UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from _______________ to _______________
Commission file number:
(Exact name of registrant as specified in its charter) |
| ||
(State or other jurisdiction | (I.R.S. Employer | |
(Address of principal executive offices) | (Zip code) |
( | ||
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
(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.
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).
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.
☒ | 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
Number of shares of the registrant’s common stock outstanding at July 31, 2020:
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 (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share and per share data)
June 30, | December 31, | |||||
2020 | 2019 | |||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | - | ||||
Accounts receivable trade, net | | | ||||
Prepaid expenses and other | | | ||||
Total current assets | | | ||||
Property and equipment: | ||||||
Oil and gas properties, successful efforts method | | | ||||
Other property and equipment | | | ||||
Total property and equipment | | | ||||
Less accumulated depreciation, depletion and amortization | ( | ( | ||||
Total property and equipment, net | | | ||||
Other long-term assets | | | ||||
TOTAL ASSETS | $ | | $ | | ||
LIABILITIES AND EQUITY (DEFICIT) | ||||||
Current liabilities: | ||||||
Current portion of long-term debt | $ | | $ | - | ||
Accounts payable trade | | | ||||
Revenues and royalties payable | | | ||||
Accrued capital expenditures | | | ||||
Accrued liabilities and other | | | ||||
Accrued lease operating expenses | | | ||||
Accrued interest | | | ||||
Taxes payable | | | ||||
Total current liabilities | | | ||||
Long-term debt | - | | ||||
Asset retirement obligations | | | ||||
Operating lease obligations | - | | ||||
Deferred income taxes | | | ||||
Other long-term liabilities | | | ||||
Total liabilities not subject to compromise | | | ||||
Liabilities subject to compromise | | - | ||||
Total liabilities | | | ||||
Commitments and contingencies | ||||||
Equity (Deficit): | ||||||
Common stock, $ | | | ||||
Additional paid-in capital | | | ||||
Accumulated deficit | ( | ( | ||||
Total equity (deficit) | ( | | ||||
TOTAL LIABILITIES AND EQUITY (DEFICIT) | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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WHITING PETROLEUM CORPORATION (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||
OPERATING REVENUES | ||||||||||||
$ | | $ | | $ | | $ | | |||||
OPERATING EXPENSES | ||||||||||||
Lease operating expenses | | | | | ||||||||
Transportation, gathering, compression and other | | | | | ||||||||
Production and ad valorem taxes | | | | | ||||||||
Depreciation, depletion and amortization | | | | | ||||||||
Exploration and impairment | | | | | ||||||||
General and administrative | | | | | ||||||||
Derivative (gain) loss, net |
| |
| ( |
| ( |
| | ||||
(Gain) loss on sale of properties | | | ( | | ||||||||
Amortization of deferred gain on sale | ( | ( | ( | ( | ||||||||
Total operating expenses | | | | | ||||||||
INCOME (LOSS) FROM OPERATIONS | ( | | ( | | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||
Interest expense | ( | ( | ( | ( | ||||||||
Gain on extinguishment of debt | - | - | | - | ||||||||
Interest income and other | | | | | ||||||||
Reorganization items, net | ( | - | ( | - | ||||||||
Total other expense | ( | ( | ( | ( | ||||||||
INCOME (LOSS) BEFORE INCOME TAXES | ( | | ( | ( | ||||||||
INCOME TAX EXPENSE (BENEFIT) | ||||||||||||
Current | ( | - | | - | ||||||||
Deferred | - | | ( | ( | ||||||||
Total income tax expense (benefit) | ( | | ( | ( | ||||||||
NET LOSS | $ | ( | $ | ( | $ | ( | $ | ( | ||||
INCOME (LOSS) PER COMMON SHARE | ||||||||||||
Basic | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||
Basic | | | | | ||||||||
Diluted | | | | | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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WHITING PETROLEUM CORPORATION (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
Six Months Ended June 30, | ||||||
2020 | 2019 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||
Depreciation, depletion and amortization | | | ||||
Deferred income tax benefit | ( | ( | ||||
Amortization of debt issuance costs, debt discount and debt premium | | | ||||
Stock-based compensation | | | ||||
Amortization of deferred gain on sale | ( | ( | ||||
(Gain) loss on sale of properties | ( | | ||||
Oil and gas property impairments | | | ||||
Gain on extinguishment of debt | ( | - | ||||
Non-cash derivative (gain) loss | ( | | ||||
Non-cash reorganization items, net | | - | ||||
Other, net | | | ||||
Changes in current assets and liabilities: | ||||||
Accounts receivable trade, net | | ( | ||||
Prepaid expenses and other | ( | | ||||
Accounts payable trade and accrued liabilities | ( | | ||||
Revenues and royalties payable | ( | ( | ||||
Taxes payable | ( | ( | ||||
Net cash provided by operating activities | | | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
Drilling and development capital expenditures | ( | ( | ||||
Acquisition of oil and gas properties | ( | ( | ||||
Other property and equipment | ( | ( | ||||
Proceeds from sale of properties | | | ||||
Net cash used in investing activities | ( | ( | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
Borrowings under credit agreement | | | ||||
Repayments of borrowings under credit agreement | ( | ( | ||||
Repurchase of | ( | - | ||||
Restricted stock used for tax withholdings | ( | ( | ||||
Principal payments on finance lease obligations | ( | ( | ||||
Net cash provided by financing activities | $ | | $ | | ||
(Continued) | ||||||
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WHITING PETROLEUM CORPORATION (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
Six Months Ended June 30, | ||||||
2020 | 2019 | |||||
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | $ | | $ | ( | ||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ||||||
Beginning of period | | | ||||
End of period | $ | | $ | | ||
SUPPLEMENTAL CASH FLOW DISCLOSURES | ||||||
Interest paid, net of amounts capitalized | $ | | $ | | ||
Cash paid for reorganization items | $ | | $ | - | ||
NONCASH INVESTING ACTIVITIES | ||||||
Accrued capital expenditures and accounts payable related to property additions | $ | | $ | | ||
NONCASH FINANCING ACTIVITIES | ||||||
Derivative termination settlement payments used to repay borrowings under credit agreement | $ | | $ | - | ||
The accompanying notes are an integral part of these condensed consolidated financial statements. | (Concluded) | |||||
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WHITING PETROLEUM CORPORATION (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) (unaudited)
(in thousands)
Additional | ||||||||||||||
Common Stock | Paid-in | Accumulated | Total | |||||||||||
Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||
BALANCES - January 1, 2019 | | $ | | $ | | $ | ( | $ | | |||||
Net loss | - | - | - | ( | ( | |||||||||
Restricted stock forfeited | ( | - | - | - | - | |||||||||
Restricted stock used for tax withholdings | ( | - | ( | - | ( | |||||||||
Stock-based compensation | - | - | | - | | |||||||||
BALANCES - March 31, 2019 | | | | ( | | |||||||||
Net loss | - | - | - | ( | ( | |||||||||
Restricted stock issued | | - | - | - | - | |||||||||
Restricted stock forfeited | ( | - | - | - | - | |||||||||
Stock-based compensation | - | - | | - | | |||||||||
BALANCES - June 30, 2019 | | $ | | $ | | $ | ( | $ | | |||||
BALANCES - January 1, 2020 | | $ | | $ | | $ | ( | $ | | |||||
Net loss | - | - | - | ( | ( | |||||||||
Adjustment to equity component of 2020 Convertible Senior Notes upon extinguishment | - | - | ( | - | ( | |||||||||
Restricted stock issued | | - | - | - | - | |||||||||
Restricted stock forfeited | ( | - | - | - | - | |||||||||
Restricted stock used for tax withholdings | ( | - | ( | - | ( | |||||||||
Stock-based compensation | - | - | | - | | |||||||||
BALANCES - March 31, 2020 | | | | ( | | |||||||||
Net loss | - | - | - | ( | ( | |||||||||
Stock-based compensation | - | - | | - | | |||||||||
BALANCES - June 30, 2020 | | $ | | $ | | $ | ( | $ | ( | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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WHITING PETROLEUM CORPORATION (DEBTOR-IN-POSSESSION)
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, Whiting Programs, Inc, Whiting Raven Colorado Corp. and Whiting ND Sakakawea LLC.
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 Chapter 11 Cases are being administered jointly under the caption In re Whiting Petroleum Corporation, et al. Case No. 20-32021. 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.
On July 1, 2020, the Bankruptcy Court entered an order approving the Debtors’ disclosure statement, allowing for solicitation of the Debtors’ chapter 11 plan of reorganization (the “Plan”) to commence. A Bankruptcy Court hearing to consider confirmation of the Plan is scheduled to be held on August 10, 2020.
The commencement of a voluntary proceeding in bankruptcy constituted an immediate event of default under Whiting Oil and Gas’ credit agreement (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.
The Company has applied FASB ASC Topic 852 – Reorganizations (“ASC 852”) in preparing the condensed consolidated financial statements, 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. Accordingly, pre-petition liabilities that may be impacted by the chapter 11 proceedings have been classified as liabilities subject to compromise on the condensed consolidated balance sheet as of June 30, 2020. Additionally, certain expenses, realized gains and losses and provisions for losses that are realized or incurred during the Chapter 11 Cases, including adjustments to the carrying value of certain indebtedness are recorded as reorganization items, net in the condensed consolidated statements of operations for the three and six months ended June 30, 2020. Refer to the “Chapter 11 Cases” footnote for more information on the events of the bankruptcy proceedings as well as the accounting and reporting impacts of the reorganization.
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 constituted 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.
As part of the Chapter 11 Cases, the Company submitted the Plan to the Bankruptcy Court. 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 of reorganization as contemplated by the restructuring support agreement (“RSA”) with certain holders of the Company’s senior notes or complete another plan of reorganization with respect to the Chapter 11 Cases. As
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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.
While operating as a debtor-in-possession, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business, for amounts other than those reflected in the accompanying condensed consolidated financial statements. Further, the Plan or other bankruptcy proceedings could materially change the amounts and classifications of assets and liabilities reported in the condensed consolidated financial statements, including liabilities subject to compromise which will be resolved in connection with the Chapter 11 Cases. The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Chapter 11 Cases.
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.
Reclassifications—Certain 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, Cash Equivalents and Restricted Cash—Cash 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 June 30, 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.
Restricted cash as of June 30, 2020 includes $
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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets and statements of cash flows (in thousands):
June 30, | December 31, | |||||
2020 | 2019 | |||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | - | ||||
Total cash, cash equivalents and restricted cash | $ | | $ | | ||
Accounts Receivable Trade—Whiting’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 June 30, 2020 and December 31, 2019, the Company had an allowance for credit losses of $
2. CHAPTER 11 CASES
Plan of Reorganization under Chapter 11 of the Bankruptcy Code—On April 1, 2020, the Debtors commenced the Chapter 11 Cases as described in the “Basis of Presentation” footnote above. 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 the Credit Agreement on an interim basis.
On April 23, 2020, the Debtors entered into the RSA with certain holders of the Company’s senior notes to support a restructuring in accordance with the terms set forth in 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 |
| ● | 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) |
Unsecured Creditors’ Committee—On April 10, 2020, the United States Trustee appointed the official committee for unsecured creditors (the “Creditors’ Committee”). The Creditors’ Committee and its legal representatives have a right to be heard on all matters affecting unsecured creditors that come before the Bankruptcy Court with respect to the Debtors.
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Solicitation of the Plan—On July 1, 2020, the Bankruptcy Court entered into an order approving the Debtors’ disclosure statement, allowing for solicitation of the Plan to commence. A Bankruptcy Court hearing to consider confirmation of the Plan is scheduled to be held on August 10, 2020.
Executory Contracts—Subject to certain exceptions, under the Bankruptcy Code the Debtors may assume, assign or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and fulfillment of certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such contract and, subject to certain exceptions, relieves the Debtors from performing future obligations under such contract but entitles the counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Alternatively, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease, if any, and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with the Debtors in this document, including where applicable quantification of the Company’s obligations under such executory or unexpired lease of the Debtors, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code. On July 18, 2020, the Debtors filed their preliminary schedules of assumed and rejected executory contracts and unexpired leases with the Bankruptcy Court. The Debtors reserve all rights to further modify such schedules at any time prior to the effective date of the Plan.
Liabilities Subject to Compromise—The accompanying condensed consolidated balance sheets include amounts classified as “liabilities subject to compromise,” which represent pre-petition liabilities that have been allowed, or that the Company anticipates will be allowed, as claims in the Chapter 11 Cases, although they may be settled for less. The Company will continue to evaluate these liabilities throughout the Chapter 11 Cases and adjust amounts as necessary. Such adjustments may be material.
The following table summarizes the components of liabilities subject to compromise included in the condensed consolidated balance sheets (in thousands):
June 30, 2020 | |||
Debt subject to compromise | $ | | |
Accounts payable trade | | ||
Accrued liabilities and other | | ||
Accrued interest on debt subject to compromise | | ||
Asset retirement obligations (1) | | ||
Total liabilities subject to compromise | $ | | |
| (1) | Amount relates to an executory contract for certain offshore facilities in California. |
Magnitude of Potential Claims—The Debtors have filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Debtors. These schedules and statements may be subject to further amendment or modification after filing. Certain holders of pre-petition claims that are not governmental units were required to file proofs of claim by the deadline for general claims, which was June 15, 2020.
The Debtors have received approximately
Interest Expense—The Company has discontinued recording interest on debt instruments classified as liabilities subject to compromise as of the Petition Date. The contractual interest expense on liabilities subject to compromise not accrued in the condensed consolidated statements of operations was approximately $
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Reorganization Items, Net—The Company has incurred and will continue to incur significant costs as a direct result of the Chapter 11 Cases subsequent to the Petition Date. These costs, which are expensed as incurred, are recorded in reorganization items, net in the Company’s condensed consolidated statements of operations. The following table summarizes the components of reorganization items, net for the three and six months ended June 30, 2020 (in thousands):
Three and Six Months Ended | |||
June 30, 2020 | |||
Legal and professional advisory fees (1) | $ | | |
Write-off of unamortized debt issuance costs and premium (2) | | ||
Total reorganization items, net | $ | | |
| (1) | As of June 30, 2020, $ |
| (2) | Non-cash reorganization item. Refer to the “Long-Term Debt” footnote for further information. |
3. OIL AND GAS PROPERTIES
Net capitalized costs related to the Company’s oil and gas producing activities at June 30, 2020 and December 31, 2019 are as follows (in thousands):
June 30, | December 31, | |||||
| 2020 |
| 2019 | |||
Costs of completed wells and facilities | $ | | $ | | ||
Proved leasehold costs | | | ||||
Unproved leasehold costs | | | ||||
Wells and facilities in progress | | | ||||
Total oil and gas properties, successful efforts method | | | ||||
Accumulated depletion | ( | ( | ||||
Oil and gas properties, net | $ | | $ | | ||
The following table presents impairment expense for unproved properties for the three and six months ended June 30, 2020 and 2019, which is reported in exploration and impairment expense in the condensed consolidated statements of operations (in thousands):
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Impairment expense for unproved properties | $ | | $ | | $ | | $ | | ||||
Refer to the “Fair Value Measurements” footnote for more information on proved property measurements recorded during the three and six months ended June 30, 2020 and 2019.
4. ACQUISITIONS AND DIVESTITURES
2020 Acquisitions and Divestitures
On January 9, 2020, the Company completed the divestiture of its interests in
There were no significant acquisitions during the six months ended June 30, 2020.
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2019 Acquisitions and Divestitures
On July 29, 2019, the Company completed the divestiture of its interests in
On August 15, 2019, the Company completed the divestiture of its interests in
There were no significant acquisitions during the six months ended June 30, 2019.
5. LONG-TERM DEBT
Long-term debt, including the current portion, consisted of the following at June 30, 2020 and December 31, 2019 (in thousands):
June 30, | December 31, | |||||
| 2020 |
| 2019 | |||
Credit Agreement | $ | | $ | | ||
| | |||||
| | |||||
| | |||||
| | |||||
Total principal | | | ||||
Unamortized debt discounts and premiums (1) | - | ( | ||||
Unamortized debt issuance costs on notes (1) | - | ( | ||||
Total debt, prior to reclassification to liabilities subject to compromise | | | ||||
Less amounts reclassified to liabilities subject to compromise (2) | ( | - | ||||
Total debt not subject to compromise (3) | | | ||||
Less current portion of long-term debt (4) | ( | - | ||||
Total long-term debt | $ | - | $ | | ||
| (1) | As a result of the Chapter 11 Cases and the adoption of ASC 852, the Company wrote off all unamortized premium and issuance cost balances to reorganization items, net in the condensed consolidated statements of operations for the three and six months ended June 30, 2020. Refer to the “Chapter 11 Cases” footnote for more information. |
| (2) | Debt subject to compromise includes the principal balances of all of the Company’s senior notes, which are unsecured claims in the Chapter 11 Cases. Refer to the “Basis of Presentation” and “Chapter 11 Cases” footnotes for more information. |
| (3) | Debt not subject to compromise includes all borrowings outstanding under the Credit Agreement, which are secured claims in the Chapter 11 Cases. Refer to the “Basis of Presentation” and “Chapter 11 Cases” footnotes for more information. |
| (4) | Due to uncertainties regarding the outcome of the Chapter 11 Cases, the Company has classified the borrowings outstanding under the Credit Agreement as current as of June 30, 2020. Refer to the “Basis of Presentation” and “Chapter 11 Cases” footnotes for more information. |
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 constituted 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 $
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are subject to the applicable provisions of the Bankruptcy Code. Refer to the “Basis of Presentation” and “Chapter 11 Cases” footnotes 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 $
Prior to default, a portion of the Credit Agreement in an aggregate amount not to exceed $
Prior to default, the borrowing base under the Credit Agreement was 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 have not occurred and 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 plus a margin between
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
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 June 30, 2020, there were
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 $
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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 $
In March 2015, the Company issued at par $
In December 2017, the Company issued at par $
During 2016, the Company exchanged $
Repurchases of 2021 Senior Notes. In September 2019, the Company paid $
In October 2019, the Company paid an additional $
2020 Convertible Senior Notes—In March 2015, the Company issued at par $
In September 2019, the Company paid $
In March 2020, the Company paid $
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of debt, which was net of a $
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 $
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
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 sheets and were 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 June 30, 2020 and December 31, 2019 (in thousands):
June 30, | December 31, | |||||
| 2020 |
| 2019 | |||
Liability component | ||||||
Principal | $ | | $ | | ||
Less: unamortized note discount | - | ( | ||||
Less: unamortized debt issuance costs | - | ( | ||||
Net carrying value | $ | | $ | | ||
Equity component (1) | $ | | $ | | ||
| (1) | Recorded in additional paid-in capital, net of $ |
The following table presents the interest expense recognized on the 2020 Convertible Senior Notes related to the stated interest rate and amortization of the debt discount for the three and six months ended June 30, 2020 and June 30, 2019 (in thousands):
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Interest expense on 2020 Convertible Senior Notes | $ | - | $ | | $ | | $ | | ||||
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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
6. 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 June 30, 2020 and December 31, 2019 were $
Asset retirement obligation at January 1, 2020 | $ | | |
Additional liability incurred | | ||
Revisions to estimated cash flows | ( | ||
Accretion expense | | ||
Obligations on sold properties | ( | ||
Liabilities settled | ( | ||
Asset retirement obligations reclassified to liabilities subject to compromise (1) | ( | ||
Asset retirement obligation at June 30, 2020 | $ | |
| (1) | Refer to the “Chapter 11 Cases” footnote for more information on liabilities subject to compromise. |
7. 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 Contracts—Historically, 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 and natural gas swaps and collars 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 and Natural Gas Swaps and Collars. Swaps establish a fixed price for anticipated future oil or gas production, while collars are designed to establish floor and ceiling prices on 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.
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The table below details the Company’s swap derivatives entered into to hedge forecasted crude oil and natural gas production revenues as of June 30, 2020.
Commodity | Settlement Period | Index | Derivative Instrument | Total Volumes (1) | Units | Weighted Average Swap Price | ||||||
Crude Oil | ||||||||||||
Crude Oil | 2020 | NYMEX WTI | Fixed Price Swaps | | Bbl | $ | ||||||
Crude Oil | 2021 | NYMEX WTI | Fixed Price Swaps | | Bbl | $ | ||||||
Total | | Bbl | ||||||||||
Natural Gas | ||||||||||||
Natural Gas | 2021 | NYMEX Henry Hub | Fixed Price Swaps | | MMBtu | $ |
| (1) | Subsequent to June 30, 2020, the Company entered into additional swap contracts for |
Effect of Chapter 11 Cases—The commencement of the Chapter 11 Cases constituted a termination event with respect to the Company’s derivative instruments, which permits the counterparties of 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 $