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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                         

Commission file number 001-37907
https://cdn.kscope.io/d80932cc4b69dc2a1c3f58d0d439c264-xog-20200331_g1.jpg
EXTRACTION OIL & GAS, INC.
(Exact name of registrant as specified in its charter)

Delaware46-1473923
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
370 17th Street
Suite 5300
Denver,Colorado80202
(Address of principal executive offices)
(720) 557-8300
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, par value $0.01XOGNASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

The total number of shares of common stock, par value $0.01 per share, outstanding as of May 8, 2020 was 138,135,046.



Table of Contents
EXTRACTION OIL & GAS, INC.
TABLE OF CONTENTS

Page
PART I—FINANCIAL INFORMATION

1

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
EXTRACTION OIL & GAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
March 31,
2020
December 31,
2019
ASSETS
Current Assets:
Cash and cash equivalents$31,993  $32,382  
Accounts receivable
Trade49,878  32,009  
Oil, natural gas and NGL sales38,850  105,103  
Inventory, prepaid expenses and other34,494  36,702  
Commodity derivative asset164,330  17,554  
Total Current Assets319,545  223,750  
Property and Equipment (successful efforts method), at cost:
Proved oil and gas properties4,676,967  4,530,934  
Unproved oil and gas properties417,021  524,214  
Wells in progress154,981  149,733  
Less: accumulated depletion, depreciation, amortization and impairment charges(3,057,098) (2,985,983) 
Net oil and gas properties2,191,871  2,218,898  
Gathering systems and facilities, net of accumulated depreciation  315,777  
Other property and equipment, net of accumulated depreciation72,589  72,542  
Net Property and Equipment2,264,460  2,607,217  
Non-Current Assets:
Commodity derivative asset88,783  13,229  
Other non-current assets30,600  82,761  
Total Non-Current Assets119,383  95,990  
Total Assets$2,703,388  $2,926,957  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities$163,057  $190,864  
Accounts payable and accrued liabilities, related party46,777    
Revenue payable104,702  108,493  
Production taxes payable115,556  115,489  
Commodity derivative liability716  1,998  
Accrued interest payable18,042  20,625  
Asset retirement obligations15,328  27,058  
Total Current Liabilities464,178  464,527  
Non-Current Liabilities:
Credit facility470,000  470,000  
Senior Notes, net of unamortized debt issuance costs1,086,347  1,085,777  
Production taxes payable119,675  98,740  
Commodity derivative liability  108  
Other non-current liabilities59,689  54,579  
Asset retirement obligations78,445  68,850  
Deferred tax liability2,200    
Total Non-Current Liabilities1,816,356  1,778,054  
Total Liabilities2,280,534  2,242,581  
Commitments and Contingencies—Note 13
Series A Convertible Preferred Stock, $0.01 par value; 50,000,000 shares authorized, 185,280 issued and outstanding
182,157  175,639  
Stockholders' Equity:
Common stock, $0.01 par value; 900,000,000 share authorized; 137,891,740 and 137,657,922 issued and outstanding, respectively
1,336  1,336  
Treasury stock, at cost, 38,859,078 shares
(170,138) (170,138) 
Additional paid-in capital2,143,670  2,156,383  
Accumulated deficit(1,734,171) (1,743,208) 
Total Extraction Oil & Gas, Inc. Stockholders' Equity240,697  244,373  
Noncontrolling interest  264,364  
Total Stockholders' Equity240,697  508,737  
Total Liabilities and Stockholders' Equity$2,703,388  $2,926,957  
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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EXTRACTION OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

For the Three Months Ended March 31,
20202019
Revenues:
Oil sales$124,219  $165,424  
Natural gas sales22,302  35,892  
NGL sales17,193  20,601  
Gathering and compression1,473    
Total Revenues165,187  221,917  
Operating Expenses:
Lease operating expense30,390  21,857  
Midstream operating expenses3,935    
Transportation and gathering22,786  10,365  
Production taxes13,454  18,129  
Exploration and abandonment expenses112,480  6,194  
Depletion, depreciation, amortization and accretion76,051  118,770  
Impairment of long lived assets775  8,248  
Gain on sale of property and equipment  (222) 
General and administrative expense10,596  27,652  
Other operating expenses52,575    
Total Operating Expenses323,042  210,993  
Operating Income (Loss)(157,855) 10,924  
Other Income (Expense):
Commodity derivative gain (loss)263,015  (122,091) 
Loss on deconsolidation of Elevation Midstream, LLC(73,139)   
Interest expense(21,358) (13,008) 
Other income574  1,143  
Total Other Income (Expense)169,092  (133,956) 
Income (Loss) Before Income Taxes11,237  (123,032) 
Income tax (expense) benefit(2,200) 29,000  
Net Income (Loss)$9,037  $(94,032) 
Net income attributable to noncontrolling interest6,160  3,975  
Net Income (Loss) Attributable to Extraction Oil & Gas, Inc.2,877  (98,007) 
Adjustments to reflect Series A Preferred Stock dividends and accretion of discount(6,518) (4,317) 
Net Loss Available to Common Shareholders, Basic and Diluted$(3,641) $(102,324) 
Loss Per Common Share (Note 12)
Basic and diluted$(0.03) $(0.60) 
Weighted Average Common Shares Outstanding
Basic and diluted137,726  170,702  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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EXTRACTION OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Three Months Ended March 31,
20202019
Cash flows from operating activities:
Net income (loss)$9,037  $(94,032) 
Reconciliation of net income (loss) to net cash provided by operating activities:
Depletion, depreciation, amortization and accretion76,051  118,770  
Abandonment and impairment of unproved properties106,928  3,893  
Impairment of long lived assets775  8,248  
Gain on sale of property and equipment  (222) 
Gain on repurchase of 2026 Senior Notes  (7,317) 
Amortization of debt issuance costs1,242  1,498  
Non-cash lease expense4,871  2,486  
Contract asset8,465    
Commodity derivatives (gain) loss(263,015) 122,091  
Settlements on commodity derivatives24,932  (3,538) 
Earnings in unconsolidated subsidiaries(480) (338) 
Loss on deconsolidation of Elevation Midstream, LLC73,139    
Distributions from unconsolidated subsidiaries  1,751  
Deferred income tax expense (benefit)2,200  (29,000) 
Stock-based compensation  13,008  
Changes in current assets and liabilities:
Accounts receivable—trade(9,127) 11,908  
Accounts receivable—oil, natural gas and NGL sales66,253  2,981  
Inventory, prepaid expenses and other584  136  
Accounts payable and accrued liabilities(7,699) (10,638) 
Accounts payable and accrued liabilities, related party46,777    
Revenue payable(1,690) (21,506) 
Production taxes payable21,002  22,919  
Accrued interest payable(2,583) (4,429) 
Asset retirement expenditures(10,563) (4,558) 
Net cash provided by operating activities147,099  134,111  
Cash flows from investing activities:
Oil and gas property additions(143,000) (188,027) 
Sale of property and equipment12,117  16,521  
Gathering systems and facilities additions, net of cost reimbursements4,193  (49,175) 
Other property and equipment additions(2,980) (8,213) 
Investment in unconsolidated subsidiaries(10,033) (4,929) 
Distributions from unconsolidated subsidiary, return of capital  1,448  
Net cash used in investing activities(139,703) (232,375) 
Cash flows from financing activities:
Borrowings under credit facility70,000  65,000  
Repayments under credit facility(70,000) (25,000) 
Repurchase of 2026 Senior Notes  (28,460) 
Repurchase of common stock  (32,212) 
Payment of employee payroll withholding taxes(35) (454) 
Dividends on Series A Preferred Stock  (2,721) 
Debt and equity issuance costs(22) (94) 
Preferred Unit issuance costs  (10) 
Net cash used in financing activities(57) (23,951) 
Effect of deconsolidation of Elevation Midstream, LLC(7,728)   
Decrease in cash and cash equivalents(389) (122,215) 
Cash, cash equivalents at beginning of period32,382  234,986  
Cash, cash equivalents at end of the period$31,993  $112,771  
Supplemental cash flow information:
Property and equipment included in accounts payable and accrued liabilities$99,602  $143,168  
Cash paid for interest$24,865  $25,265  
Accretion of beneficial conversion feature of Series A Preferred Stock$1,770  $1,596  
Preferred Units commitment fees and dividends paid-in-kind$6,160  $3,975  
Series A Preferred Stock dividends paid-in-kind$4,748  $  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4

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EXTRACTION OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY AND NONCONTROLLING INTEREST
(In thousands)
(Unaudited)
Common StockTreasury StockAdditional Paid in CapitalAccumulated DeficitExtraction Oil & Gas, Inc. Stockholders' EquityNoncontrolling InterestTotal Stockholders' Equity
SharesAmountSharesAmountAmount
Balance at January 1, 2020176,517  $1,336  38,859  $(170,138) $2,156,383  $(1,743,208) $244,373  $264,364  $508,737  
Preferred Units commitment fees & dividends paid-in-kind—  —  —  —  (6,160) —  (6,160) 6,160  —  
Series A Preferred Stock dividends—  —  —  —  (4,748) —  (4,748) —  (4,748) 
Accretion of beneficial conversion feature on Series A Preferred Stock—  —  —  —  (1,770) —  (1,770) —  (1,770) 
Restricted stock issued, net of tax withholdings and other234  —  —  —  (35) —  (35) —  (35) 
Net income—  —  —  —  —  9,037  9,037  —  9,037  
Effects of deconsolidation of Elevation Midstream, LLC—  —  —  —  —  —  —  (270,524) (270,524) 
Balance at March 31, 2020176,751  $1,336  38,859  $(170,138) $2,143,670  $(1,734,171) $240,697  $  $240,697  

Common StockTreasury StockAdditional Paid in CapitalAccumulated DeficitExtraction Oil & Gas, Inc. Stockholders' EquityNoncontrolling InterestTotal Stockholders' Equity
SharesAmountSharesAmountAmount
Balance at January 1, 2019176,210  $1,678  4,543  $(32,737) $2,153,661  $(375,788) $1,746,814  $147,872  $1,894,686  
Preferred Units issuance costs—  —  —  —  —  —  —  (10) (10) 
Preferred Units commitment fees & dividends paid-in-kind—  —  —  —  (3,975) —  (3,975) 3,975  —  
Stock-based compensation  —  —  —  13,008  —  13,008  —  13,008  
Series A Preferred Stock dividends—  —  —  —  (2,721) —  (2,721) —  (2,721) 
Accretion of beneficial conversion feature on Series A Preferred Stock—  —  —  —  (1,596) —  (1,596) —  (1,596) 
Repurchase of common stock—  (77) 7,824  (32,135) —  —  (32,212) —  (32,212) 
Restricted stock issued, net of tax withholdings270  —  —  —  (454) —  (454) —  (454) 
Net loss—  —  —  —    (94,032) (94,032) —  (94,032) 
Balance at March 31, 2019176,480  $1,601  12,367$(64,872) $2,157,923  $(469,820) $1,624,832  $151,837  $1,776,669  


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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EXTRACTION OIL & GAS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Business and Organization

Extraction Oil & Gas, Inc. (the "Company" or "Extraction") is an independent oil and gas company focused on the acquisition, development and production of oil, natural gas and natural gas liquids (“NGLs”) reserves in the Rocky Mountain region, primarily in the Wattenberg Field of the Denver-Julesburg Basin (the "DJ Basin") of Colorado, as well as the construction and support of midstream assets to gather and process crude oil and gas production. Extraction is a public company listed for trading on the NASDAQ Global Select Market under the symbol "XOG."

Deconsolidation of Elevation Midstream, LLC

Elevation Midstream, LLC ("Elevation"), a Delaware limited liability company, is focused on the construction and operation of gathering systems and facilities to serve the development of acreage in the Company’s Hawkeye and Southwest Wattenberg areas. Midstream assets of Elevation are represented as the gathering systems and facilities line item within the condensed consolidated balance sheets.

During the first quarter of 2020, Elevation's non-controlling interest owner, which owns 100% of Elevation's preferred stock, per contractual agreement, expanded Elevation's then five member board of managers by four seats and filled them with managers of their choosing (the "Board Expansion"). Because Extraction had the right to appoint only three of the managers of Elevation before and after Board Expansion, Extraction determined the Company had lost voting control of Elevation, and on March 16, 2020 deconsolidated Elevation and began accounting for the entity as an equity method investment. Though Extraction determined control of Elevation was lost under the voting interest model of consolidation, the Company also determined significant influence was not lost due to (1) Extraction owning 100% of the common stock, (2) Extraction appointing three of the nine managers of Elevation and (3) Extraction's continuing involvement in the day-to-day operation of Elevation through a management services agreement. Because Extraction also determined the Company is not the primary beneficiary, Elevation Midstream, LLC is not a variable interest entity.

Extraction elected the fair value option to remeasure the Elevation equity method investment and determined it had no fair value. The Company recorded a $73.1 million loss on deconsolidation of the investment in the condensed consolidated statements of operations for the three months ended March 31, 2020. Also, as of March 31, 2020, Elevation determined certain gathering systems and facilities were impaired by $50.3 million as a result of the abandonment of certain projects. In accordance with Accounting Standards Codification Topic 323-10-35-20: Investments—equity method and joint ventures, Extraction discontinued applying the equity method investment for Elevation as the impairment charge would have reduced the investment below zero.

On May 1, 2020, Elevation's board of managers issued 1,530,000,000 common units at a price of $0.01 per unit to certain of Elevation's members other than Extraction (the "Capital Raise"). The Capital Raise caused Extraction's ownership of Elevation to be diluted to less than 0.01%. As a result of the Capital Raise, beginning in May 2020 Extraction will account for Elevation under the cost method of accounting. The Company reserves all rights related to actions taken by Elevation’s board of managers.

Note 2—Basis of Presentation, Significant Accounting Policies and Recent Accounting Pronouncements

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of the Company, including its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The financial statements included herein were prepared from the records of the Company in accordance with generally accepted accounting principles in the United States (“GAAP”) and the Securities and Exchange Commission rules and regulation for interim financial reporting. In the opinion of management, all adjustments, consisting primarily of normal recurring accruals that are considered necessary for a fair statement of the unaudited condensed consolidated financial information, have been included. However, operating results for the period presented are not necessarily indicative of the results that may be expected for a full year. Interim condensed consolidated financial
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statements and the year-end balance sheets do not include all of the information and notes required by GAAP for audited annual consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“Annual Report”).

Significant Accounting Policies

The significant accounting policies followed by the Company are set forth in Note 2 to the Company’s consolidated financial statements in its Annual Report and are supplemented by the notes to the unaudited condensed consolidated financial statements in this report. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report.

Revenue Contract Balances

The Company has a certain revenue contract with an initial term beginning on November 1, 2016 and continuing until October 31, 2020 after which the contract begins an automatic month-to-month renewal unless terminated by either party giving notice at least 180 days prior to the effective termination date but in no event can either party give such notice earlier than November 1, 2020. Based on the accounting treatment pursuant to ASC 606 - Revenue from Contracts with Customers, the contract term ends on April 30, 2021 because it may be terminated by either party with no penalty effective as of such date. The contract term impacts the amount of consideration that can be included in the transaction price. Generally, under the Company's various sales contracts, the Company invoices customers once its performance obligations have been satisfied, at which point payment is unconditional. For the three months ended March 31, 2020, the Company allocated $8.5 million to a satisfied performance obligation recognized within oil sales under ASC 606. As of March 31, 2020, the Company estimated a performance obligation under ASC 606 of $46.2 million, of which $3.9 million is recorded in accounts payable and accrued liabilities and $42.3 million is recorded in other non-current liabilities. A corresponding asset was recorded in the amount of $13.0 million, of which $12.1 million is recorded in inventory, prepaid expenses and other and $0.9 million is recorded in other non-current assets. The asset will be amortized into revenue over the contractual term of the contract, and the liability will be relieved if a deficiency payment is made to the counterparty or when the Company's minimum volume commitments are fulfilled.

Other Operating Expenses

Other operating expenses were $52.6 million for the three months ended March 31, 2020. This amount is primarily made up of a $46.8 million loss contingency from an alleged breach in contract stemming from a purported failure to complete the pipeline extensions connecting certain wells to the Badger central gathering facility prior to April 1, 2020. Please see Note 13—Commitments and Contingencies for further details. Also included in this amount is a $5.8 million charge to income for expenses related to a workforce reduction in February 2020.

Impairment of Oil and Gas Properties

The Company identified an impairment triggering event for its proved oil and gas properties as of March 31, 2020 due to the significant decrease in oil and gas prices during the first quarter of 2020. As such, the Company performed a quantitative assessment as of March 31, 2020, and proved property in its northern field was impaired. For the three months ended March 31, 2020 and 2019, the Company recognized $0.8 million and $8.2 million, respectively, in impairment expense on its proved oil and gas properties related to impairment of assets in its northern field. The fair value did not exceed the Company's carrying amount associated with its proved oil and gas properties in its northern field. The Company did not have any proved property impairment in its Core DJ Basin field, primarily because of the $1.3 billion impairment charge that was recorded in the fourth quarter of 2019.

Of the Company's $112.5 million in exploration and abandonment expenses for the three months ended March 31, 2020, $106.9 million was lease abandonment expense. Unproved oil and gas properties consist of costs to acquire unevaluated leases as well as costs to acquire unproved reserves. The Company evaluates significant unproved oil and gas properties for impairment based on remaining lease term, drilling results, reservoir performance, seismic interpretation or future plans to develop acreage. When successful wells are drilled on undeveloped leaseholds, unproved property costs are reclassified to proved properties and depleted on a unit-of-production basis. Impairment expense and
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lease extension payments for unproved properties is reported in exploration and abandonment expenses in the condensed consolidated statements of operations.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments—Credit Losses. In May 2019, ASU No. 2016-13 was subsequently amended by ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses and ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. ASU No. 2016-13, as amended, affects trade receivables, financial assets and certain other instruments that are not measured at fair value through net income. This ASU replaced the incurred loss approach with an expected loss model for instruments measured at amortized cost and was effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. ASU No. 2016-13 will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company adopted this ASU on January 1, 2020, and the adoption did not have a material impact on the consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-13, which removes or modifies current fair value disclosures and adds additional disclosures. The update to the guidance is the result of the FASB's test of the principles developed in its disclosure effectiveness project, which is designed to improve the effectiveness of disclosures in the notes to the financial statements. The disclosures that have been removed or modified may be applied immediately with retrospective application. For public entities, the new guidance was effective for fiscal years beginning after December 15, 2019, including interim reporting periods within that reporting period. The Company adopted this ASU on January 1, 2020, and the adoption did not have a material impact on the consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. For public entities, the guidance is effective for fiscal years beginning after December 15, 2019, including interim reporting periods within that reporting period. The Company adopted this ASU on January 1, 2020 which did not have a material impact on the consolidated financial statements and related disclosures as capitalized costs for internal-use software were not material as of March 31, 2020.

Other than as disclosed above or in the Company’s Annual Report, there are no other accounting standards applicable to the Company as of March 31, 2020 and through the date of this filing that would have a material effect on the Company’s unaudited condensed consolidated financial statements and related disclosures that have been issued but not yet adopted by the Company.

Note 3—Divestitures

February 2020 Divestiture

In February 2020, the Company completed the sale of certain non-operated producing properties for aggregate sales proceeds of approximately $12.2 million, subject to customary purchase price adjustments. No gain or loss was recognized for the February 2020 Divestiture. The Company continues to explore divestitures as part of our ongoing initiative to divest non-strategic assets.

December 2019 Divestiture

In December 2019, the Company completed the sale of certain non-operated producing properties for aggregate sales proceeds of approximately $10.0 million, subject to customary purchase price adjustments. No gain or loss was recognized for the December 2019 Divestiture.
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August 2019 Divestiture

In August 2019, the Company completed the sale of certain non-operated producing properties for aggregate sales proceeds of approximately $22.0 million, subject to customary purchase price adjustments. No gain or loss was recognized for the August 2019 Divestiture.

March 2019 Divestiture

In March 2019, the Company completed the sale of its interests in approximately 5,000 net acres of leasehold and producing properties for aggregate sales proceeds of approximately $22.4 million. The effective date for the March 2019 Divestiture was July 1, 2018 with purchase price adjustments calculated as of the closing date of $5.9 million, resulting in net proceeds of $16.5 million. No gain or loss was recognized for the March 2019 Divestiture.

Note 4—Going Concern

The Company depends on cash flows from operating activities and, as necessary and available, borrowings under its senior secured revolving credit facility (the “revolving credit facility”) to fund its capital expenditures and working capital requirements. Additionally, the Company historically has used proceeds from the issuance of equity and debt securities in the capital markets and from sales or other monetizations of assets to fund its capital expenditures and working capital requirements.

The market price for oil, natural gas and NGLs decreased significantly beginning in the first quarter of 2020, continuing into the second quarter of 2020. The decrease in the market price for the Company’s production directly reduces the Company’s cash flow from operations and indirectly impacts its other potential sources of funds described above. The Company has reduced its 2020 upstream capital budget and as a result expects to suspend drilling in the second half of 2020 and does not see production returning to historical levels for the foreseeable future. As discussed in Note 5—Long-Term Debt, lenders under the revolving credit facility elected to reduce the borrowing base and elected commitments to $650.0 million from $950.0 million on April 27, 2020, and the Company borrowed all of its remaining available capacity under the revolving credit facility. As a result of the reduction of the borrowing base and elected commitments, it is probable that the Company will not meet the financial covenants under the revolving credit facility for the three months ended June 30, 2020 when assuming the Company’s current financial forecast.

If the Company does not obtain a waiver of its financial covenants for the three months ended June 30, 2020, the lenders under the revolving credit facility will be able to accelerate maturity of the debt. Any acceleration of the obligations under the revolving credit facility would result in a cross-default and potential acceleration of the maturity of the Company’s other outstanding long-term debt amounting to approximately $1.1 billion. These defaults create uncertainty associated with the Company’s ability to repay its outstanding long-term debt obligations as they become due and creates a substantial doubt over the Company’s ability to continue as a going concern.

As a result of the impacts to the Company’s financial position resulting from declining commodity price conditions and in consideration of the substantial amount of long-term debt and preferred stock outstanding, the Company has engaged advisors to assist with the evaluation of strategic alternatives, which may include, but not be limited to, seeking a restructuring, amendment or refinancing of existing debt through a private restructuring or reorganization under Chapter 11 of the Bankruptcy Code. However, there can be no assurances that the Company will be able to successfully restructure its indebtedness, improve its financial position or complete any strategic transactions. As a result of these uncertainties and the likelihood of a restructuring or reorganization, management has concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern.

The consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and satisfaction of liabilities and commitments in the normal course of business. The consolidated financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern.

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Note 5—Long-Term Debt

The Company’s long-term debt consisted of the following (in thousands):
March 31,
2020
December 31,
2019
Credit facility due August 16, 2022 (or an earlier time as set forth in the credit facility)$470,000  $470,000  
2024 Senior Notes due May 15, 2024400,000  400,000  
2026 Senior Notes due February 1, 2026700,189  700,189  
Unamortized debt issuance costs on Senior Notes(13,842) (14,412) 
Total long-term debt1,556,347  1,555,777  
Less: current portion of long-term debt    
Total long-term debt, net of current portion$1,556,347  $1,555,777  

Credit Facility

In August 2017, the Company entered into an amendment and restatement of its existing credit facility (prior to amendment and restatement, the "Prior Credit Facility"), to provide aggregate commitments of $1.5 billion with a syndicate of banks, which is subject to a borrowing base. The credit facility matures on the earlier of (a) August 16, 2022, (b) April 15, 2021, if (and only if) (i) the Series A Preferred Stock have not been converted into common equity or redeemed prior to April 15, 2021 (the Company can redeem the Series A Preferred Stock at any time), and (ii) prior to April 15, 2021, the maturity date of the Series A Preferred Stock has not been extended to a date that is no earlier than six months after August 16, 2022 or (c) the earlier termination in whole of the commitments under the credit facility. No principal payments are generally required until the credit agreement matures or in the event that the borrowing base falls below the outstanding balance.

As of March 31, 2020, the credit facility had a maximum credit amount of $1.5 billion, subject to a borrowing base and elected commitments of $950.0 million. As of March 31, 2020 and December 31, 2019, the Company had outstanding borrowings of $470.0 million and had standby letters of credit of $49.5 million which reduces the availability of the undrawn borrowing base. At March 31, 2020, the undrawn balance under the credit facility was $480.0 million before letters of credit. The amount available to be borrowed under the Company’s revolving credit facility is subject to a borrowing base that is redetermined semiannually on each May 1 and November 1, and will depend on the volumes of the Company’s proved oil and gas reserves, commodity prices, estimated cash flows from these reserves and other information deemed relevant by the administrative agent under the Company’s revolving credit facility. Additionally, the undrawn balance may be constrained by the Company's quantitative covenants under the credit facility, including the current ratio and ratio of consolidated debt less cash balances to its consolidated EBITDAX, at the next required quarterly compliance date.

On April 27, 2020, the lenders under our revolving credit facility provided notice to the Company that they had completed the redetermination scheduled to occur on May 1, 2020, and via this redetermination, our borrowing base had been reduced from $950.0 million to $650.0 million. As of May 11, 2020, following this redetermination, the Company had outstanding borrowings of $600.5 million and had standby letters of credit of $49.5 million, which reduce the availability of the undrawn borrowing base. As of the date of this filing, the available balance under the credit facility was zero.

Principal amounts borrowed on the credit facility will be payable on the maturity date. We may repay any amounts borrowed prior to the maturity date without any premium or penalty other than customary LIBOR breakage costs. Amounts repaid under the credit facility may be re-borrowed from time to time, subject to the terms of the facility.

Interest on the credit facility is payable at one of the following two variable rates as selected by the Company: a base rate based on the Prime Rate or the Eurodollar rate, based on LIBOR. Either rate is adjusted upward by an applicable margin, based on the utilization percentage of the facility as outlined in the pricing grid below. Additionally, the credit facility provides for a commitment fee of 0.375% to 0.50%, depending on borrowing base usage. The grid below shows the Base Rate Margin and Eurodollar Margin depending on the applicable Borrowing Base Utilization Percentage (as defined in the credit facility) as of the date of this filing:
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Borrowing Base Utilization Grid 
  EurodollarBase RateCommitment
Borrowing Base Utilization PercentageUtilizationMarginMarginFee Rate
Level 1<25%1.50 %0.50 %0.38 %
Level 225%<50%1.75 %0.75 %0.38 %
Level 350%<75%2.00 %1.00 %0.50 %
Level 475%<90%2.25 %1.25 %0.50 %
Level 5≥90%2.50 %1.50 %0.50 %

The credit facility contains representations, warranties, covenants, conditions and defaults customary for transactions of this type, including but not limited to: (i) limitations on liens and incurrence of debt covenants; (ii) limitations on dividends, distributions, redemptions and restricted payments covenants; (iii) limitations on investments, loans and advances covenants; and (iv) limitations on the sale of property, mergers, consolidations and other similar transactions covenants. Additionally, the credit facility limits the Company entering into hedges in excess of 85% of its anticipated production volumes.
 
The credit facility also contains financial covenants requiring the Company to comply on the last day of each quarter with a current ratio of its restricted subsidiaries’ current assets (includes availability under the revolving credit facility and unrestricted cash and excludes derivative assets) to its restricted subsidiaries’ current liabilities (excludes obligations under the revolving credit facility, senior notes and certain derivative liabilities), of not less than 1.0 to 1.0 and to maintain, on the last day of each quarter, a ratio of its restricted subsidiaries’ debt less cash balances to its restricted subsidiaries EBITDAX (EBITDAX is defined as net income adjusted for interest expense, income tax expense/benefit, DD&A, exploration and abandonment expenses as well as certain non-recurring cash and non-cash charges and income (such as stock-based compensation expense, unrealized gains/losses on commodity derivatives and impairment of long-lived assets and goodwill), subject to pro forma adjustments for non-ordinary course acquisitions and divestitures) for the four fiscal quarter periods most recently ended, of not greater than 4.0 to 1.0 as of the last day of such fiscal quarter. As of March 31, 2020, the Company was in compliance with the covenants under the credit agreement.

The Company’s 2020 capital program remains focused on generating free cash flow with an emphasis on strengthening liquidity and the balance sheet as the Company works to pay down debt. However, factors including those outside of the Company’s control may prevent maintaining compliance with such covenants, including commodity price declines and the Company's inability to access capital markets, to access the asset sale market or to execute on its business plan. Additionally, as a result of the reduction of the borrowing base and elected commitments described above, it is probable that the Company will not meet the financial covenants under the revolving credit facility for the three months ended June 30, 2020 under the Company’s current financial forecast. The Company may seek covenant relief from the lenders under the revolving credit facility, and if the Company does not obtain a waiver of its financial covenants for the three months ended June 30, 2020, the lenders under the revolving credit facility will be able to declare all outstanding principal and interest to be due and payable, and the lenders under the credit agreement could terminate their commitments to loan money and could foreclose against the assets collateralizing their borrowings. Any acceleration of the obligations under the revolving credit facility would result in a cross-default and potential acceleration of the maturity of the Company’s other outstanding long-term debt.

Any borrowings under the credit facility are collateralized by substantially all of the assets of the Company and certain of its subsidiaries, including oil and gas properties, personal property and the equity interests of those subsidiaries of the Company. The Company has entered into oil and natural gas hedging transactions with several counterparties that are also lenders under the credit facility. The Company’s obligations under these hedging contracts are secured by the collateral securing the credit facility. Elevation is an unrestricted subsidiary, which is no longer consolidated or controlled by the Company, and the assets and credit of Elevation are not available to satisfy the debts and other obligations of the Company or its other subsidiaries.

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2024 Senior Notes

In August 2017, the Company issued at par $400.0 million principal amount of 7.375% Senior Notes due May 15, 2024 (the "2024 Senior Notes" and the offering, the "2024 Senior Notes Offering"). The 2024 Senior Notes bear an annual interest rate of 7.375%. The interest on the 2024 Senior Notes is payable on May 15 and November 15 of each year which commenced on November 15, 2017. The Company received net proceeds of approximately $392.6 million after deducting fees.

The Company's 2024 Senior Notes are its senior unsecured obligations and rank equally in right of payment with all of its other senior indebtedness and senior to any of its subordinated indebtedness. The Company's 2024 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by certain of the Company's current subsidiaries and by certain future restricted subsidiaries that guarantees its indebtedness under a credit facility (the "2024 Senior Notes Guarantors"). The 2024 Senior Notes are effectively subordinated to all of the Company's secured indebtedness (including all borrowings and other obligations under its revolving credit facility) to the extent of the value of the collateral securing such indebtedness, and structurally subordinated in right of payment to all existing and future indebtedness and other liabilities (including trade payables) of any of its future subsidiaries that do not guarantee the 2024 Senior Notes.

The 2024 Senior Notes also contain affirmative and negative covenants that, among other things, limit the Company's and the 2024 Senior Notes Guarantors' ability to make investments; declare or pay any dividend or make any other payment to holders of the Company’s or any of its 2024 Senior Notes Guarantors’ equity interests; repurchase or redeem any equity interests of the Company; repurchase or redeem subordinated indebtedness; incur additional indebtedness or issue preferred stock; create liens; sell assets; enter into agreements that restrict dividends or other payments by restricted subsidiaries; consolidate, merge or transfer all or substantially all of the assets of the Company; engage in transactions with the Company's affiliates; engage in any business other than the oil and gas business; and create unrestricted subsidiaries. The indenture governing the 2024 Senior Notes also contains customary events of default. Upon the occurrence of events of default arising from certain events of bankruptcy or insolvency, the 2024 Senior Notes shall become due and payable immediately without any declaration or other act of the trustee or the holders of the 2024 Senior Notes. Upon the occurrence of certain other events of default, the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding 2024 Senior Notes may declare all outstanding 2024 Senior Notes to be due and payable immediately.

2026 Senior Notes

In January 2018, the Company issued at par $750.0 million principal amount of 5.625% Senior Notes due February 1, 2026 (the "2026 Senior Notes" and together with the 2024 Senior Notes, the "Senior Notes" and the offering of the 2026 Senior Notes, the "2026 Senior Notes Offering"). The 2026 Senior Notes bear an annual interest rate of 5.625%. The interest on the 2026 Senior Notes is payable on February 1 and August 1 of each year commencing on August 1, 2018. The Company received net proceeds of approximately $737.9 million after deducting fees.

The Company's 2026 Senior Notes are the Company's senior unsecured obligations and rank equally in right of payment with all of the Company's other senior indebtedness and senior to any of the Company's subordinated indebtedness. The Company's 2026 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by certain of the Company's current subsidiaries and by certain future restricted subsidiaries that guarantee the Company's indebtedness under a credit facility (the "2026 Senior Notes Guarantors"). The 2026 Senior Notes are effectively subordinated to all of the Company's secured indebtedness (including all borrowings and other obligations under the Company's revolving credit facility) to the extent of the value of the collateral securing such indebtedness, and structurally subordinated in right of payment to all existing and future indebtedness and other liabilities (including trade payables) of certain of the Company's future restricted subsidiaries that do not guarantee the 2026 Senior Notes.

The 2026 Senior Notes also contain affirmative and negative covenants that, among other things, limit the Company's and the 2026 Senior Notes Guarantors' ability to make investments; declare or pay any dividend or make any other payment to holders of the Company's or any of its 2026 Senior Notes Guarantors' equity interests; repurchase or redeem any equity interests of the Company; repurchase or redeem subordinated indebtedness; incur additional indebtedness or issue preferred stock; create liens; sell assets; enter into agreements that restrict dividends or other
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payments by restricted subsidiaries; consolidate, merge or transfer all or substantially all of the assets of the Company; engage in transactions with the Company’s affiliates; engage in any business other than the oil and gas business; and create unrestricted subsidiaries. The indenture governing the 2026 Senior Notes also contains customary events of default. Upon the occurrence of events of default arising from certain events of bankruptcy or insolvency, the 2026 Senior Notes shall become due and payable immediately without any declaration or other act of the trustee or the holders of the 2026 Senior Notes. Upon the occurrence of certain other events of default, the trustee or the holders of at least