| Fresh Start Accounting | Fresh Start Accounting At the Emergence Date, the Company was required to adopt fresh start accounting in accordance with ASC 852 as (i) the holders of existing voting shares of the Predecessor received less than 50% of the voting shares of the Successor and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the Plan of $2.2 billion was less than the total of post-petition liabilities and allowed claims of $3.2 billion. Refer to Note 2—Emergence from Voluntary Reorganization under Chapter 11 for the terms of the Plan. Reorganization Value Under fresh start accounting, reorganization value represents the value of the entity before considering liabilities and is intended to represent the approximate amount a willing buyer would pay for the assets immediately after the restructuring. Upon the adoption of fresh start accounting, the Company allocated the reorganization value to its individual assets and liabilities based on their fair values (except for deferred income taxes) in conformity with Accounting Standards Codification 805, Business Combinations . Deferred income tax amounts were determined in accordance with Accounting Standards Codification 740, Income Taxes (“ASC 740”). Reorganization value is derived from an estimate of enterprise value, or the fair value of the Company’s interest-bearing debt and stockholders’ equity. As set forth in the Plan and related disclosure statement approved by the Bankruptcy Court, the enterprise value of the Successor was estimated to be between $1.3 billion and $1.7 billion. The enterprise value was prepared using reserve information, development schedules, other financial information and financial projections, and applying standard valuation techniques, including risked net asset value analysis, discounted cash flow analysis, public comparable company analysis and precedent transactions analysis. At the Emergence Date, the Company estimated the enterprise value to be $1.3 billion based on the estimates and assumptions used in determining the enterprise value coupled with consideration of the indicated enterprise value implied by the trading value of the Company’s Notes prior to the Emergence Date, as the reorganized Successor’s equity would be issued to the holders of the Notes under the Plan. The Company’s principal E&P segment assets are its oil and gas properties, which were valued using primarily an income approach. The fair value of proved oil and natural gas properties was estimated using a discounted cash flow model, which is subject to management’s judgment and expertise and includes, but is not limited to, estimates of proved reserves, future commodity pricing, future production estimates, estimates of operating and development costs and a discount rate. Estimated proved reserves were risked by reserve category and were limited to wells included in the Company's five-year development plan. The underlying future commodity prices used to estimate future cash flows were based on NYMEX forward strip prices as of Emergence Date through 2022, escalating 2% per year thereafter (based on historical average annual consumer price index percentage changes) until reaching $75 per barrel for crude oil and $4.80 per Mcf for natural gas in 2051 after which prices were held flat. These prices were adjusted for transportation fees and quality and geographical differentials. Future operating and development costs were estimated based on the Company's recent actual costs, excluding the cost benefits the Company realizes from consolidating its midstream business segment. The cash flow models also included estimates not typically included in proved reserves, such as general and administrative expenses and income tax expenses, and estimated future cash flows were discounted using a weighted average cost of capital discount rate of 11%. In estimating the fair value of the Company’s unproved acreage, a market approach was used in which a review of recent transactions involving properties in the same geographical location were considered when estimating the fair value of the Company’s acreage. The Company’s midstream business segment is primarily operated through OMP. OMP’s enterprise value was determined using the market approach based on a volume weighted average price calculation for OMP’s outstanding limited partner units. The Company estimated the fair value of its retained interests in Bobcat DevCo and Beartooth DevCo of 64.7% and 30%, respectively, using an income approach, which was based on the anticipated future cash flows associated with the respective DevCos and discounted using a weighted average cost of capital discount rate of 13%. The midstream segment’s tangible assets primarily consist of pipelines, natural gas processing plants, compressor stations, produced water gathering lines and disposal wells, tanks, other facilities and equipment and rights of way. The estimated fair value of these midstream assets was determined using primarily a cost approach, based on current replacement costs of the assets less depreciation based on the estimated useful lives of the assets and ages of the assets. Economic and functional obsolescence were also considered and applied in the form of inutility and excess capital costs. The midstream segment’s identifiable intangible assets include third-party customer contracts and its interest in OMP GP. The Company determined the estimated fair value of customer contracts based on the excess earnings method of the income approach, which consists of estimating the incremental after-tax cash flows attributable to the intangible assets only. The Company estimated the fair value of its interest in OMP GP using a combination of an income approach and market approach. The excess reorganization value over the fair value of identified tangible and intangible assets was recorded as goodwill on the Successor’s Consolidated Balance Sheet. Although the Company believes the assumptions and estimates used to develop enterprise value and reorganization value are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and resulting conclusions. The assumptions used in estimating these values are inherently uncertain and require judgment. See below under “Fresh Start Adjustments” for additional information regarding assumptions used in the measurement of the Company’s various other significant assets and liabilities. The following table reconciles the Company’s enterprise value to the estimated fair value of the Successor’s stockholders’ equity at the Emergence Date: November 19, 2020 (In thousands) Enterprise value $ 1,300,000 Plus: Cash (1) 5,615 Less: Fair value of Oasis Credit Facility (2) (340,000) Fair value of Oasis share of Successor stockholders’ equity (3) 965,615 Plus: Fair value of non-controlling interests 92,816 Fair value of total Successor stockholders’ equity $ 1,058,431 __________________ (1) Cash excludes $4.5 million of cash attributable to OMP and includes $1.4 million that was initially classified as restricted cash as of November 19, 2020 but subsequently released from escrow and returned to the Successor. A total of $10.4 million of restricted cash as of November 19, 2020 was used to pay professional fees and is not included in the table above. (2) Enterprise value includes the value of the Company’s interests in OMP and OMP GP, which is net of debt under the OMP Credit Facility, and as such, only the fair value of debt under the Oasis Credit Facility is subtracted in order to determine the value of the Successor’s stockholders’ equity. (3) Reflects Successor equity issued in accordance with the Plan, including 20,000,000 shares of common stock and 1,621,622 Warrants. The following table reconciles the Company’s enterprise value to the estimated reorganization value as of the Emergence Date: November 19, 2020 (In thousands) Enterprise value $ 1,300,000 Plus: Fair value of OMP Credit Facility (1) 455,500 Plus: Fair value of non-controlling interests 92,816 Plus: Cash (2) 5,615 Plus: Current liabilities 305,592 Plus: Asset retirement obligations (non-current portion) 45,986 Plus: Other non-current liabilities 32,482 Reorganization value of Successor assets $ 2,237,991 _________________ (1) Enterprise value includes the value of the Company’s interests in OMP and OMP GP, which is net of debt under the OMP Credit Facility, and as such, the fair value of the OMP Credit Facility is considered in the reconciliation of enterprise value to the reorganization value of the Successor’s assets. (2) Cash excludes $4.5 million of cash attributable to OMP and includes $1.4 million that was initially classified as restricted cash as of November 19, 2020 but subsequently released from escrow and returned to the Successor. A total of $10.4 million of restricted cash as of November 19, 2020 was used to pay professional fees and is not included in the table above. Condensed Consolidated Balance Sheet The adjustments set forth in the following fresh start Condensed Consolidated Balance Sheet reflect the effect of the transactions contemplated by the Plan (“Reorganization Adjustments”) and the fair value and other required adjustments as a result of applying fresh start accounting (“Fresh Start Adjustments”). The explanatory notes provide additional information with regard to the adjustments recorded, the methods used to determine fair values as well as significant assumptions. As of November 19, 2020 Predecessor Reorganization Adjustments Fresh Start Adjustments Successor (In thousands) ASSETS Current assets Cash and cash equivalents $ 74,071 $ (65,317) (a) $ — $ 8,754 Restricted cash — 11,800 (b) — 11,800 Accounts receivable, net 274,679 — — 274,679 Inventory 33,729 — 2,102 (p) 35,831 Prepaid expenses 10,864 (4,325) (c) — 6,539 Derivative instruments 728 — — 728 Other current assets 754 — — 754 Total current assets 394,825 (57,842) 2,102 339,085 Property, plant and equipment Oil and gas properties (successful efforts method) 9,256,532 — (8,461,285) (q) 795,247 Other property and equipment 1,311,240 — (373,068) (q) 938,172 Less: accumulated depreciation, depletion, amortization and impairment (8,579,696) — 8,579,696 (q) — Total property, plant and equipment, net 1,988,076 — (254,657) 1,733,419 Assets held for sale, net 1,380 — 4,120 (r) 5,500 Derivative instruments 47 — — 47 Long-term inventory 14,107 — 413 (p) 14,520 Operating right-of-use assets 13,260 — (797) (s) 12,463 Intangible assets 667 — 43,000 (t) 43,667 Goodwill — — 70,534 (u) 70,534 Other assets 21,393 7,017 (d) (9,654) (v) 18,756 Total assets $ 2,433,755 $ (50,825) $ (144,939) $ 2,237,991 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities Accounts payable $ 9,206 $ 21,809 (e) $ — $ 31,015 Revenues and production taxes payable 130,487 — — 130,487 Accrued liabilities 72,513 57,470 (f) 1,885 (w) 131,868 Current maturities of long-term debt 360,640 (360,640) (g) — — Accrued interest payable 60,988 (60,510) (h) — 478 Derivative instruments 4,902 49 (i) 18 (x) 4,969 Advances from joint interest partners 170 2,555 (i) — 2,725 Current operating lease liabilities 1,050 924 (i) (76) (s) 1,898 Other current liabilities 412 1,774 (i) (34) (s) 2,152 Total current liabilities 640,368 (336,569) 1,793 305,592 Long-term debt 455,500 340,000 (j) — 795,500 Deferred income taxes 1,097 9,746 (k) (6,412) (y) 4,431 Asset retirement obligations 2,246 57,306 (i) (13,566) (w) 45,986 Derivative instruments 5,316 — 41 (x) 5,357 Operating lease liabilities 914 15,462 (i) (740) (s) 15,636 Other liabilities 3,634 3,456 (i) (32) (s) 7,058 Liabilities subject to compromise 2,051,294 (2,051,294) (l) — — Total liabilities 3,160,369 (1,961,893) (18,916) 1,179,560 Commitments and contingencies Stockholders’ equity (deficit) Predecessor common stock 3,233 (3,233) (m) — — Successor common stock — 200 (n) — 200 Predecessor treasury stock, at cost (36,637) 36,637 (m) — — Predecessor additional paid-in capital 3,131,446 (3,131,446) (m) — — Successor additional paid-in capital — 965,415 (n) — 965,415 Retained earnings (accumulated deficit) (3,995,209) 4,034,401 (o) (39,192) (z) — Oasis share of stockholders’ equity (deficit) (897,167) 1,901,974 (39,192) 965,615 Non-controlling interests 170,553 9,094 (o) (86,831) (z) 92,816 Total stockholders’ equity (deficit) (726,614) 1,911,068 (126,023) 1,058,431 Total liabilities and stockholders’ equity (deficit) $ 2,433,755 $ (50,825) $ (144,939) $ 2,237,991 Reorganization Adjustments (a) The table below reflects the uses of cash on the Emergence Date from the implementation of the Plan: (In thousands) Payment of Oasis Credit Facility principal (1) $ 20,640 Payment pursuant to the Mirada Settlement Agreement 20,000 Funding of the professional fees escrow account 11,800 Payment of Oasis Credit Facility fees 6,900 Payment of professional fees 3,766 Payment of DIP Credit Facility accrued interest and fees 1,375 Payment of Predecessor Credit Facility accrued interest and fees 836 Total uses of cash $ 65,317 _________________ (1) On the Emergence Date, the principal amounts under the DIP Credit Facility and the Predecessor Credit Facility of $300.0 million and $60.6 million, respectively, were converted to principal amounts of revolving loans under the Oasis Credit Facility in accordance with the Plan. (b) Reflects the funding of an escrow account for professional fees associated with the Chapter 11 Cases, as required by the Plan. (c) Reflects the remaining unamortized amount of prepaid cash incentives under the 2020 Incentive Compensation Program (as defined in Note 18—Equity-Based Compensation), which vested on the Emergence Date as a result of implementing the Plan, and was recorded in general and administrative expenses. (d) Represents $7.3 million of fees related to the Oasis Credit Facility paid or accrued on the Emergence Date, which were capitalized as deferred financing costs and will be amortized to interest expense through the maturity date of May 19, 2024, offset by approximately $0.2 million of deferred financing costs related to the Predecessor Credit Facility, which were eliminated with a corresponding charge to reorganization items, net. (e) Represents the reinstatement of $19.9 million of accounts payable included in liabilities subject to compromise to be satisfied in the ordinary course of business, coupled with a $1.9 million reclassification from accrued liabilities to accounts payable related to certain equity-based compensation awards classified as liabilities that vested on the Emergence Date. (f) Changes in accrued liabilities include the following: (In thousands) Reinstatement of accrued expenses from liabilities subject to compromise $ 73,778 Accrual for professional fees incurred upon Emergence Date 4,603 Vesting of equity-based compensation awards classified as liabilities 1,142 Payment pursuant to Mirada Settlement Agreement (20,000) Reclassification of payable for vested liability awards to accounts payable (1,913) Payment of certain professional fees accrued prior to Emergence Date (140) Net impact to accrued liabilities $ 57,470 (g) Reflects the refinancing of the borrowings outstanding under the DIP Credit Facility and Predecessor Credit Facility of $300.0 million and $60.6 million, respectively, through the Oasis Credit Facility on the Emergence Date. (h) Reflects the write-off of Specified Default Interest and OMP Specified Default Interest of $30.3 million and $28.0 million, respectively, which was waived on the Emergence Date, and the payment of accrued interest for the DIP Credit Facility and Predecessor Credit Facility of $1.4 million and $0.8 million, respectively, on the Emergence Date. (i) Reflects the reinstatement of obligations that were classified as liabilities subject to compromise. (j) Reflects borrowings drawn under the Oasis Credit Facility on the Emergence Date, consisting of principal amounts that were converted from principal amounts under the DIP Credit Facility and the Predecessor Credit Facility of $300.0 million and $60.6 million, respectively, in accordance with the Plan, partially offset by a principal repayment amount of $20.6 million. Refer to Note 15—Long-Term Debt for more information on the Oasis Credit Facility. (k) Reflects an increase in the deferred tax liability recorded as a result of an ownership change under Section 382 (as defined in Note 17—Income Taxes), which limits the use of tax attributes and other deductions in future tax years. (l) On the Emergence Date, liabilities subject to compromise were settled in accordance with the Plan as follows: (In thousands) Notes $ 1,825,757 Accrued interest on Notes 50,337 Asset retirement obligations 57,306 Accounts payable and accrued liabilities 93,674 Other liabilities 24,220 Total liabilities subject to compromise of the Predecessor 2,051,294 Reinstatement of liabilities for general unsecured claims (175,200) Issuance of common stock to Notes holders (941,810) Gain on settlement of liabilities subject to compromise $ 934,284 (m) Reflects the cancellation of the Predecessor’s accumulated deficit, common stock and treasury stock and changes in the Predecessor’s additional paid-in capital as follows: (In thousands) Cancellation of accumulated deficit $ (3,086,292) Cancellation of common stock 3,233 Cancellation of treasury stock (36,637) Equity-based compensation for vesting of awards classified as equity 12,055 Issuance of Warrants to Predecessor common stockholders (23,805) Net impact to Predecessor additional paid-in capital $ (3,131,446) (n) Reflects the distribution of Successor equity instruments in accordance with the Plan, including the issuance of 20,000,000 shares of common stock at a par value of $0.01 per share and 1,621,622 Warrants. The fair value of the Warrants was estimated at $14.68 per Warrant using a Black-Scholes model. See Note 19—Stockholders’ Equity for additional information. (In thousands) Common stock to Notes holders $ 941,810 Warrants to Predecessor common stockholders 23,805 Total fair value of Successor equity $ 965,615 (o) The table below reflects the cumulative impact of the reorganization adjustments discussed above: (In thousands) Gain on settlement of liabilities subject to compromise $ 934,284 Write-off of Specified Default Interest 30,285 Write-off of OMP Specified Default Interest 28,014 Gain on debt discharge 992,583 Professional fees incurred on the Emergence Date (7,869) Write-off of Predecessor Credit Facility deferred financing costs (243) Total reorganization items from reorganization adjustments 984,471 Equity-based compensation expense for vesting of awards on Emergence Date (13,197) Vesting of prepaid cash incentive compensation (4,325) Income from reorganization adjustments before income taxes 966,949 Income tax expense (9,746) Net income from reorganization adjustments including non-controlling interests 957,203 Less: Net income from reorganization adjustments attributable to non-controlling interests (9,094) Net income from reorganization adjustments attributable to Oasis 948,109 Cancellation of accumulated deficit 3,086,292 Net impact to Predecessor retained earnings (accumulated deficit) $ 4,034,401 Fresh Start Adjustments (p) Reflects fair value adjustments to the Company’s crude oil inventory, equipment inventory, and long-term linefill inventory of $1.6 million, $0.5 million and $0.4 million, respectively, based on market prices as of the Emergence Date. Crude oil prices were estimated using NYMEX West Texas Intermediate crude oil index prices (“NYMEX WTI”) based on the estimated timing of liquidation and adjusted for quality and location differentials. (q) Reflects adjustments to present the Company's proved oil and gas properties, unproved acreage and other property and equipment at their estimated fair values based on the valuation methodology discussed above as well as the elimination of accumulated depreciation, depletion, amortization and impairment. The following table summarizes the components of property, plant and equipment as of the Emergence Date: Fair Value Historical Book Value (In thousands) Proved oil and gas properties $ 755,247 $ 9,081,974 Less: Accumulated depreciation, depletion, amortization and impairment — (8,259,334) Proved oil and gas properties, net 755,247 822,640 Unproved oil and gas properties 40,000 174,558 Other property and equipment 938,172 1,311,240 Less: Accumulated depreciation and impairment — (320,362) Other property and equipment, net 938,172 990,878 Total property, plant and equipment, net $ 1,733,419 $ 1,988,076 (r) Reflects fair value adjustments to the Company’s assets held for sale based on the sales price agreed upon with the buyer, less estimated costs to sell. (s) Reflects adjustments required to present at fair value operating lease right-of-use assets and operating and finance lease liabilities. The Company's remaining lease obligations were remeasured using incremental borrowing rates applicable to the Company as of the Emergence Date and commensurate with the Successor's capital structure. The incremental borrowing rates ranged from 3.06% to 6.58% based on the tenor of the leases. Finance lease liabilities are included in other current liabilities and other liabilities on the Company’s Consolidated Balance Sheet. (t) Reflects adjustments to present identified intangible assets at their estimated fair values based on the valuation methodology discussed above. The following table summarizes the components of property, plant and equipment as of the Emergence Date: Fair Value Historical Book Value (In thousands) Interest in OMP GP $ 28,000 $ — Customer contracts 15,000 — Seismic data 667 667 Total intangible assets $ 43,667 $ 667 (u) Adjustment to record the excess of the reorganization value over the fair value of identified tangible and intangible assets as goodwill. (v) Reflects adjustments to eliminate certain deferred costs determined to have no fair value, including electrical infrastructure costs of $8.1 million and deferred financing costs related to the OMP Credit Facility of $1.5 million, and a $0.1 million adjustment to present finance lease right-of-use assets at fair value. (w) Adjustment to present at fair value the Company's asset retirement obligations (“ARO”) using assumptions as of the Emergence Date, including an inflation factor of 2% and an estimated 30-year credit-adjusted risk-free rate of 8.5%. (x) Reflects fair value adjustment to the Company’s derivative instruments using the Company’s estimated credit-adjusted risk-free rate as of the Emergence Date of 5.12%. (y) Reflects the adjustment to deferred income taxes to reflect the change in the financial reporting basis of assets as a result of the adoption of fresh start accounting. (z) The table below reflects the cumulative impact of the fresh start adjustments discussed above: (In thousands) Loss on revaluation adjustments $ (132,435) Income tax benefit 6,412 Net loss from fresh start adjustments including non-controlling interests (126,023) Less: Net loss from fresh start adjustments attributable to non-controlling interests 86,831 Net loss from fresh start adjustments attributable to Oasis $ (39,192) Reorganization Items, Net Any expenses, gains and losses that were realized or incurred between the Petition Date and the Emergence Date and as a direct result of the Chapter 11 Cases and the implementation of the Plan are recorded in reorganization items, net in the Company’s Consolidated Statements of Operations. The following table summarizes the components of reorganization items, net: (In thousands) Gain on debt discharge $ 992,583 Loss on revaluation adjustments (132,435) Write-off of unamortized debt discount (38,373) Professional fees (16,352) Write-off of unamortized deferred financing costs (12,739) DIP Credit Facility fees (5,853) Total reorganization items, net $ 786,831 |
