, Fair Value Measurement and Disclosure, which establishes a three-level valuation hierarchy for disclosure of fair value measurements.  The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement.  The three levels are defined as follows:

Level 1:  Quoted Prices in Active Markets for Identical Assets – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2:  Significant Other Observable Inputs – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3:  Significant Unobservable Inputs – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Cash, cash equivalents, accounts receivable and accounts payable are carried at cost, which approximates their fair value because of the short-term maturity of these instruments.  The Company’s Credit Agreement has a recorded value that approximates its fair value since its variable interest rate is tied to current market rates and the applicable margins represent market rates.

The Company’s senior notes are recorded at cost and the convertible senior notes are recorded at fair value at the date of issuance.  The following table summarizes the fair values and carrying values of these instruments as of March 31, 2020 and December 31, 2019 (in thousands):