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~~TABLE OF CONTENTS~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
~~Washington,~~

WASHINGTON, D.C. 20549

FORM 10-Q

☒
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~June 30, 2019~~March 31, 2020
OR
o ☐		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: ~~001-35467~~001‑35467

Battalion Oil Corporation

~~Halcón Resources Corporation~~
(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		1311 (Primary Standard Industrial Classification Code Number)		~~20-0700684~~20‑0700684 (I.R.S. Employer Identification Number)

1000 Louisiana Street, Suite ~~1500,~~6600, Houston, TX 77002

(Address of principal executive offices)

(832) ~~538-0300~~
538‑0300

(~~Registrant's~~Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

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 ~~twelve~~12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation ~~S-T (232.405~~S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý☒ No o☐

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~~“large accelerated filer,~~" "accelerated~~” “accelerated filer,~~" "smaller~~” “smaller reporting ~~company,"~~company” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o☐

Accelerated filer ý☐

Non‑accelerated filer ☐

~~Non-accelerated filer~~ o

Smaller reporting company o☒

Emerging growth company o☐

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. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule ~~12b-2~~12b‑2 of the ~~Exchange~~ Act). Yes o☐ No ý☒

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


	Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, par value $0.0001	BATL	~~HKRS~~		~~OTC Pink~~ NYSE American

At ~~August 5, 2019, 164,039,916~~May 8, 2020, 16,203,967 shares of the ~~Registrant's~~Registrant’s Common Stock were outstanding.

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TABLE OF CONTENTS

			~~Page~~

~~PART I—FINANCIAL INFORMATION~~					PAGE
PART I ~~ITEM 1.~~	FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)			5
	Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2020 and ~~Six Months Ended June 30,~~ 2019 ~~and 2018~~			5
	Condensed Consolidated Balance Sheets (Unaudited) as of ~~June 30, 2019 and December~~March 31, ~~2018~~			6
	~~Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the Three and Six Months Ended June 30, 2019~~2020 and the Year Ended December 31, ~~2018~~2019			7	6
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2020 and the Year Ended December 31, 2019		7
	Condensed Consolidated Statement of Cash Flows (Unaudited) for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~			9
ITEM 2.	~~Notes to Unaudited Condensed Consolidated Financial Statements~~			10
~~ITEM 2.~~	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations			41	39
ITEM 3.	Quantitative and Qualitative Disclosures ~~About~~about Market Risk			57	49
ITEM 4.	Controls and Procedures			58	50
~~PART II—OTHER INFORMATION~~
PART II ~~ITEM 1.~~	~~Legal Proceedings~~	OTHER INFORMATION		59
ITEM ~~1A.~~1.	~~Risk Factors~~	Legal Proceedings		59	50
ITEM 1A.	Risk Factors		50
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds			64	51
ITEM 3.	Defaults Upon Senior Securities			65	51
ITEM 4.	Mine Safety Disclosures		51
ITEM 5.	Other Information		51
ITEM 6.	Exhibits		51
Signatures		65	52
~~ITEM 5.~~	~~Other Information~~			65
~~ITEM 6.~~	~~Exhibits~~			65
~~Signatures~~		67

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Special note regarding ~~forward-looking~~forward‑looking statements

This Quarterly Report on Form ~~10-Q~~10‑Q contains ~~forward-looking~~forward‑looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, ~~are forward-looking statements, and include statements~~ concerning, among other things, planned capital expenditures, potential increases in oil and natural gas production, potential costs to be incurred, future cash flows and borrowings, our financial position, business strategy and other plans and objectives for future ~~operations. Forward-looking~~operations, are forward‑looking statements. These forward‑looking statements ~~may sometimes be~~are identified by their use of terms and phrases such as ~~"may," "expect," "estimate," "project," "plan," "objective," "believe," "predict," "intend," "achievable," "anticipate," "will," "continue," "potential," "should," "could"~~“may,” “expect,” “estimate,” “project,” “plan,” “objective,” “believe,” “predict,” “intend,” “achievable,” “anticipate,” “will,” “continue,” “potential,” “should,” “could” and similar terms and phrases. Although we believe that the expectations reflected in these ~~forward-looking~~forward‑looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. Actual results could differ materially from those anticipated in these ~~forward-looking~~forward‑looking statements. Readers should consider carefully the risks described under the ~~"Risk Factors"~~“Risk Factors” section of our previously filed Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, as well as the other disclosures contained herein and therein, which describe factors that could cause our actual results to differ from those anticipated in ~~the forward-looking~~forward‑looking statements, including, but not limited to, the following factors:

•: ~~the potential adverse impact of the restructuring transactions on our operations, management, and employees and the risks associated with operating our business during the restructuring process;~~
•: ~~our ability to satisfy the conditions set forth in the Restructuring Support Agreement and consummate the Plan outlined in the Restructuring Support Agreement or another plan of reorganization;~~
•: ~~risks and uncertainties associated with chapter 11 proceedings;~~
•: ~~our ability to reduce the level of our debt and lower our cash interest obligations through consummation of the Plan or otherwise;~~
•: ~~volatility in commodity prices for oil, natural gas and natural gas liquids;~~
•: ~~our ability to generate sufficient cash flow from operations, borrowings or other sources to enable us to fund our operations, satisfy our obligations and develop our undeveloped acreage positions;~~
•: ~~we have substantial indebtedness and we may incur more debt in the future;~~
•: ~~higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business;~~
•: ~~our ability to replace our oil and natural gas reserves and production;~~
•: the presence or recoverability of estimated oil and natural gas reserves attributable to our properties and the actual future production rates and associated costs of producing those oil and natural gas reserves;
•: ~~our ability to successfully develop our large inventory of undeveloped acreage;~~
•: ~~our ability to retain key members of senior management, the board of directors, and key technical employees;~~
•: ~~senior management's ability to execute our plans to meet our goals;~~
•: ~~access to and availability of water, sand, and other treatment materials to carry out fracture stimulations in our completion operations;~~

volatility in commodity prices for oil, natural gas and natural gas liquids;

our ability to generate sufficient cash flow from operations, borrowings or other sources to enable us to fund our operations, satisfy our obligations and develop our undeveloped acreage positions;

we have historically had substantial indebtedness and we may incur more debt in the future;

higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business;

our ability to replace our oil and natural gas reserves and production;

the presence or recoverability of estimated oil and natural gas reserves attributable to our properties and the actual future production rates and associated costs of producing those oil and natural gas reserves;

our ability to successfully develop our large inventory of undeveloped acreage;

drilling and operating risks, including accidents, equipment failures, fires, and leaks of toxic or hazardous materials which can result in injury, loss of life, pollution, property damage and suspension of operations;

our ability to retain key members of senior management, the board of directors, and key technical employees;

senior management’s ability to execute our plans to meet our goals;

access to and availability of water, sand, and other treatment materials to carry out fracture stimulations in our completion operations;

our ability to secure adequate sour gas treating and/or sour gas take-away capacity in our Monument Draw area sufficient to handle production volumes;

access to adequate gathering systems, processing and treating facilities and transportation take‑away capacity to move our production to marketing outlets to sell our production at market prices;

the cost and availability of goods and services, such as drilling rigs, fracture stimulation services and tubulars;

contractual limitations that affect our management’s discretion in managing our business, including covenants that, among other things, limit our ability to incur debt, make investments and pay cash dividends;

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•: ~~our ability to secure adequate sour gas treating and/or sour gas take-away capacity in our Monument Draw area sufficient to handle production volumes;~~
•: ~~access to adequate gathering systems, processing and treating facilities and transportation take-away capacity to move our production to marketing outlets to sell our production at market prices;~~
•: ~~the cost and availability of goods and services, such as drilling rigs, fracture stimulation services and tubulars;~~
•: contractual limitations that affect our management's discretion in managing our business, including covenants that, among other things, limit our ability to incur debt, make investments and pay cash dividends;
•: ~~the potential for production decline rates for our wells to be greater than we expect;~~
•: ~~the possibility that acquisitions may involve unexpected costs or delays, and that acquisitions may not achieve intended benefits and may divert management's time and energy;~~
•: ~~our ability to successfully integrate acquired oil and natural gas businesses and operations;~~
•: ~~competition, including competition for acreage in our resource play;~~
•: ~~environmental risks;~~
•: ~~drilling and operating risks;~~
•: ~~exploration and development risks;~~
•: ~~the possibility that the industry may be subject to future regulatory or legislative actions (including additional taxes and changes in environmental regulations);~~
•: general economic conditions, whether internationally, nationally or in the regional and local market areas in which we do business, may be less favorable than expected, including the possibility that economic conditions in the United States will worsen and that capital markets are disrupted, which could adversely affect demand for oil and natural gas and make it difficult to access capital;
•: social unrest, political instability or armed conflict in major oil and natural gas producing regions outside the United States, such as the Middle East, and armed conflict or acts of terrorism or sabotage;
•: other economic, competitive, governmental, regulatory, legislative, including federal and state regulations and laws, geopolitical and technological factors that may negatively impact our business, operations or oil and natural gas prices;
•: ~~our insurance coverage may not adequately cover all losses that we may sustain; and~~
•: ~~title to the properties in which we have an interest may be impaired by title defects.~~

the potential for production decline rates for our wells to be greater than we expect;

competition, including competition for acreage in our resource play;

environmental risks;

exploration and development risks;

the possibility that the industry may be subject to future regulatory or legislative actions (including additional taxes and changes in environmental regulations);

general economic conditions, whether internationally, nationally or in the regional and local market areas in which we do business, may be less favorable than expected, including the possibility that economic conditions in the United States will worsen and that capital markets are disrupted, which could adversely affect demand for oil and natural gas and make it difficult to access capital;

social unrest, political instability or armed conflict in major oil and natural gas producing regions outside the United States, such as the Middle East, and armed conflict or acts of terrorism or sabotage;

other economic, competitive, governmental, regulatory, legislative, including federal and state regulations and laws, geopolitical and technological factors that may negatively impact our business, operations or oil and natural gas prices;

our insurance coverage may not adequately cover all losses that we may sustain; and

title to the properties in which we have an interest may be impaired by title defects.

All ~~forward-looking~~forward‑looking statements are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this document. Other than as required under the securities laws, we do not assume a duty to update these ~~forward-looking~~forward‑looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

BATTALION OIL CORPORATION

~~HALCÓN RESOURCES CORPORATION~~

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share amounts)


	Successor		Predecessor
	Three Months		Three Months
	Ended		Ended
	March 31, 2020		March 31, 2019
Operating revenues:
Oil, natural gas and natural gas liquids sales:
Oil	$	41,917	$	45,517
Natural gas		354		1,461
Natural gas liquids		4,753		4,945
Total oil, natural gas and natural gas liquids sales		47,024		51,923
Other		375		(7)
Total operating revenues		47,399		51,916

Operating expenses:
Production:
Lease operating		12,489		14,186
Workover and other		1,323		2,646
Taxes other than income		2,915		2,893
Gathering and other		10,547		14,869
Restructuring		418		11,271
General and administrative		3,856		4,608
Depletion, depreciation and accretion		18,030		29,975
Full cost ceiling impairment		—		275,239
(Gain) loss on sale of Water Assets		—		885
Total operating expenses		49,578		356,572
Income (loss) from operations		(2,179)		(304,656)

Other income (expenses):
Net gain (loss) on derivative contracts		118,299		(64,799)
Interest expense and other		(1,629)		(12,589)
Total other income (expenses)		116,670		(77,388)
Income (loss) before income taxes		114,491		(382,044)
Income tax benefit (provision)		—		45,485
Net income (loss)	$	114,491	$	(336,559)

Net income (loss) per share of common stock:
Basic	$	7.07	$	(2.12)
Diluted	$	7.07	$	(2.12)
Weighted average common shares outstanding:
Basic		16,204		158,549
Diluted		16,204		158,549

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

Three Months Ended
June 30, Six Months Ended
June 30,

2019 2018 2019 2018
Operating revenues:

Oil, natural gas and natural gas liquids sales:

Oil
$ 53,232 $ 48,756 $ 98,749 $ 91,825
Natural gas
(1,655 ) 1,560 (194 ) 3,879
Natural gas liquids
4,297 4,991 9,242 8,703

Total oil, natural gas and natural gas liquids sales
55,874 55,307 107,797 104,407
Other
504 108 497 263

Total operating revenues
56,378 55,415 108,294 104,670

Operating expenses:

Production:

Lease operating
13,473 5,314 27,659 10,229
Workover and other
1,368 1,956 4,014 3,317
Taxes other than income
3,308 3,226 6,201 6,255
Gathering and other
11,041 5,956 25,910 12,378
Restructuring
654 27 11,925 128
General and administrative
12,519 14,255 17,127 29,465
Depletion, depreciation and accretion
40,425 16,096 70,400 32,087
Full cost ceiling impairment
664,383 — 939,622 —
(Gain) loss on sale of oil and natural gas properties
— 2,225 — 5,904
(Gain) loss on sale of Water Assets
2,897 — 3,782 —

Total operating expenses
750,068 49,055 1,106,640 99,763

Income (loss) from operations
(693,690 ) 6,360 (998,346 ) 4,907
Other income (expenses):

Net gain (loss) on derivative contracts
17,010 (12,100 ) (47,789 ) (6,197 )
Interest expense and other
(14,470 ) (10,534 ) (27,059 ) (17,582 )

Total other income (expenses)
2,540 (22,634 ) (74,848 ) (23,779 )

Income (loss) before income taxes
(691,150 ) (16,274 ) (1,073,194 ) (18,872 )
Income tax benefit (provision)
50,306 — 95,791 —

Net income (loss)
$ (640,844 ) $ (16,274 ) $ (977,403 ) $ (18,872 )

Net income (loss) per share of common stock:

Basic
$ (4.03 ) $ (0.10 ) $ (6.15 ) $ (0.12 )

Diluted
$ (4.03 ) $ (0.10 ) $ (6.15 ) $ (0.12 )

Weighted average common shares outstanding:

Basic
159,050 157,943 158,801 155,925

Diluted
159,050 157,943 158,801 155,925

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BATTALION OIL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share and per share amounts)


	Successor
	March 31, 2020		December 31, 2019
Current assets:
Cash and cash equivalents	$	938	$	5,701
Accounts receivable, net		30,260		48,504
Assets from derivative contracts		71,353		4,995
Restricted cash		—		4,574
Prepaids and other		6,341		7,379
Total current assets		108,892		71,153
Oil and natural gas properties (full cost method):
Evaluated		485,813		420,609
Unevaluated		104,923		105,009
Gross oil and natural gas properties		590,736		525,618
Less - accumulated depletion		(37,075)		(19,474)
Net oil and natural gas properties		553,661		506,144
Other operating property and equipment:
Other operating property and equipment		3,655		3,655
Less - accumulated depreciation		(659)		(378)
Net other operating property and equipment		2,996		3,277
Other noncurrent assets:
Assets from derivative contracts		37,766		224
Operating lease right of use assets		2,932		3,165
Other assets		6,148		703
Total assets	$	712,395	$	584,666

Current liabilities:
Accounts payable and accrued liabilities	$	92,585	$	97,333
Liabilities from derivative contracts		3,972		8,069
Operating lease liabilities		935		923
Asset retirement obligations		225		109
Total current liabilities		97,717		106,434
Long-term debt, net		170,000		144,000
Other noncurrent liabilities:
Liabilities from derivative contracts		473		4,854
Asset retirement obligations		10,619		10,481
Operating lease liabilities		2,009		2,247
Commitments and contingencies (Note 12)

Stockholders' equity:
Common stock: 100,000,000 shares of $0.0001 par value authorized;
16,203,967 and 16,203,940 shares issued and outstanding as of
March 31, 2020 and December 31, 2019, respectively		2		2
Additional paid-in capital		327,544		327,108
Retained earnings (accumulated deficit)		104,031		(10,460)
Total stockholders' equity		431,577		316,650
Total liabilities and stockholders' equity	$	712,395	$	584,666

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

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BATTALION OIL CORPORATION

~~HALCÓN RESOURCES CORPORATION~~

CONDENSED CONSOLIDATED ~~BALANCE SHEETS~~STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(In ~~thousands, except share and per share amounts)~~
thousands)


						Retained
				Additional		Earnings
	Common Stock			Paid-In		(Accumulated		Stockholders'
	Shares	Amount		Capital		Deficit)		Equity
Balances at December 31, 2019 (Successor)	16,204	$	2	$	327,108	$	(10,460)	$	316,650
Net income (loss)	—		—		—		114,491		114,491
Equity issuance costs and other	—		—		(13)		—		(13)
Stock-based compensation	—		—		449		—		449
Balances at March 31, 2020 (Successor)	16,204	$	2	$	327,544	$	104,031	$	431,577

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

June 30, 2019 December 31, 2018
Current assets:

Cash and cash equivalents
$ 2,238 $ 46,866
Accounts receivable
34,251 35,718
Receivables from derivative contracts
10,648 57,280
Prepaids and other
12,075 4,788

Total current assets
59,212 144,652

Oil and natural gas properties (full cost method):

Evaluated
2,113,296 1,470,509
Unevaluated
439,604 971,918

Gross oil and natural gas properties
2,552,900 2,442,427
Less—accumulated depletion
(1,646,116 ) (639,951 )

Net oil and natural gas properties
906,784 1,802,476

Other operating property and equipment:

Other operating property and equipment
191,277 130,251
Less—accumulated depreciation
(12,045 ) (8,388 )

Net other operating property and equipment
179,232 121,863

Other noncurrent assets:

Receivables from derivative contracts
4,820 12,437
Operating lease right of use assets
4,290 —
Funds in escrow and other
1,135 2,181

Total assets
$ 1,155,473 $ 2,083,609

Current liabilities:

Accounts payable and accrued liabilities
$ 111,909 $ 157,848
Liabilities from derivative contracts
11,814 3,768
Current portion of long-term debt, net
801,887 —
Operating lease liabilities
1,625 —
Asset retirement obligations
— 126

Total current liabilities
927,235 161,742

Long-term debt, net
— 613,105
Other noncurrent liabilities:

Liabilities from derivative contracts
4,248 9,139
Asset retirement obligations
7,085 6,788
Operating lease liabilities
2,748 —
Deferred income taxes
— 95,791
Commitments and contingencies (Note 10)

Stockholders' equity:

Common stock: 1,000,000,000 shares of $0.0001 par value authorized; 164,123,186 and 160,612,852 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
16 16
Additional paid-in capital
1,089,883 1,095,367
Retained earnings (accumulated deficit)
(875,742 ) 101,661

Total stockholders' equity
214,157 1,197,044

Total liabilities and stockholders' equity
$ 1,155,473 $ 2,083,609

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BATTALION OIL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)


						Retained
				Additional		Earnings
	Common Stock			Paid-In		(Accumulated		Stockholders'
	Shares	Amount		Capital		Deficit)		Equity
Balances at December 31, 2018 (Predecessor)	160,613	$	16	$	1,095,367	$	101,661	$	1,197,044
Net income (loss)	—		—		—		(336,559)		(336,559)
Long-term incentive plan grants	4,153		—		—		—		—
Long-term incentive plan forfeitures	(193)		—		—		—		—
Reduction in shares to cover individuals' tax withholding	(253)		—		(406)		—		(406)
Stock-based compensation	—		—		(6,416)		—		(6,416)
Balances at March 31, 2019 (Predecessor)	164,320		16		1,088,545		(234,898)		853,663

Net income (loss)	—		—		—		(640,844)		(640,844)
Long-term incentive plan grants	11		—		—		—		—
Long-term incentive plan forfeitures	(166)		—		—		—		—
Reduction in shares to cover individuals' tax withholding	(42)		—		(20)		—		(20)
Stock-based compensation	—		—		1,358		—		1,358
Balances at June 30, 2019 (Predecessor)	164,123		16		1,089,883		(875,742)		214,157

Net income (loss)	—		—		—		(63,284)		(63,284)
Long-term incentive plan forfeitures	(1,742)		—		—		—		—
Reduction in shares to cover individuals' tax withholding	(164)		—		(14)		—		(14)
Stock-based compensation	—		—		(2,428)		—		(2,428)
Balances at September 30, 2019 (Predecessor)	162,217		16		1,087,441		(939,026)		148,431

Net income (loss)	—		—		—		(115,366)		(115,366)
Reduction in shares to cover individuals' tax withholding	(715)		—		(54)		—		(54)
Stock-based compensation	—		—		(2,534)		—		(2,534)
Balances at October 1, 2019 (Predecessor)	161,502		16		1,084,853		(1,054,392)		30,477
Cancellation of Predecessor equity	(161,502)		(16)		(1,084,853)		1,054,392		(30,477)
Balances at October 1, 2019 (Predecessor)	—	$	—	$	—	$	—	$	—


Issuance of Successor common stock	16,204	$	2	$	322,294	$	—	$	322,296
Issuance of Successor warrants	—		—		7,336		—		7,336
Equity issuance costs	—		—		(2,503)		—		(2,503)
Balances at October 1, 2019 (Successor)	16,204		2		327,127		—		327,129
Net income (loss)	—		—		—		(10,460)		(10,460)
Equity issuance costs	—		—		(19)		—		(19)
Balances at December 31, 2019 (Successor)	16,204	$	2	$	327,108	$	(10,460)	$	316,650

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

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BATTALION OIL CORPORATION

~~HALCÓN RESOURCES CORPORATION~~

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS' EQUITY~~CASH FLOWS (Unaudited)

(In thousands)

Common Stock
Retained
Earnings
(Accumulated
Deficit)

Additional
Paid-In
Capital Stockholders'
Equity

Shares Amount
Balances at December 31, 2018
160,613 $ 16 $ 1,095,367 $ 101,661 $ 1,197,044
Net income (loss)
— — — (336,559 ) (336,559 )
Long-term incentive plan grants
4,153 — — — —
Long-term incentive plan forfeitures
(193 ) — — — —
Reduction in shares to cover individuals' tax withholding
(253 ) — (406 ) — (406 )
Stock-based compensation
— — (6,416 ) — (6,416 )

Balances at March 31, 2019
164,320 16 1,088,545 (234,898 ) 853,663
Net income (loss)
— — — (640,844 ) (640,844 )
Long-term incentive plan grants
11 — — — —
Long-term incentive plan forfeitures
(166 ) — — — —
Reduction in shares to cover individuals' tax withholding
(42 ) — (20 ) — (20 )
Stock-based compensation
— — 1,358 — 1,358

Balances at June 30, 2019
164,123 $ 16 $ 1,089,883 $ (875,742 ) $ 214,157


	Successor		Predecessor
	Three Months		Three Months
	Ended		Ended
	March 31, 2020		March 31, 2019
Cash flows from operating activities:
Net income (loss)	$	114,491	$	(336,559)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depletion, depreciation and accretion		18,030		29,975
Full cost ceiling impairment		—		275,239
(Gain) loss on sale of Water Assets		—		885
Deferred income tax provision (benefit)		—		(45,485)
Stock-based compensation, net		387		(6,782)
Unrealized loss (gain) on derivative contracts		(112,378)		68,169
Amortization and write-off of deferred loan costs		—		404
Amortization of discount and premium		—		55
Reorganization items, net		(4,984)		—
Accrued settlements on derivative contracts		(4,923)		1,020
Other income (expense)		7		388
Change in assets and liabilities:
Accounts receivable		18,919		(3,414)
Prepaids and other		1,038		(2,876)
Accounts payable and accrued liabilities		(18,244)		(17,853)
Net cash provided by (used in) operating activities		12,343		(36,834)

Cash flows from investing activities:
Oil and natural gas capital expenditures		(48,157)		(81,068)
Acquisition of oil and natural gas properties		—		(2,809)
Other operating property and equipment capital expenditures		—		(30,553)
Funds held in escrow and other		509		(1)
Net cash provided by (used in) investing activities		(47,648)		(114,431)

Cash flows from financing activities:
Proceeds from borrowings		51,000		124,000
Repayments of borrowings		(25,000)		(19,000)
Equity issuance costs and other		(32)		(406)
Net cash provided by (used in) financing activities		25,968		104,594

Net increase (decrease) in cash, cash equivalents and restricted cash		(9,337)		(46,671)

Cash, cash equivalents and restricted cash at beginning of period		10,275		46,866
Cash, cash equivalents and restricted cash at end of period	$	938	$	195


Supplemental cash flow information:
Cash paid for reorganization items	$	4,984	$	—

Disclosure of non-cash investing and financing activities:
Asset retirement obligations	$	105	$	(43)

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

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~~HALCÓN RESOURCES~~BATTALION OIL CORPORATION

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Continued)~~

~~(In thousands)~~

Common Stock
Retained
Earnings
(Accumulated
Deficit)

Additional
Paid-In
Capital Stockholders'
Equity

Shares Amount
Balances at December 31, 2017
149,379 $ 15 $ 1,016,281 $ 55,702 $ 1,071,998
Net income (loss)
— — — (2,598 ) (2,598 )
Common stock issuance
9,200 1 63,479 — 63,480
Offering costs
— — (3,044 ) — (3,044 )
Stock option exercises
42 — 323 — 323
Long-term incentive plan grants
1,922 — — — —
Long-term incentive plan forfeitures
(74 ) — — — —
Stock-based compensation
— — 4,066 — 4,066

Balances at March 31, 2018
160,469 16 1,081,105 53,104 1,134,225
Net income (loss)
— — — (16,274 ) (16,274 )
Long-term incentive plan grants
320 — — — —
Long-term incentive plan forfeitures
(136 ) — — — —
Reduction in shares to cover individuals' tax withholding
(53 ) — (262 ) — (262 )
Stock-based compensation
— — 5,194 — 5,194

Balances at June 30, 2018
160,600 16 1,086,037 36,830 1,122,883
Net income (loss)
— — — (81,837 ) (81,837 )
Long-term incentive plan grants
84 — — — —
Long-term incentive plan forfeitures
(8 ) — — — —
Stock-based compensation
— — 5,404 — 5,404

Balances at September 30, 2018
160,676 16 1,091,441 (45,007 ) 1,046,450
Net income (loss)
— — — 146,668 146,668
Long-term incentive plan forfeitures
(43 ) — — — —
Reduction in shares to cover individuals' tax withholding
(20 ) — (39 ) — (39 )
Stock-based compensation
— — 3,965 — 3,965

Balances at December 31, 2018
160,613 $ 16 $ 1,095,367 $ 101,661 $ 1,197,044

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

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)~~

~~(In thousands)~~

Six Months Ended
June 30,

2019 2018
Cash flows from operating activities:

Net income (loss)
$ (977,403 ) $ (18,872 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depletion, depreciation and accretion
70,400 32,087
Full cost ceiling impairment
939,622 —
(Gain) loss on sale of oil and natural gas properties
— 5,904
(Gain) loss on sale of Water Assets
3,782 —
Deferred income tax provision (benefit)
(95,791 ) —
Stock-based compensation, net
(5,757 ) 7,818
Unrealized loss (gain) on derivative contracts
57,405 26,761
Amortization and write-off of deferred loan costs
977 651
Amortization of discount and premium
111 183
Other income (expense)
(35 ) 109
Change in assets and liabilities:

Accounts receivable
5,874 331
Prepaids and other
(6,547 ) (1,612 )
Accounts payable and accrued liabilities
(19,536 ) (9,782 )

Net cash provided by (used in) operating activities
(26,898 ) 43,578

Cash flows from investing activities:

Oil and natural gas capital expenditures
(139,160 ) (251,961 )
Proceeds received from sale of oil and natural gas properties
1,247 1,779
Acquisition of oil and natural gas properties
(2,809 ) (332,901 )
Other operating property and equipment capital expenditures
(64,576 ) (53,242 )
Proceeds received from sale of other operating property and equipment
— 1,899
Funds held in escrow and other
(5 ) 155

Net cash provided by (used in) investing activities
(205,303 ) (634,271 )

Cash flows from financing activities:

Proceeds from borrowings
244,000 206,000
Repayments of borrowings
(56,000 ) —
Debt issuance costs
— (4,005 )
Common stock issued
— 63,480
Offering costs and other
(427 ) (2,983 )

Net cash provided by (used in) financing activities
187,573 262,492

Net increase (decrease) in cash and cash equivalents
(44,628 ) (328,201 )
Cash and cash equivalents at beginning of period
46,866 424,071

Cash and cash equivalents at end of period
$ 2,238 $ 95,870

Disclosure of non-cash investing and financing activities:

Asset retirement obligations
$ (31 ) $ 2,047

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

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. FINANCIAL STATEMENT PRESENTATION

Basis of Presentation and Principles of Consolidation

Battalion Oil Corporation (Battalion or the Company) is the successor reporting company to Halcón Resources Corporation (Halcón). On January 21, 2020, Battalion filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation with the Delaware Secretary of State to effect a change of the Company’s corporate name from Halcón ~~or the Company)~~Resources Corporation to Battalion Oil Corporation.

Battalion is an independent energy company focused on the acquisition, production, exploration and development of onshore ~~liquids-rich~~liquids‑rich oil and natural gas assets in the United States. The ~~unaudited condensed~~ consolidated financial statements include the accounts of all ~~majority-owned,~~majority‑owned, controlled subsidiaries. The Company operates in one segment which focuses on oil and natural gas acquisition, production, exploration and development. Allocation of capital is made across the ~~Company's~~Company’s entire portfolio without regard to operating area. All intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements reflect, in the opinion of the ~~Company's~~Company’s management, all adjustments, consisting of normal and recurring adjustments, necessary to present fairly the financial position as of, and the results of operations for, the periods presented. During interim periods, ~~Halcón~~Battalion follows the accounting policies disclosed in its ~~2018~~ Annual Report on Form ~~10-K,~~10‑K, as filed with the United States Securities and Exchange Commission (SEC) on March ~~12, 2019.~~25, 2020. Please refer to the notes in the ~~2018~~2019 Annual Report on Form ~~10-K~~10‑K when reviewing interim financial results.

Risk and Uncertainties

~~Ability~~ The Company is closely monitoring the current and potential impacts of the novel coronavirus (COVID-19) pandemic on its business, including how it has and may impact its operations, financial results, liquidity, contractors, customers, employees and vendors, and taking appropriate actions in response, including reducing capital expenditures, temporarily shutting-in producing wells, and implementing various measures to ~~Continue~~ensure the continued operation of its business in a safe and secure manner. Governmental actions to contain the COVID-19 pandemic have contributed to an economic downturn, reduced demand for oil and natural gas and, together with a price war between the Organization of Petroleum Exporting Countries (OPEC)/Saudi Arabia and Russia, have depressed oil and natural gas prices to historically low levels. Although OPEC and Russia agreed in April to reduce production, downward pressure on prices has continued and could continue for the foreseeable future, particularly given concerns over available storage capacity and the impacts of the current economic downturn on demand. The Company is unable to predict the impact that these events will have on it due to numerous uncertainties, including the severity and duration of the COVID-19 outbreak and the effects that governmental or other actions taken to limit the extent and duration of the outbreak, in conjunction with worsening economic conditions, will have on its business, demand for oil and natural gas, and oil and natural gas prices. The health of the Company’s employees, contractors and vendors, and its ability to meet staffing needs in its operations and critical functions cannot be predicted, nor can the impact on the Company’s customers, vendors and contractors. Any material effect on these parties could adversely impact the Company. These and other factors could affect the Company’s operations, earnings and cash flows and could cause its results to not be comparable to those of the same period in previous years. For example, as a ~~Going Concern~~result of commodity price declines, the Company realized lower revenue in March 2020 (Successor). The results presented in this Form 10-Q are not necessarily indicative of future operating results. For further information regarding the actual and potential impacts of COVID-19 on the Company, see “Risk Factors” in Item 1A of this Quarterly Report on Form 10-Q.

Emergence From Voluntary Reorganization Under Chapter 11

On August 7, 2019 (the Petition Date), the Company and its subsidiaries ~~(the Halcón Entities)~~ filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (the Bankruptcy Court) to pursue a ~~pre-packaged~~prepackaged plan of reorganization (the Plan). The ~~Company expects to continue operations in the normal course during the pendency of the~~Company’s chapter 11 ~~proceedings. Prior to filing~~proceedings were administered under the ~~bankruptcy petitions, on August 2,~~ caption In re Halcón Resources Corporation, et al. (Case No. 19-34446). On September 24,

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2019, the ~~Halcón Entities~~Bankruptcy Court entered ~~into a restructuring support agreement~~an order confirming the Plan and on October 8, 2019, the Plan became effective (the ~~Restructuring Support Agreement) with certain holders of~~Effective Date) and the ~~Company's 6.75% senior unsecured notes due 2025 (the Unsecured Senior Noteholders).~~Company emerged from chapter 11 bankruptcy. See Note ~~14, "~~2, “~~Subsequent Events,"~~Reorganization,” for ~~more information.~~

~~The Company's debt agreements provide that~~further details on the commencement of a voluntary proceeding in bankruptcy is an event of default leading to the automatic acceleration of the associated obligations. Accordingly, the filing of the voluntary petitions for relief underCompany’s chapter 11 of the Bankruptcy Code accelerated the Company's obligations under all of its outstanding debt instruments, although any efforts to enforce payment obligations thereunder have been automatically stayed by,bankruptcy and the ~~creditors' rights of enforcement are subject to,~~Plan.

Upon emergence from chapter 11 bankruptcy, the ~~applicable~~Company adopted fresh-start accounting in accordance with provisions of the ~~Bankruptcy Code~~Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 852, Reorganizations (ASC 852) which resulted in the Company becoming a new entity for financial reporting purposes on the Effective Date. The Company elected to apply fresh-start accounting effective October 1, 2019, to coincide with the timing of its normal fourth quarter reporting period, which resulted in the Company becoming a new entity for financial reporting purposes. The Company evaluated and ~~orders~~concluded that events between October 1, 2019 and October 8, 2019 were immaterial and use of an accounting convenience date of October 1, 2019 was appropriate.

Upon the adoption of fresh-start accounting, the Company’s assets and liabilities were recorded at their fair values as of the ~~Bankruptcy Court. Accordingly,~~fresh-start reporting date. As a result of the ~~Company classified all~~adoption of ~~its outstanding debt as a current liability on its unaudited condensed consolidated balance sheet as of June 30, 2019.~~

~~The significant risks and uncertainties related to~~fresh-start accounting, the ~~Halcón Entities' chapter 11 proceedings raise substantial doubt about the Company's ability to continue as a going concern. The~~Company’s unaudited condensed consolidated financial statements ~~have been prepared~~subsequent to October 1, 2019 are not comparable to its consolidated financial statements prior to, and including, October 1, 2019. See Note 3, “Fresh-start Accounting,” for further details on ~~a going concern basis~~the impact of fresh-start accounting ~~which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in~~on the ~~normal course of business. The~~Company’s unaudited condensed consolidated financial ~~statements do not include any adjustments that might result from~~statements.

References to “Successor” or “Successor Company” relate to the ~~outcome~~financial position and results of operations of the ~~going concern uncertainty. If~~reorganized Company subsequent to October 1, 2019. References to “Predecessor” or “Predecessor Company” relate to the financial position and results of operations of the Company ~~cannot continue as a going concern, adjustments~~prior to, ~~the carrying values~~ and ~~classification of its assets and liabilities and the reported amounts of income and expenses could be required and could be material.~~

including, October 1, 2019.

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~1. FINANCIAL STATEMENT PRESENTATION (Continued)~~

Use of Estimates

The preparation of the ~~Company's~~Company’s unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the ~~Company's~~Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Estimates and assumptions that, in the opinion of management of the ~~Company's management,~~Company, are significant include oil and natural gas revenue accruals, capital and operating expense accruals, oil and natural gas reserves, depletion relating to oil and natural gas properties, asset retirement obligations, fair value estimates, including estimates of Reorganization Value, Enterprise Value and ~~income taxes.~~the fair value of assets and liabilities recorded as a result of the adoption of fresh-start accounting. The Company bases its estimates and judgments on historical experience and on various other assumptions and information believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be predicted with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the ~~Company's~~Company’s operating environment changes. Actual results may differ from the estimates and assumptions used in the preparation of the ~~Company's~~Company’s unaudited condensed consolidated financial statements.

Interim period results are not necessarily indicative of results of operations or cash flows for the full year and accordingly, certain information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, has been condensed or omitted. The Company has evaluated events or transactions through the date of issuance of these unaudited condensed consolidated financial statements.

Cash, Cash Equivalents and Restricted Cash

~~Cash and Cash Equivalents~~

The Company considers all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value. Amounts in the unaudited condensed consolidated balance sheets included in “Cash, cash equivalents” and “Restricted cash” reconcile to the Company’s unaudited condensed consolidated statement of cash flows as follows:

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


	Successor
	March 31, 2020		December 31, 2019

Cash and cash equivalents	$	938	$	5,701
Restricted cash		—		4,574
Total cash, cash equivalents and restricted cash	$	938	$	10,275

Restricted Cash consisted of funds related to payments prescribed under the Plan that were held in an interest-bearing escrow account.

Accounts Receivable and Allowance for Doubtful Accounts

The ~~Company's~~Company’s accounts receivable are primarily receivables from joint interest owners and oil and natural gas purchasers. Accounts receivable are recorded at the amount due, less an allowance for doubtful accounts, when applicable. The Company establishes provisions for losses on accounts receivable if it determines that collection of all or part of the outstanding balance is doubtful. The Company regularly reviews collectability and establishes or adjusts the allowance for doubtful accounts as necessary using the specific identification method. As of ~~June 30, 2019~~March 31, 2020 (Successor) and December 31, ~~2018,~~2019 (Successor), allowances for doubtful accounts were approximately $0.1 million ~~and $0.2 million, respectively.~~for both periods.

Other Operating Property and Equipment

Other operating property and equipment was recorded at fair value as a result of fresh-start accounting on October 1, 2019 and additions are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives: ~~gas gathering systems, thirty years; gas treating systems and~~ buildings, twenty years; automobiles and computers, three years; computer software, fixtures, furniture and equipment, the lesser of lease term or five years; trailers, seven years; heavy equipment, eight to ten years and leasehold improvements, lease term. Land and artwork are not depreciated. Upon disposition, the cost and accumulated depreciation are removed and any gains or losses are reflected in

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~1. FINANCIAL STATEMENT PRESENTATION (Continued)~~

current operations. Maintenance and repair costs are charged to operating expense as incurred. Material expenditures which increase the life or productive capacity of an asset are capitalized and depreciated over the estimated remaining useful life of the asset.

Refer to Note 6, “Divestitures,” for a discussion of other operating property and equipment divested.

The Company reviews its other operating property and equipment for impairment in accordance with ~~Accounting Standards Codification (ASC)~~ASC 360,Property, Plant, and Equipment (ASC 360). ASC 360 requires the Company to evaluate other operating property and equipment for impairment as events occur or circumstances change that would more likely than not reduce the fair value below the carrying amount. If the carrying amount is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value. Further, the Company evaluates the remaining useful lives of its other operating property and equipment at each reporting period to determine whether events and circumstances warrant a revision to the remaining depreciation periods.

Restructuring

During the three months ended March 31, 2020 (Successor), the Company incurred approximately $0.4 million in restructuring charges related to the consolidation into one corporate office and reductions in its workforce due to efforts to improve efficiencies and go forward costs.

In May 2020, in furtherance of the consolidation into one corporate office, the Company terminated its office lease in Denver, Colorado and paid a $1.3 million termination fee. Pursuant to the agreement provision under the lease

Table of Contents

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

agreement, the Company will incur monthly rent payments from June 2020 through March 2021 totaling approximately $0.8 million.

During the three months ended March 31, 2019 (Predecessor), senior executives of the Company resigned from their positions. These were considered terminations without cause under their respective employment agreements, which entitled them to certain benefits. Additionally during the three months ended March 31, 2019 (Predecessor), the Company had reductions in its workforce due to a decrease in drilling and developmental activities planned for 2019. Consequently, for the three months ended March 31, 2019 (Predecessor), the Company incurred approximately $11.3 million in restructuring charges.

These costs were recorded in “Restructuring” on the unaudited condensed consolidated statements of operations.

~~Leases~~Concentrations of Credit Risk

As of March 31, 2020, the Company’s primary concentrations of credit risk are the risks of uncollectible accounts receivable and of nonperformance by counterparties under the Company’s derivative contracts. Each reporting period, the Company assesses the recoverability of material receivables using historical data, current market conditions and reasonable and supportable forecasts of future economic conditions to determine expected collectability of its material receivables.

The Company’s accounts receivable are primarily receivables from joint interest owners and oil and natural gas purchasers. The purchasers of the Company’s oil and natural gas production consist primarily of independent marketers, major oil and natural gas companies and gas pipeline companies. Historically, the Company has not experienced any significant losses from uncollectible accounts from its oil and natural gas purchasers. The Company operates a substantial portion of its oil and natural gas properties. As the operator of a property, the Company makes full payments for costs associated with the property and seeks reimbursement from the other working interest owners in the property for their share of those costs. Joint operating agreements govern the operations of an oil or natural gas well and, in most instances, provide for offsetting of amounts payable or receivable between the Company and its joint interest owners. The Company’s joint interest partners consist primarily of independent oil and natural gas producers. If the oil and natural gas exploration and production industry in general was adversely affected, the ability of the Company’s joint interest partners to reimburse the Company could be adversely affected.

The Company’s exposure to credit risk under its derivative contracts is diversified among major financial institutions with investment grade credit ratings, where it has master netting agreements which provide for offsetting of amounts payable or receivable between the Company and the counterparty. To manage counterparty risk associated with derivative contracts, the Company selects and monitors counterparties based an assessment of their financial strength and/or credit ratings. At March 31, 2020, the Company’s derivative counterparties include two major financial institutions, both of which are secured lenders under the Senior Credit Agreement.

Change in Estimate

~~Effective~~In late March 2020, due to changes in market conditions and decreased commodity prices, the Company determined discretionary cash incentives related to 2019 would not be paid, causing a $1.6 million reduction to “General and administrative” on the unaudited condensed consolidated statement of operations for the three months ended March 31, 2020.

Recently Issued Accounting Pronouncements

In April 2020, the FASB issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) (ASU 2020-04), in response to the risk of cessation of the London Interbank Offered Rate (LIBOR). This

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

amendment provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging arrangements, and other transactions that reference LIBOR. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. The Company is currently evaluating ASU 2020-04 and the impact it will have on its operating results, financial position and disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (ASU 2019-12) as part of their simplification initiative. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions and by clarifying and amending existing guidance. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020 with early adoption permitted. The Company is currently evaluating the effects of ASU 2019-12, but does not believe that it will have a material impact on its operating results, financial position or disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (ASU 2016-13), which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will replace the currently required incurred loss approach with an expected loss model for instruments measured at amortized cost. The Company adopted ASU 2016-13 effective January 1, 2020 using the modified retrospective approach as of the adoption date. Based the Company’s assessment of its applicable financial assets, which are primarily receivables from joint interest owners and oil and natural gas purchasers, and various potential remedies ensuring collection from those parties, the adoption of ASU 2016-13 did not have a material impact on the Company’s operating results or financial position.

2. REORGANIZATION

On August 2, 2019, the Company ~~accounts~~entered into a Restructuring Support Agreement (the Restructuring Support Agreement) with certain holders of the Company’s 6.75% senior unsecured notes due 2025 (the Unsecured Senior Noteholders). On August 7, 2019, the Company filed voluntary petitions for ~~leases~~relief under chapter 11 of the Bankruptcy Court to effect an accelerated prepackaged bankruptcy restructuring as contemplated in the Restructuring Support Agreement. The Company continued to operate its businesses as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the United States Bankruptcy Code and orders of the Bankruptcy Court. On September 24, 2019, the Bankruptcy Court entered an order confirming the Plan and on October 8, 2019 (the Effective Date), the Company emerged from chapter 11 bankruptcy.

Pursuant to the terms of the Plan contemplated by the Restructuring Support Agreement, the Unsecured Senior Noteholders and other claim and interest holders received the following treatment in full and final satisfaction of their claims and interests:

borrowings outstanding under the Predecessor Credit Agreement, plus unpaid interest and fees, were repaid in full, in cash, including by a refinancing (refer to Note 8, “Long-Term Debt” for further details regarding the credit agreement);

the Unsecured Senior Noteholders received their pro rata share of 91% of the common stock of reorganized Battalion (New Common Shares), subject to dilution, issued pursuant to the Plan and participated in the Senior Noteholder Rights Offering (defined below);

the Company’s general unsecured claims were unimpaired and paid in full in the ordinary course; and

all of the Predecessor Company’s outstanding shares of common stock were cancelled and the existing common stockholders received their pro rata share of 9% of the New Common Shares issued pursuant to the Plan, subject to dilution, together with Warrants (defined below) to purchase common stock of reorganized Battalion

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

and participated in the Existing Equity Interests Rights Offering (defined below and, collectively, the Existing Equity Total Consideration); provided, however, that registered holders of existing common stock with 2,000 shares or fewer of common stock received cash in an amount equal to the inherent value of such holder’s pro rata share of the Existing Equity Total Consideration (the Existing Equity Cash Out).

Each of the foregoing percentages of equity in the reorganized Company were as of October 8, 2019 and are subject to dilution by New Common Shares issued in connection with (i) a management incentive plan, (ii) the Warrants (defined below), (iii) the Equity Rights Offerings (defined below), and (iv) the Backstop Commitment Premium (defined below).

As a component of the Restructuring Support Agreement (i) certain Unsecured Senior Noteholders purchased their pro rata share of New Common Shares for an aggregate purchase price of $150.2 million (the Senior Noteholder Rights Offering) and (ii) certain existing common stockholders purchased their pro rata share of New Common Shares for an aggregate purchase price of $5.8 million (the Existing Equity Interests Rights Offering, and together with the Senior Noteholder Rights Offering, the Equity Rights Offerings), in each case, at a price per share equal to a 26% discount to the value of the New Common Shares based on an assumed total enterprise value of $425.0 million. Certain of the Unsecured Senior Noteholders backstopped the Senior Noteholder Rights Offering and received as consideration (the Backstop Commitment Premium) New Common Shares equal to 6% of the aggregate amount of the Senior Noteholder Rights Offering, subject to dilution by New Common Shares issued in connection with a management incentive plan and the Warrants. If the backstop agreement had been terminated, the Company would have been obligated to make a cash payment equal to 6% of the aggregate amount of the Senior Noteholder Rights Offering. The proceeds of the Equity Rights Offerings were used by the Company to (i) provide additional liquidity for working capital and general corporate purposes, (ii) pay reasonable and documented restructuring expenses, and (iii) fund Plan distributions.

Under the Restructuring Support Agreement, the existing common stockholders (subject to the Existing Equity Cash Out) were issued a series of warrants exercisable for cash for a three year period subsequent to the effective date of the Plan (Warrants). The Warrants were issued with strike prices based upon stipulated rate-of-return levels achieved by the Unsecured Senior Noteholders. The Warrants cumulatively represent 30% of the New Common Shares issued pursuant to the Plan.

Registration Rights Agreement

On the Effective Date, the Company and the other signatories thereto (the Demand Stockholders), entered into a registration rights agreement (the Registration Rights Agreement), pursuant to which, subject to certain conditions and limitations, the Company agreed to file with the SEC a registration statement concerning the resale of the registrable shares of New Common Shares of the Company held by Demand Stockholders (the Registrable Securities), as soon as reasonably practicable but in no event later than the later to occur of (i) ninety (90) days after the Effective Date and (ii) a date specified by a written notice to the Company by Demand Stockholders holding at least a majority of the Registerable Securities, and thereafter to use its commercially reasonable best efforts to cause the registration statement to be declared effective by the SEC as soon as reasonably practicable. In addition, from time to time, the Demand Stockholders may request that additional Registrable Securities be registered for resale by the Company. Subject to certain limitations, the Demand Stockholders also have the right to request that the Company facilitate the resale of Registrable Securities pursuant to firm commitment underwritten public offerings.

The Registration Rights Agreement contains other customary terms and conditions, including, without limitation, provisions with respect to suspensions of our registration obligations and indemnification.

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. FRESH-START ACCOUNTING

Upon the Company’s emergence from chapter 11 bankruptcy, the Company qualified for and adopted fresh-start accounting in accordance with the provisions set forth in ASC ~~842,~~852 as (i) the Reorganization Value of the Company’s assets immediately prior to the date of confirmation was less than the total of the post-petition liabilities and allowed claims, and (ii) the holders of the existing voting shares of the Predecessor entity received less than 50% of the voting shares of the emerging entity. Refer to Note 2~~Leases~~, “Reorganization,” for the terms of the Plan. Fresh-start accounting requires the Company to present its assets, liabilities, and equity as if it were a new entity upon emergence from bankruptcy. The new entity is referred to as “Successor” or “Successor Company.” However, the Company will continue to present financial information for any periods before adoption of fresh-start accounting for the Predecessor Company. The Predecessor and Successor Companies lack comparability, as required in ASC Topic 205, Presentation of Financial Statements (ASC ~~842)~~205). ASC 205 states financial statements are required to be presented comparably from year to year, with any exceptions to comparability clearly disclosed. Therefore, “black-line” financial statements are presented to distinguish between the Predecessor and Successor Companies.

Adopting fresh-start accounting results in a new financial reporting entity with no beginning retained earnings or deficit as of the fresh-start reporting date. Upon the adoption of fresh-start accounting, the Company allocated the Reorganization Value (the fair value of the Successor Company’s total assets) to its individual assets based on their estimated fair values. The Reorganization Value is intended to represent the approximate amount a willing buyer would pay for the Company’s assets immediately after the reorganization.

Reorganization Value is derived from an estimate of Enterprise Value, or the fair value of the Company’s long-term debt, stockholders’ equity and working capital. The estimated Enterprise Value of $441.6 million at the Effective Date was in the Bankruptcy Court approved range of $425.0 million and $475.0 million. The Enterprise Value was derived from an independent valuation using an asset based methodology of estimated proved reserves, undeveloped acreage, and other financial information, considerations and projections, applying a combination of the income, cost and market approaches as of the fresh-start reporting date of October 1, 2019.

The Company elected to adopt fresh-start accounting effective October 1, 2019, to coincide with the timing of its normal fourth quarter reporting period, which resulted in the Company becoming a new entity for financial reporting purposes. The Company evaluated and concluded that events between October 1, 2019 and October 8, 2019 were immaterial and use of an accounting convenience date of October 1, 2019 was appropriate.

The Company’s principal assets are its oil and natural gas properties. For purposes of estimating the fair value of the Company’s proved reserves, an income approach was used which estimated fair value based on the anticipated cash flows associated with the Company’s reserves, risked by reserve category and discounted using a weighted average cost of capital rate of 10.0%. The proved reserve locations were limited to wells expected to be drilled in the Company’s five year development plan. Weighted average commodity prices utilized in the determination of the fair value of oil and natural gas properties were $71.51 per barrel of oil, $3.37 per million British thermal units (MMBtu) of natural gas and $29.50 per barrel of oil equivalent of natural gas liquids. Base pricing was derived from an average of forward strip prices and analysts’ estimated prices. In estimating the fair value of the Company’s unproved acreage, a market approach was used in which a review of recent transactions involving properties in the same geographical location indicated the fair value of the Company’s unproved acreage from a market participant perspective. See further discussion below in the “Fresh-start accounting adjustments” for the specific assumptions used in the valuation of the Company’s various other assets.

Although the Company believes the assumptions and estimates used to develop Enterprise Value and Reorganization Value are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and resulting conclusions. The assumptions used in estimating these values are inherently uncertain and require

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

judgment. The following table reconciles the Company’s Enterprise Value to the estimated fair value of the Successor’s common stock as of October 1, 2019 (in thousands):


	October 1, 2019

Enterprise Value	$	441,583
Plus: Cash		15,546
Less: Fair value of debt		(130,000)
Less: Fair value of warrants		(7,336)
Fair value of Successor common stock	$	319,793

The following table reconciles the Company’s Enterprise Value to its Reorganization Value as of October 1, 2019 (in thousands):


	October 1, 2019

Enterprise Value	$	441,583
Plus: Cash		15,546
Plus: Current liabilities		122,134
Plus: Lease liabilities		3,395
Plus: Noncurrent asset retirement obligation		10,153
Plus: Other noncurrent liabilities		1,625
Reorganization Value of Successor assets	$	594,436

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Condensed Consolidated Balance Sheet

The following illustrates the effects on the Company’s unaudited condensed consolidated balance sheet due to the reorganization and fresh-start accounting adjustments. The explanatory notes following the table below provide further details on the adjustments, including the Company’s assumptions and methods used to determine fair value for its assets, liabilities, and warrants. Amounts included in the table below are rounded to thousands.


	As of October 1, 2019
	Predecessor Company		Reorganization Adjustments			Fresh-Start Adjustments			Successor Company
Current assets:
Cash and cash equivalents	$	17,009	$	(1,463)	(1)	$	—		$	15,546
Accounts receivable, net		37,826		—			—			37,826
Assets from derivative contracts		15,310		—			—			15,310
Restricted cash		—		13,839	(2)		—			13,839
Prepaids and other		14,642		7,110	(3)		(11,462)	(11)		10,290
Total current assets		84,787		19,486			(11,462)			92,811
Oil and natural gas properties (full cost method):
Evaluated		2,155,288		—			(1,774,924)	(12)(13)		380,364
Unevaluated		438,365		—			(329,411)	(13)		108,954
Gross oil and natural gas properties		2,593,653		—			(2,104,335)			489,318
Less - accumulated depletion		(1,709,719)		—			1,709,719	(13)		—
Net oil and natural gas properties		883,934		—			(394,616)			489,318
Other operating property and equipment:
Other operating property and equipment		203,373		—			(199,718)	(12)(14)		3,655
Less - accumulated depreciation		(14,416)		—			14,416	(14)		—
Net other operating property and equipment		188,957		—			(185,302)			3,655
Other noncurrent assets:
Assets from derivative contracts		4,120		—			—			4,120
Operating lease right of use assets		3,694		—			(300)	(15)		3,394
Funds in escrow and other		1,138		—			—			1,138
Total assets	$	1,166,630	$	19,486		$	(591,680)		$	594,436

Current liabilities:
Accounts payable and accrued liabilities	$	112,578	$	2,727	(4)	$	—		$	115,305
Liabilities from derivative contracts		6,829		—			—			6,829
Current portion of long-term debt, net		258,234		(258,234)	(5)		—			—
Operating lease liabilities		1,337		—			(424)	(15)		913
Total current liabilities		378,978		(255,507)			(424)			123,047
Long-term debt, net		—		130,000	(6)		—			130,000
Liabilities subject to compromise		625,005		(625,005)	(7)		—			—
Other noncurrent liabilities:
Liabilities from derivative contracts		1,625		—			—			1,625
Asset retirement obligations		10,153		—			—			10,153
Operating lease liabilities		2,438		—			44	(15)		2,482
Commitments and contingencies
Stockholders' equity:
Common Stock (Predecessor)		16		(16)	(8)		—			—
Common Stock (Successor)		—		2	(9)		—			2
Additional paid-in capital (Predecessor)		1,087,441		(1,087,441)	(8)		—			—
Additional paid-in capital (Successor)		—		327,127	(9)		—			327,127
Retained earnings (accumulated deficit)		(939,026)		1,530,326	(10)		(591,300)	(16)		—
Total stockholders' equity		148,431		769,998			(591,300)			327,129
Total liabilities and stockholders' equity	$	1,166,630	$	19,486		$	(591,680)		$	594,436

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Reorganization adjustments

The table below details cash payments as of October 1, 2019, pursuant to the terms of the Plan described in Note 2, “Reorganization,” (in thousands):


Sources:
Proceeds from Senior Noteholder Rights Offering	$	150,150
Proceeds from Senior Credit Agreement		130,000
Proceeds from Existing Equity Interests Rights Offering		5,779
Total Sources	$	285,929

Uses:
Payment of Predecessor Credit Agreement principal, accrued interest, and fees	$	(226,580)
Payment of debtor-in-possession junior secured term credit facility principal and accrued interest		(35,174)
Funding of professional fee escrow and cash collateral account		(13,839)
Payment of debt issuance costs on Senior Credit Agreement		(8,764)
Payment of professional fees and other		(3,035)
Total Uses	$	(287,392)

Total Sources and Uses	$	(1,463)

Reflects the funding of an escrow account for professional fees associated with the chapter 11 bankruptcy and an account to cash collateralize the Predecessor Company’s outstanding letters of credit.

Represents $10.2 million in debt issuance costs related to the Senior Credit Agreement, partially offset by the release of $3.1 million in fees paid to the Company’s restructuring advisors prior to the emergence from chapter 11 bankruptcy.

Represents $7.7 million in fees to be paid to the Company’s restructuring advisors subsequent to the Company’s emergence from chapter 11 bankruptcy, partially offset by payments of i) payments of accrued interest and fees on the Predecessor Credit Agreement and the debtor-in-possession junior secured term credit facility of $3.5 million and ii) professional fees associated with the chapter 11 bankruptcy of $1.5 million.

On the Emergence Date, in accordance with the Plan, the Company repaid the principal outstanding on the Predecessor Credit Agreement of $223.2 million and the debtor-in-possession junior secured term credit facility of $35.0 million using proceeds from the Equity Rights Offerings and borrowings under the Senior Credit Agreement.

Reflects the initial borrowing on the Senior Credit Agreement.

Liabilities subject to compromise were as follows (in thousands):


6.75% senior notes due 2025	$	625,005
Liabilities subject to compromise		625,005
Discount on shares issued per the Senior Noteholder Subscription Rights Offering		(67,840)
Issuance of common stock to Class 4 claimholders		(75,388)
Gain on settlement of liabilities subject to compromise	$	481,777

Reflects the cancellation of Predecessor common stock and additional paid-in capital.

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table reconciles reorganization adjustments made to Successor common stock and additional paid-in capital (in thousands):


Par value of 16,203,940 shares of new common stock issued to holders of senior note claims and existing equity interest claims (valued at $19.74 per share)	$	2
Fair value of warrants issued to holder of the Existing Equity Interests (1)		7,336
Additional paid-in-capital (Successor)		322,294
Equity issuance costs associated with Equity Rights Offering		(2,503)
Total change in Successor common stock and additional paid-in capital	$	327,129

(1)

The fair value of the warrants was estimated using a Binomial Lattice model with the following assumptions: implied stock price of the Successor Company of $19.74; initial strike price per share of $40.17, $48.28, and $60.45, for Series A, B, and C warrants, respectively, increased each month at an annualized rate of 6.75%; expected volatility of 45%; and risk free interest rate using the USD Yield Curve at each time-step in the lattice.

10)

The table below reflects the cumulative effect of the adjustments discussed above (in thousands):


Gain on settlement of liabilities subject to compromise	$	481,777
Success fees incurred upon emergence		(8,376)
Fair value of equity issued to Predecessor common stockholders		(7,449)
Fair value of warrants issued to Predecessor common stockholders		(7,336)
Issuance of common stock to backstop commitment parties		(13,079)
Other		(2,668)
Cancellation of Predecessor equity		1,087,457
Net impact to retained earnings (accumulated deficit)	$	1,530,326

Fresh-start accounting adjustments

11)

Adjustment reflects the write-off of debt issuance costs associated with the Senior Credit Agreement of $10.2 million and the write-off of prepaid expenses related to $1.2 million of premiums for the Predecessor Company’s directors and officers’ insurance policy.

12)

Includes the reclassification of treating equipment and gathering support facilities from “Other operating property and equipment” to “Oil and natural gas properties, evaluated.” The Successor Company’s policy of accounting for its treating equipment and gathering support facilities identifies these assets as part of the Company’s full cost pool due to their supporting nature to the Company’s oil and natural gas operations.

13)

Reflects the adjustment to fair value of the Company’s oil and natural gas properties and unproved acreage, as well as the elimination of accumulated depletion.

In estimating the fair value of its oil and natural gas properties, the Company used a combination of the income and market approaches. For purposes of estimating the fair value of the Company’s proved reserves, an income approach was used which estimated fair value based on the anticipated cash flows associated with the Company’s reserves, risked by reserve category and discounted using a weighted average cost of capital rate of 10.0%. The proved reserve locations were limited to wells expected to be drilled in the Company’s five year development plan. Weighted average commodity prices utilized in the determination of the fair value of oil and natural gas properties were $71.51 per barrel of oil, $3.37 per MMBtu of natural gas and $29.50 per barrel of natural gas liquids. Base pricing was derived from an average of forward strip prices and analysts’ estimated prices.

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

In estimating the fair value of the Company’s unproved acreage, a market approach was used in which a review of recent transactions involving properties in the same geographical location indicated the fair value of the Company’s unproved acreage from a market participant perspective.

14)

Reflects the adjustment to fair value of the Company’s other operating property and equipment, as well as the elimination of accumulated depreciation.

For purposes of estimating the fair value of its other operating property and equipment, the Company used a combination of the market and cost approaches. A market approach was relied upon to value land and vehicles, and in this valuation approach, recent transactions of similar assets were utilized to determine the value from a market participant perspective. For the remaining other operating assets, a cost approach was used. The estimation of fair value under the cost approach was based on current replacement costs of the assets, less depreciation based on the estimated economic useful lives of the assets and age of the assets.

15)

Upon adoption of fresh start accounting, the Company’s lease obligations were recalculated using the incremental borrowing rate applicable to the Company upon emergence from chapter 11 bankruptcy and commensurate with its new capital structure. The incremental borrowing rate used decreased from 4.83% in the Predecessor period to 3.70% in the Successor period. Additionally represents the removal of right-of-use assets and lease liabilities associated with the Company’s compressors, as the remaining contract term of the compressor leases were less than one year as of the Effective Date. See Note 4, “Leases,” for details associated with the Company’s short-term lease costs.

16)

Reflects the cumulative effect of the fresh-start accounting adjustments discussed above.

4. LEASES

The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of an identified asset for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset, and (2) the customer has the right to control the use of the identified asset.

The Company leases equipment and office space pursuant to net operating leases. Operating leases where the Company is the lessee are included in"“Operating lease right of use ~~assets"~~assets” and"“Operating lease ~~liabilities"~~liabilities” on the unaudited condensed consolidated balance sheets. The lease liabilities are initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date.

Key estimates and judgments include how the Company determined (1) the discount rate used to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments. ASC 842,Leases (ASC 842) requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As most of the ~~Company's~~Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Additionally, the Company applies a portfolio approach to determine the discount rate (the incremental borrowing rate for leases with similar characteristics). The Company uses the implicit rate when readily determinable. The lease term includes the noncancellable period of the lease plus any additional periods covered by either a lessee option to extend (or not to terminate) the lease that the lessee is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Lease payments included in the measurement of the lease asset or liability comprise the following, when applicable: fixed payments (including ~~in-substance~~in‑substance fixed payments), variable payments that depend on

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

an index or rate, and the exercise price of a lessee option to purchase the underlying asset if the lessee is reasonably certain to exercise.

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~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~1. FINANCIAL STATEMENT PRESENTATION (Continued)~~

The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For the ~~Company's~~Company’s operating leases, the right of use asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a ~~straight-line~~straight‑line basis over the lease term.

Variable lease payments associated with the ~~Company's~~Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments, when applicable, are presented as"“Gathering and ~~other"~~other” or"“General and ~~administrative"~~administrative” in the unaudited condensed consolidated statements of operations in the same line item as the expense arising from the fixed lease payments on the operating leases.

The Company has lease agreements which include lease and nonlease components and the Company has elected to combine lease and nonlease components, when fixed, for all lease contracts. Nonlease components include common area maintenance charges on office leases and, when applicable, services associated with equipment leases. The Company determines whether the lease or nonlease component is the predominant component on a ~~case-by-case~~case‑by‑case basis.

The Company reviews its right of use assets for impairment in accordance with ASC 360. ASC 360 requires the Company to evaluate right of use assets for impairment as events occur or circumstances change that would more likely than not reduce the fair value below the carrying amount. If the carrying amount is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value.

The Company monitors for events or changes in circumstances that would require a reassessment of a lease. When a reassessment results in the remeasurement of a lease liability, an adjustment is made to the carrying amount of the corresponding right of use asset unless doing so would reduce the carrying amount of the right of use asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative right of use asset balance is recorded in the unaudited condensed consolidated statements of operations.

The Company elected not to recognize right of use assets and lease liabilities for all ~~short-term~~short‑term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its ~~short-term~~short‑term leases as an expense on a ~~straight-line~~straight‑line basis over the lease term. Variable lease payments associated with these leases are recognized and presented in the same manner as for all other leases.

~~Restructuring~~

During the six months ended June 30, 2019, four executives of the Company resigned from their positions. These were considered terminations without cause under their respective employment agreements, which entitled them to certain benefits. Additionally during the period, the Company incurred costs to fill executive positions created by these resignations and had reductions in its workforce due to a decrease in drilling and developmental activities planned for 2019. Consequently, for the three and six months ended June 30, 2019, the Company incurred $0.7 million and

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~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~1. FINANCIAL STATEMENT PRESENTATION (Continued)~~

~~approximately $11.9 million, respectively, in severance costs which were recorded in "~~~~Restructuring~~~~" on the unaudited condensed consolidated statements of operations.~~

~~Income Taxes~~

~~For the three and six months ended June 30, 2019, the Company utilized the discrete effective tax rate method, as allowed by ASC 740,~~~~Income Taxes~~, to calculate its interim income tax provision. The discrete method is applied when it is not possible to reliably estimate the annual effective tax rate. The Company believes the use of the discrete method is more appropriate than the annual effective tax rate method at this time because of the uncertainties caused by the Company's filing of a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code. The uncertainties include, but are not limited to, the 1) level of capital spending in future periods and its impact on production and future ceiling impairment analysis 2) the expected allocation of income for the year between the pre- and post-emergence periods, and 3) the expected level of interest expense and restructuring expenses for the year.

~~Related Party Transactions~~

~~Crude Oil Gathering Agreement~~

On July 27, 2018, a subsidiary of the Company entered into a crude oil gathering agreement with SCM Crude, LLC (SCM) pursuant to which the Company agreed to dedicate, for a term of 15 years, production of crude oil from its currently owned, or later acquired acreage in designated areas in Ward and Winkler Counties, Texas (excluding certain specific wells) for the receipt, gathering and transportation on a gathering system to be designed, engineered and constructed by SCM. In the fourth quarter of 2018, the Company began selling its crude oil to SCM while the gathering system was under construction. The gathering system was completed and placed into service in March 2019. For the three and six months ended June 30, 2019, the Company recorded revenue of $28.3 million and $64.4 million, respectively, from SCM under the crude oil gathering agreement. As of June 30, 2019, the Company recorded a $10.3 million receivable from SCM for its crude oil sales.

Certain funds under the control of Ares Management LLC (Ares) are the majority owners and controlling parties of SCM. Ares also controls other funds which own in excess of ten percent (10%) of the common stock of the Company. No Ares fund that is a stockholder of the Company has an interest in SCM but one of the Company's directors, who is employed by Ares, also serves on the board of directors of SCM's parent company.

~~Gas Purchase and Processing Agreement~~

On November 16, 2017, a subsidiary of the Company entered into a gas purchase and processing agreement with Salt Creek Midstream, LLC (Salt Creek) pursuant to which the Company agreed to dedicate, for a term of 15 years, all production from its acreage in Ward County, Texas (that is not otherwise previously dedicated) and certain sections in Winkler County, Texas to a natural gas gathering pipeline and processing facilities to be constructed by Salt Creek. The facilities were completed and placed in service in May 2018. For the three and six months ended June 30, 2019, the Company recorded revenue of $0.6 million and $2.2 million, respectively, from Salt Creek under the gas purchase and processing agreement. As of June 30, 2019, the Company recorded a $0.5 million receivable from Salt Creek for its natural gas sales.

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~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~1. FINANCIAL STATEMENT PRESENTATION (Continued)~~

Certain funds under the control of Ares are the majority owners and controlling parties of Salt Creek. Ares also controls other funds which own in excess of ten percent (10%) of the stock of the Company. No Ares fund that is a stockholder of the Company has an interest in Salt Creek but one of the Company's directors, who is employed by Ares, and is a director of the Company, also serves on the board of directors of Salt Creek.

~~Pipeline Testing Services~~

In February 2019, the Company entered into an agreement with Cima Inspection LLC (Cima), a company specializing in advanced, non-destructive methods of testing pipes and tubing, pursuant to which Cima will inspect various Company gathering and transportation assets. One of the Company's directors owns a minority interest in Cima and currently serves as its chief executive officer. For the three and six months ended June 30, 2019, the Company incurred charges of approximately $0.3 million and $0.6 million, respectively, for services provided by Cima. As of June 30, 2019, the Company recorded a $0.1 million payable to Cima.

~~Charter of Aircraft~~

In the ordinary course of business, Halcón occasionally chartered a private aircraft for business use. Floyd C. Wilson, Halcón's former Chairman, Chief Executive Officer and President, indirectly owns an aircraft which the Company chartered from time to time. During 2018, fees for the use of Mr. Wilson's aircraft by the Company were based upon comparable costs that the Company would have incurred in chartering the same type and size of aircraft from an independent third party utilizing data from several independent third party aircraft leasing companies. The terms for this use were evaluated and approved by the Audit Committee, and subsequently by the disinterested members of the Company's board upon the recommendation of the Audit Committee, in accordance with the Company's procedures for the review and approval of transactions with related parties. In the first quarter of 2019, the Company terminated all charter arrangements with Mr. Wilson relating to the use of his aircraft. During the six months ended June 30, 2019, the Company paid approximately $0.2 million, related to use of the aircraft indirectly owned by Mr. Wilson during 2018.

~~Recently Issued Accounting Pronouncements~~

~~In February 2016, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2016-02,~~~~Leases (Topic 842)~~ (ASU 2016-02). For public business entities, ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The FASB issued ASU 2016-02 to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The Company adopted ASU 2016-02 effective January 1, 2019 using the modified retrospective approach as of the adoption date. See~~"Leases"~~ ~~above and Note 2,~~~~"Leases,"~~ ~~below for further details.~~

~~2. LEASES~~

~~Adoption of Accounting Standards Codification 842,~~~~Leases~~

~~On January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach as of the adoption date. Reporting periods beginning after January 1, 2019 are presented under ASC 842,~~

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~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~2. LEASES (Continued)~~

while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for those periods. The table below details the impact of adoption on the Company's unaudited condensed consolidated balance sheet as of January 1, 2019 (in thousands):

December 31,
2018 Impact of adoption
of ASC 842 January 1,
2019
Other noncurrent assets:

Operating lease right of use assets
$ — $ 5,462 $ 5,462
Current liabilities:

Accounts payable and accrued liabilities
$ 157,848 $ (85 ) $ 157,763
Operating lease liabilities
— 2,103 2,103
Other noncurrent liabilities:

Operating lease liabilities
— 3,444 3,444

~~Practical Expedients~~

The Company elected the following practical expedients for transition to, and ongoing accounting under, ASC 842: i) the Company does not separate lease and non-lease components of a contract, ii) the Company does not reassess whether expired or existing contracts contain leases, nor does it reassess the lease classification for expired or existing leases and does not reassess whether previously capitalized initial direct costs would qualify for capitalization under ASC 842, iii) the Company applies a single discount rate to a portfolio of leases with reasonably similar characteristics and iv) the Company does not assess whether existing or expired land easements that were not previously accounted for as leases are or contain a lease under ASC 842.

~~Leases~~

The Company leases equipment and office space under operating leases. The Company has no leases that meet the criteria for classification as a finance lease. The operating leases outstanding as of March 31, 2020 and December 31, 2019 (Successor) have initial lease terms ranging from 12 to 5 ~~years, some of which include options to extend or renew the leases for one year.~~years. Payments due under the lease contracts include fixed payments plus, in some

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~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~2. LEASES (Continued)~~

instances, variable payments. The table below summarizes the ~~Company's~~Company’s leases for the ~~six~~three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 (Predecessor) (in thousands, except years and discount rate):

Six Months Ended
June 30, 2019
Lease cost

Operating lease costs
$ 1,288
Short-term lease costs
9,666
Variable lease costs
771

Total lease costs
$ 11,725

Other information

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases
$ 1,290
Right-of-use assets obtained in exchange for new operating lease liabilities
5,462
Weighted-average remaining lease term—operating leases
3.6 years
Weighted-average discount rate—operating leases
4.83 %

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


	Successor			Predecessor
	Three Months			Three Months
	Ended			Ended
	March 31, 2020			March 31, 2019
Lease cost
Operating lease costs	$	260		$	644
Short-term lease costs		12,258			5,718
Variable lease costs		210			425
Total lease costs	$	12,728		$	6,787

Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	254		$	1,229
Right-of-use assets obtained in exchange for new operating lease liabilities		—			5,462
Weighted-average remaining lease term - operating leases		3.3	years		3.6	years
Weighted-average discount rate - operating leases		3.70	%		4.83	%

Refer to Note 3, “Fresh-start Accounting,” for a discussion of the valuation approach used to record the right of use asset at fair value as of October 1, 2019.

Future minimum lease payments associated with the ~~Company's~~Company’s non-cancellable operating leases for office space and equipment as of ~~June 30,~~March 31, 2020 and December 31, 2019 (Successor), are presented in the table below (in thousands):

June 30, 2019
Remaining period in 2019
$ 1,028
2020
1,360
2021
876
2022
574
2023
585
Thereafter
345

Total operating lease payments
4,768

Less: discount to present value
395

Total operating lease liabilities
4,373

Less: current operating lease liabilities
1,625

Noncurrent operating lease liabilities
$ 2,748


Operating Leases	Successor
	March 31, 2020		December 31, 2019
Remaining period in 2020	$	768	$	1,022
2021		876		876
2022		574		574
2023		585		585
2024		345		345
Thereafter		—		—
Total operating lease payments		3,148		3,402
Less: discount to present value		204		232
Total operating lease liabilities		2,944		3,170
Less: current operating lease liabilities		935		923
Noncurrent operating lease liabilities	$	2,009	$	2,247

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5. OPERATING REVENUES

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~2. LEASES (Continued)~~

Prior to the adoption of ASC 842, future obligations, including variable nonlease components, associated with the Company's non-cancellable operating leases for office space and equipment as of December 31, 2018, are presented in the table below (in thousands):

December 31, 2018
2019
$ 3,792
2020
2,350
2021
1,899
2022
968
2023
999
Thereafter
599

Total operating lease payments
$ 10,607

~~3. OPERATING REVENUES~~

~~Revenue Recognition~~

Revenue is measured based on consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue. Revenues from the sale of crude oil, natural gas and natural gas liquids are recognized, at a point in time, when a performance obligation is satisfied by the transfer of control of the commodity to the customer. Because the ~~Company's~~Company’s performance obligations have been satisfied and an unconditional right to consideration exists as of the balance sheet date, the Company recognized amounts due from contracts with customers of ~~$25.2~~$19.3 million and ~~$26.4~~$36.4 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019 (Successor), respectively, as"“Accounts ~~receivable"~~receivable” on the unaudited condensed consolidated balance sheets.

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Substantially all of the ~~Company's~~Company’s revenues are derived from its single basin operations, the Delaware Basin in Pecos, Reeves, Ward and Winkler Counties, Texas. The following table disaggregates the ~~Company's~~Company’s revenues by major product, in order to depict how the nature, timing, and uncertainty of revenue and cash flows are affected by economic factors in the ~~Company's~~Company’s single basin operations, for the periods indicated (in thousands):

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~~HALCÓN RESOURCES CORPORATION~~


	Successor		Predecessor
	Three Months		Three Months
	Ended		Ended
	March 31, 2020		March 31, 2019
Operating revenues:
Oil, natural gas and natural gas liquids sales:
Oil	$	41,917	$	45,517
Natural gas		354		1,461
Natural gas liquids		4,753		4,945
Total oil, natural gas and natural gas liquids sales		47,024		51,923
Other		375		(7)
Total operating revenues	$	47,399	$	51,916

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~3. OPERATING REVENUES (Continued)~~

Oil Sales

The Company generally markets its crude oil production directly to the customer using two methods. Under the first method, crude oil is sold at the wellhead at an index price adjusted for pricing differentials and other deductions. Revenue is recognized at the wellhead, where control of the crude oil transfers to the customer, at the net price received. Under the second method, crude oil is delivered to the customer at a contractual delivery point at which the customer takes custody, title and risk of loss of the product. The Company receives a specified index price from the customer, averaged over the daily settlement prices for a production month, and net of ~~transportation costs and other~~applicable market-related adjustments. Revenue is recognized when control of the crude oil transfers at the delivery point at the net price received.

Settlement statements for the ~~Company's~~Company’s crude oil production are typically received within the month following the date of production and therefore the amount of production delivered to the customer and the price that will be received for that production are known at the time the revenue is recorded. Payment under the ~~Company's~~Company’s crude oil contracts is typically due on or before the 20th of the month following the delivery month.

Natural Gas and Natural Gas Liquids Sales

The Company evaluates its natural gas gathering and processing arrangements in place with midstream companies to determine when control of the natural gas is transferred. Under contracts where it is determined that control of the natural gas transfers at the wellhead, any fees incurred to gather or process the unprocessed natural gas are treated as a reduction of the sales price of unprocessed natural gas, and therefore revenues from such transactions are presented on a net basis. Under contracts where it is determined that control of the natural gas transfers at the tailgate of the midstream ~~entity's~~entity’s processing plant, ~~the Company is the principal and the midstream entity is the agent in the sale transaction with the third party purchaser of processed commodities. In these instances,~~ revenues are presented on a gross basis for amounts expected to be received from the midstream company or third party purchasers through the gathering and treating process and presented as "~~Natural gas~~"Natural gas" or ""Natural gas ~~liquids~~liquids"" and any fees incurred to gather or process the natural gas are presented separately as "“Gathering and other" on the unaudited condensed consolidated statements of operations.

Under certain contracts, the Company may elect to take its residue gas and/or natural gas liquids in-kind at the tailgate of the midstream ~~entity's~~entity’s processing plant. The Company then sells the products to a customer at contractual delivery points at prices based on an index. In these instances, revenues are presented on a gross basis and any fees

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

incurred to gather, process or transport the commodities are presented separately as "“Gathering and other" on the unaudited condensed consolidated ~~statement~~statements of operations.

Settlement statements for the ~~Company's~~Company’s natural gas and natural gas liquids production are typically received 30 days after the date of production and therefore the Company estimates the amount of production delivered to the customer and the price that will be received for that production. The majority of the Company’s natural gas and natural gas liquids prices are based on daily average pricing for the month. Historically, differences between the ~~Company's~~Company’s estimates and the actual revenue received have not been material. Payment under the ~~Company's~~Company’s natural gas gathering and processing contracts is typically due on or before the fifth day of the second month following the delivery month.

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~4. ACQUISITIONS AND DIVESTITURES~~

~~Acquisitions~~

~~West Quito Draw Properties~~

On February 6, 2018, a wholly owned subsidiary of the Company entered into a Purchase and Sale Agreement (the Shell PSA) with SWEPI LP (Shell), an affiliate of Shell Oil Company, pursuant to which the Company purchased acreage and related assets in the Delaware Basin located in Ward County, Texas (the West Quito Draw Properties) for a total adjusted purchase price of $198.5 million. The effective date of the acquisition was February 1, 2018, and the Company closed the transaction on April 4, 2018. The Company funded the cash consideration for the acquisition of the West Quito Draw Properties with the net proceeds from the issuance of additional 6.75% senior notes due 2025 and common stock, which are discussed in Note 6, "~~Debt~~~~," and Note 11, "~~~~Stockholders' Equity~~~~," respectively.~~

~~Monument Draw Assets (Ward and Winkler Counties, Texas)~~

On January 9, 2018, the Company purchased acreage in the Monument Draw area of the Delaware Basin, located in Ward and Winkler Counties, Texas (the Ward County Assets) that is prospective for the Wolfcamp and Bone Spring formations from a private company for $108.2 million in cash.

~~Divestitures~~6. DIVESTITURES

Water Infrastructure Assets

On December 20, 2018 (Predecessor), the Company sold its water infrastructure assets located in the Delaware Basin (the Water Assets) to WaterBridge Resources LLC (the Purchaser) for a total adjusted purchase price of ~~$211.0~~$210.9 million in cash (the Water Infrastructure Divestiture). The effective date of the transaction was October 1, 2018. Additional incentive payments of up to $25.0 million per year for the years from 2019 to 2023 were available based on the Company's ability to meet certain annual incentive thresholds relating to the number of wells connected to the Water Assets per year. In August 2019, the Company and the Purchaser agreed to terminate the incentive payments provision.2018 (Predecessor).

Upon closing, the Company dedicated all of the produced water from its oil and natural gas wells within its Monument Draw, Hackberry Draw and West Quito Draw operating areas to the Purchaser. There ~~are~~were no drilling or throughput commitments associated with the Water Infrastructure Divestiture. The Purchaser will receive a ~~current~~ market price, subject to annual adjustments for inflation, in exchange for the transportation, disposal and treatment of such produced water, and the Purchaser will receive a market price for the supply of freshwater and recycled produced water to the Company.

~~For~~During the ~~year~~three months ended ~~December~~March 31, ~~2018,~~2019 (Predecessor), the Company ~~recognized~~recorded a gain of ~~$119.0~~$0.9 million on the sale of the Water Assets on the unaudited condensed consolidated statements of operations in"“(Gain) loss on sale of Water Assets."” ~~The gain on the sale was reduced during the six months ended June 30, 2019 by approximately $3.8 million as a result of customary post-closing adjustments.~~

5.7. OIL AND NATURAL GAS PROPERTIES

The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas reserves (including such costs as leasehold acquisition costs, geological expenditures,

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~5. OIL AND NATURAL GAS PROPERTIES (Continued)~~

treating equipment and gathering support facilities costs, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred. To the extent capitalized costs of evaluated oil and natural gas properties, net of accumulated depletion, exceed the discounted future net revenues of proved oil and natural gas reserves, net of deferred taxes, such excess capitalized costs are charged to expense.

With the adoption of fresh-start accounting, the Company recorded its oil and natural gas properties at fair value as of the Emergence Date. The Company’s evaluated and unevaluated properties were assigned fair values of $380.4 million and $109.0 million, respectively.

The Successor Company’s policy of accounting for its treating equipment and gathering support facilities identifies these assets as part of the Company’s full cost pool due to their supporting nature to the Company’s oil and natural gas operations. The Company’s treating equipment and gathering support facilities were included in “Oil and natural gas properties, evaluated” on the unaudited condensed consolidated balance sheet as of the Emergence Date. Refer to Note 3, “Fresh-start Accounting,” for a discussion of the valuation approaches used.

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Additionally, the Company assesses all properties classified as unevaluated property on a quarterly basis for possible impairment or reduction in value. The Company assesses properties on an individual basis or as a group, if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and the full cost ceiling test limitation.

At ~~June 30, 2019,~~March 31, 2020 (Successor), the ceiling test value of the ~~Company's~~Company’s reserves was calculated based on the ~~first-day-of-the-month~~first‑day‑of‑the‑month average for the ~~12-months~~12‑months ended ~~June 30, 2019~~March 31, 2020 of the West Texas Intermediate (WTI) crude oil spot price of ~~$61.45~~$55.96 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the ~~first-day-of-the-month~~first‑day‑of‑the‑month average for the ~~12-months~~12‑months ended ~~June 30, 2019~~March 31, 2020 of the Henry Hub natural gas price of ~~$3.018 per million British thermal units (MMBtu),~~$2.30 MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials. Using these prices, the ~~Company's~~Company’s net book value of oil and natural gas properties at ~~June 30,~~March 31, 2020 did not exceed the ceiling amount.

At March 31, 2019 (Predecessor), the ceiling test value of the Company’s reserves was calculated based on the first‑day‑of‑the‑month average for the 12‑months ended March 31, 2019 of the WTI crude oil spot price of $63.06 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first‑day‑of‑the‑month average for the 12‑months ended March 31, 2019 of the Henry Hub natural gas price of $3.07 per MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials. Using these prices, the Company’s net book value of oil and natural gas properties at March 31, 2019 exceeded the ceiling amount by ~~$664.4~~$275.2 million ($217.4 million after taxes) which resulted in a ceiling test impairment charge of that amount for the quarter. The impairment was recorded in “Full cost ceiling test ~~impairment at June 30, 2019 was primarily driven by~~impairment” on the ~~Company's continued focus on its most economic area, Monument Draw. Accordingly, the Company transferred approximately $481.7 million~~unaudited condensed consolidated statements of unevaluated property costs to the full cost pool as of June 30, 2019, the majority of which is associated with the Company's Hackberry Draw area. At March 31, 2019, the Company recorded a full cost ceiling impairment of $275.2 million.operations. The ceiling test impairment ~~at March 31, 2019~~ was driven by a decrease in the ~~first-day-of-the-month~~first‑day‑of‑the‑month average price for crude oil used in the ceiling test calculation and the ~~Company's~~Company’s intent to expend capital only on its most economic areas. As such, the Company identified certain leases in the Hackberry Draw area with ~~near-term~~near‑term expirations and transferred approximately $51.0 million of associated unevaluated property costs to the full cost pool during the three months ended March 31, ~~2019. The impairments were recorded in "~~~~Full cost ceiling test impairment~~~~" on the unaudited condensed consolidated statements of operations.~~2019 (Predecessor).

At June 30, 2018, the ceiling test value of the Company's reserves was calculated based on the first-day-of-the-month average for the 12-months ended June 30, 2018 of the WTI crude oil spot price of $57.67 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for the 12-months ended June 30, 2018 of the Henry Hub natural gas price of $2.92 per MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials. Using these prices, the Company's net book value of oil and natural gas properties at June 30, 2018 did not exceed the ceiling amount.

Changes in commodity prices, production rates, levels of reserves, future development costs, transfers of unevaluated properties to the full cost pool, capital spending, and other factors will determine the ~~Company's~~Company’s ceiling test ~~calculations~~calculation and impairment analyses in future periods.

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~5. OIL AND NATURAL GAS PROPERTIES (Continued)~~

On September 7, 2017, the Company and certain of its subsidiaries sold of all of the Company's operated oil and natural gas leases, oil and natural gas wells and related assets located in the Williston Basin in North Dakota, as well as 100% of the membership interests in two of its subsidiaries for a total adjusted sales price of approximately $1.39 billion (the Williston Divestiture). Under the full cost method of accounting, sales of oil and gas properties are accounted for as adjustments to capitalized costs with no gain or loss recognized, unless the adjustment significantly alters the relationship between capitalized costs and proved reserves. If the Williston Divestiture was accounted for as an adjustment of capitalized costs with no gain or loss recognized, the adjustment would have significantly altered the relationship between capitalized costs and proved reserves. Accordingly, the Company recognized a gain on the sale of the Williston Assets of $485.9 million during the year ended December 31, 2017. This gain was reduced by $5.9 million during the six months ended June 30, 2018 as the result of customary post-closing adjustments. The carrying value of the properties sold was determined by allocating total capitalized costs within the full cost pool between properties sold and properties retained based on their relative fair values. The gain (loss) was recorded in~~"Gain (loss) on sale of oil and natural gas properties,"~~ ~~on the Company's unaudited condensed consolidated statements of operations.~~

~~6. DEBT~~

8. LONG‑TERM DEBT

Long‑term debt as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, the Company's debt~~2019 (Successor) consisted of the following (in thousands):

June 30, 2019⁽¹⁾ December 31, 2018
Senior revolving credit facility
$ 188,000 $ —
6.75% senior notes due 2025⁽²⁾
613,887 613,105

$ 801,887 $ 613,105

~~(1)~~: ~~The Company's debt balance as of June 30, 2019 was classified as a current liability. See Note 14," Subsequent Events," for more details.~~
~~(2)~~: Amount includes a $6.7 million and $7.2 million unamortized discount at June 30, 2019 and December 31, 2018, respectively, associated with the 2025 Notes. Amount includes a $5.0 million and $5.4 million unamortized premium at June 30, 2019 and December 31, 2018, respectively, associated with the Additional 2025 Notes. Additionally, these amounts are net of $9.4 million and $10.1 million unamortized debt issuance costs at June 30, 2019 and December 31, 2018, respectively. Refer to "6.75% Senior Notes" below for further details.


	Successor
	March 31, 2020	December 31, 2019
Senior revolving credit facility	$ 170,000	$ 144,000

Senior Revolving Credit Facility

On ~~September 7, 2017,~~the Effective Date, the Company entered into ~~an Amended and Restated Senior Secured Revolving Credit Agreement~~a senior secured revolving credit agreement, as amended, (the Senior Credit Agreement) ~~by and among the Company, as borrower, JPMorgan Chase~~with Bank ~~N.A.,~~of Montreal, as administrative agent, and certain other financial institutions party thereto, as ~~lenders. Pursuant to~~lenders, which refinanced the Predecessor Company’s Amended and Restated Senior Secured Revolving Credit Agreement (the Predecessor Credit Agreement). The Senior Credit Agreement ~~the lenders party thereto agreed to provide the Company with~~provides for a ~~$1.0 billion~~$750.0 million senior secured ~~reserve-based~~reserve‑based revolving credit facility with a current borrowing base of ~~$225.0 million as~~$200.0 million. At March 31,

Table of ~~June 30, 2019. On July 29, 2019,~~Contents

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2020 (Successor), the Company ~~borrowed~~had $170.0 million indebtedness outstanding and approximately ~~$16.2~~$4.4 million ~~resulting in~~letters of credit outstanding. Under the current borrowing base of $200.0 million, the Company ~~having an aggregate $223.2~~would have approximately $25.6 million of ~~indebtedness outstanding~~borrowing capacity available under the Senior Credit ~~Agreement.~~Agreement as of March 31, 2020 (Successor).

A portion of the Senior Credit Agreement, in the amount of $50.0 million, is available for the issuance of letters of credit. The maturity date of the Senior Credit

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~6. DEBT (Continued)~~

Agreement is ~~September 7, 2022. The borrowing base~~October 8, 2024. Redeterminations will ~~be redetermined~~occur semi-annually on May 1 and November 1, with the lenders and the Company each having the right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations. The borrowing base takes into account the estimated value of the ~~Company's~~Company’s oil and natural gas properties, proved reserves, total indebtedness, and other relevant factors consistent with customary oil and natural gas lending criteria. Amounts outstanding under the Senior Credit Agreement bear interest at specified margins over the base rate of ~~1.75%~~1.50% to ~~2.75%~~2.50% for ABR-based loans or at specified margins over LIBOR of ~~2.75%~~2.50% to ~~3.75%~~3.50% for Eurodollar-based ~~loans.~~loans, which margins may be increased one-time by not more than 50 basis points per annum if necessary in order to successfully syndicate the Senior Credit Agreement. These margins fluctuate based on the ~~Company's~~Company’s utilization of the facility.

The Company may elect, at its option, to prepay any borrowings outstanding under the Senior Credit Agreement without premium or penalty, ~~(except~~except with respect to any break funding payments which may be payable pursuant to the terms of the Senior Credit ~~Agreement).~~Agreement. The Company may be required to make mandatory prepayments of the outstanding borrowings under the Senior Credit Agreement in connection with certain borrowing base deficiencies, including deficiencies which may arise in connection with a borrowing base redetermination, an asset disposition or swap terminations attributable in the aggregate to more than ten percent (10%) of the then-effective borrowing base. Amounts outstanding under the Senior Credit Agreement are guaranteed by ~~certain of~~ the ~~Company's~~Company’s direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of the Company and its subsidiaries.

The Senior Credit Agreement contains certain events of default, including non-payment; breaches of ~~representations~~representation and warranties; non-compliance with ~~covenants or other agreements; cross-default~~covenants; cross-defaults to material indebtedness; ~~judgments;~~voluntary or involuntary bankruptcy; judgments and change ~~of control; and voluntary and involuntary bankruptcy.~~in control. The Senior Credit Agreement also contains certain financial covenants, including ~~the~~ maintenance of (i) a ~~Consolidated~~ Total Net ~~Debt to EBITDA~~Indebtedness Leverage Ratio ~~(each as~~(as defined in the Senior Credit Agreement) of not greater than 3.50 to 1.00 and (ii) a Current Ratio (as defined in the Senior Credit Agreement) of not ~~to be~~ less than 1.00 to ~~1.00.~~1.00, both commencing with the fiscal quarter ending March 31, 2020. As of March 31, 2020 (Successor), the Company was in compliance with the financial covenants under the Senior Credit Agreement.

On ~~May 9, 2019,~~April 30, 2020 (Successor), the Company entered into the ~~Eighth~~Second Amendment ~~Consent and Waiver~~ to ~~Amended and Restated~~the Senior ~~Secured~~ Credit Agreement ~~(the Eighth~~(Second Amendment) which among other things, (i) ~~temporarily waived~~reduced the borrowing base to $200.0 million effective from April 30, 2020, which shall then be reduced by $5.0 million monthly starting September 1, 2020 until November 1, 2020, so that the borrowing base is scheduled to be $185.0 million on November 1, 2020, provided the borrowing base redetermination scheduled for November 1, 2020 shall occur pursuant to the terms of the Senior Credit Agreement, (ii) increased interest margins to 1.50% to 2.50% for ABR-based loans and 2.50% to 3.50% for Eurodollar-based loans, (iii) provided that should the Company’s Consolidated Cash Balance (as defined pursuant to the Second Amendment) exceed $10.0 million, such amounts shall be used to prepay any ~~default~~borrowings under the Senior Credit Agreement and thereafter, to the extent of any uncollateralized letters of credit exposure, shall be cash collateralized in accordance with the Senior Credit Agreement and (iv) allowed for a replacement benchmark rate to the London Interbank Offered Rate (which may include SOFR, Compounded SOFR or ~~event of default directly resulting~~Term SOFR).

The Second Amendment also added provisions related a loan (PPP Loan) incurred by the Company from the ~~potential Leverage Ratio Default (as defined in~~U.S. Small Business Administration, under the ~~Eighth Amendment)~~Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). Under the terms of the CARES Act, PPP Loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent,

Table of Contents

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

and utilities. The Company intends to use, and the Second Amendment requires the Company to use, the PPP Loan proceeds for CARES Forgivable Uses under the CARES Act.

Additionally, the Second Amendment waived, for the fiscal quarter ended ~~March 31, 2019, (ii) increased interest margins to 1.75% to 2.75% for ABR-based loans and 2.75% to 3.75% for Eurodollar-based loans, (iii) reduced~~June 30, 2020, that the ~~Company's Consolidated Cash Balance (as defined in~~Company comply with the Eighth Amendment) to $5.0 million, and (iv) provided for periodic reporting of projected cash flows and accounts payable agings to the lenders. Under the Eighth Amendment, the waiver would have terminated and an Event of Default (as defined inrequirement under the Senior Credit ~~Agreement) would have occurred on August 1, 2019.~~ Agreement that the Company unwind certain swap agreements for which settlement payments are calculated in such fiscal quarter to exceed 100% of actual production.

On ~~July 31,~~November 21, 2019 (Successor), the Company entered into the ~~Waiver to Amended and Restated Senior Secured Credit Agreement, pursuant to which the termination date for the waiver granted by the Eighth~~First Amendment ~~was extended to August 8, 2019.~~

On February 28, 2019, the lenders party to the Senior Credit Agreement issued a consent (the Severance and Office Payments Consent) to the Company whereby Severance Payments and Office Payments (as defined in the Severance and Office Payments Consent) may exceed the maximum level allowed for adding back non-recurring expenses and charges in the definition of EBITDA (as defined in the Senior Credit Agreement) when calculating the ratio of Consolidated Total Net Debt to EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarter ending March 31, 2019.

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~6. DEBT (Continued)~~

~~On February 15, 2019, the Company entered into the Seventh Amendment (the Seventh Amendment)~~ to the Senior Credit Agreement which, among other things, ~~provided for~~ (i) reduced the ~~use of annualized financial data in determining EBITDA~~borrowing base to $240.0 million and (ii) limited the Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit Agreement) ~~for~~as of the ~~fiscal quarters ending March 31, 2019, June 30, 2019 and September 30, 2019 and (ii) amended the ratio~~last day of ~~Consolidated Total Net Debt (as defined in the Senior Credit Agreement) to EBITDA to be (a) 5.00 to 1.0 for the~~each fiscal quarter, ending March 31, 2019, (b) 4.75 to 1.0 for the fiscal quarter ending June 30, 2019, (c) 4.5 to 1.0 for the fiscal quarter ending September 30, 2019, (d) 4.25 to 1.0 for the fiscal quarter ending December 31, 2019, and (e) 4.0 to 1.0 forcommencing with the fiscal quarter ending March 31, 2020, ~~and any fiscal quarter thereafter.~~

~~On November 6, 2018, the lenders party~~of not greater than 3.50 to the Senior Credit Agreement issued a consent (the H2S Consent) to the Company whereby H2S Expenses (as defined in the H2S Consent) may exceed the maximum level allowed for adding back non-recurring expenses and charges in the definition of EBITDA (as defined in the Senior Credit Agreement) when calculating the ratio of Consolidated Total Net Debt to EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarters ending September 30, 2018, December 31, 2018 and March 31, 2019.

~~At June 30, 2019, the Company had $188.0 million of indebtedness outstanding and approximately $1.8 million letters of credit outstanding.~~

~~The filing of the voluntary petitions for relief under chapter 11 of the Bankruptcy Code described in Note 1,~~~~"Financial Statement Presentation,"~~ constituted an event of default under the Senior Credit Agreement that accelerated the Company's obligations and terminated the lenders' commitments under the Senior Credit Agreement. During the chapter 11 proceedings, amounts outstanding under the Senior Credit Agreement will bear interest at a rate per annum equal to 2.0% plus the applicable interest rate in effect. Refer to Note 14,~~"Subsequent Events,"~~ ~~for a discussion of the Company's debtor-in-possession and exit financing facilities.~~1.00.

~~6.75% Senior Notes~~

On February 16, 2017, the Company issued $850.0 million aggregate principal amount of new 6.75% senior unsecured notes due 2025 (the 2025 Notes) in a private placement exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (Securities Act), Rule 144A and Regulation S, and applicable state securities laws. The 2025 Notes were issued at par and bear interest at a rate of 6.75% per annum, payable semi-annually on February 15 and August 15 of each year. The 2025 Notes will mature on February 15, 2025. Proceeds from the private placement were approximately $834.1 million after deducting initial purchasers' discounts and commissions and offering expenses. The Company used a portion of the net proceeds from the private placement to fund the repurchase and redemption of the outstanding 8.625% senior secured second lien notes, and for general corporate purposes. The 2025 Notes are governed by an Indenture, dated as of February 16, 2017 (as supplemented, the February 2017 Indenture) by and among the Company, the Guarantors and U.S. Bank National Association, as Trustee, which contains affirmative and negative covenants that, among other things, limit the ability of the Company and the Guarantors to incur indebtedness; purchase or redeem stock or subordinated indebtedness; make investments; create liens; enter into transactions with affiliates; sell assets; refinance certain indebtedness; merge with or into other companies or transfer substantially all of their assets; and, in certain circumstances, to pay dividends or make other distributions on stock. The February 2017 Indenture also contains customary events of

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~6. DEBT (Continued)~~

default. Upon the occurrence of certain events of default, the Trustee or the holders of the 2025 Notes may declare all outstanding 2025 Notes to be due and payable immediately. The 2025 Notes are jointly and severally, fully and unconditionally guaranteed on a senior unsecured basis by the Company's existing wholly-owned subsidiaries. Halcón, the issuer of the 2025 Notes, has no material independent assets or operations apart from the assets and operations of its subsidiaries.

In connection with the sale of the 2025 Notes, on February 16, 2017, the Company, the Guarantors and J.P. Morgan Securities LLC, on behalf of itself and as representative of the initial purchasers, entered into a Registration Rights Agreement (the 2017 Registration Rights Agreement) pursuant to which the Company agreed to, among other things, use reasonable best efforts to file a registration statement under the Securities Act and complete an exchange offer for the 2025 Notes within 365 days after closing. The Company completed the exchange offer for the 2025 Notes on February 1, 2018.

On July 25, 2017, the Company concluded a consent solicitation of the holders of the 2025 Notes (the Consent Solicitation) and obtained consents to amend the February 2017 Indenture from approximately 99% of the holders of the 2025 Notes. As supplemented, the February 2017 Indenture exempted, among other things, the Williston Divestiture from certain provisions triggered upon a sale of "all or substantially all of the assets" of the Company. Consenting holders of the 2025 Notes received a consent fee of 2.0% of principal, or $16.9 million. The Company recorded the $16.9 million consent fees paid as a discount on the 2025 Notes.

On September 7, 2017, the Company commenced an offer to purchase for cash up to $425.0 million of the $850.0 million outstanding aggregate principal amount of its 2025 Notes at 103.0% of principal plus accrued and unpaid interest. The consummation of the Williston Divestiture constituted a "Williston Sale" under the February 2017 Indenture, and the Company was required to make an offer to all holders of the 2025 Notes to purchase for cash an aggregate principal amount up to $425.0 million of the 2025 Notes. The offer to purchase expired on October 6, 2017, with notes representing in excess of $425.0 million of principal amount validly tendered. As a result, on October 10, 2017, the Company repurchased approximately $425.0 million principal amount of the 2025 Notes on a pro rata basis at 103.0% of par plus accrued and unpaid interest of approximately $4.1 million.

On February 15, 2018, the Company issued an additional $200.0 million aggregate principal amount of its 2025 Notes at a price to the initial purchasers of 103.0% of par (the Additional 2025 Notes). The net proceeds from the sale of the Additional 2025 Notes were approximately $202.4 million after deducting initial purchasers' premiums, commissions and estimated offering expenses. The proceeds were used to fund the cash consideration for the acquisition of the West Quito Draw Properties, discussed further in Note 4,~~"Acquisitions and Divestitures,"~~ and for general corporate purposes, including to fund the Company's 2018 drilling program. These notes were issued under the February 2017 Indenture. The Additional 2025 Notes are treated as a single class with, and have the same terms as, the 2025 Notes.

~~The remaining unamortized discount on the 2025 Notes was $6.7 million at June 30, 2019. The unamortized premium on the Additional 2025 Notes was $5.0 million at June 30, 2019.~~

~~The filing of the voluntary petitions for relief under chapter 11 of the Bankruptcy Code described in Note 1, "~~~~Financial Statement Presentation~~~~," constituted an event of default under the February 2017 Indenture that accelerated the 2025 Notes and Additional 2025 Notes under the February 2017~~

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~6. DEBT (Continued)~~

~~Indenture. Refer to Note 14, "~~~~Subsequent Events~~~~," for a discussion of the Company's debtor-in-possession and exit financing facilities.~~

~~Debt Issuance Costs~~

The Company capitalizes certain direct costs associated with the issuance of debt and amortizes such costs over the lives of the respective debt. For the six months ended June 30, 2019, the Company expensed $0.2 million of debt issuance costs in conjunction with a decrease in the borrowing base under the Senior Credit Agreement. At June 30, 2019 and December 31, 2018, the Company had approximately $10.1 million and $11.1 million, respectively, of unamortized debt issuance costs. The debt issuance costs for the Company's Senior Credit Agreement are presented in "~~Prepaids and other~~~~" and "~~~~Funds in escrow and other"~~ ~~within total assets on the unaudited condensed consolidated balance sheets, and the debt issuance costs for the Company's senior unsecured debt are presented in~~~~"Current portion of long-term debt, net"~~ ~~and~~~~"Long-term debt, net"~~ ~~within total liabilities on the unaudited condensed consolidated balance sheets.~~

7.9. FAIR VALUE MEASUREMENTS

Pursuant to ASC 820,Fair Value ~~Measurements~~Measurement ~~(ASC~~(ASC 820), the ~~Company's~~Company’s determination of fair value incorporates not only the credit standing of the counterparties involved in transactions with the Company resulting in receivables on the ~~Company's~~Company’s unaudited condensed consolidated balance sheets, but also the impact of the ~~Company's~~Company’s nonperformance risk on its own liabilities. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs.

As required by ASC 820, a financial ~~instrument's~~instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The ~~Company's~~Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for any period presented. The following tables set forth by level within the fair value hierarchy the ~~Company's~~Company’s financial assets and

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~7. FAIR VALUE MEASUREMENTS (Continued)~~

liabilities that were accounted for at fair value as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (Successor) (in thousands):


	Successor
	March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
Assets from derivative contracts	$	—		109,119	$	—		109,119

Liabilities
Liabilities from derivative contracts	$	—		4,445	$	—		4,445

June 30, 2019

Level 1 Level 2 Level 3 Total
Assets

Receivables from derivative contracts
$ — $ 15,468 $ — $ 15,468

Liabilities

Liabilities from derivative contracts
$ — $ 16,062 $ — $ 16,062

Table of Contents

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


	Successor
	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets
Assets from derivative contracts	$	—	$	5,219	$	—	$	5,219

Liabilities
Liabilities from derivative contracts	$	—	$	12,923	$	—	$	12,923

December 31, 2018

Level 1 Level 2 Level 3 Total
Assets

Receivables from derivative contracts
$ — $ 69,717 $ — $ 69,717

Liabilities

Liabilities from derivative contracts
$ — $ 12,907 $ — $ 12,907

Derivative contracts listed above as Level 2 include fixed-price swaps, collars, puts, calls, ~~fixed-price~~basis swaps and ~~basis swaps~~WTI NYMEX rolls that are carried at fair value. The Company records the net change in the fair value of these positions in"“Net gain (loss) on derivative ~~contracts"~~contracts” onin the Company’s unaudited condensed consolidated statements of operations. The Company is able to value the assets and liabilities based on observable market data for similar instruments, which resulted in the Company reporting its derivatives as Level 2. This observable data includes the forward curves for commodity prices based on quoted market prices and implied volatility factors related to changes in the forward curves. See Note 8,10, "“Derivative and Hedging Activities,"” for additional discussion of derivatives.

The ~~Company's~~Company’s derivative contracts are with major financial ~~and commodity hedging~~ institutions with investment grade credit ratings which are believed to have minimal credit risk. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts; however, the Company does not anticipate such nonperformance.

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of ASC 825,Financial Instruments. The estimated fair value amounts have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, ~~and~~ cash equivalents, restricted cash, accounts ~~receivables~~receivable, noncurrent accounts receivable and accounts ~~payables approximate~~payable approximates their carrying value due to their ~~short-term~~short‑term nature. The estimated fair value of the ~~Company's~~Company’s Senior Credit Agreement approximates carrying value because the interest rates approximate current market rates. ~~The following table presents~~

On the ~~estimated~~Effective Date, the Company emerged from chapter 11 bankruptcy and adopted fresh-start accounting, which resulted in the Company becoming a new entity for financial reporting purposes. Upon the adoption of fresh-start accounting, the Company’s assets, liabilities and warrants were recorded at their fair values as of the ~~Company's fixed interest rate debt instruments as~~fresh-start reporting date, October 1, 2019. See Note 3, “Fresh-start Accounting,” for a detailed discussion of ~~June 30, 2019 and December 31, 2018 (excluding discounts, premiums and debt issuance costs) (in thousands):~~

June 30, 2019 December 31, 2018
Debt
Principal
Amount Estimated
Fair Value Principal
Amount Estimated
Fair Value
6.75% senior notes
$ 625,005 $ 193,095 $ 625,005 $ 458,210

~~Table of Contents~~the fair value approaches used by the Company.

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~7. FAIR VALUE MEASUREMENTS (Continued)~~

The fair value of the Company's fixed interest rate debt instruments was calculated using Level 1 criteria. The fair value of the Company's senior notes is based on quoted market prices from trades of such debt.

The Company follows the provisions of ASC 820, for nonfinancial assets and liabilities measured at fair value on a ~~non-recurring~~non‑recurring basis. These provisions apply to the ~~Company's~~Company’s initial recognition of asset retirement obligations for which fair value is used. The asset retirement obligation estimates are derived from historical costs and ~~management's~~management’s expectation of future cost environments; and therefore, the Company has designated these liabilities as Level 3. See Note ~~9, "~~11, “Asset Retirement Obligations,”," for a reconciliation of the beginning and ending balances of the liability for the ~~Company's~~Company’s asset retirement obligations.

8.10. DERIVATIVE AND HEDGING ACTIVITIES

The Company is exposed to certain risks relating to its ongoing business operations, such as commodity price risk and interest rate risk. ~~Derivative contracts are utilized to hedge~~In accordance with the Company's exposure to price fluctuations and reduce the variability in the Company's cash flows associated with anticipated sales of future oil, natural gas and natural gas liquids production. When derivative contracts are available at terms (or prices) acceptable to the Company,Company’s policy, it generally hedges a substantial, but varying, portion of anticipated oil, natural gas and natural gas liquids production for future periods. Derivatives are carried at fair value on the unaudited condensed consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the unaudited condensed consolidated statements of operations for the period in which the change occurs. The ~~Company's~~

Table of Contents

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Company’s hedge policies and objectives may change significantly as its operational profile ~~changes and/or commodities prices change.~~changes. The Company does not enter into derivative contracts for speculative trading purposes.

It is the ~~Company's~~Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial or commodity hedging institutions deemed by management as competent and competitive market makers. As of ~~June 30, 2019,~~March 31, 2020 (Successor), the Company did not post collateral under any of its derivative contracts as they are secured under the ~~Company's~~Company’s Senior Credit Agreement or are uncollateralized trades.

The ~~Company's~~Company’s crude oil, natural gas and natural gas liquids derivative positions at any point in time may consist of fixed-price swaps, costless put/call collars, basis swaps and ~~costless put/call "collars."~~WTI NYMEX rolls. Fixed-price swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for crude oil and natural gas. Basis swaps effectively lock in a price differential between regional prices (i.e. Midland) where the product is sold and the relevant price index under which the production is hedged (i.e. Cushing). A costless collar consists of a sold call, which establishes a maximum price the Company will receive for the volumes under contract and a purchased put that establishes a minimum price. Basis swaps effectively lock in a price differential between regional prices (i.e. Midland) where the product is sold and the relevant pricing index under which the oil production is hedged (i.e. Cushing). WTI NYMEX roll agreements account for pricing adjustments to the trade month versus the delivery month for contract pricing. The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, the Company records the net change in the mark-to-market valuation of these derivative contracts, as well as all payments and receipts on settled derivative contracts, in"“Net gain (loss) on derivative ~~contracts"~~contracts” on the unaudited condensed consolidated statements of operations.

All derivative contracts are recorded at fair market value in accordance with ASC 815~~Derivatives and Hedging~~ ~~(ASC 815)~~ and ASC 820 and included in the unaudited condensed consolidated balance

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~8. DERIVATIVE AND HEDGING ACTIVITIES (Continued)~~

sheets as assets or liabilities. The following table summarizes the location and fair value amounts of all derivative contracts in the unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019 (Successor) (in thousands):


		Successor					Successor
Derivatives not designated as		Asset derivative contracts					Liability derivative contracts
hedging contracts under ASC 815	Balance sheet location	March 31, 2020		December 31, 2019		Balance sheet location	March 31, 2020		December 31, 2019
Commodity contracts	Current assets - assets from derivative contracts	$	71,353	$	4,995	Current liabilities - liabilities from derivative contracts	$	(3,972)	$	(8,069)
Commodity contracts	Other noncurrent assets - assets from derivative contracts		37,766		224	Other noncurrent liabilities - liabilities from derivative contracts		(473)		(4,854)
Total derivatives not designated as hedging contracts under ASC 815		$	109,119	$	5,219		$	(4,445)	$	(12,923)

Asset derivative
contracts
Liability derivative
contracts
Derivatives not
designated as hedging
contracts under
ASC 815
Balance sheet location June 30,
2019 December 31,
2018 Balance sheet location June 30,
2019 December 31,
2018
Commodity contracts
Current assets—receivables from derivative contracts $ 10,648 $ 57,280 Current liabilities—liabilities from derivative contracts $ (11,814 ) $ (3,768 )
Commodity contracts
Other noncurrent assets—receivables from derivative contracts 4,820 12,437 Other noncurrent liabilities—liabilities from derivative contracts (4,248 ) (9,139 )

Total derivatives not designated as hedging contracts under ASC 815
$ 15,468 $ 69,717 $ (16,062 ) $ (12,907 )

Table of Contents

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the location and amounts of the ~~Company's~~Company’s realized and unrealized gains and losses on derivative contracts in the ~~Company's~~Company’s unaudited condensed consolidated statements of operations (in thousands):


		Amount of gain or (loss) recognized in income on derivative contracts for the
		Successor		Predecessor
		Three Months		Three Months
Derivatives not designated as	Location of gain or (loss) recognized in	Ended		Ended
hedging contracts under ASC 815	income on derivative contracts	March 31, 2020		March 31, 2019
Commodity contracts:
Unrealized gain (loss) on commodity contracts	Other income (expenses) - net gain (loss) on derivative contracts	$	112,378	$	(68,169)
Realized gain (loss) on commodity contracts	Other income (expenses) - net gain (loss) on derivative contracts		5,921		3,370
Total net gain (loss) on derivative contracts		$	118,299	$	(64,799)

Amount of gain or
(loss) recognized in
income on derivative
contracts for the
Three Months
Ended June 30, Amount of gain or
(loss) recognized in
income on derivative
contracts for the
Six Months Ended
June 30,

Location of gain or (loss) recognized
in income on derivative contracts
Derivatives not designated as hedging
contracts under ASC 815
2019 2018 2019 2018
Commodity contracts:

Unrealized gain (loss) on commodity contracts
Other income (expenses)—net gain (loss) on derivative contracts $ 10,764 $ (37,874 ) $ (57,405 ) $ (26,761 )
Realized gain (loss) on commodity contracts
Other income (expenses)—net gain (loss) on derivative contracts 6,246 25,774 9,616 20,564

Total net gain (loss) on derivative contracts
$ 17,010 $ (12,100 ) $ (47,789 ) $ (6,197 )

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~8. DERIVATIVE AND HEDGING ACTIVITIES (Continued)~~

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019 (Successor), the Company had the following open crude oil ~~natural gas liquids~~ and natural gas derivative contracts:


			Successor
			March 31, 2020
				Floors				Ceilings				Basis Differential
			Volume in			Weighted				Weighted				Weighted
			Mmbtu's/	Price /		Average		Price /		Average		Price /		Average
Period	Instrument	Commodity	Bbl's	Price Range		Price		Price Range		Price		Price Range		Price
April 2020 - June 2020	Fixed-Price Swap	Crude Oil	91,000	$	55.74	$	55.74	$	—	$	—	$	-	$	-
April 2020 - June 2020	Basis Swap	Crude Oil	182,000										0.75		0.75
April 2020 - June 2020	WTI NYMEX Roll	Crude Oil	182,000		0.61		0.61
April 2020 - September 2020	Fixed-Price Swap	Natural Gas	640,000		2.61		2.61
April 2020 - December 2020	Fixed-Price Swap	Crude Oil	550,000		55.68 - 60.00		57.84
April 2020 - December 2020	Collar	Crude Oil	412,500		50.00		50.00		70.00		70.00
April 2020 - December 2020	Call	Crude Oil	1,760,000						70.00		70.00
April 2020 - December 2020	Put	Crude Oil	687,500		55.00		55.00
April 2020 - December 2020	Basis Swap	Crude Oil	1,375,000										0.67 - 0.85		0.72
April 2020 - December 2020	WTI NYMEX Roll	Crude Oil	1,375,000		0.37 - 0.54		0.43
April 2020 - December 2020	Fixed-Price Swap	Natural Gas	2,200,000		2.55 - 2.57		2.56
July 2020 - September 2020	Fixed-Price Swap	Crude Oil	92,000		58.20		58.20
July 2020 - September 2020	Basis Swap	Crude Oil	92,000										0.90		0.90
July 2020 - September 2020	WTI NYMEX Roll	Crude Oil	92,000		0.63		0.63
July 2020 - December 2020	Fixed-Price Swap	Crude Oil	184,000		32.60		32.60
July 2020 - December 2020	Basis Swap	Crude Oil	368,000										(2.20) - 0.95		(0.63)
July 2020 - December 2020	WTI NYMEX Roll	Crude Oil	368,000		(1.10) - 0.64		(0.23)
October 2020 - December 2020	Fixed-Price Swap	Crude Oil	92,000		56.80		56.80
October 2020 - December 2020	Basis Swap	Crude Oil	92,000										0.95		0.95
October 2020 - December 2020	WTI NYMEX Roll	Crude Oil	92,000		0.51		0.51
January 2021 - March 2021	Fixed-Price Swap	Crude Oil	180,000		55.55 - 56.08		55.82
January 2021 - March 2021	Basis Swap	Crude Oil	180,000										1.00 - 1.05		1.03
January 2021 - March 2021	WTI NYMEX Roll	Crude Oil	180,000		0.42 - 0.48		0.45
January 2021 - June 2021	Fixed-Price Swap	Crude Oil	181,000		32.60		32.60
January 2021 - June 2021	Basis Swap	Crude Oil	181,000										(2.20)		(2.20)
January 2021 - June 2021	WTI NYMEX Roll	Crude Oil	181,000		(1.10)		(1.10)
April 2021 - June 2021	Fixed-Price Swap	Crude Oil	91,000		54.60		54.60
April 2021 - June 2021	Basis Swap	Crude Oil	91,000										1.05		1.05
April 2021 - June 2021	WTI NYMEX Roll	Crude Oil	91,000		0.32		0.32
January 2021 - December 2021	Fixed-Price Swap	Crude Oil	1,460,000		50.70 - 52.80		51.91
January 2021 - December 2021	Basis Swap	Crude Oil	1,460,000										0.82 - 0.95		0.85
January 2021 - December 2021	WTI NYMEX Roll	Crude Oil	1,460,000		0.13 - 0.14		0.14
January 2021 - December 2021	Fixed-Price Swap	Natural Gas	2,190,000		2.47 - 2.48		2.47
January 2022 - December 2022	Fixed-Price Swap	Crude Oil	1,460,000		51.50		51.50
January 2022 - December 2022	Basis Swap	Crude Oil	1,460,000										0.85 - 0.95		0.88
January 2022 - December 2022	WTI NYMEX Roll	Crude Oil	1,460,000		-		-

June 30, 2019

Floors Ceilings Basis Differential
Period
Instrument Commodity Volume in
Mmbtu's/
Bbl's Price /
Price Range Weighted
Average
Price Price /
Price Range Weighted
Average
Price Price /
Price Range Weighted
Average
Price
July 2019 - September 2019
Basis Swap Crude Oil 184,000 $— $ — $— $ — $(6.20) - $(7.60) $ (6.90 )
July 2019 - September 2019
Collars Crude Oil 184,000 55.00 55.00 62.85 - 63.00 62.93
July 2019 - December 2019
Basis Swap Crude Oil 736,000 (0.98) - (6.50) (3.95 )
July 2019 - December 2019
Basis Swap Natural Gas 4,692,000 (1.05) - (1.40) (1.18 )
July 2019 - December 2019
Collars Crude Oil 1,472,000 50.00 - 55.85 52.48 55.00 - 61.70 58.61
July 2019 - December 2019
Collars Natural Gas 4,416,000 2.52 - 2.70 2.60 3.00 - 3.10 3.01
July 2019 - December 2019
Swap Natural Gas Liquids 644,000 29.08 - 29.50 29.21
July 2019 - December 2019
WTI NYMEX ROLL Crude Oil 920,000 0.35 0.35
October 2019 - December 2019
Basis Swap Crude Oil 460,000 3.45 - 4.00 3.72
October 2019 - December 2019
Collars Crude Oil 92,000 51.00 51.00 56.00 56.00
January 2020 - December 2020
Swap Crude Oil 366,000 60.00 60.00
January 2020 - December 2020
Basis Swap Crude Oil 3,294,000 2.00 - 4.00 2.95
January 2020 - December 2020
Collars Crude Oil 549,000 50.00 50.00 70.00 70.00
January 2020 - December 2020
Calls Crude Oil 2,342,400 70.00 70.00
January 2020 - December 2020
Puts Crude Oil 915,000 55.00 55.00

December 31, 2018

Floors Ceilings Basis Differential
Period
Instrument Commodity Volume in
Mmbtu's/
Bbl's Price /
Price Range Weighted
Average
Price Price /
Price Range Weighted
Average
Price Price /
Price Range Weighted
Average
Price
January 2019 - March 2019
Calls Crude Oil 1,350,000 $— $ — $62.64 $ 62.64 $— $ —
January 2019 - March 2019
Calls Crude Oil (1,350,000 ) 58.64 58.64
January 2019 - March 2019
Collars Crude Oil 90,000 46.75 46.75 51.75 51.75
January 2019 - June 2019
Collars Crude Oil 181,000 51.00 51.00 56.00 56.00
January 2019 - September 2019
Basis Swap Crude Oil 546,000 (6.20) - (7.60) (6.90 )
January 2019 - December 2019
Basis Swap Crude Oil 2,448,000 (0.98) - (6.50) (2.80 )
January 2019 - December 2019
Basis Swap Natural Gas 9,307,500 (1.05) - (1.40) (1.18 )
January 2019 - December 2019
Collars Crude Oil 3,650,000 50.00 - 58.00 53.87 55.20 - 63.00 60.07
January 2019 - December 2019
Collars Natural Gas 8,760,000 2.52 - 2.70 2.60 3.00 - 3.10 3.01
January 2019 - December 2019
Swap Natural Gas Liquids 1,460,000 29.08 - 30.15 29.33
January 2019 - December 2019
WTI NYMEX ROLL Crude Oil 1,825,000 0.35 0.35
April 2019 - June 2019
Collars Crude Oil 91,000 50.00 50.00 55.00 55.00
April 2019 - December 2019
Collars Crude Oil 275,000 55.00 55.00 62.85 62.85
July 2019 - December 2019
Basis Swap Crude Oil 460,000 (2.40) - (6.50) (5.68 )
July 2019 - December 2019
Collars Crude Oil 552,000 50.00 - 55.00 53.00 55.00 - 69.00 61.00
October 2019 - December 2019
Basis Swap Crude Oil 460,000 3.45 - 4.00 3.72
October 2019 - December 2019
Collars Crude Oil 92,000 51.00 51.00 56.00 56.00
October 2019 - December 2019
Swap Natural Gas Liquids 92,000 32.50 32.50
January 2020 - December 2020
Basis Swap Crude Oil 3,294,000 2.00 - 4.00 2.95
January 2020 - December 2020
Collars Crude Oil 549,000 50.00 50.00 70.00 70.00
January 2020 - December 2020
Calls Crude Oil 2,342,400 70.00 70.00
January 2020 - December 2020
Puts Crude Oil 915,000 55.00 55.00

Table of Contents

~~HALCÓN RESOURCES~~BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~(continued)


			Successor
			December 31, 2019
				Floors				Ceilings				Basis Differential
			Volume in			Weighted				Weighted				Weighted
			Mmbtu's/	Price /		Average		Price /		Average		Price /		Average
Period	Instrument	Commodity	Bbl's	Price Range		Price		Price Range		Price		Price Range		Price
January 2020 - June 2020	Fixed-Price Swap	Crude Oil	182,000	$	55.74	$	55.74	$	—	$	—	$	—	$	—
January 2020 - September 2020	Fixed-Price Swap	Natural Gas	1,186,000		2.61		2.61
January 2020 - December 2020	Fixed-Price Swap	Crude Oil	732,000		55.68 - 60.00		57.84
January 2020 - December 2020	Fixed-Price Swap	Natural Gas	2,928,000		2.55 - 2.57		2.56
January 2020 - December 2020	Collar	Crude Oil	549,000		50.00		50.00		70.00		70.00
January 2020 - December 2020	Call	Crude Oil	2,342,400						70.00		70.00
January 2020 - December 2020	Put	Crude Oil	915,000		55.00		55.00
January 2020 - December 2020	Basis Swap	Crude Oil	1,464,000										0.67 - 0.85		0.72
January 2020 - December 2020	WTI NYMEX Roll	Crude Oil	366,000		0.37		0.37
February 2020 - December 2020	WTI NYMEX Roll	Crude Oil	1,340,000		0.41 - 0.54		0.44
April 2020 - December 2020	Basis Swap	Crude Oil	275,000										0.75		0.75
January 2021 - December 2021	Fixed-Price Swap	Crude Oil	1,460,000		50.70 - 52.80		51.91
January 2021 - December 2021	Fixed-Price Swap	Natural Gas	2,190,000		2.47 - 2.48		2.47
January 2021 - December 2021	Basis Swap	Crude Oil	1,460,000										0.82 - 0.95		0.85
January 2021 - December 2021	WTI NYMEX Roll	Crude Oil	1,460,000		0.13 - 0.14		0.14
January 2022 - December 2022	Fixed-Price Swap	Crude Oil	1,460,000		51.50		51.50
January 2022 - December 2022	Basis Swap	Crude Oil	1,460,000										0.85 - 0.95		0.88
January 2022 - December 2022	WTI NYMEX Roll	Crude Oil	2,555,000		(0.02) - 0.00		(0.01)

~~8. DERIVATIVE AND HEDGING ACTIVITIES (Continued)~~

The Company presents the fair value of its derivative contracts at the gross amounts in the unaudited condensed consolidated balance sheets. The following table shows the potential effects of master netting arrangements on the fair value of the ~~Company's~~Company’s derivative contracts at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (Successor) (in thousands):


													Successor				Successor
	Derivative Assets						Derivative Liabilities						Derivative Assets				Derivative Liabilities
Offsetting of Derivative Assets and Liabilities	June 30, 2019			December 31, 2018			June 30, 2019			December 31, 2018			March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019

Gross Amounts Presented in the Consolidated Balance Sheet	$	15,468		$	69,717		$	(16,062	)	$	(12,907	)	$	109,119	$	5,219	$	(4,445)	$	(12,923)
Amounts Not Offset in the Consolidated Balance Sheet		(11,967	)		(10,263	)		11,967			10,263			(4,445)		(4,557)		4,445		4,557

Net Amount	$	3,501		$	59,454		$	(4,095	)	$	(2,644	)	$	104,674	$	662	$	—	$	(8,366)

The Company enters into an International Swap Dealers Association Master Agreement (ISDA) with each counterparty prior to a derivative contract with such counterparty. The ISDA is a standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.

In response to changing market conditions, the Company plans to temporarily shut-in a portion of its production, which resulted in the Company terminating certain derivative contracts in April 2020 (Successor). The ~~filing~~Company terminated 217,000 Bbls of its crude oil fixed-price swaps, collars and put positions for the month of May 2020 (Successor). A portion of the ~~voluntary petitions for relief under chapter 11 of the Bankruptcy Code described in Note 1, "~~~~Financial Statement Presentation~~," constituted an event of default under the Company's derivatives contracts that gives the counterparties the option to terminate such contracts. Certain parties elected to terminate their contracts in August 2019 and thepositions were entered into after March 31, 2020 (Successor). The Company received approximately ~~$0.1~~$4.8 million ~~to settle a portion of the outstanding positions while other positions were novated~~ for fees totaling $0.5 million. The remaining derivative contracts, including the novated positions, are secured on a super-priority parri passu basis with the Company's Senior Credit Agreement during the bankruptcy process. These derivative contracts are expected to stay in place following the Company's chapter 11 proceedings.these terminations.

9.11. ASSET RETIREMENT OBLIGATIONS

The Company records an asset retirement obligation (ARO) on oil and natural gas properties when it can reasonably estimate the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon costs. For other operating property and equipment, the Company records an ARO when the system is placed in service and it can reasonably estimate the fair value of an obligation to perform site reclamation and other necessary work when it is required. The Company records the ARO liability on the unaudited condensed consolidated balance sheets and capitalizes ~~a portion of~~ the cost in "“Oil and natural gas ~~properties~~properties”~~" or "~~~~Other operating property and equipment~~" during the period in which the obligation is incurred. The Company records the accretion of its ARO liabilities in "“Depletion, depreciation and ~~accretion~~accretion”" expense in the unaudited condensed consolidated statements of operations. The additional capitalized costs are depreciated on a unit-of-production ~~basis or straight-line~~ basis.

Table of Contents

~~HALCÓN RESOURCES~~BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~(continued)

~~9. ASSET RETIREMENT OBLIGATIONS (Continued)~~

The Company recorded the following activity related to its ARO liability ~~for the period indicated below~~ (inclusive of the current portion) (in thousands):

Liability for asset retirement obligations as of December 31, 2018
$ 6,914
Liabilities settled and divested
(229 )
Additions
198
Accretion expense
202

Liability for asset retirement obligations as of June 30, 2019
$ 7,085


Liability for asset retirement obligations as of December 31, 2019 (Successor)	$	10,590
Additions		105
Accretion expense		149
Liability for asset retirement obligations as of March 31, 2020 (Successor)	$	10,844

~~10.~~

12. COMMITMENTS AND CONTINGENCIES

Commitments

As of ~~June 30, 2019,~~March 31, 2020 (Successor), the Company has an active drilling rig commitment of approximately $1.2 million that will be incurred during 2020. Termination of the ~~following~~active drilling rig commitment would require an early termination penalty of $1.0 million, which would be in lieu of paying the active drilling rig commitment ~~related to a historical rig contract (in thousands):~~of $1.2 million.

Remaining period in 2019
$ —
2020
3,000
2021
—
2022
—
2023
—
Thereafter
—

Total
$ 3,000

As of ~~June 30, 2019,~~March 31, 2020 (Successor), the Company has ~~the following~~ purchase commitments related to equipment ~~(in thousands):~~of approximately $1.6 million that will be incurred during 2020.

Remaining period in 2019
$ 7,272
2020
—
2021
—
2022
—
2023
—
Thereafter
—

Total
$ 7,272

The Company has entered into various long-term gathering, transportation and sales contracts with respect to its oil and natural gas production from the Delaware Basin in West Texas. As of ~~June 30, 2019,~~March 31, 2020 (Successor), the Company had in place three long-term crude oil contracts and ~~eleven~~14 long-term natural gas contracts in this area and the sales ~~price~~prices under these contracts are based on posted market rates. Under the terms of these contracts, the Company has committed a substantial portion of its production from ~~these areas~~this area for periods ranging from one to twenty years from the date of first production.

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~10. COMMITMENTS AND CONTINGENCIES (Continued)~~

Contingencies

On February 26, 2019, a subsidiary of the Company, Halcón Energy Properties, Inc. (HEPI), filed notice of appeal from a judgment entered by The Court of Common Pleas of Mercer County, Pennsylvania in a litigation matter captioned Vodenichar, et al., v. Halcón Energy Properties, Inc. et al., No. 2013-0512, arising from a dispute over whether the subsidiary complied with the terms of a letter of intent related to the leasing of acreage, pursuant to which HEPI was ordered to pay $9,107,053.57 (including interest and costs). Such appeal is currently pending in the Superior Court of Pennsylvania, Western District (Case No. 347 WDA 2019).

On August 7, 2019, the Halcón Entities filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas to pursue a pre-packaged plan of reorganization. The Company expects to continue operations in the normal course during the pendency of the chapter 11 proceedings. Prior to filing the bankruptcy petitions, on August 2, 2019, the Halcón Entities entered into a Restructuring Support Agreement with the Unsecured Senior Noteholders. See Note 14, "~~Subsequent Events~~~~," for more information.~~

~~In addition to the above, from~~From time to time, the Company may be a plaintiff or defendant in a pending or threatened legal proceeding arising in the normal course of our business. While the outcome and impact of currently pending legal proceedings cannot be determined, the ~~Company's~~Company’s management and legal counsel believe that the resolution of these proceedings through settlement or adverse judgment will not have a material effect on the ~~Company's~~Company’s unaudited condensed consolidated operating results, financial position or cash flows.

~~11. STOCKHOLDERS'~~

13. STOCKHOLDERS’ EQUITY

Common Stock

~~Common Stock~~

On ~~February 9, 2018,~~October 8, 2019, upon emergence from chapter 11 bankruptcy, all existing shares of Predecessor common stock were cancelled and the Successor Company ~~sold 9.2~~issued approximately 16.2 million shares of new common stock. Refer to Note 2, “Reorganization,” for further details.

On October 8, 2019, upon emergence from chapter 11 bankruptcy, the Successor Company filed an amended and restated certificate of incorporation with the Delaware Secretary of State to provide for, among other things, (i) the total number of shares of all classes of capital stock that the Successor Company has the authority to issue is 101,000,000 of which 100,000,000 shares are common stock, par value $0.0001 per share and 1,000,000 shares are preferred stock, par value $0.0001 per share, (ii) a classified board structure until the 2021 Annual Meeting of Stockholders, and (iii) a restriction on the Successor Company from issuing any non‑voting equity securities in violation of Section 1123(a)(6) of chapter 11 of title 11 of the United States Code. In addition, the amended and restated certificate of incorporation

Table of Contents

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

stipulates provisions for the right of removal of directors, specifically that prior to the 2021 Annual Meeting, any Group II Director (as defined in the certificate of incorporation) may be removed with or without cause by 85% of the shares then entitled to vote at an election of directors (which voting threshold has been increased solely with respect to such class of directors from a ~~public offering~~majority of shares then entitled to vote at an election of directors). Beginning at the 2021 Annual Meeting, any director of either class may be removed with or without cause by a majority of shares entitled to vote.

Warrants

On October 8, 2019, upon emergence from chapter 11 bankruptcy, by operation of the Plan and the confirmation order, all existing warrants of the Predecessor Company were cancelled and the Successor Company entered into a warrant agreement (the Warrant Agreement) with Broadridge Corporate Issuer Solutions, Inc. as the warrant agent, pursuant to which the Successor Company issued three series of warrants (the Series A Warrants, the Series B Warrants and the Series C Warrants and together, the Warrants, and the holders thereof, the Warrant Holders), on a pro rata basis to pre-emergence holders of the Company’s Existing Equity Interests pursuant to the Plan.

Each Warrant represents the right to purchase one share of common stock at the applicable exercise price, subject to adjustment as provided in the Warrant Agreement and as summarized below. On the Effective Date, the Company issued (i) Series A Warrants to purchase an aggregate of 1,798,322 shares of common stock, with an initial exercise price of ~~$6.90~~$40.17 per share, (ii) Series B Warrants to purchase an aggregate of 2,247,985 shares of common stock, with an initial exercise price of $48.28 per share and (iii) Series C Warrants to purchase an aggregate of 2,890,271 shares of common stock, with an initial exercise price of $60.45 per share. Each series of Warrants issued under the Warrant Agreement has a three-year term, expiring on October 8, 2022. The ~~net proceeds to~~strike price of each series of Warrants issued under the Warrant Agreement increases monthly at an annualized rate of 6.75%, compounding monthly, as provided in the Warrant Agreement. As of March 31, 2020 (Successor), the Company ~~from~~had 1.8 million Series A, 2.2 million Series B and 2.9 million Series C warrants outstanding with corresponding exercise prices of $41.03, $49.37 and $61.89, respectively.

The Warrants do not grant the ~~offering were approximately $60.4 million, after deducting~~Warrant Holder any voting or control rights or dividend rights, or contain any negative covenants restricting the ~~underwriters' discounts and offering expenses. The Company used the net proceeds, together with the net proceeds from the issuance~~operation of ~~the Additional 2025 Notes,~~our business. Refer to ~~fund the cash consideration~~Note 2 “Reorganization” for ~~the acquisition of the West Quito Draw Properties, and for general corporate purposes, including funding the Company's 2018 drilling program.~~further details.

~~Warrants~~

On September 9, 2016, the Predecessor Company issued 4.7 million ~~new~~ warrants. The warrants ~~can~~could be exercised to purchase 4.7 million shares of the Predecessor Company's common stock at an exercise price of $14.04 per share. The holders ~~are~~were entitled to exercise the warrants in whole or in part at any time prior to expiration on September 9, 2020. Upon emergence from chapter 11 bankruptcy, all outstanding warrants were cancelled. Refer to Note 2, “Reorganization,” for further details.

Incentive Plans

~~Incentive Plans~~

On September 9, 2016, the ~~Company's Board~~Predecessor Company’s board of directors adopted the 2016 ~~Long-Term~~Long‑Term Incentive Plan (the ~~Incentive~~2016 Plan). AnAs of April 6, 2017 (Predecessor), an aggregate of ~~10.0~~19.0 million shares of the ~~Company's~~Predecessor Company’s common stock were available for grant pursuant to awards under the ~~Incentive~~2016 Plan. Immediately prior to emergence from chapter 11 bankruptcy, the 2016 Plan was cancelled and all outstanding stock-based compensation awards granted thereunder were either vested or cancelled.

On ~~April 6, 2017, Amendment No. 1 to~~January 29, 2020, the Successor Company’s board of directors adopted the 2020 Long-Term Incentive Plan ~~to increase, by 9.0~~(the 2020 Plan). An aggregate of approximately 1.5 million shares of the ~~maximum number of shares of~~Successor Company’s common stock ~~that may be issued thereunder, i.e.~~were available for grant pursuant to awards under the 2020 Plan. As of March 31, 2020 (Successor), a maximum of ~~19.0~~0.2 million shares ~~became effective, which was 20~~

~~Table of Contents~~

~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~11. STOCKHOLDERS' EQUITY (Continued)~~

~~calendar days following the date the Company mailed an information statement to all stockholders of record notifying them of approval~~ of the amendment by written consent of holders of a majority of the Company's outstanding stock. As of June 30, 2019 and December 31, 2018, a maximum of 5.8 million and 4.9 million shares, respectively, of the Company'sSuccessor Company’s common stock remained reserved for issuance under the ~~Incentive~~2020 Plan.

Table of Contents

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company accounts for stock-based payment accruals under authoritative guidance on stock compensation. The guidance requires all stock-based payments to employees and directors, including grants of stock options and restricted stock, to be recognized in the financial statements based on their fair values. The Company has elected not to ~~not~~ apply a forfeiture estimate and will recognize a credit in compensation expense to the extent awards are forfeited.

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 (Predecessor), the Company recognized an expense of ~~$1.0~~$0.4 million and a credit of ~~$5.8~~$6.8 million, respectively, related to stock-based compensation. For the three and six months ended June 30, 2018, the Company recognized an expense of $4.2 million and $7.8 million, respectively, related to stock-based compensation. Stock-based compensation expense isstock-based-compensation recorded as a component of ""General and ~~administrative~~administrative"" on the unaudited condensed consolidated statements of operations.

During the ~~six~~three months ended ~~June 30,~~March 31, 2019 ~~four~~(Predecessor), senior executives departed the Company. In accordance with the terms of these senior executives' employment agreements, unvested stock options and unvested shares of restricted stock were modified to vest immediately upon termination. For the ~~six~~three months ended ~~June 30,~~March 31, 2019 (Predecessor), the Company recognized an incremental reduction to stock-based compensation expense of $8.4 million, respectively, associated with these modifications.

Stock Options

From time to time, the Company grants stock options under the ~~Incentive~~2020 Plan covering shares of common stock to employees of the Successor Company and granted stock options under the 2016 Plan covering shares of common stock to employees of the Predecessor Company. Stock options, when exercised, are settled through the payment of the exercise price in exchange for new shares of stock underlying the option. ~~These awards~~Awards granted under the 2020 Plan typically vest over a four year period at a rate of one-fourth on the annual anniversary date of the grant and expire seven years from the date of grant. Awards granted under the 2016 Plan typically vested over a three year period at a rate of one-third on the annual anniversary date of the grant and ~~expire~~expired ten years from the grant date.

NoDuring the three months ended March 31, 2020 (Successor), the Company granted stock options ~~were granted during~~under the ~~six months ended June 30, 2019.~~2020 Plan covering 0.5 million shares of common stock to employees of the Company. These stock options have exercise prices ranging from $18.91 to $37.83 with a weighted exercise price of $28.32 per share. At ~~June 30, 2019,~~March 31, 2020 (Successor), the Company had ~~$0.9~~$1.5 million of unrecognized compensation expense related to non-vested stock options to be recognized over a weighted-average period of ~~0.6~~2.4 years.

~~During~~No stock options were granted during the ~~six~~three months ended June 30, 2018, the Company granted stock options under the Incentive Plan covering 1.2 million shares of common stock to employees of the Company. These stock options have an exercise price of $5.65. During the six months ended June 30, 2018, the Company received $0.3 million from the exercise of stock options.March 31, 2019 (Predecessor). At ~~June 30, 2018,~~March 31, 2019 (Predecessor), the Company had ~~$9.9~~$1.5 million of unrecognized compensation expense related to ~~non-vested~~non‑vested stock options to be recognized over a ~~weighted-average~~weighted‑average period of ~~1.0~~0.8 years. Immediately prior to emergence from chapter 11 bankruptcy, all outstanding stock options under the 2016 Plan were cancelled. Refer to Note 2, “Reorganization,” for further details.

Restricted Stock

From time to time, the Company grants shares of restricted stock units (RSUs) under the 2020 Plan to employees of the Successor Company and granted shares of restricted stock under the 2016 Plan to employees and non-employee directors of the Predecessor Company. ~~Employee~~Under the 2020 Plan, employee RSUs will vest and convert to shares typically ~~vest~~over a four year period at a rate of one-fourth on the annual anniversary date of the grant or when the performance or market conditions described below occur. Under the 2016 Plan, employee shares typically vested over a three year period at a rate of one-third on the annual anniversary date of the grant, and the non-employee directors' shares ~~vest~~vested six months from the date of grant.

During the three months ended March 31, 2020 (Successor), the Company granted 0.9 million shares of RSUs with the vesting conditions and fair values described below under the 2020 Plan to employees of the Company. At March 31, 2020 (Successor), the Company had $6.4 million of unrecognized compensation expense related to non-vested RSU awards to be recognized over a weighted-average period of 3.2 years.

Table of Contents

~~HALCÓN RESOURCES~~BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~(continued)

0.4 million RSUs granted will vest over four years at a rate one-fourth on the annual anniversary of date of the grant. These RSUs were granted at a fair value of $11.89 per share.

0.2 million RSUs granted will vest in full only upon achievement of certain business combination goals, as defined in the award agreements. These RSUs were granted at a fair value of $11.89 per share. As of March 31, 2020, a business combination, as defined in the awards agreement, had not been consummated and was not considered probable. As such, no expense has been recognized for the RSUs with business combination vesting conditions.

0.3 million RSUs granted will vest in full or in part or may terminate based on the Company’s total shareholder return relative to the total shareholder return of certain of its peer companies over the four year period ending on February 20, 2024 as defined in the award agreements. These RSUs were granted at a fair value of $6.48 per share.

~~11. STOCKHOLDERS' EQUITY (Continued)~~

During the ~~six~~three months ended ~~June 30,~~March 31, 2019 (Predecessor), the Company granted 4.2 million shares of restricted stock under the ~~Incentive~~2016 Plan to employees ~~and non-employee directors~~ of the Company. These restricted shares were granted at ~~prices ranging from $1.29 to $1.40 with a weighted average price of~~ $1.29 per share. At ~~June 30,~~March 31, 2019 (Predecessor), the Company had ~~$6.5~~$8.2 million of unrecognized compensation expense related to ~~non-vested~~non‑vested restricted stock awards to be recognized over a ~~weighted-average~~weighted‑average period of ~~1.6~~1.8 years.

~~During the six months ended June 30, 2018, the Company granted 2.2 million shares of~~ Immediately prior to emergence from chapter 11 bankruptcy, all outstanding unvested restricted stock granted under the ~~Incentive~~2016 Plan was vested. Refer to ~~employees and non-employee directors~~Note 2, "Reorganization," for further details.

Table of the Company. These restricted shares were granted at prices ranging from $4.00 to $5.65 with a weighted average price of $5.53. At June 30, 2018, the Company had $11.0 million of unrecognized compensation expense related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.5 years.Contents

~~12.~~BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

14. EARNINGS PER ~~COMMON~~ SHARE

On October 8, 2019, upon emergence from chapter 11 bankruptcy, the Predecessor Company’s equity was cancelled and new equity was issued. Refer to Note 2, “Reorganization,” for further details.

The following represents the calculation of earnings (loss) per share (in thousands, except per share amounts):

Three Months Ended
June 30, Six Months Ended
June 30,

2019 2018 2019 2018
Basic:

Net income (loss)
$ (640,844 ) $ (16,274 ) $ (977,403 ) $ (18,872 )

Weighted average basic number of common shares outstanding
159,050 157,943 158,801 155,925

Basic net income (loss) per share of common stock
$ (4.03 ) $ (0.10 ) $ (6.15 ) $ (0.12 )

Diluted:

Net income (loss)
$ (640,844 ) $ (16,274 ) $ (977,403 ) $ (18,872 )

Weighted average basic number of common shares outstanding
159,050 157,943 158,801 155,925
Common stock equivalent shares representing shares issuable upon:

Exercise of stock options
Anti-dilutive Anti-dilutive Anti-dilutive Anti-dilutive
Exercise of warrants
Anti-dilutive Anti-dilutive Anti-dilutive Anti-dilutive
Vesting of restricted shares
Anti-dilutive Anti-dilutive Anti-dilutive Anti-dilutive

Weighted average diluted number of common shares outstanding
159,050 157,943 158,801 155,925

Diluted net income (loss) per share of common stock
$ (4.03 ) $ (0.10 ) $ (6.15 ) $ (0.12 )


	Successor		Predecessor
	Three Months		Three Months
	Ended		Ended
	March 31, 2020		March 31, 2019
Basic:
Net income (loss)	$	114,491	$	(336,559)
Weighted average basic number of common shares outstanding		16,204		158,549
Basic net income (loss) per share of common stock	$	7.07	$	(2.12)
Diluted:
Net income (loss)		114,491		(336,559)

Weighted average basic number of common shares outstanding		16,204		158,549
Common stock equivalent shares representing shares issuable upon:
Exercise of Predecessor stock options		—		Anti-dilutive
Exercise of Predecessor warrants		—		Anti-dilutive
Vesting of Predecessor restricted shares		—		Anti-dilutive
Exercise of Successor Series A Warrants		Anti-dilutive		—
Exercise of Successor Series B Warrants		Anti-dilutive		—
Exercise of Successor Series C Warrants		Anti-dilutive		—
Exercise of Successor stock options		Anti-dilutive		—
Vesting of Successor restricted share units		Anti-dilutive		—
Weighted average diluted number of common shares outstanding		16,204		158,549
Diluted net income (loss) per share of common stock	$	7.07	$	(2.12)

Common stock equivalents, including warrants, options and restricted stock units, totaling 7.3 million shares for the three months ended March 31, 2020 (Successor) were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive.

Common stock equivalents, including stock options, restricted shares and warrants, totaling ~~15.7 million and 15.3~~14.9 million shares for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 ~~respectively,~~(Predecessor) were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive due to the net ~~losses.~~loss.

Table of Contents

~~HALCÓN RESOURCES~~BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(Continued)~~(continued)

~~12. EARNINGS PER COMMON SHARE (Continued)~~

Common stock equivalents, including stock options, restricted shares and warrants totaling 14.9 million and 14.0 million shares for the three and six months ended June 30, 2018, respectively, were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive due to the net losses.

~~13.~~15. ADDITIONAL FINANCIAL STATEMENT INFORMATION

Certain balance sheet amounts are comprised of the following (in thousands):


	Successor
	March 31, 2020		December 31, 2019
Accounts receivable, net:
Oil, natural gas and natural gas liquids revenues	$	19,321	$	36,367
Joint interest accounts		6,042		10,145
Other		4,897		1,992
	$	30,260	$	48,504
Prepaids and other:
Prepaids	$	1,057	$	2,093
Income tax receivable		1,250		1,250
Funds in escrow		4,000		4,000
Other		34		36
	$	6,341	$	7,379
Other assets:
Joint interest accounts	$	5,442	$	—
Funds in escrow		581		580
Other		125		123
	$	6,148	$	703
Accounts payable and accrued liabilities:
Trade payables	$	23,501	$	36,038
Accrued oil and natural gas capital costs		41,202		22,781
Revenues and royalties payable		16,606		25,457
Accrued interest expense		335		604
Accrued employee compensation		141		2,947
Accrued lease operating expenses		10,563		9,230
Other		237		276
	$	92,585	$	97,333

June 30,
2019 December 31,
2018
Accounts receivable:

Oil, natural gas and natural gas liquids revenues
$ 25,208 $ 26,432
Joint interest accounts
5,512 7,369
Other
3,531 1,917

$ 34,251 $ 35,718

Prepaids and other:

Prepaids
$ 3,493 $ 3,503
Income tax receivable
1,250 1,250
Funds in escrow
6,557 —
Other
775 35

$ 12,075 $ 4,788

Funds in escrow and other:

Funds in escrow
$ 576 $ 570
Other
559 1,611

$ 1,135 $ 2,181

Accounts payable and accrued liabilities:

Trade payables
$ 50,568 $ 68,959
Accrued oil and natural gas capital costs
13,339 41,461
Revenues and royalties payable
17,942 20,526
Accrued interest expense
19,310 16,971
Accrued employee compensation
2,713 3,421
Accrued lease operating expenses
7,859 6,292
Other
178 218

$ 111,909 $ 157,848

~~14. SUBSEQUENT EVENTS~~

~~Restructuring Support Agreement~~

On August 2, 2019, the Halcón Entities entered into a Restructuring Support Agreement with the Unsecured Senior Noteholders. On August 3, 2019, the Halcón Entities commenced a solicitation for acceptance of the Plan. On August 7, 2019, the Halcón Entities filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern

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~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~14. SUBSEQUENT EVENTS (Continued)~~

~~District of Texas to effect an accelerated pre-packaged bankruptcy restructuring as contemplated in the Restructuring Support Agreement.~~

Pursuant to the terms of the Plan contemplated by the Restructuring Support Agreement, the Unsecured Senior Noteholders and other claim and interest holders will receive the following treatment in full and final satisfaction of their claims and interests:

•: ~~borrowings outstanding under the Senior Credit Agreement, plus unpaid interest and fees, will be repaid in full, in cash, including by a refinancing;~~
•: the Unsecured Senior Noteholders will receive their pro rata share of 91% of the common stock of reorganized Halcón (New Common Shares) issued pursuant to the Plan and the right to participate in the Senior Noteholder Rights Offerings (defined below);
•: ~~the Company's general unsecured claims are unimpaired; and~~
•: the existing common stockholders will receive their pro rata share of 9% of the New Common Shares issued pursuant to the Plan, together with Warrants (defined below) to purchase common stock of reorganized Halcón and the right to participate in the Existing Equity Interests Rights Offering (defined below and, collectively, the Existing Equity Total Consideration); provided, however, that registered holders of existing common stock with fewer than or equal to 2,000 shares of common stock will instead receive cash in an amount equal to the inherent value of such holder's pro rata share of the Existing Equity Total Consideration (the Existing Equity Cash Out).

Each of the foregoing percentages of equity in the reorganized company is subject to dilution by New Common Shares issued in connection with (i) a management incentive plan, (ii) the Warrants, (iii) the Equity Rights Offerings (defined below), and (iv) the Backstop Commitment Premium (defined below).

As a component of the Restructuring Support Agreement (i) each Unsecured Senior Noteholder will be offered the right to purchase its pro rata share of New Common Shares for an aggregate purchase price of $150,150,000 (the Senior Noteholder Rights Offering) and (ii) each existing common stockholder will be offered (subject to the Existing Equity Cash Out) the right to purchase its pro rata share of New Common Shares for an aggregate purchase price of up to $14,850,000 (the Existing Equity Interests Rights Offering, and together with the Senior Noteholder Rights Offering, the Equity Rights Offerings), in each case, at a price per share equal to a 26% discount to the value of the New Common Shares based on the lesser of the total enterprise value of the reorganized company as set forth in the Disclosure Statement and an assumed total enterprise value of $425 million. Certain of the Unsecured Senior Noteholders will backstop the Senior Noteholder Rights Offering and will receive as consideration (the Backstop Commitment Premium) either (i) New Common Shares equal to 6% of the aggregate amount of the Senior Noteholder Rights Offering subject to dilution by New Common Shares issued in connection with a management incentive plan and the Warrants or (ii) a cash payment equal to 6% of the aggregate amount of the Senior Noteholder Rights Offering if the backstop agreement is terminated. The proceeds of the Equity Rights Offerings will be used by the Company to (i) provide additional liquidity for working capital and general corporate purposes, (ii) pay all reasonable and documented restructuring expenses, and (iii) fund Plan distributions.

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~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~14. SUBSEQUENT EVENTS (Continued)~~

Under the Restructuring Support Agreement, each existing common stockholder (subject to the Existing Equity Cash Out) will be issued a series of warrants exercisable in cash for a three year period subsequent to the effective date of the Plan (Warrants). The Warrants will be issued in three series with three distinct strike prices, which will be based upon stipulated rate-of-return levels achieved by the Unsecured Senior Noteholders. Each series of Warrants represents 10%, and cumulatively representing 30%, of the New Common Shares issued pursuant to the Plan.

~~Debtor-in-Possession Financing~~

In connection with the chapter 11 proceedings and pursuant to an order of the Bankruptcy Court dated August 8, 2019 (the Interim Order), the Company anticipates that it will enter into a Junior Secured Debtor-In-Possession Credit Agreement (the DIP Credit Agreement) with the Unsecured Senior Noteholders party thereto from time to time as lenders (the DIP Lenders) and Wilmington Trust, National Association, as administrative agent.

Under the DIP Credit Agreement, the DIP Lenders will make available a $35.0 million debtor-in-possession junior secured term credit facility (the DIP Facility, and the loans thereunder, the DIP Loans), of which $25.0 million will be available as an initial draw and the remainder of which will be available to the Company as a single delayed draw term loan following the entry of the final DIP orders of the Bankruptcy Court. The DIP Loans will, subject to the terms set forth in the DIP Credit Agreement and the Exit Credit Agreement (as defined below), be rolled over or converted into, or otherwise refinanced with a $750.0 million exit senior secured reserve-based revolving credit facility (the Exit Facility), which will be evidenced by a senior secured revolving credit agreement (the Exit Credit Agreement), by and among the Company, as borrower, the lenders party thereto from time to time, and BMO Harris Bank N.A., as administrative agent.

The Company anticipates using the proceeds of the DIP Facility to, among other things, (i) provide working capital and other general corporate purposes, including to finance capital expenditures and the making of certain interest payments as and to the extent set forth in the Interim Order and/or the final order, as applicable, of the Bankruptcy Court and in accordance with the Company's budget delivered pursuant to the DIP Credit Agreement, (ii) pay fees and expenses related to the transactions contemplated by the DIP Credit Agreement in accordance with such budget and (iii) cash collateralize any letters of credit.

The maturity date of the DIP Facility will be the earlier of (i) six months from the date of execution and (ii) the effective date of a plan of reorganization that is confirmed pursuant to an order entered by the Bankruptcy Court.

The DIP Loans will bear interest at a rate per annum equal to (i) adjusted LIBOR plus an applicable margin of 5.50% or (ii) an alternative base rate plus an applicable margin of 4.50%, in each case, as selected by the Company. Any undrawn delayed draw term loans will be subject to an undrawn fee at a rate per annum equal to 1.00%.

The DIP Facility will be secured by (i) a junior secured perfected security interest on all assets that secure the Senior Credit Facility and (ii) a senior secured perfected security interest on all unencumbered assets of the Company and any subsidiary guarantors. The security interests and liens will be further subject to certain carve-outs and permitted liens, as set forth in the DIP Credit Agreement.

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~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~14. SUBSEQUENT EVENTS (Continued)~~

The DIP Credit Agreement will contain certain customary (i) representations and warranties; (ii) affirmative and negative covenants, including delivery of financial statements; conduct of business; reserve reports; title information; indebtedness; liens; dividends and distributions; investments; sale or discount of receivables; mergers; sale of properties; termination of swap agreements; transactions with affiliates; negative pledges; dividend restrictions; gas imbalances; take-or-pay or other prepayments and swap agreements; and (iii) events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; dismissal (or conversion to chapter 7) of the chapter 11 proceedings; and failure to satisfy certain bankruptcy milestones.

~~A hearing before the Bankruptcy Court to consider approval of the DIP Facility on a final basis will be scheduled for a later date.~~

~~Exit Financing~~

In connection with the Restructuring Support Agreement and the chapter 11 proceedings, the Company has received an underwritten commitment from BMO Harris Bank, N.A. for a $750 million Exit Facility, effective upon the Company's emergence from the chapter 11 proceedings, which will be arranged by BMO Capital Markets Corp. The Exit Facility will have an expected initial borrowing base of $275 million. A portion of the Exit Facility, in the amount of $50 million, will be available for the issuance of letters of credit. The proceeds of the Exit Facility will be used to refinance indebtedness that the Company incurs during the pendency of the chapter 11 proceedings under the DIP Facility, for working capital and other general corporate purposes, to issue letters of credit, for transaction fees and expenses and for fees related to the Company's emergence from the chapter 11 proceedings.

Loans extended under the Exit Credit Agreement will bear interest at a rate per annum equal to (i) adjusted LIBOR plus an applicable margin of 2.00% to 3.00% or (ii) an alternative base rate plus an applicable margin of 1.00% to 2.00%, in each case, at the election of the Company and based on the borrowing base utilization percentage under the Exit Facility. Any undrawn amounts under the Exit Facility will be subject to a commitment fee at a rate per annum equal to 0.375% to 0.500%, based on the borrowing base utilization percentage.

The maturity date of the Exit Facility will be five years from the date of execution of the Exit Credit Agreement. The Company will be able, at its option, to prepay any borrowing outstanding under the Exit Credit Agreement without premium or penalty (except with respect to any break funding payments which may be payable pursuant to the terms of the Exit Credit Agreement). The Company may also be required to make mandatory prepayments of the loans under the Exit Facility in connection with certain borrowing base deficiencies.

Amounts outstanding under the Exit Credit Agreement will be guaranteed by the Company's direct and indirect material domestic subsidiaries and secured by a security interest in substantially all of the assets of the Company and such guarantors.

~~The Exit Credit Agreement will contain certain customary representations and warranties and affirmative and negative covenants.~~

The Exit Credit Agreement will contain certain financial covenants, including the maintenance of (i) a Total Net Leverage Ratio (to be defined in the Exit Credit Agreement) not to exceed 4.00:1.00 and (ii) a Current Ratio (to be defined in the Exit Credit Agreement) not to be less than 1.00:1.00, in

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~~HALCÓN RESOURCES CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~14. SUBSEQUENT EVENTS (Continued)~~

~~each case commencing with the first full fiscal quarter ending after the date of the Exit Credit Agreement.~~

The Exit Credit Agreement will also contain certain customary events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy.

~~The Exit Facility is subject to customary closing conditions and approval by the Bankruptcy Court, which has not been obtained at this time.~~

The terms of the Exit Facility are set forth in a senior secured revolving credit facility commitment letter (the Exit Commitment Letter), and the foregoing description of the Exit Facility is qualified by reference to the full text of the Exit Commitment Letter, a copy of which was filed as~~Exhibit 10.3 to the Company's Current Report on Form 8-K, filed on August 5, 2019, and is incorporated herein by reference.~~

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations~~

The following discussion is intended to assist in understanding our results of operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018~~(Predecessor) and should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and with the consolidated financial statements, notes and ~~management's~~management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019 (Successor).

Certain prior year financial statements are not comparable to our current year financial statements due to the adoption of fresh‑start accounting. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to October 1, 2019. References to “Predecessor” or “Predecessor Company” relate to the financial position and results of operations of the Company prior to, and including, October 1, 2019.

Statements in this discussion may be ~~forward-looking.~~forward‑looking. These ~~forward-looking~~forward‑looking statements involve risks and uncertainties, including those discussed below, which could cause actual results to differ from those expressed. For more information, see "“Special note regarding ~~forward-looking~~forward‑looking statements."”

Overview

We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States. During 2017 (Predecessor), we acquired certain properties in the Delaware Basin and divested our assets located in the Williston Basin in North Dakota ~~(the Williston Divestiture)~~ and in the El Halcón area of East ~~Texas (the El Halcón Divestiture).~~Texas. As a result, our properties and drilling activities are currently focused in the Delaware Basin, ~~of West Texas,~~ where we have an extensive drilling inventory that we believe offers attractive long-term economics.

During the first ~~six~~three months of ~~2019,~~2020 (Successor), production averaged ~~17,575~~18,791 Boe/d compared to our average ~~daily~~ production of ~~11,873~~17,089 Boe/d during the first ~~six~~three months of ~~2018.~~2019 (Predecessor). Our average daily oil and natural gas production increased in the first ~~six~~three months of ~~2019~~2020 (Successor) when compared to the same period in the prior year due to ~~the acquisition of properties in West Quito Draw and~~ our drilling activities in Monument Draw and West Quito Draw. For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020 (Successor), we drilled 12and cased 3.0 gross ~~(11.2~~(3.0 net) operated wells, completed 95.0 gross ~~(8.7~~(4.3 net) operated wells, and put online 116.0 gross ~~(10.7~~(5.3 net) operated wells.

Our financial results depend upon many factors, but are largely driven by the volume of our oil and natural gas production and the price that we receive for that production. Our production volumes will decline as reserves are depleted unless we expend capital in successful development and exploration activities or acquire properties with existing production. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, transportation take-away capacity constraints, inventory storage levels, basis differentials and other factors. Accordingly, finding and developing oil and natural gas reserves at economical costs is critical to our long-term success.

Oil and natural gas prices are inherently volatile and sustained lower commodity prices could have a material impact upon our full cost ceiling test calculation. The ceiling test calculation dictates that we use the unweighted arithmetic average price of crude oil and natural gas as of the first day of each month for the 12-month period ending at the balance sheet date. Using the crude oil price for ~~July 1, 2019~~April 2020 of ~~$59.09~~$20.31 per barrel, and holding it constant for two months to create a trailing 12-month period of average prices, that is more reflective of recent price trends, our ceiling ~~test limitation~~amount related to the net book value of our oil and natural gas properties would have been reduced and would have generated an ~~additional~~ impairment of ~~$62.3~~$205.5 million, ~~($49.2 million after taxes, before valuation allowance),~~ holding all other inputs and factors constant. In addition to commodity prices, our production rates, levels of proved reserves, future development costs, transfers of unevaluated properties to our full cost pool, capital spending and other factors will determine our actual ceiling test calculation and impairment analyses in future periods.

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Recent Developments

Risk and Uncertainties

~~Recent Developments~~ We are closely monitoring the current and potential impacts of the novel coronavirus (COVID-19) pandemic on our business, including how it has and may impact our operations, financial results, liquidity, contractors, customers, employees and vendors, and taking appropriate actions in response, including reducing capital expenditures, temporarily shutting-in producing wells, and implementing various measures to ensure the continued operation of our business in a safe and secure manner. Governmental actions to contain the COVID-19 pandemic have contributed to an economic downturn, reduced demand for oil and natural gas and, together with a price war between the Organization of Petroleum Exporting Countries (OPEC)/Saudi Arabia and Russia, have depressed oil and natural gas prices to historically low levels. Although OPEC and Russia agreed in April to reduce production, downward pressure on prices has continued and could continue for the foreseeable future, particularly given concerns over available storage capacity and the impacts of the current economic downturn on demand. We are unable to predict the impact that these events will have on us due to numerous uncertainties, including the severity and duration of the COVID-19 outbreak and the effects that governmental or other actions taken to limit the extent and duration of the outbreak, in conjunction with worsening economic conditions, will have on our business, demand for oil and natural gas, and oil and natural gas prices. The health of our employees, contractors and vendors, and our ability to meet staffing needs in our operations and critical functions cannot be predicted, nor can the impact on our customers, vendors and contractors. Any material effect on these parties could adversely impact us. These and other factors could affect the Company’s operations, earnings and cash flows and could cause our results to not be comparable to those of the same period in previous years. The results presented in this Form 10-Q are not necessarily indicative of future operating results. For further information regarding the actual and potential impacts of COVID-19 on us, see

~~Restructuring Support Agreement~~“Risk Factors” in Item 1A of this Quarterly Report on Form 10-Q.

Acid Gas Injection Well Permit

During the three months ended March 31, 2020 (Successor), we received permits from the Texas Railroad Commission and the Texas Commission on Environmental Quality to construct and operate an acid gas injection well by converting an existing producing gas well. Acid gas injection provides a more cost effective alternative to sour gas treating, and offers the opportunity for lower operating costs in the future.

Successor Senior Revolving Credit Facility

On ~~August 2, 2019,~~April 30, 2020 (Successor), we entered into a restructuring support agreement (the Restructuring Support Agreement) with certain holders of our 6.75% senior unsecured notes due 2025 (the Unsecured Senior Noteholders). On August 3, 2019, we commenced a solicitation for acceptance of a pre-packaged plan of reorganization (the Plan). On August 7, 2019, we filed voluntary petitions for relief under chapter 11 of the ~~United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (the Bankruptcy Court)~~Second Amendment to ~~effect an accelerated pre-packaged bankruptcy restructuring as contemplated in the Restructuring Support Agreement.~~

Pursuant to the terms of the the Plan contemplated by the Restructuring Support Agreement, the Unsecured Senior Noteholders and other claim and interest holders will receive the following treatment in full and final satisfaction of their claims and interests:

•: ~~borrowings outstanding under~~ the Senior Credit Agreement ~~plus unpaid interest and fees, will be repaid in full, in cash, including by a refinancing;~~
•: the Unsecured Senior Noteholders will receive their pro rata share of 91% of the common stock of reorganized Halcón (New Common Shares) issued pursuant to the Plan and the right to participate in the Senior Noteholder Rights Offerings (defined below);
•: ~~our general unsecured claims are unimpaired; and~~
•: the existing common stockholders will receive their pro rata share of 9% of the New Common Shares issued pursuant to the Plan, together with Warrants (defined below) to purchase common stock of reorganized Halcón and the right to participate in the Existing Equity Interests Rights Offering (defined below and, collectively, the Existing Equity Total Consideration); provided, however, that registered holders of existing common stock with fewer than or equal to 2,000 shares of common stock will instead receive cash in an amount equal to the inherent value of such holder's pro rata share of the Existing Equity Total Consideration (the Existing Equity Cash Out).

As a component of the Restructuring Support Agreement (i) each Unsecured Senior Noteholder will be offered the right to purchase its pro rata share of New Common Shares for an aggregate purchase price of $150,150,000 (the Senior Noteholder Rights Offering) and (ii) each existing common stockholder will be offered (subject to the Existing Equity Cash Out) the right to purchase its pro rata share of New Common Shares for an aggregate purchase price of up to $14,850,000 (the Existing Equity Interests Rights Offering, and together with the Senior Noteholder Rights Offering, the Equity Rights Offerings), in each case, at a price per share equal to a 26% discount to the value of the New Common Shares based on the lesser of the total enterprise value of the reorganized company as set forth in the Disclosure Statement and an assumed total enterprise value of $425 million. Certain of the Unsecured Senior Noteholders will backstop the Senior Noteholder Rights Offering and will receive as consideration (the Backstop Commitment Premium) either (i) New Common Shares equal to 6% of the aggregate amount of the Senior Noteholder Rights Offering subject to dilution by New Common Shares issued in connection with a management incentive plan and the Warrants or (ii) a cash payment equal to 6% of the aggregate amount of the Senior Noteholder Rights Offering if the backstop agreement is terminated. We will use the proceeds of the Equity Rights Offerings to (i) provide

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~~additional liquidity for working capital and general corporate purposes, (ii) pay all reasonable and documented restructuring expenses, and (iii) fund Plan distributions.~~

~~Senior Revolving Credit Facility~~

~~On May 9, 2019, we entered into the Eighth Amendment, Consent and Waiver to Amended and Restated Senior Secured Credit Agreement (the Eighth~~(Second Amendment) which among other things, (i) ~~temporarily waived any default or event~~reduced the borrowing base to $200.0 million effective from April 30, 2020, which shall then be reduced by $5.0 million monthly starting September 1, 2020 until November 1, 2020, so that the borrowing base is scheduled to be $185.0 million on November 1, 2020, provided the borrowing base redetermination scheduled for November 1, 2020 shall occur pursuant to the terms of ~~default directly resulting from~~ the ~~potential Leverage Ratio Default (as defined in the Eighth Amendment) for the fiscal quarter ended March 31, 2019,~~Senior Credit Agreement, (ii) increased interest margins to ~~1.75%~~1.50% to ~~2.75%~~2.50% for ABR-based loans and ~~2.75%~~2.50% to ~~3.75%~~3.50% for Eurodollar-based loans, (iii) ~~reduced~~provided that should our Consolidated Cash Balance (as defined ~~in the Eighth Amendment) to $5.0 million, and (iv) provided for periodic reporting of projected cash flows and accounts payable agings~~pursuant to the ~~lenders. Under the Eighth Amendment, the waiver would have terminated and an Event of Default (as defined in~~Second Amendment) exceed $10.0 million, such amounts shall be used to prepay any borrowings under the Senior Credit ~~Agreement) would have occurred~~Agreement and thereafter, to the extent of any uncollateralized letters of credit exposure, shall be cash collateralized in accordance with the Senior Credit Agreement and (iv) allowed for a replacement benchmark rate to the London Interbank Offered Rate (which may include SOFR, Compounded SOFR or Term SOFR).

The Second Amendment also added provisions related a loan (PPP Loan) incurred by us from the U.S. Small Business Administration, under the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). Under the terms of the CARES Act, PPP Loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on ~~August 1, 2019.~~ the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. We intend to use, and the Second Amendment requires us to use, the PPP Loan proceeds for CARES Forgivable Uses under the CARES Act.

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Additionally, the Second Amendment waived, for the fiscal quarter ended June 30, 2020, that we comply with the requirement under the Senior Credit Agreement that we unwind certain swap agreements for which settlement payments are calculated in such fiscal quarter to exceed 100% of actual production.

On ~~July 31,~~November 21, 2019 (Successor), we entered into the ~~Waiver to Amended and Restated Senior Secured Credit Agreement, pursuant to which the termination date for the waiver granted by the Eighth~~First Amendment ~~was extended to August 8, 2019.~~

On February 28, 2019, the lenders party to our Senior Credit Agreement issued a consent (the Severance and Office Payments Consent) to us whereby Severance Payments and Office Payments (as defined in the Severance and Office Payments Consent) may exceed the maximum level allowed for adding back non-recurring expenses and charges in the definition of EBITDA (as defined in the Senior Credit Agreement) when calculating the ratio of Consolidated Total Net Debt to EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarter ending March 31, 2019.

~~On February 15, 2019, we entered into the Seventh Amendment (the Seventh Amendment)~~ to the Senior Credit Agreement which, among other things, ~~provided for~~ (i) reduced the ~~use of annualized financial data in determining EBITDA~~borrowing base to $240.0 million and (ii) limited the Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit Agreement) ~~for~~as of the ~~fiscal quarters ending March 31, 2019, June 30, 2019 and September 30, 2019 and (ii) amended the ratio~~last day of ~~Consolidated Total Net Debt (as defined in the Senior Credit Agreement) to EBITDA to be (a) 5.00 to 1.0 for the~~each fiscal quarter, ending March 31, 2019, (b) 4.75 to 1.0 for the fiscal quarter ending June 30, 2019, (c) 4.5 to 1.0 for the fiscal quarter ending September 30, 2019, (d) 4.25 to 1.0 for the fiscal quarter ending December 31, 2019, and (e) 4.0 to 1.0 forcommencing with the fiscal quarter ending March 31, 2020, ~~and any fiscal quarter thereafter.~~of not greater than 3.50 to 1.00.

~~On November 6, 2018,~~

Listing of our Common Stock on NYSE American

Our Predecessor common stock was previously listed on the New York Stock Exchange (NYSE) under the symbol “HK.” As a result of our failure to satisfy the continued listing requirements of the NYSE, on July 22, 2019, our Predecessor common stock was delisted from the NYSE. Effective February 20, 2020, we commenced trading on the NYSE American exchange under the symbol “BATL.”

Capital Resources and Liquidity

In March 2020 (Successor), the World Health Organization declared the outbreak of COVID-19 a pandemic. The COVID-19 outbreak and associated government restrictions have significantly impacted economic activity and markets and have dramatically reduced current and anticipated demand for oil and natural gas, adversely impacting the prices we receive for our production. As a result of commodity price declines, we realized lower revenue in March 2020 (Successor). Also in response to current market conditions, we have scaled back our operations, including temporary shut-ins of a portion of our production.

Continued actual or anticipated declines in domestic or foreign economic growth rates, regional or worldwide increases in tariffs or other trade restrictions, turmoil affecting the U.S. or global financial system and markets and a severe economic contraction either regionally or worldwide, resulting from current efforts to contain the COVID-19 coronavirus or other factors, could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price received for oil and natural gas production, inhibiting our lenders ~~party to~~from funding borrowings under our Senior Credit Agreement ~~issued a consent (the H2S Consent) to us whereby H2S Expenses (as defined~~or resulting in our lenders reducing the H2S Consent) may exceed the maximum level allowed for adding back non-recurring expenses and charges in the definition of EBITDA (as defined in the Senior Credit Agreement) when calculating the ratio of Consolidated Total Net Debt to EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarters ending September 30, 2018, December 31, 2018 and March 31, 2019.

~~The filing of the voluntary petitions for relief~~borrowing base under ~~chapter 11 of the Bankruptcy Code described above constituted an event of default under the Senior Credit Agreement that accelerated~~ our ~~obligations and terminated the lenders' commitments under the~~ Senior Credit Agreement. ~~During~~Negative economic conditions could also adversely affect the ~~chapter 11 proceedings, amounts outstanding under the Senior Credit Agreement will bear interest at a rate per annum equal~~collectability of our trade receivables or performance by our vendors and suppliers or cause our commodity hedging arrangements to ~~2.0% plus the applicable interest rate in effect.~~

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~~Debtor-in-Possession Financing~~

~~In connection with the chapter 11 proceedings and pursuant~~be ineffective if our counterparties are unable to ~~an order~~perform their obligations. All of the ~~Bankruptcy Court dated August 8, 2019 (the Interim Order), we anticipate that we will enter into a Junior Secured Debtor-In-Possession Credit Agreement (the DIP Credit Agreement) with~~foregoing may adversely affect our business, financial condition, results of operations, cash flows and, potentially, the ~~Unsecured~~borrowing capacity under our Senior ~~Noteholders party thereto from time to time as lenders (the DIP Lenders) and Wilmington Trust, National Association, as administrative agent.~~

Under the DIP Credit Agreement, the DIP Lenders will make available a $35.0 million debtor-in-possession junior secured term credit facility (the DIP Facility, and the loans thereunder, the DIP Loans), of which $25.0 million will be available as an initial draw and the remainder of which will be availabe to us as a single delayed draw term loan following the entry of the final DIP orders of the Bankruptcy Court. The DIP Loans will, subject to the terms set forth in the DIP Credit Agreement and the Exit Credit Agreement (as defined below), be rolled over or converted into, or otherwise refinanced with a $750 million exit senior secured reserve-based revolving credit facility (the Exit Facility), which will be evidenced by a senior secured revolving credit agreement (the Exit Credit Agreement), by and among us, as borrower, the lenders party thereto from time to time, and BMO Harris Bank N.A., as administrative agent.

We anticipate using the proceeds of the DIP Facility to, among other things, (i) provide working capital and other general corporate purposes, including to finance capital expenditures and the making of certain interest payments as and to the extent set forth in the Interim Order and/or the final order, as applicable, of the Bankruptcy Court and in accordance with our budget delivered pursuant to the DIP Credit Agreement, (ii) pay fees and expenses related to the transactions contemplated by the DIP Credit Agreement in accordance with such budget and (iii) cash collateralize any letters of credit.

The DIP Loans will bear interest at a rate per annum equal to (i) adjusted LIBOR plus an applicable margin of 5.50% or (ii) an alternative base rate plus an applicable margin of 4.50%, in each case, as selected by us. Any undrawn delayed draw term loans will be subject to an undrawn fee at a rate per annum equal to 1.00%.

The DIP Facility will be secured by (i) a junior secured perfected security interest on all assets that secure the Senior Credit Facility and (ii) a senior secured perfected security interest on all unencumbered assets of us and any subsidiary guarantors. The security interests and liens will be further subject to certain carve-outs and permitted liens, as set forth in the DIP Credit Agreement.

~~The DIP Credit Agreement will contain certain customary (i) representations~~

Our 2020 drilling and warranties; (ii) affirmative and negative covenants, including delivery of financial statements; conduct of business; reserve reports; title information; indebtedness; liens; dividends and distributions; investments; sale or discount of receivables; mergers; sale of properties; termination of swap agreements; transactions with affiliates; negative pledges; dividend restrictions; gas imbalances; take-or-pay or other prepayments and swap agreements; and (iii) events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; dismissal (or conversion to chapter 7) of the chapter 11 proceedings; and failure to satisfy certain bankruptcy milestones.

~~A hearing before the Bankruptcy Court to consider approval of the DIP Facility on a final basis will be scheduled for a later date.~~

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~~Exit Financing~~

In connection with the Restructuring Support Agreement and the chapter 11 proceedings, we have received an underwritten commitment from BMO Harris Bank, N.A. for a $750 million Exit Facility, effective upon our emergence from the chapter 11 proceedings, which will be arranged by BMO Capital Markets Corp. The Exit Facility will have an expected initial borrowing base of $275 million. A portion of the Exit Facility, in the amount of $50 million, will be available for the issuance of letters of credit. The proceeds of the Exit Facility will be used to refinance indebtedness that we incur during the pendency of the chapter 11 proceedings under the DIP Facility, for working capital and other general corporate purposes, to issue letters of credit, for transaction fees and expenses and for fees related to our emergence from the chapter 11 proceedings.

Loans extended under the Exit Credit Agreement will bear interest at a rate per annum equal to (i) adjusted LIBOR plus an applicable margin of 2.00% to 3.00% or (ii) an alternative base rate plus an applicable margin of 1.00% to 2.00%, in each case, at the election of us and based on the borrowing base utilization percentage under the Exit Facility. Any undrawn amounts under the Exit Facility will be subject to a commitment fee at a rate per annum equal to 0.375% to 0.500%, based on the borrowing base utilization percentage.

The maturity date of the Exit Facility will be five years from the date of execution of the Exit Credit Agreement. We will be able, at our option, to prepay any borrowing outstanding under the Exit Credit Agreement without premium or penalty (except with respect to any break funding payments which may be payable pursuant to the terms of the Exit Credit Agreement). We may also be required to make mandatory prepayments of the loans under the Exit Facility in connection with certain borrowing base deficiencies.

~~Amounts outstanding under the Exit Credit Agreement will be guaranteed~~completion budget, approved by our ~~direct and indirect material domestic subsidiaries and secured by a security interest~~board in ~~substantially all of the assets of us and such guarantors.~~

~~The Exit Credit Agreement will contain certain customary representations and warranties and affirmative and negative covenants.~~

~~Restructuring Activities~~

~~In July~~December 2019, ~~we, in an effort to improve efficiencies and go forward costs, made the decision to consolidate into~~contemplated running one corporate office to be located in Houston, Texas. The transition includes both severance and relocation costs as well as incremental costs associated with hiring new employees to replace key positions. The plan includes ultimately closing the office in Denver, Colorado. The timing of the transition is anticipated to happen before the end of the year.

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~~Sale of Water Infrastructure Assets~~

~~On December 20, 2018, we sold our water infrastructure assets located~~operated rig in the Delaware Basin ~~(the Water Assets)~~during the year. That budget contemplated spending approximately $123 million to ~~WaterBridge Resources LLC (the Purchaser) for an adjusted purchase price of $211.0~~$138 million in ~~cash (the Water Infrastructure Divestiture) at closing. The effective date~~capital expenditures, including drilling, completions, support infrastructure and other capital costs, to drill seven to ten gross operated wells and to put online 12 to 14 gross operated wells during the year. We continuously monitor changes in market conditions and adapt our operational plans as necessary in order to maintain financial flexibility, preserve acreage, and meet our contractual obligations. As a result of ~~the transaction was October 1, 2018. Additional incentive payments of up to $25.0 million per year~~changes in market conditions and commodity prices in March 2020, we have scaled back our capital operations and currently expect that our expenditures for the ~~years~~remainder of 2020 will decline significantly from ~~2019~~the levels incurred during the three months ended March 31, 2020 and that we maintain the upper end of our anticipated full year 2020 capital expenditures to ~~2023 were available~~be approximately $76 million, subject to our ~~ability to meet certain annual incentive thresholds relating to the number~~continuing evaluation in light of ~~wells connected to the Water Assets per year. In August 2019, we~~market conditions and the ~~purchaser agreed to terminate the incentive payments.~~

~~Upon closing, we dedicated all of the produced water from our oil~~risks and natural gas wells within our Monument Draw, Hackberry Draw and West Quito Draw operating areas to the Purchaser. There are no drilling or throughput commitments associated with the Water Infrastructure Divestiture. The Purchaser will receive a current market price, subject to annual adjustments for inflation,uncertainties detailed elsewhere in ~~exchange for the transportation, disposal and treatment of such produced water, and the Purchaser will receive a market price for the supply of freshwater and recycled produced water provided to us.~~

~~Capital Resources and Liquidity~~this report.

Our ~~near-term~~near‑term capital spending requirements are expected to be funded with cash and cash equivalents on hand, cash flows from operations, and borrowings under our Senior Credit Agreement, which has ~~been drawn to~~a current borrowing base of $200.0 million. At March 31, 2020 (Successor), we had $170.0 million of indebtedness outstanding and approximately ~~$223.2~~$4.4 million asletters of ~~July 29, 2019, and our DIP and Exit Facilities, subject to their finalization and Bankruptcy Court approval. As noted above,~~credit outstanding. Under the ~~filing~~current borrowing base of ~~the voluntary petitions for relief under chapter 11~~$200.0 million, we would have $25.6 million of ~~the Bankruptcy Code constituted an event of default~~borrowing capacity available under the Senior Credit Agreement ~~that accelerated our obligations and terminated the lenders' commitments~~as of March 31, 2020 (Successor). Amounts

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borrowed under the Senior Credit ~~Agreement.~~

Agreement will mature on October 8, 2024. Our ~~strategic decision~~borrowing base is redetermined on a semi-annual basis (with us and the lenders each having the right to ~~transform into a pure-play, single basin company focused~~one interim unscheduled redetermination between any two consecutive semi-annual redeterminations) and adjusted based on the ~~Delaware Basin in West Texas resulted in us divesting~~estimated value of our ~~producing properties located in~~oil and natural gas reserves and other ~~areas and acquiring primarily undeveloped acreage~~relevant factors.

The Senior Credit Agreement contains certain financial covenants, including maintenance of (i) a Total Net Indebtedness Leverage Ratio (as defined in the ~~Delaware Basin. Our drilling activities since acquiring~~Senior Credit Agreement) of not greater than 3.50 to 1.00 and (ii) a Current Ratio (as defined in the ~~assets required significant capital expenditure outlays to replace lost production and related EBITDA. These and other factors adversely impacted our ability to comply~~Senior Credit Agreement) of not less than 1.00:1.00, both commencing with ~~our debt~~the fiscal quarter ending March 31, 2020. As of March 31, 2020 (Successor), we were in compliance with the financial covenants under the Senior Credit Agreement by reducing our production, reserves and EBITDA on a current and a pro forma historical basis. Our strategy makes us more susceptible to fluctuations in performance and compliance with these covenants more challenging. In addition, weAgreement.

When commodity prices decline significantly, as they have ~~encountered certain operational challenges that have impacted~~recently, our ability to ~~comply, including recently, elevated levels of hydrogen sulfide~~finance our capital budget and operations may be adversely impacted. While we use derivative instruments to provide partial protection against declines in ~~the~~oil, natural gas ~~produced~~and natural gas liquids prices, the total volumes we hedge are less than our expected production, varies from period to period based on our ~~Monument Draw wells~~view of current and ~~severance payments associated with personnel changes.~~future market conditions and generally extends up to approximately 36 months. This variation in hedged volumes may result in our liquidity being susceptible to commodity price declines. As of October 8, 2019, the Senior Credit Agreement contained minimum hedging requirements. Specifically, for the first twelve months and for months 13 to 24 following October 8, 2019, that 75% and 50%, respectively, of anticipated production from proved developed producing reserves be covered by hedges. While production volumes naturally decrease over time, we currently have approximately 90%, 100%, and 75% of remaining 2020, 2021, and 2022 anticipated production from proved developed producing reserves hedged at weighted average prices of $52.21, $45.51 and $52.38 per barrel, respectively. Our hedge policies and objectives may change significantly as our operational profile changes and/or commodities prices change. We do not enter into derivative contracts for speculative trading purposes.

We have in the past obtained amendments to the covenants under our ~~Senior~~Predecessor Credit ~~Agreement~~Agreements under circumstances where we anticipated that it might be challenging for us to comply with our financial covenants for a particular period of time. ~~The basis for these amendment and waiver requests is similar to those described above, i.e., the potential for us to fall out of compliance as a result of our strategic decisions.~~ As part of our plan to manage liquidity risks, we ~~have~~ scaled back our capital expenditures budget, focused our drilling program on our highest return projects, continued to explore opportunities to divest non-core properties, entered into a Restructuring Support Agreement to restructure our indebtedness and, on August 7, 2019, filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas to pursue a ~~pre-packaged~~prepackaged plan of reorganization. ~~However,~~On September 24, 2019, the Bankruptcy Court entered an order confirming our plan of reorganization and on October 8, 2019, we ~~may not be able~~emerged from chapter 11 bankruptcy. Our strategic decision to ~~obtain confirmation of~~transform into a pure-play, single basin company focused on the ~~Plan~~Delaware Basin in West Texas resulted in us divesting our producing properties located in other areas and acquiring primarily undeveloped acreage in the ~~Restructuring Support~~Delaware Basin. Our drilling activities since acquiring the assets required significant capital expenditure outlays to replenish production and related EBITDA. These and other factors adversely impacted our ability to comply with our debt covenants under the Predecessor Credit Agreement ~~because~~by reducing our production, reserves and EBITDA on a current and a pro forma historical basis, while making us more susceptible to fluctuations in performance and compliance more challenging. In addition, we encountered certain operational challenges that impacted our ability to comply, including, elevated levels of hydrogen sulfide in the natural gas produced from our Monument Draw wells, and limited and expensive treatment and transportation options. Severance payments to executives in 2019 also impacted our ability to comply with our financial covenants.

Changes in the level and timing of our production, drilling and completion costs, the cost and availability of transportation for our production and other factors varying from our expectations can cause our EBITDA to change significantly and affect our ability to comply with the covenants under our Senior Credit Agreement. As a consequence, we endeavor to anticipate potential covenant compliance issues and work with the lenders under our Senior Credit Agreement to address any such issues ahead of time. While we have largely been successful in obtaining modifications of our covenants as needed, there can be no assurance that ~~the Plan (or any other plan of reorganization)~~we will be ~~approved by~~successful in the ~~Bankruptcy Court. Additionally, although the Plan is designed to minimize the length of our chapter 11 proceedings, it is impossible to predict the amount of time that we may spend in bankruptcy. If~~

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protracted, the chapter 11 proceedings will involve additional expenses, require significant time and effort of management, and may negatively impact our relationships with vendors, suppliers, employees and customers, all of which may adversely affect our liquidity, financial condition and results of operations.

Our future capital resources and liquidity depend, in part, on our success in developing our leasehold interests, growing our reserves and production and finding additional reserves. Cash is required to fund capital expenditures necessary to offset inherent declines in our production and proven reserves, which is typical in the capital-intensive oil

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and natural gas industry. We therefore continuously monitor our liquidity and evaluate our development plans in light of a variety of factors, including, but not limited to, our cash flows, capital resources, acquisition opportunities and drilling successes.

We strive to maintain financial flexibility while pursuing our drilling plans and may access capital markets, pursue joint ventures, sell assets and engage in other transactions as necessary to, among other things, maintain ~~adequate~~ borrowing capacity, facilitate drilling on our ~~large~~ undeveloped acreage position and permit us to selectively expand our ~~acreage position and infrastructure projects while sustaining sufficient operating cash levels.~~acreage. Our ability to complete such transactions and maintain or increase our borrowing base is subject to a number of variables, including our level of oil and natural gas production, proved reserves and commodity prices, the amount and cost of our ~~other~~ indebtedness, as well as various economic and market conditions that have historically affected the oil and natural gas industry. Even if we are otherwise successful in growing our proved reserves and production, if oil and natural gas prices decline for a sustained period of time, our ability to fund our capital expenditures, complete acquisitions, reduce debt, meet our financial obligations and become profitable may be materially impacted.

We are exposed to various risks including energy commodity price risk. When oil, natural gas, and natural gas liquids prices decline significantly, our ability to finance our capital budget and operations may be adversely impacted. While we use derivative instruments to provide partial protection against declines in oil and natural gas prices, the total volumes we hedge varies from period to period based on our view of current and future market conditions. Our hedge policies and objectives may change significantly as our operational profile changes and/or commodities prices change. We do not enter into derivative contracts for speculative trading purposes.Cash Flow

~~Cash Flow~~

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020 (Successor), cash ~~and cash equivalents~~ on hand supplemented with borrowings under our Senior Credit Agreement were used to fund our drilling and completion program. During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019 (Predecessor), cash ~~generated by financing activities was~~on hand supplemented with borrowings under our Predecessor Credit Agreement were used to fund ~~the acquisitions of acreage in our Monument Draw and West Quito Draw areas, as well as~~ our drilling and completion program. See "“Results of Operations"” for a review of the impact of prices and volumes on ~~sales.~~operating revenues.

Net increase (decrease) in cash, ~~and~~ cash equivalents and restricted cash is summarized as follows (in thousands):


	Successor		Predecessor
	Three Months		Three Months
	Ended		Ended
	March 31, 2020		March 31, 2019

Cash flows provided by (used in) operating activities	$	12,343	$	(36,834)
Cash flows provided by (used in) investing activities		(47,648)		(114,431)
Cash flows provided by (used in) financing activities		25,968		104,594
Net increase (decrease) in cash, cash equivalents and restricted cash	$	(9,337)	$	(46,671)

Six Months Ended
June 30,

2019 2018
Cash flows provided by (used in) operating activities
$ (26,898 ) $ 43,578
Cash flows provided by (used in) investing activities
(205,303 ) (634,271 )
Cash flows provided by (used in) financing activities
187,573 262,492

Net increase (decrease) in cash and cash equivalents
$ (44,628 ) $ (328,201 )

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Operating Activities. Net cash flows provided by operating activities for the three months ended March 31, 2020 (Successor) and net cash flows used in operating activities for the ~~six~~three months ended ~~June 30,~~March 31, 2019 (Predecessor) were ~~$26.9 million. Net cash flows provided by operating activities were $43.6~~$12.3 million ~~for the six months ended June 30, 2018.~~and $36.8 million, respectively.

Operating cash flows for the ~~six~~three months ended ~~June 30,~~March 31, 2020 (Successor) increased from the comparable prior year period due to decreases in our operating expenses associated with our focus on efficiencies and cost savings and a decrease in interest expense associated with lower outstanding debt due to our chapter 11 bankruptcy. These decreases in expenditures were partially offset by decreased oil and natural gas revenues as a result of lower realized commodity prices.

Operating cash flows for the three months ended March 31, 2019 (Predecessor) decreased from the comparable prior year period due to increases in our operating expenses, primarily severances paid to executives, natural gas treating costs, and third party water hauling and disposal costs, which were ~~slightly~~partially offset by increased oil and natural gas revenues ~~due to an increase in~~and realized settlements on our ~~production.~~

Operating cash flows for the six months ended June 30, 2018 decreased from the comparable prior year period primarily due to our divestitures in 2017, in which we divested non-core producing properties in other areas for primarily undeveloped acreage in the Delaware Basin. This decrease was partially offset by $30.8 million of proceeds related to a monetization of basis swaps that occurred in the six months ended June 30, 2018.derivative contracts.

Investing Activities. Net cash flows used in investing activities for the three months ended March 31, 2020 (Successor) and 2019 (Predecessor) were approximately ~~$205.3~~$47.6 million and ~~$634.3~~$114.4 million, ~~for~~respectively.

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During the ~~six~~three months ended ~~June 30, 2019 and 2018, respectively.~~

~~During the six months ended June 30, 2019,~~March 31, 2020 (Successor), we spent ~~$139.2~~$48.2 million on oil and natural gas capital expenditures, of which ~~$131.7~~$26.0 million related to drilling and completion costs and $21.8 million related to the development of our treating equipment and our gathering support infrastructure. In addition, we received $0.5 million in insurance proceeds associated with a casualty loss on our support infrastructure.

During the three months ended March 31, 2019 (Predecessor), we spent $81.1 million on oil and natural gas capital expenditures, of which $76.7 million related to drilling and completion costs. We also spent approximately ~~$64.6~~$30.6 million on capital expenditures related to ~~our other operating property and equipment, primarily to develop~~the development of our natural gas treating equipment and our ~~oil and natural gas~~ gathering support infrastructure.

During the first six months of 2018, we incurred cash expenditures of $332.9 million on acquisition activities, the majority of which related to the acquisition of the West Quito Draw Properties and the purchase of the Northern Tract of the Ward County Assets. Additionally, we spent $252.0 million on oil and natural gas capital expenditures, of which $234.4 million related to drilling and completion costs. We also spent approximately $53.2 million on capital expenditures related to our other operating property and equipment, primarily to develop our water recycling facilities and gas gathering infrastructure.

Financing Activities. Net cash flows provided by financing activities for the three months ended March 31, 2020 (Successor) and 2019 (Predecessor) were ~~$187.6~~$26.0 million and ~~$262.5~~$104.6 million, ~~for~~respectively.

During the ~~six~~three months ended ~~June 30, 2019 and 2018, respectively.~~

~~During the six months ended June 30, 2019,~~March 31, 2020 (Successor), net borrowings of ~~$188.0~~$26.0 million under our Senior Credit Agreement were used to fund our drilling and completions program and the development of our treating equipment and gathering support facilities.

During the three months ended March 31, 2019 (Predecessor), net borrowings of $105.0 million under our Predecessor Credit Agreement were used to fund our drilling and completions program, as well as the development of our ~~natural gas~~ treating infrastructure and our gathering support infrastructure.

Senior Revolving Credit Facility

On the Effective Date, we entered into the Senior Credit Agreement with Bank of Montreal, as administrative agent, and certain other financial institutions party thereto, as lenders. The Senior Credit Agreement, as amended, provides for a $750.0 million senior secured reserve-based revolving credit facility with a current borrowing base of $200.0 million. A portion of the Senior Credit Agreement, in the amount of $50.0 million, is available for the issuance of letters of credit. The maturity date of the Senior Credit Agreement is October 8, 2024. Redeterminations will occur semi-annually on May 1 and November 1, with the lenders and us each having the right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations. The borrowing base takes into account the estimated value of our oil and natural gas ~~gathering infrastructure.~~properties, proved reserves, total indebtedness, and other relevant factors consistent with customary oil and natural gas lending criteria. Amounts outstanding under the Senior Credit Agreement bear interest at specified margins over the base rate of 1.50% to 2.50% for ABR-based loans or at specified margins over LIBOR of 2.50% to 3.50% for Eurodollar-based loans, which margins may be increased one-time by not more than 50 basis points per annum if necessary in order to successfully syndicate the Senior Credit Agreement. These margins fluctuate based on our utilization of the facility.

~~During~~We may elect, at our option, to prepay any borrowings outstanding under the ~~first six months~~Senior Credit Agreement without premium or penalty, except with respect to any break funding payments which may be payable pursuant to the terms of ~~2018,~~the Senior Credit Agreement. We may be required to make mandatory prepayments of the outstanding borrowings under the Senior Credit Agreement in connection with certain borrowing base deficiencies, including deficiencies which may arise in connection with a borrowing base redetermination, an asset disposition or swap terminations attributable in the aggregate to more than ten percent (10%) of the then-effective borrowing base. Amounts outstanding under the Senior Credit Agreement are guaranteed by our direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of us and our subsidiaries.

The Senior Credit Agreement contains certain events of default, including non-payment; breaches of representation and warranties; non-compliance with covenants; cross-defaults to material indebtedness; voluntary or involuntary bankruptcy; judgments and change in control. The Senior Credit Agreement also contains certain financial covenants, including maintenance of (i) a Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit Agreement) of not greater than 3.50 to 1.00 and (ii) a Current Ratio (as defined in the Senior Credit Agreement) of not less than 1.00:1.00, both commencing with the fiscal quarter ending March 31, 2020.

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On April 30, 2020 (Successor), we ~~issued an additional~~entered into the Second Amendment to the Senior Credit Agreement (Second Amendment) which among other things, (i) reduced the borrowing base to $200.0 million ~~aggregate principal amount~~effective from April 30, 2020, which shall then be reduced by $5.0 million monthly starting September 1, 2020 until November 1, 2020, so that the borrowing base is scheduled to be $185.0 million on November 1, 2020, provided the borrowing base redetermination scheduled for November 1, 2020 shall occur pursuant to the terms of the Senior Credit Agreement, (ii) increased interest margins to 1.50% to 2.50% for ABR-based loans and 2.50% to 3.50% for Eurodollar-based loans, (iii) provided that should our ~~6.75% senior notes due 2025. Proceeds~~Consolidated Cash Balance (as defined pursuant to the Second Amendment) exceed $10.0 million, such amounts shall be used to prepay any borrowings under the Senior Credit Agreement and thereafter, to the extent of any uncollateralized letters of credit exposure, shall be cash collateralized in accordance with the Senior Credit Agreement and (iv) allowed for a replacement benchmark rate to the London Interbank Offered Rate (which may include SOFR, Compounded SOFR or Term SOFR).

The Second Amendment also added provisions related a loan (PPP Loan) incurred by us from the ~~private placement were approximately $202.4 million after deducting initial purchasers' premiums, commissions~~U.S. Small Business Administration, under the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and ~~offering expenses.~~Economic Security Act (the CARES Act). Under the terms of the CARES Act, PPP Loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. We intend to use, and the Second Amendment requires us to use, the PPP Loan proceeds for CARES Forgivable Uses under the CARES Act.

Additionally, ~~we sold 9.2 million shares of common stock in a public offering at a price of $6.90 per share. The net proceeds from~~ the ~~offering were approximately $60.4 million after deducting underwriters' discounts and offering expenses.~~

~~Contractual Obligations~~

~~There were no material changes outside the ordinary course of business to our commitments under contractual obligations from those disclosed in our Annual Report on Form 10-K~~Second Amendment waived, for the fiscal ~~year~~quarter ended ~~December~~June 30, 2020, that we comply with the requirement under the Senior Credit Agreement that we unwind certain swap agreements for which settlement payments are calculated in such fiscal quarter to exceed 100% of actual production.

On November 21, 2019 (Successor), we entered into the First Amendment to the Senior Credit Agreement which, among other things, (i) reduced the borrowing base to $240.0 million and (ii) limited the Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit Agreement) as of the last day of each fiscal quarter, commencing with the fiscal quarter ending March 31, ~~2018.~~2020, of not greater than 3.50 to 1.00.

As of March 31, 2020 (Successor), we were in compliance with the financial covenants under the Senior Credit Agreement.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon the unaudited condensed consolidated financial statements, which have been prepared in accordance with

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accounting principles generally accepted in the United States. Preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. There have been no material changes to our critical accounting policies from those described in our Annual Report on Form ~~10-K~~10‑K for the fiscal year ended December 31, ~~2018, except as described below.~~

~~Income Taxes~~2019.

~~We utilized the discrete effective tax rate method as allowed by ASC 740,~~~~Income Taxes~~~~, to calculate our interim income tax provision for the three and six months ended June 30, 2019. See Item 1.~~~~Condensed Consolidated Financial Statements (Unaudited)~~~~—Note 1, "~~~~Financial Statement Presentation~~~~," for details.~~

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Results of Operations

Three Months Ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018~~(Predecessor)

We reported net income of $114.5 million and a net loss ~~of $640.8 million $16.3~~$336.6 million for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively. The table included below sets forth financial information for the periods presented.


	Successor		Predecessor
	Three Months		Three Months
	Ended		Ended
In thousands (except per unit and per Boe amounts)	March 31, 2020		March 31, 2019
Net income (loss)	$	114,491	$	(336,559)
Operating revenues:
Oil		41,917		45,517
Natural gas		354		1,461
Natural gas liquids		4,753		4,945
Other		375		(7)
Operating expenses:
Production:
Lease operating		12,489		14,186
Workover and other		1,323		2,646
Taxes other than income		2,915		2,893
Gathering and other		10,547		14,869
Restructuring		418		11,271
General and administrative:
General and administrative		3,469		11,390
Stock-based compensation		387		(6,782)
Depletion, depreciation and accretion:
Depletion – Full cost		17,600		28,322
Depreciation – Other		281		1,553
Accretion expense		149		100
Full cost ceiling impairment		—		275,239
(Gain) loss on sale of Water Assets		—		885
Other income (expenses):
Net gain (loss) on derivative contracts		118,299		(64,799)
Interest expense and other		(1,629)		(12,589)
Income tax benefit (provision)		—		45,485

Production:
Oil – MBbls		937		921
Natural Gas - MMcf		2,539		1,941
Natural gas liquids – MBbls		350		293
Total MBoe(1)		1,710		1,538
Average daily production – Boe/d(1)		18,791		17,089

Average price per unit (2):
Oil price - Bbl	$	44.74	$	49.42
Natural gas price - Mcf		0.14		0.75
Natural gas liquids price - Bbl		13.58		16.88
Total per Boe(1)		27.50		33.76

Average cost per Boe:
Production:
Lease operating	$	7.30	$	9.22
Workover and other		0.77		1.72
Taxes other than income		1.70		1.88
Gathering and other		6.17		9.67
Restructuring		0.24		7.33
General and administrative:
General and administrative		2.03		7.41
Stock-based compensation		0.23		(4.41)
Depletion		10.29		18.41

⁽¹⁾

Natural gas reserves are converted to oil reserves using a ratio of six Mcf to one Bbl of oil. This ratio is based on energy equivalency, not price equivalency. The price for a barrel of oil equivalent for natural gas is substantially lower than the price for a barrel of oil.

⁽²⁾

Amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting.

Three Months Ended
June 30,

In thousands (except per unit and per Boe amounts)
2019 2018 Change
Net income (loss)
$ (640,844 ) $ (16,274 ) $ (624,570 )
Operating revenues:

Oil
53,232 48,756 4,476
Natural gas
(1,655 ) 1,560 (3,215 )
Natural gas liquids
4,297 4,991 (694 )
Other
504 108 396
Operating expenses:

Production:

Lease operating
13,473 5,314 8,159
Workover and other
1,368 1,956 (588 )
Taxes other than income
3,308 3,226 82
Gathering and other
11,041 5,956 5,085
Restructuring
654 27 627
General and administrative:

General and administrative
11,494 10,018 1,476
Stock-based compensation
1,025 4,237 (3,212 )
Depletion, depreciation and accretion:

Depletion—Full cost
38,221 14,288 23,933
Depreciation—Other
2,102 1,740 362
Accretion expense
102 68 34
Full cost ceiling impairment
664,383 — 664,383
(Gain) loss on sale of oil and natural gas properties
— 2,225 (2,225 )
(Gain) loss on sale of Water Assets
2,897 — 2,897
Other income (expenses):

Net gain (loss) on derivative contracts
17,010 (12,100 ) 29,110
Interest expense and other
(14,470 ) (10,534 ) (3,936 )
Income tax benefit (provision)
(50,306 ) — (50,306 )
Production:

Oil—MBbls
939 795 144
Natural Gas—Mmcf
2,516 1,083 1,433
Natural gas liquids—MBbls
285 187 98
Total MBoe(1)
1,643 1,162 481
Average daily production—Boe/d(1)
18,055 12,769 5,286
Average price per unit(2):

Oil price—Bbl
$ 56.69 $ 61.33 $ (4.64 )
Natural gas price—Mcf
(0.66 ) 1.44 (2.10 )
Natural gas liquids price—Bbl
15.08 26.69 (11.61 )
Total per Boe(1)
34.01 47.60 (13.59 )
Average cost per Boe:

Production:

Lease operating
$ 8.20 $ 4.57 $ 3.63
Workover and other
0.83 1.68 (0.85 )
Taxes other than income
2.01 2.78 (0.77 )
Gathering and other
6.72 5.13 1.59
Restructuring
0.40 0.02 0.38
General and administrative:

General and administrative
7.00 8.62 (1.62 )
Stock-based compensation
0.62 3.65 (3.03 )
Depletion
23.26 12.30 10.96

~~(1)~~: Natural gas reserves are converted to oil reserves using a ratio of six Mcf to one Bbl of oil. This ratio does not assume price equivalency and, given price differentials, the price for a barrel of oil equivalent for natural gas may differ significantly from the price for a barrel of oil.
~~(2)~~: ~~Amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting.~~

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Oil, natural gas and natural gas liquids revenues were ~~$55.9~~$47.0 million and ~~$55.3~~$51.9 million for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively. For the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), production averaged ~~18,055~~18,791 Boe/d and ~~12,769~~17,089 Boe/d, respectively. Our average daily oil, natural gas and natural gas liquids production increased in the first three months ~~ended June 30, 2019~~of 2020 when compared to the same period in the prior year due to ~~the acquisition of properties in West Quito Draw and~~ our drilling activities in Monument Draw and West Quito Draw. Average realized prices (excluding the effects of hedging arrangements) were ~~$34.01~~$27.50 per Boe and ~~$47.60~~$33.76 per Boe for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively. The amount we ~~realized~~realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, transportation take-away capacity constraints, inventory storage levels, quality of production, basis differentials and other factors.

Lease operating expenses were ~~$13.5~~$12.5 million and ~~$5.3~~$14.2 million for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively. On a per unit basis, lease operating expenses were ~~$8.20~~$7.30 per Boe and ~~$4.57~~$9.22 per Boe for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively. The ~~increase~~decrease in lease operating expenses ~~from 2018 levels~~in 2020 results from ~~higher third party~~our focus on optimization of production operations and decreased salt water ~~hauling and~~ disposal ~~costs resulting from our Water Infrastructure Divestiture and an increase in our inventory of wells due to our drilling and acquisition activities.~~costs.

Workover and other expenses were ~~$1.4~~$1.3 million and ~~$2.0~~$2.6 million for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively. On a per unit basis, workover and other expenses were ~~$0.83~~$0.77 per Boe and ~~$1.68~~$1.72 per Boe for the ~~three~~ months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively. The ~~decrease~~decreased costs in ~~workover expenses in 2019 as compared to the prior period~~2020 relate to recent strides in improving well and completion designs and ~~a decrease in the number of~~fewer workovers performed.

Taxes other than income were ~~$3.3~~$2.9 million ~~and $3.2 million~~ for both the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018, respectively.~~(Predecessor). Most production taxes are based on realized prices at the wellhead. As revenues or volumes from oil and natural gas sales increase or decrease, production taxes on these sales also increase or decrease. On a per unit basis, taxes other than income were ~~$2.01~~$1.70 per Boe and ~~$2.78~~$1.88 per Boe for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively.

Gathering and other expenses were ~~$11.0~~$10.5 million and ~~$6.0~~$14.9 million for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively. Gathering and other expenses include gathering fees paid to third parties on our oil and natural gas production, operating expenses of our ~~Company owned oil and gas~~ gathering support infrastructure, gas treating fees, rig stacking charges and other. Approximately ~~$3.3~~$2.9 million and ~~$1.4~~$3.8 million ~~of expenses incurred~~ for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively, relate to gathering and marketing fees paid to third parties on our oil and natural gas production. Approximately $7.6 million and ~~$4.4~~$9.9 million ~~of expenses~~ for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively, relate to operating expenses on our ~~oil~~treating equipment and ~~gas~~ gathering ~~infrastructure and in the 2018 period, on our water recycling and disposal~~support facilities. Included in the three months ended ~~June 30,~~March 31, 2019 ~~and 2018~~(Predecessor) are ~~$1.9~~$8.2 million ~~and $0.3 million, respectively,~~ of wellhead-level costs to remove hydrogen sulfide from natural gas produced from our Monument Draw properties. In April 2019 (Predecessor), we installed ~~an H2S~~a hydrogen sulfide treating plant that more efficiently removes hydrogen sulfide from our produced natural gas and reduces our reliance on expensive wellhead-level treating. Also included are ~~$0.1~~$0.8 million of rig stacking charges for the three months ended ~~June 30, 2018.~~March 31, 2019 (Predecessor).

Restructuring expense was approximately ~~$0.7~~$0.4 million and $27,000 during the three months ended June 30, 2019 and 2018, respectively. During 2019, we incurred costs to fill executive positions as a result of resignations earlier in the year and we had a reduction in our workforce due to a decrease in drilling and developmental activities planned for the year. Costs in 2018 represent severance costs and accelerated stock-based compensation expense related to the termination of certain employees in conjunction with our divestitures.

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~~General and administrative expense was approximately $11.5 million and $10.0~~$11.3 million for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 (Predecessor), respectively. During the three months ended March 31, 2020 (Successor), we incurred restructuring charges related to the consolidation into one corporate office and ~~2018,~~had reductions in our workforce due to efforts to improve efficiencies and go forward costs. During the three months ended March 31, 2019 (Predecessor), senior executives resigned from their positions. These were considered terminations without cause under their respective employment agreements, which entitled them to certain benefits.

General and administrative expense was $3.5 million and $11.4 million for the three months ended March 31, 2020 (Successor) and 2019 (Predecessor), respectively. The ~~increase~~decrease in general and administrative ~~expenses~~expense primarily results from ~~increases in professional fees associated with the efforts to restructure our indebtedness totaling $2.5 million, offset by~~ a reduction in our payroll and ~~employee~~employee-related benefits. In late March 2020, due to changes in market conditions and decreased commodity prices, we determined discretionary cash incentives related to 2019 would not be paid, causing a $1.6 million reduction to general and administrative expense for the period. Payroll and employee-related benefits ~~costs of $0.7 million~~also decreased due to a reduction in our ~~workforce.~~workforce since the prior year period. The decrease in general and

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administrative costs also results from other administrative cost reductions as part of our continued focus on efficiencies and cost savings. On a per unit basis, general and administrative expenses were ~~$7.00~~$2.03 per Boe and ~~$8.62~~$7.41 per Boe for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively.

Stock-based compensation expense was ~~$1.0~~$0.4 million and ~~$4.2~~a credit of $6.8 million for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 (Predecessor), respectively. During the three months ended March 31, 2019 (Predecessors), senior executives resigned from their positions. In accordance with the terms of these senior executives’ employment agreements, unvested stock options and ~~2018, respectively. Stock-based~~unvested shares of restricted stock were modified to vest immediately upon termination. For the three months ended March 31, 2019 (Predecessor), we recognized an incremental reduction to stock-based compensation expense ~~decreased in the current period due to a reduction in our workforce.~~of $8.4 million associated with these modifications.

Depletion for oil and natural gas properties is calculated using the unit of production method, which depletes the capitalized costs of evaluated properties plus future development costs based on the ratio of production for the current period to total reserve volumes of evaluated properties as of the beginning of the period. Depletion expense was ~~$38.2~~$17.6 million and ~~$14.3~~$28.3 million for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively. On a per unit basis, depletion expense was ~~$23.26~~$10.29 per Boe and ~~$12.30~~$18.41 per Boe for the three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively. The ~~increase~~lower depletion rate in the ~~depletion rate per Boe from the 2018 level~~Successor period is ~~primarily~~ attributable to ~~increases~~the change in our depletable base as a result of ~~our transfers~~the adoption of ~~unevaluated property to the full cost pool.~~fresh-start accounting.

Under the full cost method of accounting, sales of oil and gas properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless the adjustment significantly alters the relationship between capitalized costs and proved reserves. If the Williston Divestiture was accounted for as an adjustment of capitalized costs with no gain or loss recognized, the adjustment would have significantly altered the relationship between capitalized costs and proved reserves at the time of the transaction. Accordingly, we recognized a gain on the sale of the oil and natural gas properties associated with the Williston Divestiture of $2.2 million during the three months ended June 30, 2018, as a result of customary post-closing adjustments. The carrying value of the properties sold was determined by allocating total capitalized costs within the full cost pool between properties sold and properties retained based on their relative fair values.

On December 20, 2018, we sold our water infrastructure assets located in the Delaware Basin for a total adjusted purchase price of $211.0 million. During the year ended December 31, 2018, we recognized an initial $119.0 million gain on the sale. This gain on the sale was reduced during the three months ended June 30, 2019 andAt March 31, 2019 ~~by approximately $2.9 million and $0.9 million, respectively, as a result of customary post-closing adjustments.~~

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accordingly, we recorded the net change in the mark-to-market value of these derivative contracts in our unaudited condensed consolidated statements of operations. At June 30, 2019, we had a $15.5 million derivative asset, $10.6 million of which was classified as current and we had a $16.1 million derivative liability, $11.8 million of which was classified as current associated with these contracts. We recorded a net derivative gain of $17.0 million ($10.8 million net unrealized gain and $6.2 million net realized gain on settled and early terminated contracts) for the three months ended June 30, 2019 compared to a net derivative loss of $12.1 million ($37.9 million net unrealized loss and $25.8 million net realized gain on settled and early terminated contracts)(Predecessor), ~~in the same period in 2018.~~

Interest expense and other was $14.5 million and $10.5 million for the three months ended June 30, 2019 and 2018, respectively. Interest expense increased during the three months ended June 30, 2019 as compared to the prior year period due to higher outstanding borrowings under our Senior Credit Agreement, as well as fees paid in 2019 associated with consents and amendments to our Senior Credit Agreement.

We recorded an income tax benefit of $50.3 million using the discrete effective rate method for the three months ended June 30, 2019, resulting from the reduction to the deferred tax liability generated by the impact of the ceiling test impairment on oil and natural gas properties and the deferred tax asset created by the tax loss from operations. The 7.3% effective tax rate for the three months ended June 30, 2019 differs from the 21% statutory rate because of non-deductible executive compensation, non-deductible realized built in losses, and valuation allowances on deferred tax assets.

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~~Six Months Ended June 30, 2019 and 2018~~

We reported a net loss of $977.4 million and $18.9 million for the six months ended June 30, 2019 and 2018, respectively. The table included below sets forth financial information for the periods presented.

Six Months
Ended June 30,

In thousands (except per unit and per Boe amounts)
2019 2018 Change
Net income (loss)
$ (977,403 ) $ (18,872 ) $ (958,531 )
Operating revenues:

Oil
98,749 91,825 6,924
Natural gas
(194 ) 3,879 (4,073 )
Natural gas liquids
9,242 8,703 539
Other
497 263 234
Operating expenses:

Production:

Lease operating
27,659 10,229 17,430
Workover and other
4,014 3,317 697
Taxes other than income
6,201 6,255 (54 )
Gathering and other
25,910 12,378 13,532
Restructuring
11,925 128 11,797
General and administrative:

General and administrative
22,884 21,647 1,237
Stock-based compensation
(5,757 ) 7,818 (13,575 )
Depletion, depreciation and accretion:

Depletion—Full cost
66,543 28,750 37,793
Depreciation—Other
3,655 3,206 449
Accretion expense
202 131 71
Full cost ceiling impairment
939,622 — 939,622
(Gain) loss on sale of oil and natural gas properties
— 5,904 (5,904 )
(Gain) loss on sale of Water Assets
3,782 — 3,782
Other income (expenses):

Net gain (loss) on derivative contracts
(47,789 ) (6,197 ) (41,592 )
Interest expense and other
(27,059 ) (17,582 ) (9,477 )
Income tax benefit (provision)
95,791 — 95,791
Production:

Oil—MBbls
1,860 1,488 372
Natural Gas—Mmcf
4,457 1,969 2,488
Natural gas liquids—MBbls
578 333 245
Total MBoe(1)
3,181 2,149 1,032
Average daily production—Boe(1)
17,575 11,873 5,702
Average price per unit(2):

Oil price—Bbl
$ 53.09 $ 61.71 $ (8.62 )
Natural gas price—Mcf
(0.04 ) 1.97 (2.01 )
Natural gas liquids price—Bbl
15.99 26.14 (10.15 )
Total per Boe(1)
33.89 48.58 (14.69 )
Average cost per Boe:

Production:

Lease operating
$ 8.70 $ 4.76 $ 3.94
Workover and other
1.26 1.54 (0.28 )
Taxes other than income
1.95 2.91 (0.96 )
Gathering and other
8.15 5.76 2.39
Restructuring
3.75 0.06 3.69
General and administrative:

General and administrative
7.19 10.07 (2.88 )
Stock-based compensation
(1.81 ) 3.64 (5.45 )
Depletion
20.92 13.38 7.54

~~(1)~~: Natural gas reserves are converted to oil reserves using a ratio of six Mcf to one Bbl of oil. This ratio does not assume price equivalency and, given price differentials, the price for a barrel of oil equivalent for natural gas may differ significantly from the price for a barrel of oil.
~~(2)~~: ~~Amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting.~~

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Oil, natural gas and natural gas liquids revenues were $107.8 million and $104.4 million for the six months ended June 30, 2019 and 2018, respectively. For the six months ended June 30, 2019 and 2018, production averaged 17,575 Boe/d and 11,873 Boe/d, respectively. Our average daily oil and natural gas production increased in the first six months of 2019 when compared to the same period in the prior year due to the acquisition of properties in West Quito Draw and our drilling activities in Monument Draw and West Quito Draw. Average realized prices (excluding the effects of hedging arrangements) were $33.89 per Boe and $48.58 per Boe for the six months ended June 30, 2019 and 2018, respectively. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, transportation take-away capacity constraints, inventory storage levels, quality of production, basis differentials and other factors.

Lease operating expenses were $27.7 million and $10.2 million for the six months ended June 30, 2019 and 2018, respectively. On a per unit basis, lease operating expenses were $8.70 per Boe and $4.76 per Boe for the six months ended June 30, 2019 and 2018, respectively. The increase in lease operating expenses from 2018 levels results from higher third party water hauling and disposal costs resulting from our Water Infrastructure Divestiture and an increase in our inventory of wells due to our drilling and acquisition activities.

Workover and other expenses were $4.0 million and $3.3 million for the six months ended June 30, 2019 and 2018, respectively. The increased costs in 2019 relate to an increase in our inventory of wells due to our drilling and acquisition activities. On a per unit basis, workover and other expenses were $1.26 per Boe and $1.54 per Boe for the six months ended June 30, 2019 and 2018, respectively.

Taxes other than income were $6.2 million and $6.3 million for the six months ended June 30, 2019 and 2018, respectively. Most production taxes are based on realized prices at the wellhead. As revenues or volumes from oil and natural gas sales increase or decrease, production taxes on these sales also increase or decrease. On a per unit basis, taxes other than income were $1.95 per Boe and $2.91 per Boe for the three months ended June 30, 2019 and 2018, respectively.

Gathering and other expenses were $25.9 million and $12.4 million for the six months ended June 30, 2019 and 2018, respectively. Gathering and other expenses include gathering fees paid to third parties on our oil and natural gas production, operating expenses of our Company owned oil and gas gathering infrastructure, gas treating fees, rig stacking charges and other. Approximately $7.0 million and $2.4 million for the six months ended June 30, 2019 and 2018, respectively, relate to gathering and market fees paid to third parties on our oil and natural gas production. Approximately $17.5 million and $8.9 million of expenses for the six months ended June 30, 2019 and 2018, respectively, relate to operating expenses on our oil and gas gathering infrastructure and in the 2018 period, on our water recycling and disposal facilities. Included in the six months ended June 30, 2019 and 2018 are $11.1 million and $0.3 million, respectively, of wellhead-level costs to remove hydrogen sulfide from natural gas produced from our Monument Draw properties. In April 2019, we installed an H2S treating plant that more efficiently removes hydrogen sulfide from our produced natural gas and reduces our reliance on expensive wellhead-level treating. Also included are $0.8 million and $1.1 million of rig stacking charges for the six months ended June 30, 2019 and 2018, respectively.

Restructuring expense was approximately $11.9 million and $0.1 million during the six months ended June 30, 2019 and 2018, respectively. During the six months ended June 30, 2019, four senior executives resigned from their positions. These were considered terminations without cause under their respective employment agreements, which entitled them to certain benefits. Additionally, during the period, we incurred costs to fill executive positions created by these resignations and we had reductions in our workforce due to a decrease in drilling and developmental activities planned for 2019. During the six months ended June 30, 2018, we terminated certain employees in conjunction with our divestitures.

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General and administrative expense was $22.9 million and $21.6 million for the six months ended June 30, 2019 and 2018, respectively. The increase in general and administrative expenses results from increases in professional fees associated with the efforts to restructure our indebtedness totaling $2.9 million, offset by a reduction in our payroll and employee related benefits costs of $1.5 million due to a reduction in our workforce. On a per unit basis, general and administrative expenses were $7.19 per Boe and $10.07 per Boe for the six months ended June 30, 2019 and 2018, respectively.

Stock-based compensation expense was a credit of $5.8 million and expense of $7.8 million for the six months ended June 30, 2019 and 2018, respectively. During the six months ended June 30, 2019, four senior executives resigned from their positions. In accordance with the terms of these senior executives' employment agreements, unvested stock options and unvested shares of restricted stock were modified to vest immediately upon termination. For the six months ended June 30, 2019, we recognized an incremental reduction to stock-based compensation expense of $8.4 million associated with these modifications. Stock-based compensation expense also decreased in the current period due to a reduction in our workforce.

Depletion for oil and natural gas properties is calculated using the unit of production method, which depletes the capitalized costs of evaluated properties plus future development costs based on the ratio of production for the current period to total reserve volumes of evaluated properties as of the beginning of the period. Depletion expense was $66.5 million and $28.8 million for the six months ended June 30, 2019 and 2018, respectively. On a per unit basis, depletion expense was $20.92 per Boe and $13.38 per Boe for the six months ended June 30, 2019 and 2018, respectively. The increase in the depletion rate per Boe from 2018 levels is primarily attributable to increases in our depletable base as a result of our transfers of unevaluated property to the full cost pool.

Under the full cost method of accounting, we are required on a quarterly basis to determine whether the book value of our oil and natural gas properties (excluding unevaluated properties) is less than or equal to the "ceiling", based upon the expected after tax present value (discounted at 10%) of the future net cash flows from our proved reserves. Any excess of the net book value of our oil and natural gas properties over the ceiling must be recognized as a non-cash impairment expense. We recorded a full cost ceiling test impairment charge of $939.6 million for the six months ended June 30, 2019. The ceiling test impairment at June 30, 2019 was primarily driven by our continued focus on our most economic area, Monument Draw. Accordingly, we transferred approximately $481.7 million of unevaluated property costs to the full cost pool as of June 30, 2019, the majority of which is associated with our Hackberry Draw area. At March 31, 2019, we recorded a full cost ceiling impairment of $275.2 million. The ceiling test impairment at March 31, 2019 (Predecessor) was driven by a decrease in the first-day-of-the-month average price for crude oil used in the ceiling test calculation and our intent to expend capital only on our most economic areas. As such, we identified certain leases in the Hackberry Draw area with near-term expirations and transferred approximately $51.0 million of associated unevaluated property costs to the full cost pool during the three months ended March 31, ~~2019.~~2019 (Predecessor). Changes in commodity prices, production rates, levels of reserves, future development costs, transfers of unevaluated properties, and other factors will determine our actual ceiling test calculation and impairment analyses in future periods.

Under the full cost method of accounting, sales of oil and gas properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless the adjustment significantly alters the relationship between capitalized costs and proved reserves. If the Willison Divestiture was accounted for an adjustment of capitalized costs with no gain or loss recognized, the adjustment would have significantly altered the relationship between capitalized costs and proved reserves at the time of the transaction. Accordingly, we recognized a gain on the sale of the oil and natural gas properties associated with the Williston Divestiture of $5.9 million during the six months ended June 30, 2018, as a result of customary post-closing adjustments. The carrying value of the properties sold was

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~~determined by allocating total capitalized costs within the full cost pool between properties sold and properties retained based on their relative fair values.~~

On December 20, 2018 (Predecessor), we sold our water infrastructure assets located in the Delaware Basin for a total adjusted purchase price of ~~$211.0~~$210.9 million. ~~During the year ended December 31, 2018, we~~We recognized ~~an initial $119.0~~a cumulative $115.9 million gain on the sale. ~~This~~The gain ~~on the sale~~ was reduced during the ~~six~~three months ended ~~June 30,~~March 31, 2019 (Predecessor) by approximately ~~$3.8~~$0.9 million as a result of customary ~~post-closing~~post‑closing adjustments.

We enter into derivative commodity instruments to economically hedge our exposure to price fluctuations on our anticipated oil, natural gas and natural gas liquids production. Consistent with prior years, we have elected not to designate any positions as cash flow hedges for accounting purposes, and accordingly, we recorded the net change in the mark-to-market value of these derivative contracts in ~~our~~the unaudited condensed consolidated statements of operations. At ~~June 30, 2019,~~March 31, 2020 (Successor), we had a ~~$15.5~~$109.1 million derivative asset, ~~$10.6~~$71.4 million of which was classified as current, and we had a ~~$16.1~~$4.4 million derivative liability, ~~$11.8~~$4.0 million of which was classified as ~~current associated with these contracts.~~current. We recorded a net derivative ~~loss~~gain of ~~$47.8~~$118.3 million ($~~57.4~~112.4 million net unrealized ~~loss~~gain and ~~$9.6~~$5.9 million net realized gain on settled and early terminated contracts) for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 (Successor) compared to a net derivative loss of ~~$6.2~~$64.8 million ($~~26.8~~68.2 million net unrealized ~~gain~~loss and ~~$20.6~~$3.4 million net realized gain on settled and early terminated contracts)~~, in~~ for the ~~same period in 2018.~~three months ended March 31, 2019 (Predecessor).

Interest expense and other was ~~$27.1~~$1.6 million and ~~$17.6~~$12.6 million for the ~~six~~three months ended ~~June 30,~~March 31, 2020 (Successor) and 2019 ~~and 2018,~~(Predecessor), respectively. Interest expense ~~increased~~for the Successor period represents interest associated with borrowings under the Senior Credit Agreement. Interest expense in the Predecessor period represents interest associated with the Predecessor Credit Agreement and the 6.75% senior notes. In addition to interest expense, during the ~~six~~three months ended ~~June 30,~~March 31, 2019 ~~as compared to the prior year period due to the issuance of additional 6.75% senior notes in February 2018 as well as~~(Predecessor), we paid fees ~~paid in 2019~~ associated with consents and amendments to our ~~Senior~~Predecessor Credit Agreement.

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We recorded an income tax benefit of ~~$95.8~~$45.5 million ~~using the discrete effective rate method~~ for the ~~six~~three months ended ~~June 30,~~March 31, 2019 (Predecessor), resulting from the reduction to the deferred tax liability generated by the impact of the ceiling test impairment on oil and ~~natural~~ gas properties and the deferred tax asset created by the tax loss from operations. The ~~8.9%~~12% effective tax rate for the ~~six~~three months ended ~~June 30,~~March 31, 2019 (Predecessor) differs from the 21% statutory rate because of ~~non-deductible~~non‑deductible executive compensation ~~non-deductible~~and non‑deductible realized built in losses ~~and valuation allowances on deferred tax assets.~~.

Recently Issued Accounting Pronouncements

We discuss recently adopted and issued accounting standards in ~~Item 1.~~Item1.Condensed Consolidated Financial Statements (Unaudited)—Note 1, "“Financial Statement Presentation."”

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ~~Item 3. Quantitative and Qualitative Disclosures About Market Risk~~

Derivative Instruments and Hedging Activity

We are exposed to various risks, including energy commodity price risk, ~~including~~such as price differentials between the NYMEX commodity price and the index price at the location where our production is sold. When oil, natural gas, and natural gas liquids prices decline significantly, our ability to finance our capital budget and operations may be adversely impacted. We expect energy prices to remain volatile and ~~unpredictable;~~unpredictable, therefore we have designed a risk management policy which provides for the use of derivative instruments to provide partial protection against declines in oil, natural gas and natural gas liquids prices by reducing the risk of price volatility and the affect it could have on our operations. The types of derivative instruments that we typically utilize include fixed-price swaps, costless collars, ~~fixed-price~~basis swaps and ~~basis swaps.~~WTI NYMEX rolls. The total volumes that we hedge through the use of our derivative instruments varies from period to period, however, generally our objective is to hedge approximately ~~70%~~75% to ~~80%~~85% of our anticipated production for the next 1824 to 2436 months, when derivative

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contracts are available at terms (or prices) acceptable to us. Our hedge policies and objectives may change significantly as our operational profile ~~changes and/or commodities prices change.~~changes. We do not enter into derivative contracts for speculative trading purposes.

We are exposed to market risk on our open derivative contracts related to potential non-performance by our counterparties. It is our policy to enter into derivative contracts only with counterparties that are creditworthy institutions deemed by management as competitive market makers. As of ~~June 30, 2019,~~March 31, 2020 (Successor), we did not post collateral under any of our derivative contracts as they are secured under our Senior Credit Agreement or are uncollateralized trades. We account for our derivative activities under the provisions of ASC 815,Derivatives and Hedging, (ASC 815). ASC 815 establishes accounting and reporting that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at fair value. ~~Please refer to~~See Item 1.Condensed Consolidated Financial Statements (Unaudited)—Note ~~8, "~~10, “Derivative and Hedging Activities,”" for ~~additional information.~~more details.

Fair Market Value of Financial Instruments

The estimated fair values for financial instruments under ASC 825,Financial Instruments, (ASC 825) are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, ~~and~~ cash equivalents, restricted cash, accounts receivable and accounts payable approximates their carrying value due to their ~~short-term~~short‑term nature. See Item 1.Condensed Consolidated Financial Statements (Unaudited)—Note ~~7, "~~9, “Fair Value Measurements,”" for additional information.

Interest Rate Sensitivity

We are also exposed to market risk related to adverse changes in interest rates. Our interest rate risk exposure results primarily from fluctuations in short-term rates, which are LIBOR and ABR based and may result in reductions of earnings or cash flows due to increases in the interest rates we pay on these obligations.

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At ~~June 30, 2019,~~March 31, 2020 (Successor), the principal amount of our debt was ~~$813.0~~$170.0 million, all of which ~~approximately 77% bears interest at a weighted average fixed interest rate of 6.75% per year. The remaining 23% of our total debt at June 30, 2019~~ bears interest at floating and variable interest rates that, at our option, are tied to the prime rate or LIBOR. Fluctuations in market interest rates will cause our annual interest costs to fluctuate. At ~~June 30, 2019,~~March 31, 2020 (Successor), the weighted average interest rate on our variable rate debt was ~~8.0%~~3.43% per year. If the balance of our variable interest rate at ~~June 30, 2019~~March 31, 2020 (Successor) were to remain constant, a 10% change in market interest rates would impact our cash flows by approximately ~~$1.5~~$0.6 million per ~~year.~~year.

ITEM 4. CONTROLS AND PROCEDURES ~~Item 4. Controls and Procedures~~

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the design and operation of our disclosure controls and procedures (as defined in rules ~~13a-15(e)~~13a‑15(e) and ~~15d-15(e)~~15d‑15(e) of the Securities Exchange Act of 1934, or the Exchange Act) as of ~~June 30, 2019.~~March 31, 2020 (Successor). On the basis of this review, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

We did not have any change in our internal controls over financial reporting during the three months ended ~~June 30, 2019~~March 31, 2020 (Successor) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS ~~Item 1. Legal Proceedings~~

Information regarding legal proceedings to which we are a party is set forth in Item 1.Condensed Consolidated Financial Statements (Unaudited)—Note ~~10, "~~12, “Commitments and Contingencies,"” which is incorporated herein by reference.

ITEM 1A. RISK FACTORS ~~Item 1A. Risk Factors~~

There have been no changes to the risk factors described in our ~~2018~~2019 Annual Report on Form 10‑K, for the fiscal year ended December 31, 2019, except as described below.

Events beyond our control, including a global or domestic health crisis, may result in unexpected adverse operating and financial results.

In response to the novel coronavirus (COVID-19) pandemic governments around the world, including U.S. federal and state governments, have imposed restrictions intended to limit the extent and spread of the virus, including travel restrictions, quarantines and business closures. These and other actions could, among other things, impact the ability of our employees and contractors to perform their duties, cause increased technology and security risk due to extended and company-wide telecommuting and lead to disruptions in our permitting activities and critical business relationships. Additionally, the COVID-19 outbreak and governmental restrictions have significantly impacted economic activity and markets and have dramatically reduced current and anticipated demand for oil and natural gas, adversely impacting the prices we receive for our production. The severity and duration of the current COVID-19 outbreak and the potential for future outbreaks are uncertain and difficult to predict. COVID-19 or another similar outbreak may negatively impact our business in numerous ways, including, but not limited to, the following:

reducing our revenues if the outbreak results in a substantial or prolonged decrease in demand for oil and natural gas due to an economic downturn or recession;

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disrupting our operations if our employees or contractors are unable to work due to illness or if our field operations are suspended or temporarily shut-down or restricted due to measures designed to contain the outbreak;

disrupting the operations of our midstream service providers, on whom we rely for the gathering, processing and transportation of our production, due to measures designed to contain the outbreak, and/or the difficult economic environment may lead to capital spending constraints, bankruptcy, the closing of facilities or inability to maintain infrastructure, which may adversely affect our ability to market our production, increase our costs, lower the prices we receive, or result in the shut-in of our producing wells or a delay or discontinuation of our development plans; and

the disruption and instability in the financial markets and the uncertainty in the general business environment may affect our ability to access capital, monetize assets and successfully execute our plans.

The COVID-19 pandemic may also have the effect of heightening many of the other risks set forth in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2018, except as described below.~~

The Restructuring Support Agreement is subject to significant conditions and milestones that may be beyond our control and may be difficult for us to satisfy. If the Restructuring Support Agreement is terminated, our ability to confirm and consummate the Plan could be materially and adversely affected.

~~The Restructuring Support Agreement sets forth certain conditions we must satisfy, including the timely satisfaction~~2019. Any of milestones in the chapter 11 proceedings, such as confirmation of the plan of reorganization (the Plan) and effectiveness of the Plan, and obtaining a new or amended exit revolving credit facility, the form and substance of which is reasonably satisfactory to the Requisite Creditors (as defined therein). Our ability to timely complete such milestones is subject to risks and uncertainties that may be beyond our control. The Restructuring Support Agreement gives the Requisite Creditors the ability to terminate the Restructuring Support Agreement under certain circumstances, including the failure of certain conditions to be satisfied. Should a termination event occur, all obligations of the parties to the Restructuring Support Agreement will terminate. A termination of the Restructuring Support Agreement may result in the loss of support for the Plan, which could adversely affect our ability to confirm and consummate the Plan. If the Plan is not consummated, there can be no assurance that any new Plan would be as favorable to holders of claims as the current Plan and our chapter 11 proceedings could become protracted, which could significantly and detrimentally impact our relationships with vendors, suppliers, employees, and customers.

~~We will be subject to the risks and uncertainties associated with chapter 11 proceedings.~~

As a consequence of our filing for relief under chapter 11 of the Bankruptcy Code, our operations and our ability to develop and execute our business plan, and our continuation as a going concern, will be subject to the risks and uncertainties associated with bankruptcy. These risks include the following:

•: ~~our ability to prosecute, confirm and consummate the Plan or another plan of reorganization with respect to the chapter 11 proceedings;~~
•: ~~the high costs of bankruptcy proceedings and related fees;~~
•: ~~our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence;~~
•: ~~our ability to maintain our relationships with our suppliers, service providers, customers, employees and other third parties;~~
•: ~~our ability to maintain contracts that are critical to our operations;~~
•: ~~our ability to execute our business plan in the current depressed commodity price environment;~~
•: ~~the ability to attract, motivate and retain key employees;~~
•: ~~the ability of third parties to seek and obtain court approval to terminate contracts and other agreements with us;~~

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•: ~~the ability of third parties to seek and obtain court approval to convert the chapter 11 proceedings to chapter 7 proceedings; and~~
•: ~~the actions and decisions of our creditors and other third parties who have interests in our chapter 11 proceedings that may be inconsistent with our plans.~~

~~Delays in our chapter 11 proceedings increase the risks of our being unable to reorganize our business and emerge from bankruptcy and may increase our costs associated with the bankruptcy process.~~

These risks and uncertainties could affect our business and operations in various ways. For example, negative events associated with our chapter 11 proceedings could adversely affect our relationships with our suppliers, service providers, customers, employees, and other third parties, which in turn could adversely affect our operations and financial condition. Also, we need the prior approval of the Bankruptcy Court for transactions outside the ordinary course of business, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with our chapter 11 proceedings, we cannot accurately predict or quantify the ultimate impact of events that occur during our chapter 11 proceedings that may be inconsistent with our plans.

~~We may not be able to obtain confirmation of the Plan as outlined in the Restructuring Support Agreement.~~

There can be no assurance that the Plan as outlined in the Restructuring Support Agreement (or any other plan of reorganization) will be approved by the Bankruptcy Court, so we urge caution with respect to existing and future investments in our securities.

The success of any reorganization will depend on approval by the Bankruptcy Court and the willingness of existing debt and security holders to agree to the exchange or modification of their interests as outlined in the Plan, and there can be no guarantee of success with respect to the Plan or any other plan of reorganization. We might receive official objections to confirmation of the Plan from the various stakeholders in the chapter 11 proceedings. We cannot predict the impact that any objection might have on the Plan or on a Bankruptcy Court's decision to confirm the Plan. Any objection may cause us to devote significant resources in response which could materially and adversely affect our business, financial condition and results of operations.

If the Plan is not confirmed by the Bankruptcy Court, it is unclear whether we would be able to reorganize our business and what, if any, distributions holders of claims against us, including holders of our secured and unsecured debt and equity, would ultimately receive with respect to their claims. Once commenced, there can be no assurance as to whether we will successfully reorganize and emerge from chapter 11 or, if we do successfully reorganize, as to when we would emerge from chapter 11. If no plan of reorganization can be confirmed, or if the Bankruptcy Court otherwise finds that it would be in the best interest of holders of claims and interests, the chapter 11 cases may be converted to cases under chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code.

~~Upon emergence from bankruptcy, our historical financial information may not be indicative of our future financial performance.~~

Our capital structure will be significantly altered under the Plan. Under fresh-start reporting rules that may apply to us upon the effective date of the Plan (or any alternative plan of reorganization), our assets and liabilities would be adjusted to fair values and our accumulated deficit would be restated to zero. Accordingly, if fresh-start reporting rules apply, our financial condition and results of operations following our emergence from chapter 11 would not be comparable to the financial condition and

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results of operations reflected in our historical financial statements. Further, a plan of reorganization could materially change the amounts and classifications reported in our consolidated historical financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.

The pursuit of the Restructuring Support Agreement has consumed, and the chapter 11 proceedings will continue to consume, a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.

Although the Plan is designed to minimize the length of our chapter 11 proceedings, it is impossible to predict with certainty the amount of time that we may spend in bankruptcy or to assure parties in interest that the Plan will be confirmed. The chapter 11 proceedings will involve additional expense and our management will be required to spend a significant amount of time and effort focusing on the proceedings. This diversion of attention may materially adversely affect the conduct of our business, and, as a result, on our financial condition and results of operations, particularly if the chapter 11 proceedings are protracted.

During the pendency of the chapter 11 proceedings, our employees will face considerable distraction and uncertainty and we may experience increased levels of employee attrition. A loss of key personnel or material erosion of employee moralethese factors could have a material adverse effect on our ~~ability to effectively, efficiently~~business, operations, financial results and safely conduct our business, and could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations.

~~We depend on the continued presence of key personnel for critical management decisions.~~

Retaining and understanding historical knowledge from our key personnel is critical to allowing the new management team to more effectively progress our business plan. As part of the restructuring, there were a number of positions that were consolidated and/or replaced. While it is important to have the new team focused on the future, retaining and understanding the decisions that were made in the past allows for a more seamless transition into the future. Anytime personnel are replaced, there is a risk that there may be a loss of service, albeit temporary, that could result in an adverse effect on the business.

~~Our~~liquidity. Currently, oil and natural gas ~~activities are subject~~have declined to ~~various risks which are beyond~~historically low levels and we have reduced our ~~control.~~

~~Our operations are subject to many risks~~planned capital expenditures, delayed our drilling and ~~hazards incident to exploring~~completion plans and drilling for, producing, transporting, marketing and selling oil and natural gas. Although we take precautionary measures, many of these risks and hazards are beyond our control and unavoidable under the circumstances. Many of these risks or hazards could materially and adversely affect our revenues and expenses, the ability of certainhave begun shutting-in some of our producing wells, among other responses. We are unable to ~~produce oil~~predict the ultimate adverse impact of COVID-19 on our business, which will depend on numerous evolving factors and ~~natural gas in commercial quantities,~~future developments, including the ~~rate~~length of ~~production and~~time that the ~~economics of~~pandemic continues, its ongoing effect on the ~~development of, and our investment in, the prospects in which we have or will acquire an interest. Such risks and hazards include:~~

•: ~~human error, accidents and other events beyond our control that may cause personal injuries or death to persons and destruction or damage to equipment and facilities;~~
•: ~~blowouts, fires, adverse weather events, pollution and equipment failures that may result in damage to or destruction of wells, producing formations, production facilities and equipment;~~
•: ~~accidental leaks of natural gas, including gas with high levels of hydrogen sulfide (H2S), and other hydrocarbons or toxic or hazardous materials in the environment as a result of human~~

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~~error or the malfunction of equipment or facilities, which can result in personal injury and loss of life, pollution, damage to equipment and suspension of operations;~~

•: ~~well-on-well interference that may reduce recoveries;~~
•: ~~unavailability of materials and equipment;~~
•: ~~engineering and construction delays;~~
•: ~~unanticipated transportation costs and delays;~~
•: ~~unfavorable weather conditions;~~
•: ~~hazards resulting from unusual or unexpected geological or environmental conditions;~~
•: ~~changes in laws and regulations, including laws and regulations applicable to oil and natural gas activities or markets for the oil and natural gas produced;~~
•: ~~fluctuations in supply and~~ demand for oil and natural gas ~~causing variations~~and the response of the ~~prices we receive for our oil and natural gas production; and~~
•: ~~the availability of alternative fuels~~overall economy and the ~~price at which they become available.~~

Some of these risks may be exacerbated by other risks that we face. For instance, certain of our wells produce high levels of H2S, a highly toxic, naturally-occurring gas frequently associated with oil and natural gas production. Safely handling H2S gas requires highly skilled operations and field personnel as well as specialized infrastructure, treating facilities, disposal facilities, and/or third party sour gas takeaway. If wefinancial markets after governmental restrictions are unable to attract and retain qualified and highly skilled personnel, whether as a result of uncertainty associated with our restructuring in bankruptcy or otherwise, our ability to effectively manage this and other risks may be adversely impacted. Additionally, if we are unable to obtain specialized infrastructure and/or successfully operate treating facilities or obtain regulatory approvals for new disposal facilities or secure adequate sour gas takeaway capacity from third parties, our ability to effectively manage the H2S levels we see in our gas production may be adversely impacted. As a result, our production, revenues, operating costs and liabilities and expenses may be materially and adversely affected and may differ materially from those anticipated by us.

Trading in our securities is highly speculative and poses substantial risks. Under the Plan, the holders of our existing common stock will receive their pro rata share of 9% of our common stock following effectiveness of the Plan, subject to certain exceptions, which interest would be further diluted by the Warrants, management incentive plan and equity offerings contemplated in the Plan.eased.

The Plan, as contemplated in the Restructuring Support Agreement, provides that our outstanding unsecured notes will be converted into common stock of the reorganized Company and that the holders of our existing common stock will receive their pro rata share of 9% of the common stock of the reorganized Company upon the our emergence from chapter 11 subject to the Existing Equity Cash Out. If the Plan as contemplated in the Restructuring Support Agreement is confirmed, another 7.5% - 10% of the common stock in the reorganized Company will be reserved for issuance as awards under a post-restructuring management incentive plan, another 10% per series of Warrants, cumulateively representing 30%, of the common stock in the reorganized Company will be reserved for the issuance of Warrants and for the Backstop Commitment Premium. Issuances of common stock (or securities convertible into or exercisable for common stock) in connection with the foregoing will dilute the voting power of the outstanding common stock and may adversely affect the trading price of such common stock.

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~~Upon our emergence from bankruptcy, the composition of our Board of Directors may change significantly.~~

Under the Plan, the composition of our Board of Directors may change significantly. Any new directors are likely to have different backgrounds, experiences and perspectives from those individuals who previously served on the Board and, thus, may have different views on the issues that will determine our future. As a result, our future strategy and plans may differ materially from those of the past.

~~There may be circumstances in which the interests of our significant stockholders could be in conflict with the interests of our other stockholders.~~

The holders of Senior Note Claims are expected to acquire a significant ownership interest in the New Common Shares pursuant to the Prepackaged Plan, the Rights Offerings and the Backstop Commitment Agreement. If such holders were to act as a group, such holders would be in a position to control the outcome of all actions requiring stockholder approval, including the election of directors, without the approval of other stockholders. This concentration of ownership could also facilitate or hinder a negotiated change of control of the Reorganized Debtors and, consequently, have an impact upon the value of the New Common Shares and the Warrants.

~~Notice of NYSE delisting our common stock, which could materially impair the liquidity and value of our common stock.~~

On July 22, 2019, we were notified by the New York Stock Exchange (NYSE) that due to "abnormally low" trading price levels, pursuant to Section 802.01D of the NYSE Listed Company Manual, the NYSE has determined to commence delisting proceedings to delist our common stock and warrants exercisable for common stock. Trading in our securities was suspended on July 22, 2019. The NYSE will apply to the Securities and Exchange Commission to delist the common stock upon completion of all applicable procedures.

As of July 23, 2019, our common stock and warrants commenced trading on the OTC Pink marketplace under the symbols "HKRS" and "HKRSW", respectively. The OTC Pink is a significantly more limited market than the NYSE, and quotation on the OTC Pink may result in a less liquid market available for existing and potential stockholders to trade the common stock and warrants and could further depress the trading price of the common stock. We can provide no assurance that our common stock or warrants will continue to trade on this market, whether broker-dealers will continue to provide public quotes of our common stock and warrants on this market, whether the trading volume of our common stock and warrants will be sufficient to provide for an efficient trading market or whether quotes for our common stock and warrants may be blocked by OTC Markets Group in the future.

Transfers of our equity, or issuances of equity before or in connection with our chapter 11 proceedings, may impair our ability to utilize our federal income tax net operating loss carryforwards and other tax attributes during the current year and in future years.

Under federal income tax law, a corporation is generally permitted to offset net taxable income in a given year with net operating losses carried forward from prior years. We had net operating loss carryforwards (NOLs) of approximately $2.6 billion as of December 31, 2018; as previously reported, and subject to the following, we believe that only $975 million of the net operating loss carryforwards may be available for use, considering section 382 limitations currently asserted to be in effect, subject to our continued analysis.

Our ability to utilize our net operating loss carryforwards and other tax attributes to offset future taxable income and to reduce our federal income tax liability is subject to certain requirements and restrictions. If we experienced an "ownership change" or if we do experience an "ownership change"

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during or in connection with the restructuring process, as defined in section 382 of the Internal Revenue Code, then our ability to use our net operating loss carryforwards and other tax attributes may be substantially limited, which could have a negative impact on our financial position and results of operations. Generally, there is an "ownership change" if one or more stockholders owning 5% or more of a corporation's common stock have aggregate increases in their ownership of such stock of more than 50 percentage points over a prescribed testing period. Under section 382 and section 383 of the Internal Revenue Code, absent an applicable exception, if a corporation undergoes an "ownership change", the amount of its net operating losses and other tax attributes that may be utilized to offset future taxable income generally is subject to an annual limitation. Based on information collected to date, we believe we may have experienced an "ownership change" as of December 31, 2018, which would result in significant impairment in our ability to utilize our NOLs and tax attributes. We are, however, continuing to assess relevant information to determine whether we did, in fact, experience such an ownership change.

Whether or not the net operating loss carryforwards and other tax attributes are subject to limitation under section 382, our net operating losses and other tax attributes are expected to be further reduced by the amount of discharge of indebtedness arising in our chapter 11 case under section 108 of the Internal Revenue Code.

We have requested the Bankruptcy Court approve potential restrictions on certain transfers of our stock to limit the risk of an "ownership change" prior to our emergence from restructuring in our chapter 11 proceedings. We anticipate that the implementation of our plan of reorganization will result in an "ownership change." If so, our NOLs and other tax attributes may become further impaired, depending on our determination as to whether an ownership change has already occurred and depending on the impact of special tax law rules under section 382(l)(5) and section 382(l)(6), applicable to an "ownership change" that occurs as part of a chapter 11 plan. Given those special rules, in connection with our chapter 11 filing, we put holders of claims against us on notice that we plan to analyze whether we can qualify for the special rule of section 382(l)(5) and whether qualification under that rule would yield significant additional value, and if so that we would request the bankruptcy court to order, if and to the extent necessary, the divestiture of claims acquired after the chapter 11 petition was filed.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ~~Item 2. Unregistered Sales of Equity Securities and the Use of Proceeds~~

~~The following table sets forth information regarding our acquisition of shares of common stock for the periods presented.~~None.

Total Number
of Shares
Purchased(1) Average Price
Paid Per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
April 2019
7,479 $ 1.41 — —
May 2019
34,569 0.29 — —
June 2019
148 0.21 — —

~~(1)~~: All of the shares were surrendered by employees in exchange for the payment of tax withholding upon the vesting of restricted stock awards. The acquisition of the surrendered shares was not part of a publicly announced program to repurchase shares of our common stock.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES ~~Item 3. Defaults Upon Senior Securities~~

~~See Part I, Item 1, Note 1 to the Company's unaudited condensed consolidated financial statements entitled "~~~~Financial Statement Presentation~~~~" under the heading "~~~~Ability to Continue as a Going Concern,"~~ ~~which is incorporated in this item by reference.~~None.

ITEM 4. MINE SAFETY DISCLOSURES ~~Item 4. Mine Safety Disclosures~~

Not applicable.

ITEM 5. OTHER INFORMATION ~~Item 5. Other Information~~

None.

~~None.~~

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ITEM 6. EXHIBITS ~~Item 6. Exhibits~~

The following documents are included as exhibits to this Quarterly Report on Form ~~10-Q.~~10‑Q. Those exhibits incorporated by reference are so indicated by the information supplied with respect thereto. Those exhibits which are not incorporated by reference are attached hereto.


	~~2.1~~		~~Joint Prepackaged Chapter 11 Plan (Incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed August 7, 2019).~~

	~~2.2~~		~~Disclosure Statement for Joint Prepackaged Chapter 11 Plan (Incorporated by reference to Exhibit 2.2 of our Current Report on Form 8-K filed August 7, 2019).~~

	3.1		Amended and Restated Certificate of Incorporation of Battalion Oil Corporation (formerly Halcón Resources ~~Corporation~~Corporation) dated ~~September 9, 2016~~October 8, 2019, as amended by the Certificate of Amendment, dated January 21, 2020 (Incorporated by reference to Exhibit 3.1 of our ~~Current~~Annual Report on Form ~~8-K~~10-K filed ~~September 9, 2016)~~March 25, 2020).

	3.2		~~Fifth~~Seventh Amended and Restated Bylaws of ~~Halcón Resources~~Battalion Oil Corporation (Incorporated by reference to Exhibit 3.2 of our Current Report on Form ~~8-K~~8‑K filed ~~May 7, 2015)~~January 27, 2020).

	~~3.2.1~~		~~Amendment No. 1 to the Fifth Amended and Restated Bylaws of Halcón Resources Corporation (Incorporated by reference to Exhibit 3.2 of our Current Report on Form 8-K filed September 9, 2016).~~

	10.1		~~Eighth Amendment to Amended and Restated~~ Senior Secured Revolving Credit Agreement, dated as of ~~May 9,~~October 8, 2019, by and among Battalion Oil Corporation (formerlyHalcón Resources ~~Corporation, JPMorgan Chase~~Corporation), as borrower, Bank ~~N.A.,~~of Montreal, as administrative agent, and certain other financial institutions party thereto, as ~~lenders. (Incorporated by reference to Exhibit 10.1.7 of our Quarterly Report on Form 10-Q filed May 9, 2019).~~

	~~10.2~~	*	~~Offer letter with Richard H. Little dated June 10, 2019.~~

	~~10.3~~		~~Restructuring Support Agreement with certain noteholders dated August 2, 2019~~lenders (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed ~~August 5,~~October 8, 2019).
10.1.1			First Amendment to the Senior Secured Revolving Credit Agreement, dated as of November 21, 2019, by and among Battalion Oil Corporation (formerly Halcón Resources Corporation), as borrower, Bank of Montreal, as administrative agent, and the lenders party thereto. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed November 27, 2019).
10.1.2	~~10.4~~	Second Amendment to the Senior Secured Revolving Credit Agreement and Limited Consent, dated as of April 30, 2020, by and among Battalion Oil Corporation, as borrower, Bank of Montreal, as administrative agent, and the lenders party thereto. (Incorporated by reference to Exhibit 10.1 or our Current Report on Form 8-K filed May 6, 2020).
10.2		~~Backstop Commitment~~Warrant Agreement, ~~with certain noteholders~~ dated ~~August 2,~~as of October 8, 2019, by and between Battalion Oil Corporation (formerly Halcón Resources Corporation) as Issuer and Broadridge Corporate Issuer Solutions, Inc., as warrant agent (Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed ~~August 5,~~October 8, 2019).
10.3
	~~10.5~~		~~Exit Commitment Letter with BMO Harris Bank, N.A.,~~Registration Rights Agreement, dated as of October 8, 2019, by and ~~BMO Capital Markets Corp. dated August 2, 2019~~among Battalion Oil Corporation (formerly Halcón Resources Corporation and each of the parties thereto, as investors (Incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K filed ~~August 5,~~October 8, 2019).
31.1*

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	~~10.6~~		~~Waiver to Amended and Restated Senior Secured Credit Agreement dated as of July 31, 2019 (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed August 1, 2019).~~

	~~31.1~~	*	~~Sarbanes-Oxley~~Sarbanes‑Oxley Section 302 certification of Principal Executive Officer
31.2*
	~~31.2~~	*	~~Sarbanes-Oxley~~Sarbanes‑Oxley Section 302 certification of Principal Financial Officer
32*
	32	*	~~Sarbanes-Oxley~~Sarbanes‑Oxley Section 906 certification of Principal Executive Officer and Principal Financial Officer
101.INS*
	~~101.INS~~	*	XBRL Instance Document
101.SCH*
	~~101.SCH~~	*	XBRL Taxonomy Extension Schema Document
101.CAL*
	~~101.CAL~~	*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
	~~101.DEF~~	*	XBRL Taxonomy Extension Definition Document
101.LAB*
	~~101.LAB~~	*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
	~~101.PRE~~	*	XBRL Taxonomy Extension Presentation Linkbase Document

*: Attached hereto.
†: Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned ~~hereunto~~thereunto duly authorized.


			~~HALCÓN RESOURCES~~ BATTALION OIL CORPORATION
~~August 8, 2019~~
	~~By:~~
May 11, 2020	By:	/s/ RICHARD H. LITTLE
		Name:	~~Name:~~	Richard H. Little
		Title:	~~Title:~~	Chief Executive Officer
~~August 8, 2019~~		~~By:~~

May 11, 2020	By:	/s/ ~~QUENTIN R. HICKS~~ RAGAN T. ALTIZER
		Name:	~~Name:~~	~~Quentin R. Hicks~~ Ragan T. Altizer
		Title:	~~Title:~~	Executive Vice President, Chief Financial Officer and Treasurer

	Three Months Ended June 30,						Six Months Ended June 30,

	2019			2018			2019			2018
Operating revenues:
Oil, natural gas and natural gas liquids sales:
Oil	$	53,232		$	48,756		$	98,749		$	91,825
Natural gas		(1,655	)		1,560			(194	)		3,879
Natural gas liquids		4,297			4,991			9,242			8,703

Total oil, natural gas and natural gas liquids sales		55,874			55,307			107,797			104,407
Other		504			108			497			263

Total operating revenues		56,378			55,415			108,294			104,670

Operating expenses:
Production:
Lease operating		13,473			5,314			27,659			10,229
Workover and other		1,368			1,956			4,014			3,317
Taxes other than income		3,308			3,226			6,201			6,255
Gathering and other		11,041			5,956			25,910			12,378
Restructuring		654			27			11,925			128
General and administrative		12,519			14,255			17,127			29,465
Depletion, depreciation and accretion		40,425			16,096			70,400			32,087
Full cost ceiling impairment		664,383			—			939,622			—
(Gain) loss on sale of oil and natural gas properties		—			2,225			—			5,904
(Gain) loss on sale of Water Assets		2,897			—			3,782			—

Total operating expenses		750,068			49,055			1,106,640			99,763

Income (loss) from operations		(693,690	)		6,360			(998,346	)		4,907
Other income (expenses):
Net gain (loss) on derivative contracts		17,010			(12,100	)		(47,789	)		(6,197	)
Interest expense and other		(14,470	)		(10,534	)		(27,059	)		(17,582	)

Total other income (expenses)		2,540			(22,634	)		(74,848	)		(23,779	)

Income (loss) before income taxes		(691,150	)		(16,274	)		(1,073,194	)		(18,872	)
Income tax benefit (provision)		50,306			—			95,791			—

Net income (loss)	$	(640,844	)	$	(16,274	)	$	(977,403	)	$	(18,872	)



Net income (loss) per share of common stock:
Basic	$	(4.03	)	$	(0.10	)	$	(6.15	)	$	(0.12	)



Diluted	$	(4.03	)	$	(0.10	)	$	(6.15	)	$	(0.12	)



Weighted average common shares outstanding:
Basic		159,050			157,943			158,801			155,925



Diluted		159,050			157,943			158,801			155,925

	June 30, 2019			December 31, 2018

Current assets:
Cash and cash equivalents	$	2,238		$	46,866
Accounts receivable		34,251			35,718
Receivables from derivative contracts		10,648			57,280
Prepaids and other		12,075			4,788

Total current assets		59,212			144,652

Oil and natural gas properties (full cost method):
Evaluated		2,113,296			1,470,509
Unevaluated		439,604			971,918

Gross oil and natural gas properties		2,552,900			2,442,427
Less—accumulated depletion		(1,646,116	)		(639,951	)

Net oil and natural gas properties		906,784			1,802,476

Other operating property and equipment:
Other operating property and equipment		191,277			130,251
Less—accumulated depreciation		(12,045	)		(8,388	)

Net other operating property and equipment		179,232			121,863

Other noncurrent assets:
Receivables from derivative contracts		4,820			12,437
Operating lease right of use assets		4,290			—
Funds in escrow and other		1,135			2,181

Total assets	$	1,155,473		$	2,083,609



Current liabilities:
Accounts payable and accrued liabilities	$	111,909		$	157,848
Liabilities from derivative contracts		11,814			3,768
Current portion of long-term debt, net		801,887			—
Operating lease liabilities		1,625			—
Asset retirement obligations		—			126

Total current liabilities		927,235			161,742

Long-term debt, net		—			613,105
Other noncurrent liabilities:
Liabilities from derivative contracts		4,248			9,139
Asset retirement obligations		7,085			6,788
Operating lease liabilities		2,748			—
Deferred income taxes		—			95,791
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock: 1,000,000,000 shares of $0.0001 par value authorized; 164,123,186 and 160,612,852 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively		16			16
Additional paid-in capital		1,089,883			1,095,367
Retained earnings (accumulated deficit)		(875,742	)		101,661

Total stockholders' equity		214,157			1,197,044

Total liabilities and stockholders' equity	$	1,155,473		$	2,083,609

	Common Stock								Retained Earnings (Accumulated Deficit)

	Common Stock					Additional Paid-In Capital						Stockholders' Equity
	Shares			Amount		Additional Paid-In Capital						Stockholders' Equity
Balances at December 31, 2018		160,613		$	16	$	1,095,367		$	101,661		$	1,197,044
Net income (loss)		—			—		—			(336,559	)		(336,559	)
Long-term incentive plan grants		4,153			—		—			—			—
Long-term incentive plan forfeitures		(193	)		—		—			—			—
Reduction in shares to cover individuals' tax withholding		(253	)		—		(406	)		—			(406	)
Stock-based compensation		—			—		(6,416	)		—			(6,416	)

Balances at March 31, 2019		164,320			16		1,088,545			(234,898	)		853,663
Net income (loss)		—			—		—			(640,844	)		(640,844	)
Long-term incentive plan grants		11			—		—			—			—
Long-term incentive plan forfeitures		(166	)		—		—			—			—
Reduction in shares to cover individuals' tax withholding		(42	)		—		(20	)		—			(20	)
Stock-based compensation		—			—		1,358			—			1,358

Balances at June 30, 2019		164,123		$	16	$	1,089,883		$	(875,742	)	$	214,157

	Six Months Ended June 30, 2019

Lease cost
Operating lease costs	$	1,288
Short-term lease costs		9,666
Variable lease costs		771

Total lease costs	$	11,725



Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,290
Right-of-use assets obtained in exchange for new operating lease liabilities		5,462
Weighted-average remaining lease term—operating leases		3.6 years
Weighted-average discount rate—operating leases		4.83	%

	June 30, 2019

Remaining period in 2019	$	1,028
2020		1,360
2021		876
2022		574
2023		585
Thereafter		345

Total operating lease payments		4,768

Less: discount to present value		395

Total operating lease liabilities		4,373

Less: current operating lease liabilities		1,625

Noncurrent operating lease liabilities	$	2,748

	December 31, 2018

2019	$	3,792
2020		2,350
2021		1,899
2022		968
2023		999
Thereafter		599

Total operating lease payments	$	10,607

	June 30, 2019⁽¹⁾		December 31, 2018

Senior revolving credit facility	$	188,000	$	—
6.75% senior notes due 2025⁽²⁾		613,887		613,105

	$	801,887	$	613,105

	June 30, 2019				December 31, 2018

Debt	Principal Amount		Estimated Fair Value		Principal Amount		Estimated Fair Value
6.75% senior notes	$	625,005	$	193,095	$	625,005	$	458,210

		Asset derivative contracts					Liability derivative contracts

Derivatives not designated as hedging contracts under ASC 815	Balance sheet location	June 30, 2019		December 31, 2018		Balance sheet location	June 30, 2019			December 31, 2018
Commodity contracts	Current assets—receivables from derivative contracts	$	10,648	$	57,280	Current liabilities—liabilities from derivative contracts	$	(11,814	)	$	(3,768	)
Commodity contracts	Other noncurrent assets—receivables from derivative contracts		4,820		12,437	Other noncurrent liabilities—liabilities from derivative contracts		(4,248	)		(9,139	)

Total derivatives not designated as hedging contracts under ASC 815		$	15,468	$	69,717		$	(16,062	)	$	(12,907	)

		Amount of gain or (loss) recognized in income on derivative contracts for the Three Months Ended June 30,					Amount of gain or (loss) recognized in income on derivative contracts for the Six Months Ended June 30,

	Location of gain or (loss) recognized in income on derivative contracts
Derivatives not designated as hedging contracts under ASC 815		2019		2018			2019			2018
Commodity contracts:
Unrealized gain (loss) on commodity contracts	Other income (expenses)—net gain (loss) on derivative contracts	$	10,764	$	(37,874	)	$	(57,405	)	$	(26,761	)
Realized gain (loss) on commodity contracts	Other income (expenses)—net gain (loss) on derivative contracts		6,246		25,774			9,616			20,564

Total net gain (loss) on derivative contracts		$	17,010	$	(12,100	)	$	(47,789	)	$	(6,197	)


Liability for asset retirement obligations as of December 31, 2018	$	6,914
Liabilities settled and divested		(229	)
Additions		198
Accretion expense		202

Liability for asset retirement obligations as of June 30, 2019	$	7,085


Remaining period in 2019	$	—
2020		3,000
2021		—
2022		—
2023		—
Thereafter		—

Total	$	3,000


Remaining period in 2019	$	7,272
2020		—
2021		—
2022		—
2023		—
Thereafter		—

Total	$	7,272

	June 30, 2019		December 31, 2018

Accounts receivable:
Oil, natural gas and natural gas liquids revenues	$	25,208	$	26,432
Joint interest accounts		5,512		7,369
Other		3,531		1,917

	$	34,251	$	35,718



Prepaids and other:
Prepaids	$	3,493	$	3,503
Income tax receivable		1,250		1,250
Funds in escrow		6,557		—
Other		775		35

	$	12,075	$	4,788



Funds in escrow and other:
Funds in escrow	$	576	$	570
Other		559		1,611

	$	1,135	$	2,181



Accounts payable and accrued liabilities:
Trade payables	$	50,568	$	68,959
Accrued oil and natural gas capital costs		13,339		41,461
Revenues and royalties payable		17,942		20,526
Accrued interest expense		19,310		16,971
Accrued employee compensation		2,713		3,421
Accrued lease operating expenses		7,859		6,292
Other		178		218

	$	111,909	$	157,848

		Average Price Paid Per Share

April 2019	7,479	$	1.41	—	—
May 2019	34,569		0.29	—	—
June 2019	148		0.21	—	—