SEC Filing | Extraction Oil & Gas

View:

xog-20200930

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 September 30, 2020


☐			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


			EXTRACTION OIL & GAS, INC.
			(Exact name of registrant as specified in its charter)


Delaware		46-1473923
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
370 17th Street
Suite 5300
Denver,	Colorado	80202
(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: None.

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-Accelerated Filer

☐

Smaller 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 November 6, 2020 was 138,371,578.

Table of Contents

EXTRACTION OIL & GAS, INC.

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets as of September 30 , 20 20 and December 31, 2019	2
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30 , 20 20 and 2019	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity and Noncontrolling Interest for the three and nine months ended September 30 , 20 20 and 2019	5
	Notes to the Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	65
Item 4.	Controls and Procedures	66

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	67
Item 1A.	Risk Factors	67
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3.	Defaults upon Senior Securities	68
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	69
	Signatures	70

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)

(Debtor-In-Possession)

(Unaudited)


	September 30, 2020		December 31, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	121,165	$	32,382
Accounts receivable, net
Trade	53,485		32,009
Oil, natural gas and NGL sales	54,349		105,103
Inventory, prepaid expenses and other	48,951		36,702
Commodity derivative asset	32,625		17,554
Total Current Assets	310,575		223,750
Property and Equipment (successful efforts method), at cost:
Proved oil and gas properties	4,718,471		4,530,934
Unproved oil and gas properties	334,971		524,214
Wells in progress	140,290		149,733
Less: accumulated depletion, depreciation, amortization and impairment charges	(3,218,591)		(2,985,983)
Net oil and gas properties	1,975,141		2,218,898
Gathering systems and facilities, net of accumulated depreciation	—		315,777
Other property and equipment, net of accumulated depreciation	71,379		72,542
Net Property and Equipment	2,046,520		2,607,217
Non-Current Assets:
Commodity derivative asset	—		13,229
Other non-current assets	13,476		82,761
Total Non-Current Assets	13,476		95,990
Total Assets	$	2,370,571	$	2,926,957
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	38,481	$	190,864
Revenue payable	38,544		108,493
Production taxes payable	2,503		115,489
Commodity derivative liability	676		1,998
Accrued interest payable	5,369		20,625
Asset retirement obligations	—		27,058
DIP Credit Facility—Note 6	110,000		—
Credit Facility—Note 6	453,746		—
Total Current Liabilities	649,319		464,527
Non-Current Liabilities:
Credit Facility	—		470,000
Senior Notes, net of unamortized debt issuance costs	—		1,085,777
Production taxes payable	17,116		98,740
Commodity derivative liability	—		108
Other non-current liabilities	—		54,579
Asset retirement obligations	—		68,850

Total Non-Current Liabilities	17,116		1,778,054
Liabilities Subject to Compromise	2,109,446		—
Total Liabilities	2,775,881		2,242,581
Commitments and Contingencies—Note 14
Series A Convertible Preferred Stock, $0.01 par value; 50,000,000 shares authorized, 185,280 issued and outstanding	189,840		175,639
Stockholders' Equity (Deficit):
Common stock, $0.01 par value; 900,000,000 share authorized; 138,370,948 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 capital	2,140,364		2,156,383
Accumulated deficit	(2,566,712)		(1,743,208)
Total Extraction Oil & Gas, Inc. Stockholders' Equity (Deficit)	(595,150)		244,373
Noncontrolling interest	—		264,364
Total Stockholders' Equity (Deficit)	(595,150)		508,737
Total Liabilities and Stockholders' Equity	$	2,370,571	$	2,926,957

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF

THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

EXTRACTION OIL & GAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Debtor-In-Possession)

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues:
Oil sales	$	111,072	$	151,042	$	271,581	$	501,591
Natural gas sales	24,413		16,801		62,734		74,385
NGL sales	22,741		9,099		50,753		44,940
Gathering and compression	—		—		1,473		—
Total Revenues	158,226		176,942		386,541		620,916
Operating Expenses:
Lease operating expense	12,401		22,979		65,775		68,445
Midstream operating expenses	—		—		3,935		—
Transportation and gathering	50,166		6,922		99,258		29,142
Production taxes	1,696		9,711		19,828		46,419
Exploration and abandonment expenses	9,762		13,245		184,903		32,725
Depletion, depreciation, amortization and accretion	85,306		114,996		243,977		352,134
Impairment of long lived assets	—		—		1,736		11,233
Gain on sale of property and equipment	—		(1,011)		—		(1,329)
General and administrative expense	11,605		27,445		47,350		85,835
Other operating expenses	9,766		—		75,549		—
Total Operating Expenses	180,702		194,287		742,311		624,604
Operating Loss	(22,476)		(17,345)		(355,770)		(3,688)
Other Income (Expense):
Commodity derivative gain (loss)	(9,673)		87,956		184,041		39,383
Loss on deconsolidation of Elevation Midstream, LLC	—		—		(73,139)		—
Reorganization items, net	(501,073)		—		(527,992)		—
Interest expense(1)	(7,388)		(23,224)		(49,059)		(54,791)
Other income	3		1,337		615		3,332
Total Other Income (Expense)	(518,131)		66,069		(465,534)		(12,076)
Income (Loss) Before Income Taxes	(540,607)		48,724		(821,304)		(15,764)
Income tax expense	—		(14,800)		(2,200)		(900)
Net Income (Loss)	$	(540,607)	$	33,924	$	(823,504)	$	(16,664)
Net income attributable to noncontrolling interest	—		5,776		6,160		13,849
Net Income (Loss) Attributable to Extraction Oil & Gas, Inc.	(540,607)		28,148		(829,664)		(30,513)
Adjustments to reflect Series A Preferred Stock dividends and accretion of discount	(1,865)		(4,403)		(14,201)		(13,079)
Net Income (Loss) Available to Common Shareholders, Basic and Diluted	$	(542,472)	$	23,745	$	(843,865)	$	(43,592)
Income (Loss) Per Common Share (Note 13)
Basic and diluted	$	(3.92)	$	0.17	$	(6.11)	$	(0.28)
Weighted Average Common Shares Outstanding
Basic and diluted	138,348		137,789		138,080		155,847

(1)Absent the automatic stay described in Note 6—Long-Term Debt, interest expense for the three and nine months ended September 30, 2020 would have been $24.6 million and $69.2 million, respectively.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF

THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

EXTRACTION OIL & GAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Debtor-In-Possession)

(In thousands)

(Unaudited)


	For the Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(823,504)	$	(16,664)
Reconciliation of net loss to net cash provided by operating activities:
Depletion, depreciation, amortization and accretion	243,977		352,134
Abandonment and impairment of unproved properties	179,022		26,166
Impairment of long lived assets	1,736		11,233
Gain on sale of property and equipment	—		(319)
Gain on sale of assets of unconsolidated subsidiary	—		(1,010)
Gain on repurchase of 2026 Senior Notes	—		(10,486)
Amortization of debt issuance costs	3,345		3,799
Non-cash lease expense	10,549		7,739
Non-cash reorganization items, net	13,398		—
Contract asset	12,317		22,175
Commodity derivatives gain	(184,041)		(39,383)
Settlements on commodity derivatives	76,992		(18,527)
Premiums paid on commodity derivatives	—		(2,852)
Earnings in unconsolidated subsidiaries	(480)		(1,217)
Loss on deconsolidation of Elevation Midstream, LLC	73,139		—
Distributions from unconsolidated subsidiaries	—		2,630
Deferred income tax expense	2,200		900
Stock-based compensation	4,462		39,306
Changes in current assets and liabilities:
Accounts receivable—trade	(19,384)		(1,395)
Accounts receivable—oil, natural gas and NGL sales	50,754		16,293
Inventory, prepaid expenses and other	(26,868)		1,078
Accounts payable and accrued liabilities	62,668		(6,469)
Accrued damages for rejected and settled contracts	494,398		—
Revenue payable	(6,986)		(21,723)
Production taxes payable	(16,311)		12,211
Accrued interest payable	16,420		(4,977)
Asset retirement expenditures	(18,750)		(14,081)
Net cash provided by operating activities	149,053		356,561
Cash flows from investing activities:
Oil and gas property additions	(218,382)		(526,187)
Sale of property and equipment	11,147		41,982
Gathering systems and facilities additions, net of cost reimbursements	4,193		(169,180)
Other property and equipment additions	(3,574)		(32,575)
Investment in unconsolidated subsidiaries	(10,033)		(22,487)
Distributions from unconsolidated subsidiary, return of capital	—		569
Sale of assets of unconsolidated subsidiary	—		1,010
Net cash used in investing activities	(216,649)		(706,868)
Cash flows from financing activities:
Borrowings under Credit Facility	200,500		375,000
Repayments under Credit Facility	(70,000)		(110,000)
Borrowings under DIP Credit Facility	35,000		—
Repurchase of 2026 Senior Notes	—		(39,325)
Repurchase of common stock	—		(137,743)
Payment of employee payroll withholding taxes	(120)		(1,164)
Dividends on Series A Preferred Stock	—		(8,164)
Debt issuance costs and other financing fees	(1,273)		(2,055)
Proceeds from issuance of Preferred Units	—		99,000
Preferred Unit issuance costs	—		(2,500)
Net cash provided by financing activities	164,107		173,049
Effect of deconsolidation of Elevation Midstream, LLC	(7,728)		—
Increase (decrease) in cash and cash equivalents	88,783		(177,258)
Cash, cash equivalents at beginning of period	32,382		234,986
Cash, cash equivalents at end of the period	$	121,165	$	57,728
Supplemental cash flow information:
Property and equipment included in accounts payable and accrued liabilities	$	38,898	$	158,178
Cash paid for interest	$	34,188	$	71,878
Cash paid for reorganization items, net	$	10,454	$	—
Accretion of beneficial conversion feature of Series A Preferred Stock	$	5,452	$	4,915
Preferred Units commitment fees and dividends paid-in-kind	$	6,160	$	13,849
Series A Preferred Stock dividends paid-in-kind	$	8,749	$	—
Derivative unwinds decreasing the Credit Facility	$	96,065	$	—
Draw on letter of credit increasing the Credit Facility	$	24,311	$	—

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF

THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

EXTRACTION OIL & GAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY AND NONCONTROLLING INTEREST

(Debtor-In-Possession)

(In thousands)

(Unaudited)


	Common Stock			Treasury Stock			Additional Paid in Capital		Accumulated Deficit		Extraction Oil & Gas, Inc. Stockholders' Equity (Deficit)		Noncontrolling Interest		Total Stockholders' Equity (Deficit)
	Shares	Amount		Shares	Amount								Amount
Balance at January 1, 2020	176,517	$	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 other	234	—		—	—		(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, 2020	176,751	$	1,336	38,859	$	(170,138)	$	2,143,670	$	(1,734,171)	$	240,697	$	—	$	240,697



Stock-based compensation	—	—		—	—		2,560		—		2,560		—		2,560
Series A Preferred Stock dividends	—	—		—	—		(4,001)		—		(4,001)		—		(4,001)
Accretion of beneficial conversion feature on Series A Preferred Stock	—	—		—	—		(1,817)		—		(1,817)		—		(1,817)

Restricted stock issued, net of tax withholdings and other	452	—		—	—		(85)		—		(85)		—		(85)
Net loss	—	—		—	—		—		(291,934)		(291,934)		—		(291,934)
Balance at June 30, 2020	177,203	$	1,336	38,859	$	(170,138)	$	2,140,327	$	(2,026,105)	$	(54,580)	$	—	$	(54,580)



Stock-based compensation	—	—		—	—		1,902		—		1,902		—		1,902

Accretion of beneficial conversion feature on Series A Preferred Stock	—	—		—	—		(1,865)		—		(1,865)		—		(1,865)

Restricted stock issued, net of tax withholdings and other	27	—		—	—		—		—		—		—		—
Net loss	—	—		—	—		—		(540,607)		(540,607)		—		(540,607)
Balance at September 30, 2020	177,230	$	1,336	38,859	$	(170,138)	$	2,140,364	$	(2,566,712)	$	(595,150)	$	—	$	(595,150)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF

THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents


	Common Stock			Treasury Stock			Additional Paid in Capital		Accumulated Deficit		Extraction Oil & Gas, Inc. Stockholders' Equity		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount		Shares	Amount								Amount
Balance at January 1, 2019	176,210	$	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 withholdings	270	—		—	—		(454)		—		(454)		—		(454)
Net loss	—	—		—	—		—		(94,032)		(94,032)		—		(94,032)
Balance at March 31, 2019	176,480	$	1,601	12,367	$	(64,872)	$	2,157,923	$	(469,820)	$	1,624,832	$	151,837	$	1,776,669
Preferred Units issuance costs and discount	—	—		—	—		—		—		—		10		10
Preferred Units commitment fees & dividends paid-in-kind	—	—		—	—		(4,098)		—		(4,098)		4,098		—
Stock-based compensation	—	—		—	—		14,957		—		14,957		—		14,957
Series A Preferred Stock dividends	—	—		—	—		(2,722)		—		(2,722)		—		(2,722)
Accretion of beneficial conversion feature on Series A Preferred Stock	—	—		—	—		(1,637)		—		(1,637)		—		(1,637)
Repurchase of common stock	—	(217)		21,685	(84,067)		—		—		(84,284)		—		(84,284)
Restricted stock issued, net of tax withholdings	108	—		—	—		(128)		—		(128)		—		(128)
Net income	—	—		—	—		—		43,444		43,444		—		43,444
Balance at June 30, 2019	176,588	$	1,384	34,052	$	(148,939)	$	2,164,295	$	(426,376)	$	1,590,364	$	155,945	$	1,746,309
Preferred Units issued	—	—		—	—		—		—		—		99,000		99,000
Preferred Units issuance costs	—	—		—	—		—		—		—		(2,500)		(2,500)
Preferred Units commitment fees & dividends paid-in-kind	—	—		—	—		(5,776)		—		(5,776)		5,776		—
Stock-based compensation	—	—		—	—		11,387		—		11,387		—		11,387
Series A Preferred Stock dividends	—	—		—	—		(2,721)		—		(2,721)		—		(2,721)
Accretion of beneficial conversion feature on Series A Preferred Stock	—	—		—	—		(1,682)		—		(1,682)		—		(1,682)
Repurchase of common stock	—	(48)		4,807	(21,199)		—		—		(21,247)		—		(21,247)
Restricted stock issued, net of tax withholdings	344	—		—	—		(582)		—		(582)		—		(582)
Net income	—	—		—	—		—		33,924		33,924		—		33,924
Balance at September 30, 2019	176,932	$	1,336	38,859	$	(170,138)	$	2,164,921	$	(392,452)	$	1,603,667	$	258,221	$	1,861,888

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF

THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

EXTRACTION OIL & GAS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(DEBTOR-IN-POSSESSION)

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 crude oil, natural gas and water production. As described in the section titled Voluntary Reorganization under Chapter 11 of the Bankruptcy Code below, during the second quarter of 2020, the Company filed for bankruptcy and, as a result, was delisted from the NASDAQ Global Select Market on June 25, 2020 and began trading on the Pink Open Market under the symbol "XOGAQ."

Voluntary Reorganization under Chapter 11 of the Bankruptcy Code

As previously disclosed, on June 14, 2020 (the “Petition Date”), Extraction and its wholly owned subsidiaries (collectively, the “Debtors”), filed voluntary petitions for relief under chapter 11 ("Chapter 11") of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Debtor's Chapter 11 cases (the “Chapter 11 Cases”) are being jointly administered under the caption In re Extraction Oil & Gas., et al. Case No. 20-11548 (CSS).

The Debtors continue to operate their businesses and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Debtors continue to operate as an ongoing business in accordance with the previously approved Bankruptcy Court orders.

The commencement of a voluntary proceeding in bankruptcy constituted an immediate event of default under the Credit Agreement (as defined in Note 6—Long-Term Debt) and the indentures governing the Company’s Senior Notes (as defined below), resulting in the automatic and immediate acceleration of all of the Company’s debt outstanding under the Credit Agreement and Senior Notes. Accordingly, the Company has classified its outstanding Senior Notes debt as liabilities subject to compromise on its condensed consolidated balance sheet as of September 30, 2020. The Credit Facility (as defined in Note 6—Long-Term Debt) was not classified as liabilities subject to compromise because it is fully secured and is expected to be unimpaired. Please refer to Note 4—Liabilities Subject to Compromise for more information. Pursuant to the Bankruptcy Code and as described in Note 6—Long-Term Debt, the filing of the Chapter 11 Cases automatically stayed most actions against the Debtors, including most actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Debtors’ property.

Restructuring Support Agreement

As previously disclosed, on June 14, 2020, the Company entered into a Restructuring Support Agreement (the “RSA”) with (i) significant holders of its 7.375% senior unsecured notes due 2024 (the “2024 Senior Notes”) issued pursuant to that certain indenture, dated as of August 1, 2017, by and among Extraction, as issuer, certain guarantors party thereto and Wilmington Savings Fund Society, FSB, as trustee (such trustee, “WSFS” and such indenture, the “2024 Senior Notes Indenture”) and (ii) significant holders (such holders, together with the foregoing significant holders under the 2024 Senior Notes, the “Consenting Stakeholders”) of its 5.625% senior unsecured notes due 2026 (the “2026 Senior Notes” and, together with the 2024 Senior Notes, the “Senior Notes”) issued pursuant to that certain indenture, dated as of January 25, 2018, by and among Extraction, the subsidiary guarantors party thereto and WSFS, as trustee (the “2026 Senior Notes Indenture” and, together with the 2024 Senior Notes Indenture, the “Senior Notes Indentures”). The RSA contemplates a financial restructuring of the existing indebtedness of, and equity interests in, the Company to be effectuated through a joint Chapter 11 plan of reorganization (as amended or modified, the “Restructuring Plan”).

Restructuring Plan, Disclosure Statement, and Backstop Commitment Agreement

On July 30, 2020, the Debtors filed a proposed Restructuring Plan and related Disclosure Statement describing the Restructuring Plan and the solicitation of votes to approve the same from certain of the Debtors’ creditors with respect to the Chapter 11 Cases (as amended or modified, the “Disclosure Statement”). Subsequently on October 22,

Table of Contents

2020 and November 5, 2020, the Debtors filed first and second amendments, respectively, to the Disclosure Statement. The hearing to consider approval of the Disclosure Statement was held on November 6, 2020. On November 6, 2020, the Bankruptcy Court approved the adequacy of the Disclosure Statement and the Debtors commenced solicitation process to receive votes on the Restructuring Plan. Pursuant to the terms of the Restructuring Plan and as described in the Disclosure Statement, the Debtors will also commence a rights offering, which has been backstopped by certain holders of the Senior Notes. On November 6, 2020, the Bankruptcy Court approved the Backstop Commitment Agreement, which provides a commitment of $200 million. The hearing on the confirmation of the Restructuring Plan has been scheduled to be held on or before December 21, 2020.

The Restructuring Plan contemplates, among other things, the following:

•holders of claims under the Amended and Restated Credit Agreement, dated as of August 16, 2017, by and among Extraction, the subsidiary guarantors party thereto, the lenders from time to time thereto, and Wells Fargo Bank, National Association, as administrative agent (as may be amended, restated, supplemented, or otherwise modified from time to time, the “Credit Agreement”), except to the extent that a Holder of an Allowed Revolving Credit Agreement Claim and the Debtors against which such Allowed Revolving Credit Agreement Claim is asserted agree to a less favorable treatment for such Holder, in full and final satisfaction, settlement, release, and discharge of and in exchange for each Allowed Revolving Credit Agreement Claim, each Holder of such Allowed Revolving Credit Agreement Claim shall receive, either:

◦(i) if such Holder elects to participate in the Exit RBL Facility on a pro rata basis, determined on a ratable basis with respect to its percentage of the Obligations (as defined in the Revolving Credit Agreement) under the Revolving Credit Agreement, such Holder of an Allowed Revolving Credit Agreement Claim shall become an Exit RBL Facility Lender in accordance with the terms of the Exit RBL Facility Documents; or

◦(ii) if such Holder does not elect to participate in the Exit RBL Facility as provided above (including by not making any election with respect to the Exit RBL Facility on the ballot), its Pro Rata Share of the Exit Term Loans.

•holders of claims under the Senior Notes Indentures (“Senior Notes Claims”) shall receive, in full and final satisfaction, compromise, settlement, release, and discharge of, and in exchange for such Allowed Senior Notes Claim, its Pro Rata share of (A) the Claims Equity Allocation and (B) the Senior Noteholder Subscription Rights;

•holders of trade claims shall receive, in full and final satisfaction, compromise, settlement, release, and discharge of, and in exchange for such Allowed Trade Claim, payment in full of such Allowed Trade Claim on the Effective Date or otherwise in the ordinary course of the Debtors’ business;

•holders of claims arising from non-funded debt general unsecured obligations shall receive, in full and final satisfaction, compromise, settlement, release, and discharge of, and in exchange for such Allowed General Unsecured Claim, its Pro Rata share of the Claims Equity Allocation;

•each Existing Preferred Interest in the Company shall be canceled, released, and extinguished, and will be of no further force or effect, and each Holder of an Allowed Existing Preferred Interest shall receive, in full and final satisfaction, compromise, settlement, release, and discharge of, and in exchange for such Existing Preferred Interest, its Pro Rata share of (A) 50% of the Existing Interests Equity Allocation, (B) the Existing Preferred Interest Subscription Rights, (C) 50% of the Tranche A Warrants, and (D) 50% of the Tranche B Warrants;

•each Existing Common Interest in the Company shall be canceled, released, and extinguished, and will be of no further force or effect, and each Holder of an Allowed Existing Common Interest shall receive, in full and final satisfaction, compromise, settlement, release, and discharge of, and in exchange for such Existing Common Interest its Pro Rata share of (A) 50% of the Existing Interests Equity Allocation, (B) the Existing Common Interest Subscription Rights, (C) 50% of the Tranche A Warrants, and (D) 50% of the Tranche B Warrants;

•holders of claims arising from the DIP Credit Facility (as defined in Note 6—Long-Term Debt) receiving cash or such other consideration as the DIP Lenders (as defined in Note 6—Long-Term Debt) agree in their sole discretion;

•cash payment in full of all administrative expense claims, priority tax claims, other priority claims, and other secured claims or other such treatment rendering such claims unimpaired, including reinstatement pursuant to section 1124 of the Bankruptcy Code or delivery of the collateral securing any such secured claim and payment of any interest required under section 506(b) of the Bankruptcy Code; and

Table of Contents

•the Restructuring Plan will provide for the establishment of a post-emergence management incentive plan to be adopted by the New Board (the “Management Incentive Plan”), which may include (a) restricted stock units, options, New Common Shares, or other rights exercisable, exchangeable, or convertible into New Common Shares representing up to 10% of the New Common Shares on a fully diluted and fully distributed basis (the “MIP Equity”) and (b) other terms and conditions customary for similar type equity plans.

Information contained in the Restructuring Plan and the Disclosure Statement is subject to change, whether as a result of amendments or supplements to the Restructuring Plan or Disclosure Statement, third-party actions, or otherwise, and should not be relied upon by any party. There is no guarantee the Restructuring Plan can be i