10-Q 1 wll-20220331x10q.htm WHITING PETROLEUM CORP FORM 10-Q, 3-31-2022
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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, 2022

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

WLL

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  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Yes      No  

Number of shares of the registrant’s common stock outstanding at April 29, 2022: 39,241,819 shares.

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.

“basis swap” or “differential swap” A derivative instrument that guarantees a fixed price differential to NYMEX at a specified delivery point.  We receive the difference between the floating market price differential and the fixed price differential from the counterparty if the floating market differential is greater than the fixed price differential for the hedged commodity.  We pay the difference between the floating market price differential and the fixed price differential to the counterparty if the fixed price differential is greater than the floating market differential for the hedged commodity.

“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.

“Board” The board of directors of Whiting Petroleum Corporation.

“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.

“Credit Agreement” A reserves-based credit facility with a syndicate of banks that was entered into by Whiting Petroleum Corporation, as parent guarantor, and Whiting Oil and Gas Corporation, as borrower on September 1, 2020.  Refer to the Long-Term Debt footnote in Item 1. “Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q 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”

1

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.

“gross acres” or “gross wells” The total acres or wells, as the case may be, in which a working interest is owned.

“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, 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 acres” or “net wells” The sum of the fractional working interests owned in gross acres or wells, as the case may be.

“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.

“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.

2

“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
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 or carbon dioxide 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.

3

“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.

“SOFR” Secured overnight financing rate.

“turn-in-line” or “TIL” To turn a drilled and completed well online to begin sales.

“two-way 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.  

“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.

4

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,

2022

2021

ASSETS

Current assets:

Cash and cash equivalents

$

208

$

41,245

Accounts receivable trade, net

333,318

279,865

Prepaid expenses and other

13,626

17,158

Total current assets

347,152

338,268

Property and equipment:

Oil and gas properties, successful efforts method

2,642,670

2,274,908

Other property and equipment

63,351

61,624

Total property and equipment

2,706,021

2,336,532

Less accumulated depreciation, depletion and amortization

(301,516)

(254,237)

Total property and equipment, net

2,404,505

2,082,295

Other long-term assets

38,218

37,368

TOTAL ASSETS

$

2,789,875

$

2,457,931

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable trade

$

102,321

$

48,641

Revenues and royalties payable

212,892

258,527

Accrued capital expenditures

55,572

38,914

Accrued liabilities and other

44,077

30,726

Accrued lease operating expenses

28,547

32,408

Taxes payable

30,544

18,864

Derivative liabilities

506,868

209,653

Total current liabilities

980,821

637,733

Long-term debt

50,000

-

Asset retirement obligations

95,094

93,915

Operating lease obligations

14,067

14,710

Long-term derivative liabilities

33,454

46,720

Other long-term liabilities

706

1,228

Total liabilities

1,174,142

794,306

Commitments and contingencies

Equity:

Common stock, $0.001 par value, 500,000,000 shares authorized; 39,241,584 issued and outstanding as of March 31, 2022 and 39,133,637 issued and outstanding as of December 31, 2021

39

39

Additional paid-in capital

1,196,169

1,196,607

Accumulated earnings

419,525

466,979

Total equity

1,615,733

1,663,625

TOTAL LIABILITIES AND EQUITY

$

2,789,875

$

2,457,931

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

5

WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except per share data)

Three Months Ended March 31,

2022

2021

OPERATING REVENUES

Oil, NGL and natural gas sales

$

520,216

$

304,679

Purchased gas sales

6,640

2,712

Total operating revenues

526,856

307,391

OPERATING EXPENSES

Lease operating expenses

72,505

59,339

Transportation, gathering, compression and other

6,760

7,028

Purchased gas expense

5,538

1,902

Production and ad valorem taxes

37,893

24,150

Depreciation, depletion and amortization

49,233

53,729

Exploration and impairment

2,200

2,622

General and administrative

18,585

10,291

Derivative loss, net

428,678

146,693

Total operating expenses

621,392

305,754

INCOME (LOSS) FROM OPERATIONS

(94,536)

1,637

OTHER INCOME (EXPENSE)

Interest expense

(2,278)

(5,103)

Bargain purchase gain

66,270

-

Other income

402

2,520

Total other income (expense)

64,394

(2,583)

LOSS BEFORE INCOME TAXES

(30,142)

(946)

INCOME TAX EXPENSE

7,287

-

NET LOSS

$

(37,429)

$

(946)

LOSS PER COMMON SHARE

Basic

$

(0.95)

$

(0.02)

Diluted

$

(0.95)

$

(0.02)

WEIGHTED AVERAGE SHARES OUTSTANDING

Basic

39,204

38,698

Diluted

39,204

38,698

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

6

WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Three Months Ended March 31,

2022

  

2021

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net loss

$

(37,429)

$

(946)

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

Depreciation, depletion and amortization

49,233

53,729

Amortization of debt issuance costs

894

887

Stock-based compensation

4,038

2,309

Oil and gas property impairments

1,282

1,441

Bargain purchase gain

(66,270)

-

Non-cash derivative loss

287,140

107,399

Other, net

2,353

(973)

Changes in current assets and liabilities:

Accounts receivable trade, net

(53,880)

(58,032)

Prepaid expenses and other

159

3,906

Accounts payable trade and accrued liabilities

55,043

18,570

Revenues and royalties payable

(45,635)

20,699

Taxes payable

11,680

4,204

Net cash provided by operating activities

208,608

153,193

CASH FLOWS FROM INVESTING ACTIVITIES

Drilling and development capital expenditures

(72,811)

(35,728)

Acquisition of oil and gas properties

(213,964)

(470)

Other property and equipment

1,222

(2,597)

Proceeds from sale of properties

1,510

1,945

Net cash used in investing activities

(284,043)

(36,850)

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings under Credit Agreement

506,500

250,000

Repayments of borrowings under Credit Agreement

(456,500)

(365,000)

Dividends paid to shareholders

(9,810)

-

Principal payments on finance lease obligations

(373)

(1,249)

Restricted stock used for tax withholdings

(5,419)

(1,357)

Net cash provided by (used in) financing activities

$

34,398

$

(117,606)

(Continued)

7

WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Three Months Ended March 31,

2022

  

2021

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

$

(41,037)

$

(1,263)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Beginning of period

41,245

28,367

End of period

$

208

$

27,104

SUPPLEMENTAL CASH FLOW DISCLOSURES

Cash paid for reorganization items

$

-

$

396

NONCASH INVESTING ACTIVITIES

Accrued capital expenditures and accounts payable related to property additions

$

64,275

$

34,121

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

(Concluded)

8

WHITING PETROLEUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

(in thousands)

Additional

Common Stock

Paid-in

Accumulated

Total

Shares

Amount

Capital

Earnings

Equity

BALANCES - January 1, 2021

38,051

$

38

$

1,189,693

$

39,073

$

1,228,804

Net loss

-

-

-

(946)

(946)

Common stock issued in settlement of bankruptcy claims

949

1

(1)

-

-

Restricted stock issued

95

-

-

-

-

Restricted stock used for tax withholdings

(41)

-

(1,357)

-

(1,357)

Stock-based compensation

-

-

2,309

-

2,309

BALANCES - March 31, 2021

39,054

$

39

$

1,190,644

$

38,127

$

1,228,810

BALANCES - January 1, 2022

39,134

$

39

$

1,196,607

$

466,979

$

1,663,625

Net loss

-

-

-

(37,429)

(37,429)

Restricted stock issued

179

-

-

-

-

Restricted stock used for tax withholdings

(71)

-

(5,419)

-

(5,419)

Stock-based compensation

-

-

4,792

-

4,792

Dividends paid to shareholders and dividend equivalents payable to equity award holders

-

-

189

(10,025)

(9,836)

BALANCES - March 31, 2022

39,242

$

39

$

1,196,169

$

419,525

$

1,615,733

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

9

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 and acquisition 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, together with its consolidated subsidiaries, Whiting Oil and Gas Corporation (“Whiting Oil and Gas” or “WOG”) and Whiting Programs, Inc.  When the context requires, the Company refers to these entities separately.  

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, 2021, as amended.  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 Annual Report on Form 10-K for the period ending December 31, 2021, as amended.

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 insurance limits as of March 31, 2022 and December 31, 2021.  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 and the impact that any current or future conditions could have on a counterparty’s credit quality and liquidity.  As of December 31, 2021, the Company had an immaterial allowance for credit losses.  There were no material changes in the estimate of expected credit losses at March 31, 2022.

Voluntary Reorganization under Chapter 11 of the Bankruptcy Code—On April 1, 2020, Whiting and certain of its subsidiaries (the “Debtors”) commenced voluntary cases (the “Chapter 11 Cases”) under chapter 11 of the Bankruptcy Code.  On June 30, 2020, the Debtors filed the Joint Chapter 11 Plan of Reorganization of Whiting Petroleum Corporation and its Debtor affiliates (as amended, modified and supplemented, the “Plan”).  On August 14, 2020 the Bankruptcy Court confirmed the Plan and on September 1, 2020, the Debtors satisfied all conditions required for Plan effectiveness and emerged from the Chapter 11 Cases.

10

Proposed Merger with Oasis Petroleum Inc.On March 7, 2022, Whiting entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Oasis Petroleum Inc., a Delaware corporation (“Oasis”), Ohm Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Oasis (“Merger Sub”), and New Ohm LLC, a Delaware limited liability company and a wholly owned subsidiary of Oasis, pursuant to which, among other things, Whiting will merge with Merger Sub in a merger of equals (the “Merger”).  The Merger is subject to customary closing conditions, including, among others, approval by Whiting and Oasis shareholders.  The Company currently expects the Merger to close in the second half of 2022.  Upon closing, Lynn A. Peterson, Whiting’s President and Chief Executive Officer, will serve as Executive Chair of the Board of Directors of the combined company, and Daniel E. Brown, Oasis’ Chief Executive Officer, will serve as President and Chief Executive Officer and as a member of the Board of Directors of the combined company.

2.          OIL AND GAS PROPERTIES

Net capitalized costs related to the Company’s oil and gas producing activities at March 31, 2022 and December 31, 2021 are as follows (in thousands):

March 31,

December 31,

    

2022

2021

Proved oil and gas properties

$

2,368,052

$

2,034,533

Unproved leasehold costs

184,268

182,109

Wells and facilities in progress

90,350

58,266

Total oil and gas properties, successful efforts method

2,642,670

2,274,908

Accumulated depletion

(294,663)

(248,298)

Oil and gas properties, net

$

2,348,007

$

2,026,610

Impairment expense for unproved properties totaled $1 million for the three months ended March 31, 2022 and 2021, respectively, and is reported in exploration and impairment expense in the condensed consolidated statements of operations.

Refer to the “Acquisitions and Divestitures” and “Fair Value Measurements” footnotes for more information on recent property acquisitions.

3.          ACQUISITIONS AND DIVESTITURES

2022 Acquisitions and Divestitures

On March 17, 2022, the Company completed the acquisition of additional interests in producing wells, drilled and uncompleted wells and undeveloped properties located in Mountrail County, North Dakota for an aggregate unadjusted purchase price of $240 million.  The purchase and sales agreement had an effective date of November 1, 2021 and contained customary provisions for purchase price adjustments based on actual revenues and property costs relating to the properties occurring between the effective date and March 17, 2022.  The transaction was funded with cash on hand and borrowings under the Credit Agreement.  The revenue and earnings from these properties since the acquisition date are included in the Company’s condensed consolidated financial statements for the three months ended March 31, 2022 and are not material.  Pro forma revenue and earnings for the acquired properties are not material to our condensed consolidated financial statements and have therefore not been presented.  

The acquisition was accounted for as a business combination and was recorded using the acquisition method of accounting in accordance with FASB ASC Topic 805 – Business Combinations.  The following table summarizes the preliminary allocation of the estimated $216 million adjusted purchase price (which remains subject to post-closing adjustments) to the assets acquired and liabilities assumed in this acquisition based on their respective fair values at the acquisition date, which resulted in the recognition of a bargain purchase gain.  Refer to the “Fair Value Measurements” footnote for a detailed discussion of the fair value inputs used by the Company in determining the valuation of the significant assets acquired and liabilities assumed.  As the purchase price is further adjusted for post-closing adjustments and as the oil and gas property valuation is completed, the final purchase price allocation may result in a different allocation than what is presented in the table below (in thousands):

11

Cash consideration

$

240,000

Estimated purchase price adjustments

(24,314)

Adjusted purchase price

$

215,686

Fair Value of Assets Acquired:

Prepaid expenses and other

$

343

Oil and gas properties, successful efforts method:

Proved oil and gas properties

274,276

Unproved leasehold costs

9,730

Total fair value of assets acquired

284,349

Fair Value of Liabilities Assumed:

Asset retirement obligations

2,393

Total fair value of assets acquired and liabilities assumed

281,956

Bargain purchase gain

66,270

Total purchase price

$

215,686

As a result of comparing the adjusted purchase price to the respective fair values of the assets acquired and liabilities assumed in the acquisition, a $66 million bargain purchase gain was recognized.  The bargain purchase gain is primarily the result of a significant increase in crude oil prices between when the Purchase and Sale Agreement was signed and the date Whiting completed the acquisition.

There were no significant divestitures during the three months ended March 31, 2022.

2021 Acquisitions and Divestitures

There were no significant acquisitions or divestitures during the three months ended March 31, 2021.

4.          LONG-TERM DEBT

Long-term debt, consisting entirely of borrowings outstanding under the Credit Agreement, totaled $50 million at March 31, 2022.  At December 31, 2021, the Company had no long-term debt.

Credit Agreement

Whiting Petroleum Corporation, as parent guarantor, and Whiting Oil and Gas, as borrower, have a Credit Agreement with a syndicate of banks.  As of March 31, 2022, the Credit Agreement had a borrowing base and aggregate commitments of $750 million.  As of March 31, 2022, the Company had $699 million of available borrowing capacity under the Credit Agreement, which was net of $50 million of borrowings outstanding and $1 million in letters of credit outstanding.  

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 April 1 and October 1 of each year, as well as special redeterminations described in the Credit Agreement, in each case which may increase or decrease the amount of the borrowing base.  Additionally, the Company can increase the aggregate commitments by up to an additional $750 million, subject to certain conditions. On April 1, 2022, the Company and the lenders under the Credit Agreement agreed to defer the regularly scheduled redetermination scheduled for such date until September 1, 2022.

Up to $50 million of the borrowing base may be used to issue letters of credit for the account of Whiting Oil and Gas or other designated subsidiaries of the Company.  As of March 31, 2022, $49 million was available for additional letters of credit under the Credit Agreement.

12

The Credit Agreement provides for interest only payments until maturity on April 1, 2024, when the agreement terminates and any outstanding borrowings are due.  In addition, the Credit Agreement provides for certain mandatory prepayments, including a provision pursuant to which, if the Company’s cash balances are in excess of approximately $75 million during any given week, such excess must be utilized to repay any outstanding borrowings under the Credit Agreement.  Interest under the Credit Agreement accrues at the Company’s option at either (i) a base rate for a base rate loan plus a margin between 1.75% and 2.75% based on the ratio of outstanding borrowings and letters of credit to the lower of the current borrowing base or total commitments, 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 plus 1.0% per annum, or (ii) an adjusted LIBOR for a eurodollar loan plus a margin between 2.75% and 3.75% based on the ratio of outstanding borrowings and letters of credit to the lower of the current borrowing base or total commitments.  The Credit Agreement also provides that the administrative agent and the Company have the ability to amend the LIBOR rate with a benchmark replacement rate, which may be a SOFR-based rate, if LIBOR borrowings become unavailable.  Additionally, the Company incurs commitment fees of 0.5% 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, 2022, the weighted average interest rate on the outstanding principal balance under the Credit Agreement was 4%.

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.  The Credit Agreement also restricts the Company’s ability to make any dividend payments or distributions of cash on its common stock except to the extent that the Company has distributable free cash flow and (i) has at least 20% of available borrowing capacity, (ii) has a consolidated net leverage ratio of less than or equal to 2.0 to 1.0, (iii) does not have a borrowing base deficiency and (iv) is not in default under the Credit Agreement. These restrictions apply to all of the Company’s restricted subsidiaries and are calculated in accordance with definitions contained in the Credit Agreement. The Credit Agreement requires the Company, as of the last day of any quarter, to maintain commodity hedges covering a minimum of 50% of its projected production for the succeeding twelve months, as reflected in the reserves report most recently provided by the Company to the lenders under the Credit Agreement.  If the Company’s consolidated net leverage ratio equals or exceeds 1.0 to 1.0 as of the last day of any fiscal quarter, the Company will also be required to hedge 35% of its projected production for the second succeeding twelve months.  The Company is also limited to hedging a maximum of 85% of its production from proved reserves.  The Credit Agreement requires the Company to maintain the following ratios (as defined in the Credit Agreement): (i) a consolidated current assets to consolidated current liabilities ratio of not less than 1.0 to 1.0 and (ii) a total debt to last four quarters’ EBITDAX ratio of not greater than 3.5 to 1.0.  As of March 31, 2022, the Company was in compliance with the covenants under the Credit Agreement.

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

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 in accordance with applicable local, state and federal laws and the terms of the Company’s lease agreements.  The current portions as of March 31, 2022 and December 31, 2021 were $13 million and $10 million, respectively, and have been included in accrued liabilities and other in the condensed consolidated balance sheets.  The following table provides a reconciliation of the Company’s asset retirement obligations for the three months ended March 31, 2022 (in thousands):

Asset retirement obligation at January 1, 2022

$

104,067

Additional liability incurred or assumed

3,301

Accretion expense

2,129

Liabilities settled

(1,311)

Asset retirement obligation at March 31, 2022

$

108,186

13

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.

Commodity Derivative ContractsHistorically, prices received for crude oil, natural gas and natural gas liquids 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, natural gas and NGL swaps, collars, basis swaps and differential swaps 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 also enters into derivative contracts to maintain its compliance with certain minimum hedging requirements contained in the Credit Agreement.  Refer to the “Long-Term Debt” footnote for a detailed discussion of the minimum and maximum hedging requirements of the Credit Agreement.  The Company does not enter into derivative contracts for speculative or trading purposes.

Swaps, Collars, Basis Swaps and Differential Swaps.  Swaps establish a fixed price for anticipated future oil, gas or NGL production, while collars are designed to establish floor and ceiling prices on anticipated future production.  Basis and differential swaps mitigate risk associated with anticipated future production by establishing a fixed differential between NYMEX prices and the index price referenced in the contract.  While the use of these derivative instruments limits the downside risk of adverse price movements, it may also limit future income from favorable price movements.  

The table below details the Company’s swap and collar derivatives entered into to hedge forecasted crude oil, natural gas and NGL production revenues as of March 31, 2022.

Weighted Average

Settlement Period

Index

Derivative Instrument

Total Volumes

Units

Swap Price

Floor

Ceiling

Crude Oil

2022

NYMEX WTI

Fixed Price Swaps

2,750,000

Bbl

$78.08

-

-

2022

NYMEX WTI

Two-way Collars

8,722,000

Bbl

-

$47.28

$57.72

Q1-Q2 2023

NYMEX WTI

Fixed Price Swaps

1,172,000

Bbl

$76.79

-

-

Q1-Q3 2023

NYMEX WTI

Two-way Collars

3,443,500

Bbl

-

$46.75

$58.87

Total

16,087,500

Natural Gas

2022

NYMEX Henry Hub

Fixed Price Swaps

9,054,000

MMBtu

$3.59

-

-

2022

NYMEX Henry Hub

Two-way Collars

12,804,000

MMBtu

-

$2.60

$3.20

Q1 2023

NYMEX Henry Hub

Fixed Price Swaps

1,800,000

MMBtu

$4.25

-

-

Q1-Q3 2023

NYMEX Henry Hub

Two-way Collars

8,799,000

MMBtu

-

$2.85

$3.57

Total

32,457,000

Natural Gas Basis (1)

2022

NNG Ventura to NYMEX

Fixed Price Swaps

1,985,000

MMBtu

$0.21

-

-

Q1-Q2 2023

NNG Ventura to NYMEX

Fixed Price Swaps

5,920,000

MMBtu

$0.40

-

-

Total

7,905,000

NGL - Propane

2022

Mont Belvieu

Fixed Price Swaps

13,461,000

Gallons

$1.06

-

-

2022

Conway

Fixed Price Swaps

46,200,000

Gallons

$1.04

-

-

Q1 2023

Conway

Fixed Price Swaps

7,560,000

Gallons

$1.16

-

-

Total

67,221,000

(1)The weighted average price associated with the natural gas basis swaps shown in the table above represents the average fixed differential to NYMEX as stated in the related contracts, which is compared to the Northern Natural Gas Ventura Index (“NNG Ventura”) for each period.  If NYMEX combined with the fixed differential as stated in each contract is higher than the NNG Ventura index price at any settlement date, the Company receives the difference.  Conversely, if the NNG Ventura index price is higher than NYMEX combined with the fixed differential, the Company pays the difference.

14

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.  Fair value gains and losses on the Company’s derivative instruments are recognized immediately in earnings as derivatives (gain) loss, net in the condensed consolidated statements of operations.

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 condensed consolidated balance sheets, as well as the gross recognized derivative assets, liabilities and amounts offset in the condensed consolidated balance sheets (in thousands):

March 31, 2022 (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

Prepaid expenses and other

$

14,038

$

(14,038)

$

-

Commodity contracts - non-current

Other long-term assets

4,295

(4,114)

181

Total derivative assets

$

18,333

$

(18,152)

$

181

Derivative Liabilities

Commodity contracts - current

Derivative liabilities

$

520,906

$

(14,038)

$

506,868

Commodity contracts - non-current

Long-term derivative liabilities

37,568

(4,114)

33,454

Total derivative liabilities

$

558,474

$

(18,152)

$

540,322

December 31, 2021 (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

Prepaid expenses and other

$

34,375

$

(31,002)

$

3,373

Commodity contracts - non-current

Other long-term assets

13,674

(13,674)

-

Total derivative assets

$

48,049

$

(44,676)

$

3,373

Derivative Liabilities

Commodity contracts - current

Derivative liabilities

$

240,655

$

(31,002)

$

209,653

Commodity contracts - non-current

Long-term derivative liabilities

60,394

(13,674)

46,720

Total derivative liabilities

$

301,049

$

(44,676)

$

256,373

(1)All of the counterparties to the Company’s financial derivative contracts subject to master netting arrangements are lenders under the Credit Agreement, which eliminates the need to post or receive collateral associated with its derivative positions other than that already provided under the Credit Agreement.  Therefore, 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 lenders under the Credit Agreement.  The Company uses Credit Agreement participants as hedge counterparties 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.

15

7.          FAIR VALUE MEASUREMENTS

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 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 derivative financial instruments are recorded at fair value and include a measure of the Company’s own nonperformance risk or that of its counterparty, as appropriate.  The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values (in thousands):

Total Fair Value

    

Level 1

    

Level 2

    

Level 3

    

March 31, 2022

Financial Assets

Commodity derivatives – non-current

$

-

$

181

$

-

$

181

Total financial assets

$

-

$

181

$

-

$

181

Financial Liabilities

Commodity derivatives – current

$

-

$

506,868

$

-

$

506,868

Commodity derivatives – non-current

-

33,454

-

33,454

Total financial liabilities

$

-

$

540,322

$

-

$

540,322

Total Fair Value

    

Level 1

    

Level 2

    

Level 3

    

December 31, 2021

Financial Assets

Commodity derivatives – current

$

-

$

3,373

$

-

$

3,373

Total financial assets

$

-

$

3,373

$

-

$

3,373

Financial Liabilities

Commodity derivatives – current

$

-

$

209,653

$

-

$

209,653

Commodity derivatives – non-current

-

46,720

-

46,720

Total financial liabilities

$

-

$

256,373

$

-

$

256,373

The following methods and assumptions were used to estimate the fair values of the Company’s financial assets and liabilities that are measured on a recurring basis:

Commodity Derivatives.  Commodity derivative instruments consist mainly of swaps, collars, basis swaps and differential swaps for crude oil, natural gas and NGLs.  The Company’s swaps, collars and basis swaps are valued based on an income approach.  Both the option and swap models consider various assumptions, such as quoted forward prices for commodities, time value and volatility factors.  These assumptions are observable in the marketplace throughout the full term of the contract, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace and are therefore designated as Level 2 within the valuation hierarchy.  The discount rates used in the fair values of these instruments include a measure of either the Company’s or the counterparty’s nonperformance risk, as appropriate.  The Company utilizes its counterparties’ valuations to assess the reasonableness of its own valuations.

Non-recurring Fair Value Measurements—Nonfinancial assets and liabilities, such as the initial measurement of oil and natural gas properties and asset retirement obligations upon acquisition or the impairment of proved properties, are recognized at fair value on a nonrecurring basis.  These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances.  The Company did not recognize any impairment write-downs with respect to its proved property during the periods presented.  

16

Williston Basin Acquisition.  On March 17, 2022, the Company acquired additional interests in oil and gas properties in the Williston Basin, as further described in the “Acquisitions and Divestitures” footnote above.  The assets acquired and liabilities assumed were recorded at their fair values as of March 17, 2022.  The inputs utilized in the valuation of the oil and gas properties and related assets acquired included mostly unobservable inputs which fall within Level 3 of the fair value hierarchy.  Such inputs included estimates of future oil and gas production from the properties’ reserve reports, commodity prices based on forward strip price curves (adjusted for basis differentials) as of March 17, 2022, operating and development costs, expected future development plans for the properties and a discount rate of 13% based on a weighted-average cost of capital.  The Company also recorded the asset retirement obligations assumed at fair value.  The inputs utilized in valuing the asset retirement obligations were mostly Level 3 unobservable inputs, including estimated economic lives of oil and natural gas wells as of March 17, 2022, anticipated future plugging and abandonment costs and an appropriate credit-adjusted risk-free rate to discount such costs.

8.          REVENUE RECOGNITION

The tables below present the disaggregation of revenue by product and transaction type for the periods presented (in thousands):

Three Months Ended March 31,

OPERATING REVENUES

2022

2021

Oil sales

$

429,758

$

256,709

NGL and natural gas sales

90,458

47,970

Oil, NGL and natural gas sales

520,216

304,679

Purchased gas sales

6,640

2,712

Total operating revenues

$

526,856

$

307,391

Whiting receives payment for product sales from one to three months after delivery.  At the end of each month when the performance obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are accrued in accounts receivable trade, net in the condensed consolidated balance sheets.  As of March 31, 2022 and December 31, 2021, such receivable balances were $229 million and $178 million, respectively.  Variances between the Company’s estimated revenue and actual payments are recorded in the month the payment is received, but differences have been and are insignificant.  Accordingly, the variable consideration is not constrained.

9.        SHAREHOLDERS’ EQUITY

Common StockThe Company previously filed an amended and restated certificate of incorporation with the Delaware Secretary of State to provide for, among other things, the authority to issue a total of 550,000,000 shares of all classes of capital stock, of which 500,000,000 shares are common stock, par value $0.001 per share (the “Common Stock”) and 50,000,000 shares are preferred stock, par value $0.001 per share.

WarrantsThe Company entered into warrant agreements on September 1, 2020 with Computershare Inc. and Computershare Trust Company, N.A., as warrant agent, which provide for (i) the Company’s issuance of up to an aggregate of 4,837,821 Series A warrants to acquire Common Stock (the “Series A Warrants”) and (ii) the Company’s issuance of up to an aggregate of 2,418,910 Series B warrants to acquire Common Stock (the “Series B Warrants” and together with the Series A Warrants, the “Warrants”).  

The Series A Warrants are exercisable from the date of issuance until September 1, 2024, at which time all unexercised Series A Warrants will expire and the rights of the holders of such warrants to acquire Common Stock will terminate.  The Series A Warrants are initially exercisable for one share of Common Stock per Series A Warrant at an initial exercise price of $73.44 per Series A Warrant (the “Series A Exercise Price”).

The Series B Warrants are exercisable from the date of issuance until September 1, 2025, at which time all unexercised Series B Warrants will expire and the rights of the holders of such warrants to acquire Common Stock will terminate.  The Series B Warrants are initially exercisable for one share of Common Stock per Series B Warrant at an initial exercise price of $83.45 per Series B Warrant (the “Series B Exercise Price” and together with the Series A Exercise Price, the “Exercise Prices”).

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In the event that a holder of Warrants elects to exercise their option to acquire shares of Common Stock, the Company shall issue a net number of exercised shares of Common Stock.  The net number of exercised shares is calculated as (i) the number of Warrants exercised multiplied by (ii) the difference between the 30 day daily volume weighted average price (“VWAP”) of the Common Stock leading up to the exercise date (the “Current Market Price”) and the relevant exercise price, calculated as a percentage of the Current Market Price on the exercise date.

During the three months ended March 31, 2022, Warrant holders exercised 264 Series A Warrants in exchange for seven shares of Common Stock.  As a result of these exchanges, 4,837,112 Series A Warrants remain outstanding as of March 31, 2022.  2,418,832 Series B Warrants remain outstanding as of March 31, 2022.

Pursuant to the warrant agreements, no holder of a Warrant, by virtue of holding or having a beneficial interest in a Warrant, will have the right to vote, receive dividends, receive notice as stockholders with respect to any meeting of stockholders for the election of Whiting’s directors or any other matter, or exercise any rights whatsoever as a stockholder of Whiting unless, until and only to the extent such holders become holders of record of shares of Common Stock issued upon settlement of the Warrants.

The number of shares of Common Stock for which a Warrant is exercisable and the Exercise Prices are subject to adjustment from time to time upon the occurrence of certain events, including stock splits, reverse stock splits or stock dividends to holders of Common Stock or a reclassification in respect of Common Stock.

DividendsOn February 8, 2022, the Company announced an inaugural quarterly dividend of $0.25 per share.  The first dividend totaling approximately $10 million was paid on March 15, 2022 to shareholders of record as of February 21, 2022.  On April 14, 2022 the Company declared another quarterly cash dividend of $0.25 per share payable June 1, 2022 to shareholders of record as of May 20, 2022.

Settlement of Bankruptcy ClaimsPrior to the Chapter 11 Cases, WOG was party to various executory contracts with BNN Western, LLC, subsequently renamed Tallgrass Water Western, LLC (“Tallgrass”), including a Produced Water Gathering and Disposal Agreement (the “PWA”).  In January 2021, WOG and Tallgrass entered into a settlement agreement to resolve all of the related claims before the Bankruptcy Court relating to such executory contracts, terminated the PWA and entered into a new Water Transport, Gathering and Disposal Agreement.  In accordance with the settlement agreement, Whiting made a $2 million cash payment and issued 948,897 shares of Common Stock to a Tallgrass entity in February 2021.

An additional 2,121,304 shares of Common Stock remain reserved as of March 31, 2022 for potential future distribution to certain general unsecured claimants whose claim values are pending resolution in the Bankruptcy Court.

10.        STOCK-BASED COMPENSATION

Equity Incentive Plan—On September 1, 2020, the Company’s board of directors adopted the Whiting Petroleum Corporation 2020 Equity Incentive Plan (the “2020 Equity Plan”).  The 2020 Equity Plan provides the authority to issue 4,035,885 shares of the Company’s common stock.  Any shares forfeited under the 2020 Equity Plan will be available for future issuance under the 2020 Equity Plan.  However, shares netted for tax withholding under the 2020 Equity Plan will be cancelled and will not be available for future issuance.  Under the 2020 Equity Plan, during any calendar year no non-employee director participant may be granted awards having a grant date fair value in excess of $500,000.  As of March 31, 2022, 2,788,280 shares of common stock remained available for grant under the 2020 Equity Plan.

Historically, the Company has granted restricted stock units (“RSUs”) to executive officers and employees, which generally vest ratably over a two, three or five-year service period.  The Company has granted service-based RSUs to directors, which generally vest over a one-year service period.  In addition, the Company has granted performance share units (“PSUs”) to executive officers that are subject to market-based vesting criteria, which generally vest over a three-year service period.  Additionally, certain of the Company’s executive officers can receive shares for any short-term bonus award in excess of the targets set by the board of directors at the beginning of each year.  The Company accounts for forfeitures of awards granted under these plans as they occur in determining compensation expense.  The Company recognizes compensation expense for all awards subject to market-based vesting conditions regardless of whether it becomes probable that these conditions will be achieved or not, and compensation expense for share-settled awards is not reversed if vesting does not actually occur.

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The Company also grants dividend equivalents on any unvested awards when dividends are paid to shareholders of the Company’s Common Stock.  Dividend equivalents are granted in an amount equal to what would have been paid to the award holder if the unvested shares were outstanding at the dividend record date.  These dividend equivalents are deemed reinvested in additional restricted stock units that are subject to the same terms and conditions and shall vest and be settled or be forfeited at the same time as the awards to which they are attributable.  Any fractional shares that result from dividend equivalents are settled in cash upon vesting.

Awards under the 2020 Equity Plan

In September 2020, 189,900 shares of market-based RSUs were granted to executive officers.  The awards vest upon the Company’s common stock trading for 20 consecutive trading days above a certain daily VWAP as follows: 50% vested when the VWAP exceeded $32.57 per share, an additional 25% vested when the daily VWAP exceeded $48.86 per share and the final 25% vested when the daily VWAP exceeded $65.14 per share.  The Company recognizes compensation expense based on the fair value as determined by a Monte Carlo valuation model (the “Monte Carlo Model”) over the expected vesting period, which was estimated to be between 1.8 and 3.8 years at the grant date.  Upon vesting, any unrecognized compensation expense related to the shares is accelerated and recognized.  The weighted average grant date fair value of these RSUs was $6.54 per share.  More information on the inputs to the Monte Carlo Model are explained below.  During 2021, the first 75% of these awards vested as the Company’s VWAP exceeded both $32.57 and $48.86 per share for 20 consecutive trading days during the period.  During the first quarter of 2022, the remaining 25% of these awards vested as the Company’s VWAP exceeded $65.14 per share for 20 consecutive days during the period.

During the three months ended March 31, 2022 and 2021, 149,200 and 358,123 shares, respectively, of service-based RSUs were granted to executive officers and employees, which vest ratably over either a two or three-year service period.  Additionally, during the three months ended March 31, 2021, 117,607 shares of service-based RSUs were granted to executive officers, which cliff vest on the fifth anniversary of the grant date.  The Company determines compensation expense for these share-settled awards using their fair value at the grant date, which is based on the closing bid price of the Company’s common stock on such date.  The weighted average grant date fair value of serviced-based RSUs was $73.97 per share and $22.46 per share, respectively, for the three months ended March 31, 2022 and 2021.

During the three months ended March 31, 2022 and 2021, 83,946 and 232,150 shares, respectively, of PSUs subject to certain market-based vesting criteria were granted to executive officers.  These market-based awards vest at the end of a three-year performance period, which is December 31, 2024 for the 2022 awards and December 31, 2023 for the 2021 awards.  The number of shares that vest at the end of the performance period is determined based on two performance goals: (i) half of the shares granted in each period vest based on the Company’s annualized absolute total stockholder return (“ATSR”) over the performance period as compared to certain preestablished target returns and (ii) half of the shares vest based on the Company’s relative total stockholder return (“RTSR”) compared to the stockholder returns of a preestablished peer group of companies over the performance period.  The number of awards earned could range from zero up to two times the number of shares initially granted, all of which will be settled in shares.  The weighted average grant date fair value of the market-based awards granted during 2022 was $110.47 per share and $99.63 per share for the ATSR and RTSR awards, respectively, and the weighted average grant date fair value of the market-based awards granted in 2021 was $29.32 per share and $32.33 per share for the ATSR and RTSR awards, respectively.

For awards subject to market conditions, the grant date fair value is estimated using the Monte Carlo Model, which is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment.  Expected volatility for the market-based RSUs was calculated based on the observed volatility of peer public companies.  Expected volatility for the market-based PSUs was calculated based on the historical and implied volatility of Whiting’s common shares (adjusted for the impacts of the Chapter 11 Cases).  The risk-free interest rate is based on U.S. Treasury yield curve rates with maturities consistent with the vesting period for the relevant award.  The key assumptions used in valuing these market-based awards were as follows:

2022

2021

2020

    

PSUs

    

PSUs

RSUs

Number of simulations

 

500,000

 

500,000

 

100,000

Expected volatility

69%

 

81%

40%

Risk-free interest rate

1.37%

 

0.17%

0.66%

Dividend yield

 

-

 

-

 

-

19

During the three months ended March 31, 2022, certain executives received 11,787 shares of common stock as part of their incentive compensation package which represented the portion of their 2021 short-term bonus that was in excess of their target bonus established by the Board at the beginning of the year, in accordance with their employment agreements.  As the bonus amount was determined prior to December 31, 2021, the Company recorded approximately $1 million in stock compensation expense related to these awards during the fourth quarter of 2021, which was recorded to accrued liabilities and other in the Company’s consolidated balance sheets as of December 31, 2021.

The following table shows a summary of the Company’s service-based and market-based awards activity for the three months ended March 31, 2022: