| DEBT | DEBT Pre-Emergence Indebtedness As of September 30, 2020 and December 31, 2019, our short-term debtor-in-possession (DIP) financing and current portion of long-term debt consisted of the following: Outstanding Principal Interest Rate Security September 30, 2020 December 31, 2019 ($ in millions) Senior DIP Facility $ 83 $ — LIBOR plus 4.5% ABR plus 3.5% Secured Superpriority Junior DIP Facility 650 — LIBOR plus 9.0% ABR plus 8.0% Secured Superpriority Current portion of long-term debt — 100 Total short-term borrowings and current maturities $ 733 $ 100 As of September 30, 2020 and December 31, 2019, our long-term debt consisted of the following credit agreements, Second Lien Notes and Senior Notes: Outstanding Principal Interest Rate Security September 30, 2020 December 31, 2019 ($ in millions) Credit Agreements 2014 Revolving Credit Facility (a) — 518 LIBOR plus 3.25%-4.00% ABR plus 2.25%-3.00% Shared First-Priority Lien 2017 Credit Agreement 1,300 1,300 LIBOR plus 4.75% ABR plus 3.75% Shared First-Priority Lien 2016 Credit Agreement 1,000 1,000 LIBOR plus 10.375% ABR plus 9.375% First-Priority Lien Second Lien Notes Second Lien Notes 1,808 1,815 8% Second-Priority Lien Senior Notes 5% Senior Notes due 2020 — 100 5% Unsecured 5.5% Senior Notes due 2021 100 100 5.5% Unsecured 6% Senior Notes due 2024 144 144 6% Unsecured Outstanding long-term debt $ 4,352 $ 4,977 Less: Current portion of long-term debt — (100) Less: Amounts reclassified to LSTC (4,352) — Total long-term debt $ — $ 4,877 Note: For a detailed description of our credit agreements, Second Lien Notes and Senior Notes, please see our most recent Form 10-K for the year ended December 31, 2019. (a) The proceeds from our debtor-in-possession credit agreements were used to repay the balance of our 2014 Revolving Credit Facility. Borrowings under our debtor-in-possession credit agreements are classified as a current liability on our condensed consolidated balance sheet at September 30, 2020. As of September 30, 2020, we had letters of credit outstanding of $151 million under the Senior DIP Facility. As of December 31, 2019, we had letters of credit outstanding under the 2014 Revolving Credit Facility of $165 million. These letters of credit were issued to support ordinary course marketing, insurance, regulatory and other items. Related to the Chapter 11 Cases, we recorded a non-cash gain of $125 million to write off all of the related unamortized deferred gain, discount and debt issuance costs as a reorganization item, net in our condensed consolidated statements of operations for the three and nine months ended September 30, 2020. As of December 31, 2019, net deferred gain and issuance costs were $146 million, consisting of deferred gain and issuance costs of $211 million and $65 million, respectively. Note Repurchases In the first quarter of 2020, we repurchased $7 million in face value of our Second Lien Notes for $3 million in cash resulting in a pre-tax gain of $5 million, including the effect of unamortized deferred gain and issuance costs. We did not repurchase any notes in the second or third quarters of 2020. In the nine months ended September 30, 2019, we repurchased approximately $229 million in face value of our Second Lien Notes for $149 million in cash resulting in a pre-tax gain of $108 million, including the effect of unamortized deferred gain and issuance costs. Missed Interest Payments and Forbearance On May 15, 2020, we did not make an interest payment of approximately $4 million on our 2024 Notes. The indenture governing the 2024 Notes provides for a 30-day grace period and the payment was made on June 12, 2020. On May 29, 2020, we did not pay approximately $51 million in the aggregate of interest due under our 2017 Credit Agreement and 2016 Credit Agreement. Our failure to make those interest payments constituted events of default under the 2017 Credit Agreement, 2016 Credit Agreement and, as a result of cross default, under the 2014 Revolving Credit Facility. On June 2, 2020, we entered into forbearance agreements (Forbearance Agreements) with (i) certain lenders of a majority of the outstanding principal amount of the loans under the 2014 Revolving Credit Facility, (ii) certain lenders of a majority of the outstanding principal amount of the loans under the 2016 Credit Agreement, and (iii) certain lenders of a majority of the outstanding principal amount of the loans under the 2017 Credit Agreement. Pursuant to the Forbearance Agreements, the lenders who were parties to the Forbearance Agreements agreed to forbear from exercising any remedies under the 2014 Revolving Credit Facility, 2016 Credit Agreement and 2017 Credit Agreement with respect to our failure to make the aforementioned interest payments, initially through June 14, 2020 and subsequently through July 15, 2020. On June 15, 2020, we did not make an interest payment of approximately $72 million on our Second Lien Notes. The indenture governing the Second Lien Notes provides for a 30-day grace period, which expired on July 15, 2020. We did not make the July 15, 2020 interest payment and commenced bankruptcy proceedings. Commencement of Bankruptcy Proceedings The commencement of a voluntary proceeding in bankruptcy constituted an immediate event of default under the 2014 Revolving Credit Facility, 2016 Credit Agreement, 2017 Credit Agreement, and the indentures governing the Second Lien Notes, 2021 Notes and 2024 Notes, resulting in the automatic and immediate acceleration of all of our outstanding pre-petition long-term debt. Any efforts to enforce payment obligations related to the acceleration of our long-term debt were automatically stayed by the commencement of the Chapter 11 Cases, and the creditors’ rights of enforcement were subject to the applicable provisions of the Bankruptcy Code. See Note 1 Chapter 11 Proceedings for more information on our Chapter 11 Cases. Pursuant to the Plan, on the Effective Date, the obligations of the Debtors under each of the following debt instruments were cancelled and the applicable agreements governing such obligations were terminated: (a) the Credit Agreement, dated as of November 17, 2017, among The Bank of New York Mellon Trust Company, N.A., as administrative agent, as amended, restated, supplemented or otherwise modified (the “2017 Term Loan Agreement”); (b) the Credit Agreement, dated as of August 12, 2016, among The Bank of New York Mellon Trust Company, N.A., as administrative agent and collateral agent, as amended, restated, supplemented or otherwise modified (the “2016 Term Loan Agreement”); (c) the Indenture dated as of December 15, 2015, among The Bank of New York Mellon Trust Company, N.A., as trustee, pursuant to which the 8% Senior Secured Second Lien Notes due 2022 were issued, as amended, supplemented or otherwise modified (the “Second Lien Notes Indenture”); and (d) the Indenture dated as of October 1, 2014, among Wilmington Trust, National Association, as successor to Wells Fargo Bank, National Association, as trustee, pursuant to which the 5% Senior Notes due 2020, 5.5% Senior Notes due 2021 and 6% Senior Notes due 2024 were issued, as amended, supplemented or otherwise modified (the “Unsecured Notes Indenture”). Debtor-in-Possession Credit Agreements On July 23, 2020, we entered into a Senior Secured Superpriority DIP Credit Agreement with JP Morgan, as administrative agent, and certain other lenders (Senior DIP Credit Agreement), which provided for the senior DIP facility in an aggregate principal amount of up to $483 million (Senior DIP Facility). The Senior DIP Facility included a $250 million revolving facility which was primarily used by us to (i) fund working capital needs, capital expenditures and additional letters of credit during the pendency of the Chapter 11 Cases and (ii) pay certain costs, fees and expenses related to the Chapter 11 Cases and the Senior DIP Facility. Following a hearing, the Bankruptcy Court entered a final order on August 14, 2020, which approved the Senior DIP Facility on a final basis. The Senior DIP Facility also included (i) a $150 million letter of credit facility which was used to redeem letters of credit outstanding under the 2014 Revolving Credit Facility as issued under the Senior DIP Facility, and (ii) $83 million of term loan borrowings which were used to repay a portion of the 2014 Revolving Credit Facility. The Senior DIP Facility allowed for the issuance of an additional $35 million of letters of credit. On July 23, 2020, we entered into a Junior Secured Superpriority DIP Credit Agreement with Alter Domus, as administrative agent, and certain lenders (Junior DIP Credit Agreement), which provided for a junior DIP facility in an aggregate principal amount of $650 million (Junior DIP Facility and together with the Senior DIP Facility, the DIP Facilities). The proceeds of the Junior DIP Facility were used to (i) refinance in full all remaining obligations under the 2014 Revolving Credit Facility and (ii) pay certain costs, fees and expenses related to the Chapter 11 Cases and the Junior DIP Facility. The Senior DIP Credit Agreement and Junior DIP Credit Agreement both contain representations, warranties, and covenants that are customary for DIP facilities of their type, including certain milestones applicable to the Chapter 11 Cases, compliance with an agreed budget, hedging on not less than 25% of our share of expected crude oil production for a specified period, and other customary limitations on additional indebtedness, liens, asset dispositions, investments, restricted payments and other negative covenants, in each case subject to exceptions. Additionally, the Senior DIP Credit Agreement and Junior DIP Credit Agreement require us to maintain (i) minimum liquidity over a rolling four-week period of not less than $50 million, and (ii) minimum liquidity at all times of not less than $35 million. The Senior DIP Credit Agreement and Junior DIP Credit Agreement also contain customary events of default for facilities of their type, including failure to achieve the milestones and the occurrence of certain events in the Chapter 11 Cases, which would constitute an event of default. If an event of default occurs or is continuing, the applicable administrative agent may accelerate repayment of the indebtedness outstanding and/or pursue other remedies authorized under the Senior DIP Facility or the Junior DIP Facility. Borrowings under the Senior DIP Facility bear interest at the London interbank offered rate (LIBOR) plus 4.5% for LIBOR loans and the alternative base rate (ABR) plus 3.5% for alternative base rate loans. We also agreed to pay an upfront fee equal to 1.0% on the commitment amount of the Senior DIP Facility and quarterly commitment fees of 0.5% on the undrawn portion of the Senior DIP Facility. Borrowings under the Junior DIP Facility bear interest at a rate of LIBOR plus 9.0% for LIBOR loans and ABR plus 8.0% for alternate base rate loans. We also agreed to pay an upfront fee equal to 1.0% of the commitment amount funded on the closing date and a fronting fee to a fronting lender. Certain of our subsidiaries, including each of the debtors in the Chapter 11 Cases, have guaranteed all obligations under the Senior DIP Credit Agreement and Junior DIP Credit Agreement. To secure the obligations under the Senior DIP Credit Agreement and Junior DIP Credit Agreement, we have granted liens on substantially all of our assets, whether now owned or hereafter acquired. The Senior DIP Facility was repaid in full and terminated on the Effective Date using proceeds borrowed under our new Revolving Credit Facility discussed below. The Junior DIP Facility was also repaid in full and terminated on the Effective Date using (i) $200 million from the Second Lien Term Loan discussed below and (ii) $450 million from the subscription rights offering discussed in Note 1 Chapter 11 Proceedings . Post-Emergence Indebtedness Revolving Credit Facility On October 27, 2020, we entered into a Credit Agreement with Citibank, N.A., as administrative agent, and certain other lenders. This credit agreement currently consists of a $540 million senior revolving loan facility (Revolving Credit Facility), which we are permitted to increase if we obtain additional commitments from new or existing lenders. Our Revolving Credit Facility also includes a sub-limit of $200 million for the issuance of letters of credit. The revolving commitments are subject to an automatic reduction if certain conditions are not met by April 2021. On the Effective Date, we borrowed $225 million under the Revolving Credit Facility to refinance our DIP Facilities, replace our existing letters of credit and pay certain costs, fees and expenses related to the other transactions consummated on the Effective Date. Our initial borrowings included $118 million used to cash collateralize on an interim basis certain letters of credit that were outstanding under our Senior DIP Facility. We expect that these letters of credit will be transitioned into our new Revolving Credit Facility and will no longer be cash collateralized. In addition, we had unrestricted cash of $72 million on the Effective Date. The proceeds of all or a portion of the Revolving Credit Facility may be used for our working capital needs and for other purposes subject to meeting certain criteria. Security – The lenders have a first-priority lien on a substantial majority of our assets, except assets securing the EHP Notes as discussed below. Interest Rate – We can elect to borrow at either an adjusted LIBOR rate or an ABR rate, subject to a 1% floor and 2% floor, respectively, plus an applicable margin. The ABR is equal to the highest of (i) the federal funds effective rate plus 0.50%, (ii) the administrative agent prime rate and (iii) the one-month adjusted LIBOR rate plus 1%. The applicable margin is adjusted based on the borrowing base utilization percentage and will vary from (i) in the case of LIBOR loans, 3% to 4% and (ii) in the case of ABR loans, 2% to 3%; provided that in the event that the EHP Notes are not paid in full on or prior to December 31, 2021, the applicable margin will be increased by 0.25% effective as of January 1, 2022 and will be increased by an additional 0.25% at the beginning of each subsequent fiscal quarter until such date on which the EHP Notes are paid in full. The unused portion of the facility is subject to a commitment fee of 0.5% per annum. We also pay customary fees and expenses. Interest on ABR loans is payable quarterly in arrears. Interest on LIBOR loans is payable at the end of each LIBOR period, but not less than quarterly. Maturity Date – Our Revolving Credit Facility matures 42 months after closing. Amortization Payments – The Revolving Credit Facility does not include any obligation to make amortizing payments. Borrowing Base – The borrowing base, currently $1.2 billion, will be redetermined semi-annually in April and October. Financial Covenants – Our Revolving Credit Facility includes the following financial covenants: Ratio Components Required Levels Tested Consolidated Total Net Leverage Ratio Ratio of consolidated total secured debt to consolidated EBITDAX (a) Not greater than 3.00 to 1.00 (c) Quarterly Current Ratio Ratio of consolidated current assets to consolidated current liabilities (b) Not less than 1.00 to 1.00 Quarterly (a) EBITDAX is calculated as defined in the credit agreement. (b) The available credit under our Revolving Credit Facility is included in consolidated current assets as part of the calculation of the current ratio. (c) In the event that the EHP Notes are not paid in full prior to December 31, 2021 (and until the EHP Notes are repaid in full), the Consolidated Total Net Leverage Ratio for the Test Period ending on December 31, 2021 and as of the last day of any Test Period ending thereafter may not exceed 2.50 to 1.00. Liquidity – We will become subject to a monthly minimum liquidity requirement of $200 million if, as of the date of our scheduled spring 2021 borrowing base redetermination, (a) our liquidity is less than $290 million and (b) we are not able to obtain at least $60 million in additional commitments under our Revolving Credit Facility or through capital markets or other junior financing transactions, for so long as the conditions in (a) and (b) remain unmet. Other Covenants – Our Revolving Credit Facility includes covenants that, among other things, restrict our ability to incur additional indebtedness, grant liens, make asset sales and investments, repay existing indebtedness, make subsidiary distributions and enter into transactions that would result in fundamental changes. We are also restricted in the amount of cash dividends we can pay on our common stock unless we meet certain covenants included in the credit agreement. Our Revolving Credit Facility also requires us to maintain hedges on a minimum amount of crude oil production, determined semi-annually, of no less than (i) 75% of our reasonably anticipated oil production from our proved reserves for the first 24 months after the closing of the Revolving Credit Facility, which occurred on the Effective Date, and (ii) 50% of our reasonably anticipated oil production from our proved reserves for a period from the 25th month through the 36th month after the same date. The Revolving Credit Facility specifies the forms of hedges and prices (which can be prevailing prices) that must be used. In addition, for the first 24 months after closing an additional 25% of production from proved reserves needs to be hedged, which may take any form. We must also maintain acceptable commodity hedges for no less than 50% of the reasonably anticipated oil production from our proved reserves for at least 24 months following the date of delivery of each reserve report. We may not hedge more than 80% of reasonably anticipated total forecasted production of crude oil, natural gas and natural gas liquids from our oil and gas properties for a 48-month period following the date of entry into any commodity hedging contract. Events of Default and Change of Control – Our Revolving Credit Facility provides for certain events of default, including upon a change of control, as defined in the credit agreement, that entitles our lenders to declare the outstanding loans immediately due and payable, subject to certain limitations and conditions. Second Lien Term Loan On October 27, 2020, we entered into a $200 million credit agreement with Alter Domus Products Corp., as administrative agent, and certain other lenders (Second Lien Term Loan). The proceeds were used to refinance our Junior DIP Facility and to pay certain costs, fees and expenses related to the other transactions consummated on the Effective Date. Security – The lenders have a second-priority lien (junior to the Revolving Credit Facility) on a substantial majority of our assets, except assets securing the EHP Notes as discussed below. Interest Rate – We can elect to pay interest at either an adjusted LIBOR rate or ABR rate, subject to a 1% floor and 2% floor, respectively, plus an applicable margin. The ABR rate is equal to the highest of (i) the prime rate, (ii) the federal funds rate effective rate plus 0.5%, and (iii) the one-month adjusted LIBOR rate plus 1%. In the case of an adjusted LIBOR rate election, the applicable margin is 9% per annum if interest is paid in cash and 10.5% per annum if interest is paid-in-kind. Prior to the second anniversary of the closing date of the Second Lien Term Loan, the applicable margin in the case of an ABR rate election is 8% per annum if paid in cash and 9.5% per annum if paid-in-kind, and the applicable margin in the case of an adjusted LIBOR rate election is 9% if paid in cash and 10.5% if paid-in-kind. After the second anniversary of the closing date, the applicable margin is 8% with respect to any ABR loan and 9% with respect to an adjusted LIBOR loan. Interest on ABR loans is paid quarterly in arrears and interest based on the adjusted LIBOR rate is due at the end of each LIBOR period, which can be one, two, three or six months but not less than quarterly. We also pay customary fees and expenses. Maturity Date – Our Second Lien Term Loan matures five years after the closing date, subject to extension. Amortization Payments – We are required to make scheduled amortization payments only with respect to extended loans, the terms of such extension to be agreed with the extending lender at the time of such extension. Repurchases – We are permitted to repurchase our Second Lien Term Loan in open market purchases or tender offers on a non-pro rata basis. Redemption – We may redeem all or part of our Second Lien Term Loan, at any time prior to the maturity date, at redemption price equal to (i) 100% of the principal amount if redeemed prior to 90 days after closing, (ii) 105% of the principal amount if redeemed after 90 days and before the first anniversary date, (iii) 103% of the principal amount if redeemed on or after the first anniversary date and before the second anniversary date, (iv) 102% of the principal amount if redeemed on or after the second anniversary date and before the third anniversary date, (v) 101% of the principal amount if redeemed on or after the third anniversary date and before the fourth anniversary date, and (vi) at 100% of the principal amount if redeemed in the fifth year. Financial Covenants – Our Second Lien Term Loan includes the following financial covenants: Ratio Components Required Levels Tested Consolidated Total Net Leverage Ratio Ratio of consolidated total debt to consolidated EBITDAX (a) Not greater than 3.45 to 1.00 (c) Quarterly Current Ratio Ratio of consolidated current assets to consolidated current liabilities (b) Not less than 0.85 to 1.00 Quarterly (a) EBITDAX is calculated as defined in the credit agreement. (b) The available credit under our Revolving Credit Facility is included in consolidated current assets as part of the calculation of the current ratio. (c) In the event that the EHP Notes are not paid in full prior to December 31, 2021 (and until the EHP Notes are repaid in full), the Consolidated Total Net Leverage Ratio for the Test Period ending on December 31, 2021 and as of the last day of any Test Period ending thereafter may not exceed 2.875 to 1.00. Liquidity – We will become subject to a monthly minimum liquidity requirement of $170 million if, as of the Spring 2021 Scheduled Redetermination (as defined in the Revolving Credit Facility), (a) our liquidity is less than $247 million and (b) we are not able to obtain at least $51 million in additional commitments under our Revolving Credit Facility or through capital markets or other junior financing transactions, for so long as the conditions in (a) and (b) remain unmet. Other Covenants – Our Second Lien Term Loan includes covenants that, among other things, restrict our ability to incur additional indebtedness, grant liens, make asset sales and investments, repay existing indebtedness, make subsidiary distributions and enter into transactions that would result in fundamental changes. We are also restricted in the amount of cash dividends we can pay on our common stock unless we meet certain covenants included in the credit agreement. Our Second Lien Term Loan also requires us to maintain hedges on a minimum amount of crude oil production, determined semi-annually, of no less than (i) 75% of our reasonably anticipated oil production from our proved reserves for the first 24 months after the closing of the Revolving Credit Facility, which occurred on the Effective Date, and (ii) 50% of our reasonably anticipated oil production from our proved reserves for a period from the 25th month through the 36th month after the same date. The Second Lien Term Loan specifies the forms of hedges and prices (which can be prevailing prices) that must be used. In addition, for the first 24 months after closing an additional 25% of production from proved reserves needs to be hedged, which may take any form. We must also maintain acceptable commodity hedges hedging no less than 50% of the reasonably anticipated oil production from our proved reserves for at least 24 months following the date of delivery of each reserve report. We may not hedge more than 80% of reasonably anticipated total forecasted production of crude oil, natural gas and natural gas liquids from our oil and gas properties for a 48-month period following the date of entry into any commodity hedging contract. Events of Default and Change of Control – Our Second Lien Term Loan provides for certain events of default, including upon a change of control, as defined in the credit agreement, that entitles our lenders to declare the outstanding loans immediately due and payable, subject to certain limitations and conditions. We are subject to a cross-default provision that causes a default under this facility if certain defaults occur under the Revolving Credit Facility or the EHP Notes. EHP Notes On the Effective Date, our wholly-owned subsidiary, EHP Midco Holding Company, LLC (Elk Hills Issuer) entered into a Note Purchase Agreement (Note Purchase Agreement) with certain subsidiaries of Ares and Wilmington Trust, N.A. as collateral agent. The $300 million Notes were issued as partial consideration for the Class B Preferred Units, Class A Common Units and Class C Common Units in the Ares JV previously held by ECR (EHP Notes). The EHP Notes are senior notes due in 2027, and are secured by a first-priority security interest in all of the assets of Elk Hills Power, any third-party offtake contracts for power generated by Elk Hills Power, all of the equity interests of Elk Hills Power held by Elk Hills Issuer and all of the equity interests of Elk Hills Issuer held by its direct parent, EHP Topco Holding Company, LLC, our wholly-owned subsidiary. We and Elk Hills Power have guaranteed, on a joint and several basis, all of the obligations of Elk Hills Issuer under the EHP Notes. The EHP Notes bear an interest rate of 6.0% per annum through the fourth anniversary of issuance, increasing to 7.0% per annum after the fourth anniversary of issuance and to 8.0% per annum after the fifth anniversary of issuance. The EHP Notes may be redeemed at any time prior to their maturity date without payment of premium or penalty. Fair Value At September 30, 2020, we estimated the fair value of our DIP Facilities, which are classified as Level 2 in the fair value hierarchy, to approximate their carrying value of $733 million due to their short-term maturities. Our long-term debt at September 30, 2020 was presented as LSTC and will be impaired under the Plan. As of September 30, 2020, we estimated the fair value of our long-term debt to approximate $500 million based on observable inputs in less active markets (Level 2) compared to a carrying value of $4.4 billion. The estimated fair value of our long-term debt, at December 31, 2019, based on prices from known market transactions (Level 1), was approximately $3.8 billion compared to a carrying value of $5.0 billion. |
