UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 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: 001-37670
Lonestar Resources US Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware81-0874035
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
111 Boland Street, Suite 301, Fort Worth, TX76107
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (817) 921-1889
Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each ClassTrading SymbolSymbol*Name of Exchange on Which Registered
Class A Voting Common Stock,
par value $0.001 per share		LONELONEQNASDAQ Global Select Market
*The registrant's Class A Voting Common Stock began trading on the Pink Open Market on October 12, 2020 under the symbol "LONEQ."

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 ý    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ý    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 filerýSmaller 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  ý
As of August 12,November 18, 2020, the registrant had 25,375,314 shares of Class A voting common stock, par value $0.001 per share, outstanding.
i

Table of Contents
Page
PART I.
Item 1.
1
1
2
3
4
5
Item 2.
1922
Item 3.
3941
Item 4.
4042
PART II.
4143
Item 1.
4143
Item 1A.
4143
Item 2.
4347
Item 3.
4347
Item 5.
4347
Item 6.
4449
4550

ii


PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Lonestar Resources US Inc. (Debtor-In-Possession)
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except par value and share data)information)
June 30, 2020December 31, 2019September 30, 2020December 31, 2019
AssetsAssetsAssets
Current assetsCurrent assetsCurrent assets
Cash and cash equivalentsCash and cash equivalents$1,259  $3,137  Cash and cash equivalents$36,611 $3,137 
Accounts receivableAccounts receivableAccounts receivable
Oil, natural gas liquid and natural gas salesOil, natural gas liquid and natural gas sales11,681  15,991  Oil, natural gas liquid and natural gas sales14,304 15,991 
Joint interest owners and others, netJoint interest owners and others, net821  1,310  Joint interest owners and others, net1,594 1,310 
Derivative financial instrumentsDerivative financial instruments45,502  5,095  Derivative financial instruments0 5,095 
Prepaid expenses and otherPrepaid expenses and other7,150  2,208  Prepaid expenses and other9,936 2,208 
Total current assetsTotal current assets66,413  27,741  Total current assets62,445 27,741 
Property and equipmentProperty and equipmentProperty and equipment
Oil and gas properties, using the successful efforts method of accountingOil and gas properties, using the successful efforts method of accountingOil and gas properties, using the successful efforts method of accounting
Proved propertiesProved properties1,102,958  1,050,168  Proved properties1,099,521 1,050,168 
Unproved propertiesUnproved properties77,597  76,462  Unproved properties77,367 76,462 
Other property and equipmentOther property and equipment21,537  21,401  Other property and equipment21,914 21,401 
Less accumulated depreciation, depletion, amortization and impairmentLess accumulated depreciation, depletion, amortization and impairment(705,182) (464,671) Less accumulated depreciation, depletion, amortization and impairment(723,351)(464,671)
Property and equipment, netProperty and equipment, net496,910  683,360  Property and equipment, net475,451 683,360 
Accounts receivable – related partyAccounts receivable – related party5,978  5,816  Accounts receivable – related party6,023 5,816 
Derivative financial instrumentsDerivative financial instruments12,447  1,754  Derivative financial instruments0 1,754 
Other non-current assetsOther non-current assets2,232  2,108  Other non-current assets2,052 2,108 
Total assetsTotal assets$583,980  $720,779  Total assets$545,971 $720,779 
Liabilities and Stockholders' (Deficit) EquityLiabilities and Stockholders' (Deficit) EquityLiabilities and Stockholders' (Deficit) Equity
Current liabilitiesCurrent liabilitiesCurrent liabilities
Accounts payableAccounts payable$12,896  $33,355  Accounts payable$10 $33,355 
Accounts payable – related partyAccounts payable – related party269  189  Accounts payable – related party0 189 
Oil, natural gas liquid and natural gas sales payableOil, natural gas liquid and natural gas sales payable10,061  14,811  Oil, natural gas liquid and natural gas sales payable0 14,811 
Accrued liabilitiesAccrued liabilities34,098  26,905  Accrued liabilities429 26,905 
Derivative financial instrumentsDerivative financial instruments2,537  8,564  Derivative financial instruments0 8,564 
Current maturities of long-term debtCurrent maturities of long-term debt531,583  247,000  Current maturities of long-term debt285,000 247,000 
Total current liabilitiesTotal current liabilities591,444  330,824  Total current liabilities285,439 330,824 
Long-term liabilitiesLong-term liabilitiesLong-term liabilities
Long-term debtLong-term debt11,250  255,068  Long-term debt8,781 255,068 
Asset retirement obligationsAsset retirement obligations7,251  7,055  Asset retirement obligations7,583 7,055 
Deferred tax liabilities, netDeferred tax liabilities, net—  931  Deferred tax liabilities, net0 931 
Warrant liabilityWarrant liability—  129  Warrant liability0 129 
Warrant liability – related partyWarrant liability – related party1  235  Warrant liability – related party0 235 
Derivative financial instrumentsDerivative financial instruments2,993  1,898  Derivative financial instruments0 1,898 
Other non-current liabilitiesOther non-current liabilities1,270  3,752  Other non-current liabilities0 3,752 
Total long-term liabilitiesTotal long-term liabilities22,765  269,068  Total long-term liabilities16,364 269,068 
Liabilities subject to compromiseLiabilities subject to compromise309,193 0 
Total liabilitiesTotal liabilities610,996 599,892 
Commitments and contingencies (Note 11)Commitments and contingencies (Note 11)Commitments and contingencies (Note 11)
Stockholders' (deficit) equityStockholders' (deficit) equityStockholders' (deficit) equity
Class A voting common stock, $0.001 par value, 100,000,000 shares authorized, 25,369,191 and 24,945,594 shares issued and outstanding, respectively142,655  142,655  
Class A voting common stock, $0.001 par value, 100,000,000 shares authorized, 25,375,314 and 24,945,594 shares issued and outstanding, respectivelyClass A voting common stock, $0.001 par value, 100,000,000 shares authorized, 25,375,314 and 24,945,594 shares issued and outstanding, respectively142,655 142,655 
Series A-1 convertible participating preferred stock, $0.001 par value, 104,893 and 100,328 shares issued and outstanding, respectivelySeries A-1 convertible participating preferred stock, $0.001 par value, 104,893 and 100,328 shares issued and outstanding, respectively—  —  Series A-1 convertible participating preferred stock, $0.001 par value, 104,893 and 100,328 shares issued and outstanding, respectively0 0 
Additional paid-in capitalAdditional paid-in capital176,006  175,738  Additional paid-in capital176,012 175,738 
Accumulated deficitAccumulated deficit(348,890) (197,506) Accumulated deficit(383,692)(197,506)
Total stockholders' (deficit) equityTotal stockholders' (deficit) equity(30,229) 120,887  Total stockholders' (deficit) equity(65,025)120,887 
Total liabilities and stockholders' (deficit) equityTotal liabilities and stockholders' (deficit) equity$583,980  $720,779  Total liabilities and stockholders' (deficit) equity$545,971 $720,779 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
1

Lonestar Resources US Inc. (Debtor-In-Possession)
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended September 30,Nine Months Ended September 30,
20202019202020192020201920202019
RevenuesRevenuesRevenues
Oil salesOil sales$11,976  $44,726  $41,986  $78,310  Oil sales$24,524 $42,187 $66,510 $120,496 
Natural gas liquid salesNatural gas liquid sales1,762  3,549  4,362  6,942  Natural gas liquid sales3,202 3,439 7,565 10,381 
Natural gas salesNatural gas sales3,482  3,940  7,902  7,704  Natural gas sales4,383 7,519 12,285 15,224 
Total revenuesTotal revenues17,220  52,215  54,250  92,956  Total revenues32,109 53,145 86,360 146,101 
ExpensesExpensesExpenses
Lease operating and gas gathering4,903  8,929  14,692  16,638  
Lease operatingLease operating4,763 8,948 16,430 23,472 
Gas gathering, processing and transportationGas gathering, processing and transportation1,891 1,107 4,916 3,223 
Production and ad valorem taxesProduction and ad valorem taxes1,721  2,818  4,091  5,109  Production and ad valorem taxes1,994 3,017 6,084 8,126 
Depreciation, depletion and amortizationDepreciation, depletion and amortization16,575  21,515  40,929  39,486  Depreciation, depletion and amortization18,256 24,635 59,184 64,120 
Loss on sale and disposal of oil and gas propertiesLoss on sale and disposal of oil and gas properties1,254  155  1,254  33,046  Loss on sale and disposal of oil and gas properties0 483 1,254 33,530 
Impairment of oil and gas propertiesImpairment of oil and gas properties—  —  199,908  —  Impairment of oil and gas properties0 0 199,908 0 
General and administrativeGeneral and administrative5,981  3,841  8,856  8,221  General and administrative15,808 4,124 24,664 12,345 
Other expense (income)Other expense (income)58  —  (139) (2) Other expense (income)121 (2)(15)(4)
Total expensesTotal expenses30,492  37,258  269,591  102,498  Total expenses42,833 42,312 312,425 144,812 
(Loss) income from operations(Loss) income from operations(13,272) 14,957  (215,341) (9,542) (Loss) income from operations(10,724)10,833 (226,065)1,289 
Other (expense) incomeOther (expense) incomeOther (expense) income
Interest expenseInterest expense(10,512) (10,778) (22,122) (21,434) Interest expense(11,399)(11,295)(33,521)(32,730)
Change in fair value of warrantsChange in fair value of warrants—  796  363  694  Change in fair value of warrants0 (100)363 594 
(Loss) gain on derivative financial instruments(Loss) gain on derivative financial instruments(21,141) 9,514  80,029  (26,724) (Loss) gain on derivative financial instruments(9,656)21,546 70,373 (5,177)
Reorganization items, netReorganization items, net(3,072)0 (3,072)0 
Total other (expense) incomeTotal other (expense) income(31,653) (468) 58,270  (47,464) Total other (expense) income(24,127)10,151 34,143 (37,313)
Loss (income) before income taxes(44,925) 14,489  (157,071) (57,006) 
(Loss) income before income taxes(Loss) income before income taxes(34,851)20,984 (191,922)(36,024)
Income tax benefit (expense)Income tax benefit (expense)4,332  (1,200) 5,687  11,732  Income tax benefit (expense)49 (4,767)5,736 6,966 
Net (loss) incomeNet (loss) income(40,593) 13,289  (151,384) (45,274) Net (loss) income(34,802)16,217 (186,186)(29,058)
Preferred stock dividendsPreferred stock dividends(2,308) (2,112) (4,566) (4,177) Preferred stock dividends0 (2,159)(4,566)(6,336)
Undeclared cumulative preferred stock dividendsUndeclared cumulative preferred stock dividends(3,671)0 (3,671)0 
Net (loss) income attributable to common stockholdersNet (loss) income attributable to common stockholders$(42,901) $11,177  $(155,950) $(49,451) Net (loss) income attributable to common stockholders$(38,473)$14,058 $(194,423)$(35,394)
Net (loss) income per common shareNet (loss) income per common shareNet (loss) income per common share
BasicBasic$(1.70) $0.28  $(6.20) $(1.99) Basic$(1.52)$0.34 $(7.70)$(1.42)
DilutedDiluted$(1.70) $0.28  $(6.20) $(1.99) Diluted$(1.52)$0.33 $(7.70)$(1.42)
Weighted average common shares outstandingWeighted average common shares outstandingWeighted average common shares outstanding
BasicBasic25,307,714  24,924,169  25,154,151  24,811,895  Basic25,361,361 24,933,853 25,238,972 24,852,994 
DilutedDiluted25,307,714  24,924,169  25,154,151  24,811,895  Diluted25,361,361 25,331,810 25,238,972 24,852,994 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
2

Lonestar Resources US Inc. (Debtor-In-Possession)
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity
(In thousands, except share data)
Class A Voting
Common Stock		Series A-1
Preferred Stock		Additional
Paid-in
Capital		Accumulated
Deficit		Total
Stockholders'
(Deficit) Equity		Class A Voting
Common Stock		Series A-1
Preferred Stock		Additional
Paid-in
Capital		Accumulated
Deficit		Total
Stockholders'
(Deficit) Equity
SharesAmountSharesAmountTotal
Stockholders'
(Deficit) Equity		SharesAmountSharesAmountAdditional
Paid-in
Capital		Accumulated
Deficit		Total
Stockholders'
(Deficit) Equity
Balance at December 31, 2019Balance at December 31, 201924,945,594  $142,655  100,328  $—  $175,738  $(197,506) $120,887  Balance at December 31, 201924,945,594 142,655 100,328 $— $175,738 $(197,506)$120,887 
Payment-in-kind dividends—  —  2,257  —  —  —  —  
Preferred stock dividendsPreferred stock dividends— — 2,257 — — — — 
Stock-based compensationStock-based compensation308,435  —  —  —  240  —  240  Stock-based compensation308,435 — — — 240 — 240 
Net lossNet loss—  —  —  —  —  (110,791) (110,791) Net loss— — — — — (110,791)(110,791)
Balance at March 31, 2020Balance at March 31, 202025,254,029  142,655  102,585  —  175,978  (308,297) 10,336  Balance at March 31, 202025,254,029 142,655 102,585 — 175,978 (308,297)10,336 
Payment-in-kind dividends—  —  2,308  —  —  —  —  
Preferred stock dividendsPreferred stock dividends— — 2,308 — — — — 
Stock-based compensationStock-based compensation58,182  —  —  —  28  —  28  Stock-based compensation58,182 — — — 28 — 28 
Net lossNet loss—  —  —  —  —  (40,593) (40,593) Net loss— — — — — (40,593)(40,593)
Balance at June 30, 2020Balance at June 30, 202025,312,211  $142,655  104,893  $—  $176,006  $(348,890) $(30,229) Balance at June 30, 202025,312,211 142,655 104,893 — 176,006 (348,890)(30,229)
Stock-based compensationStock-based compensation— — — — 6 — $6 
Net lossNet loss— — — — — (34,802)$(34,802)
Balance at September 30, 2020Balance at September 30, 202025,312,211 $142,655 104,893 $— $176,012 $(383,692)$(65,025)
Class A Voting
Common Stock		Series A-1
Preferred Stock		Additional
Paid-in
Capital		Accumulated
Deficit		Total
Stockholders'
Equity		Class A Voting
Common Stock		Series A-1
Preferred Stock		Additional
Paid-in
Capital		Accumulated
Deficit		Total
Stockholders'
Equity
SharesAmountSharesAmountTotal
Stockholders'
Equity		SharesAmountSharesAmountAdditional
Paid-in
Capital		Accumulated
Deficit		Total
Stockholders'
Equity
Balance at December 31, 2018Balance at December 31, 201824,645,825  $142,655  91,784  $—  $174,379  $(94,487) $222,547  Balance at December 31, 201824,645,825 142,655 91,784 $— $174,379 $(94,487)$222,547 
Payment-in-kind dividends—  —  2,065  —  —  —  —  
Preferred stock dividendsPreferred stock dividends— — 2,065 — — — — 
Stock-based compensationStock-based compensation127,818  —  —  —  627  —  627  Stock-based compensation127,818 — — — 627 — 627 
Net lossNet loss—  —  —  —  —  (58,564) (58,564) Net loss— — — — — (58,564)(58,564)
Balance at March 31, 2019Balance at March 31, 201924,773,643  142,655  93,849  —  175,006  (153,051) 164,610  Balance at March 31, 201924,773,643 142,655 93,849 — 175,006 (153,051)164,610 
Payment-in-kind dividends—  —  2,112  —  —  —  —  
Preferred stock dividendsPreferred stock dividends— — 2,112 — — — — 
Stock-based compensationStock-based compensation160,210  —  —  —  703  —  703  Stock-based compensation160,210 — — — 703 — 703 
Net incomeNet income—  —  —  —  —  13,289  13,289  Net income— — — — — 13,289 13,289 
Balance at June 30, 2019Balance at June 30, 201924,933,853  $142,655  95,961  $—  $175,709  $(139,762) $178,602  Balance at June 30, 201924,933,853 142,655 95,961 $— 175,709 (139,762)178,602 
Preferred stock dividendsPreferred stock dividends— — 2,159 — — — — 
Net incomeNet income— — — — — 16,217 16,217 
Balance at September 30, 2019Balance at September 30, 201924,933,853 $142,655 98,120 $— $175,709 $(123,545)$194,819 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3

Lonestar Resources US Inc. (Debtor-In-Possession)
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended June 30,Nine Months Ended September 30,
2020201920202019
Cash flows from operating activitiesCash flows from operating activitiesCash flows from operating activities
Net lossNet loss$(151,384) $(45,274) Net loss$(186,186)$(29,058)
Adjustments to reconcile net loss to net cash provided by operating activities:Adjustments to reconcile net loss to net cash provided by operating activities:Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortizationDepreciation, depletion and amortization40,929  39,486  Depreciation, depletion and amortization59,184 64,120 
Stock-based compensationStock-based compensation(1,998) 352  Stock-based compensation(2,001)1,294 
Deferred taxesDeferred taxes(931) (11,688) Deferred taxes(931)(6,983)
(Gain) loss on derivative financial instruments(Gain) loss on derivative financial instruments(80,029) 26,724  (Gain) loss on derivative financial instruments(70,373)5,177 
Settlements of derivative financial instrumentsSettlements of derivative financial instruments23,998  (3,579) Settlements of derivative financial instruments66,761 (3,858)
Non-cash reorganization itemsNon-cash reorganization items3,072 0 
Impairment of oil and natural gas propertiesImpairment of oil and natural gas properties199,908  —  Impairment of oil and natural gas properties199,908 0 
Loss (gain) on disposal of property and equipmentLoss (gain) on disposal of property and equipment83  (17) Loss (gain) on disposal of property and equipment83 (17)
Loss on sale of oil and gas propertiesLoss on sale of oil and gas properties1,254  33,046  Loss on sale of oil and gas properties1,254 33,530 
Non-cash interest expenseNon-cash interest expense1,374  1,182  Non-cash interest expense2,002 1,822 
Change in fair value of warrantsChange in fair value of warrants(363) (694) Change in fair value of warrants(363)(594)
Changes in operating assets and liabilities:Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivableAccounts receivable(189) (3,379) Accounts receivable(5,413)(8,330)
Prepaid expenses and other assetsPrepaid expenses and other assets(897) (692) Prepaid expenses and other assets(2,004)(1,102)
Accounts payable and accrued expensesAccounts payable and accrued expenses(1,344) 2,720  Accounts payable and accrued expenses17,738 (3,128)
Net cash provided by operating activitiesNet cash provided by operating activities30,411  38,187  Net cash provided by operating activities82,731 52,873 
Cash flows from investing activitiesCash flows from investing activitiesCash flows from investing activities
Acquisition of oil and gas propertiesAcquisition of oil and gas properties(1,714) (3,025) Acquisition of oil and gas properties(2,186)(5,239)
Development of oil and gas propertiesDevelopment of oil and gas properties(72,824) (67,696) Development of oil and gas properties(97,973)(119,273)
Proceeds from sale of oil and gas propertiesProceeds from sale of oil and gas properties2,837  11,953  Proceeds from sale of oil and gas properties11,913 11,470 
Purchases of other property and equipmentPurchases of other property and equipment(636) (3,267) Purchases of other property and equipment(1,014)(3,527)
Net cash used in investing activitiesNet cash used in investing activities(72,337) (62,035) Net cash used in investing activities(89,260)(116,569)
Cash flows from financing activitiesCash flows from financing activitiesCash flows from financing activities
Proceeds from borrowingsProceeds from borrowings48,157  54,000  Proceeds from borrowings48,157 114,000 
Payments on borrowingsPayments on borrowings(8,109) (32,167) Payments on borrowings(8,154)(52,218)
Net cash provided by financing activitiesNet cash provided by financing activities40,048  21,833  Net cash provided by financing activities40,003 61,782 
Net decrease in cash and cash equivalents(1,878) (2,015) 
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents33,474 (1,914)
Cash and cash equivalents, beginning of the periodCash and cash equivalents, beginning of the period3,137  5,355  Cash and cash equivalents, beginning of the period3,137 5,355 
Cash and cash equivalents, end of the periodCash and cash equivalents, end of the period$1,259  $3,340  Cash and cash equivalents, end of the period$36,611 $3,441 
Supplemental information:Supplemental information:Supplemental information:
Cash paid for interestCash paid for interest$21,036  $19,770  Cash paid for interest$23,831 $28,125 
Non-cash investing and financing activities:Non-cash investing and financing activities:Non-cash investing and financing activities:
Undeclared cumulative dividends on preferred stockUndeclared cumulative dividends on preferred stock$3,671 $0 
Change in asset retirement obligationChange in asset retirement obligation$24  $(455) Change in asset retirement obligation272 (292)
Change in liabilities for capital expendituresChange in liabilities for capital expenditures(16,809) 28,384  Change in liabilities for capital expenditures(37,269)9,098 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4

Lonestar Resources US Inc. (Debtor-In-Possession)
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
Organization and Nature of Operations
Lonestar Resources US Inc. (“Lonestar” or the "Company"“Company”) is a Delaware corporation whose common stock is listed and traded on the Nasdaq Global Select Market under the symbol “LONE”. Lonestar is an independent oil and natural gas company focused on the exploration, development and production of unconventional oil, natural gas liquids and natural gas in the Eagle Ford Shale play in South Texas.
Voluntary Reorganization under Chapter 11 of the Bankruptcy Code
On September 30, 2020 (the “Petition Date”), Lonestar Resources US Inc., along with certain of its wholly-owned subsidiaries Lonestar Resources Intermediate Inc., LNR America Inc., Lonestar Resources America Inc., Amadeus Petroleum Inc., Albany Services, L.L.C., T-N-T Engineering, Inc., Lonestar Resources Inc., Lonestar Operating, LLC, Poplar Energy, LLC, Eagleford Gas, LLC, Eagleford Gas 2, LLC, Eagleford Gas 3, LLC, Eagleford Gas 4, LLC, Eagleford Gas 5, LLC, Eagleford Gas 6, LLC, Eagleford Gas 7, LLC, Eagleford Gas 8, LLC, Eagleford Gas 10, LLC, Eagleford Gas 11, LLC, Lonestar BR Disposal LLC, and La Salle Eagle Ford Gathering Line LLC (collectively, the “Debtors”) commenced voluntary cases (the “Chapter 11 Cases”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Chapter 11 Cases are being administered jointly under the caption In re Lonestar Resources US Inc., et al. Case No. 20-34805 (DRJ). Wholly-owned subsidiary, Boland Building, LLC, is not a Debtor and is not included in the Chapter 11 Cases.
On September 30, 2020, the Debtors also filed with the Bankruptcy Court a prepackaged Chapter 11 Plan of Reorganization (the "Restructuring Plan") and an accompanying disclosure statement describing the Restructuring Plan and the process of soliciting votes to accept or reject the Restructuring Plan from certain of the Debtor's creditors and equity holders. The Restructuring Plan was confirmed by the Bankruptcy Court on November 12, 2020.
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. In general, as debtors-in-possession under the Bankruptcy Code, the Debtors are authorized to continue to operate as an ongoing business; however, they may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. To that end, to ensure the Company’s ability to continue operating in the ordinary course of business during the pendency of the Chapter 11 Cases and minimize the effect of the Chapter 11 Cases on the Company’s customers and employees, the Company filed with the Bankruptcy Court, and the Bankruptcy Court approved, motions (the “First Day Motions”) on October 1, 2020 seeking a variety of relief. Pursuant to the First Day Motions, the Bankruptcy Court authorized the Company to conduct its business in the ordinary course, including to, among other things, pay employee wages and benefits, continue to operate the cash management system and honor certain pre-petition obligations related thereto, pay certain vendors and suppliers for goods and services provided both before and after the Petition Date, and other customary operational relief.
The Company has applied FASB ASC Topic 852 Reorganizations (“ASC 852”) in preparing the unaudited condensed consolidated financial statements, which specifies the accounting and financial reporting requirements for entities reorganizing through chapter 11 bankruptcy proceedings. These requirements include distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business. Accordingly, pre-petition liabilities that may be impacted by the chapter 11 proceedings have been classified as liabilities subject to compromise on the condensed consolidated balance sheet as of September 30, 2020. Additionally, certain expenses, realized gains and losses and provisions for losses that are realized or incurred during the Chapter 11 Cases, including adjustments to the carrying value of certain indebtedness are recorded as reorganization items, net in the condensed consolidated statements of operations for the three and nine months ended September 30, 2020. As discussed above, wholly-owned subsidiary, Boland Building, LLC (“Boland”), is not a debtor in the Chapter 11 Cases. Boland holds certain of the Company’s real estate assets and corresponding mortgage obligations. Boland’s assets, liabilities and operations are not material to the Company’s condensed financial statements. Accordingly, combined financial statements of only the Debtors have not been presented.

5

The commencement of a voluntary proceeding in bankruptcy constituted an immediate event of default under the Company's Credit Facility (as defined in Note 7. Long-Term Debt) and the indentures governing the Company’s 11.25% Senior Notes (as defined in Note 7. Long-Term Debt), resulting in the automatic and immediate acceleration of all of the debt outstanding with the exception of the building loans held by our subsidiary, Boland Building, LLC, and certain small financing loans. The Company has classified the 11.25% Senior Notes as liabilities subject to compromise on its condensed consolidated balance sheet as of September 30, 2020. The Credit Facility was not classified as liabilities subject to compromise because it is fully secured. Please refer to Liabilities Subject to Compromise below for more information. Pursuant to the Bankruptcy Code, and as further explained below, the filing of the Chapter 11 Cases automatically stayed most actions against the Debtors, including most actions to collect indebtedness incurred priorto the Petition Date or to exercise control over the Debtors’ property.
Pursuant to the Restructuring Plan (see below), the dividend on the Class A-1 Preferred Stock was not declared or paid for the third quarter of 2020.
Restructuring Support Agreement
On September 14, 2020, the Debtors entered into a Restructuring Support Agreement (“RSA”) with certain holders of the Company’s 11.25% Senior Notes and certain lenders under the Company's Credit Facility and Citibank, N.A., as agent under the Credit Facility (such holders and lenders, collectively, the “Consenting Creditors”) to support a restructuring.
Under the terms of the RSA, the Company's 11.25% Senior Notes, including accrued unpaid interest, will be converted into new equity interests of the Company (“New Equity Interests”) and extinguished. In addition, lenders under the Company’s Credit Facility who agree to accept the prepackaged plan of reorganization under chapter 11 of the Bankruptcy Code will receive their pro rata share of warrants (the “New Warrants”, as discussed further below) to purchase up to 10% of the New Equity Interests (subject to dilution only by the issuance of new equity interests under a management incentive plan (“MIP Equity”)), revolving loans under an exit revolving credit facility, and term loans under a second-out exit term facility. Holders of preferred equity interests in the Company will receive their pro rata share of 3% of the New Equity Interests (subject to dilution by the MIP Equity and the New Warrants) and holders of existing Class A Common Stock in the Company will receive their pro rata share of 1% of the New Equity Interests (subject to dilution by the MIP Equity and New Warrants).
Each of the Company’s then-existing Forbearance Agreement and Notes Forbearance Agreements (each as subsequently defined) relating to the Company’s Credit Facility and 11.25% Senior Notes terminated in connection with the filing of the Chapter 11 Cases. However, the Consenting Creditors agreed to forbear from exercising certain rights and remedies while the RSA remains in full force and effect.

Executory Contracts

Subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, assume and assign, or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. The Company rejected two executory contracts, which were approved by the Bankruptcy Court.

Liabilities Subject to Compromise

The accompanying condensed consolidated balance sheet as of September 30, 2020 includes amounts classified as liabilities subject to compromise. These amounts represent the Debtors' estimate as of September 30, 2020 of known or potential obligations and may differ from actual future settlement amounts paid.


6

The following table summarizes the components of liabilities subject to compromise included in the condensed consolidated balance sheets:

(in thousands)September 30, 2020
Accounts payable$5,892 
Accounts payable — related parties139 
Oil, natural gas liquid and natural gas sales20,361 
Accrued liabilities29,229 
Current maturities of long-term debt252,157 
Long-term debt260 
Equity warrant liability — related parties1 
Other non-current liabilities1,154 
Total liabilities subject to compromise$309,193 

As noted above, on October 1, 2020 the Bankruptcy Court approved the First Day Motions seeking a variety of relief. Pursuant to the First Day Motions, the Bankruptcy Court authorized the Company to conduct its business in the ordinary course, including to, among other things, pay employee wages and benefits, continue to operate the cash management system and honor certain pre-petition obligations related thereto, pay certain vendors and suppliers for goods and services provided both before and after the Petition Date, and other customary operational relief. Subsequent to the First Day Motions hearing, the Company's liabilities subject to compromise included $250.0 million for the 11.25% Senior Notes (included in current maturities of long-term debt above) and $21.1 million of accrued interest on 11.25% Senior Notes (included in accrued liabilities above).

These amounts represent the Debtors’ current estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases and may differ from actual future settlement amounts paid. Differences between liabilities estimated and claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process. The Company will continue to evaluate these liabilities throughout the chapter 11 process and adjust amounts as necessary. Such adjustments may be material.

Reorganization Items, Net

The Debtors have incurred and will continue to incur significant costs associated with the reorganization, primarily legal and professional fees. The amount of these costs, which since the Petition Date, are being expensed as incurred, are expected to significantly affect the Company’s results of operations. In accordance with applicable guidance, costs associated with the bankruptcy proceedings have been recorded as reorganization items within the Company's accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2020.

As of September 30, 2020, reorganization items, net consist of the elimination of approximately $3.1 million of unamortized discount and issuance costs related to the 11.25% Senior Notes (as defined in Note 7. Debt), as these instruments are unsecured and, under the terms of the Reorganization Plan, the 11.25% Senior Notes will be impaired. The write-off of the 11.25% Senior Notes discount and issuance costs is a non-cash reorganization item.

Exit Facilities

The Restructuring Plan provides that, on the effective date of the Restructuring Plan, the Debtors shall enter into (a) a first-out senior secured revolving credit facility in an amount equal to 80% of the aggregate outstanding principal amount of loans and letter of credit exposure under the existing Credit Facility with any lender under the Credit Facility that agrees to accept the Restructuring Plan (the “Accepting Lenders”); provided that, on the Plan effective date, the aggregate principal amount of the new revolving credit facility shall not be less than $152 million, (b) a second-out-senior-secured term loan credit facility in an amount equal to 20% of the aggregate outstanding principal amount of loans and letter of credit exposure under the Company’s existing Credit Facility of the Accepting Lenders, and (c) if necessary, a last-out-senior-secured term loan credit facility in an amount equal to 100% of the aggregate outstanding principal amount of loans and letter of credit exposure of any lenders under the existing Credit Facility that do not accept the Restructuring Plan or otherwise are not Accepting Lenders. Each of the lenders under the existing Credit Facility has voted to accept the Restructuring Plan and, therefore, if the Restructuring Plan is consummated as expected, there will be no last-out-senior-secured term loan credit facility.


7

Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements of Lonestar Resources US Inc., and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These financial statements and the notes thereto should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 filed on April 13, 2020 (theand subsequently amended (as amended, the “Form 10-K”). Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” “Company” or “Lonestar,” refer to Lonestar Resources US Inc. and its subsidiaries.
The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the year.  In management’s opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of our consolidated financial position as of JuneSeptember 30, 2020 and our consolidated results of operations for the three and sixnine months ended JuneSeptember 30, 2020 and JuneSeptember 30, 2019.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation. Such reclassifications had no impact on our reported net (loss) income, current assets, total assets, current liabilities, total liabilities or stockholders’ equity.
Ability to Continue as a Going Concern

The condensed 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.

As discussed above, the filing of the Chapter 11 Cases constituted an event of default under the Company's 11.25% Senior Notes and Credit Facility, which resulted in the automatic and immediate acceleration of all of the Company's debt outstanding with the exception of the building loans held by the subsidiary Boland Building, LLC and certain small financing loans. The Company projects that it will not have sufficient cash on hand or available liquidity to repay such debt. These conditions and events, along with uncertainties associated with the bankruptcy process, raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s ability to continue as a going concern is contingent upon, among other things, its ability to implement the Restructuring Plan, successfully emerge from the Chapter 11 Cases and generate sufficient liquidity from the Restructuring to meet its obligations and operating needs on an ongoing basis. As a result of risks and uncertainties related to the effects of disruption from the Chapter 11 Cases making it more difficult to maintain business, financing and operational relationships, the Company has concluded that management’s plans do not alleviate substantial doubt regarding the Company’s ability to continue as a going concern.

The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Risks and Uncertainties

The COVID-19 pandemic has caused a rapid and precipitous drop in demand for oil, which in turn has caused oil prices to plummet since the first week of March 2020, negatively affecting the Company’s cash flow, liquidity and financial position. These events have worsened an already deteriorated oil market that resulted from the early-March 2020 failure by the group of oil producing nations known as OPEC+ to reach an agreement over proposed oil production cuts. Moreover, the uncertainty about the duration of the COVID-19 pandemic has caused storage constraints in the United States resulting from over-supply of produced oil, which has significantly decreased our realized oil prices in the second quarterand third quarters of 2020 and potentially beyond. Oil prices are expected to continue to be volatile as a result of these events and the ongoing COVID-19 outbreak, and as changes in oil inventories, oil demand and economic performance are reported. Although some market stabilization occurred in the secondthird quarter of 2020, activity levels for the remainder of 2020 are expected to remain low and the long-term outlook is uncertain.

8

The current pandemic and uncertainty about its length and depth in future periods has caused the realized oil prices the Company has received since February 2020 to be significantly reduced, adversely affecting its operating cash flow and liquidity. Although the Company has reduced its 2020 capital expenditures budget, the lower levels of cash flow may require it to shut-in production that has become uneconomic in addition to shut-ins of production that the Company performed during the second quarter of 2020 (see below).
The COVID-19 pandemic is rapidly evolving, and the ultimate impact of this pandemic is highly uncertain and subject to change. The extent of the impact of the COVID-19 pandemic on the Company's operational and financial performance will depend on future developments, including the duration and spread of the pandemic, its severity, the actions to contain the disease or mitigate its impact, related restrictions on travel, and the duration, timing and severity of the impact on domestic and global oil demand.
In response to these developments, the Company has implemented the following operational and financial measures:

1.Reduced budgeted 2020 capital spending from $80-$85 million to approximately $65 million, almost all of which washad been incurred by the end of JuneSeptember 2020;
2.Deferred the remainder of its 2020 drilling program;
3.Implemented cost-reduction measures including negotiations reducing rates for water disposal, chemicals, rentals, and workovers;
5

4.Shut in or stored a significant amount of production during late-April and all of May 2020, primarily in the Company's Central Eagle Ford Area. These shut-in wells came back online during the first week of June; and
5.Entered into additional commodities derivativesnew natural gas swaps in MarchOctober 2020 tofor January 2021 through December 2021, which hedge an additional 2,000 Bbls of oil per day at an average swap price of $41.00 per Bbl and 27,500 Mcf of natural gas10,000 MMBtu per day at an average price of $2.36$3.04 per Mcf in 2021. The Company's current oil hedge position covers 7,565 Bbls per day for the second half of 2020,MMBtu, and 7,000 Bbls per day for 2021. The Company's currentalso entered into natural gas swaps for January 2022 through December 2022, which hedge position covers 20,000 Mcf5,000 MMBtu per day at a weightedan average price of $2.55$2.70 per MMBtu. In November 2020, the Company entered into new crude oil swaps for the remaining two quarters ofDecember 2020, and 27,500 Mcfwhich hedge 4,000 barrels per day for 2021 at a weightedan average price of $2.36.
Recent Developments

As$41.08 per barrel. The Company also entered into new crude oil swaps for January 2021 through December 2021, which hedge 1,000 barrels per day at an average price of June 30, 2020,$42.20 per barrel. Prior to the Chapter 11 Cases, the Company had total indebtedness of $546.3 million, including $250.0 million of Senior Notes due 2023 (the “11.25% Senior Notes"), $285.0 million under the Company's Credit Facility, $8.8 million under the Company's building loanterminated and $2.2 million formonetized its Paycheck Protection Program ("PPP") loan. As of August 14, 2020, the Company's Credit Facility is drawn to $285.0 million and is subject to a $60.4 million borrowing-base deficiency due to the terms of the Forbearance Agreement (see below).

The Company did not satisfy the consolidated current ratio covenant or the leverage ratio covenant under the Credit Facility as of the June 30, 2020 measurement date and did not make the July 1, 2020 interest payment under the 11.25% Senior Notes (the “Payment Default”) of approximately $14.1 million. Such failures represent events of default under the Company's Credit Facility, and the Payment Default represented an event of default under the 11.25% Senior Notes on July 31, 2020 as the Company did not cure the Payment Default within the 30-day cure period. The Company received a forbearance from the lenders under the Credit Facility until July 31, 2020 for the defaultsexisting hedge portfolio in the consolidated current ratio covenant as of the March 31, 2020, and June 30, 2020, measurement dates and the leverage ratio covenant as of the June 30, 2020, measurement date and the missed interest payment pursuant to the Forbearance Agreement. On July 31, 2020, the lenders under the Credit Facility agreed to extend the forbearance until August 21, 2020, pursuant to an amendment to the Forbearance Agreement. Also, on July 31, 2020, the Company received a forbearance until August 21, 2020 from certain holders of the outstanding 11.25% Senior Notes for the Payment Default. Despite the forbearances, the defaults under the Credit Facility and the 11.25% Senior Notes are continuing, and will continue, absent a waiver or amendment from the Credit Facility lenders or, in case of the 11.25% Senior Notes, the Payment Default is cured.September 2020.

Forbearance AgreementAgreements and Borrowing Base Redetermination

Forbearance Agreements — Credit Facility

On July 2, 2020, the Company entered into a Forbearance Agreement, Fourteenth Amendment, and Borrowing Base Agreement with Citibank, N.A., as administrative agent and the lenders party thereto (the “Forbearance Agreement”) with respect to the Credit Facility. Pursuant to the Forbearance Agreement, among other things, (i) the lenders under the Credit Facility agreed to refrain from exercising their rights and remedies under the Credit Facility and related loan documents with respect to certain defaults until July 31, 2020, (ii) the borrowing base was redetermined to $225 million from $286 million, (iii) all proceeds of dispositions and terminations or liquidations of swap agreements shallwere to be used to repay the Credit Facility and shall automatically reducereduced the borrowing base by the amount of the repayment and (iv) certain exceptions to the covenant restriction on investments shallwere no longer be available.

On July 31, 2020, the Company and certain of its subsidiaries entered into an amendment with respect to the Forbearance Agreement with the Lenders, pursuant to which the Lenders agreed to extend the stated term of the Forbearance Agreement until August 21, 2020.

The rightsability of the Credit Facility lenders to exercise rights and remedies resulted from the Company's failure to comply with the current ratio with respect to the quarters ended March 31, 2020 and June 30, 2020, the leverage ratio covenant with respect to the quarter ended June 30, 2020, and the default with respect to the failure to make the interest payment due on July 1, 2020, under the 11.25% Senior Notes.

The Forbearance Agreement can be terminated byin connection with the lenders upon (i)filing of the occurrence of any default or event of defaultChapter 11 Cases. However, pursuant to the RSA, certain lenders under the Credit Facility other than those disclosed above, (ii) the failure of the Companyagreed to comply with any of the terms and requirements of the Forbearance Agreement, (iii) the breach of any representation or warranty, (iv) the exercise of any rights by other debt holders relating to foreclosure or acceleration (including acceleration of the 11.25% Senior Notes in the event of default) and (v) the commencement of any bankruptcy proceeding with respect to any loan party. If the Forbearance Agreement terminates and any then-current and ongoing events of default have not been waived or cured, the lenders will be able to accelerate the loans and pursue theirforbear from exercising certain rights and remedies.

remedies while the RSA remains in full force and effect.


69

Forbearance Agreement – 11.25% Senior Notes

On July 31, 2020, the Company entered into a Forbearance Agreement with certain holders holding over 50% of the 11.25% Senior Notes (the “Notes“Notes Forbearance Agreement”Agreement”). Pursuant to the Notes Forbearance Agreement, among other things, those certain holders of the 11.25% Senior Notes (i) agreed to refrain from exercising their rights and remedies with respect to the Payment Default and (ii) request that the trustee under the Indenture not take any remedial action as a result of the Payment Default.

The Notes Forbearance Agreement will terminate and end uponterminated in connection with the occurrence of, among other things (i) 6:00 pm (New York City time) on August 21, 2020, (ii) any failure by the Company or its subsidiaries party thereto to perform its obligation under the Notes Forbearance Agreement, (iii) the Company incurs another default or event of default under the Indenture, other than the Payment Default, and (iv) the terminationfiling of the Forbearance Agreement. IfChapter 11 Cases. However, pursuant to the Notes Forbearance Agreement terminates and any then-current and ongoing eventsRSA, certain holders of default have not been waived or cured, the outstanding 11.25% Senior Notes may be accelerated. Despiteagreed to forbear from exercising certain rights and remedies while the Notes Forbearance Agreement, the Payment Default still represents an ongoing event of default.RSA remains in full force and effect.

Borrowing Base Redetermination

As of March 31, 2020, the borrowing base and lender commitments for the Credit Facility were $290 million. The borrowing base was lowered to $286 million on June 11, 2020 as part of the Thirteenth Amendment (see Note 7. Long-Term Debt), and the borrowing base was later redetermined to $225 million from $286 million pursuant to the Forbearance Agreement on July 2, 2020, which created a deficiency between the outstanding amount borrowed under the Company's revolving credit facility and the borrowing base. The outstanding balance under the Credit Facility was $285 million as of July 2, 2020 which represents a borrowing deficiency of $60.4 million. The Company iswas obligated to pay the deficiency within 60 days after July 2, 2020 due to the Credit Facility being in a state of default at the time of the deficiency, as noted below.
Going Concern
The Company has concluded that these circumstances create substantial doubt regarding its abilitywhich was relieved by the Forbearance Agreement (see above) . Pursuant to continuethe Restructuring Plan and as a going concern. These consolidated financial statements doresult of the Company’s filing of the Chapter 11 Cases, the Company did not include any adjustmentshave the obligation to pay such deficiency within that might result from the outcome of these uncertaintiestime period, and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

The Company does not anticipate maintaining compliance with the consolidated current ratio covenant and leverage ratio covenant under its Credit Facility over the next twelve months and is currently in forbearance with the Credit Facility will be amended and 11.25% Senior Notes until August 21. Ifrestated in connection with the Company is unable to reach an agreement with its lenders, the lenders of the Credit Facility may choose to accelerate repayment, in addition to the $60.4 million dueCompany’s exit from the current borrowing base deficiency noted above, which in turn may result in an event of default and an acceleration of the 11.25% Senior Notes, which have a $14.1 million interest payment that was due and unpaid on July 1, 2020 (see below) that separately represents a current event of default. The Company does not currently have sufficient liquidity to repay such indebtedness, including the current borrowing base deficiency and unpaid interest payment, and is currently in talks with its lenders to restructure its existing debt obligations.bankruptcy.

The Company cannot provide any assurances that it will be successful in restructuring of existing debt obligations, and if the Company is unsuccessful in its efforts to restructure and obtain new financing, it may be necessary for it to seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code (“Chapter 11”), or an involuntary petition for bankruptcy may be filed against it.
Impairment of Long-Lived Assets
The carrying value of long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When it is determined that the estimated future net cash flows of an asset will not be sufficient to recover its carrying amount, an impairment loss must be recorded to reduce the carrying amount to its estimated fair value. Judgments and assumptions are inherent in management’s estimate of undiscounted future cash flows and an asset’s fair value. These judgments and assumptions include such matters as the estimation of oil and gas reserve quantities, risks associated with the different categories of oil and gas reserves, the timing of development and production, expected future commodity prices, capital expenditures, production costs, and appropriate discount rates.
7

The Company evaluates impairment of proved and unproved oil and gas properties on a region basis. On this basis, certain regions may be impaired because they are not expected to recover their entire carrying value from future net cash flows. As a result of this evaluation, the Company recorded impairment oil and gas properties of $199.9 million for the three months ended March 31, 2020, of which $199.0 million was proved and $0.9 million was unproved. The impairment was the result of removing development of PUD and probable reserves from future net cash flows as the Company cannot assure that they will be developed going forward in light of continued depressed commodity prices and uncertainty regarding the Company's liquidity situation. There were no events or changes in circumstances during the three months ended JuneSeptember 30, 2020 that indicate the carrying value may not be recoverable. However, if pricing remains depressed, it is reasonably likelypossible that the Company may have to record impairment of its oil and gas properties in the future.
CARES Act

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to provide certain taxpayer relief as a result of the COVID-19 pandemic. The CARES Act included several favorable provisions that impacted income taxes, primarily the modified rules on the deductibility of business interest expense for 2019 and 2020, a five-year carryback period for net operating losses generated after 2017 and before 2021, and the acceleration of refundable alternative minimum tax credits. The CARES Act did not materially impact the Company's effective tax rates for the three and sixnine months ended JuneSeptember 30, 2020.


10

The Company applied for, and received, a loan under the Paycheck Protection Program ("PPP") during the second quarter of 2020 in the amount of $2.2 million. The application for this loan required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of this loan, and the forgiveness of the loan, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria. BecausePursuant to the details for forgivenessRestructuring Plan, to the extent any portion of the PPP loan are still being developed byis not forgiven in accordance with the Small Business Administration and analyzed by the Company, the Company cannot be certain as to the amount, if any,terms of the PPP and Cares Act, such portion of the PPP loan that(if any) will be forgiven.paid in full in cash. The PPP loan bears interest of 1% and, if not forgiven, has a maturity date of May 8, 2022.
Net (Loss) Income per Common Share
The two-class method is utilized to compute earnings per common share as our Class A Participating Preferred Stock (the "Preferred Stock") is considered a participating security. Under the two-class method, losses are allocated only to those securities that have a contractual obligation to share in the losses of the Company. The Preferred Stock is not obligated to absorb Company losses and accordingly is not allocated losses. Net income attributable to common stockholders is allocated between common stock and participating securities based on the weighted average number of common shares and participating securities outstanding for the period.

Basic earnings per share is computed by dividing the allocated net (loss) income attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

Diluted earnings per share is computed similarly except that the denominator is increased to include dilutive potential common shares. Potential common shares consist of warrants, equity compensation awards and Preferred Stock. In certain circumstances adjustment to the numerator is also required for changes in income or loss resulting from the potential common shares. Basic weighted average common shares exclude shares of non-vested restricted stock. As these restricted shares vest, they will be included in the shares outstanding used to calculate basic earnings per shareshare.


811

The following is a reconciliation of basic and diluted earnings per share:
.
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended September 30,Nine Months Ended September 30,
In thousands, except shares and per-share dataIn thousands, except shares and per-share data2020201920202019In thousands, except shares and per-share data2020201920202019
Numerator- Basic and Diluted
Numerator — BasicNumerator — Basic
Total net (loss) income attributable to common stockholdersTotal net (loss) income attributable to common stockholders$(42,901) $11,177  $(155,950) $(49,451) Total net (loss) income attributable to common stockholders$(38,473)$14,058 $(194,423)$(35,394)
Less: allocation to participating securitiesLess: allocation to participating securities—  (4,310) —  —  Less: allocation to participating securities0 (5,494)0 0 
Net (loss) income attributable to common stockholdersNet (loss) income attributable to common stockholders$(42,901) $6,867  $(155,950) $(49,451) Net (loss) income attributable to common stockholders$(38,473)$8,564 $(194,423)$(35,394)
Denominator - Basic and diluted
Weighted average number of common shares25,307,714  24,924,169  25,154,151  24,811,895  
Numerator — DilutedNumerator — Diluted
Net income (loss) allocated to common stockholders - basicNet income (loss) allocated to common stockholders - basic$(38,473)$8,564 $(194,423)$(35,394)
Restricted stock unit compensation gain, net of taxRestricted stock unit compensation gain, net of tax$0 $(80)$0 $0 
Net income (loss) allocated to common stockholders - dilutedNet income (loss) allocated to common stockholders - diluted$(38,473)$8,484 $(194,423)$(35,394)
DenominatorDenominator
Weighted average number of common shares — BasicWeighted average number of common shares — Basic25,361,361 24,933,853 25,238,972 24,852,994 
Restricted stock units converted under the treasury methodRestricted stock units converted under the treasury method0 397,957 0 0 
Weighted average number of common shares — DilutedWeighted average number of common shares — Diluted25,361,361 25,331,810 25,238,972 24,852,994 
Earnings per shareEarnings per shareEarnings per share
BasicBasic$(1.70) $0.28  $(6.20) $(1.99) Basic$(1.52)$0.34 $(7.70)$(1.42)
DilutedDiluted$(1.70) $0.28  $(6.20) $(1.99) Diluted$(1.52)$0.33 $(7.70)$(1.42)

For the periods presented, there were no differences between the basic and diluted weighted average common shares. The following securities could potentially dilute earnings per share in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been antidilutive:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended September 30,Nine Months Ended September 30,
20202019202020192020201920202019
Preferred stockPreferred stock17,101,727  15,645,368  16,913,597  15,474,214  Preferred stock17,482,167 15,997,411 17,101,727 15,649,269 
WarrantsWarrants760,000  760,000  760,000  760,000  Warrants760,000 760,000 760,000 760,000 
Stock appreciation rightsStock appreciation rights1,010,000  1,010,000  1,010,000  1,010,000  Stock appreciation rights1,010,000 1,010,000 1,010,000 1,010,000 
Restricted stock unitsRestricted stock units970,866  1,553,526  1,369,164  1,259,682  Restricted stock units963,049 0 921,723 1,457,701 

Recent Accounting Pronouncements

Reference Rate Reform.  In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions to ease financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) or another reference rate to alternative reference rates. The amendments in this ASU are effective beginning on March 12, 2020, and an entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related footnote disclosures.

Income Taxes.  In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The objective of ASU 2019-12 is to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and early adoption is permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related footnote disclosures.


12

Financial Instruments — Credit Losses. In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, and requires the use of a new forward-looking expected loss model that will result in the earlier recognition of allowances for losses. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022 for Smaller Reporting Companies, which the Company currently is classified as, and interim periods within those fiscal years, and early adoption is permitted. Entities must adopt the amendment using a modified retrospective approach to the first reporting period in which the guidance is effective. The
9

adoption of ASU 2016-13 is currently not expected to have a material effect on the Company's consolidated financial statements.
Note 2. Acquisitions and Divestitures
Pirate Divestiture

In March 2019, Lonestar completed the divestiture of its Pirate assets in Wilson County for an adjusted cash purchase price of $11.5 million, after closing adjustments, to a private third-party. The assets were comprised of 3,400 net undeveloped acres, 6 producing wells, held 7 proved undeveloped locations as of the closing date, and were producing approximately 200 BOE/d. The Company recognized a loss of $33.5 million during the first quarter of 2019 in conjunction with the sale of the assets.

Note 3. Derivative Instruments and Hedging Activities
Commodity Derivative Instruments
Lonestar enters into certain commodity derivative instruments to mitigate commodity price risk associated with a portion of its future oil, NGL and natural gas production and related cash flows. The oil, NGL and natural gas revenues and cash flows are affected by changes in commodity product prices, which are volatile and cannot be accurately predicted. The objective for entering into these commodity derivatives is to protect the operating revenues and cash flows related to a portion of the future oil, NGL and natural gas sales from the risk of significant declines in commodity prices, which helps ensure the Company’s ability to fund the capital budget.
Inherent in Lonestar's fixed price contracts are certain business risks, including market risk and credit risk. Market risk is the risk that the price of oil and natural gas will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from non-performance by the Company’s counterparty to a contract. The Company does not currently require cash collateral from any of its counterparties nor does its counterparties require cash collateral from the Company. As of June 30,
The Company also used interest rate swap contracts to manage its net exposure to rate changes attributable to its Credit Facility borrowings.
In September 2020, the Company had 0terminated and monetized all of its open physical delivery obligations.
The following table summarizes Lonestar's commodity derivative contracts asand interest rate swaps prior to its Chapter 11 bankruptcy filing (see Note 1. above), which resulted in a net realized gain of June 30, 2020:
ContractVolumesWeighted
CommodityTypePeriod
Range (1)
(Bbls/Mcf per day)Average Price
Oil - WTISwapsJuly - Dec 202051.60 - 65.567,565  57.38
Oil - WTISwapsJan - Dec 202140.95 - 56.507,000  50.40
Natural Gas - Henry HubSwapsJuly - Dec 20202.38 - 2.8020,000  2.55
Natural Gas - Henry HubSwapsJan - Dec 20212.32 - 2.3927,500  2.36
(1) Ranges presented$30.5 million (comprised of $39.9 million for fixed-priceoil swaps, offset by negative $6.7 million for natural gas swaps and basisnegative $2.7 million for interest rate swaps).

In October 2020, the Company entered into new natural gas swaps representfor January 2021 through December 2021, which hedge 10,000 MMBtu per day at an average price of $3.04 per MMBtu. The Company also entered into natural gas swaps for January 2022 through December 2022, which hedge 5,000 MMBtu per day at an average price of $2.70 per MMBtu. In November 2020, the lowest and highest fixed pricesCompany entered into new crude oil swaps for December 2020, which hedge 4,000 barrels per day at an average price of all open contracts$41.08 per barrel. The Company also entered into new crude oil swaps for the period presented.January 2021 through December 2021, which hedge 1,000 barrels per day at an average price of $42.20 per barrel.
As of June 30, 2020, all of the
Company’s economic derivative hedge positions wereare with large financial institutions, which are not known to the Company to be in default on their derivative positions. The Company is exposed to credit risk to the extent of non-performance by the counterparties in the derivative contracts discussed above; however, the Company does not anticipate non-performance by such counterparties. None of the Company’s derivative instruments contain credit-risk related contingent features.
Interest Rate Hedge Instruments
The Company uses interest rate swap contracts to manage its net exposure to rate changes attributable to its Credit Facility borrowings (see below). At June 30, 2020, the Company was a party to two one-month London Interbank Offered Rate ("LIBOR") swap contracts with notional amounts of $190 million in the aggregate and a fixed rate of 0.68%. The contracts settle monthly from April 2020 through March 2023, and the Company realized a loss of $0.1 million for the second quarter of 2020 related settlements of the Company's interest rate hedges, and an unrealized loss of $0.9 million.

1013


Note 4. Revenue Recognition
The Company recognizes revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Disaggregation of Revenue
Operating revenues are comprised of sales of crude oil, NGLs and natural gas. Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The Company recognizes revenue when control has been transferred to the customer, generally at the time commodities reach an agreed-upon delivery point. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products and is generally based upon a negotiated formula, list or fixed price based on a market index. Typically, the Company sells its products directly to customers generally under agreements with payment terms less than 30 days.

The following table summarizes our revenues by product type for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
In thousandsIn thousandsThree Months Ended June 30,Six Months Ended June 30,In thousandsThree Months Ended September 30,Nine Months Ended September 30,
2020201920202019In thousands2020201920202019
OilOil$11,976  $44,726  $41,986  $78,310  Oil$24,524 $42,187 $66,510 $120,496 
NGLsNGLs1,762  3,549  4,362  6,942  NGLs3,202 3,439 7,565 10,381 
Natural gasNatural gas3,482  3,940  7,902  7,704  Natural gas4,383 7,519 12,285 15,224 
Total revenuesTotal revenues$17,220  $52,215  $54,250  $92,956  Total revenues$32,109 $53,145 $86,360 $146,101 

As of JuneSeptember 30, 2020 and December 31, 2019 the accounts receivable balance representing amounts due or billable under the terms of contracts with purchasers was $11.7$14.3 million and $16.0 million, respectively.

Note 5. Fair Value Measurements
Fair value measurements are based upon inputs that market participants use in pricing an asset or liability, which are classified into two categories: observable inputs and unobservable inputs. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect a company’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. ASC 820 prioritizes the inputs used in measuring fair value into the following fair value hierarchy:
•Level 1 – Quoted prices for identical assets or liabilities in active markets.
•Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs derived principally from or corroborated by observable market data by correlation or other means.
•Level 3 – Unobservable inputs for the asset or liability. The fair value input hierarchy level to which an asset or liability measurement falls in its entirety is determined based on the lowest level input that is significant to the measurement in its entirety.

1114

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis as of JuneSeptember 30, 2020 and December 31, 2019, for each fair value hierarchy level:
Fair Value Measurements UsingFair Value Measurements Using
In thousandsIn thousandsQuoted Prices in Active Markets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		TotalIn thousandsQuoted Prices in Active Markets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Total
June 30, 2020
Assets
Derivative financial instruments$—  $57,949  $—  $57,949  
September 30, 2020September 30, 2020
Liabilities:Liabilities:Liabilities:
Derivative financial instruments—  (5,530) —  (5,530) 
WarrantWarrant—  —  (1) (1) Warrant0 0 (1)(1)
Stock-based compensationStock-based compensation(72) —  (27) (99) Stock-based compensation(64)0 (27)(91)
TotalTotal$(72) $52,419  $(28) $52,319  Total$(64)$0 $(28)$(92)
December 31, 2019December 31, 2019December 31, 2019
Assets:Assets:Assets:
Derivative financial instrumentsDerivative financial instruments$—  $6,849  $—  $6,849  Derivative financial instruments$0 $6,849 $0 $6,849 
Liabilities:Liabilities:Liabilities:
Derivative financial instrumentsDerivative financial instruments—  (10,462) —  (10,462) Derivative financial instruments0 (10,462)0 (10,462)
WarrantWarrant—  —  (364) (364) Warrant0 0 (364)(364)
Stock-based compensationStock-based compensation(1,792) —  (573) (2,365) Stock-based compensation(1,792)0 (573)(2,365)
TotalTotal$(1,792) $(3,613) $(937) $(6,342) Total$(1,792)$(3,613)$(937)$(6,342)
Level 3 Fair Value Measurements
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 liabilities for the sixnine months ended JuneSeptember 30, 2020:
In thousandsIn thousandsWarrantStock-Based CompensationTotalIn thousandsWarrantStock-Based CompensationTotal
Balance as of December 31, 2019Balance as of December 31, 2019$(364) $(573) $(937) Balance as of December 31, 2019$(364)$(573)$(937)
Unrealized gainsUnrealized gains363  546  909  Unrealized gains363 546 909 
Balance as of June 30, 2020$(1) $(27) $(28) 
Balance as of September 30, 2020Balance as of September 30, 2020$(1)$(27)$(28)
Other fair value measurements
The book values of cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to the short-term nature of these instruments. The carrying value of the Credit Facility (as defined in Note 7. below) approximates fair value since it is subject to a short-term floating interest rate that approximates the rate available to the Company. The fair value of the 11.25% Senior Notes (as defined in Note 8. below) was approximately $25.6$17.2 million as of JuneSeptember 30, 2020 and is considered a Level 3 fair value measurement, as they areit is based on market transactions that occur infrequently as well as internally generated inputs.

1215


Note 6. Accrued Liabilities
Accrued liabilities consisted of the following as of the dates indicated:
In thousandsIn thousandsJune 30, 2020December 31, 2019In thousandsSeptember 30, 2020December 31, 2019
Accrued interest – 11.25% Senior NotesAccrued interest – 11.25% Senior Notes$14,063  $14,063  Accrued interest – 11.25% Senior Notes$21,094 $14,063 
Accrued well costsAccrued well costs13,577  8,932  Accrued well costs368 8,932 
Bonus payableBonus payable1,218  2,353  Bonus payable1,827 2,353 
OtherOther5,240  1,557  Other6,368 1,557 
Total accrued liabilities, prior to reclassification to liabilities subject to compromiseTotal accrued liabilities, prior to reclassification to liabilities subject to compromise29,657 26,905 
Less amounts reclassified to liabilities subject to compromise (1)
Less amounts reclassified to liabilities subject to compromise (1)
(29,228)0 
Total accrued liabilitiesTotal accrued liabilities$34,098  $26,905  Total accrued liabilities$429 $26,905 

(1)    See Note 1. Basis of Presentation for more information.

Note 7. Long-Term Debt
The following long-term debt obligations were outstanding as of the dates indicated:
In thousandsIn thousandsJune 30, 2020December 31, 2019In thousandsSeptember 30, 2020December 31, 2019
Senior Secured Credit FacilitySenior Secured Credit Facility$285,000  $247,000  Senior Secured Credit Facility$285,000 $247,000 
11.25% Senior Notes due 202311.25% Senior Notes due 2023250,000  250,000  11.25% Senior Notes due 2023250,000 250,000 
Mortgage debt(1)Mortgage debt(1)8,822  8,931  Mortgage debt(1)8,781 8,931 
PPP loanPPP loan2,157  —  PPP loan2,157 0 
OtherOther271  271  Other260 271 
Total long-term debt546,250  506,202  
Total principalTotal principal546,198 506,202 
Unamortized discount(2)Unamortized discount(2)(2,812) (3,375) Unamortized discount(2)0 (3,375)
Unamortized debt issuance costs(2)Unamortized debt issuance costs(2)(605) (759) Unamortized debt issuance costs(2)0 (759)
Total net of debt issuance costs542,833  502,068  
Less current obligations(531,583) (247,000) 
Long-term debt$11,250  $255,068  
Total debt, prior to reclassification to liabilities subject to compromiseTotal debt, prior to reclassification to liabilities subject to compromise546,198 502,068 
Less amounts reclassified to liabilities subject to compromise (3)
Less amounts reclassified to liabilities subject to compromise (3)
(252,417)0 
Total debt not subject to compromise (4)
Total debt not subject to compromise (4)
293,781 502,068 
Less current obligations (5)
Less current obligations (5)
(285,000)(247,000)
Total long-term debt (6)
Total long-term debt (6)
$8,781 $255,068 

(1)    Mortgage debt is not held by the Debtor entities and is not included the debt subject to the Chapter 11 Cases.


(2)    As a result of the Chapter 11 Cases and the adoption of ASC 852, the Company wrote off the unamortized discount and issuance cost balances related to the 11.25% Senior Notes to reorganization items, net in the condensed consolidated statements of operations for the three and nine months ended September 30, 2020. See Note 1. Basis of Presentation for more information.

(3)    As of September 30, 2020 and prior to the First-Day Motions approved by the Bankruptcy Court on October 1, 2020, all long-term debt, except for the mortgage debt noted above, was subject to compromise.

(4)    Debt not subject to compromise includes all borrowings outstanding under the Credit Facility, which are secured by the Company's oil and natural gas properties. See Note 1. Basis of Presentation for more information.

(5)    Due to uncertainties regarding the Chapter 11 Cases, the Company has classified the borrowings outstanding under the Credit Facility loan as current as of September 30, 2020. See Note 1. Basis of Presentation for more information.

(6)    Total long-term debt includes the Boland Building mortgage debt, as noted above.


16

Chapter 11 Cases and Effect of Automatic Stay

On September 30, 2020, the Debtors filed for relief under chapter 11 of the Bankruptcy Code. The commencement of a voluntary proceeding in bankruptcy constituted an immediate event of default under the Credit Facility (as defined below) and the indentures governing the Company’s 11.25% Senior Notes (as defined below), resulting in the automatic and immediate acceleration of the debt. Any efforts to enforce payment obligations related to the acceleration of the Company’s debt have been automatically stayed as a result of the filing of the Chapter 11 Cases, and the creditors’ rights of enforcement are subject to the applicable provisions of the Bankruptcy Code. See Note 1. Basis of Presentation for more information on the Chapter 11 Cases.

Senior Secured Credit Facility

In July 2015, through its subsidiary, Lonestar Resources America, Inc. ("LRAI"), the Company entered into a $500 million Senior Secured Credit Facility with Citibank, N.A., as administrative agent, and other lenders party thereto (as amended, supplemented or modified from time to time, the “Credit Facility”), which has a maturity date of November 15, 2023.. As of JuneSeptember 30, 2020, $285.0 million was borrowed under the Credit Facility, and the weighted average interest rate on borrowings under the Credit Facility for the quarter was 3.73%4.98%. BorrowingPrior to default, the borrowing availability was $0.6 million, as of June 30, 2020, which reflectsreflected $0.4 million of letters of credit outstanding. As a result of the commencement of the Chapter 11 Cases, the Company is not in compliance with the covenants under the Credit Facility and the lenders’ commitments under the Credit Facility have been terminated. The Company is therefore unable to make additional borrowings or issue additional letters of credit under the Credit Facility.

ThePrior to default, the Credit Facility maycould be used for loans and, subject to a $2.5 million sub-limit, letters of credit, and providesprovided for a commitment fee of 0.375% to 0.5% (0.5% following the Thirteenth Amendment (as defined below)) based on the unused portion of the borrowing base under the Credit Facility. As of March 31, 2020, the borrowing base and lender commitments for the Credit Facility was $290 million. The borrowing base was lowered to $286 million on June 11, 2020 as part of the Thirteenth Amendment. The borrowing base was further lowered to $225 million from $286 million pursuant to the Forbearance Agreement on July 2, 2020, creating a deficiency between the outstanding amount borrowed under the Company's Credit Facility and the borrowing base. The outstanding balance under the Credit Facility was $285 million as of August 14,September 30, 2020 which represents a borrowing deficiency of $60.4 million. The Company is obligated to pay the deficiency within 60 days after July 2, 2020, due to the Credit Facility's status of default (see below).

Borrowings under the Credit Facility, at the Company's election, bear interest at either: (i) an alternate base rate (“ABR”) equal to the higher of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.5% per annum, and (c) the adjusted LIBO rate of a three-month interest period on such day plus 1.0%; or (ii) the adjusted LIBO rate, which is the rate stated on Reuters screen LIBOR1 page, for one, two, three, six or twelve months, as adjusted for statutory reserve requirements for Eurocurrency liabilities, plus, in each of the cases described in clauses (i) and (ii) above, an applicable margin ranging from 1.0% to 2.0% (2.0% to 3.5% following the Thirteenth Amendment) for ABR loans and from 2.0% to 3.0% (3.0% to 4.5% following the Thirteenth Amendment) for adjusted LIBO rate loans.

13

As the Credit Facility is in a state of default, 2.0% incremental default interest would typically be due but is currently not being charged as part of the terms of the Forbearance Agreement (see below).

Subject to certain permitted liens, the Company's obligations under the Credit Facility are required to be secured by the grant of a first priority lien on no less than 80% of the value of the proved oil and gas properties of the Company and its subsidiaries (currently 100% following the Thirteenth Amendment).

The Credit Facility contains certain financial performance covenants, as defined in the Credit Facility, including the following:

•A maximum debt to EBITDAX ratio of 4.0 to 1.0, and

•A current ratio of not less than 1.0 to 1.0.


17

The Company also was not in compliance with the terms of the Credit Facility as of December 31, 2019 because it did not satisfy the consolidated current ratio at those times and the audit report prepared by its auditors with respect to the 2019 financial statements included an explanatory paragraph expressing uncertainty as to the Company's ability to continue as a "going concern." The lenders waived the current ratio default with respect to December 31, 2019. The Company received a forbearance until July 31, 2020 for the defaults in the consolidated current ratio covenant as of the March 31, 2020, and June 30, 2020, measurement dates, the leverage ratio covenant as of the June 30, 2020, measurement date and the missed interest payment under the 11.25% Senior Notes pursuant to the Forbearance Agreement. The Company was not in compliance with the terms of the Credit Facility as of May 15, 2020, because it did not timely deliver its financial statements with respect to the fiscal quarter ended March 31, 2020. Such failure represented a default under the Credit Facility which the lenders waived pursuant to the Thirteenth Amendment. As noted above, the borrowing base was redetermined to $225 million from $286 million pursuant to the Forbearance Agreement on July 2, 2020, which created a deficiency between the outstanding amount borrowed under the Credit Facility and the borrowing base.On July 31, 2020, the lenders under the Credit Facility agreed to extend the forbearance until August 21, 2020, pursuant to an amendment to the Forbearance Agreement. Despite the forbearance, the defaults under the Credit Facility are continuing, and will continue, absent a waiver from the lenders. The outstanding balance under the Company's Credit Facility was $285 million as of August 14, 2020 which represents a borrowing deficiency of $60 million. The Company is obligated to pay the deficiency within 60 days after July 2, 2020.

Waiver and Eleventh Amendment

Effective April 7, 2020, the Company entered into the Waiver and Eleventh Amendment (the "Waiver") to waive events of default arising from its failure to comply with the consolidated current ratio as of December 31, 2019, to timely provide audited financial statements and to provide financial statements that are not subject to any “going concern” or like qualification or exception for the fiscal year ended December 31, 2019. As there was no guarantee that the Company's lenders would agree to waive events of default or potential events of default in the future, the amounts outstanding under the Credit Facility as of December 31, 2019 wereare classified as current in the accompanying 2019 Condensed Consolidated Balance Sheet.

Twelfth Amendment

Effective May 8, 2020, the Company entered into the Twelfth Amendment to Credit Agreement (the “Twelfth Amendment”), to allow the Company to accept proceeds of up to $2.2 million from an unsecured loan applied for under the CARES Act (as discussed further in Note 1)1. Basis of Presentation).

Waiver and Thirteenth Amendment

Effective June 11, 2020, the Company entered into the Waiver and Thirteenth Amendment to Credit Agreement (the "Thirteenth Amendment") which, among other things, (i) waived any default or event of default arising from its failure to provide timely quarterly financial statements for the three months ended March 31, 2020; (ii) redetermined the borrowing base to $286 million from $290 million; (iii) set the next borrowing base redetermination to be on or around July 1, 2020 (and in any event, no later than July 31, 2020), (iv) amended the borrowing base utilization grid used in the applicable margin, as noted above and (v) until the July 1, 2020 redetermination, restricted the Company and its subsidiaries’ ability to incur debt with respect to, among other items, capital leases and permitted senior debt, grant liens to secure other obligations, pay dividends on LRAI’s preferred stock and make certain investments.

Forbearance Agreement and Fourteenth Amendment
14


On July 2, 2020, the Company entered into a Forbearance Agreement, Fourteenth Amendment, and Borrowing Base Agreement with Citibank, N.A., as administrative agent and the lenders party thereto (the “Forbearance Agreement”) with respect to the Credit Facility. Pursuant to the Forbearance Agreement, among other things, (i) the lenders under the Credit Facility agreeagreed to refrain from exercising their rights and remedies under the Credit Facility and related loan documents with respect to certain defaults until July 31, 2020, (ii) the borrowing base was redetermined to $225 million from $286 million, (iii) all proceeds of dispositions and terminations or liquidations of swap agreements shallwere to be used to repay the Credit Facility and shall automatically reducereduced the borrowing base by the amount of the repayment and (iv) certain exceptions to the covenant restriction on investments shallwere no longer be available.

The rights of the lenders to exercise rights and remedies resulted from the Company's failure to comply with the current ratio with respect to the quarter ended March 31, 2020 and the defaults expected with respect to the quarter ending June 30, 2020, under the current ratio and the leverage ratio covenants, and the default with respect to the failure to make the interest payment due on July 1, 2020, under the 11.25% Senior Notes.

        The Forbearance Agreement can be terminated by the lenders upon (i) the occurrence of any default or event of default under the Credit Facility other than those disclosed, (ii) the failure of the Company to comply with any of the terms and requirements of the Forbearance Agreement, (iii) the breach of any representation or warranty, (iv) the exercise of any rights by other debt holders relating to foreclosure or acceleration and (v) the commencement of any bankruptcy proceeding with respect to any loan party. If the Forbearance Agreement terminates and any then-current and ongoing events of default have not been waived or cured, the lenders will be able to accelerate the loans and pursue their rights and remedies. 
18

On July 31, 2020 the Company and certain of its subsidiaries entered into an amendment with respect to the Forbearance Agreement with the Lenders, pursuant to which the Lenders agreed to extend the stated term of the Forbearance Agreement until August 21, 2020. As a resultOn August 21, 2020, these parties agreed to further extend the stated term of the eventsForbearance Agreement until September 11, 2020. The filing of default, the amounts outstandingChapter 11 Cases resulted in the acceleration of the Credit Facility and the termination of the Forbearance Agreement. However, pursuant to the RSA, the lenders under the Credit Facility as of June 30, 2020 were classified as currentagreed to forbear from exercising certain rights and remedies while the RSA remains in the accompanying Condensed Consolidated Balance Sheet.full force and effect.

11.25% Senior Notes

In January 2018, the Company issued $250 million of 11.25% Senior Notes to U.S.-based institutional investors. The net proceeds of $244.4 million were used to fully retire the Company’s 8.75% Senior Notes, which included principal, interest and a prepayment premium of approximately $162 million. The remaining net proceeds were used to reduce borrowings under the Credit Facility.

ThePrior to default, the 11.25% Senior Notes maturematured on January 1, 2023, and bearbore interest at the rate of 11.25% per year, payable on January 1 and July of each year. At any time prior to January 1, 2021, the Company may,could, on any one or more occasions, redeem up to 35% of the aggregate principal amount of the 11.25% Senior Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings at a redemption price equal to 111.25% of the principal amounts redeemed, plus accrued and unpaid interest, provided that at least 65% of the aggregate principal amount of 11.25% Senior Notes originally issued remainsremained outstanding immediately after such redemption and the redemption occursoccurred within 180 days of the closing date of such equity offering.

At any time prior to January 1, 2021, the Company may, on any one or more occasions, redeem all or a part of the 11.25% Senior Notes at a redemption price equal to 100% of the principal amount redeemed, plus a “make-whole” premium as of, and accrued and unpaid interest.

On and after January 1, 2021, the Company may redeem the 11.25% Senior Notes, in whole or in part, plus accrued and unpaid interest, at the following redemption prices: 108.438% after January 1, 2021; 105.625% after January 1, 2022; and 100% after July 1, 2022.

The indenture contains certain restrictions on the Company’s ability to incur additional debt, pay dividends on the Company’s common stock, make investments, create liens on the Company’s assets, engage in transactions with affiliates, transfer or sell assets, consolidate or merge, or sell substantially all of the Company’s assets. The indenture also contains cross-default provisions for defaults of the Company's other debt instruments, including the Credit Facility, caused by payment default or events which cause the acceleration of repayment prior to the stated maturity of such instrument.
15

The Company did not make its interest payment on the 11.25% Senior Notes that was due on July 1, 2020 of approximately $14.1 million (the “Payment Default”). Such failure to pay representsrepresented a default under the 11.25% Senior Notes and represented an event of default when the Company did not cure within 30 days. The Payment Default iswas a current event of default under the Credit Facility. The Company has entered into the Forbearance Agreement which providesprovided that, among other things, the lenders under the Credit Facility have agreed to forbear the Company’s default of the interest payment until August 21, 2020.However, the default under the Credit Facility has not been waived and still exists.Accordingly, the amounts outstanding under the 11.25% Senior Notes as of June 30, 2020 were classified as current in the accompanying Condensed Consolidated Balance Sheet.

On July 31, 2020, the Company entered into the Notes Forbearance Agreement pursuant to which, among other things, certain holders holding greater than 50% of the 11.25% Senior Notes (i) agreed to refrain from exercising their rights and remedies with respect to the Payment Default and (ii) requested that the trustee not take any remedial action as a result of the Payment Default.

The Notes Forbearance Agreement will terminate and end uponfiling of the occurrenceChapter 11 Cases resulted in the termination of among other things (i) 6:00 pm (New York City time) on August 21, 2020, (ii) any failure by the Company or its subsidiaries party thereto to perform its obligation under the Notes Forbearance Agreement (iii) the Company incurs another default orand an event of default under the Indenture, other than the Payment Default, and (iv) the terminationacceleration of the Forbearance Agreement.Ifmaturity of the Notes Forbearance Agreement terminates and any then-current and ongoing events11.25% Senior Notes. However, pursuant to the RSA, certain holders of default have not been waived or cured, the outstanding 11.25% Senior Notes may be accelerated.Despiteagreed to forbear from exercising certain rights and remedies while the Notes Forbearance Agreement, the Payment Default still represents an ongoing event of default.RSA is in full force and effect.

The Company cannot provide any assurances that it will be successful in restructuring existing debt obligations or in obtaining capital sufficient to fund the refinancing of its outstanding indebtedness or to provide sufficient liquidity to meet its operating needs. If the Company is unsuccessful in its efforts to restructure and obtain new financing, it may be necessary for the Company to seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code (“Chapter 11”), or an involuntary petition for bankruptcy may be filed against the Company.

Note 8. Stockholders’ Equity
Series A Preferred Stock Dividends
Holders of Series A-1 Preferred Stock are entitled to cumulative dividends payable quarterly initially at a rate of 9% per annum (the “Dividend Rate”) in cash and, for any 12twelve quarters (“PIK Quarters”), at the Company’s option, (i) in the form of additional shares of the respective series of Series A-1 Preferred Stock at a per share price equal to $975 or (ii) by increasing Stated Value, in lieu of cash (collectively, the “PIK Option”). After the 12twelve PIK Quarters (the last of which was the second quarter of 2020), if the Company fails to fully declare and pay dividends in cash, then the Dividend Rate for Series A Preferred Stock will automatically increase by 5% per annum for the next succeeding dividend period and then an additional 1% for each successive dividend period, up to a maximum Dividend Rate of 20% per annum, until the Company pays dividends at such increased rate fully in cash for two consecutive quarters.
19

Starting with the third quarter of 2017 and through the fourth quarter of 2019, the Company elected the PIK Option for the Class A-1 Preferred Stock dividend payment, which resulted in the issuance of 20,328 additional shares of Series A-1 Preferred Stock. During the first and second quarter of 2020, the Company also elected the PIK Option, which resulted in the issuance of 4,565 additional shares of Series A-1 Preferred Stock.
The Company did not declare a cash dividend for the third quarter of 2020. An amount of $3.7 million, which includes, in addition to the initial quarterly rate of 9% per annum, another 5% due to the failure to declare dividends after the twelve PIK quarters, is included on the condensed consolidated statement of loss for the three and nine months ended September 30, 2020 for undeclared cumulative preferred stock dividends.

Note 9. Stock-Based Compensation
Restricted Stock Units
Lonestar grants awards of restricted stock units ("RSUs") to employees and directors as part of its long-term compensation program. For the sixnine months ended JuneSeptember 30, 2020 and 2019, the Company recognized $(1.2) million and $1.3$2.0 million, respectively, of stock-based compensation (benefit) expense under the liability method for RSUs. The liability for RSUs on the accompanying consolidated balance sheet as of JuneSeptember 30, 2020 was $0.1 million.
As of JuneSeptember 30, 2020, there was $0.4$0.1 million of unrecognized compensation expense related to non-vested RSU grants. This unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.61.3 years. The fair value ofThere were no RSU grants that vested during the three months ended JuneSeptember 30, 2020 totaled $0.1 million.
16

2020.
A summary of the status of the Company's non-vested RSU grants issued, and the changes during the sixnine months ended JuneSeptember 30, 2020 is presented below:
SharesWeighted Average Fair Value per ShareSharesWeighted Average Fair Value per Share
Non-vested RSUs at December 31, 2019Non-vested RSUs at December 31, 20191,849,676  $4.04  Non-vested RSUs at December 31, 20191,849,676 $4.04 
GrantedGranted—  —  Granted0 0 
VestedVested(857,800) 0.65  Vested(857,800)0.65 
ForfeitedForfeited(102,623) —  Forfeited(102,623)0 
Non-vested RSUs at June 30, 2020889,253  $3.41  
Non-vested RSUs at September 30, 2020Non-vested RSUs at September 30, 2020889,253 $3.41 
Stock Appreciation Rights
In the past, Lonestar has granted awards of stock appreciation rights (“SARs”) to employees and directors as part of its long-term compensation program. For the sixnine months ended JuneSeptember 30, 2020 and 2019, the Company recognized $(0.5) million and $(0.3)$(0.1) million, respectively, of stock-based compensation (benefit) expense for SARs. The liability for SARs on the accompanying unaudited consolidated balance sheet as of JuneSeptember 30, 2020 was not material.
As of JuneSeptember 30, 2020, the total compensation cost to be recognized in future periods related to non-vested SAR grants was not material. The cost is expected to be recognized over a weighted-average period of 0.80.5 year.

20

The following is a summary of the Company's SAR activity:
SharesWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual Term
(in years)		SharesWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual Term
(in years)
Outstanding at December 31, 2019Outstanding at December 31, 20191,010,000  $6.30  2.5Outstanding at December 31, 20191,010,000 $6.30 2.5
SARs vested and exercisable at December 31, 2019SARs vested and exercisable at December 31, 2019606,250  6.65  2.4SARs vested and exercisable at December 31, 2019606,250 6.65 2.4
GrantedGranted—  —  —  Granted0 0 — 
ExercisedExercised—  —  —  Exercised0 0 — 
Expired/forfeitedExpired/forfeited—  —  —  Expired/forfeited0 0 — 
Outstanding at June 30, 20201,010,000  $6.30  2.3
SARs vested and exercisable at June 30, 2020805,000  $6.79  1.8
Outstanding at September 30, 2020Outstanding at September 30, 20201,010,000 $6.30 1.8
SARs vested and exercisable at September 30, 2020SARs vested and exercisable at September 30, 2020805,000 $6.79 1.6
Upon emergence from the Chapter 11 Cases, Company's stock-based compensation plan will be terminated and any unvested awards will be cancelled for no consideration.
Note 10. Related Party Activities
New Tech Global Ventures, LLC, and New Tech Global Environmental, LLC, companies in which a director of the Company owns a limited partnership interest, have provided field engineering staff and consultancy services for the Company since 2013. The total cost for such services was approximately $0.5$0.4 million and $0.3$0.5 million for the three months ended JuneSeptember 30, 2020 and 2019, respectively and $0.7 million and $1.3 million for the nine months ended September 30, 2020 and 2019, respectively.
In February 2019, the Company purchased a property adjacent to its corporate office for future expansion for approximately $2.0 million. The transaction was funded with cash from operations. The seller of the property is indebted to certain trusts established in favor of the children of one of the Company's directors. The Company understands that the seller may use some of the proceeds of the sale to satisfy such outstanding indebtedness, though the Company has no interest or influence over any particular outcome.
17

Note 11. Commitments and Contingencies
Lonestar has one drilling rig under contract that is currently operating, which provides
Chapter 11 Proceedings

Refer to Note 1, Basis of Presentation for a drilling rate of $19.0 thousand per day and expires on September 7, 2020. Should the Company terminate the contract early, the early termination fee totals $15.0 thousand per day times the remaining number of days leftmore information on the contract after the termination date.Chapter 11 Cases.
Litigation
From time to time, Lonestar is subject to legal proceedings and claims that arise in the ordinary course of business. Like other crude oil and gas producers and marketers, the Company's operations are subject to extensive and rapidly changing federal and state environmental, health and safety, and other laws and regulations governing air emissions, wastewater discharges and solid and hazardous waste management activities. The Company is not aware of any pending or overtly threatened legal action against it that could have a material impact on its business.
Gonzales County AMI
In February 2020, the Company announced that it had entered into a Joint Development Agreement (the "JDA") in Gonzales County with one of the largest producers in the Eagle Ford which encompass an Area of Mutual Interest (the "AMI") totaling approximately 15,000 acres.
The agreement calls for Lonestar to operate a minimum of 3 to 4 Eagle Ford Shale wells annually on behalf of the two companies through 2022 that are intended to hold-by-production approximately 6,000 gross acres within the AMI. The agreement gives Lonestar's partner the option to participate in each well with a 50% working interest or to participate via a carried working interest that ranges from approximately 9 to 17%, depending on location.

1821

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and Notes thereto included herein and our Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “Form 10-K”), along with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Form 10-K. Any terms used but not defined herein have the same meaning given to them in the Form 10-K. Our discussion and analysis includes forward-looking information that involves risks and uncertainties and should be read in conjunction with Risk Factors under Item 1A of the Form 10-K, along with Forward Looking Information at the end of this section for information on the risks and uncertainties that could cause our actual results to be materially different than our forward-looking statements.
OVERVIEW
Lonestar is an independent oil and natural gas company focused on the exploration, development and production of unconventional oil, natural gas liquids and natural gas in the Eagle Ford Shale play in South Texas.
Market Developments and Response to Commodity Price Declines
The COVID-19 coronavirus ("COVID-19") pandemic has resulted in a severe worldwide economic downturn, significantly disrupting the demand for oil throughout the world, and has created significant volatility, uncertainty and turmoil in the oil and gas industry. The decrease in demand for oil combined with the oil supply increase attributable to the battle for market share among the Organization of the Petroleum Exporting Countries ("OPEC"), Russia and other oil producing nations, resulted in oil prices declining significantly beginning in late February 2020. During this time NYMEX oil prices declined from averages in the mid-$50s per Bbl range in January and February 2020, to an average of approximately $30 per Bbl in March. NYMEX oil prices continued to decline in April 2020 to an average of $17 per Bbl in response to uncertainty about the duration of the COVID-19 pandemic and storage constraints resulting from over-supply of produced oil, before recovering to the lower-$40slower $40s per Bbl by late July after the implementation of production cuts by OPEC, significant production cuts by domestic operators, and an easement of storage capacity concerns. As of mid-November 2020, oil prices remained in the mid-$40s per Bbl due to continued downward pressure on demand because of COVID-19.
The length of this demand disruption is unknown, and there is significant uncertainty regarding the long-term impact to global oil demand, which will ultimately depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic, the length and severity of the worldwide economic downturn, additional actions by businesses and governments in response to both the pandemic and the decrease in oil prices, the speed and effectiveness of responses to combat the virus, and the time necessary to equalize oil supply and demand to restore oil pricing.

In response to these developments, we have implemented the following operational and financial measures:

1.Reduced budgeted 2020 capital spending from $80-$85 million to approximately $65 million, almost all of which hashad been incurred by the end of June 2020;
2.Deferred the remainder of our 2020 drilling program through the end of the year;
3.Implemented cost-reduction measures including negotiating reduced rates for water disposal, chemicals, rentals, and workovers;
4.Shut in or stored approximately 4,700 BOE per day of production during late-April and all of May 2020, primarily at our oil-rich fields in our Central Eagle Ford Area; and
5.Entered into additional commodities derivativesnew natural gas swaps in MarchOctober 2020 tofor January 2021 through December 2021, which hedge an additional 2,000 Bbls of oil per day at an average swap price of $41.00 per Bbl and 27,500 Mcf of natural gas10,000 MMBtu per day at an average price of $2.36$3.04 per Mcf in 2021. Our current oil hedge position covers 7,498 Bbls per day for the second quarter of 2020, 7,565 Bbls per day for the second half of 2020,MMBtu, and 7,000 Bbls per day for 2021. Our currentalso entered into natural gas swaps for January 2022 through December 2022, which hedge position covers 20,000 Mcf5,000 MMBtu per day at a weightedan average price of $2.57$2.70 per MMBtu. In November 2020, we entered into new crude oil swaps for the remaining two quarters ofDecember 2020, and 27,500 Mcfwhich hedge 4,000 barrels per day for 2021 at a weightedan average price of $2.36.

$41.08 per barrel. We also entered into new crude oil swaps for January 2021 through December 2021, which hedge 1,000 barrels per day at an average price of $42.20 per barrel. Prior to commencement of the Chapter 11 Cases (see below), we terminated and monetized our existing hedge portfolio in September 2020.
We continue to assess the global impacts of the COVID-19 pandemic and expect to continue to modify our plans as more clarity around the full economic impact of COVID-19 becomes available. See Risk Factors for further discussion of the adverse impacts of the COVID-19 pandemic on our business.

1922

Recent DevelopmentsChapter 11 Cases

On September 30, 2020, the Company and certain of its direct and indirect wholly-owned subsidiaries (collectively with the Company, the “Debtors”) commenced voluntary cases (the “Chapter 11 Cases”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). Prior to this, on September 14, 2020, we entered into a restructuring support agreement (the “RSA”) with certain holders of our 11.25% Senior Notes (defined below) and certain lenders of our Credit Facility (defined below) and Citibank, N.A., as agent, to support a restructuring in accordance with the terms set forth therein. On September 30, 2020, the Debtors also filed with the Bankruptcy Court a prepackaged chapter 11 plan of reorganization (the “Restructuring Plan”), as contemplated by the RSA, to restructure the Debtors. We expect to continue operations in the normal course for the duration of the Chapter 11 Cases. To ensure ordinary course operations, we have obtained approval from the Bankruptcy Court for certain “first day” motions, including motions to obtain customary relief intended to assure our ability to continue our ordinary course operations after the filing date. For more information on the Chapter 11 Cases and related matters, please see Note 1. Basis of Presentation in Part I, Item 1. Financial Information of this Quarterly Report. The Bankruptcy Court confirmed our Restructuring Plan on November 12, 2020.

NASDAQ Delisting

Our present level of indebtedness and the current commodity price environment present challenges to our ability to comply with the covenants in our revolving credit facility over the next twelve months and therefore substantial doubt exists that we will be able to continue as a going concern. As of June 30, 2020, we had total indebtedness of $546.3 million, including $250.0 million of Senior Notes due 2023 (the "11.25% Senior Notes”), $285.0 million under our Credit Facility (as defined below), $8.8 million under our building loan and $2.2 million for our Paycheck Protection Program loan. At August 14, 2020, we continue to have $285 million drawncommon stock was traded on the Credit Facility and have a $60.4 million borrowing base deficiency due to the terms of the Forbearance Agreement (as defined below), which redetermined our borrowing base at $225 million.

We did not satisfy the consolidated current ratio covenant under our Credit Facility as of the June 30, 2020, March 31, 2020, and December 31, 2019 measurement dates, the leverage ratio covenant as of the June 30, 2020, measurement date and we defaulted on the July 1, 2020 interest paymentNASDAQ Global Select Market (the “NASDAQ”) under the 11.25% Senior Notes (the "Payment Default") of approximately $14.1 million.Such failures represent events of default under our Credit Facility, and the Payment Default represented an event of default under the 11.25% Senior Notes on July 31, 2020, as we did not cure the Payment Default within the 30-day cure period. In addition, the audit report prepared by our auditors with respect to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 includes an explanatory paragraph expressing uncertainty as to our ability to continue as a “going concern.” This, in addition to not providing timely audited financial statements, represented an additional default under the Credit Facility. As a result, the outstanding amount of borrowings under the Credit Facility as of June 30, 2020 and December 31, 2019 have been classified as current in the accompanying condensed consolidated balance sheets because we do not anticipate maintaining compliance with the consolidated current ratio over the next twelve months.

We entered into the Waiver (as defined below) on April 7, 2020, with certain lenders and Citibank, N.A., as administrative bank, to waive the events of default relating to our failure to comply with the current ratio covenant as of December 31, 2019, to providetimely audited financial statements and to provide audited financial statements that are not subject to any “going concern” or like qualification or exception for the fiscal year ended December 31, 2019. We entered into the Thirteenth Amendment on June 11, 2020 with the lenders to waive any default and event of default relating to our failure to timely deliver the quarterly financial statements for the three months ended March 31,symbol “LONE” until October 12, 2020. Although we have entered into these waivers, there is no guarantee that our lenders will agree to waive events of default or potential events of default in the future.Our failure to meet the current ratio in the Credit Facility as of March 31, 2020, is an event of default under the Credit Facility. We received a forbearance until July 31, 2020 for the default in the consolidated current ratio covenant as of the March 31, 2020, and June 30, 2020, measurement dates, the leverage ratio covenant as of the June 30, 2020, measurement date and the Payment Default pursuant to the Forbearance Agreement.On July 31, 2020, the lenders under the Credit Facility agreed to extend the forbearance until August 21, 2020, pursuant to an amendment to the Forbearance Agreement.Also, on July 31,October 1, 2020, we received a forbearance until August 21, 2020letter from certain holders of greater than 50%the NASDAQ notifying us that, as a result of the outstanding 11.25% Senior Notes forChapter 11 Cases and in accordance with NASDAQ rules, our securities would be delisted at the Payment Default (the “Notes Forbearance Agreement”).Despiteopening of business on October 12, 2020. On October 12, 2020, our common stock commenced trading on the forbearances, the defaultsOTC Bulletin Board or "pink sheets" under the Credit Facility and the 11.25% Senior Notes are continuing, and will continue, absentsymbol “LONEQ”. NASDAQ filed a waiver from the lenders or, in case of the 11.25% Senior Notes, the Payment Default is cured.Form 25 on October 27, 2020 to delist our common stock which went into effect ten days after it was filed.

As noted above,we do not anticipate maintaining compliance with the consolidated current ratio covenant and leverage ratio covenant under our Credit Facility over the next twelve months and we are currently in forbearance with the Credit Facility and 11.25% Senior Notes until August 21. If we are unable to reach an agreement with its lenders, the lenders of the Credit Facility may choose to accelerate repayment, in addition to the $60.4 million due from the current borrowing base deficiency noted above, which in turn may result in an event of default and an acceleration of the 11.25% Senior Notes, which have a $14.1 million interest payment that was due and unpaid on July 1, 2020 (see below) that separately represents a current event of default. The Company does not currently have sufficient liquidity to repay such indebtedness, including the current borrowing base deficiency and unpaid interest payment, and is currently in talks with its lenders to restructure its existing debt obligations. We have concluded that these circumstances create substantial doubt regarding our ability to continue as a going concern.

We cannot provide any assurances that we will be successful in restructuring our existing debt obligations, and if we are unsuccessful in our efforts to restructure and obtain new financing, it may be necessary for us to seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code (“Chapter 11”), or an involuntary petition for bankruptcy may be filed against us.


20

Operational Highlights for the SecondThird Quarter of 2020
During the secondthird quarter of 2020, we achieved the following operating and financial results:
•Production decreased by 2%20% compared to the secondthird quarter of 2019, averaging 13,33914,419 BOE per day versus 13,63018,097 BOE per day. Compared to the firstsecond quarter of 2020, production decreasedincreased 8%, or 1,0971,080 BOE per day, from 14,43613,339 BOE per day. In response to the collapse in commodity prices, we shut in or stored approximately 4,700 BOE per day of production during late-April and all of May 2020, primarily in our Central Eagle Ford Area. These shut-in wells came back online during the first week of June, and we estimate that the shut-ins reduced average productionare a significant reason for the quarter by 1,700 BOE per day.quarter-to-quarter increase in production, along with new production coming online from three Hawkeye wells in the Gonzales County AMI (see below) at the end of June.
•Drilled and completed three new wells and drilled three additional uncompleted wells ("DUCs") at our Hawkeye property.wells (see below) in July.
•Continued to lower our operating expenses on a per-BOE basis. Compared to the secondthird quarter of 2019, lease operating and gas gathering and production and ad valorem taxescosts decreased on a per-BOE basis due to our continued focus on controlling costs. expenses. However, generalgeneral and administrative expensesexpenses increased significantly during the current quarter due to professional fees related to our ongoing corporate restructuring efforts.preparation for the Chapter 11 Cases.
Changes in operating results between the secondthird quarters of 2020 and 2019 were primarily driven by the following:
•Revenues decreased sharply by $35.0$21.0 million, or 67%40%, between the two quarters, primarily driven by a 66%20% decrease in commodity prices and a 2%20% decrease in production.
•G&A increased significantly by $11.7 million, or 283%, between the two quarters, primarily due to incremental professional costs incurred related to our restructuring, which individually totaled $12.4 million for the quarter.
•Compared to the secondthird quarter of 2019, lease operating and gas gathering expense decreased by 44%17% to $3.16$5.02 per BOE, production and ad valorem taxes decreased by 39%17% to $0.83$1.50 per BOE, general and administrative expense increased by 59%381% to $1.83$11.92 per BOE, and interest expense decreased $0.03increased $1.81 per BOE.
23

•Derivative financial instruments had a net loss of $21.1$9.7 million in the secondthird quarter of 2020, compared to a net gain of $9.5$21.5 million in the secondthird quarter of 2019. As noted below, prior to commencement of the Chapter 11 Cases, we terminated and monetized our outstanding hedge portfolio on September 10, 2020, which resulted in a net realized gain of approximately $30.5 million (comprised of $39.9 million for oil swaps, offset by negative $6.7 million for natural gas swaps and negative $2.7 million for interest rate swaps). Of the $30.5 million net gain, $4.2 million was associated with hedges which would have settled during the remainder of the third quarter of 2020 while the remaining $26.3 million was related to settlement periods after the current quarter.
During the secondthird quarter of 2020, we recognized net loss attributable to common stockholders of $42.9$38.5 million, or $1.70$1.52 per diluted common share, compared to net income attributable to common stockholders of $6.9$14.1 million, or $0.28$0.33 per diluted common share, in the secondthird quarter of 2019. We generated $30.4$82.7 million of cash flow from operating activities during the first sixnine months of 2020, which was $7.8$29.8 million lessmore than the $38.2$52.9 million generated by operating activities during the first sixnine months of 2019.
Gonzales County AMI
In February 2020, we entered into a Joint Development Agreement (the "JDA") in Gonzales County with one of the largest producers in the Eagle Ford which encompass an Area of Mutual Interest (the "AMI") totaling approximately 15,000 acres.
The agreement calls for Lonestar to operate a minimum of three to four Eagle Ford Shale wells annually on behalf of the two companies through 2022 that are intended to hold-by-production approximately 6,000 gross acres within the AMI. The agreement gives Lonestar's partner the option to participate in each well with a 50% working interest or to participate via a carried working interest that ranges from approximately 9 to 17%, depending on location.

In June, we began flowback operations on the Hawkeye #14H, Hawkeye #15H, and Hawkeye #16H. These wells wererecorded maximum rates over a 30-day period (“Max-30 rates”) of 1,461 BOE per day, 86% of which was crude oil. Through the first wells completed in the AMI, and were drilled to total measured depths120 days of 21,221, 20,924, and 20,228 feet, respectively. These newproduction, these wells have since cleaned up after flowback and registered the following Max-30 rates whichproduced an average 1,461 BOE/d:of 111,000 Bbls.

◦•Hawkeye #14H – With a 10,979’ perforated interval, the #14H recorded Max-30 rates of 1,186 Bbls/dBbls per day of oil, 87 Bbls/dBbls per day of NGLs, and 625 Mcf/d,Mcf per day of natural gas, or 1,377 BOE/dBOE per day on a three-stream basis and was achieved on a 30/64” choke. Currently, theThe #14H is producing 961 Bbls/dwell has been on-stream for more than four months now, and had 120-day rates have averaged 868 Bbls per day of oil, 57 Bbls/d49 Bbls per day of NGLs, 410 Mcf/dand 353 Mcf per day of natural gas, or 1,086 BOE/d976 BOE per day on a three-stream basis.

◦•Hawkeye #15H – With a 10,608’ perforated interval, the #15H#14H recorded Max-30 rates of 1,372 Bbls/dBbls per day of oil, 101 Bbls/dBbls per day of NGLs, and 729 Mcf/d,Mcf per day of natural gas, or 1,595 BOE/dBOE per day on a three-stream basis and was achieved on a 30/64” choke. Currently, theThe #15H is producing 1,062 Bbls/dhas been on-stream for more than four months now, and had 120-day rates of 970 Bbls per day of oil, 64 Bbls/d55 Bbls per day of NGLs, 459 Mcf/dand 394 Mcf per day of natural gas, or 1,205 BOE/d1,090 BOE per day on a three-stream basis.
21


basis and was achieved on a 30/64” choke.
◦•Hawkeye #16H – With a 9,885’ perforated interval, the #16H recorded Max-30 rates of 1,217 Bbls/dBbls per day of oil, 88 Bbls/dBbls per day of NGLs, and 635 Mcf/d,Mcf per day of natural gas, or 1,411 BOE/dBOE per day on a three-stream basis and was achieved on a 30/64” choke. Currently, theThe #16H is producing 970 Bbls/dhas been on-stream for more than four months now, and had 120-day rates of 958 Bbls per day of oil, 55 Bbls/d53 Bbls per day of NGLs, and 396 Mcf/d381 Mcf per day of natural gas, or 1,091 BOE/d1,074 BOE per day on a three-stream basis.basis and was achieved on a 30/64” choke.

Our joint interest partner did not participate but we ultimately expect to haveWe hold a 50% working interest and 38% net revenue interest in these wells.

In July, we completed drilling operations on the Hawkeye #33H, Hawkeye #34H, and Hawkeye #35. These wells were drilled to total measuredtotal-measured depths of 20,500 feet, 20,358 feet and 20,467 feet, respectively, and are expected to have perforated intervals averaging approximately 10,800 feet. These wells are currently held in inventory as Drilled Uncompleted ("DUC’s"). Our joint interest partner did not participate but we ultimatelyWe expect to havehold a 50% working interest and 37.5% net revenue interest in these wells.


22
24

RESULTS OF OPERATIONS
Certain of our operating results and statistics for the three and sixnine months ended JuneSeptember 30, 2020 and 2019 are summarized below:
In thousands, except per share and unit dataIn thousands, except per share and unit dataThree Months Ended June 30,Six Months Ended June 30,In thousands, except per share and unit dataThree Months Ended September 30,Nine Months Ended September 30,
2020201920202019In thousands, except per share and unit data2020201920202019
Operating ResultsOperating ResultsOperating Results
Net loss attributable to common stockholdersNet loss attributable to common stockholders$(42,901) $11,177  $(155,950) $(49,451) Net loss attributable to common stockholders$(38,473)$14,058 $(194,423)$(35,394)
Net loss per common share – basic(1)
Net loss per common share – basic(1)
(1.70) 0.28  (6.20) (1.99) 
Net loss per common share – basic(1)
(1.52)0.34 (7.70)(1.42)
Net loss per common share – diluted(1)
Net loss per common share – diluted(1)
(1.70) 0.28  (6.20) (1.99) 
Net loss per common share – diluted(1)
(1.52)0.33 (7.70)(1.42)
Net cash provided by operating activitiesNet cash provided by operating activities30,411  28,362  30,411  38,187  Net cash provided by operating activities52,320 14,686 82,731 52,873 
RevenuesRevenuesRevenues
OilOil$11,976  $44,726  $41,986  $78,310  Oil$24,524 $42,187 $66,510 $120,496 
NGLsNGLs1,762  3,549  4,362  6,942  NGLs3,202 3,439 7,565 10,381 
Natural gasNatural gas3,482  3,940  7,902  7,704  Natural gas4,383 7,519 12,285 15,224 
Total revenuesTotal revenues$17,220  $52,215  $54,250  $92,956  Total revenues$32,109 $53,145 $86,360 $146,101 
Total production volumes by productTotal production volumes by productTotal production volumes by product
Oil (Bbls)Oil (Bbls)579,179  709,361  1,237,680  1,299,457  Oil (Bbls)661,465 725,405 1,899,145 2,024,862 
NGLs (Bbls)NGLs (Bbls)267,462  263,994  570,933  481,555  NGLs (Bbls)305,920 387,256 876,853 868,811 
Natural gas (Mcf)Natural gas (Mcf)2,203,209  1,601,656  4,313,625  2,896,860  Natural gas (Mcf)2,154,969 3,313,757 6,468,594 6,210,617 
Total barrels of oil equivalent (6:1)Total barrels of oil equivalent (6:1)1,213,843  1,240,298  2,527,551  2,263,822  Total barrels of oil equivalent (6:1)1,326,547 1,664,954 3,854,097 3,928,776 
Daily production volumes by productDaily production volumes by productDaily production volumes by product
Oil (Bbls/d)Oil (Bbls/d)6,365  7,795  6,800  7,179  Oil (Bbls/d)7,190 7,885 6,931 7,417 
NGLs (Bbls/d)NGLs (Bbls/d)2,939  2,901  3,137  2,661  NGLs (Bbls/d)3,325 4,209 3,200 3,182 
Natural gas (Mcf/d)Natural gas (Mcf/d)24,211  17,601  23,701  16,005  Natural gas (Mcf/d)23,424 36,019 23,608 22,750 
Total barrels of oil equivalent (BOE/d)Total barrels of oil equivalent (BOE/d)13,339  13,630  13,888  12,507  Total barrels of oil equivalent (BOE/d)14,419 18,097 14,066 14,391 
Average realized pricesAverage realized pricesAverage realized prices
Oil ($ per Bbl)Oil ($ per Bbl)$20.68  $63.05  $33.92  $60.26  Oil ($ per Bbl)$37.08 $58.16 $35.02 $59.51 
NGLs ($ per Bbl)NGLs ($ per Bbl)6.59  13.44  7.64  14.42  NGLs ($ per Bbl)10.47 8.88 8.63 11.95 
Natural gas ($ per Mcf)Natural gas ($ per Mcf)1.58  2.46  1.83  2.66  Natural gas ($ per Mcf)2.03 2.27 1.90 2.45 
Total oil equivalent, excluding the effect from commodity derivatives ($ per BOE)Total oil equivalent, excluding the effect from commodity derivatives ($ per BOE)14.19  42.10  21.46  41.06  Total oil equivalent, excluding the effect from commodity derivatives ($ per BOE)24.20 31.92 22.41 37.19 
Oil equivalent price impact of settled hedges ($ per BOE)Oil equivalent price impact of settled hedges ($ per BOE)33.23 (0.33)19.04 (1.41)
Total oil equivalent, including the effect from commodity derivatives ($ per BOE)Total oil equivalent, including the effect from commodity derivatives ($ per BOE)31.22  38.63  32.88  38.86  Total oil equivalent, including the effect from commodity derivatives ($ per BOE)57.43 31.59 41.45 35.78 
Operating and other expensesOperating and other expensesOperating and other expenses
Lease operating and gas gathering$4,903  $8,929  $14,692  $16,638  
Lease operatingLease operating$4,763 $8,948 $16,430 $23,472 
Gas gathering, processing and transportationGas gathering, processing and transportation1,891 1,107 4,916 3,223 
Production and ad valorem taxesProduction and ad valorem taxes1,721  2,818  4,091  5,109  Production and ad valorem taxes1,994 3,017 6,084 8,126 
Depreciation, depletion and amortizationDepreciation, depletion and amortization16,575  21,515  40,929  39,486  Depreciation, depletion and amortization18,256 24,635 59,184 64,120 
General and administrativeGeneral and administrative5,981  3,841  8,856  8,221  General and administrative15,808 4,124 24,664 12,345 
Interest expenseInterest expense10,512  10,778  22,122  21,434  Interest expense11,399 11,295 33,521 32,730 
Operating and other expenses per BOEOperating and other expenses per BOEOperating and other expenses per BOE
Lease operating and gas gathering$4.04  $7.20  $5.81  $7.35  
Lease operatingLease operating$3.59 $5.37 $4.26 $5.97 
Gas gathering, processing and transportationGas gathering, processing and transportation1.43 0.66 1.28 0.82 
Production and ad valorem taxesProduction and ad valorem taxes1.42  2.27  1.62  2.26  Production and ad valorem taxes1.50 1.81 1.58 2.07 
Depreciation, depletion and amortizationDepreciation, depletion and amortization13.65  17.35  16.19  17.44  Depreciation, depletion and amortization13.76 14.80 15.36 16.32 
General and administrativeGeneral and administrative4.93  3.10  3.50  3.63  General and administrative11.92 2.48 6.40 3.14 
Interest expenseInterest expense8.66  8.69  8.75  9.47  Interest expense8.59 6.78 8.70 8.33 

(1)    Basic and diluted earnings per share are calculated using the two-class method. See FootnoteNote 1. Basis of Presentation in the Notes to Unaudited Condensed Consolidated Financial Statements included in Item 1.

2325

Production
The table below summarizes our production volumes for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended September 30,Nine Months Ended September 30,
20202019Change20202019Change20202019Change20202019Change
Oil (Bbls/d)Oil (Bbls/d)6,365  7,795  (18)%6,800  7,179  (5)%Oil (Bbls/d)7,190 7,885 (9)%6,931 7,417 (7)%
NGLs (Bbls/d)NGLs (Bbls/d)2,939  2,901  1 %3,137  2,661  18 %NGLs (Bbls/d)3,325 4,209 (21)%3,200 3,182 1 %
Natural gas (Mcf/d)Natural gas (Mcf/d)24,211  17,601  38 %23,701  16,005  48 %Natural gas (Mcf/d)23,424 36,019 (35)%23,608 22,750 4 %
Total (BOE/d)Total (BOE/d)13,339  13,630  (2)%13,888  12,507  11 %Total (BOE/d)14,419 18,097 (20)%14,066 14,391 (2)%
Total production during the secondthird quarter of 2020 averaged 13,33914,419 BOE per day, a decrease of 2%20%, or 2913,678 BOE per day, compared to the same period in 2019. This decrease was primarily driven by slower development of our Eagle Ford acreage inThe Company has not brought any additional wells online since the current quarterHawkeye #14, #15 and shutting in a significant amount of production (which effected average daily production for the quarter by approximately 1,700 BOE per day) in our oi-rich Central Eagle Ford region during late April through#16 started producing at the end of Maythe second quarter. This lack of additional production coming on-line from new completions, as well as an overall decline in production due to the Company's reduced drilling schedule through the first half of 2020, both in responsecontributed to lower commodity prices that started during March of 2020. the decline between the two quarters.
Total production during the first sixnine months of 2020 averaged 13,88814,066 BOE per day, an increasea decrease of 11%2%, or 1,381325 BOE per day, compared to the same period in 2019. Compared to the second quarter of 2020, the year-to-date production for 2020 includes the benefit of higherHigher relative production during the first quarter of 2020 resulting from the year beforeCompany's two-rig drilling program through the end of 2019 was largely offset by the declines noted above for the third quarter, as well as the effects of production shut-in noted above occurred in April.
Our production during the second quarter of 2020 due to low commodity prices.
Our production during the third quarter of 2020 was 70%73% oil and NGLs, compared to 78%70% during the secondthird quarter of 2019.
Oil, Natural Gas Liquid and Natural Gas Revenues
The table below summarizes our production revenues for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
In thousandsIn thousandsThree Months Ended June 30,Six Months Ended June 30,In thousandsThree Months Ended September 30,Nine Months Ended September 30,
20202019Change20202019ChangeIn thousands20202019Change20202019Change
OilOil$11,976  $44,726  (73)%$41,986  $78,310  (46)%Oil$24,524 $42,187 (42)%$66,510 $120,496 (45)%
NGLsNGLs1,762  3,549  (50)%4,362  6,942  (37)%NGLs3,202 3,439 (7)%7,565 10,381 (27)%
Natural gasNatural gas3,482  3,940  (12)%7,902  7,704  3 %Natural gas4,383 7,519 (42)%12,285 15,224 (19)%
Total revenuesTotal revenues$17,220  $52,215  (67)%$54,250  $92,956  (42)%Total revenues$32,109 $53,145 (40)%$86,360 $146,101 (41)%
Our oil, NGL and natural gas revenues during the three months ended JuneSeptember 30, 2020 decreased $35.0$21.0 million, or 67%40%, compared to those revenues for the same period in 2019. For the sixnine months ended JuneSeptember 30, 2020, our oil, NGL and natural gas revenues decreased $38.8$59.7 million, or 42%41%, compared to the same period in 2019. The changes in our oil, NGL and natural gas revenues are due to changes in production quantities and commodity prices (excluding any impact of our commodity derivative contracts), as reflected in the following table:
In thousandsIn thousandsThree Months Ended June 30, 2020 vs 2019Six Months Ended June 30, 2020 vs 2019In thousandsThree Months Ended September 30, 2020 vs 2019Nine Months Ended September 30, 2020 vs 2019
Three Months Ended September 30, 2020 vs 2019Nine Months Ended September 30, 2020 vs 2019
Decrease in RevenuesPercentage Decrease in RevenuesIncrease (Decrease) in RevenuesPercentage Increase (Decrease) in RevenuesIn thousandsDecrease in RevenuesPercentage Decrease in RevenuesDecrease in Revenues
Change in oil, NGL and natural gas revenues due to:Change in oil, NGL and natural gas revenues due to:Change in oil, NGL and natural gas revenues due to:
(Decrease) increase in production$(1,114) (2)%$10,829  12 %
Decrease in productionDecrease in production$(10,802)(20)%$(2,777)(2)%
Decrease in commodity pricesDecrease in commodity prices(33,881) (66)%(49,535) (53)%Decrease in commodity prices(10,234)(20)%(56,964)(39)%
Total change in oil, NGL and natural gas revenuesTotal change in oil, NGL and natural gas revenues$(34,995) (68)%$(38,706) (42)%Total change in oil, NGL and natural gas revenues$(21,036)(40)%$(59,741)(41)%
2426

Excluding the impact of our commodity derivative contracts, our net realized commodity prices and NYMEX differentials were as follows during the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended September 30,Nine Months Ended September 30,
20202019Change20202019Change20202019Change20202019Change
Average net realized priceAverage net realized priceAverage net realized price
Oil ($/Bbl)Oil ($/Bbl)$20.68  $63.05  (67)%$33.92  $60.26  (44)%Oil ($/Bbl)$37.08 $58.16 (36)%$35.02 $59.51 (41)%
NGLs ($/Bbls)NGLs ($/Bbls)6.59  13.44  (51)%7.64  14.42  (47)%NGLs ($/Bbls)10.47 8.88 18 %8.63 11.95 (28)%
Natural gas ($/Mcf)Natural gas ($/Mcf)1.58  2.46  (36)%1.83  2.66  (31)%Natural gas ($/Mcf)2.03 2.27 (10)%1.90 2.45 (23)%
Total ($/BOE)Total ($/BOE)14.19  42.10  (66)%21.46  41.06  (48)%Total ($/BOE)24.20 31.92 (24)%22.41 37.19 (40)%
Average NYMEX differentialsAverage NYMEX differentialsAverage NYMEX differentials
Oil per BblOil per Bbl$(7.17) $3.24  (321)%$(3.09) $2.90  (206)%Oil per Bbl$(3.86)$1.71 (326)%$(3.31)$2.69 (223)%
Natural gas per McfNatural gas per Mcf(0.13) (0.10) 30 %0.02  (0.08) (127)%Natural gas per Mcf0.03 (0.11)(127)%0.03 (0.16)(119)%
The average wellhead price for our production in the three months ended JuneSeptember 30, 2020 was $14.19$24.20 per BOE, a 66%24% decrease compared to the average price for the comparable period in 2019. The realized wellhead price for the sixnine months ended JuneSeptember 30, 2020 was $21.46$22.41 per BOE, a 48%40% decrease compared to the average price of the comparable period in 2019. Reported wellhead realizations were driven lower by a decrease in the crude oil and natural gas benchmark prices between the periods, in addition to a significantly lower NYMEX oil differential. Our realized NGL price was $6.59$10.47 per Bbl and $8.63 per Bbl, or 32%26% and 23% of NYMEX WTI.WTI, respectively, for the three and nine months ended September 30, 2019, respectively.
Our average NYMEX oil differential decreased quarter over quarter by $10.41$5.57 per Bbl.Bbl and $6.00 per Bbl when comparing the year-to-date periods. Differentials were impacted significantly during the quartercurrent year as a result of the April 2020 price collapse that saw WTI drop to approximately negative $40 per Bbl at one point. This led to temporary storage restraints at purchasers which caused marketing rates to increase as high as $10 per Bbl. The drastic change in price also created sharp, yet temporary, changes in oil related differentials that fell to approximately negative $8 per Bbl in May 2020. Although WTI prices recovered to the mid-$40s as of September 30, 2019, they are still significantly below where they were a year ago.
Our natural gas NYMEX differentials are generally caused by movement in the NYMEX natural gas prices during the month, as most of our natural gas is sold on an index price that is set near the first of each month. While the percentage change in NYMEX natural gas differentials can be large, these differentials are seldom more than a dollar above or below NYMEX price.
Commodity Derivative Contracts
We utilize oil and natural gas derivative contracts to provide an economic hedge of our exposure to commodity price risk associated with anticipated future production and to provide more certainty to our future cash flows. These contracts have historically consisted of fixed-price swaps, collars and basis swaps.
27

The following table summarizes the net cash receipts (payments) receipts on the Company's commodity derivatives and the relative price impact (per Bbl or Mcf) for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Nine Months Ended September 30,
20202019202020192020201920202019
In thousands, except price impactIn thousands, except price impactNet realized settlementsPrice impactNet realized settlementsPrice impactNet realized settlementsPrice impactNet realized settlementsPrice impactIn thousands, except price impactNet realized settlementsPrice impactNet realized settlementsPrice impactNet realized settlementsPrice impactNet realized settlementsPrice impact
(Payments) receipts on settlements of oil derivatives$21,400  $36.95  $(5,066) $(7.14) $21,261  $17.18  $(4,603) $(3.54) 
Receipts on settlements of natural gas derivatives1,491  0.68  178  0.11  2,455  0.57  1,024  0.35  
Receipts (payments) on settlements of oil derivativesReceipts (payments) on settlements of oil derivatives$51,319 $77.58 $(1,022)$(1.41)$72,580 $38.22 $(5,627)$(2.78)
(Payments) receipts on settlements of natural gas derivatives(Payments) receipts on settlements of natural gas derivatives(5,644)(2.62)178 0.05 (3,189)(0.49)1,769 0.28 
Total net commodity derivative settlementsTotal net commodity derivative settlements$22,891  $(4,888) $23,716  $(3,579) Total net commodity derivative settlements$45,675 $(844)$69,391 $(3,858)
Our realized net gain on commodity derivative contracts was $20.5$44.0 million and $28.7$73.3 million for the three and sixnine months ended JuneSeptember 30, 2020. Included in those amounts is $33.2 million, net ($39.9 million in oil hedges and negative $6.7 million in natural gas hedges, gross), which was realized upon termination of our hedging portfolio in September 2020 prior to the commencement of the Chapter 11 Cases We realized an average gain of $17.03$33.23 and $11.42$19.04 per BOE on our oil and natural gas swaps during the three and sixnine months ended JuneSeptember 30, 2020, respectively, as compared to an average loss of $4.35$0.33 and $2.79$1.41 per BOE for the three and sixnine months ended JuneSeptember 30, 2019.
25

Subsequent to filing the Restructuring Plan, the Company entered into new natural gas swaps in October 2020 for January 2021 through December 2021, which hedge 10,000 MMBtu per day at an average price of $3.04 per MMBtu, and also entered into natural gas swaps for January 2022 through December 2022, which hedge 5,000 MMBtu per day at an average price of $2.70 per MMBtu. In November 2020, we entered into new crude oil swaps for December 2020, which hedge 4,000 barrels per day at an average price of $41.08 per barrel. We also entered into new crude oil swaps for January 2021 through December 2021, which hedge 1,000 barrels per day at an average price of $42.20 per barrel. We will continue to rebuild its hedge portfolio going forward as economic conditions warrant.
Production Expenses
The table below presents detail of production expenses for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
In thousands, except expense per BOEIn thousands, except expense per BOEThree Months Ended June 30,Six Months Ended June 30,In thousands, except expense per BOEThree Months Ended September 30,Nine Months Ended September 30,
20202019Change20202019ChangeIn thousands, except expense per BOE20202019Change20202019Change
Production expensesProduction expensesProduction expenses
Lease operating and gas gathering$4,903  $8,929  (45)%$14,692  $16,638  (12)%
Lease operatingLease operating$4,763 $8,948 (47)%$16,430 $23,472 (30)%
Gas gathering, processing and transportationGas gathering, processing and transportation1,891 1,107 71 %4,916 3,223 53 %
Production and ad valorem taxesProduction and ad valorem taxes1,721  2,818  (39)%4,091  5,109  (20)%Production and ad valorem taxes1,994 3,017 (34)%6,084 8,126 (25)%
Depreciation, depletion and amortizationDepreciation, depletion and amortization16,575  21,515  (23)%40,929  39,486  4 %Depreciation, depletion and amortization18,256 24,635 (26)%59,184 64,120 (8)%
Production expenses per BOEProduction expenses per BOEProduction expenses per BOE
Lease operating and gas gathering$4.04  $7.20  (44)%$5.81  $7.35  (21)%
Lease operatingLease operating$3.59 $5.37 (33)%$4.26 $5.97 (29)%
Gas gathering, processing and transportationGas gathering, processing and transportation1.43 0.66 114 %1.28 0.82 55 %
Production and ad valorem taxesProduction and ad valorem taxes1.42  2.27  (38)%1.62  2.26  (28)%Production and ad valorem taxes1.50 1.81 (17)%1.58 2.07 (24)%
Depreciation, depletion and amortizationDepreciation, depletion and amortization13.65  17.35  (21)%16.19  17.44  (7)%Depreciation, depletion and amortization13.76 14.80 (7)%15.36 16.32 (6)%
28

Lease Operating and Gas Gathering, Processing and Transportation
The table below provides detail of our lease operating and gas gathering, expenseprocessing and transportation expenses for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
In thousandsIn thousandsThree Months Ended June 30,Six Months Ended June 30,In thousandsThree Months Ended September 30,Nine Months Ended September 30,
20202019Change20202019ChangeIn thousands20202019Change20202019Change
Lease operatingLease operating$4,028  $7,692  (48)%$11,667  $14,522  (20)%Lease operating$4,763 $8,948 (47)%$16,430 $23,472 (30)%
Gas gathering, processing and transportationGas gathering, processing and transportation875  1,237  (29)%3,025  2,116  43 %Gas gathering, processing and transportation1,891 1,107 71 %4,916 3,223 53 %
Total lease operating and gas gathering expense$4,903  $8,929  (45)%$14,692  $16,638  (12)%
Total lease operating and gas gathering, processing and transportation expensesTotal lease operating and gas gathering, processing and transportation expenses$6,654 $10,055 (34)%$21,346 $26,695 (20)%

Lease operating and gas gathering, processing and transportation expenses are the costs incurred in the operation of producing properties and workover costs. Expenses for direct labor, water injection and disposal, utilities, materials and supplies comprise the most significant portion of our lease operating expenses. Lease operating expenses do not include general and administrative expenses or production and ad valorem taxes.
Our lease operating and gas gathering, expenseprocessing and transportation expenses decreased $4.0$3.4 million, or 45%51%, for the three months ended JuneSeptember 30, 2020 to $4.9$6.7 million from $8.9$10.1 million in the comparable period in 2019. On a six-monthnine-month comparative basis, these expenses decreased $1.9$5.4 million, or 12%20%, from $16.6$26.7 million in 2019 to $14.7$21.3 million in 2020. On a unit-of-production basis, lease operating and gas gathering expense decreased 44%33%, or $3.16$1.78 per BOE, from $7.20$5.37 per BOE in the three months ended JuneSeptember 30, 2019 to $4.04$3.59 per BOE in the three months ended JuneSeptember 30, 2020. On a six-monthnine-month comparative basis, these expenses decreased 21%18%, or $1.54$1.25 per BOE, from $7.35$6.79 per BOE for the sixnine months ended JuneSeptember 30, 2019 to $5.81$5.54 per BOE for the sixnine months ended JuneSeptember 30, 2020. Starting in March 2020, we deferred most workover operations and replaced all third-party roustabout crews with company employees. We also significantly cut field labor overtime and third-party costs for water disposal, chemicals and rentals. Gas gathering, processing and transportation expense increased for both the three and nine-month periods due to the Company utilizing additional gas processing units starting in late 2019.
Compared to the firstsecond quarter of 2020, lease operating and gas gathering, expense decreased 50%processing and transportation expenses increased 37%, or $4.9$1.8 million. On a unit-of-production basis, these expenses increased 46%24%, or $3.41$0.98 per BOE, from the firstsecond quarter of 2020.

26

Production and Ad Valorem Taxes
Production taxes are paid on produced crude oil and natural gas based upon a percentage of gross revenues or at fixed rates established by state or local taxing authorities. In general, the production taxes we pay correlate to the changes in oil and natural gas revenues. We are also subject to ad valorem taxes in the counties where our production is located. Ad valorem taxes are generally based on the valuation of our oil and natural gas properties.

The following table provides detail of our production and ad valorem taxes for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended September 30,Nine Months Ended September 30,
In thousandsIn thousands20202019Change20202019ChangeIn thousands20202019Change20202019Change
Production taxesProduction taxes$729  $2,312  (68)%$2,055  $4,098  (50)%Production taxes$1,343 $1,860 (28)%$3,398 $5,958 (43)%
Ad valorem taxesAd valorem taxes992  506  96 %2,036  1,011  101 %Ad valorem taxes651 1,157 (44)%2,687 2,168 24 %
Total production and ad valorem tax expenseTotal production and ad valorem tax expense$1,721  $2,818  (39)%$4,091  $5,109  (20)%Total production and ad valorem tax expense$1,994 $3,017 (34)%$6,084 $8,126 (25)%
29

Our total production and ad valorem tax expense decreased 39%34%, or $1.1$1.0 million, between the three months ended March 31,September 30, 2020 and 2019. On a six-monthnine-month comparative basis, these expenses decreased 20%25%, or $1.0$2.0 million, from $5.1$8.1 million in 2019 to $4.1$6.1 million in 2020. Production taxes were lower in the current period due to significantly lower revenues, caused by lower commodity prices and production as discussed above. Ad valorumvalorem taxes were higher in the current periodyear due to higher appraisedestimated appraisal values for our properties. On a unit-of-production basis, production and ad valorem tax expense decreased 38%17%, or $0.85$0.31 per BOE, from $2.27$1.81 per BOE in the three months ended JuneSeptember 30, 2019 to $1.42$1.50 per BOE in the three months ended JuneSeptember 30, 2020. On a six-monthnine-month comparative basis, these expenses decreased 28%24%, or $0.64$0.49 per BOE, from $2.26$2.07 per BOE for the sixnine months ended June 30, 2019 to $1.62$1.58 per BOE for the sixnine months ended June 20,September 30, 2020. These decreases in the per-BOE rate are attributable to lower commodity prices received for our production in the current period, as further discussed above.
Compared to the firstsecond quarter of 2020, production and ad valorem taxes decreased $1.1increased $0.3 million, or 39%16%. This decreaseincrease correlates with the decreaseincrease in production revenues between the two quarters.quarters, as a significant amount of the Company's production was shut-in during the second quarter due to low commodity prices, as discussed further above. On a unit-of-production basis, these expenses decreased 21%increased 5%, or $0.38$0.08 per BOE, from the firstsecond quarter of 2020.
Depreciation, Depletion and Amortization
The table below provides detail of our depreciation, depletion and amortization ("DD&A") expense for the three and sixnine months ended JuneSeptember 30, 2020 and 2019.
In thousandsIn thousandsThree Months Ended June 30,Six Months Ended June 30,In thousandsThree Months Ended September 30,Nine Months Ended September 30,
20202019Change20202019ChangeIn thousands20202019Change20202019Change
Depletion of proved oil and gas propertiesDepletion of proved oil and gas properties$15,925  $21,079  (24)%$39,607  $38,636  3 %Depletion of proved oil and gas properties$17,512 $24,178 (28)%$57,113 $62,813 (9)%
Depreciation of other property and equipmentDepreciation of other property and equipment383  357  7 %746  693  8 %Depreciation of other property and equipment425 378 12 %1,171 1,071 9 %
Accretion of asset retirement obligationsAccretion of asset retirement obligations267  79  238 %576  157  267 %Accretion of asset retirement obligations319 79 304 %900 236 281 %
Total DD&A expenseTotal DD&A expense$16,575  $21,515  (23)%$40,929  $39,486  4 %Total DD&A expense$18,256 $24,635 (26)%$59,184 $64,120 (8)%
Capitalized costs attributed to our proved properties are subject to depreciation and depletion calculated using the unit-of-production method. For leasehold acquisition costs and the cost to acquire proved properties, the reserve base used to calculate depreciation and depletion is the sum of proved developed reserves and proved undeveloped reserves. For well costs, the reserve base used to calculate depletion and depreciation is proved developed reserves only. Other property and equipment are carried at cost, and depreciation is calculated using the straight-line method over the estimated useful lives of the assets, ranging from three to five years.
DDD&A expense for the three months ended JuneSeptember 30, 2020 was $16.6$18.3 million, a 23%26% decrease from $21.5$24.6 million in the comparable period in 2019. On a unit-of-production basis, DD&A decreased 21%8%, or $3.70$1.04 per BOE, from $17.35$14.80 per BOE for the three months ended JuneSeptember 30, 2019 to $13.65$13.76 per BOE for the three months ended JuneSeptember 30, 2020. On a six-monthnine-month comparative basis, these expenses increased $1.0$4.9 million, or 3%8%, from $38.6$64.1 million for the sixnine months ended JuneSeptember 30, 2019 to $39.6$59.2 million for the sixnine months ended JuneSeptember 30, 2020. On a six-month comparativeunit-of-production basis, these expenses decreased 7%6% or $1.25$0.96 per BOE, from $17.44$16.32 per BOE for the sixnine months ended JuneSeptember 30, 2019, to $16.19$15.36 per BOE for the sixnine months ended
27

June September 30, 2020. This decrease isThese decreases are largely due to impairment charges we incurred during the first quarter of 2020 after removing PUDs (see below), as well as lower production between the two periods.

Compared to the firstsecond quarter of 2020, DD&A expense decreased $7.8increased $1.7 million. On a unit-of-production basis, DD&A decreased by $4.89$0.11 per BOE, or 26%1%, from the firstsecond quarter of 2020.

Loss on Sale of Oil and Gas Properties
In March 2019, we completed the divestiture of its Pirate assets in Wilson County for an adjusted cash purchase price of $11.5 million, after closing adjustments, to a private third-party. The assets were comprised of 3,400 net undeveloped acres, six producing wells, held seven proved undeveloped locations as of the closing date, and were producing approximately 200 BOE/d. We recognized a loss of $33.5 million during the first quarter of 2019 in conjunction with the sale of the assets.

30

Impairment of Oil and Gas Properties
We evaluate impairment of proved and unproved oil and gas properties on a region basis. On this basis, certain regions may be impaired because they are not expected to recover their entire carrying value from future net cash flows.
During the first quarter of 2020, we recorded impairment charges totaling approximately $199.9 million across various Eagle Ford properties, of which $199.0 million was proved and $0.9 million was unproved. These impairments resulted from removing PUDs and probable reserves from future development plans due to the continued depressed commodity prices and the uncertainly of Company's liquidity situation.
It is reasonably possible that the Company's estimate of undiscounted future net cash flows may change in the future resulting in the need to impair the carrying value of its properties. See Part II Item 1A. Risk Factors, for further discussion.
General and Administrative
General and administrative ("G&A") expense increased $2.2$11.7 million, or 33%283%, to $6.0$15.8 million in the three months ended JuneSeptember 30, 2020, from $3.8$4.1 million for the comparable period in 2019. On a unit-of-production basis, G&A expense increased 59%381%, or $1.83$9.44 per BOE, from $3.10$2.48 per BOE for the three months ended JuneSeptember 30, 2019 to $4.93$11.92 per BOE for the three months ended JuneSeptember 30, 2020. On a six-monthnine-month comparative basis, G&A increased $0.6$12.3 million, or 8%100%, between the two periods. On a unit-of-production basis, these expenses increased 104%, or $3.26 per BOE, from $3.14 per BOE for the nine months ended September 30, 2019, to $6.40 per BOE for the nine months ended September 30, 2020. These increases primarily reflect professional fees incurred related to our restructuring efforts during the second quarter of 2020. The increase between the six-month periods also includes, to a lesser extent, gains in stock-based compensation during the first quarterand third quarters of 2020, partially offset by higher compensation expense. On a six-month comparative basis, these expenses decreased 4%, or $1.25 per BOE, from $3.63 per BOEwhich totaled $12.4 million and $14.3 million for the sixthree and nine months ended JuneSeptember 30, 2019, to $3.50 per BOE for the six months ended June 30, 2020.2020, respectively.

Compared to the firstsecond quarter of 2020, G&A expense for the three months ended JuneSeptember 30, 2020 increased $3.1$9.8 million, or 107%164%. On a unit-of-production basis, G&A expense increased by $2.74$6.99 per BOE, or 125%142%, from the firstsecond quarter of 2020.


28

Interest Expense
The table below provides detail of the interest expense for our various long-term obligations for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
In thousandsIn thousandsThree Months Ended June 30,Six Months Ended June 30,In thousandsThree Months Ended September 30,Nine Months Ended September 30,
20202019Change20202019ChangeIn thousands20202019Change20202019Change
Interest expense on 11.25% Senior NotesInterest expense on 11.25% Senior Notes$7,031  $7,031  — %$14,062  $14,062  — %Interest expense on 11.25% Senior Notes$7,032 $7,032 — %$21,094 $21,094 — %
Interest expense on Credit FacilityInterest expense on Credit Facility2,664  2,999  (11)%6,356  5,823  9 %Interest expense on Credit Facility3,642 3,494 4 %10,234 9,317 10 %
Other interest expenseOther interest expense211  132  60 %329  232  42 %Other interest expense98 136 (28)%191 368 (48)%
Total cash interest expense (1)
Total cash interest expense (1)
$9,906  $10,162  (3)%$20,747  $20,117  3 %
Total cash interest expense (1)
$10,772 $10,662 1 %$31,519 $30,779 2 %
Amortization of debt issuance costs and discountsAmortization of debt issuance costs and discounts606  616  (2)%1,375  1,317  4 %Amortization of debt issuance costs and discounts627 633 (1)%2,002 1,950 3 %
Total interest expenseTotal interest expense$10,512  $10,778  (2)%$22,122  $21,434  3 %Total interest expense$11,399 $11,295 1 %$33,521 $32,729 2 %
Per BOE:Per BOE:Per BOE:
Total cash interest expenseTotal cash interest expense$8.16  $8.19  — %$8.21  $8.89  (8)%Total cash interest expense$8.12 $6.40 27 %$8.18 $7.83 4 %
Total interest expenseTotal interest expense8.66  8.69  — %8.75  9.47  (8)%Total interest expense8.59 6.78 27 %8.70 8.33 4 %
(1) Cash interest is presented on an accrual basis.
Our total interest expense in the three months ended JuneSeptember 30, 2020 was $10.5$11.4 million, an 2% decrease1% increase from $10.8$11.3 million in the comparable period in 2019. This decreaseslight increase is primarily due to lower interest rates on our Credit Facility (as defined below), mostly offset by a higher outstanding balance on the Credit Facility in the current quarter. On a six-monthnine-month comparative basis, total interest expense increased $0.6$0.8 million, or 3%2%, between the two periods.
On a unit-of-production basis, total interest expense decreased slightly at $0.03increased 27%, or $1.81 per BOE, from $8.69$6.78 per BOE in the three months ended JuneSeptember 30, 2019 to $8.66$8.59 per BOE in the three months ended JuneSeptember 30, 2020. On a six-monthnine-month comparative basis, total interest expense decreased 8%increased 4%, or $0.72$0.37 per BOE, from $9.47$8.33 per BOE for the sixnine months ended JuneSeptember 30, 2019 to $8.75$8.70 per BOE for the sixnine months ended JuneSeptember 30, 2020.
31

Compared to the firstsecond quarter of 2020, interest expense for the three months ended JuneSeptember 30, 2020 decreasedincreased by $1.1$0.9 million, primarily due to lower interest rateshigher average borrowings on our Credit Facility. On a unit-of-production basis, interest expense decreased 9%1%, or $1.93$0.07 per BOE, from the firstsecond quarter of 2020. These decreases are primarily
As noted above, we did not make our $14.1 million cash interest payment due on July 1, 2020 for the 11.25% senior notes, and additional interest expense for the 11.25% Senior Notes will not be recorded subsequent to a decrease in floating interest ratescommencement of the Chapter 11 Cases on our Credit Facility between the quarters.September 30, 2020.
Income Taxes
The following table provides further detail of our income taxes for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
In thousands, except per-BOE amounts and tax ratesIn thousands, except per-BOE amounts and tax ratesThree Months Ended June 30,Six Months Ended June 30,In thousands, except per-BOE amounts and tax ratesThree Months Ended September 30,Nine Months Ended September 30,
2020201920202019In thousands, except per-BOE amounts and tax rates2020201920202019
Current income tax benefit$4,332  $34  $4,756  $44  
Deferred income tax (expense) benefit—  (1,234) 931  11,688  
Current income tax benefit (expense)Current income tax benefit (expense)$49 $(18)$4,999 $26 
Deferred income tax benefit (expense)Deferred income tax benefit (expense)— (4,749)737 6,940 
Total income tax benefit (expense)Total income tax benefit (expense)$4,332  $(1,200) $5,687  $11,732  Total income tax benefit (expense)$49 $(4,767)$5,736 $6,966 
Average income tax benefit (expense) per BOEAverage income tax benefit (expense) per BOE$3.57  $(0.97) $2.25  $5.18  Average income tax benefit (expense) per BOE$0.04 $(2.86)$1.49 $1.77 
Effective tax rateEffective tax rate9.6 %8.3 %15.8 %20.6 %Effective tax rate0.1 %22.7 %3.0 %19.3 %
Total net deferred tax liability on balance sheet at period endTotal net deferred tax liability on balance sheet at period end$—  $682  Total net deferred tax liability on balance sheet at period end$— $5,387 
As a result of the loss before income taxes of $44.9$34.9 million and $157.1$191.9 million for the three and sixnine months ended JuneSeptember 30, 2020, respectively, we recorded income tax benefit of $4.3$0.1 million and $5.7 million, respectively. As a result of the net income before income taxes of $14.5$21.0 million for the three months ended JuneSeptember 30, 2019 and net loss before income taxes of $57.0$36.0 million for the sixnine months ended JuneSeptember 30, 2019, we recorded income tax expense of $1.2$4.8 million and income tax benefit $11.7$7.0 million, respectively.

29

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to provide certain taxpayer relief as a result of the COVID-19 pandemic. The CARES Act included several favorable provisions that impacted income taxes, primarily the modified rules on the deductibility of business interest expense for 2019 and 2020, a five-year carryback period for net operating losses generated after 2017 and before 2021, and the acceleration of refundable alternative minimum tax credits. The CARES Act did not materially impact our effective tax rate for the three and sixnine months ended JuneSeptember 30, 2020.
Our deferred tax assets exceeded our deferred tax liabilities at JuneSeptember 30, 2020 primarily due to tax consequences of the impairment of our proved properties during the first quarter of 2020; as a result, we retained a full valuation allowance of $40.1$44.9 million at JuneSeptember 30, 2020 due to uncertainties regarding the future realization of our deferred tax assets. The valuation allowance is also the primary cause for the variance between our statutory tax rate of 21% and the effective tax rates of 9.4%0.1% and 15.8%3.0% for the three and sixnine months ended JuneSeptember 30, 2020, respectively. The valuation allowance will continue to be recognized until the realization of future deferred tax benefits is determined to be more likely than not.
We have prepared and filed a net operating loss carryback claim on which a refund of $4.4 million has been requested for taxes originally paid with our 2016 income tax return. Due to the full valuation allowance recorded against our net deferred tax asset, we have recognized income tax benefit of $4.4 million to record the expected refund. The $4.4 million receivable has been classified as a current income tax receivable in Prepaid Expenses and Other on our JuneSeptember 30, 2020 balance sheet.

3032

CAPITAL RESOURCES AND LIQUIDITY

Overview
Liquidity and Capital Resources

We expect that our primary source of liquidity will be cash flows generated by operating activities. During the first six months ofAt September 30, 2020, we generated cash flows from operations of $30.4 million, after giving effect to $1.1had $36.6 million of negative changes in cash flows from working capital. Ason hand and $65.0 million of August 14,stockholders’ deficit, while at December 31, 2019, we had $3.1 million of cash on hand and $120.9 million of stockholders' equity. In September 2020, our Credit Facilitywe took steps to ensure we had an outstanding balance of $285.0 millionsufficient liquidity to fund ongoing operations during the Chapter 11 Cases, and a borrowing-base deficiency of $60.4 million as a result of the terms of the Forbearance Agreement (see below), which will need to be repaid within 60 days of July 2, 2020. We did not make a $14.1 million interest payment on our 11.25% Senior Notes due July 1, 2020.

While we are working with the lenders under our Revolving Credit Facility and the holders of the 11.25% Senior Notes regarding the applicable defaults under the related agreements, the Company's primary needs for cash are for payments of contractual obligations, working capital obligations and to pay down our Credit Line borrowing base deficiency (see below)Facility to provide additional liquidity, by terminating our commodity and interest rate hedges for $30.5 million of cash (comprised of $39.9 million for oil swaps, offset by negative $6.7 million for natural gas swaps and negative $2.7 million for interest rate swaps). Subsequent to filing our Restructuring Plan, we entered into new natural gas swaps in October 2020 for January 2021 through December 2021, which hedge 10,000 MMBtu per day at an average price of $3.04 per MMBtu, and also entered into natural gas swaps for January 2022 through December 2022, which hedge 5,000 MMBtu per day at an average price of $2.70 per MMBtu. In November 2020, we entered into new crude oil swaps for December 2020, which hedge 4,000 barrels per day at an average price of $41.08 per barrel. We have historically financedalso entered into new crude oil swaps for January 2021 through December 2021, which hedge 1,000 barrels per day at an average price of $42.20 per barrel. We will continue to rebuild our business through cash flowscommodity derivatives portfolio as we emerge from operations, borrowings under our Credit Facilitythe Chapter 11 Cases and the issuance of bonds and equity offerings. As circumstances warrant, we may access the capital markets and issue equity or debt from time to time on an opportunistic basis in a continued effort to optimize our balance sheet and to fund our operations and capital expenditures in the future, dependent upon marketeconomic conditions and available pricing, however this is unlikely with our current financial condition. Uses of such proceeds may include repayment of our debt, development or acquisition of additional acreage or proved properties, and general corporate purposes. There can be no assurance that future funding of transactions will be available on favorable terms, or at all, and we therefore cannot guarantee the outcome of any such transactions.warrant.

As discussed above, NYMEX oil prices have decreased significantly since the beginning of 2020, decreasing from nearly $60 per barrel in early January to the lower $40saround $25 per barrel in early August and weremid-May (although considerably lower during the monthsmonth of April and May.2020), before rebounding to nearly $40 per Bbl at the end of June 2020. As of mid-November 2020, oil prices remained in the mid-$40s per Bbl due to continued downward pressure on demand because of COVID-19. This decrease in the market prices for our production directly reducereduces our operating cash flow and indirectly impactimpacts our other sources of potential liquidity, such as possibly lowering our borrowing capacity under our revolving credit facility, as our borrowing capacity and borrowing costs are generally related to the estimated value of our proved reserves.

In this low oil price environment, we have taken various steps to preserve our liquidity including (1) by reducing our 2020 budgeted development2020 capital spending from $80-$85 million to approximately $65 million, almost all of which had been incurred by the end of September 2020; (2) by continuing to focus on reducingdeferring the remainder of our operating2020 drilling program through the end of the year; (3) implementing cost-reduction measures, including negotiating reduced rates for water disposal, chemicals, rentals, and overhead costs,workovers and (3) by adding additional commodity hedges for 2021 to reduce(4) shutting in or storing approximately 4,700 BOE per day of production during late-April and all of May 2020, primarily at our long-term exposure to commodity prices.oil-rich fields in our Central Eagle Ford Area.

At JuneChapter 11 Cases and Effect of Automatic Stay

On September 30, 2020, we had $1.3 millionthe Debtors filed for relief under chapter 11 of the Bankruptcy Code. The commencement of a voluntary proceeding in cash and cash equivalents and $0.6 millionbankruptcy constituted an immediate event of availabilitydefault under our Credit Facility. Facility and the indentures governing our 11.25% Senior Notes, resulting in the automatic and immediate acceleration of the debt thereunder. Any efforts to enforce payment obligations related to the acceleration of our debt have been automatically stayed as a result of the filing of the Chapter 11 Cases, and the creditors’ rights of enforcement are subject to the applicable provisions of the Bankruptcy Code. See Note 1. Basis of Presentation footnotes in the notes to the condensed consolidated financial statements for more information on the Chapter 11 Cases.

On July 2,September 14, 2020, the borrowing base was redetermined to $225 million from $286 million pursuantDebtors entered into the RSA with certain holders of our 11.25% Senior Notes the lenders of our Credit Facility and Citibank, N.A., as agent under the Credit Facility. As more fully disclosed in Note 1. Basis of Presentation in the notes to the Forbearance Agreement. The outstanding balance under our credit facility was $285 million ascondensed consolidated financial statements, the RSA contemplates the consummation of August 14, 2020,the Restructuring Plan, which represents a borrowing deficiencygoverns the treatment of $60.4 million,certain claims and we are obligated to pay the deficiency within 60 days after July 2, 2020.existing equity interests.

We did not satisfyexpect to continue operations in the consolidated current ratio covenant ornormal course for the leverage ratio covenant under the Credit Facility asduration of the June 30, 2020 measurement date and did not make an interest payment date underChapter 11 Cases. To ensure ordinary course operations, we have obtained approval from the 11.25% Senior Notes that was due on July 1, 2020 resulting inBankruptcy Court for certain “first day” motions, including motions to obtain customary relief intended to continue our ordinary course operations after the Payment Default. Such failures currently represent eventsfiling date. In addition, we have received authority to use cash collateral of default under the Credit Facility, and the Payment Default represented an event of default under the 11.25% Senior Notes on July 31, 2020 as we did not cure the default within the 30-day cure period. We received a forbearance from the lenders under the Credit Facility until July 31, 2020on a final basis. The Bankruptcy Court confirmed our Restructuring Plan on November 12, 2020.

However, for the default in the consolidated current ratio covenant and the leverage ratio covenant asduration of the June 30, 2020 measurement dateChapter 11 Cases, our operations and the missed interest payment pursuantour ability to the Forbearance Agreement. On July 31, 2020, the Companydevelop and certainexecute our business plan are subject to a high degree of its subsidiaries entered into an amendment with respect to the Forbearance Agreementrisk and uncertainty associated with the Lenders, pursuant to which the Lenders agreed to extend the stated termChapter 11 Cases. The outcome of the Forbearance Agreement until August 21, 2020. Also, on July 31, 2020, the Company entered into the Notes Forbearance Agreement with respect to the Payment Default. Despite the forbearances, the defaults under the Credit Facility and the 11.25% Senior NotesChapter 11 Cases is dependent upon factors that are continuing, and will continue, absent a waiver from the lenders or, in caseoutside of our control, including actions of the 11.25% Senior Notes, the Payment Default is cured.Bankruptcy Court and our creditors. The significant risks and uncertainties related to our liquidity and Chapter 11 Cases described above raise substantial doubt about our ability to continue as a going concern.


3133

As a result of the Chapter 11 Cases, our total available liquidity at September 30, 2020 consisted of our $36.6 million of cash on hand. We do not anticipate maintaining compliance withexpect to continue using cash on hand which will further reduce this liquidity. With the consolidated current ratio covenant and leverage ratio covenantBankruptcy Court’s authorization to use cash collateral under our Credit Facility over the next twelve months and are currently in forbearance with the Credit Facility, we believe that we will have sufficient liquidity, including cash on hand and 11.25% Senior Notes until August 21. Iffunds generated from ongoing operations, to fund anticipated cash requirements through the Chapter 11 Cases. As such, we are unableexpect to reach an agreementpay vendor and royalty obligations on a go-forward basis according to the terms of our current contracts and consistent with our lenders,applicable court orders, if any, approving such payments.

Going Concern

Our condensed 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 lendersnormal course of business.

The filing of the Credit Facility may choose to accelerate repayment, in addition to the $60.4 million due from the current borrowing base deficiency noted above, which in turn may result inChapter 11 Cases constituted an event of default and an acceleration of theunder our 11.25% Senior Notes and Credit Facility, which have a $14.1 million interest paymentresulted in the automatic and immediate acceleration of all of our debt outstanding with the exception of the building loans held by our subsidiary, Boland Building, LLC and certain small financing loans. We project that was due and unpaid on July 1, 2020 that separately represents a current event of default. We dowe will not currently have sufficient cash on hand or available liquidity to repay such indebtedness, includingdebt. These conditions and events, along with uncertainties associated with the current borrowing base deficiency and unpaid interest payment, and are currently in talks with are lendersbankruptcy process, raise substantial doubt about our ability to restructure our existing debt obligations.continue as a going concern.

We cannot provide any assurances that we will be successful in restructuringOur ability to continue as a going concern is contingent upon, among other things, our existing debtability to implement the Restructuring Plan, successfully emerge from the Chapter 11 Cases and generate sufficient liquidity from the Restructuring to meet our obligations and if we are unsuccessful in our effortsoperating needs on an ongoing basis. As a result of risks and uncertainties related to restructure and obtain new financing, it may be necessary for us to seek protectionthe effects of disruption from creditors underthe Chapter 11 Cases making it more difficult to maintain business, financing and operational relationships, we have concluded that our plans do not alleviate substantial doubt regarding the Company’s ability to continue as a going concern.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Exit Financing

The Restructuring Plan contemplates, among other things, that, on the effective date of the U.S. Bankruptcy Code (“Chapter 11”Restructuring Plan, the Debtors shall enter into (a) a first-out senior secured revolving credit facility in an amount equal to 80% of the aggregate outstanding principal amount of loans and letter of credit exposure under the existing Credit Facility with any lender under the Credit Facility that agrees to accept the Restructuring Plan (the “Accepting Lenders”),; provided that, on the Plan effective date, the aggregate principal amount of the new revolving credit facility shall not be less than $152 million, (b) a second-out-senior-secured term loan credit facility in an amount equal to 20% of the aggregate outstanding principal amount of loans and letter of credit exposure under the Company’s existing Credit Facility of Accepting Lenders, and (c) if necessary, a last-out-senior-secured term loan credit facility in an amount equal to 100% of the aggregate outstanding principal amount of loans and letters of credit of any lenders under the existing Credit Facility that do not accept the Restructuring Plan or an involuntary petition for bankruptcy mayotherwise are not Accepting Lenders. As all lenders accepted, we anticipate that there will not be filed against us.a last-out-senior secured term loan credit facility.

Cash Flows

Cash flows for the sixnine months ended JuneSeptember 30, 2020 and 2019 are presented below:
In thousandsIn thousandsSix Months Ended June 30,In thousandsNine Months Ended June 30,
20202019In thousands20202019
Net cash provided by (used in):Net cash provided by (used in):Net cash provided by (used in):
Operating activitiesOperating activities$30,411  $38,187  Operating activities$82,731 $52,873 
Investing activitiesInvesting activities(72,337) (62,035) Investing activities(89,260)(116,569)
Financing activitiesFinancing activities40,048  21,833  Financing activities40,003 61,782 
Net change in cashNet change in cash$(1,878) $(2,015) Net change in cash$33,474 $(1,914)
34

Net Cash Provided by Operating Activities
Net cash provided by operating activities of $30.4$82.7 million for the first sixnine months of 2020 was $7.8$29.8 million lessmore than the first sixnine months of 2019, which totaled $38.2$52.9 million. Excluding changes in operating assets and liabilities, net cash provided by operating activities decreased $6.7increased $7.0 million. Compared to the first sixnine months of 2019, the first sixnine months of 2020 had significantly lower commodity prices. Changes in our operating assets and liabilities between the sixnine months ended JuneSeptember 30, 2019 and the sixnine months ended JuneSeptember 30, 2020 resulted in a net increase of approximately $1.1$22.9 million in net cash provided by operating activities for the sixnine months ended JuneSeptember 30, 2020, as compared to the sixnine months ended JuneSeptember 30, 2019. As noted above, net cash provided by operating activities includes $30.5 million of net cash settlements in September 2020 arising from the termination of the Company's hedge portfolio.
Net Cash Used in Investing Activities
Net cash used in investing activities increased $10.3decreased $27.3 million, from $62.0$116.6 million in the sixnine months ended JuneSeptember 30, 2019 to $72.3$89.3 million in the sixnine months ended JuneSeptember 30, 2020. This increase is primarily due to $12.0capital expenditures being $21.3 million less in proceeds from the salecurrent period due to the slowdown in development activity in light of the Pirate assetslower commodity prices in March 2019.2020.
Net Cash Provided by Financing Activities
Net cash provided by financing activities increased $18.2decreased $21.8 million, from $21.8$61.8 million provided during the sixnine months ended JuneSeptember 30, 2019 to $40.0 million provided in the sixnine months ended JuneSeptember 30, 2020. This increase is primarily due to lower repayments ofborrowings on our Credit Line borrowing in the current period.
Debt
32Chapter 11 Cases and Effect of Automatic Stay

On September 30, 2020, the Debtors filed for relief under chapter 11 of the Bankruptcy Code. The commencement of a voluntary proceeding in bankruptcy constituted an immediate event of default under the Credit Facility (as defined below) and the indentures governing the Company’s 11.25% Senior Notes (as defined below), resulting in the automatic and immediate acceleration of the debt. Any efforts to enforce payment obligations related to the acceleration of the Company’s debt have been automatically stayed as a result of the filing of the Chapter 11 Cases, and the creditors’ rights of enforcement are subject to the applicable provisions of the Bankruptcy Code. See Note 1. Basis of Presentation for more information on the Chapter 11 Cases.
Debt
Senior Secured Credit Facility

In July 2015, through ourits subsidiary, Lonestar Resources America, Inc. ("LRAI"), wethe Company entered into a $500 million Senior Secured Credit Facility with Citibank, N.A., as administrative agent, and other lenders party thereto (as amended, supplemented or modified from time to time, the “Credit Facility”), which has a maturity date of November 15, 2023.. As of JuneSeptember 30, 2020, $285.0 million was borrowed under the Credit Facility, and the weighted average interest rate on borrowings under the Credit Facility for the quarter was 3.73%4.98%. BorrowingPrior to default, the borrowing availability was $0.6 million, as of June 30, 2020, which reflectsreflected $0.4 million of letters of credit outstanding. As a result of the commencement of the Chapter 11 Cases, the we are not in compliance with the covenants under the Credit Facility and the lenders’ commitments under the Credit Facility have been terminated. We are therefore unable to make additional borrowings or issue additional letters of credit under the Credit Facility.

ThePrior to default, the Credit Facility maycould be used for loans and, subject to a $2.5 million sub-limit, letters of credit, and providesprovided for a commitment fee of 0.375% to 0.5% (0.5% following the Thirteenth Amendment)Amendment (as defined below)) based on the unused portion of the borrowing base under the Credit Facility. As of March 31, 2020, the borrowing base and lender commitments for the Credit Facility was $290 million. The borrowing base was lowered to $286 million on June 11, 2020 as part of the Thirteenth Amendment, and on July 2, 2020, theAmendment. The borrowing base was redeterminedfurther lowered to $225 million from $286 million pursuant to the Forbearance Agreement.Agreement on July 2, 2020, creating a deficiency between the outstanding amount borrowed under the Company's Credit Facility and the borrowing base. The outstanding balance under our credit facilitythe Credit Facility was $285 million as of August 14,September 30, 2020 which represents a borrowing deficiency of $60.4 million. We are obligatedPursuant to the Restructuring Plan and as a result of our filing of the Chapter 11 Cases, we did not have the obligation to pay thesuch deficiency within 60 days after July 2, 2020.that time period, and the Credit Facility will be amended and restated in connection with the our exit from bankruptcy.


35

Borrowings under the Credit Facility, at our election, bear interest at either: (i) an alternate base rate (“ABR”) equal to the higher of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.5% per annum, and (c) the adjusted LIBO rate of a three-month interest period on such day plus 1.0%; or (ii) the adjusted LIBO rate, which is the rate stated on Reuters screen LIBOR1 page, for one, two, three, six or twelve months, as adjusted for statutory reserve requirements for Eurocurrency liabilities, plus, in each of the cases described in clauses (i) and (ii) above, an applicable margin ranging from 1.0% to 2.0% (2.0% to 3.5% following the Thirteenth Amendment) for ABR loans and from 2.0% to 3.0% (3.0% to 4.5% following the Thirteenth Amendment) for adjusted LIBO rate loans.

As the Credit Facility is in a state of default, 2.0% incremental default interest would typically be due but is currently not being charged as part of the terms of the Forbearance Agreement (see below).

Subject to certain permitted liens, our obligations under the Credit Facility are required to be secured by the grant of a first priority lien on no less than 80% of the value of the proved oil and gas properties of the Company and its subsidiaries (currently 100% following the Thirteenth Amendment).

The Credit Facility contains certain financial performance covenants, as defined in the Credit Facility, including the following:

a.•A maximum debt to EBITDAX ratio of 4.0 to 1.0, and

b.•A current ratio of not less than 1.0 to 1.0.


33

We also were not in compliance with the terms of the Credit Facility as of December 31, 2019 because we did not satisfy the consolidated current ratio at those times and the audit report prepared by our auditors with respect to the 2019 financial statements included an explanatory paragraph expressing uncertainty as to our ability to continue as a "going concern." The lenders waived the current ratio default with respect to December 31, 2019, pursuant to the Waiver. The Company2019. We received a forbearance until July 31, 2020 for the defaultdefaults in the consolidated current ratio covenant as of the March 31, 2020, and June 30, 2020, measurement dates, the leverage ratio covenant as of the June 30, 2020, measurement date and the missed July 1, 2020 interest payment under the 11.25% Senior Notes pursuant to the Forbearance Agreement. On July 31, 2020, the Company and certain of its subsidiaries entered into an amendment with respect to the Forbearance Agreement with the Lenders, pursuant to which the Lenders agreed to extend the stated term of the Forbearance Agreement until August 21, 2020. Despite the forbearance, the defaults under the Credit Facility are continuing, and will continue, absent a waiver from the lenders. As we do not anticipate maintaining compliance with the consolidated current ratio covenant or the leverage ratio covenant under our Credit Facility over the next twelve months, we are evaluating the available financial alternatives, including obtaining acceptable alternative financing as well as seeking waivers, forbearances or amendments to the covenants or other provisions of our revolving credit facility to address future defaults. We were not in compliance with the terms of the Credit Facility as of May 15, 2020, because we did not timely deliver our financial statements with respect to the fiscal quarter ended March 31, 2020. Such failure represented a default under the Credit Facility which the lenders waived pursuant to the Thirteenth Amendment. As noted above, the borrowing base was redetermined to $225 million from $286 million pursuant to the Forbearance Agreement. The outstanding balance under our credit facility was $285 million as of August 14,Agreement on July 2, 2020, which representscreated a deficiency between the outstanding amount borrowed under the Credit Facility and the borrowing deficiency of $60.4 million. We are obligated to pay the deficiency within 60 days after July 2, 2020.base.

Waiver and Eleventh Amendment

Effective April 7, 2020, we entered into the Waiver and Eleventh Amendment (the "Waiver") to waive events of default arising from our failure to comply with the consolidated current ratio as of December 31, 2019, to timely provide audited financial statements and to provide financial statements that are not subject to any “going concern” or like qualification or exception for the fiscal year ended December 31, 2019. As there was no guarantee that our lenders willwould agree to waive events of default or potential events of default in the future, the amounts outstanding under the Credit Facility as of December 31, 2019 wereare classified as current in the accompanying 2019 Condensed Consolidated Balance Sheet in Part 1. Financial Information.Sheet.

Twelfth Amendment

Effective May 8, 2020, we entered into the Twelfth Amendment to Credit Agreement (the “ Twelfth“Twelfth Amendment”), to allow the Companyus to accept proceeds of up to $2.2 million from an unsecured loan applied for under the Coronavirus Aid, Relief and Economic SecurityCARES Act.

We applied for, and received, funds under the Paycheck Protection Program during the second quarter of 2020 in the amount of $2.2 million. The application for these funds required us to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required us to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria.

Waiver and Thirteenth Amendment

Effective June 11, 2020, we entered into the Waiver and Thirteenth Amendment to Credit Agreement (the "Thirteenth Amendment") which, among other things, (i) waived any default or event of default arising from our failure to provide timely quarterly financial statements for the three months ended March 31, 2020; (ii) redetermined the borrowing base to $286 million from $290 million; (iii) set the next borrowing base redetermination to be on or around July 1, 2020 (and in any event, no later than July 31, 2020), (iv) amended the borrowing base utilization grid used in the applicable margin, as noted above and (v) until the July 1, 2020 redetermination, restricted the Company and its subsidiaries’ ability to incur debt with respect to, among other items, capital leases and permitted senior debt, grant liens to secure other obligations, pay dividends on LRAI’s preferred stock and make certain investments.


34
36

Forbearance Agreement and Fourteenth Amendment

On July 2, 2020, we entered into a Forbearance Agreement, Fourteenth Amendment, and Borrowing Base Agreement with Citibank, N.A., as administrative agent and the lenders party thereto (the “Forbearance Agreement”) with respect to the Credit Facility. Pursuant to the Forbearance Agreement, among other things, (i) the lenders under the Credit Facility agreeagreed to refrain from exercising their rights and remedies under the Credit Facility and related loan documents with respect to certain defaults until July 31, 2020, (ii) the borrowing base was redetermined to $225 million from $286 million, (iii) all proceeds of dispositions and terminations or liquidations of swap agreements shallwere to be used to repay the Credit Facility and shall automatically reducereduced the borrowing base by the amount of the repayment and (iv) certain exceptions to the covenant restriction on investments shallwere no longer be available.

The rights of the lenders to exercise rights and remedies resulted from our failure to comply with the current ratio with respect to the quarter ended March 31, 2020 and the defaults expected with respect to the quarter ending June 30, 2020, under the current ratio and the leverage ratio covenants, and the default with respect to the failure to make the interest payment due on July 1, 2020, under the 11.25% Senior Notes.

On July 31, 2020 the Company and certain of its subsidiaries entered into an amendment with respect to the Forbearance Agreement with the Lenders, pursuant to which the Lenders agreed to extend the stated term of the Forbearance Agreement until August 21, 2020.

The rights On August 21, 2020, these parties agreed to further extend the stated term of the lenders to exercise rightsForbearance Agreement until September 11, 2020. The filing of the Chapter 11 Cases resulted in the acceleration of the Credit Facility and remedies resulted from our failure to comply with the current ratio with respecttermination of the Forbearance Agreement. However, pursuant to the quarter ended March 31, 2020 andRSA, the defaults expected with respect to the quarter ending Jun 30, 2020, under the current ratio and the leverage ratio covenants, and the default with respect to the failure to make the interest payment due on July 1, 2020, under the 11.25% Senior Notes.

The Forbearance Agreement can be terminated by the lenders upon (i) the occurrence of any default or event of default under the Credit Facility other than those disclosed, (ii) the failure of the Companyagreed to comply with any of the terms and requirements of the Forbearance Agreement, (iii) the breach of any representation or warranty, (iv) the exercise of any rights by other debt holders relating to foreclosure or acceleration and (v) the commencement of any bankruptcy proceeding with respect to any loan party. If the Forbearance Agreement terminates and any then-current and ongoing events of default have not been waived or cured, the lenders will be able to accelerate the loans and pursue theirforbear from exercising certain rights and remedies.

Givenremedies while the ongoing events of default, the amounts outstanding under the Credit Facility as of June 30, 2020 were classified as currentRSA remains in the accompanying Condensed Consolidated Balance Sheet in Part 1.full force and effect.

11.25% Senior Notes

In January 2018, the we issued $250 million of 11.250%11.25% Senior Notes to U.S.-based institutional investors. The net proceeds of $244.4 million were used to fully retire our 8.75% Senior Notes, which included principal, interest and a prepayment premium of approximately $162 million. The remaining net proceeds were used to reduce borrowings under the Credit Facility.

ThePrior to default, the 11.25% Senior Notes maturematured on January 1, 2023, and bearbore interest at the rate of 11.25% per year, payable on January 1 and July of each year. At any time prior to January 1, 2021, we may,could, on any one or more occasions, redeem up to 35% of the aggregate principal amount of the 11.25% Senior Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings at a redemption price equal to 111.25% of the principal amounts redeemed, plus accrued and unpaid interest, provided that at least 65% of the aggregate principal amount of 11.25% Senior Notes originally issued remainsremained outstanding immediately after such redemption and the redemption occursoccurred within 180 days of the closing date of such equity offering.

At any time prior to January 1, 2021, we may, on any one or more occasions, redeem all or a part of the 11.25% Senior Notes at a redemption price equal to 100% of the principal amount redeemed, plus a “make-whole” premium as of, and accrued and unpaid interest.

On and after January 1, 2021, we may redeem the 11.25% Senior Notes, in whole or in part, plus accrued and unpaid interest, at the following redemption prices: 108.438% after January 1, 2021; 105.625% after January 1, 2022; and 100% after July 1, 2022,

The indenture contains certain restrictions on our ability to incur additional debt, pay dividends on our common stock, make investments, create liens on our assets, engage in transactions with affiliates, transfer or sell assets, consolidate or merge, or sell substantially all of our assets. The indenture also contains cross- defaultcross-default provisions for defaults of our other debt instruments, including the Credit Facility, caused by payment default or events which cause the acceleration of repayment prior to the stated maturity of such instrument.
35


We did not make ourits interest payment on the 11.25% Senior Notes that was due on July 1, 2020 of approximately $14.1 million (the "Payment Default"“Payment Default”). Such Payment Default representsfailure to pay represented a default under the 11.25% Senior Notes and represented an event of default when the Companywe did not cure within 30 days. The Payment Default representswas a current event of default under the Credit Facility.We have entered into the Forbearance Agreement which providesprovided that, among other things, the lenders under the Credit Facility have agreed to forbear the Company’sour default of the interest payment until July 31,August 21, 2020.However, the default under the Credit Facility has not been waived and still exists.Accordingly, the amounts outstanding under the 11.25% Senior Notes as of June 30, 2020 were classified as current in the accompanying Condensed Consolidated Balance Sheet in Part 1 Financial Information.

On July 31, 2020, we entered into the Notes Forbearance Agreement pursuant to which, among other things, certain holders holding greater than 50% of the outstanding 11.25% Senior Notes (i) agreed to refrain from exercising their rights and remedies with respect to the Payment Default and (ii) requested that the trustee not take any remedial action as a result of the Payment Default.

The Notes Forbearance Agreement will terminate and end uponfiling of the occurrenceChapter 11 Cases resulted in the termination of among other things (i) 6:00 pm (New York City time) on August 21, 2020, (ii) any failure by the Company or its subsidiaries party thereto to perform its obligation under the Notes Forbearance Agreement (iii) the Company incurs another default orand an event of default under the Indenture, other than the Payment Default, and (iv) the terminationacceleration of the Forbearance Agreement.Ifmaturity of the Notes Forbearance Agreement terminates and any then-current and ongoing events11.25% Senior Notes. However, pursuant to the RSA, certain holders of default have not been waived or cured, the outstanding 11.25% Senior Notes may be accelerated.Despiteagreed to forbear from exercising certain rights and remedies while the Notes Forbearance Agreement, the Payment Default still represents an ongoing event of default.RSA is in full force and effect.

37

Capital Expenditures
We currently anticipate that our full-year 2020 capital budget,spending, excluding acquisitions, will be approximately $65 million, almost all of which has beenwas incurred by the end of JuneSeptember 2020. This program allowed for the drilling of a range of 10 gross (7.0 net) wells and the completion of a range of 10 gross (8.5 net) wells, five which were placed into production by the end of the first quarter of 2020, two at Horned Frog and three at Hawkeye which were placed into production during the second quarter of 2020 and three additional DUCs which were drilled at Hawkeye during June 2020.
The table below summarizes our cash capital expenditures incurred for the sixnine months ended JuneSeptember 30, 2020:
In thousandsSix Months Ended June 30, 2020
Acquisition of oil and gas properties$1,714 
Development of oil and gas properties72,824 
Purchases of other property and equipment636 
Total capital expenditures$75,174 
In thousandsThree Months Ended September 30, 2020Nine Months Ended September 30, 2020
Acquisition of oil and gas properties$472 $2,186 
Development of oil and gas properties (1)
25,149 97,973 
Purchases of other property and equipment378 1,014 
Total capital expenditures$25,999 $101,173 
(1)    On an accrual basis, the Company incurred $4.7 million $62.7 million in development costs of oil and gas properties for the three and nine months ended September 30, 2020, respectively.
For the sixnine months ended JuneSeptember 30, 2020, our capital expenditures were funded with cash flow from operations, with additional funds provided by borrowings on our Credit Facility. Our 2020 capital expenditures may be further adjusted as business conditions warrant and the amount, timing and allocation of such expenditures is largely discretionary and within our control. The aggregate amount of capital that we will expend may fluctuate materially based on market conditions, the actual costs to drill, complete and place on production operated wells, our drilling results, other opportunities that may become available to us and our ability to obtain capital.
36

Critical Accounting Policies and Estimates
The preparation of our financial statements requires us to make estimates and judgments that can affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities at the date of our financial statements. We analyze our estimates and judgments, including those related to oil, NGLs and natural gas revenues, oil and natural gas properties, impairment of long-lived assets, fair value of derivative instruments, asset and retirement obligations and income taxes, and we base our estimates and judgments on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may vary from our estimates. The policies of particular importance to the portrayal of our financial position and results of operations and that require the application of significant judgment or estimates by our management are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K as reported and filed with the SEC on April 13, 2020 (our "2019 10-K").
As of JuneSeptember 30, 2020, aside from the application of ASC 852 due to the Chapter 11 Cases, there were no significant changes to any of our critical accounting policies.
38

Cautionary Note Regarding Forward-looking Statements
This Quarterly Report on Form 10-Q statement contains forward-looking statements that are subject to a number of known and unknown risks, uncertainties, and other important factors, many of which are beyond our control. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, regarding our strategy, future operations, financial position, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.
Forward-looking statements may include statements about our:

•
• Ourour ability to refinance or remedy existing or future default under our Credit Facility andconsummate the 11.25% Senior Notes, refinance or satisfy the obligations of our 11.25% 2023 Notes or obtain additional sources of capital;Restructuring Plan;
•discovery and development of crude oil, NGLs and natural gas reserves;
•    cash flows and liquidity;
•    business and financial strategy, budget, projections and operating results;
•    timing and amount of future production of crude oil, NGLs and natural gas;
•    amount, nature and timing of capital expenditures, including future development costs;
•    availability and terms of capital;
•    drilling, completion, and performance of wells;
•    timing, location and size of property acquisitions and divestitures;
•    costs of exploiting and developing our properties and conducting other operations;
•    general economic and business conditions; and
•    our plans, objectives, expectations and intentions.
37

All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. Although we believe that our plans, objectives, expectations and intentions reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, objectives, expectations or intentions will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under Item 1A. Risk Factors, Item 8. Financial Statements and Supplementary Data and elsewhere in our 2019 Form 10-K, and Part I. Financial Information, Item 1A. Risk Factors and elsewhere in this Quarterly Report on Form 10-Q.
These important factors include risks related to:
•our ability to consummate the Restructuring Plan that restructures our debt obligations to address our liquidity issues and allows emergence from the Chapter 11 Cases;

• risks that our assumptions and analyses in the Restructuring Plan are incorrect;

• the effects of the Chapter 11 Cases on our relationships with employees, governmental authorities, customers, suppliers, banks, insurance companies and other third parties, and agreements;

• potential adverse effects of the Chapter 11 Cases on our liquidity and results of operations;

• objections to pleadings we file that could protract the Chapter 11 Cases;

39

• our ability to continue as a going concern;

• the Bankruptcy Court’s rulings in the Chapter 11 Cases, and the outcome of the Chapter 11 Cases generally;

• the length of time that we will operate under Chapter 11 protection and the continued availability of operating capital during the pendency of the proceedings;

•variations in the market demand for, and prices of, crude oil, NGLs and natural gas;
•    proved reserves or lack thereof;
•    estimates of crude oil, NGLs and natural gas data;
•    the adequacy of our capital resources and liquidity including, but not limited to, access to additional borrowing to fund our operations;
•    borrowing capacity under our credit facility;
•    general economic and business conditions;
•    failure to realize expected value creation from property acquisitions;
•    uncertainties about our ability to find, develop or acquire additional oil and natural gas resources;
•    uncertainties with regard to our drilling schedules;
•    the expiration of leases on our undeveloped leasehold assets;
•    our dependence upon several significant customers for the sale of most of our crude oil, natural gas and NGL production;
•    counterparty credit risks;
•    competition within the crude oil and natural gas industry;
•    technology risks;
•    the concentration of our operations;
•    drilling results;
•    potential financial losses or earnings reductions from our commodity price risk management programs;
•    potential adoption of new governmental regulations;
•    our ability to satisfy future cash obligations and environmental costs; and
•    the other factors set forth under Risk Factors in Item 1A of Part I of our 2019 10-K.
The forward-looking statements relate only to events or information as of the date on which the statements are made in this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
3840

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The following quantitative and qualitative disclosures about market risk are supplementary to the quantitative and qualitative disclosures provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. As such, the information contained herein should be read in conjunction with the related disclosures in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Commodity Price Risk
As a result of our operations, we are exposed to commodity price risk arising from fluctuations in the prices of crude oil, NGLs and natural gas. The demand for, and prices of, crude oil, NGLs and natural gas are dependent on a variety of factors, including supply and demand, weather conditions, the price and availability of alternative fuels, actions taken by governments and international cartels and global economic and political developments.
The following table shows the fair value of our commodity derivative contracts and the hypothetical result from a 10% change in commodity prices as of June 30, 2020. We remain at risk for possible changes in the market value of commodity derivative instruments; however, such risks could be mitigated by price changes in the underlying physical commodity:
Hypothetical Fair Value
(in thousands)Fair Value10% Increase In Commodity Price10% Decrease In Commodity Price
Swaps$55,314  $36,117  $74,510  
Our board of directors reviews oil and natural gas hedging on a quarterly basis. Reports providing detailed analysis of our hedging activity are continually monitored. We sell our oil and natural gas on market using NYMEX market spot rates reduced for basis differentials in the basins from which we produce. We use swap contracts to manage our commodity price risk exposure. Our primary commodity risk management objectives are to protect returns on our drilling and completion activity as well as reduce volatility in our cash flows. Management makes recommendations on hedging that are approved by the board of directors before implementation. We enter into hedges for oil using NYMEX futures or over-the-counter derivative financial instruments with only certain well-capitalized counterparties which have been approved by our board of directors.
The result of oil market prices exceeding our swap prices or collar ceilings requires us to make payment for the settlement of our hedge derivatives, if owed by us, generally up to three business days before we receive market price cash payments from our customers. This could have a material adverse effect on our cash flows for the period between hedge settlement and payment for revenues earned.
Interest Rate Risk
As of JuneSeptember 30, 2020, we had $285.0 million outstanding under the Credit Facility, which is subject to floating market rates of interest. Borrowings under the Credit Facility bear interest at a fluctuating rate that is tied to an adjusted base rate or LIBOR, at our option. Any increase in this interest rate can have an adverse impact on our results of operations and cash flow. Based on borrowings outstanding at JuneSeptember 30, 2020, a 100-basis-point change in interest rates would change our annualized interest expense by approximately $2.9 million.
We use interest rate swap contracts to manage our net exposure to rate changes attributable to our Credit Facility borrowings. At June 30, 2020, we were a party to two one-month LIBOR swap contracts with notional amounts of $190 million in the aggregate and a fixed rate of 0.68%. The contracts settle monthly from April 2020 through March 2023.
Counterparty and Customer Credit Risk
In connection with our hedging activity, we have exposure to financial institutions in the form of derivative transactions. The counterparties on our derivative instruments currently in place have investment-grade credit ratings. We expect that any future derivative transactions we enter into will be with these counterparties or our lenders under our Credit Facility that will carry an investment-grade credit rating.
We are also subject to credit risk due to concentration of our oil and natural gas receivables with certain significant customers. The inability or failure of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results. We review the credit rating, payment history and financial resources of our customers, but we do not require our customers to post collateral.
3941

Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Accounting Officer. Based onupon that evaluation, ourthe Chief Executive Officer and the Chief Accounting Officer concluded that, ourdue to the material weakness described below, the Company's disclosure controls and procedures were not effective as of June 30, 2020the end of the period covered by this Form 10-Q to ensureprovide reasonable assurance that information that is required to be disclosed by us in theour reports the Company files and submitsfiled or submitted under the Securities Exchange Act of 1934 is recorded, that it is processed, summarized and reported within the time periods specified in the SEC’s rules and forms;forms and were not effective as of the end of the period covered by this Form 10-Q to provide reasonable assurance that such information that is required to be disclosed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officerprincipal executive and our Chief Accounting Officer,financial officers, as appropriate to allow timely decisions regarding required disclosures.disclosure.

Changes in Internal Control over Financial ReportingReporting.
.
DuringPrior to filing this quarterly report on Form 10-Q for the second quarterperiod ended September 30, 2020, the Company identified a material weakness relating to the operating effectiveness of fiscal 2020, there were no changescontrols over significant and unusual transactions – specifically relating to restructuring-related matters. This error was identified and corrected prior to the filing of this Form 10-Q but could have resulted in oura material misstatement of the financial statements. The Company believes that, notwithstanding this material weaknesses, the consolidated financial statements contained in this Form 10-Q present fairly, in all material respects, the consolidated financial positions, results of operations and cash flows of the Company and its subsidiaries in conformity with generally accepted accounting principles in the United States as of the dates and for the periods stated therein. This error was the result of inadequate operating effectiveness of controls pertaining to the Company’s review of its bankruptcy-related accounting and disclosures. As such, the deficiency represents a material weakness in the Company’s internal control over financial reporting at September 30, 2020.

Management is actively engaged in the planning for, and implementation of, remediation efforts to address the material weakness identified above. The remediation plan includes i) adequate attention to detail and review of accounting literature over review of significant and unusual transactions and disclosures and ii) additional training.

Management believes the measures described above and others that may be implemented will remediate the material weaknesses that we have identified. As management continues to evaluate and improve internal control over financial reporting, we may decide to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures identified.

Subject to this remediation effort, that were implemented after September 30, 2020, there have been no significant changes in the Company's internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





4042

PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are subject to legal proceedings and claims that arise in the ordinary course of business. Like other crude oil and gas producers and marketers, our operations are subject to extensive and rapidly changing federal and state environmental, health and safety, and other laws and regulations governing air emissions, wastewater discharges and solid and hazardous waste management activities. We are not aware of any pending or overtly threatened legal action against us that could have a material impact on our business.

Item 1A. Risk Factors.
Please refer to Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. There have been no material changes to our risk factors contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, other than as detailed below.
The current outbreak of COVID-19 has adversely impacted our business, financial condition, liquidity and results of operations and is likely to have a continuing adverse impact for a significant period of time.
The COVID-19 pandemic has caused a rapid and precipitous drop in demand for oil, which in turn has caused oil prices to plummet since the first week of March 2020, negatively affecting the Company’s cash flow, liquidity and financial position. These events have worsened an already deteriorated oil market that resulted from the early-March 2020 failure by the group of oil producing nations known as OPEC+ to reach an agreement over proposed oil production cuts. Moreover, the uncertainty about the duration of the COVID-19 pandemic has caused storage constraints in the United States resulting from over-supply of produced oil, which is expected to significantly decrease our realized oil prices in the second quarter of 2020 and potentially beyond. Oil prices are expected to continue to be volatile as a result of these events and the ongoing COVID-19 outbreak, and as changes in oil inventories, oil demand and economic performance are reported. We cannot predict when oil prices will improve and stabilize.
The current pandemic and uncertainty about its length and depth in future periods has caused the realized oil prices we have received since February 2020 to be significantly reduced, adversely affecting our operating cash flow and liquidity. Although we have reduced our 2020 capital expenditures budget, our lower levels of cash flow may require us to shut-in production that has become uneconomic.
The COVID-19 pandemic is rapidly evolving, and the ultimate impact of this pandemic is highly uncertain and subject to change. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic, its severity, the actions to contain the disease or mitigate its impact, related restrictions on travel, and the duration, timing and severity of the impact on domestic and global oil demand. The COVID-19 pandemic may also intensify the risks described in the other risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Our failureWe are subject to complythe risks and uncertainties associated with anyproceedings under chapter 11 of the covenantsBankruptcy Code.
On September 30, 2020, the Company and certain of its direct and indirect wholly owned subsidiaries (collectively with the Company, the “Debtors”) filed petitions for voluntary relief under chapter 11 of the United States Bankruptcy Code. For the duration of our 11.25% Senior Notes could cause an event of defaultChapter 11 Cases, we plan to continue to operate our business as debtors-in-possession under the 11.25% Senior Notes,jurisdiction of the Bankruptcy Court and duein accordance with the applicable provisions of the Bankruptcy Code. As a consequence of the commencement of the Chapter 11 Cases, our business and operations, and our continuation as a going concern, will be subject to cross-default provisions, currently represents an eventthe risks and uncertainties associated with Chapter 11 bankruptcy. These risks include, but are not limited to, the following:

•our ability to consummate the Restructuring Plan;

•our ability to obtain the Bankruptcy Court’s approval with respect to motions or other requests made to the Bankruptcy Court in the Chapter 11 Cases, including maintain strategic control as debtors-in-possession;

•delays in the Chapter 11 Cases,
43



•our ability to maintain our relationships with our suppliers, service providers, employees and other third parties;

•our ability to maintain other contracts that are critical to our operations;

•our ability to execute our business plan in the current depressed commodity price environment;

•our ability to retain key employees;

•the impact of defaultthird parties seeking to obtain court approval to terminate contracts and other agreements with us;

•Bankruptcy Court rulings in Credit Facilitythe Chapter 11 Cases as well as the outcome of the Chapter 11 Cases in general; and

•the actions and decisions of our creditors and other third parties who have interests in our Chapter 11 Cases that may be inconsistent with our plans.

Delays in our Chapter 11 Cases increase our costs associated with the bankruptcy process along with the risks of our being unable to reorganize our business and emerge from bankruptcy.

These risks and uncertainties could affect our business and operations in various ways. Pursuant to the Bankruptcy Code, 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. We cannot accurately predict or quantify the ultimate impact that events that occur during our Chapter 11 Cases will have on our business, financial condition, results of operations and cash flows.

Even if the Restructuring Plan is consummated, we will continue to face a number of risks, principally the degree to which oil prices remain at low levels, and if so, for what length of time, which is likely to depend on the extent and impact of the COVID-19 pandemic, plus our ability to reduce expenses, implement any strategic initiatives and generally maintain favorable relationships with and secure the confidence of our counterparties. Accordingly, we cannot give any assurance that the proposed financial restructuring will allow us to continue as a going concern.

The Chapter 11 Cases may have a material adverse impact on our business, financial condition, results of operations, and cash flows. In addition, delays in the Chapter 11 Cases may increase the risks of our being unable to reorganize our business and emerge from bankruptcy and increase our costs associated with the bankruptcy process.

The Chapter 11 Cases could have a material adverse effect on our business.
We did not makebusiness, financial condition, results of operations and liquidity. For the July 1, 2020 interest payment under our 11.25% Senior Notes and are currently in default. Such failure represents an event of default under the 11.25% Senior Notes as we did not cure such default within the 30-day cure period. Such failure currently represents an event of default under our revolving credit facility. The Company has entered into the Forbearance Agreement which provides that, among other things, the lenders under the Credit Facility have agreed to forbear the Company’s defaultduration of the interest payment until July 31, 2020. On July 31, 2020, the Company and certain of its subsidiaries entered into an amendment with respect to the Forbearance Agreement with the Lenders, pursuant to which the lenders agreed to extend the stated term of the Forbearance Agreement until August 21, 2020. Also, on July 31, 2020, the Company received a forbearance until August 21, 2020 from certain holders of greater than 50% of the outstanding 11.25% Senior Notes for the Payment Default. Despite the forbearances, the defaults under the Credit Facility and the 11.25% Senior Notes are continuing, and will continue, absent a waiver from the lenders or, in case of the 11.25% Senior Notes, the Payment Default is cured. Accordingly, the amounts outstanding under the 11.25% Senior Notes as of June 30, 2020 were classified as current in the accompanying Condensed Consolidated Balance Sheet.

41

The Company has concluded that these circumstances create substantial doubt regarding its ability to continue as a going concern. The Company does not anticipate maintaining compliance with certain covenants under its Credit Facility over the next twelve months and may not be able to restructure, refinance or otherwise satisfy its obligations under the 11.25% Senior Notes. The Company is therefore evaluating the available financial alternatives, including obtaining acceptable alternative financing as well as seeking additional waivers, forbearances or amendments to the covenants or other provisions of the Credit Facility and the 11.25% Senior Notes to address any existing or future defaults and have engaged financial and legal advisors to assist the Company. If the Company is unable to reach an agreement with its lenders or find acceptable alternative financing, the lenders of the Credit Facility or the holders of the 11.25% Senior Notes may choose to accelerate repayment. If the Company's lenders or its noteholders accelerate the payment of amounts outstanding under our Credit Facility or the 11.25% Senior Notes, respectively, the Company does not currently have sufficient liquidity to repay such indebtedness and would need additional sources of capital to do so.

The Company cannot provide any assurances that it will be successful in any restructuring of existing debt obligations or obtaining capital sufficient to fund the refinancing of its outstanding indebtedness or to provide sufficient liquidity to meet its operating needs. If the Company is unsuccessful in its efforts to restructure and obtain new financing, it may be necessary for it to seek protection from creditors under Chapter 11 or an involuntary petition for bankruptcyCases, our management may be filed against it.

We may be subject to United States Bankruptcy Court proceedings in the near future, which would pose significant risks to our business and to our investors.

As we do not anticipate maintaining compliance with all covenants under our Credit Facility over the next twelve months, we evaluating the available financial alternatives, including obtaining acceptable alternative financing as well as seeking additional waivers, forbearances or amendments to the covenants or other provisions of the Credit Facility and 11.25% Senior Notes to address any existing or future defaults, and we have engaged financial and legal advisors to assist us. However, we cannot provide any assurances that we will be successful in any restructuring of existing debt obligations or obtaining capital sufficient to fund the refinancing of our outstanding indebtedness or to provide sufficient liquidity to meet our operating needs. If our attempts are unsuccessful or we are unable to complete such a restructuring on satisfactory terms, we may choose to pursue a filing under Chapter 11. If an agreement is reached and we decide to pursue a restructuring, it may be necessary for us and certain of our affiliates to file voluntary petitions for relief under Chapter 11 in order to implement a restructuring through a plan of reorganization before the bankruptcy court. We may also conclude that it is necessary to initiate Chapter 11 proceedings to implement a restructuring of our obligations if we are unable to reach an agreement with our creditors and other relevant parties regarding the terms of such a restructuring, or if further events or developments arise that necessitate us seeking relief under Chapter 11. It may be necessary to commence such a bankruptcy case in the near future. Also, if an agreement is not reached, certain creditors could commence involuntary bankruptcy cases against us if we are not able to satisfy our obligations under our debt agreements, including our Credit Facility and the 11.25% Senior Notes.

So long as a bankruptcy case continues, our senior management would be required to spend a significant amount of time and effort dealing with the reorganizationrestructuring instead of focusing exclusively onattending to our business operations. Bankruptcy casesCourt protection and operating as debtors in possession also mightmay make it more difficult to retain management and the key personnel necessary to our business. In addition, during the Chapter 11 Cases, our customers and suppliers might lose confidence in our ability to reorganize our business successfully and may seek to establish alternative commercial relationships, which may cause, among other things, our suppliers, vendors, counterparties and service providers to renegotiate the terms of our agreements, attempt to terminate their relationship with us or require financial assurances from us. Customers may lose confidence in our ability to provide them the level of service they expect, resulting in a significant decline in our revenues and cash flow. In addition, delays in the Chapter 11 Cases or a prolonged Chapter 11 proceeding could adversely affect our relationships with customers, suppliers, service providers, and employees, among other third parties, which in turn could adversely affect our business, competitive position, financial condition, liquidity and results of operations and our ability to continue as a going concern. A weakening of our financial condition, liquidity and results of operations could adversely affect our ability to implement the Restructuring Plan (or any other plan of reorganization). If we are unable to consummate the Restructuring Plan, we may be forced to liquidate our assets. In addition, the occurrence of the effective date of the Restructuring Plan is subject to certain conditions and requirements in addition to those described above that may not be satisfied.


44

As a result of the Chapter 11 Cases, our historical financial information may not be indicative of our future financial performance.

During the Chapter 11 Cases, we expect our financial results to continue to be volatile as restructuring activities and expenses significantly impact our financial statements. As a result, our historical financial performance is likely not indicative of our financial performance after the date of the filing of the Chapter 11 Cases. In addition, if we emerge from the Chapter 11 Cases, the amounts reported in subsequent consolidated financial statements may materially change relative to our historical consolidated financial statements, including as a result of revisions to our operating plans pursuant to the Restructuring Plan. We expect that we will be required to adopt the fresh start accounting rules, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets and our financial results after the application of fresh start accounting may be different from historical trends.

Upon our emergence from the Chapter 11 Cases, the composition of our board of directors may change significantly.

Under the Restructuring Plan, the composition of our board of directors will change significantly. Upon emergence, the board will be made up of five directors, including the Chief Executive Officer of the reorganized Company and four directors that will be designated by certain holders of the 11.25% Senior Notes. These four members of the board are new to the Company. 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 the future of the Company. As a result, the future strategy and plans of the Company may differ materially from those of the past.

Delays in our Chapter 11 Cases increase the risks of us being unable to reorganize our business and emerge from bankruptcy and 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 or publicity associated with our Chapter 11 Cases could adversely affect our relationships with suppliers, service providers, customers, employees and other third parties, which in turn could adversely affect our operations and financial condition. Also, pursuant to the Bankruptcy Code, 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 Cases, we cannot accurately predict or quantify the ultimate impact that events that occur during our Chapter 11 Cases will have on our business, financial condition, results of operations and cash flows.

Even if the Restructuring Plan is consummated, we will continue to face a number of risks, including our ability to reduce expenses, implement any strategic initiatives and generally maintain favorable relationships with and secure the confidence of our counterparties. Accordingly, we cannot guarantee that the proposed financial restructuring will achieve our stated goals nor can we give any assurance of our ability to continue as a going concern.

Even if the Restructuring Plan is consummated, we may not be able to achieve our stated goals and continue as a going concern.

Even if the Restructuring Plan, or any other plan of reorganization, is consummated, we may continue to face a number of risks, such as further deterioration or other changes in economic conditions, changes in our industry, changes in demand for our products and services and increasing expenses. Accordingly, we cannot guarantee that the Plan, or any other plan of reorganization, will achieve our stated goals.

Furthermore, even if our debts are reduced through a plan of reorganization, we may need to raise additional funds through public or private debt or equity financing or other various means to fund our business after the completion of the Chapter 11 Cases. Our access to additional financing may be limited, if it is available at all. Therefore, adequate funds may not be available when needed or may not be available on favorable terms.

Operating under the Bankruptcy Court protection for a long period of time may harm our business

A long period of operations under the Bankruptcy Court protection could have a material adverse effect on our business, financial condition, results of operations and liquidity. A prolonged period of operating under Bankruptcy Court protection may also make it more difficult to retain management and other key personnel necessary to the success and growth of our business. In addition, the longer a bankruptcy case continues,the Chapter 11 Cases continue, the more likely it is that our customers dealers and suppliers wouldwill lose confidence in our ability to reorganize our businessesbusiness successfully and wouldwill seek to establish alternative commercial relationships. Furthermore, so long as the Chapter 11 Cases continue, we will be required to incur substantial costs for professional fees and other expenses associated with the administration of the Chapter 11 Cases.
45

Furthermore, we cannot predict the ultimate amount of all settlement terms for the liabilities that will be subject to the Restructuring Plan. Even once a Restructuring Plan is approved and implemented, our operating results may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that recently emerged from Chapter 11 bankruptcy.

ItWe may be subject to claims that will not be discharged in the Chapter 11 Cases, which could have a material adverse effect on our financial condition and results of operations.

The Bankruptcy Code provides that the confirmation of a plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation. With few exceptions, all claims that arose before confirmation of the Restructuring Plan (i) would be subject to compromise and/or treatment under the Restructuring Plan and/or (ii) would be discharged in accordance with the terms of the Restructuring Plan. Any claims not ultimately discharged through the Restructuring Plan could be asserted against the reorganized entities and may have an adverse effect on their financial condition and results of operations on a post-reorganization basis.

The pursuit of the Chapter 11 Cases has consumed and 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.

While the Chapter 11 Cases continue, our management will be required to spend a significant amount of time and effort focusing on the Chapter 11 Cases instead of focusing exclusively on our business operations. This diversion of attention may materially adversely affect the conduct of our business, and, as a result, our financial condition and results of operations, particularly if the Chapter 11 Cases are protracted.

During the duration of the Chapter 11 Cases, 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 morale could have a material adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations. The failure to retain or attract members of our management team and other key personnel 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.

Any plan of reorganization that we may implement will be based in large part upon assumptions and analyses developed by us. If these assumptions and analyses prove to be incorrect, our plan may be unsuccessful in its execution.

Any plan of reorganization that we may implement could affect both our capital structure and the ownership, structure and operation of our businesses and will reflect assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances. In addition, any plan of reorganization will rely upon financial projections, including with respect to revenues, capital expenditures, debt service and cash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not possiblebe accurate. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to predict(i) our ability to substantially change our capital structure, (ii) our ability to obtain adequate liquidity and financing sources, (iii) our ability to maintain customers’ confidence in our viability as a continuing entity and to attract and retain sufficient business from them, (iv) our ability to retain key employees, and (v) the outcomeoverall strength and stability of general economic conditions of the financial and oil and gas industries, both in the U.S. and in global markets. The failure of any bankruptcy case that may occur. Inof these factors could materially adversely affect the eventsuccessful reorganization of a bankruptcy case,our businesses. Consequently, there can be no assurance that we would be able to restructure as a going concernthe results or successfully propose or confirm adevelopments contemplated by any plan of reorganization we may implement will occur or, even if they do occur, that provides forthey will have the continuationanticipated effects on us and our subsidiaries or our businesses or operations. The failure of any such results or developments to materialize as anticipated could materially adversely affect the business post-bankruptcy.successful execution of any plan of reorganization.


4246

We have received notice of NASDAQ determining to commence proceedings to delist our common stock. Trading in our securities during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks.

As a consequence of the Chapter 11 Cases, on October 1, 2020, the Company was notified by NASDAQ that it had suspended trading in our common stock, effective immediately, and commenced proceedings to delist the our common stock from NASDAQ. Since October 12, 2020, our common stock has been quoted on the OTC Pink Open Market under the symbol “LONEQ.” In addition, on October 27, 2020, NASDAQ filed a Form 25 to delist and deregister our common stock that went into effect ten days after filing. We can provide no assurance that our common stock will continue to trade on this market, whether broker-dealers will continue to provide public quotes of our common stock on this market, whether the trading volume of our common stock will be sufficient to provide for an efficient trading market or whether quotes for our common stock will continue on this market in the future. These recent developments could result in significantly lower trading volumes and reduced liquidity for investors seeking to buy or sell shares of our common stock.

If we fail to establish and maintain proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.

Under Section 404(a) of the Sarbanes-Oxley Act our management is required to assess and report annually on the effectiveness of our internal control over financial reporting and identify any material weaknesses in our internal control over financial reporting. Once we are no longer an emerging growth company, Section 404(b) of the Sarbanes-Oxley Act will require our independent registered public accounting firm to issue an annual report that addresses the effectiveness of our internal control over financial reporting.

In preparing this Form 10-Q for the quarter ended September 30, 2020, we identified a material weakness relating to the operating effectiveness of controls over significant and unusual transactions – specifically relating to restructuring-related matters. This error was identified and corrected prior to the filing of this Form 10-Q but could have resulted in a material misstatement of the financial statements. This error was the result of inadequate operating effectiveness of controls pertaining to the our review of its bankruptcy-related accounting and disclosures. As such, the deficiency represents a material weakness in the our internal control over financial reporting at September 30, 2020. Management is actively engaged in the planning for, and implementation of, remediation efforts to address this material weakness. The remediation plan includes (i) adequate attention to detail and review of accounting literature over review of significant and unusual transactions and disclosures and ii) additional training.

We may not be successful in remediating our most recent material weakness, and, even if we are successful, completion of remediation does not provide assurance that our internal controls will continue to operate effectively. If further material weaknesses are discovered, our financial statements could contain additional errors which, in turn, could lead to errors in our financial reports and/or delays in our financial reporting, which could require us to restate our operating results or cause our auditors to issue a qualified audit report. If we are unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our financial statements and adversely impact our stock price.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table summarizes purchases of our Class A Common Stock during the secondthird quarter of 2020:
Total number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares that May Yet Be Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 202020,877  $0.48  —  —  
May 2020668  0.59  —  —  
June 2020—  —  —  —  
Total21,545  —  
Total number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares that May Yet Be Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 20201,877 $0.47 — — 
August 2020— — — — 
September 2020— — — — 
Total1,877 — 
Stock repurchases during the secondthird quarter of 2020 were made in connection with delivery by our employees of shares to us to satisfy their tax withholding requirements related to the vesting of restricted shares.

47

Item 3. Default under Credit Facility and 11.25% Senior Notes.

The Company did not satisfy the consolidated current ratio covenant or the leverage ratio covenant under the Company’s Credit Facility ascommencement of the June 30, 2020 measurement date and such failure representsa voluntary proceeding in bankruptcy constituted an event of default under the Company's Credit Facility. We also failed to make an interest payment under the 11.25% Senior Notes on July 1, 2020 of approximately $14.1 million, and such Payment Default represented animmediate event of default under the Credit Facility on July 1, 2020(as defined below) and an event of default under the indentures governing the Company’s 11.25% Senior Notes on July 31, 2020. We have obtained a forbearance under(as defined below), resulting in the Credit Facility for the applicable defaults, among others, pursuant to the Forbearance Agreement, as amended, until August 21, 2020. The Company received a forbearance until August 21, 2020 from certain holders holding greater than 50%automatic and immediate acceleration of the outstanding 11.25% Senior Notes for the Payment Default. Despite the forbearances, the defaults under the Credit Facility and the 11.25% Senior Notes are continuing, and will continue, absent a waiver from the lenders or, in case of the 11.25% Senior Notes, the Payment Default is cured Despite the forbearance, the defaults are continuing, and will continue, absent a waiver from the lenders. For more information regarding the Credit Facility, see “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” and Note 1, Basis of Presentation - Going Concern.”debt.

Item 5. Other Information

On June 29, 2020, the Company entered into Eligibility Notification Letters (the “Eligibility Notification Letters”) with each of our named executive officers, including Frank D. Bracken III, our chief executive officer and Barry D. Schneider, our chief operating officer, in connection with the Lonestar Resources US Inc. Change in Control Severance Plan (the “CIC Plan”) that was adopted by our board of directors. Under the Plan and the Eligibility Notification Letters, eligible participants will be entitled to severance payments and benefits in the event their employment is terminated by us without cause or they resign for good reason, in either case within two years following or two and one-half months prior to a change in control of the Company, subject to the participant’s execution and non-revocation of a release of claims in favor of the Company. For Mr. Bracken, the cash severance payments would be equal to three times his annual base salary and target bonus amount and monthly COBRA premiums for three years. For Mr. Schneider, the cash severance payments would be equal to two times his annual base salary and target bonus amount and monthly COBRA premiums for two years. In addition, each participant’s outstanding equity incentive awards would vest in full, subject to attainment of relevant performance goals for performance-based awards. The foregoing descriptions are qualified in their entirety to the text of the CIC Plan and Eligibility Notification Letters, the forms of which are attached as exhibits to this report.

4348

Item 6. Exhibits.
Exhibit NumberDescriptionIncorporated by ReferenceFiling
Date		Filed/
Furnished
Herewith
FormFile No.Exhibit
10.18-K001-3767010.15/11/20
10.28-K001-3767010.16/17/20
10.310-Q001-3767010.37/2/20
10.4†10-Q001-3767010.47/2/20
10.5†10-Q001-3767010.57/2/20
10.68-K001-3767010.18/3/20
10.78-K001-3767010.28/3/20
31.1*
31.2*
32.1**
32.2**
101.INSXBRL Instance Document*
101.SCHXBRL Taxonomy Extension Schema Document*
101.CALXBRL Taxonomy Extension Calculation Linkbase Document*
101.DEFXBRL Taxonomy Extension Definition Linkbase Document*
101.LABXBRL Taxonomy Extension Label Linkbase Document*
101.PREXBRL Taxonomy Extension Presentation Linkbase Document*
Exhibit NumberDescriptionIncorporated by ReferenceFiling
Date		Filed/
Furnished
Herewith
FormFile No.Exhibit
10.18-K001-3767010.15/11/20
10.28-K001-3767010.16/17/20
10.310-Q001-3767010.37/2/20
10.4†10-Q001-3767010.47/2/20
10.5†10-Q001-3767010.57/2/20
10.68-K001-3767010.18/3/20
10.78-K001-3767010.28/3/20
10.88-K001-3767010.18/21/20
10.9

8-K001-3767010.19/14/20
0.01018-K001-3767010.111/12/20
31.1*
31.2*
32.1**
32.2**
101.INSXBRL Instance Document*
101.SCHXBRL Taxonomy Extension Schema Document*
101.CALXBRL Taxonomy Extension Calculation Linkbase Document*
101.DEFXBRL Taxonomy Extension Definition Linkbase Document*
101.LABXBRL Taxonomy Extension Label Linkbase Document*
101.PREXBRL Taxonomy Extension Presentation Linkbase Document*
*    Filed herewith.
**    Furnished herewith
†    Management contract or compensatory plan or arrangement
4449

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 thereunto duly authorized.
LONESTAR RESOURCES US INC.
August 14,November 19, 2020/s/ Frank D. Bracken, III
Frank D. Bracken, III
Chief Executive Officer
August 14,November 19, 2020/s/ Jason N. Werth
Jason N. Werth
Chief Accounting Officer
4550