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 ~~September~~June 30, ~~2020~~2021

☐ 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)


Delaware						81-0874035
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

111 Boland Street, Suite 301, Fort Worth, TX						76107
(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 Class	Trading Symbol*Symbol	Name of Exchange on Which Registered
~~Class A Voting~~ Common Stock, par value $0.001 per share	~~LONEQ~~LONE	~~NASDAQ Global Select~~OTCQX Best 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 filer

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of ~~November 18, 2020,~~August 9, 2021, the registrant had ~~25,375,314~~10,107,081 shares of ~~Class A voting~~ common stock, par value $0.001 per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheets at June 30, 202 ~~September~~1 ~~30, 2020~~ and December 31, ~~2019~~20 20	1
	Unaudited Condensed Consolidated Statements of Operations for the Three and ~~Nin~~e Six Months Ended June 30, 202 ~~September~~1 ~~30, 2020~~ and ~~2019~~20 20	2
	Unaudited Condensed Consolidated Statements of Changes in ~~Stockholders'~~Stockhold ers ’ E quity (Deficit) ~~Equity~~ for the Three and ~~Nine~~Six Months Ended June 30, 202 ~~September~~1 ~~30, 2020~~ and ~~2019~~20 20	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Nin~~e Six Months Ended ~~September~~June 30, ~~2020~~202 1 and ~~2019~~20 20	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2217
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4132
Item 4.	Controls and Procedures	4233
PART II.	OTHER INFORMATION	4334
Item 1.	Legal Proceedings	4334
Item 1A.	Risk Factors	4334
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
~~Item 3.~~	~~Default under Credit Facility~~	47
~~Item 5.~~	~~Other Information~~	4734
Item 6.	Exhibits	4935
Signatures		5036

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 ~~information)~~data)


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	36,611	$	3,137	Cash and cash equivalents	$	18,788	$	17,474
Restricted cash						Restricted cash	2,157		8,972
Accounts receivable	Accounts receivable					Accounts receivable
Oil, natural gas liquid and natural gas sales	Oil, natural gas liquid and natural gas sales	14,304		15,991		Oil, natural gas liquid and natural gas sales	18,838		11,635
Joint interest owners and others, net	Joint interest owners and others, net	1,594		1,310		Joint interest owners and others, net	1,418		4,076

Derivative financial instruments	Derivative financial instruments	0		5,095		Derivative financial instruments	0		1,703
Prepaid expenses and other	Prepaid expenses and other	9,936		2,208		Prepaid expenses and other	1,710		1,118
Total current assets	Total current assets	62,445		27,741		Total current assets	42,911		44,978
Property and equipment	Property and equipment					Property and equipment
Oil and gas properties, using the successful efforts method of accounting	Oil and gas properties, using the successful efforts method of accounting					Oil and gas properties, using the successful efforts method of accounting
Proved properties	Proved properties	1,099,521		1,050,168		Proved properties	352,788		314,685
Unproved properties	Unproved properties	77,367		76,462		Unproved properties	33,808		34,929
Other property and equipment	Other property and equipment	21,914		21,401		Other property and equipment	19,692		19,680
Less accumulated depreciation, depletion, amortization and impairment		(723,351)		(464,671)
Less accumulated depreciation, depletion and amortization						Less accumulated depreciation, depletion and amortization	(12,982)		(2,056)
Property and equipment, net	Property and equipment, net	475,451		683,360		Property and equipment, net	393,306		367,238
Accounts receivable – related party		6,023		5,816
Accounts receivable						Accounts receivable	6,256		6,053
Derivative financial instruments	Derivative financial instruments	0		1,754		Derivative financial instruments	0		395
Other non-current assets	Other non-current assets	2,052		2,108		Other non-current assets	4,232		4,651
Total assets	Total assets	$	545,971	$	720,779	Total assets	$	446,705	$	423,315
Liabilities and Stockholders' (Deficit) Equity
Liabilities and Stockholders’ Equity						Liabilities and Stockholders’ Equity
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	10	$	33,355	Accounts payable	$	10,929	$	7,651
Accounts payable – related party		0		189

Oil, natural gas liquid and natural gas sales payable	Oil, natural gas liquid and natural gas sales payable	0		14,811		Oil, natural gas liquid and natural gas sales payable	22,953		18,760
Accrued liabilities	Accrued liabilities	429		26,905		Accrued liabilities	15,594		15,983
Derivative financial instruments	Derivative financial instruments	0		8,564		Derivative financial instruments	43,539		7,938
Current maturities of long-term debt	Current maturities of long-term debt	285,000		247,000		Current maturities of long-term debt	22,157		20,000
Total current liabilities	Total current liabilities	285,439		330,824		Total current liabilities	115,172		70,332
Long-term liabilities	Long-term liabilities					Long-term liabilities
Long-term debt	Long-term debt	8,781		255,068		Long-term debt	243,199		255,328
Asset retirement obligations	Asset retirement obligations	7,583		7,055		Asset retirement obligations	3,707		4,573
Deferred tax liabilities, net		0		931
Warrant liability		0		129
Warrant liability – related party		0		235

Derivative financial instruments	Derivative financial instruments	0		1,898		Derivative financial instruments	15,539		835
Other non-current liabilities		0		3,752

Total long-term liabilities	Total long-term liabilities	16,364		269,068		Total long-term liabilities	262,445		260,736
Liabilities subject to compromise		309,193		0
Total liabilities		610,996		599,892
Commitments and contingencies (Note 11)
Stockholders' (deficit) equity
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, respectively		142,655		142,655
Commitments and contingencies (Note 10)						Commitments and contingencies (Note 10)	0		0
Stockholders’ equity						Stockholders’ equity
Common stock, $0.001 par value, 90,000,000 shares authorized, 10,107,081 and 10,000,149 shares issued and outstanding, respectively						Common stock, $0.001 par value, 90,000,000 shares authorized, 10,107,081 and 10,000,149 shares issued and outstanding, respectively	10		10

Series A-1 convertible participating preferred stock, $0.001 par value, 104,893 and 100,328 shares issued and outstanding, respectively		0		0

Additional paid-in capital	Additional paid-in capital	176,012		175,738		Additional paid-in capital	93,933		92,953
Accumulated deficit	Accumulated deficit	(383,692)		(197,506)		Accumulated deficit	(24,855)		(716)
Total stockholders' (deficit) equity		(65,025)		120,887
Total liabilities and stockholders' (deficit) equity		$	545,971	$	720,779
Total stockholders’ equity						Total stockholders’ equity	69,088		92,247
Total liabilities and stockholders’ equity						Total liabilities and stockholders’ equity	$	446,705	$	423,315

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Lonestar Resources US Inc. ~~(Debtor-In-Possession)~~

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share data)


		Three Months Ended September 30,				Nine Months Ended September 30,					Successor		Predecessor		Successor		Predecessor
		2020		2019		2020		2019			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020		Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
Revenues	Revenues									Revenues
Oil sales	Oil sales	$	24,524	$	42,187	$	66,510	$	120,496	Oil sales	$	36,369	$	11,976	$	64,234	$	41,986
Natural gas liquid sales	Natural gas liquid sales	3,202		3,439		7,565		10,381		Natural gas liquid sales	4,940		1,762		9,239		4,362
Natural gas sales	Natural gas sales	4,383		7,519		12,285		15,224		Natural gas sales	4,718		3,482		12,365		7,902
Total revenues	Total revenues	32,109		53,145		86,360		146,101		Total revenues	46,027		17,220		85,838		54,250
Expenses	Expenses									Expenses
Lease operating	Lease operating	4,763		8,948		16,430		23,472		Lease operating	3,933		4,028		8,379		11,667
Gas gathering, processing and transportation	Gas gathering, processing and transportation	1,891		1,107		4,916		3,223		Gas gathering, processing and transportation	1,520		875		3,062		3,025
Production and ad valorem taxes	Production and ad valorem taxes	1,994		3,017		6,084		8,126		Production and ad valorem taxes	2,497		1,721		4,917		4,091
Depreciation, depletion and amortization	Depreciation, depletion and amortization	18,256		24,635		59,184		64,120		Depreciation, depletion and amortization	5,860		16,575		11,169		40,929
Loss on sale and disposal of oil and gas properties	Loss on sale and disposal of oil and gas properties	0		483		1,254		33,530		Loss on sale and disposal of oil and gas properties	0		1,254		0		1,254
Impairment of oil and gas properties	Impairment of oil and gas properties	0		0		199,908		0		Impairment of oil and gas properties	0		0		0		199,908
General and administrative	General and administrative	15,808		4,124		24,664		12,345		General and administrative	5,962		5,981		9,939		8,856
Other expense (income)		121		(2)		(15)		(4)
Other (income) expense										Other (income) expense	(143)		58		(138)		(139)
Total expenses	Total expenses	42,833		42,312		312,425		144,812		Total expenses	19,629		30,492		37,328		269,591
(Loss) income from operations		(10,724)		10,833		(226,065)		1,289
Income (loss) from operations										Income (loss) from operations	26,398		(13,272)		48,510		(215,341)
Other (expense) income	Other (expense) income									Other (expense) income
Interest expense	Interest expense	(11,399)		(11,295)		(33,521)		(32,730)		Interest expense	(4,323)		(10,512)		(8,430)		(22,122)
Change in fair value of warrants	Change in fair value of warrants	0		(100)		363		594		Change in fair value of warrants	0		0		0		363
(Loss) gain on derivative financial instruments	(Loss) gain on derivative financial instruments	(9,656)		21,546		70,373		(5,177)		(Loss) gain on derivative financial instruments	(39,892)		(21,141)		(64,059)		80,029
Reorganization items, net		(3,072)		0		(3,072)		0
Total other (expense) income	Total other (expense) income	(24,127)		10,151		34,143		(37,313)		Total other (expense) income	(44,215)		(31,653)		(72,489)		58,270
(Loss) income before income taxes		(34,851)		20,984		(191,922)		(36,024)
Loss before income taxes										Loss before income taxes	(17,817)		(44,925)		(23,979)		(157,071)
Income tax benefit (expense)	Income tax benefit (expense)	49		(4,767)		5,736		6,966		Income tax benefit (expense)	0		4,332		(160)		5,687
Net (loss) income		(34,802)		16,217		(186,186)		(29,058)
Net loss										Net loss	(17,817)		(40,593)		(24,139)		(151,384)
Preferred stock dividends	Preferred stock dividends	0		(2,159)		(4,566)		(6,336)		Preferred stock dividends	0		(2,308)		0		(4,566)
Undeclared cumulative preferred stock dividends		(3,671)		0		(3,671)		0
Net (loss) income attributable to common stockholders		$	(38,473)	$	14,058	$	(194,423)	$	(35,394)
Net loss income attributable to common stockholders										Net loss income attributable to common stockholders	$	(17,817)	$	(42,901)	$	(24,139)	$	(155,950)

Net (loss) income per common share
Net loss per common share										Net loss per common share
Basic	Basic	$	(1.52)	$	0.34	$	(7.70)	$	(1.42)	Basic	$	(1.77)	$	(1.70)	$	(2.40)	$	(6.20)
Diluted	Diluted	$	(1.52)	$	0.33	$	(7.70)	$	(1.42)	Diluted	$	(1.77)	$	(1.70)	$	(2.40)	$	(6.20)

Weighted average common shares outstanding	Weighted average common shares outstanding									Weighted average common shares outstanding
Basic	Basic	25,361,361		24,933,853		25,238,972		24,852,994		Basic	10,092,980		25,307,714		10,046,821		25,154,151
Diluted	Diluted	25,361,361		25,331,810		25,238,972		24,852,994		Diluted	10,092,980		25,307,714		10,046,821		25,154,151

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Lonestar Resources US Inc. ~~(Debtor-In-Possession)~~

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (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			Common Stock				Additional Paid-in Capital	Accumulated Deficit			Total Stockholders’ Equity
		Shares	Amount		Shares	Amount										Shares					Amount
Balance at December 31, 2019		24,945,594	$	142,655	100,328	$	—			$	175,738			$	(197,506)					$	120,887
Preferred stock dividends		—	—		2,257	—		—				—					—
Stock-based compensation		308,435	—		—	—		240				—					240
Balance at December 31, 2020 (Successor)																			Balance at December 31, 2020 (Successor)	10,000,149		$	10			$	92,953		$	(716)		$	92,247

Net loss	Net loss	—	—		—	—		—				(110,791)					(110,791)		Net loss	—		—			—			(6,322)			(6,322)
Balance at March 31, 2020		25,254,029	142,655		102,585	—		175,978				(308,297)					10,336
Preferred stock dividends		—	—		2,308	—		—				—					—
Stock-based compensation		58,182	—		—	—		28				—					28
Net loss		—	—		—	—		—				(40,593)					(40,593)
Balance at June 30, 2020		25,312,211	142,655		104,893	—		176,006				(348,890)					(30,229)
Balance at March 31, 2021 (Successor)																			Balance at March 31, 2021 (Successor)	10,000,149		10			92,953			(7,038)			85,925

Stock-based compensation	Stock-based compensation	—	—		—	—		6				—					$	6	Stock-based compensation	106,932		—			980			—			980
Net loss	Net loss	—	—		—	—		—				(34,802)					$	(34,802)	Net loss	—		—			—			(17,817)			(17,817)
Balance at September 30, 2020		25,312,211	$	142,655	104,893	$	—	$	176,012			$	(383,692)				$	(65,025)
Balance at June 30, 2021 (Successor)																			Balance at June 30, 2021 (Successor)	10,107,081		$	10		$	93,933		$	(24,855)		$	69,088

Class A Voting
Common Stock Series A-1
Preferred Stock Additional
Paid-in
Capital Accumulated
Deficit Total
Stockholders'
Equity
Shares Amount Shares Amount
Balance at December 31, 2018 24,645,825 $ 142,655 91,784 $ — $ 174,379 $ (94,487) $ 222,547
Preferred stock dividends — — 2,065 — — — —
Stock-based compensation 127,818 — — — 627 — 627
Net loss — — — — — (58,564) (58,564)
Balance at March 31, 2019 24,773,643 142,655 93,849 — 175,006 (153,051) 164,610
Preferred stock dividends — — 2,112 — — — —
Stock-based compensation 160,210 — — — 703 — 703
Net income — — — — — 13,289 13,289
Balance at June 30, 2019 24,933,853 142,655 95,961 $ — 175,709 (139,762) 178,602
Preferred stock dividends — — 2,159 — — — —
Net income — — — — — 16,217 16,217
Balance at September 30, 2019 24,933,853 $ 142,655 98,120 $ — $ 175,709 $ (123,545) $ 194,819


	Class A Voting Common Stock			Series A-1 Preferred Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ (Deficit) Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2019 (Predecessor)	24,945,594	$	142,655	100,328	$	—	$	175,738	$	(197,506)	$	120,887
Payment-in-kind dividends	—	—		2,257	—		—		—		—
Stock-based compensation	308,435	—		—	—		240		—		240
Net loss	—	—		—	—		—		(110,791)		(110,791)
Balance at March 31, 2020 (Predecessor)	25,254,029	142,655		102,585	—		175,978		(308,297)		10,336
Payment-in-kind dividends	—	—		2,308	—		—		—		—
Stock-based compensation	58,182	—		—	—		28		—		28
Net loss	—	—		—	—		—		(40,593)		(40,593)
Balance at June 30, 2020 (Predecessor)	25,312,211	$	142,655	104,893	$	—	$	176,006	$	(348,890)	$	(30,229)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Lonestar Resources US Inc. ~~(Debtor-In-Possession)~~

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)


		Nine Months Ended September 30,					Successor		Predecessor
		2020		2019			Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net loss	Net loss	$	(186,186)	$	(29,058)	Net loss	$	(24,139)	$	(151,384)
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 amortization	Depreciation, depletion and amortization	59,184		64,120		Depreciation, depletion and amortization	11,169		40,929
Stock-based compensation	Stock-based compensation	(2,001)		1,294		Stock-based compensation	1,088		(1,998)
Deferred taxes	Deferred taxes	(931)		(6,983)		Deferred taxes	0		(931)
(Gain) loss on derivative financial instruments		(70,373)		5,177
Loss (gain) on derivative financial instruments						Loss (gain) on derivative financial instruments	64,059		(80,029)
Settlements of derivative financial instruments	Settlements of derivative financial instruments	66,761		(3,858)		Settlements of derivative financial instruments	(12,398)		23,998
Non-cash reorganization items		3,072		0
Impairment of oil and natural gas properties	Impairment of oil and natural gas properties	199,908		0		Impairment of oil and natural gas properties	0		199,908
Loss (gain) on disposal of property and equipment		83		(17)
Loss on disposal of property and equipment						Loss on disposal of property and equipment	0		83

Loss on sale of oil and gas properties	Loss on sale of oil and gas properties	1,254		33,530		Loss on sale of oil and gas properties	0		1,254
Non-cash interest expense	Non-cash interest expense	2,002		1,822		Non-cash interest expense	941		1,374
Change in fair value of warrants	Change in fair value of warrants	(363)		(594)		Change in fair value of warrants	0		(363)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(5,413)		(8,330)		Accounts receivable	(5,001)		(189)
Prepaid expenses and other assets	Prepaid expenses and other assets	(2,004)		(1,102)		Prepaid expenses and other assets	(703)		(897)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	17,738		(3,128)		Accounts payable and accrued expenses	(7,619)		(1,344)
Net cash provided by operating activities	Net cash provided by operating activities	82,731		52,873		Net cash provided by operating activities	27,397		30,411

Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Acquisition of oil and gas properties	Acquisition of oil and gas properties	(2,186)		(5,239)		Acquisition of oil and gas properties	(1,612)		(1,714)
Development of oil and gas properties	Development of oil and gas properties	(97,973)		(119,273)		Development of oil and gas properties	(21,489)		(72,824)
Proceeds from sale of oil and gas properties	Proceeds from sale of oil and gas properties	11,913		11,470		Proceeds from sale of oil and gas properties	337		2,837
Purchases of other property and equipment	Purchases of other property and equipment	(1,014)		(3,527)		Purchases of other property and equipment	(13)		(636)
Net cash used in investing activities	Net cash used in investing activities	(89,260)		(116,569)		Net cash used in investing activities	(22,777)		(72,337)

Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Proceeds from borrowings	Proceeds from borrowings	48,157		114,000		Proceeds from borrowings	0		48,157
Payments on borrowings	Payments on borrowings	(8,154)		(52,218)		Payments on borrowings	(10,121)		(8,109)

Net cash provided by financing activities		40,003		61,782
Net increase (decrease) in cash and cash equivalents		33,474		(1,914)
Cash and cash equivalents, beginning of the period		3,137		5,355
Cash and cash equivalents, end of the period		$	36,611	$	3,441
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(10,121)		40,048
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	(5,501)		(1,878)
Cash, cash equivalents and restricted cash, beginning of the period						Cash, cash equivalents and restricted cash, beginning of the period	26,446		3,137
Cash, cash equivalents and restricted cash, end of the period						Cash, cash equivalents and restricted cash, end of the period	$	20,945	$	1,259

Supplemental information:	Supplemental information:					Supplemental information:

Cash paid for interest	Cash paid for interest	$	23,831	$	28,125	Cash paid for interest	$	7,496	$	21,036
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Undeclared cumulative dividends on preferred stock		$	3,671	$	0
Change in asset retirement obligation	Change in asset retirement obligation	272		(292)		Change in asset retirement obligation	$	(945)	$	24
Change in liabilities for capital expenditures	Change in liabilities for capital expenditures	(37,269)		9,098		Change in liabilities for capital expenditures	15,326		(16,809)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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”) 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.

~~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 prior~~to 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.

~~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 parties~~	~~139~~
~~Oil, natural gas liquid and natural gas sales~~	~~20,361~~
~~Accrued liabilities~~	~~29,229~~
~~Current maturities of long-term debt~~	~~252,157~~
~~Long-term debt~~	~~260~~
~~Equity warrant liability — related parties~~	1
~~Other non-current liabilities~~	~~1,154~~
~~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.

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements (“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 (“GAAP”) 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~~2020 filed on March 31, 2021, as supplemented by our amendment on Form 10-K/A filed with the SEC on April ~~13, 2020 and subsequently amended (as amended, the~~30, 2021 (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~~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 ~~September~~June 30, ~~2020~~2021 and our consolidated results of operations for the three and ~~nine~~six months ended June 30, 2021 and June 30, 2020.

Emergence from Voluntary Reorganization Under Chapter 11 of the Bankruptcy Code

On September 30, 2020 (the “Petition Date”), Lonestar Resources US Inc. and ~~September~~21 of its directly and indirectly owned subsidiaries (collectively, the “Debtors”), filed voluntary petitions (“Bankruptcy Petitions”) for relief under Chapter 11 (“Chapter 11”) of the U.S. Bankruptcy Code (“Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Texas (“Bankruptcy Court”). The Debtors’ Chapter 11 cases were administered jointly under the caption In re Lonestar Resources US Inc., et al., Case No. 20-34805 (collectively, the “Chapter 11 Proceedings”). During the pendency of the Chapter 11 Proceedings, the Debtors in the Chapter 11 Proceedings, operated their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.

On November 12, 2020, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the chapter 11 plan of reorganization (the “Plan”) and approving the Disclosure Statement. The Company emerged from bankruptcy and went effective with its Plan on November 30, ~~2019.~~2020 (the “Effective Date”). In January 2021, the Successor’s (as defined below) new common stock commenced trading on the OTCQX Best Market under the ticker symbol “LONE”.

Comparability of Financial Statements to Prior Periods

The Company applied Fresh Start Accounting on the Effective Date. Accordingly, the Company’s Unaudited Condensed Consolidated Financial Statements and Notes to Unaudited Condensed Consolidated Financial Statements after November 30, 2020, are not comparable to the Unaudited Condensed Consolidated Financial Statements and Notes to Unaudited Condensed Consolidated Financial Statements through that date. To facilitate financial statement presentations, we refer to the reorganized company in these Condensed Consolidated Financial Statements and Notes as the “Successor,” which is effectively a new reporting entity for financial reporting purposes, for periods subsequent to November 30, 2020, and the “Predecessor” for periods prior to and including November 30, 2020. In connection with our reorganization, the Company experienced a change in control as the outstanding common and preferred shares of the Predecessor were canceled and substantially all of the Successor’s new common stock was issued to the Predecessor’s bondholders.

Furthermore, our Unaudited Condensed Consolidated Financial Statements and Notes to Unaudited Condensed Consolidated Financial Statements have been presented with a “black line” division to delineate, where applicable, the lack of comparability between the Predecessor and Successor. Accordingly, our results of operations, financial position and cash flows for the Successor periods are not comparable.

Reclassifications

Certain ~~prior period~~prior-period amounts have been reclassified to conform to the current ~~year~~period presentation. Such reclassifications had no impact on ~~our~~the Company’s reported total revenues, expenses, net ~~(loss) income,~~loss, current assets, total assets, current liabilities, total liabilities or stockholders’ equity.

A
~~bility to Continue as a Going Concern~~

Cash, Cash Equivalents and Restricted Cash

The ~~condensed consolidated financial statements~~Company considers all highly-liquid investments to be cash equivalents if they have ~~been prepared on~~maturities of three months or less when purchased. The following table provides a ~~going concern basis~~reconciliation of ~~accounting, which contemplates continuity~~cash, cash equivalents and restricted cash as reported within the Unaudited Condensed Consolidated Balance Sheets to “Cash, cash equivalents and restricted cash at the end of ~~operations, realization~~the period” as reported within the Unaudited Condensed Consolidated Statements of ~~assets and satisfaction of liabilities and commitments~~Cash Flows:


	Successor		Predecessor
In thousands	June 30, 2021		June 30, 2020
Cash and cash equivalents	$	18,788	$	1,259
Restricted cash, current	2,157		0
Total cash, cash equivalents and restricted cash shown in the Unaudited Condensed Consolidated Statements of Cash Flows	$	20,945	$	1,259

Restricted cash, current in the ~~normal course~~table above represents funds reserved to cover the balance of ~~business.~~the PPP (as defined below) loan until the Successor receives the final loan forgiveness determination from the Small Business Administration (“SBA”), in accordance with SBA guidance, or until the PPP loan is repaid.

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.COVID-19

~~The Company’s ability~~During the first half and through early-August 2021, the oil and natural gas industry has experienced continued improvement in commodity prices as compared to ~~continue~~the same period in 2020, primarily resulting from (i) improvements in oil demand as ~~a going concern is contingent upon, among~~the impact from COVID-19 has begun to abate (although, as of early-August 2021, the COVID-19 Delta variant was showing significant spread globally causing uncertainty regarding future economic impacts) and (ii) actions taken by the Organization of Petroleum Exporting Countries, Russia and certain other ~~things, its ability~~oil-exporting countries (“OPEC+”) to ~~implement~~reduce 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.~~worldwide supply of oil through coordinated production cuts. As a result, West Texas Intermediate (“WTI”) oil prices have increased from $48.52 per barrel at December 31, 2020 to as high as $73.95 per barrel in late-July 2021. Prices for natural gas and NGLs were also much higher during the first half and through early-August 2021 than they were for the same period in 2020. While oil prices have continued to improve in 2021, the general outlook for the oil and natural gas industry for the remainder of ~~risks~~the year remains uncertain, 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~~can provide no assurances as to when or to what extent economic disruptions resulting from COVID-19 and the ~~Company’s ability to continue as a going concern.~~corresponding decreases in oil demand may impact the Company.

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

~~Risks~~On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and ~~Uncertainties~~

~~The COVID-19 pandemic has caused a rapid and precipitous drop in demand for oil, which in turn has caused oil prices~~Economic Security Act (the “CARES Act”) 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 and third quarters of 2020 and potentially beyond. Oil prices are expected to continue to be volatileprovide certain taxpayer relief as a result of ~~these events~~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 ~~ongoing COVID-19 outbreak, and as changes in oil inventories, oil demand and economic performance are reported. Although some market stabilization occurred in~~acceleration of refundable alternative minimum tax credits. The CARES Act did not materially impact the ~~third quarter of 2020, activity levels~~Predecessor’s or Successor’s effective tax rates for the ~~remainder of~~three and six months ended June 30, 2020 ~~are expected to remain low~~ and ~~the long-term outlook is uncertain.~~2021, respectively.

The ~~current pandemic~~Company applied for, and ~~uncertainty about its length and depth in future periods has caused~~received, a loan under 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 performedPaycheck Protection Program (“PPP”) 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 had been incurred by the end of September 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;~~

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 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, the Company 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. 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 $42.20 per barrel. Prior to the Chapter 11 Cases, the Company terminated and monetized its existing hedge portfolio in September 2020.

~~Forbearance Agreements 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 were to be used to repay the Credit Facility and automatically reduced the borrowing base by the amount of $2.2 million. The application for this loan required the ~~repayment~~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 ~~(iv) certain exceptions~~our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the ~~covenant restriction~~business. The receipt of this loan, and the forgiveness of the loan, is dependent on ~~investments were no longer available.~~

~~On July 31, 2020,~~ the Company having initially qualified for the loan and ~~certain~~qualifying for the forgiveness of ~~its subsidiaries entered into an amendment with respect~~such loan based on our future adherence to the ~~Forbearance Agreement with~~forgiveness criteria. The PPP loan bears interest of 1% and, if not forgiven, has a maturity date of May 8, 2022. Prior to emergence from Chapter 11, the ~~Lenders, pursuant~~Predecessor applied for loan forgiveness and placed cash equal to ~~which~~ the ~~Lenders agreed to extend the stated term~~outstanding principal balance of the ~~Forbearance Agreement until August 21, 2020.~~

PPP loan in escrow pending the final forgiveness determination by the SBA, in accordance with SBA guidelines. To date, forgiveness has not been received. The ~~ability~~PPP Loan is subject to any new guidance and new requirements released by the Department 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 terminated~~Treasury who has indicated that all companies that have received funds in ~~connection with the filing~~excess of the Chapter 11 Cases. However, pursuant to the RSA, certain lenders under the Credit Facility agreed to forbear from exercising certain rights and remedies while the RSA remains in full force and effect.

~~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 Forbearance 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 terminated in connection with the filing of the Chapter 11 Cases. However, pursuant to the RSA, certain holders of the 11.25% Senior Notes agreed to forbear from exercising certain rights and remedies while the 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~~$2.0 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 was 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, which was relieved by the Forbearance Agreement (see above) . Pursuant to the Restructuring Plan and as a result of the Company’s filing of the Chapter 11 Cases, the Company did not have the obligation to pay such deficiency within that time period, and the Credit Facility will be ~~amended and restated~~subject to a government (SBA) audit to further ensure PPP loans are limited to eligible borrowers in ~~connection with the Company’s exit from bankruptcy.~~

need.

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.

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~~Predecessor recorded impairment of 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~~proved undeveloped reserves (“PUDs”) and probable reserves from future net cash flows as the ~~Company cannot~~Predecessor could not assure that they ~~will~~would be developed going forward in light of continued depressed commodity prices and uncertainty regarding the ~~Company's~~Predecessor’s liquidity ~~situation.~~situation at the time.

Upon emergence from bankruptcy, the Company adopted fresh start accounting which resulted in its long-lived assets being recorded at their estimated fair value at the Effective Date. There were no material changes to the key cash flow assumptions and no triggering events ~~or changes~~since December 31, 2020; therefore, no impairment was identified in ~~circumstances during~~ the three or six months ended ~~September~~June 30, 2020 that indicate the carrying value may not be recoverable. However, if pricing remains depressed, it is reasonably possible that the Company may have to record impairment of its oil and gas properties in the future.2021.

~~CARES Act~~Net Loss per Common Share

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 nine months ended September 30, 2020.~~

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 detrimentalPrior to the ~~business. The receipt of this loan, and~~Effective Date, the ~~forgiveness of~~Predecessor company used 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. Pursuant to the Restructuring Plan, to the extent any portion of the PPP loan is not forgiven in accordance with the terms of the PPP and Cares Act, such portion of the PPP loan (if any) will be 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~~its Class A Participating Preferred Stock (the ~~"Preferred Stock"~~“Preferred Stock”) iswas 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 iswas not obligated to absorb Company losses and accordingly iswas 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. Upon the Effective Date, the Preferred Stock was extinguished and the two-class method is no longer necessary to compute earnings per share for the Successor.

Basic earnings per share is computed by dividing the allocated net ~~(loss) income~~loss 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~~for the Predecessor consisted of warrants, equity compensation awards and ~~Preferred Stock.~~preferred stock, while potential common shares for the Successor consist of warrants. 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 share.

117

~~The following is a reconciliation of~~For the periods presented, there were no differences between the basic and diluted ~~earnings per share:~~

Three Months Ended September 30, Nine Months Ended September 30,
In thousands, except shares and per-share data 2020 2019 2020 2019
Numerator — Basic
Total net (loss) income attributable to common stockholders $ (38,473) $ 14,058 $ (194,423) $ (35,394)
Less: allocation to participating securities 0 (5,494) 0 0
Net (loss) income attributable to common stockholders $ (38,473) $ 8,564 $ (194,423) $ (35,394)
Numerator — Diluted
Net income (loss) allocated to common stockholders - basic $ (38,473) $ 8,564 $ (194,423) $ (35,394)
Restricted stock unit compensation gain, net of tax $ 0 $ (80) $ 0 $ 0
Net income (loss) allocated to common stockholders - diluted $ (38,473) $ 8,484 $ (194,423) $ (35,394)
Denominator
Weighted average number of common shares — Basic 25,361,361 24,933,853 25,238,972 24,852,994
Restricted stock units converted under the treasury method 0 397,957 0 0
Weighted average number of common shares — Diluted 25,361,361 25,331,810 25,238,972 24,852,994
Earnings per share
Basic $ (1.52) $ 0.34 $ (7.70) $ (1.42)
Diluted $ (1.52) $ 0.33 $ (7.70) $ (1.42)

weighted average common shares. The following securities were excluded from the computation of diluted net loss per share, as their effect would have been antidilutive:


		Three Months Ended September 30,		Nine Months Ended September 30,			Successor	Predecessor	Successor	Predecessor
		2020	2019	2020	2019		Three Months Ended June 30, 2021	Three Months Ended June 30, 2020	Six Months Ended June 30, 2021	Six Months Ended June 30, 2020
Preferred stock	Preferred stock	17,482,167	15,997,411	17,101,727	15,649,269	Preferred stock	0	17,101,727	0	16,913,597
Warrants	Warrants	760,000	760,000	760,000	760,000	Warrants	1,111,110	760,000	1,111,110	760,000
Stock appreciation rights	Stock appreciation rights	1,010,000	1,010,000	1,010,000	1,010,000	Stock appreciation rights	0	1,010,000	0	1,010,000
Restricted stock units	Restricted stock units	963,049	0	921,723	1,457,701	Restricted stock units	475,953	970,866	239,291	1,369,164

Recent Accounting Pronouncements

Income Taxes. In December 2019, the ~~FASB~~Financial Accounting Standards Board (“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~~were effective starting January 1, 2021 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.~~Company.

Financial Instruments — Credit Losses. In June 2016, the ~~Financial Accounting Standards Board (“FASB”)~~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 adoption of ASU 2016-13 is currently not expected to have a material effect on the ~~Company's consolidated financial statements.~~Company’s Unaudited Condensed Consolidated Financial Statements.

~~Note 2. Acquisitions and Divestitures~~

~~Pirate Divestiture~~

Reference Rate Reform. In March ~~2019, Lonestar completed~~2020, the ~~divestiture of its Pirate assets~~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 ~~Wilson County for an adjusted cash purchase price of $11.5 million, after closing adjustments,~~this ASU were effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. Currently, the Company’s Successor Credit Agreements (as defined below) are the Company’s only contracts that makes reference 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~~LIBOR rate and the ~~closing date, and were producing approximately 200 BOE/d.~~agreements outline the specific procedures that will be undertaken once an appropriate alternative benchmark is identified. The Company ~~recognized~~does not expect this guidance to have a ~~loss of $33.5 million during the first quarter of 2019 in conjunction with the sale of the assets.~~significant impact on its Unaudited Condensed Consolidated Financial Statements and related footnote disclosures.

Note 3.2. 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.~~prices.

Inherent in ~~Lonestar's~~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.

~~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,~~ As of June 30, 2021, the Company ~~terminated and monetized all of its~~had 0 open commodity and interest rate swaps prior to its Chapter 11 bankruptcy filing (see Note 1. above), which resulted in a net realized gain of $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).physical delivery obligations.

~~In October 2020,~~

The following table summarizes Lonestar’s commodity derivative contracts as of June 30, 2021:


	Contract			Volumes	Weighted
Commodity	Type	Period	Range (1)	(Bbls/Mcf per day)	Average Price
Oil - WTI	Swaps	July - Dec 2021	$42.20 - $54.55	5,525	$	46.33
Oil - WTI	Swaps	Jan - Dec 2022	$44.83 - $51.44	3,062	47.03
Oil - WTI	Swaps	Jan - Dec 2023	$52.00 - $56.15	2,362	54.25
Natural Gas - Henry Hub	Swaps	July - Dec 2021	$2.93 - $3.05	13,550	2.98
Natural Gas - Henry Hub	Swaps	Jan - Dec 2022	$2.70 - $3.14	6,233	2.77

(1) Ranges presented for fixed-price swaps and basis swaps represent the lowest and highest fixed prices of all open contracts for the period presented.

During July 2021, the Company entered into ~~new~~additional Henry Hub natural gas swaps of 1,070,000 Mcf (8,770 Mcf per day) for ~~January~~the period of September 2021 through December 2021 ~~which hedge 10,000 MMBtu per day~~ at an average strike price of ~~$3.04~~$4.02 per ~~MMBtu. The Company also entered into~~Mcf, Henry Hub natural gas swaps of 2,737,500 Mcf (7,500 Mcf per day) for the period of January 2022 through December 2022 ~~which hedge 5,000 MMBtu per day~~ at an average strike price of ~~$2.70~~$3.38 per ~~MMBtu. In November 2020,~~Mcf and Henry Hub natural gas swaps of 1,582,500 Mcf (8,743 Mcf per day) for the ~~Company entered into new crude oil swaps for December 2020, which hedge 4,000 barrels per day~~period of January 2023 through June 2023 at an average strike price of ~~$41.08~~$3.02 per ~~barrel. The Company also entered into new crude oil swaps for January~~Mcf.

As of June 30, 2021, ~~through December 2021, which hedge 1,000 barrels per day at an average price~~all of ~~$42.20 per barrel.~~

the Company’s economic derivative hedge positions ~~are~~were 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.

Note 4.3. 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 ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


In thousands	In thousands	Three Months Ended September 30,				Nine Months Ended September 30,				In thousands	Successor		Predecessor		Successor		Predecessor
		2020		2019		2020		2019			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020		Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
Oil	Oil	$	24,524	$	42,187	$	66,510	$	120,496	Oil	$	36,369	$	11,976	$	64,234	$	41,986
NGLs	NGLs	3,202		3,439		7,565		10,381		NGLs	4,940		1,762		9,239		4,362
Natural gas	Natural gas	4,383		7,519		12,285		15,224		Natural gas	4,718		3,482		12,365		7,902
Total revenues	Total revenues	$	32,109	$	53,145	$	86,360	$	146,101	Total revenues	$	46,027	$	17,220	$	85,838	$	54,250

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 the accounts receivable balance representing amounts due or billable under the terms of contracts with purchasers was ~~$14.3~~$18.8 million and ~~$16.0~~$11.6 million, respectively.

Note 5.4. 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~~Accounting Standards Codification (“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.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, for each fair value hierarchy level:


		Fair Value Measurements Using									Fair Value Measurements Using
In thousands	In thousands	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		In thousands	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
September 30, 2020
June 30, 2021										June 30, 2021

Liabilities:	Liabilities:									Liabilities:
Derivative financial instruments										Derivative financial instruments	$	0	$	(59,078)	$	0	$	(59,078)

Warrant		0		0		(1)		(1)
Stock-based compensation	Stock-based compensation	(64)		0		(27)		(91)		Stock-based compensation	(108)		0		0		(108)
Total	Total	$	(64)	$	0	$	(28)	$	(92)	Total	$	(108)	$	(59,078)	$	0	$	(59,186)

December 31, 2019
December 31, 2020										December 31, 2020
Assets:	Assets:									Assets:
Derivative financial instruments	Derivative financial instruments	$	0	$	6,849	$	0	$	6,849	Derivative financial instruments	$	0	$	2,098	$	0	$	2,098
Liabilities:	Liabilities:									Liabilities:
Derivative financial instruments	Derivative financial instruments	0		(10,462)		0		(10,462)		Derivative financial instruments	0		(8,773)		0		(8,773)
Warrant		0		0		(364)		(364)
Stock-based compensation		(1,792)		0		(573)		(2,365)

Total	Total	$	(1,792)	$	(3,613)	$	(937)	$	(6,342)	Total	$	0	$	(6,675)	$	0	$	(6,675)

~~Level 3 Fair Value Measurements~~

~~The table below sets forth a summary of changes in the~~Assets and liabilities measured at fair value on a nonrecurring basis

Non-recurring fair value measurements include certain non-financial assets and liabilities as may be acquired in a business combination and thereby measured at fair value; impaired oil and natural gas property assessments; warrants issued in debt or equity offerings and the initial recognition of asset retirement obligations for which fair value is used. These estimates are derived from historical costs as well as management’s expectation of future cost environments. As there is no corroborating market activity to support the ~~Company’s~~assumptions used, the Company has designated these estimates as Level ~~3 liabilities for the nine months ended September 30, 2020:~~3.

In thousands Warrant Stock-Based Compensation Total
Balance as of December 31, 2019 $ (364) $ (573) $ (937)
Unrealized gains 363 546 909
Balance 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)~~debt 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 $17.2 million as of September 30, 2020 and is considered a Level 3 fair value measurement, as it is based on market transactions that occur infrequently as well as internally generated inputs.

1510

Note 6.5. Accrued Liabilities

Accrued liabilities consisted of the following as of the dates indicated:

In thousands September 30, 2020 December 31, 2019
Accrued interest – 11.25% Senior Notes $ 21,094 $ 14,063
Accrued well costs 368 8,932
Bonus payable 1,827 2,353
Other 6,368 1,557
Total accrued liabilities, prior to reclassification to liabilities subject to compromise 29,657 26,905
Less amounts reclassified to liabilities subject to compromise (1)
(29,228) 0
Total accrued liabilities $ 429 $ 26,905

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


In thousands	June 30, 2021		December 31, 2020
Bonus payable	$	1,231	$	1,363
Accrued well costs	9,160		1,752
Third-party payments for joint-interest expenditures	1,017		5,178
Accrued professional fees (success fees)	0		4,710
Ad valorem payable	2,307		869
Other	1,879		2,111
Total accrued liabilities	$	15,594	$	15,983

Note 7.6. Long-Term Debt

The following long-term debt obligations were outstanding as of the dates indicated:

In thousands September 30, 2020 December 31, 2019
Senior Secured Credit Facility $ 285,000 $ 247,000
11.25% Senior Notes due 2023 250,000 250,000
Mortgage debt (1)
8,781 8,931
PPP loan 2,157 0
Other 260 271
Total principal 546,198 506,202
Unamortized discount (2)
0 (3,375)
Unamortized debt issuance costs (2)
0 (759)
Total debt, prior to reclassification to liabilities subject to compromise 546,198 502,068
Less amounts reclassified to liabilities subject to compromise (3)
(252,417) 0
Total debt not subject to compromise (4)
293,781 502,068
Less current obligations (5)
(285,000) (247,000)
Total long-term debt (6)
$ 8,781 $ 255,068


In thousands	June 30, 2021		December 31, 2020
Senior Secured Credit Facility	$	209,600	$	209,600
Second-Out Term Loan	45,000		55,000
Mortgage debt	8,596		8,712
PPP loan	2,157		2,157
Other	249		261
Total long-term debt	265,602		275,730
Less unamortized discount	(246)		(402)
Total, net of unamortized discount	265,356		275,328
Less current obligations	(22,157)		(20,000)
Long-term debt	$	243,199	$	255,328

~~(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.~~

~~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.~~

Successor Senior Secured Credit ~~Facility~~Agreements

~~In July 2015,~~On the Effective Date, the Successor, through its subsidiary Lonestar Resources America Inc. ~~("LRAI"~~, entered into a new first-out senior secured revolving credit facility with Citibank, N.A., as administrative agent, and the other lenders from time to time party thereto (the “Successor Credit Facility”) and a second-out senior secured term loan credit facility (the “Successor Term Loan Facility” and, together with the Successor Credit Facility, the “Successor Credit Agreements”) by amending and restating the Company’s existing credit agreement (as so amended and restated, the “Predecessor Credit Facility”). The Successor Credit Facility provides for revolving loans in an aggregate amount of up to $225 million, subject to borrowing base capacity. Letters of credit are available up to the lesser of (a) $2.5 million and (b) the aggregate unused amount of commitments under the Successor Credit Facility then in effect. On the Effective Date, Lonestar Resources America Inc. borrowed $60.0 million in term loans under the Successor Term Loan Facility. The Successor Credit Agreements will mature on November 30, 2023. The term loans under the Successor Term Loan Facility amortize on a quarterly basis in an amount equal to $5.0 million, payable on the last day of March, June, September and December of each year. The Successor’s obligations under the Successor Credit Agreements are guaranteed by all of the Successor’s direct and indirect subsidiaries (subject to certain permitted exceptions) and will be secured by a lien on substantially all of the Successor’s, Lonestar Resources America Inc.’s and the guarantors’ assets (subject to certain exceptions).

Borrowings and letters of credit under the Successor Credit Facility are limited by borrowing base calculations set forth therein. The initial borrowing base is $225 million, subject to redetermination. The borrowing base will be redetermined semiannually on or around May 1 and November 1 of each year, with one interim “wildcard” redetermination available between scheduled redeterminations. The first wildcard redetermination occurred on February 1, 2021, which reaffirmed the initial borrowing base of $225 million and the May 1 redetermination was completed in August 2021, which also reaffirmed the $225 million borrowing base.

The Successor Credit Agreements contain customary covenants, including, but not limited to, restrictions on the Successor’s ability and that of its subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances or investments, pay dividends, sell or otherwise transfer assets, or enter into transactions with affiliates.

The Successor Credit Facility contains certain financial performance covenants including the following:

•A Consolidated Total Debt to Consolidated EBITDAX covenant, with such ratio not to exceed 3.5 times; and

•A requirement to maintain a current ratio (i.e., Consolidated Current Assets to Consolidated Current Liabilities) of at least 0.95 times for the three months ended December 31, 2020 and 1.0 times each fiscal quarter thereafter. The current ratio excludes current derivative assets and liabilities, as well as the current amounts due under the Successor Term Loan Facility, from the ratio.

Borrowings under the Successor Credit Agreements bear interest at a floating rate at the Successor’s option, which can be either an adjusted Eurodollar rate (the Adjusted LIBOR, subject to a 1% floor) plus an applicable margin of 4.50% per annum or a base rate determined under the Successor Credit Facility (the “ABR”, subject to a 2% floor) plus an applicable margin of 3.50% per annum. The weighted average interest rate on borrowings under the Successor Credit Agreements was 5.5% for the three and six months ended June 30, 2021. The undrawn portion of the aggregate lender commitments under the Successor Credit Facility is subject to a commitment fee of 1.0%. As of June 30, 2021, the Successor was in compliance with all debt covenants under the Successor Credit Facilities.

First Amendment

Effective August 6, 2021, the Company entered into ~~a $500~~the First Amendment and Borrowing Base Agreement (the “First Amendment”), which reaffirmed the $225 million borrowing base for the Successor Credit Facility pursuant to the scheduled May 1 redetermination and amended certain required swap agreements.

Predecessor Senior Secured Bank Credit Facility

From July 2015 through November 30, 2020, the Predecessor maintained a senior secured revolving credit facility with Citibank, N.A., as administrative agent, and other lenders party ~~thereto (as amended, supplemented or modified from time to time,~~thereto. All of the ~~“Credit Facility”). As of September 30, 2020, $285.0 million was borrowed under the~~Predecessor Credit Facility ~~and~~was refinanced by the ~~weighted average interest rate~~Successor Credit Agreements on ~~borrowings under~~ the Credit Facility for the quarter was 4.98%. Prior to default, the borrowing availability was $0.6 million, which reflected $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.Effective Date.

~~Prior to default, the Credit Facility could be used for loans and, subject to a $2.5 million sub-limit, letters~~Extinguishment of credit, and provided 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 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 September 30, 2020 which represents a borrowing deficiency of $60.4 million.

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.

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.~~

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.

~~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 are 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. ~~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~~

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.

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. On August 21, 2020, these parties agreed to further extend the stated term of the Forbearance Agreement until September 11, 2020. The filing of the Chapter 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 agreed to forbear from exercising certain rights and remedies while the RSA remains in full force and effect.

Predecessor 11.25% Senior Notes

~~In January 2018,~~On the ~~Company issued $250 million of~~Effective Date, the Predecessor’s 11.25% Senior Notes ~~to U.S.-based institutional investors. The net proceeds of $244.4 million~~due 2023 (the “11.25% Senior Notes”) were ~~used to~~ fully ~~retire~~extinguished by issuing equity in 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.

Prior to default, the 11.25% Senior Notes matured on January 1, 2023, and bore 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 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 remained outstanding immediately after such redemption and the redemption occurred within 180 days of the closing date of such equity offering.

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 priorSuccessor to the ~~stated maturity of such instrument.~~

~~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 represented 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 was a current event of default under the Credit Facility.~~The Company entered into the Forbearance Agreement which provided 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.

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 filing of the Chapter 11 Cases resulted in the termination of the Notes Forbearance Agreement and an event of default and acceleration of the maturity of the 11.25% Senior Notes. However, pursuant to the RSA, certain holders of ~~the 11.25% Senior Notes agreed to forbear from exercising certain rights and remedies while the RSA is in full force and effect.~~that debt.

Note 8.7. Stockholders’ Equity

~~Series A Preferred~~Registration Rights Agreement

On the Effective Date, the Successor entered into a registration rights agreement (the “Registration Rights Agreement”) with certain parties who received certain shares of New Common Stock ~~Dividends~~on the Effective Date (the “Holders”). The Registration Rights Agreement provides resale registration rights for the Holders’ registrable securities of the Successor.

Pursuant to the Registration Rights Agreement, Holders have customary underwritten offering and piggyback registration rights, subject to the limitations set forth in the Registration Rights Agreement. Under their underwritten offering registration rights, Holders have the right to demand the Successor to effectuate the distribution of any or all of its Registrable Securities by means of an underwritten offering pursuant to an effective registration statement; provided, however, that the expected gross offering price is equal to or greater than $50.0 million in the aggregate. The Successor is not obligated to effect an underwritten demand notice upon certain circumstances, including within 180 days of closing an underwritten offering. Under their piggyback registration rights, if at any time the Successor proposes to undertake a registered offering of New Common Stock for its own account, the Successor must give at least five business days’ notice to all Holders of ~~Series A-1 Preferred Stock are entitled~~Registrable Securities to ~~cumulative dividends payable quarterly initially at~~allow them to include a ~~rate~~specified number of ~~9% per annum (the “Dividend Rate”) in cash and, for any twelve quarters (“PIK Quarters”), at the Company’s option, (i)~~their shares 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 twelve 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.offering.

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~~Starting~~These registration rights are subject to certain conditions and limitations, including the right of the underwriters to limit the number of shares to be included in an offering and the Successor’s right to delay or withdraw a registration statement under certain circumstances. The Successor will generally pay all registration expenses in connection with its obligations under the Registration Rights Agreement, regardless of whether a registration statement is filed or becomes effective. The registration rights granted in the Registration Rights Agreement are subject to customary indemnification and contribution provisions, as well as customary restrictions such as blackout periods and, if an underwritten offering is contemplated, limitations on the number of shares to be included in the underwritten offering that may be imposed by the managing underwriter.

Warrant Agreements

On the Effective Date, pursuant to the terms of the Plan, the Successor entered into a Tranche 1 Warrant Agreement (the “Tranche 1 Warrant Agreement”) and issued warrants (the “Tranche 1 Warrants”) to holders of Allowed Prepetition RBL Claims (as defined in the Plan) or their permitted designees, as applicable, to purchase up to an aggregate of 555,555 shares of common stock in the Successor, par value $0.001 (the “New Common Stock”), at an exercise price of $0.001 per share of New Common Stock, subject to adjustment. The Tranche 1 Warrants may only be exercised at any time after the equity value of the Successor, as calculated pursuant to the Tranche 1 Warrant Agreement, shall have been greater than $100 million (“Valuation Condition”) and expire on November 30, 2023 (the “Expiration Date”).

On the Effective Date, pursuant to the terms of the Plan, the Company entered into a Tranche 2 Warrant Agreement (the “Tranche 2 Warrant Agreement” and, together with the ~~third quarter~~Tranche 1 Warrant Agreement, the “Warrant Agreements”) and issued warrants (the “Tranche 2 Warrants” and, together with the Tranche 1 Warrants, the “Warrants”) to holders of ~~2017 and through~~Allowed Prepetition RBL Claims or their permitted designees, as applicable, to purchase up to an aggregate of 555,555 shares of the ~~fourth quarter~~New Common Stock, at an exercise price of ~~2019,~~$0.001 per share of New Common Stock, subject to adjustment. The Tranche 2 Warrants may be exercised after the ~~Company elected the PIK Option for the Class A-1 Preferred Stock dividend payment, which resulted in~~first anniversary of the issuance of ~~20,328 additional shares of Series A-1 Preferred Stock. During~~the Successor Term Loan Facility if it shall not have been paid in full and if, after the first ~~and second quarter of 2020,~~anniversary date, the ~~Company also elected~~Valuation Condition has been met. The Tranche 2 Warrants expire upon 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.

Expiration Date.

All warrants are considered freestanding equity-classified instruments due to their detachable and separately exercisable features. Accordingly, the warrants are presented as a component of Stockholders’ Equity in accordance with ASC 815-40-25.

Note 9.8. Stock-Based Compensation

Management Incentive Plan

In connection with the Company's emergence from bankruptcy, the Plan provided for the adoption of a management incentive plan. On April 31, 2021, the Lonestar Resources US Inc. 2021 Management Incentive Plan (the “MIP”) was approved and adopted by the Company’s board of directors. The aggregate number of the Company’s common shares reserved for issuance under the MIP is equal to 966,184 shares, which are available for issuance pursuant to awards granted to officers, other employees, directors and other service providers. The MIP provides for, among other things, the grant of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents, other stock-based awards, cash awards, or any combination of the foregoing. As of June 30, 2021,awards covering 691,500 shares of the Company’s stock are outstanding under the MIP and 274,684 shares are available for future grants under the MIP, all of which could be issued in the form of restricted stock units. The incentive compensation program is administered by the Compensation Committee of the Company's Board of Directors.

Restricted Stock Units

~~Lonestar grants awards of~~

On April 13, 2021, service-based restricted stock ~~units ("RSUs"~~unit awards (“RSUs”) were granted to certain employees and directors ~~as part~~under the MIP.One-third of ~~its long-term compensation program. For~~ the ~~nine months ended September 30, 2020~~RSUs granted to employees vested and ~~2019,~~were immediately settled on the grant date, and the remaining unvested RSUs will vest in equal annual installments December 31, 2021, December 31, 2022, and December 31, 2023, subject to such employee’s continued employment with the Company ~~recognized $(1.2) million~~on each applicable vesting date. One-half of the RSUs granted to directors vested and ~~$2.0 million, respectively,~~were immediately settled on the date of ~~stock-based compensation (benefit) expense~~grant, and the remaining unvested RSUs will vest on December 31, 2021, subject to such director’s continued service on the Company’s board of directors through such vesting date. Shares of the Company’s common stock to be delivered to participants upon settlement are expected to be made available from authorized but unissued shares reserved under the ~~liability method~~MIP, however, the RSUs held by directors are eligible for ~~RSUs. The~~settlement in cash at such directors’ discretion. As a result, RSUs granted to directors are accounted for as a liability ~~for RSUs~~ on the ~~accompanying~~Company's unaudited condensed consolidated balance ~~sheet as of September 30, 2020 was $0.1 million.~~sheet.

As of ~~September~~June 30, ~~2020,~~2021, there was ~~$0.1~~$1.7 million of unrecognized compensation expense related to ~~non-vested RSU grants.~~the Company’s

RSUs held by employees. This unrecognized compensation cost is expected to be recognized over a weighted-average period of ~~1.3~~2.5 years. ~~There were no RSU grants that vested during~~For the three months ended ~~September~~June 30, ~~2020.~~2021, the Company recognized $1.3 million, of stock-based compensation expense for the RSUs. The liability for directors' unvested RSUs on the accompanying consolidated balance sheet as of June 30, 2021 was $0.1 million.

A summary of the status of the Company's ~~non-vested~~service-based RSU grants issued, and the changes during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 is presented below:


		Shares	Weighted Average Fair Value per Share			Shares	Weighted Average Fair Value per Share
Non-vested RSUs at December 31, 2019		1,849,676	$	4.04
Nonvested at December 31, 2020					Nonvested at December 31, 2020	0	$	0
Granted	Granted	0	0		Granted	387,750	7.29
Vested	Vested	(857,800)	0.65		Vested	(143,250)	7.29
Forfeited	Forfeited	(102,623)	0		Forfeited	0	0
Non-vested RSUs at September 30, 2020		889,253	$	3.41
Nonvested at June 30, 2021					Nonvested at June 30, 2021	244,500	10.28

~~Stock Appreciation Rights~~

Performance-Based RSUs

In April 2021, performance-based restricted stock unit awards (“PSUs”) were granted to certain employees under the ~~past, Lonestar has granted awards of stock appreciation rights (“SARs”)~~MIP.The PSUs are eligible to ~~employees~~vest in equal annual installments on December 31, 2021, December 31, 2022, and ~~directors as part of its long-term compensation program. For the nine months ended September 30, 2020 and 2019,~~December 31, 2023 (each installment, a “Tranche”), subject to such employee’s continued employment with the Company ~~recognized $(0.5) million~~on each applicable vesting date. Whether the PSUs vest and ~~$(0.1) million, respectively, of stock-based compensation (benefit) expense for SARs. The liability for SARs~~become settled on each applicable vesting date depends on the ~~accompanying unaudited consolidated balance sheet~~achievement of certain performance criteria determined by the Company’s board of directors, which is set within 90 days of the applicable fiscal year with respect to each Tranche. The performance criteria determined by the Company’s board of directors is typically related to the Company’s performance for the preceding fiscal year against several key performance indicators, including free cash flow and spending metrics, as well as discretionary factors. Shares of ~~September 30, 2020 was not material.~~the Company’s common stock to be delivered to participants upon settlement are expected to be made available from authorized but unissued shares reserved under the MIP.

As of ~~September~~June 30, ~~2020, the total~~2021, there was $2.2 million of unrecognized compensation ~~cost to be recognized in future periods~~expense related to the Successor’s

non-vested ~~SAR grants was not material. The~~PSUs. This unrecognized compensation cost is expected to be recognized over a weighted-average period of ~~0.5 year.~~3.6 years. For the three months ended June 30, 2021, the Company recognized $0.1 million, of stock-based compensation expense for the PSUs.

PSUs are valued using a Monte Carlo simulation. Expected volatilities utilized in the model were estimated using historical volatility of the Predecessor stock over a look-back term generally equivalent to the expected life of the award from the grant date.

A range of assumptions used in the Monte Carlo simulation valuation approach is as follows:


	Six Months Ended June 30, 2021
Weighted-average fair value of PSUs granted	$	7.29
Risk-free interest rate	0.21		%
Expected life	3.6
Expected volatility	125		%
Dividend yield	0

~~The following is a~~A summary of the ~~Company's SAR activity:~~

Shares Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term
(in years)
Outstanding at December 31, 2019 1,010,000 $ 6.30 2.5
SARs vested and exercisable at December 31, 2019 606,250 6.65 2.4
Granted 0 0 —
Exercised 0 0 —
Expired/forfeited 0 0 —
Outstanding at September 30, 2020 1,010,000 $ 6.30 1.8
SARs vested and exercisable at September 30, 2020 805,000 $ 6.79 1.6

~~Upon emergence from~~status of the ~~Chapter 11 Cases, Company's stock-based compensation plan will be terminated and any unvested awards will be cancelled for no consideration.~~non-vested PSUs during the six months ended June 30, 2021 is as follows:


	Shares	Weighted Average Fair Value per Share
Non-vested at December 31, 2020	0	$	0
Granted	303,750	7.29
Vested	0	0
Forfeited	0	0
Non-vested at June 30, 2021	303,750	$	10.28

Note ~~10. Related Party~~9. Related-Party Activities

New Tech Global Ventures, LLC, and New Tech Global Environmental, LLC, companies in which a director of the ~~Company~~Predecessor 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 ~~$0.4~~$0.5 million and ~~$0.5~~$1.0 million for the three and six months ended ~~September~~June 30, 2020 ~~and 2019, respectively and $0.7 million and $1.3 million for~~(Predecessor). On the ~~nine months ended September 30, 2020 and 2019, respectively.~~Effective Date, the director resigned from the Company’s Board.

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.

Note ~~11.~~10. Commitments and Contingencies

~~Chapter 11 Proceedings~~

~~Refer to Note 1,~~ ~~Basis of Presentation~~ ~~for more information on the 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~~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"~~“JDA”) in Gonzales County with one of the largest producers in the Eagle Ford which encompass an Area of Mutual Interest (the ~~"AMI"~~“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~~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.

Note 11. Subsequent Events

Penn Virginia Merger

On July 12, 2021, Penn Virginia Corporation (“Penn Virginia”) and the Company announced that they entered into a definitive merger agreement, (the “Merger Agreement”), pursuant to which Penn Virginia will acquire the Company in an all-stock transaction. Under the terms of the Merger Agreement, the Company’s shareholders will receive 0.51 shares of Penn Virginia for each of the Company’s shares. The transaction is expected to close in the second half of 2021, subject to the satisfaction of customary closing conditions, including obtaining the requisite shareholder and regulatory approvals. The transaction has been unanimously approved by the Boards of Directors of both companies. Consummation of the merger is subject to satisfaction of customary conditions.

The Merger Agreement contains certain termination rights for both the Company and Penn Virginia, including, among others, if the merger is not completed by November 26, 2021. On a termination of the Merger Agreement under certain circumstances, Penn Virginia may be required to pay the Company a termination fee of $6 million, or the Company may be required to pay Penn Virginia a termination fee of $3 million.

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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 (the “Unaudited Condensed Consolidated Financial Statements”) and Notes to 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~~2020, as supplemented by our amendment on Form 10-K/A filed with the SEC on April 30, 2021 (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.

Certain prior-period financial statements are not comparable to our current-period financial statements due to the adoption of fresh start accounting. References to “Successor” relate to the financial position and results of operations of the reorganized Company subsequent to November 30, 2020. References to “Predecessor” relate to the financial position and results of operations of the Company prior to, and including, November 30, 2020.

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~~Penn Virginia Merger

On July 12, 2021, Penn Virginia Corporation (“Penn Virginia”) and ~~Response~~Lonestar announced that they entered into a definitive merger agreement, or (the “Merger Agreement”), pursuant to ~~Commodity Price Declines~~which Penn Virginia will acquire Lonestar in an all-stock transaction. Under the terms of the Merger Agreement, Lonestar’s shareholders will receive 0.51 shares of Penn Virginia for each of the Company’s shares. The transaction is expected to close in the second half of 2021, subject to the satisfaction of customary closing conditions, including obtaining the requisite shareholder and regulatory approvals. The transaction has been unanimously approved by the Boards of Directors of both companies. Consummation of the merger is subject to satisfaction of customary conditions.

The ~~COVID-19 coronavirus ("COVID-19") pandemic has resulted in~~Merger Agreement contains certain termination rights for both Lonestar and Penn Virginia, including, among others, if the merger is not completed by November 26, 2021. On 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 Organizationtermination 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 declinedMerger Agreement under certain circumstances, Penn Virginia may be required to pay Lonestar a termination fee of $6 million, or Lonestar may be required to pay Penn Virginia a termination fee of $3 million.

Emergence 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 $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 had 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 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. Prior to commencement of theVoluntary Reorganization under 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.~~

~~Chapter 11 Cases~~

On September 30, 2020 ~~the Company and~~(the “Petition Date”), Lonestar Resources US Inc., along with certain of its ~~direct and indirect~~ 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, ~~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,~~The Chapter 11 Cases were administered jointly under the caption In re Lonestar Resources US Inc., et al., Case No. 20-34805 (DRJ). Wholly-owned subsidiary, Boland Building, LLC, was not a Debtor and was not included in the Chapter 11 Cases.

In addition, 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,~~Petition Date, the Debtors ~~also~~ filed their Joint Prepackaged Plan of Reorganization with the Bankruptcy Court ~~a prepackaged chapter 11 plan of reorganization~~ (the ~~“Restructuring Plan”~~“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. On November 12, 2020, 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~~entered its confirmation order (the “Confirmation Order”) approving and confirming the ~~filing date. For more information on~~Plan. On November 30, 2020, (the “Effective Date”) the ~~Chapter 11 Cases~~Plan became effective 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 common stock~~ was traded on the NASDAQ Global Select Market (the “NASDAQ”) under the symbol “LONE” until October 12, 2020. On October 1, 2020, we received a letter from the NASDAQ notifying us that, as a result of the Chapter 11 Cases andimplemented in accordance with NASDAQ rules, our securities would be delisted at the opening of business on October 12, 2020. On October 12, 2020, our common stock commenced trading on the OTC Bulletin Board or "pink sheets" under the symbol “LONEQ”. NASDAQ filed a Form 25 on October 27, 2020 to delist our common stock which went into effect ten days after it was filed.

~~Operational Highlights for the Third Quarter of 2020~~

~~During the third quarter of 2020, we achieved the following operating and financial results:~~

•Production decreased by 20% compared to the third quarter of 2019, averaging 14,419 BOE per day versus 18,097 BOE per day. Compared to the second quarter of 2020, production increased 8%, or 1,080 BOE per day, from 13,339 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 are a significant reason for the 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 wells (see below) in July.~~

•Continued to lower our operating expenses on a per-BOE basis. Compared to the third quarter of 2019, lease operating and gas gathering costs decreased on a per-BOE basis due to our continued focus on controlling expenses. However, general and administrative expenses increased significantly during the current quarter due to professional fees related to preparation for the Chapter 11 Cases.

~~Changes in operating results between the third quarters of 2020 and 2019 were primarily driven by the following:~~

•~~Revenues decreased sharply by $21.0 million, or 40%, between the two quarters, primarily driven by a 20% decrease in commodity prices and a 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 third quarter of 2019, lease operating and gas gathering expense decreased by 17% to $5.02 per BOE, production and ad valorem taxes decreased by 17% to $1.50 per BOE, general and administrative expense increased by 381% to $11.92 per BOE, and interest expense increased $1.81 per BOE.

•Derivative financial instruments had a net loss of $9.7 million in the third quarter of 2020, compared to a net gain of $21.5 million in the third 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 third quarter of 2020, we recognized net loss attributable to common stockholders of $38.5 million, or $1.52 per diluted common share, compared to net income attributable to common stockholders of $14.1 million, or $0.33 per diluted common share, in the third quarter of 2019. We generated $82.7 million of cash flow from operating activities during the first nine months of 2020, which was $29.8 million more than the $52.9 million generated by operating activities during the first nine 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 recorded 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 120 days of production, these wells have produced an average of 111,000 Bbls.

•Hawkeye #14H – With a 10,979’ perforated interval, the #14H recorded Max-30 rates of 1,186 Bbls per day of oil, 87 Bbls per day of NGLs, and 625 Mcf per day of natural gas, or 1,377 BOE per day on a three-stream basis and was achieved on a 30/64” choke. The #14H well has been on-stream for more than four months now, and had 120-day rates have averaged 868 Bbls per day of oil, 49 Bbls per day of NGLs, and 353 Mcf per day of natural gas, or 976 BOE per day on a three-stream basis.

•Hawkeye #15H – With a 10,608’ perforated interval, the #14H recorded Max-30 rates of 1,372 Bbls per day of oil, 101 Bbls per day of NGLs, and 729 Mcf per day of natural gas, or 1,595 BOE per day on a three-stream basis and was achieved on a 30/64” choke. The #15H has been on-stream for more than four months now, and had 120-day rates of 970 Bbls per day of oil, 55 Bbls per day of NGLs, and 394 Mcf per day of natural gas, or 1,090 BOE per day on a three-stream 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 per day of oil, 88 Bbls per day of NGLs, and 635 Mcf per day of natural gas, or 1,411 BOE per day on a three-stream basis and was achieved on a 30/64” choke. The #16H has been on-stream for more than four months now, and had 120-day rates of 958 Bbls per day of oil, 53 Bbls per day of NGLs, and 381 Mcf per day of natural gas, or 1,074 BOE per day on a three-stream basis and was achieved on a 30/64” choke.

~~We 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-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"). We expect to hold a 50% working interest and 37.5% net revenue interest in these wells.its terms.

2417

On the Effective Date, the Company consummated the following reorganization transactions in accordance with the Plan:

•Adopted an amended and restated its certificate of incorporation and bylaws, which reserved for issuance 90,000,000 shares of common stock, par value $0.001 per share, (the “New Common Stock”) and 10,000,000 shares of preferred stock, par value $0.001 per share;

•Appointed a new board of directors to replace the Predecessor’s directors, consisting of four new independent members: Richard Burnett, Gary D. Packer, Andrei Verona and Eric Long, and one continuing member: Frank D. Bracken, III, Lonestar’s Chief Executive Officer;

•Provided for the following settlement of claims and interests in the Predecessor as follows:

◦Holders of Prepetition RBL Claims received distributions of:

▪Cash in the amount of all accrued and unpaid interest;

▪A first-out senior secured revolving credit facility with total aggregate commitments of $225 million;

▪A second-out senior secured term loan credit facility in an amount equal to $60 million;

▪555,555 Tranche 1 warrants and 555,555 Tranche 2 warrants, reflecting up to a 10% ownership stake in the Successor company’s equity interests;

•Holders of Prepetition Notes Claims received distributions of a pro rata share of 96% of 10,000,149 shares of New Common Stock issued on the Effective Date, subject to dilution by a to-be-adopted management incentive plan (the “MIP”) and the new warrants;

•Holders of Predecessor preferred equity interests received distributions of a pro rata share of 3% of the New Common Stock in the Successor company (subject to dilution by the MIP and the new warrants);

•Holders of Predecessor Class A common stock received distributions of a pro rata share of 1% of the New Common Stock in the Successor company (subject to dilution by the MIP and new warrants); and

•General unsecured creditors were paid in full in cash.

Fresh Start Accounting

Upon emergence from bankruptcy, the Company qualified for and adopted fresh start accounting in accordance with Accounting Standards Codification (“ASC”) 852, which resulted in the Company becoming a new entity for financial reporting purposes because (1) the holders of the then existing voting shares of the Predecessor received less than 50 percent of the voting shares of the Successor upon emergence and (2) the reorganization value of the Company’s assets immediately prior to confirmation of the Plan was less than the total of all post-petition liabilities and allowed claims.

All conditions required for the adoption of fresh-start accounting were met when the Plan became effective, on November 30, 2020. The implementation of the Plan and the application of fresh-start accounting materially changed the carrying amounts and classifications reported in the Company’s consolidated financial statements and resulted in the Company becoming a new entity for financial reporting purposes. As a result of the application of fresh-start accounting and the effects of the implementation of the Plan, the financial statements on or prior to the Effective Date are not comparable with financial statements after the Effective Date.

Upon the application of fresh-start accounting, the Company allocated the reorganization value to its individual assets and liabilities in conformity with ASC 805, Business Combinations (“ASC 805”). The amount of deferred income taxes recorded was determined in accordance with ASC 740, Income Taxes. Reorganization value represents the fair value of the Successor Company’s assets before considering liabilities. The Effective Date fair values of the Company’s assets and liabilities differ materially from their previously recorded values as reflected on the historical balance sheets.

Market Developments

During the first half and through early-August 2021, the oil and natural gas industry has experienced continued improvement in commodity prices as compared to the same period in 2020, primarily resulting from (i) improvements in oil demand as the impact from COVID-19 has begun to abate (although, as of early-August 2021, the COVID-19 Delta variant was showing significant spread globally causing uncertainty regarding future economic impacts) and (ii) actions taken by the Organization of Petroleum Exporting Countries, Russia and certain other oil-exporting countries (“OPEC+”) to reduce the worldwide supply of oil through coordinated production cuts. As a result, West Texas Intermediate (“WTI”) oil prices have increased from $48.52 per barrel at December 31, 2020 to as high as $73.95 per barrel in late-July 2021. Prices for natural gas and NGLs were also much higher during the first half and through early-August 2021 than they were for the same period in 2020. While oil prices have continued to improve in 2021, the general outlook for the oil and natural gas industry for the remainder of the year remains uncertain, and we can provide no assurances as to when or to what extent economic disruptions resulting from COVID-19 and the corresponding decreases in oil demand may impact the Company.

Operational Highlights for the Second Quarter of 2021

As a result of Lonestar filing for bankruptcy and emerging from bankruptcy on November 30, 2020, our financial results are broken out between the Predecessor periods (the three and six months ended June 30, 2020) and the Successor periods (the three and six months ended June 30, 2021). For the three months ended June 30, 2020 (Predecessor), we recognized a net loss of $42.9 million attributable to common shareholders, and for the three months ended June 30, 2021 (Successor), we recognized a net loss of $17.8 million.

Operational highlights for the second quarter of 2021 included the following:

•Brought four gross wells online during the quarter and an additional three drilled-but-uncompleted wells at our Hawkeye properties;

•Increased production by 14% from the first quarter of 2021;

•Continued to focus on reduced operating expenses. Lease operating expenses were $3.65 per BOE for the quarter while gas gathering, processing and transportation came in at $1.65 per BOE; and

•Continued to build our commodities hedge portfolio to protect our operations from downside price risk. As of August 9, 2021, we had oil hedges covering 5,525 Bbls per day for the remainder of 2021, 3,060 Bbls per day for 2022 and 2,360 Bbls per day for 2023. In addition, on that date, we had natural gas hedges covering 19,365 MMBtu per day of natural gas for the remainder of 2021, 13,745 MMBtu per day for 2022 and 8,743 MMBtu per day for the first half of 2023.

The primary drivers of our financial net loss for the three months ended June 30, 2021 (Successor) included:

•Revenues totaling $46.0 million, comprised of 11,855 BOE per day of production during the quarter with $42.66 per BOE of realized sales price before any hedging effects, and

•Losses on our commodity hedges of $39.9 million for the quarter, comprised of $10.8 million of realized losses and $29.1 million of unrealized losses.

The following reflects some of the primary drivers for our change in operating results between the second quarter of 2021 and the comparative period in 2020:

•Oil and natural gas revenues increased by $28.8 million (167%), due to a 199% increase in commodity prices partially offset by a 33% decrease in production. During the second quarter of 2020, we had a significant amount of production shut-in due to historically low commodity prices;

•Lease operating expenses slightly decreased by $0.1 million (2%), primarily due to lower production volumes in the current quarter;

•Commodity derivative expense increased by $18.8 million ($39.9 million of expense during the second quarter of 2021 compared to $21.1 million of income during the second quarter of 2020); and

•Interest expense decreased significantly between the periods as a result of the extinguishment of the Predecessor 11.25% Senior Notes (discussed further below) on the Effective Date. Depreciation, depletion and amortization (“DD&A”) expense was also significantly lower between the periods as a result of the fresh start accounting (discussed above), which also occurred on the Effective Date.

RESULTS OF OPERATIONS

Certain of our operating results and statistics for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 are summarized below:


In thousands, except per share and unit data	In thousands, except per share and unit data	Three Months Ended September 30,				Nine Months Ended September 30,				In thousands, except per share and unit data	Successor		Predecessor		Successor		Predecessor
		2020		2019		2020		2019			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020		Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
Operating Results
Operating results										Operating results
Net loss attributable to common stockholders	Net loss attributable to common stockholders	$	(38,473)	$	14,058	$	(194,423)	$	(35,394)	Net loss attributable to common stockholders	$	(17,817)	$	(42,901)	$	(24,139)	$	(155,950)
Net loss per common share – basic(1)	Net loss per common share – basic(1)	(1.52)		0.34		(7.70)		(1.42)		Net loss per common share – basic(1)	(1.77)		(1.70)		(2.40)		(6.20)
Net loss per common share – diluted(1)	Net loss per common share – diluted(1)	(1.52)		0.33		(7.70)		(1.42)		Net loss per common share – diluted(1)	(1.77)		(1.70)		(2.40)		(6.20)
Net cash provided by operating activities	Net cash provided by operating activities	52,320		14,686		82,731		52,873		Net cash provided by operating activities	25,514		16,576		27,397		30,411
Revenues	Revenues									Revenues
Oil	Oil	$	24,524	$	42,187	$	66,510	$	120,496	Oil	$	36,369	$	11,976	$	64,234	$	41,986
NGLs	NGLs	3,202		3,439		7,565		10,381		NGLs	4,940		1,762		9,239		4,362
Natural gas	Natural gas	4,383		7,519		12,285		15,224		Natural gas	4,718		3,482		12,365		7,902
Total revenues	Total revenues	$	32,109	$	53,145	$	86,360	$	146,101	Total revenues	$	46,027	$	17,220	$	85,838	$	54,250
Total production volumes by product	Total production volumes by product									Total production volumes by product
Oil (Bbls)	Oil (Bbls)	661,465		725,405		1,899,145		2,024,862		Oil (Bbls)	566,379		579,179		1,066,377		1,237,680
NGLs (Bbls)	NGLs (Bbls)	305,920		387,256		876,853		868,811		NGLs (Bbls)	219,247		267,462		414,935		570,933
Natural gas (Mcf)	Natural gas (Mcf)	2,154,969		3,313,757		6,468,594		6,210,617		Natural gas (Mcf)	1,759,213		2,203,209		3,188,404		4,313,625
Total barrels of oil equivalent (6:1)	Total barrels of oil equivalent (6:1)	1,326,547		1,664,954		3,854,097		3,928,776		Total barrels of oil equivalent (6:1)	1,078,828		1,213,843		2,012,713		2,527,551
Daily production volumes by product	Daily production volumes by product									Daily production volumes by product
Oil (Bbls/d)	Oil (Bbls/d)	7,190		7,885		6,931		7,417		Oil (Bbls/d)	6,224		6,365		5,859		6,800
NGLs (Bbls/d)	NGLs (Bbls/d)	3,325		4,209		3,200		3,182		NGLs (Bbls/d)	2,409		2,939		2,280		3,137
Natural gas (Mcf/d)	Natural gas (Mcf/d)	23,424		36,019		23,608		22,750		Natural gas (Mcf/d)	19,332		24,211		17,519		23,701
Total barrels of oil equivalent (BOE/d)	Total barrels of oil equivalent (BOE/d)	14,419		18,097		14,066		14,391		Total barrels of oil equivalent (BOE/d)	11,855		13,339		11,059		13,888
Average realized prices	Average realized prices									Average realized prices
Oil ($ per Bbl)	Oil ($ per Bbl)	$	37.08	$	58.16	$	35.02	$	59.51	Oil ($ per Bbl)	$	64.21	$	20.16	$	60.24	$	33.92
NGLs ($ per Bbl)	NGLs ($ per Bbl)	10.47		8.88		8.63		11.95		NGLs ($ per Bbl)	22.53		6.59		22.27		7.64
Natural gas ($ per Mcf)	Natural gas ($ per Mcf)	2.03		2.27		1.90		2.45		Natural gas ($ per Mcf)	2.68		1.58		3.88		1.83
Total oil equivalent, excluding the effect from commodity derivatives ($ per BOE)	Total oil equivalent, excluding the effect from commodity derivatives ($ per BOE)	24.20		31.92		22.41		37.19		Total oil equivalent, excluding the effect from commodity derivatives ($ per BOE)	42.66		14.19		42.65		21.46
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)	57.43		31.59		41.45		35.78		Total oil equivalent, including the effect from commodity derivatives ($ per BOE)	32.65		31.22		34.59		32.88
Operating and other expenses	Operating and other expenses									Operating and other expenses
Lease operating	Lease operating	$	4,763	$	8,948	$	16,430	$	23,472	Lease operating	$	3,933	$	4,028	$	8,379	$	11,667
Gas gathering, processing and transportation	Gas gathering, processing and transportation	1,891		1,107		4,916		3,223		Gas gathering, processing and transportation	1,520		875		3,062		3,025
Production and ad valorem taxes	Production and ad valorem taxes	1,994		3,017		6,084		8,126		Production and ad valorem taxes	2,497		1,721		4,917		4,091
Depreciation, depletion and amortization	Depreciation, depletion and amortization	18,256		24,635		59,184		64,120		Depreciation, depletion and amortization	5,860		16,575		11,169		40,929
General and administrative	General and administrative	15,808		4,124		24,664		12,345		General and administrative	5,962		5,981		9,939		8,856
Interest expense	Interest expense	11,399		11,295		33,521		32,730		Interest expense	4,323		10,512		8,430		22,122
Operating and other expenses per BOE	Operating and other expenses per BOE									Operating and other expenses per BOE
Lease operating	Lease operating	$	3.59	$	5.37	$	4.26	$	5.97	Lease operating	$	3.65	$	3.32	$	4.16	$	4.62
Gas gathering, processing and transportation	Gas gathering, processing and transportation	1.43		0.66		1.28		0.82		Gas gathering, processing and transportation	1.41		0.72		1.52		1.20
Production and ad valorem taxes	Production and ad valorem taxes	1.50		1.81		1.58		2.07		Production and ad valorem taxes	2.31		1.42		2.44		1.62
Depreciation, depletion and amortization	Depreciation, depletion and amortization	13.76		14.80		15.36		16.32		Depreciation, depletion and amortization	5.43		13.65		5.55		16.19
General and administrative	General and administrative	11.92		2.48		6.40		3.14		General and administrative	5.53		4.93		4.94		3.50
Interest expense	Interest expense	8.59		6.78		8.70		8.33		Interest expense	4.01		8.66		4.19		8.75

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

2520

Production

The table below summarizes our production volumes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,				Nine Months Ended September 30,					Successor	Predecessor	Successor	Predecessor
		2020	2019	Change		2020	2019	Change			Three Months Ended June 30, 2021	Three Months Ended June 30, 2020	Six Months Ended June 30, 2021	Six Months Ended June 30, 2020
Oil (Bbls/d)	Oil (Bbls/d)	7,190	7,885	(9)	%	6,931	7,417	(7)	%	Oil (Bbls/d)	6,224	6,365	5,859	6,800
NGLs (Bbls/d)	NGLs (Bbls/d)	3,325	4,209	(21)	%	3,200	3,182	1	%	NGLs (Bbls/d)	2,409	2,939	2,280	3,137
Natural gas (Mcf/d)	Natural gas (Mcf/d)	23,424	36,019	(35)	%	23,608	22,750	4	%	Natural gas (Mcf/d)	19,332	24,211	17,519	23,701
Total (BOE/d)	Total (BOE/d)	14,419	18,097	(20)	%	14,066	14,391	(2)	%	Total (BOE/d)	11,855	13,339	11,059	13,888

Total production during the ~~third~~second quarter of 2021 averaged 11,855 BOE per day, a decrease of 11%, or 1,484 BOE per day, compared to the same period in 2020. This decrease was primarily driven by slower development of our Eagle Ford acreage starting in the second half of 2020 as a result of lower commodity pricing and the Company conserving liquidity during its restructuring, partially offset by the shutting in of a significant amount of production (which effected average daily production for the quarter by approximately 1,700 BOE per day) in our oil-rich Central Eagle Ford region during late April through the end of May 2020 both in response to lower commodity prices at the time. Total production during the first six months of 2021 averaged ~~14,419~~11,059 BOE per day, a decrease of 20%, or ~~3,678~~2,829 BOE per day, compared to the same period in ~~2019. The Company has not brought any additional wells online since the Hawkeye #14, #15 and #16 started producing at the end of the second quarter. This lack of additional~~2020.

Our 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, contributed to the decline between the two quarters.

Total production during the first nine months of 2020 averaged 14,066 BOE per day, a decrease of 2%, or 325 BOE per day, compared to the same period in 2019. Higher relative production during the first quarter of 2020 resulting from the Company'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 during the second quarter of ~~2020 due to low commodity prices.~~

~~Our production during the third quarter of 2020~~2021 was 73% oil and NGLs, compared to 70% during the ~~third~~second quarter of ~~2019.~~2020.

Oil, Natural Gas Liquid and Natural Gas Revenues

The table below summarizes our production revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


In thousands	In thousands	Three Months Ended September 30,						Nine Months Ended September 30,						In thousands	Successor		Predecessor		Successor		Predecessor
		2020		2019		Change		2020		2019		Change			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020		Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
Oil	Oil	$	24,524	$	42,187	(42)	%	$	66,510	$	120,496	(45)	%	Oil	$	36,369	$	11,976	$	64,234	$	41,986
NGLs	NGLs	3,202		3,439		(7)	%	7,565		10,381		(27)	%	NGLs	4,940		1,762		9,239		4,362
Natural gas	Natural gas	4,383		7,519		(42)	%	12,285		15,224		(19)	%	Natural gas	4,718		3,482		12,365		7,902
Total revenues	Total revenues	$	32,109	$	53,145	(40)	%	$	86,360	$	146,101	(41)	%	Total revenues	$	46,027	$	17,220	$	85,838	$	54,250

Our oil, NGL and natural gas revenues during the three months ended ~~September~~June 30, ~~2020 decreased $21.0~~2021 increased $28.8 million, or ~~40%~~167%, compared to those revenues for the same period in ~~2019.~~2020. For the ~~nine~~six months ended ~~September~~June 30, 2020, our oil, NGL and natural gas revenues ~~decreased $59.7~~increased $31.6 million, or ~~41%~~58%, compared to the same period in ~~2019.~~2020. 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 thousands	In thousands	Three Months Ended September 30, 2020 vs 2019					Nine Months Ended September 30, 2020 vs 2019					In thousands		Three Months Ended June 30, 2021 vs 2020						Six Months Ended June 30, 2021 vs 2020

						Decrease in Revenues			Percentage Decrease in Revenues				Decrease in Revenues			Percentage Decrease in Revenues			(Decrease) Increase in Revenues			Percentage (Decrease) Increase in Revenues			(Decrease) Increase in Revenues	Percentage (Decrease) Increase 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 in production	Decrease in production	$	(10,802)	(20)	%		$	(2,777)		(2)	%	Decrease in production		$	(1,916)		(11)	%		$	(11,050)		(20)	%
Decrease in commodity prices		(10,234)		(20)	%		(56,964)			(39)	%
Increase in commodity prices												Increase in commodity prices		30,723			177	%		42,638			79	%
Total change in oil, NGL and natural gas revenues	Total change in oil, NGL and natural gas revenues	$	(21,036)	(40)	%		$	(59,741)		(41)	%	Total change in oil, NGL and natural gas revenues		$	28,807		166	%		$	31,588		58	%

2621

Excluding the impact of our commodity derivative contracts, our net realized commodity prices and NYMEX differentials were as follows during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,						Nine Months Ended September 30,							Successor		Predecessor		Successor		Predecessor
		2020		2019		Change		2020		2019		Change			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020		Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
Average net realized price	Average net realized price													Average net realized price
Oil ($/Bbl)	Oil ($/Bbl)	$	37.08	$	58.16	(36)	%	$	35.02	$	59.51	(41)	%	Oil ($/Bbl)	$	64.21	$	20.16	$	60.24	$	33.92
NGLs ($/Bbls)	NGLs ($/Bbls)	10.47		8.88		18	%	8.63		11.95		(28)	%	NGLs ($/Bbls)	22.53		6.59		22.27		7.64
Natural gas ($/Mcf)	Natural gas ($/Mcf)	2.03		2.27		(10)	%	1.90		2.45		(23)	%	Natural gas ($/Mcf)	2.68		1.58		3.88		1.83
Total ($/BOE)	Total ($/BOE)	24.20		31.92		(24)	%	22.41		37.19		(40)	%	Total ($/BOE)	42.66		14.19		42.65		21.46
Average NYMEX differentials	Average NYMEX differentials													Average NYMEX differentials
Oil per Bbl	Oil per Bbl	$	(3.86)	$	1.71	(326)	%	$	(3.31)	$	2.69	(223)	%	Oil per Bbl	$	(1.85)	$	(7.17)	$	(1.71)	$	(3.09)
Natural gas per Mcf	Natural gas per Mcf	0.03		(0.11)		(127)	%	0.03		(0.16)		(119)	%	Natural gas per Mcf	(0.26)		(0.13)		0.66		0.02

~~The average wellhead price for~~Variations in our production in the three months ended September 30, 2020 was $24.20 per BOE, a 24% decrease compared to the average price for the comparable period in 2019. The realized wellhead price for the nine months ended September 30, 2020 was $22.41 per BOE, a 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 $10.47 per Bbl and $8.63 per Bbl, or 26% and 23% of NYMEX WTI, respectively, for the three and nine months ended September 30, 2019, respectively.

~~Our~~ average NYMEX oil differential ~~decreased~~are generally caused by variations of certain of the pricing components included in our pricing formulae, which are industry standards. The significant improvement in our oil differential between the second quarter ~~over quarter~~of 2021 and 2020 reflects overall stabilization in the market, which was experiencing historical upheaval last year in light of the effects of the COVID-19 pandemic and OPEC+ production decisions.

Variations in our natural gas NYMEX differentials are generally caused by ~~$5.57 per Bbl and $6.00 per Bbl when comparing~~movement in the ~~year-to-date periods. Differentials were impacted significantly~~NYMEX natural gas prices during the ~~current year~~month, as ~~a result~~most of our natural gas is sold on an index price that is set near 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 drasticfirst of each month. While the percentage change in ~~price also created sharp, yet temporary, changes~~NYMEX natural gas differentials can be large, these variations are seldom more than $0.20 per MMBtu above or below NYMEX price. The natural gas differential for the six months ended June 30, 2021 (Successor) includes the benefit of abnormally high realizations achieved in ~~oil related differentials that fell to approximately negative $8 per Bbl in May 2020. Although WTI~~February 2021 resulting from higher gas residue prices ~~recovered to the mid-$40s as of September 30, 2019, they are still significantly below where they were a year ago.~~during Winter Storm Uri.

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.

The following table summarizes the net cash (payments) receipts ~~(payments)~~ on the ~~Company's~~Company’s commodity derivatives and the relative price impact (per Bbl or Mcf) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended June 30,								Nine Months Ended September 30,									Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019					2021				2020				2021				2020
In thousands, except price impact	In thousands, except price impact	Net realized settlements		Price impact		Net realized settlements		Price impact		Net realized settlements		Price impact		Net realized settlements		Price impact		In thousands, except price impact	Net realized settlements		Price impact		Net realized settlements		Price impact		Net realized settlements		Price impact		Net realized settlements		Price impact
Receipts (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		(5,644)		(2.62)		178		0.05		(3,189)		(0.49)		1,769		0.28
(Payments) receipts on settlements of oil derivatives																		(Payments) receipts on settlements of oil derivatives	$	(8,542)	$	(8.01)	$	21,400	$	36.95	$	(11,963)	$	(21.12)	$	21,261	$	17.18
Receipts on settlements of natural gas derivatives																		Receipts on settlements of natural gas derivatives	58		0.02		1,491		0.68		714		0.41		2,455		0.57
Total net commodity derivative settlements	Total net commodity derivative settlements	$	45,675			$	(844)			$	69,391			$	(3,858)			Total net commodity derivative settlements	$	(8,484)			$	22,891			$	(11,249)			$	23,716

Our realized net ~~gain~~loss on commodity derivative contracts was ~~$44.0~~$10.8 million and ~~$73.3~~$16.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020. Included in those amounts is $33.2~~2021 (Successor), respectively, compared to net realized gain of $20.5 million ~~net ($39.9~~and $28.7 million ~~in oil hedges~~for the three and ~~negative $6.7 million in natural gas hedges, gross)~~six months ended June 30, 2020 (Predecessor), ~~which was realized upon termination of our hedging portfolio in September 2020 prior to the commencement of the Chapter 11 Cases~~respectively. We realized an average ~~gain~~loss of ~~$33.23~~$10.01 and ~~$19.04~~$8.06 per BOE on our oil and natural gas swaps during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021 (Successor), respectively, as compared to an average ~~loss~~gain of ~~$0.33~~$17.03 and ~~$1.41~~$11.42 per BOE for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020 (Predecessor), respectively.

~~Subsequent~~In order to ~~filing the Restructuring Plan, the Company entered into new~~provide a level of price protection to a portion of our oil production and to meet certain hedging requirements under our Successor Credit Facility (as defined below), we have hedged a portion of our estimated oil and natural gas ~~swaps~~production in ~~October 2020~~2021, 2022 and 2023 using NYMEX fixed-price swaps. See Note 2, Commodity Price Risk Activities, to the consolidated financial statements for ~~January~~additional details of our outstanding commodity derivative contracts as of June 30, 2021 ~~through December 2021, which hedge 10,000 MMBtu per day at an average price of $3.04 per MMBtu,~~for additional discussion.

The following table summarizes our oil and ~~also entered into~~ natural gas ~~swaps for January 2022 through December 2022, which hedge 5,000 MMBtu per day at an average price~~derivative contracts as 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.August 9, 2021:


	Q3 2021		Q4 2021		1H 2022		2H 2022		1H 2023		2H 2023
Oil — WTI
Volumes Hedged (Bbls/d)	5,650		5,400		3,124		3,000		2,450		2,275
Swap Price	$	46.62	$	46.03	$	47.32	$	46.73	$	54.34	$	54.16

Natural Gas — Henry Hub
Volumes Hedged (Mcf/d)	18,030		20,700		14,986		12,500		8,743		—
Swap Price	$	3.03	$	3.52	$	3.19	$	3.00	$	3.02	$	—

Production Expenses

The table below presents detail of production expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:

In thousands, except expense per BOE Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 Change 2020 2019 Change
Production expenses
Lease operating $ 4,763 $ 8,948 (47) % $ 16,430 $ 23,472 (30) %
Gas gathering, processing and transportation 1,891 1,107 71 % 4,916 3,223 53 %
Production and ad valorem taxes 1,994 3,017 (34) % 6,084 8,126 (25) %
Depreciation, depletion and amortization 18,256 24,635 (26) % 59,184 64,120 (8) %
Production expenses per BOE
Lease operating $ 3.59 $ 5.37 (33) % $ 4.26 $ 5.97 (29) %
Gas gathering, processing and transportation 1.43 0.66 114 % 1.28 0.82 55 %
Production and ad valorem taxes 1.50 1.81 (17) % 1.58 2.07 (24) %
Depreciation, depletion and amortization 13.76 14.80 (7) % 15.36 16.32 (6) %


In thousands, except expense per BOE	Successor		Predecessor		Successor		Predecessor
	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020		Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
Production expenses
Lease operating	$	3,933	$	4,028	$	8,379	$	11,667
Gas gathering, processing and transportation	1,520		875		3,062		3,025
Production and ad valorem taxes	2,497		1,721		4,917		4,091
Depreciation, depletion and amortization	5,860		16,575		11,169		40,929
Production expenses per BOE
Lease operating	$	3.65	$	3.32	$	4.16	$	4.62
Gas gathering, processing and transportation	1.41		0.72		1.52		1.20
Production and ad valorem taxes	2.31		1.42		2.44		1.62
Depreciation, depletion and amortization	5.43		13.65		5.55		16.19

Lease Operating and Gas Gathering, Processing and Transportation

~~The table below provides detail of our lease operating and gas gathering, processing and transportation expenses for the three and nine months ended September 30, 2020 and 2019:~~

In thousands Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 Change 2020 2019 Change
Lease operating $ 4,763 $ 8,948 (47) % $ 16,430 $ 23,472 (30) %
Gas gathering, processing and transportation 1,891 1,107 71 % 4,916 3,223 53 %
Total 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~~

Total lease operating expense was $3.9 million and $8.4 million, or $3.65 and $4.16 per BOE, for the three and six months ended June 30, 2021 (Successor), respectively, compared to $4.0 million and $11.7 million, or $3.32 and $4.62 per BOE, during the Predecessor’s same respective periods in 2020. Total gas gathering, processing and transportation ~~expenses decreased $3.4~~expense was $1.5 million and $3.1 million, or 51%, for the three months ended September 30, 2020 to $6.7 million from $10.1 million in the comparable period in 2019. On a nine-month comparative basis, these expenses decreased $5.4 million, or 20%, from $26.7 million in 2019 to $21.3 million in 2020. On a unit-of-production basis, lease operating$1.41 and gas gathering expense decreased 33%, or $1.78 per BOE, from $5.37 per BOE in the three months ended September 30, 2019 to $3.59 per BOE in the three months ended September 30, 2020. On a nine-month comparative basis, these expenses decreased 18%, or $1.25 per BOE, from $6.79$1.52 per BOE for the ~~nine~~three and six months ended ~~September~~June 30, ~~2019~~2021 (Successor), respectively, compared to ~~$5.54~~$0.8 million and $3.0 million, or $0.72 and $1.20 per BOE, ~~for~~during the ~~nine months ended September 30,~~Predecessor’s same respective periods in 2020. ~~Starting~~The slight decrease 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 second quarter of 2020,~~ lease operating ~~and gas gathering, processing and transportation expenses increased 37%, or $1.8 million. On a unit-of-production~~expense on an absolute-dollar basis ~~these expenses increased 24%, or $0.98 per BOE, from~~were primarily due lower production in the ~~second quarter of 2020.~~current quarter.

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 ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,						Nine Months Ended September 30,							Successor		Predecessor		Successor		Predecessor
In thousands	In thousands	2020		2019		Change		2020		2019		Change		In thousands	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020		Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
Production taxes	Production taxes	$	1,343	$	1,860	(28)	%	$	3,398	$	5,958	(43)	%	Production taxes	$	1,826	$	729	$	3,580	$	2,055
Ad valorem taxes	Ad valorem taxes	651		1,157		(44)	%	2,687		2,168		24	%	Ad valorem taxes	671		992		1,337		2,036
Total production and ad valorem tax expense	Total production and ad valorem tax expense	$	1,994	$	3,017	(34)	%	$	6,084	$	8,126	(25)	%	Total production and ad valorem tax expense	$	2,497	$	1,721	$	4,917	$	4,091

~~Our total~~Total production and ad valorem tax expense decreased 34%, or $1.0 million, between the three months ended September 30, 2020 and 2019. On a nine-month comparative basis, these expenses decreased 25%, or $2.0 million, from $8.1 million in 2019 to $6.1 million in 2020. Production taxes were ~~lower in the current period due to significantly lower revenues, caused by lower commodity prices~~$1.8 million and ~~production as discussed above. Ad valorem taxes were higher in the current year due to higher estimated appraisal values for our properties. On a unit-of-production basis, production~~$3.6 million, or $1.69 and ad valorem tax expense decreased 17%, or $0.31 per BOE, from $1.81 per BOE in the three months ended September 30, 2019 to $1.50 per BOE in the three months ended September 30, 2020. On a nine-month comparative basis, these expenses decreased 24%, or $0.49 per BOE, from $2.07$1.78 per BOE, for the ~~nine~~three and six months ended June 30, ~~2019~~2021 (Successor), respectively, compared to ~~$1.58~~$0.7 million and $2.1 million, or $0.60 and $0.81 per BOE, during the Predecessor’s same respective periods in 2020. Total ad valorem taxes were $0.7 million and $1.4 million, or $0.62 and $0.66 per BOE for the ~~nine~~three and six months ended ~~September~~June 30, 2021 (Successor), respectively, compared to $1.0 million and $2.0 million, or $0.82 and $0.81 per BOE, during the Predecessor’s same respective periods in 2020. ~~These decreases in the per-BOE rate are attributable to lower commodity prices received for our~~Higher production taxes in the current ~~period, as further discussed above.~~

Compared to the second quarter of 2020, production and ad valorem taxes increased $0.3 million, or 16%. This increase correlates with the increase in production revenues between the two quarters, as a significant amount of the Company's production was shut-in during the second quarterperiods are due to ~~low~~higher associated commodity ~~prices, as discussed further above. On a unit-of-production basis, these expenses increased 5%, or $0.08 per BOE, from the second quarter of 2020.~~prices.

Depreciation, Depletion and Amortization

The table below provides detail of our depreciation, depletion and amortization ("(“DD~~&A"~~&A”) expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.


In thousands	In thousands	Three Months Ended September 30,						Nine Months Ended September 30,						In thousands	Successor		Predecessor		Successor		Predecessor
		2020		2019		Change		2020		2019		Change			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020		Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
Depletion of proved oil and gas properties	Depletion of proved oil and gas properties	$	17,512	$	24,178	(28)	%	$	57,113	$	62,813	(9)	%	Depletion of proved oil and gas properties	$	5,339	$	15,925	$	10,072	$	39,607
Depreciation of other property and equipment	Depreciation of other property and equipment	425		378		12	%	1,171		1,071		9	%	Depreciation of other property and equipment	301		383		638		746
Accretion of asset retirement obligations	Accretion of asset retirement obligations	319		79		304	%	900		236		281	%	Accretion of asset retirement obligations	220		267		459		576
Total DD&A expense	Total DD&A expense	$	18,256	$	24,635	(26)	%	$	59,184	$	64,120	(8)	%	Total DD&A expense	$	5,860	$	16,575	$	11,169	$	40,929

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.

Total DD&A expense ~~for the three months ended September 30, 2020~~ was ~~$18.3~~$5.9 million ~~a 26% decrease from $24.6~~and $11.2 million, ~~in the comparable period in 2019. On a unit-of-production basis, DD&A decreased 8%,~~ or ~~$1.04 per BOE, from $14.80~~$5.43 and $5.55 per BOE, for the three and six months ended ~~September~~June 30, ~~2019~~2021 (Successor), respectively, compared to ~~$13.76~~$16.6 million and $40.9 million, or $13.65 and $16.19 per BOE, ~~for~~during the ~~three months ended September 30,~~Predecessor’s same respective periods in 2020. ~~On a nine-month comparative basis, these expenses increased $4.9 million, or 8%, from $64.1 million for~~The decreases in the ~~nine months ended September 30, 2019~~current periods are attributable to $59.2 million for the nine months ended September 30, 2020. On a unit-of-production basis, these expenses decreased 6% or $0.96 per BOE, from $16.32 per BOE for the nine months ended September 30, 2019, to $15.36 per BOE for the nine months ended September 30, 2020. These decreases are largelylower depletable costs 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 second quarter of 2020, DD&A expense increased $1.7 million. On a unit-of-production basis, DD&A decreased by $0.11 per BOE, or 1%,~~step down in book value resulting from ~~the second quarter of 2020.~~

~~Loss on Sale of Oil~~fresh start accounting. Based upon fresh start accounting, 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~~gas properties were ~~comprised of 3,400 net undeveloped acres, six producing wells, held seven proved undeveloped locations~~recorded at fair value 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.~~

November 30,

2020.

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 (Predecessor), 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~~Company’s liquidity ~~situation.~~situation at the time.

~~It is reasonably possible that~~Upon emergence from bankruptcy, the ~~Company's estimate~~Company adopted fresh start accounting which resulted in our long-lived assets being recorded at their estimated fair values at the Effective Date. There were no material changes to our key cash flow assumptions and no triggering events since December 31, 2020; therefore, no impairment was identified during the second quarter 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.~~2021.

General and Administrative

~~General~~Total general and administrative ("(“G~~&A"~~&A”) expense ~~increased $11.7~~was $6.0 million and $9.9 million, or 283%, to $15.8 million in the three months ended September 30, 2020, from $4.1 million for the comparable period in 2019. On a unit-of-production basis, G&A expense increased 381%, or $9.44 per BOE, from $2.48$5.53 and $4.94 per BOE, for the three and six months ended ~~September~~June 30, ~~2019~~2021 (Successor), respectively, compared to ~~$11.92~~$6.0 million and $8.9 million, or $4.93 and $3.50 per BOE, for the three and six months ended ~~September~~June 30, ~~2020. On a nine-month comparative basis,~~2020 (Predecessor), respectively. G&A ~~increased $12.3~~includes approximately $1.2 million ~~or 100%, between~~of professional fees residual to the ~~two periods. On a unit-of-production basis, these expenses increased 104%, or $3.26 per BOE, from $3.14 per BOE~~Company’s restructuring in 2020, including legal, consulting and accounting fees incurred as part of the Company’s fresh-start accounting process for the ~~nine~~six months ended ~~September~~June 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 and third quarters of 2020, which totaled $12.4 million and $14.3 million for the three and nine months ended September 30, 2020, respectively.

~~Compared to the second quarter of 2020,~~2021 (Successor). G&A ~~expense~~ for the three months ended ~~September~~June 30, 2021 (Successor) includes stock-based compensation expense of $1.4 million attributable to our management incentive plan implemented in April 2021. G&A for the three and six months ended June 30, 2020 ~~increased $9.8 million, or 164%.~~(Predecessor) includes stock-based compensation gains of $1.8 million. On ~~a unit-of-production basis, G&A expense increased by $6.99 per BOE, or 142%, from~~ the ~~second quarter~~Effective Date, all of ~~2020.~~

the Predecessor’s stock-based compensation plans were cancelled.

Interest Expense

The table below provides detail of the interest expense for our various long-term obligations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


In thousands	In thousands	Three Months Ended September 30,						Nine Months Ended September 30,						In thousands	Successor		Predecessor		Successor		Predecessor
		2020		2019		Change		2020		2019		Change			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020		Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
Interest expense on 11.25% Senior Notes		$	7,032	$	7,032	—	%	$	21,094	$	21,094	—	%
Interest expense on Credit Facility		3,642		3,494		4	%	10,234		9,317		10	%
Interest expense on Successor Credit Facility														Interest expense on Successor Credit Facility	$	3,130	$	—	$	6,032	$	—
Interest expense on Successor Term Loan Facility														Interest expense on Successor Term Loan Facility	718		—		1,441		—
Interest expense on Predecessor 11.25% Senior Notes														Interest expense on Predecessor 11.25% Senior Notes	—		7,031		—		14,062
Interest expense on Predecessor Credit Facility														Interest expense on Predecessor Credit Facility	—		2,664		—		6,356
Other interest expense	Other interest expense	98		136		(28)	%	191		368		(48)	%	Other interest expense	83		211		172		329
Total cash interest expense (1)	Total cash interest expense (1)	$	10,772	$	10,662	1	%	$	31,519	$	30,779	2	%	Total cash interest expense (1)	$	3,931	$	9,906	$	7,645	$	20,747
Amortization of debt issuance costs and discounts	Amortization of debt issuance costs and discounts	627		633		(1)	%	2,002		1,950		3	%	Amortization of debt issuance costs and discounts	392		606		785		1,375
Total interest expense	Total interest expense	$	11,399	$	11,295	1	%	$	33,521	$	32,729	2	%	Total interest expense	$	4,323	$	10,512	$	8,430	$	22,122
Per BOE:	Per BOE:													Per BOE:
Total cash interest expense	Total cash interest expense	$	8.12	$	6.40	27	%	$	8.18	$	7.83	4	%	Total cash interest expense	$	3.64	$	8.16	$	3.80	$	8.21
Total interest expense	Total interest expense	8.59		6.78		27	%	8.70		8.33		4	%	Total interest expense	4.01		8.66		4.19		8.75

(1) Cash interest is presented on an accrual basis.

Our total interest expense in the three months ended September 30, 2020 was $11.4 million, an 1% increase from $11.3 million in the comparable period in 2019. This slight 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 nine-month comparative basis, total interest expense increased $0.8 million, or 2%, between the two periods.

On a unit-of-production basis, total interest expense increased 27%, or $1.81 per BOE, from $6.78 per BOE in the three months ended September 30, 2019 to $8.59 per BOE in the three months ended September 30, 2020. On a nine-month comparative basis, total interest expense increased 4%, or $0.37 per BOE, from $8.33 per BOE for the nine months ended September 30, 2019 to $8.70 per BOE for the nine months ended September 30, 2020.

3125

~~Compared to the second quarter of 2020,~~Total cash interest expense was $3.9 million and $7.6 million, or $3.64 and $3.80 per BOE, for the three and six months ended ~~September~~June 30, ~~2020 increased by $0.9~~2021 (Successor), respectively, compared to $9.9 million and $20.7 million, or $8.16 and $8.21 per BOE, during the Predecessor’s same respective periods in 2020. The decrease between periods was primarily due to ~~higher~~a decrease in the average ~~borrowings on our Credit Facility. On a unit-of-production basis, interest expense decreased 1%, or $0.07 per BOE, from~~debt principal outstanding, with the ~~second quarter~~Successor period reflecting the full extinguishment of ~~2020.~~

~~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~~all outstanding obligations under the 11.25% Senior Secured Notes ~~will not be recorded subsequent~~on the Effective Date, pursuant to ~~commencement~~the terms of the ~~Chapter 11 Cases on September 30, 2020.~~Plan, relieving approximately $250 million of debt by issuing equity in the Successor period to the holders of that debt.

See Note 6. Long-Term Debt in Notes to the Unaudited Condensed Consolidated Financial Statements for additional information about our long-term debt and interest expense.

Income Taxes

The following table provides further detail of our income taxes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


In thousands, except per-BOE amounts and tax rates	In thousands, except per-BOE amounts and tax rates	Three Months Ended September 30,						Nine Months Ended September 30,						In thousands, except per-BOE amounts and tax rates	Successor			Predecessor			Successor			Predecessor
		2020			2019			2020			2019				Three Months Ended June 30, 2021			Three Months Ended June 30, 2020			Six Months Ended June 30, 2021			Six Months Ended June 30, 2020
Current income tax benefit (expense)	Current income tax benefit (expense)	$	49		$	(18)		$	4,999		$	26		Current income tax benefit (expense)	$	—		$	4,332		$	(160)		$	4,756
Deferred income tax benefit (expense)		—			(4,749)			737			6,940
Deferred income tax benefit														Deferred income tax benefit	—			—			—			931
Total income tax benefit (expense)	Total income tax benefit (expense)	$	49		$	(4,767)		$	5,736		$	6,966		Total income tax benefit (expense)	$	—		$	4,332		$	(160)		$	5,687
Average income tax benefit (expense) per BOE	Average income tax benefit (expense) per BOE	$	0.04		$	(2.86)		$	1.49		$	1.77		Average income tax benefit (expense) per BOE	$	—		$	3.57		$	(0.08)		$	2.25
Effective tax rate	Effective tax rate	0.1		%	22.7		%	3.0		%	19.3		%	Effective tax rate	—		%	9.6		%	(0.7)		%	15.8		%

Total net deferred tax liability on balance sheet at period end		$	—		$	5,387

As ~~a result~~the tax basis of our assets, primarily our oil and gas properties, is in excess of the carrying value, as adjusted in fresh start accounting, the Successor is in a net deferred tax asset position at June 30, 2021. We evaluated our deferred tax assets in light of all available evidence as of the balance sheet date, including the tax impacts of the Chapter 11 Proceedings and the partial reduction of net operating losses and tax credits and partial reduction of tax basis in assets (collectively “tax attributes”). Given our cumulative loss ~~before income taxes~~position, we recorded a total valuation allowance of ~~$34.9~~$42.5 million ~~and $191.9 million for~~on our underlying deferred tax assets as of June 30, 2021. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively, we recorded~~2021 (Successor), the income tax benefit associated with the Successor’s pre-tax book loss was substantially offset by a change in valuation allowance.

Our deferred tax assets exceeded our deferred tax liabilities at June 30, 2020 (Predecessor) primarily due to tax consequences of ~~$0.1 million and $5.7 million, respectively. As~~the impairment of our proved properties during the first quarter of 2020; as a result, ~~of the net income before income taxes of $21.0 million for the three months ended September 30, 2019 and net loss before income taxes of $36.0 million for the nine months ended September 30, 2019,~~ we recorded ~~income~~a full valuation allowance of $40.1 million at June 30, 2020 due to uncertainties regarding the future realization of our deferred tax ~~expense of $4.8 million and income tax benefit $7.0 million, respectively.~~

assets.

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 ~~nine~~six months ended ~~September~~June 30, ~~2020.~~

~~Our deferred tax assets exceeded our deferred tax liabilities at September 30,~~2021 (Successor) and 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 $44.9 million at September 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 0.1% and 3.0% for the three and nine months ended September 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 September 30, 2020 balance sheet.(Predecessor).

3226

CAPITAL RESOURCES AND LIQUIDITY

~~Overview~~

At September 30, 2020, we had $36.6 million of cash on hand and $65.0 million of 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, we took steps to ensure we had sufficient liquidity to fund ongoing operations during the Chapter 11 Cases, and pay down our Credit 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 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 our commodity derivatives portfolio as we emerge from the Chapter 11 Cases and economic conditions 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 around $25 per barrel in mid-May (although considerably lower during the month of April 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 reduces our operating cash flow and indirectly impacts our otherOur primary sources of ~~potential~~capital and liquidity ~~such as possibly lowering~~are our cash flows from operations and availability of borrowing capacity under our ~~revolving credit facility, as~~Successor Credit Facility (as defined below). Our most significant cash outlays relate to our ~~borrowing capacity~~development capital expenditures and ~~borrowing costs~~current period operating expenses.

The Company’s primary needs for cash are ~~generally related~~for capital expenditures, acquisitions of oil and natural gas properties, payments of contractual obligations and working capital obligations. We have historically financed our business through cash flows from operations, borrowings under our Predecessor Credit Facility (as defined below) 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 ~~estimated value~~future, dependent upon market conditions and available pricing. Uses of such proceeds may include repayment of our debt, development or acquisition of additional acreage or proved ~~reserves.~~properties, and general corporate purposes. There can be no assurance that future funding transactions will be available on favorable terms, or at all, and we therefore cannot guarantee the outcome of any such transactions.

~~In this low oil price environment,~~Currently, our availability under the Successor Credit Facility is $15.0 million and we ~~have taken various steps~~are required to ~~preserve~~make two more quarterly pay-downs on our ~~liquidity including (1) reducing our budgeted 2020 capital spending from $80-$85~~Successor Term Loan which will total an additional $10.0 million ~~to approximately $65 million, almost all of which had been incurred~~ by the end of September 2020; (2) deferring the remainder of our 2020 drilling program through the end of the year; (3) implementing cost-reduction measures, including negotiating reduced rates for water disposal, chemicals, rentals, and workovers and (4) shutting in or storing 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.

~~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 our Credit 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 September 14, 2020, the Debtors 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 condensed consolidated financial statements, the RSA contemplates the consummation of the Restructuring Plan, which governs the treatment of certain claims and existing equity interests.

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 continue our ordinary course operations after the filing date. In addition, we have received authority to use cash collateral of the lenders under the Credit Facility on a final basis. The Bankruptcy Court confirmed our Restructuring Plan on November 12, 2020.

However, for the duration of the Chapter 11 Cases, our operations and our ability to develop and execute our business plan are subject to a high degree of risk and uncertainty associated with the Chapter 11 Cases. The outcome of the Chapter 11 Cases is dependent upon factors that are outside of our control, including actions of the 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.

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 expect to continue using cash on hand which will further reduce this liquidity. With the Bankruptcy Court’s authorization to use cash collateral under the Credit Facility, we believe that we will have sufficient liquidity, including cash on hand and funds generated from ongoing operations, to fund anticipated cash requirements through the Chapter 11 Cases. As such, we expect to pay vendor and royalty obligations on a go-forward basis according to the terms of our current contracts and consistent with 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 normal course of business.

The filing of the Chapter 11 Cases constituted an event of default under our 11.25% Senior Notes and Credit Facility, which resulted 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 we 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 our ability to continue as a going concern.

Our ability to continue as a going concern is contingent upon, among other things, our ability to implement the Restructuring Plan, successfully emerge from the Chapter 11 Cases and generate sufficient liquidity from the Restructuring to meet our 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, 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 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 otherwise are not Accepting Lenders. As all lenders accepted, we anticipate that there will not be a last-out-senior secured term loan credit facility.

~~Cash Flows~~2021.

Cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 are presented below:

In thousands Nine Months Ended June 30,
2020 2019
Net cash provided by (used in):
Operating activities $ 82,731 $ 52,873
Investing activities (89,260) (116,569)
Financing activities 40,003 61,782
Net change in cash $ 33,474 $ (1,914)


In thousands	Successor		Predecessor
	Six Months ended June 30, 2021		Six Months Ended June 30, 2020
Net cash provided by (used in):
Operating activities	$	27,397	$	30,411
Investing activities	(22,777)		(72,337)
Financing activities	(10,121)		40,048
Net change in cash	$	(5,501)	$	(1,878)

Net Cash Provided by Operating Activities

Net cash provided by operating activities ~~of $82.7~~was $27.4 million for six months ended June 30, 2021 (Successor), compared to $30.4 million for the ~~first nine~~six months ofended June 30, 2020 ~~was $29.8~~(Predecessor). The lower current year amount is primarily due to a $36.4 million ~~more than the first nine months of 2019, which totaled $52.9 million. Excluding changes~~negative swing in ~~operating assets and liabilities, net~~ cash provided by operating activities increased $7.0 million. Compared to the first nine months of 2019, the first nine months of 2020 had significantly lower commodity prices. Changes in our operating assets and liabilitieshedge settlements between the ~~nine months ended September 30, 2019 and~~two periods, largely offset by higher production revenues in the ~~nine months ended September 30, 2020 resulted in a net increase of approximately $22.9 million in net cash provided by operating activities for the nine months ended September 30, 2020,~~current period as compared to the nine months ended September 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.discussed above.

Net Cash Used in Investing Activities

Net cash used in investing activities ~~decreased $27.3~~was $22.8 million ~~from $116.6 million in~~for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2021 (Successor), compared to ~~$89.3~~$72.3 million infor the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2020 (Predecessor). This ~~is primarily due to capital expenditures being $21.3 million less in the current period due to the slowdown in development activity in light of lower commodity prices in 2020.~~

~~Net Cash Provided by Financing Activities~~

Net cash provided by financing activities decreased $21.8 million, from $61.8 million provided during the nine months ended September 30, 2019 to $40.0 million provided in the nine months ended September 30, 2020. This increasedecrease is primarily due to lower ~~borrowings on our Credit Line~~drilling and development costs in the current period, as we did not resume our one-rig drilling program until February 2021 versus the two-rig program we were running throughout the Predecessor period.

~~Debt~~

~~Chapter 11 Cases and Effect of Automatic Stay~~

~~On September~~Net Cash Used in Financing Activities

Net cash used by financing activities was $10.1 million for the six months ended June 30, 2021 (Successor), compared to $40.0 million provided by financing activities for the six months ended June 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~~(Predecessor). This decrease primarily resulted from no borrowings on the ~~Chapter 11 Cases.~~credit line offset by the quarterly $5.0 million pay-downs we made on our Successor Term Loan in 2021.

Debt

Successor Senior Secured Credit ~~Facility~~Agreements

~~In July 2015,~~On the Effective Date, the Successor, through its subsidiary Lonestar Resources America Inc. ~~("LRAI")~~, ~~the Company~~ entered into a ~~$500~~new first-out senior secured revolving credit facility with Citibank, N.A., as administrative agent, and the other lenders from time to time party thereto (the “Successor Credit Facility”) and a second-out senior secured term loan credit facility (the “Successor Term Loan Facility” and, together with the Successor Credit Facility, the “Successor Credit Agreements”) by amending and restating the Company’s existing credit agreement (as so amended and restated, the “Predecessor Credit Facility”). The Successor Credit Facility provides for revolving loans in an aggregate amount of up to $225 million, subject to borrowing base capacity. Letters of credit are available up to the lesser of (a) $2.5 million and (b) the aggregate unused amount of commitments under the Successor Credit Facility then in effect. On the Effective Date, Lonestar Resources America Inc. borrowed $60.0 million in term loans under the Successor Term Loan Facility. The Successor Credit Agreements will mature on November 30, 2023. The term loans under the Successor Term Loan Facility amortize on a quarterly basis in an amount equal to $5.0 million, payable on the last day of March, June, September and December of each year. The Successor’s obligations under the Successor Credit Agreements are guaranteed by all of the Successor’s direct and indirect subsidiaries (subject to certain permitted exceptions) and will be secured by a lien on substantially all of the Successor’s, Lonestar Resources America Inc.’s and the guarantors’ assets (subject to certain exceptions).

The Successor Credit Facility contains certain financial performance covenants including the following:

•A Consolidated Total Debt to Consolidated EBITDAX covenant, with such ratio not to exceed 3.5 times; and

First Amendment

Effective August 6, 2021, we entered into the First Amendment and Borrowing Base Agreement (the “First Amendment”), which reaffirmed the $225 million borrowing base for the Successor Credit Facility pursuant to the scheduled May 1 redetermination and amended certain required swap agreements.

Predecessor Senior Secured Bank Credit Facility

From July 2015 through November 30, 2020, the Predecessor maintained a senior secured revolving 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”). As of September 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 4.98%. Prior to default, the borrowing availability was $0.6 million, which reflected $0.4 million of letters of credit outstanding. As a resultthereto. All 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.

Prior to default, the Credit Facility could be used for loans and, subject to a $2.5 million sub-limit, letters of credit, and provided 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 thePredecessor Credit Facility was ~~$290 million. The borrowing base was lowered to $286 million~~refinanced by the Successor Credit Agreements on ~~June 11, 2020 as part of~~ the Thirteenth Amendment. The borrowing base was further lowered to $225 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 September 30, 2020 which represents a borrowing deficiency of $60.4 million. Pursuant to the Restructuring Plan and as a result of our filing of the Chapter 11 Cases, we did not have the obligation to pay such deficiency within that time period, and the Credit Facility will be amended and restated in connection with the our exit from bankruptcy.

Effective Date.

3528

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.

~~Subject to certain permitted liens, our obligations under the Credit Facility are required to be secured by the grant~~Extinguishment 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.~~

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. We 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. 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 on July 2, 2020, which created a deficiency between the outstanding amount borrowed under the Credit Facility and the borrowing 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 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 are classified as current in the accompanying 2019 Condensed Consolidated Balance Sheet.

~~Twelfth Amendment~~

Effective May 8, 2020, we entered into the Twelfth Amendment to Credit Agreement (the “Twelfth Amendment”), to allow us to accept proceeds of up to $2.2 million from an unsecured loan applied for under the CARES Act.

~~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.

~~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 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 were to be used to repay the Credit Facility and automatically reduced the borrowing base by the amount of the repayment and (iv) certain exceptions to the covenant restriction on investments were no longer 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.

Predecessor 11.25% Senior Notes

~~In January 2018, we issued $250 million of~~On the Effective Date, the Predecessor’s 11.25% Senior Notes ~~to U.S.-based institutional investors. The net proceeds of $244.4 million~~due 2023 (the “11.25% Senior Notes”) 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~~extinguished by issuing equity in the ~~Credit Facility.~~

Prior to default, the 11.25% Senior Notes matured on January 1, 2023, and bore 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 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 remained outstanding immediately after such redemption and the redemption occurred within 180 days of the closing date of such equity offering.

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-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 priorSuccessor to the ~~stated maturity of such instrument.~~

~~We 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 represented a default under the 11.25% Senior Notes and represented an event of default when we did not cure within 30 days.~~The Payment Default was a current event of default under the Credit Facility. We entered into the Forbearance Agreement which provided that, among other things, the lenders under the Credit Facility have agreed to forbear our default of the interest payment until August 21, 2020.

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 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.

Capital Expenditures

We currently anticipate that our full-year 2020 capital spending, excluding acquisitions, will be approximately $65 million, almost all of which was incurred by the end of September 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 ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:

In thousands Three Months Ended September 30, 2020 Nine 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 equipment 378 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.~~


In thousands	Six Months Ended June 30, 2021
Acquisition of oil and gas properties	$	1,612
Development of oil and gas properties	21,489
Purchases of other property and equipment	13
Total capital expenditures	$	23,114

For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, our capital expenditures were funded with cash flow from ~~operations, with additional funds provided by borrowings~~operations. As noted above, cash payments for capital expenditures were lower this quarter as we ran one drilling rig this period starting in February 2021 versus running two rigs throughout the first half of 2020.

2021 Capital Spending

Capital spending levels are highly dependent on revenues, liquidity and our ~~Credit Facility. Our 2020~~commitment to repay debt. We are currently expect expenditures, including acquisitions, of $45 million to $55 million. This program, as it currently stands, will allow for the drilling of 10 gross wells, all of which will be in our Eagle Ford position in South Texas. As previously noted, our 2021 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. In addition, pursuant to the Merger Agreement with Penn Virginia discussed above, certain capital expenditures which exceed the capital budget approved by the Lonestar Board of Directors, asset sales and acquisitions must be approved by Penn Virginia prior to being incurred going forward.

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").~~10-K.

As of ~~September~~June 30, ~~2020, aside from the application of ASC 852 due to the Chapter 11 Cases,~~2021, there were no significant changes to any of our critical accounting ~~policies.~~

policies and estimates.

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~~

These forward-looking statements ~~may~~ include, among others, statements ~~about our:~~regarding:

•our growth strategies;

•our ability to ~~consummate the Restructuring Plan;~~explore for and develop oil and gas resources successfully and economically;

•~~discovery~~our drilling and completion techniques;

•our estimates and forecasts of the timing, number, profitability and other results of wells we expect to drill and other exploration activities;

•our estimates regarding timing and levels of production;

•changes in working capital requirements, reserves, and acreage;

•commodity price risk management activities and the impact on our average realized prices;

•anticipated trends in our business and industry;

•availability of pipeline connections and water disposal on economic terms;

•effects of competition on us;

•our future results of operations;

•profitability of drilling locations;

•our reputation as an operator and our relationships and contacts in the market;

•our liquidity, our ability to continue as a going concern and our ability to finance our exploration and development activities, including accessibility of ~~crude oil, NGLs~~borrowings under our senior secured credit facility, our borrowing base, and ~~natural gas reserves;~~the result of any borrowing base redetermination;

• ~~cash flows~~our ability to maintain compliance with covenants and ~~liquidity;~~ratios under our senior secured credit facility;

• ~~business~~our planned expenditures, prospects and ~~financial strategy, budget, projections~~capital expenditure plan;

•future market conditions in the oil and ~~operating results;~~gas industry;

• ~~timing~~our ability to make, integrate 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~~develop acquisitions and ~~divestitures;~~realize any expected benefits or effects of completed acquisitions;

• ~~costs~~the benefits, effects, availability of ~~exploiting~~ and ~~developing~~ results of new and existing joint ventures and sales transactions;

•our ~~properties~~ability to maintain a sound financial position;

•receipt of receivables, drilling carry and ~~conducting other operations;~~proceeds from sales;

• ~~general economic~~our ability to complete planned transactions on desirable terms;

•the impact of governmental regulation, taxes, market changes and ~~business conditions;~~world events; and

• ~~our plans, objectives, expectations and intentions.~~global or national health concerns, including health epidemics such as the ongoing coronavirus outbreak beginning in early 2020.

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;~~

~~• 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 geographic 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~~Form 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.

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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.~~10-K. 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.~~10-K.

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 derivative contracts and the hypothetical result from a 10% change in commodity prices as of June 30, 2021. 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 Value		10% Increase In Commodity Price		10% Decrease In Commodity Price
Swaps	$	(59,078)	$	(80,539)	$	(37,617)

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 ~~September~~June 30, ~~2020,~~2021, we had ~~$285.0~~$254.6 million outstanding under the Successor Credit ~~Facility,~~Agreements, which isare subject to floating market rates of interest. Borrowings under the Successor Credit ~~Facility~~Agreements 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 ~~September~~June 30, ~~2020,~~2021, a 100-basis-point change in interest rates would change our annualized interest expense by approximately ~~$2.9~~$2.5 million.

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 Successor Credit ~~Facility~~Agreements 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.

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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 ~~upon~~on that evaluation, ~~the~~our Chief Executive Officer and ~~the~~ Chief Accounting Officer concluded that ~~due to the material weakness described below, the Company's~~our disclosure controls and procedures were ~~not~~ effective as of ~~the end of the period covered by this Form 10-Q~~June 30, 2021 to ~~provide reasonable assurance~~ensure that information that is required to be disclosed ~~by us~~ in ~~our~~the reports ~~filed or submitted~~the Company files and submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) 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~~that information that is required to be disclosed under the ~~end of the period covered by this Form 10-Q to provide reasonable assurance that such information~~Exchange Act is accumulated and communicated to ~~our~~ management, including our ~~principal executive~~Chief Executive Officer and ~~financial officers,~~our Chief Accounting Officer, as appropriate, to allow timely decisions regarding required ~~disclosure.~~disclosures.

Changes in Internal Control over Financial ~~Reporting.~~

Reporting
.

~~Prior to filing this quarterly report on Form 10-Q for~~During the ~~period ended September 30, 2020, the Company identified a material weakness relating to the operating effectiveness~~second quarter 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 resultedfiscal 2021, there were no changes in a 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’sour 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.

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.~~10-K. 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.

~~We are subject to the risks and uncertainties associated with proceedings under chapter 11 of the Bankruptcy 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 Chapter 11 Cases, we plan to continue to operate our business as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in 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 the 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,~~

•~~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 third parties seeking to obtain court approval to terminate contracts and other agreements with us;~~

•~~Bankruptcy Court rulings in the 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, financial condition, results of operations and liquidity. For the duration of the Chapter 11 Cases, our management may be required to spend a significant amount of time and effort dealing with the restructuring instead of attending to our business operations. Bankruptcy Court protection and operating as debtors in possession also may 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.

~~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 the Chapter 11 Cases continue, the more likely it is that our customers and suppliers will lose confidence in our ability to reorganize our business successfully and will 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.

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.

~~We 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 be 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 (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 overall 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 of these factors could materially adversely affect the successful reorganization of our businesses. Consequently, there can be no assurance that the results or developments contemplated by any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated 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 successful execution of any plan of reorganization.

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.10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table summarizes purchases of our ~~Class A~~ Common Stock during the ~~third~~second quarter of ~~2020:~~2021:

Total number of Shares Purchased Average Price Paid per Share Total Number of Shares that May Yet Be Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 2020 1,877 $ 0.47 — —
August 2020 — — — —
September 2020 — — — —
Total 1,877 —


	Total number of Shares Purchased	Average Price Paid per Share		Total Number of Shares that May Yet Be Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 2021	39,654	$	7.25	—	$	—
May 2021	—	—		—	—
June 2021	—	—		—	—
Total	39,654			—

Stock repurchases during the ~~third~~second quarter of ~~2020~~2021 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.

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

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.

~~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.

4834

Item 6. Exhibits.

Exhibit Number Description Incorporated by Reference Filing
Date Filed/
Furnished
Herewith
Form File No. Exhibit
10.1
Twelfth Amendment to Credit Agreement
8-K 001-37670 10.1 5/11/20
10.2
Waiver and Thirteenth Amendment to Credit Agreement
8-K 001-37670 10.1 6/17/20
10.3
Forbearance Agreement, Fourteenth Amendment, and Borrowing Base Agreement
10-Q 001-37670 10.3 7/2/20
10.4†
Lonestar Resources US. Inc. Change in Control Severance Plan
10-Q 001-37670 10.4 7/2/20
10.5†
Lonestar Resources US Inc. Change in Control Severance Plan Eligibility Notification (Executive)
10-Q 001-37670 10.5 7/2/20
10.6
Forbearance Agreement
8-K 001-37670 10.1 8/3/20
10.7
Amendment No. 1 to the Forbearance Agreement, Fourteenth Amendment, and Borrowing Base Agreement
8-K 001-37670 10.2 8/3/20
10.8
Amendment No. 2 to the Forbearance Agreement, Fourteenth Amendment, and Borrowing Base Agreement
8-K 001-37670 10.1 8/21/20
10.9
Restructuring Support Agreement, dated September 14, 2020 by and among the Company, Lonestar Resources America Inc., each other direct and indirect wholly-owned, domestic subsidiary of the Company party thereto and the Consenting Creditors.

8-K 001-37670 10.1 9/14/20
0.0101
Joint Prepackaged Plan of Reorganization for Lonestar Resources US Inc. and Its Affiliate Debtors Under Chapter 11 of the Bankruptcy Code.
8-K 001-37670 10.1 11/12/20
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
*
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Accounting Officer
*
32.1
Section 1350 Certification of Chief Executive Officer
**
32.2
Section 1350 Certification of Chief Accounting Officer
**
101.INS XBRL Instance Document *
101.SCH XBRL Taxonomy Extension Schema Document *
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB XBRL Taxonomy Extension Label Linkbase Document *
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *

Exhibit Number

Description

Incorporated by Reference

Filing
Date

Filed/
Furnished
Herewith

Form

File No.

Exhibit

10.1†

Lonestar Resources US Inc. 2021 Management Incentive Plan

S-8

333-255213

10.1

4/13/2021

10.2†

2021 Form of Restricted Stock Unit Agreement under the 2021 Lonestar Resources US Inc. 2021 Management Incentive Plan

10-Q

333-255213

10.2

5/11/2021

10.3†

2021 Form of Restricted Stock Unit Agreement under the 2021 Lonestar Resources US Inc. 2021 Management Incentive Plan (subject to Performance Criteria)

10-Q

333-255213

10.3

5/11/2021

10.4

First Amendment and Borrowing Base Agreement

31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Accounting Officer

32.1

Section 1350 Certification of Chief Executive Officer

32.2

Section 1350 Certification of Chief Accounting Officer

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

** Furnished herewith

† Management contract or compensatory plan or arrangement

4935

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.

~~November 19, 2020~~August 10, 2021		/s/ Frank D. Bracken, III
		Frank D. Bracken, III Chief Executive Officer

~~November 19, 2020~~August 10, 2021		/s/ Jason N. Werth
		Jason N. Werth Chief Accounting Officer

5036


	Three Months Ended September 30,				Nine Months Ended September 30,
In thousands, except shares and per-share data	2020		2019		2020		2019
Numerator — Basic
Total net (loss) income attributable to common stockholders	$	(38,473)	$	14,058	$	(194,423)	$	(35,394)
Less: allocation to participating securities	0		(5,494)		0		0
Net (loss) income attributable to common stockholders	$	(38,473)	$	8,564	$	(194,423)	$	(35,394)

Numerator — Diluted
Net income (loss) allocated to common stockholders - basic	$	(38,473)	$	8,564	$	(194,423)	$	(35,394)
Restricted stock unit compensation gain, net of tax	$	0	$	(80)	$	0	$	0
Net income (loss) allocated to common stockholders - diluted	$	(38,473)	$	8,484	$	(194,423)	$	(35,394)

Denominator
Weighted average number of common shares — Basic	25,361,361		24,933,853		25,238,972		24,852,994
Restricted stock units converted under the treasury method	0		397,957		0		0
Weighted average number of common shares — Diluted	25,361,361		25,331,810		25,238,972		24,852,994


Earnings per share
Basic	$	(1.52)	$	0.34	$	(7.70)	$	(1.42)
Diluted	$	(1.52)	$	0.33	$	(7.70)	$	(1.42)


	Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)
Outstanding at December 31, 2019	1,010,000	$	6.30	2.5
SARs vested and exercisable at December 31, 2019	606,250	6.65		2.4
Granted	0	0		—
Exercised	0	0		—
Expired/forfeited	0	0		—
Outstanding at September 30, 2020	1,010,000	$	6.30	1.8
SARs vested and exercisable at September 30, 2020	805,000	$	6.79	1.6


In thousands	Nine Months Ended June 30,
	2020		2019
Net cash provided by (used in):
Operating activities	$	82,731	$	52,873
Investing activities	(89,260)		(116,569)
Financing activities	40,003		61,782
Net change in cash	$	33,474	$	(1,914)


In thousands	Three Months Ended September 30, 2020		Nine 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 equipment	378		1,014
Total capital expenditures	$	25,999	$	101,173