UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________
 FORM 10-Q
________________________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016 
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to              
 Commission file number: 1-13283
  image0a02.jpg
PENN VIRGINIA CORPORATION
(Exact name of registrant as specified in its charter)
__________________________________________________________
Virginia
 
23-1184320
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
14701 ST. MARY'S LANE, SUITE 275
HOUSTON, TX 77079
(Address of principal executive offices) (Zip Code)
(713) 722-6500
(Registrant’s telephone number, including area code)
FOUR RADNOR CORPORATE CENTER, SUITE 200
100 MATSONFORD RD
RADNOR, PA 19087
(Former name, former address and former fiscal year, if changed since last report)
__________________________________________________________
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 (“Exchange Act”) 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 and posted on its corporate Web site, if any, 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 or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)
Large accelerated filer
o
Accelerated filer
ý
Non-accelerated filer
o
Smaller reporting company
ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ý No  ¨
 As of November 14, 2016, 14,992,018 shares of common stock of the registrant were outstanding.
 




PENN VIRGINIA CORPORATION
QUARTERLY REPORT ON FORM 10-Q
 For the Quarterly Period Ended September 30, 2016
 Table of Contents
Part I - Financial Information
Item
 
Page
1.
Financial Statements:
 
 
Condensed Consolidated Statements of Operations
 
Condensed Consolidated Statements of Comprehensive Income
 
Condensed Consolidated Balance Sheets
 
Condensed Consolidated Statements of Cash Flows
 
Notes to Condensed Consolidated Financial Statements:
 
 
1. Nature of Operations
 
2. Basis of Presentation
 
3. Chapter 11 Proceedings and Emergence
 
4. Fresh Start Accounting
 
5. Accounts Receivable and Major Customers
 
6. Derivative Instruments
 
7. Property and Equipment
 
8. Debt Obligations
 
9. Income Taxes
 
10. Exit Activities
 
11. Additional Balance Sheet Detail
 
12. Fair Value Measurements
 
13. Commitments and Contingencies
 
14. Shareholders’ Equity
 
15. Share-Based Compensation and Other Benefit Plans
 
16. Interest Expense
 
17. Earnings per Share
Forward-Looking Statements
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations:
 
 
Overview and Executive Summary
 
Key Developments
 
Financial Condition
 
Results of Operations
 
Critical Accounting Estimates
4.
Controls and Procedures
Part II - Other Information
1.
Legal Proceedings
1A.
Risk Factors
 
2.
Unregistered Sales of Equity Securities
3.
Defaults Upon Senior Securities
6.
Exhibits
Signatures




Part I. FINANCIAL INFORMATION
Item 1.
Financial Statements
PENN VIRGINIA CORPORATION
(DEBTOR-IN-POSSESSION MAY 12, 2016 THROUGH SEPTEMBER 12, 2016)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS unaudited
(in thousands, except per share data) 

Successor
 
 
Predecessor
 
Period From
 
 
Period From
 
 
 
September 13, 2016 Through
 
 
July 1, 2016 Through
 
Three Months Ended
 
September 30, 2016
 
 
September 12, 2016
 
September 30, 2015
Revenues
 
 
 
 
 
 
Crude oil
$
5,508

 
 
$
23,392

 
$
51,124

Natural gas liquids
333

 
 
1,680

 
3,254

Natural gas
475

 
 
1,889

 
6,312

Gain on sales of property and equipment, net

 
 
504

 
50,828

Other, net
33

 
 
(804
)
 
466

Total revenues
6,349

 
 
26,661

 
111,984

Operating expenses
 
 
 
 
 
 
Lease operating
756

 
 
4,209

 
11,304

Gathering, processing and transportation
576

 
 
4,767

 
5,654

Production and ad valorem taxes
375

 
 
574

 
3,483

General and administrative
1,476

 
 
12,181

 
9,416

Exploration

 
 
4,641

 
1,673

Depreciation, depletion and amortization
2,029

 
 
8,024

 
76,850

Total operating expenses
5,212

 
 
34,396

 
108,380

Operating income (loss)
1,137

 
 
(7,735
)
 
3,604

Other income (expense)
 
 
 
 
 
 
Interest expense
(218
)
 
 
(1,363
)
 
(22,985
)
Derivatives
(4,369
)
 
 
8,934

 
44,701

Other
9

 
 
(2,154
)
 
(44
)
Reorganization items, net

 
 
1,152,373

 

Income (loss) before income taxes
(3,441
)
 
 
1,150,055

 
25,276

Income tax benefit

 
 

 
624

Net income (loss)
(3,441
)
 
 
1,150,055

 
25,900

Preferred stock dividends

 
 

 
(5,935
)
Net income (loss) attributable to common shareholders
$
(3,441
)
 
 
$
1,150,055

 
$
19,965

Net income (loss) per share:
 
 
 
 
 
 
Basic
$
(0.23
)
 
 
$
12.88

 
$
0.27

Diluted
$
(0.23
)
 
 
$
10.32

 
$
0.25

 
 
 
 
 
 
 
Weighted average shares outstanding – basic
14,992

 
 
89,292

 
72,651

Weighted average shares outstanding – diluted
14,992

 
 
111,458

 
103,452


See accompanying notes to condensed consolidated financial statements.


3



PENN VIRGINIA CORPORATION
(DEBTOR-IN-POSSESSION MAY 12, 2016 THROUGH SEPTEMBER 12, 2016)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS unaudited
(in thousands, except per share data) 
 
Successor
 
 
Predecessor
 
Period From
 
 
Period From
 
 
 
September 13, 2016 Through
 
 
January 1, 2016 Through
 
Nine Months Ended
 
September 30, 2016
 
 
September 12, 2016
 
September 30, 2015
Revenues
 
 
 
 
 
 
Crude oil
$
5,508

 
 
$
81,377

 
$
180,964

Natural gas liquids
333

 
 
6,064

 
13,841

Natural gas
475

 
 
6,208

 
22,143

Gain on sales of property and equipment, net

 
 
1,261

 
50,803

Other, net
33

 
 
(600
)
 
2,376

Total revenues
6,349

 
 
94,310

 
270,127

Operating expenses
 
 
 
 
 
 
Lease operating
756

 
 
15,626

 
33,780

Gathering, processing and transportation
576

 
 
13,235

 
19,535

Production and ad valorem taxes
375

 
 
3,490

 
13,139

General and administrative
1,476

 
 
38,945

 
32,865

Exploration

 
 
10,288

 
11,922

Depreciation, depletion and amortization
2,029

 
 
33,582

 
253,056

Impairments

 
 

 
1,084

Total operating expenses
5,212

 
 
115,166

 
365,381

Operating income (loss)
1,137

 
 
(20,856
)
 
(95,254
)
Other income (expense)
 
 
 
 
 
 
Interest expense
(218
)
 
 
(58,018
)
 
(68,021
)
Derivatives
(4,369
)
 
 
(8,333
)
 
52,073

Other
9

 
 
(3,184
)
 
(586
)
Reorganization items, net

 
 
1,144,993

 

Income (loss) before income taxes
(3,441
)
 
 
1,054,602

 
(111,788
)
Income tax benefit

 
 

 
394

Net income (loss)
(3,441
)
 
 
1,054,602

 
(111,394
)
Preferred stock dividends

 
 
(5,972
)
 
(18,069
)
Net income (loss) attributable to common shareholders
$
(3,441
)
 
 
$
1,048,630

 
$
(129,463
)
Net income (loss) per share:
 
 
 
 
 
 
Basic
$
(0.23
)
 
 
$
11.91

 
$
(1.79
)
Diluted
$
(0.23
)
 
 
$
8.50

 
$
(1.79
)
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
14,992

 
 
88,013

 
72,438

Weighted average shares outstanding – diluted
14,992

 
 
124,087

 
72,438


See accompanying notes to condensed consolidated financial statements.


4



PENN VIRGINIA CORPORATION
(DEBTOR-IN-POSSESSION MAY 12, 2016 THROUGH SEPTEMBER 12, 2016)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME unaudited
(in thousands) 
 
Successor
 
 
Predecessor
 
Period From
 
 
Period From
 
 
 
September 13, 2016 Through
 
 
July 1, 2016 Through
 
Three Months Ended
 
September 30, 2016
 
 
September 12, 2016
 
September 30, 2015
Net income (loss)
$
(3,441
)
 
 
$
1,150,055

 
$
25,900

Other comprehensive loss:
 
 
 
 
 
 
Change in pension and postretirement obligations, net of tax of $(6) in 2015

 
 
(383
)
 
(11
)
 

 
 
(383
)
 
(11
)
Comprehensive income (loss)
$
(3,441
)
 
 
$
1,149,672

 
$
25,889

 
 
Successor
 
 
Predecessor
 
Period From
 
 
Period From
 
 
 
September 13, 2016 Through
 
 
January 1, 2016 Through
 
Nine Months Ended
 
September 30, 2016
 
 
September 12, 2016
 
September 30, 2015
Net income (loss)
$
(3,441
)
 
 
$
1,054,602

 
$
(111,394
)
Other comprehensive loss:
 
 
 
 
 
 
Change in pension and postretirement obligations, net of tax of $(17) in 2015

 
 
(421
)
 
(32
)
 

 
 
(421
)
 
(32
)
Comprehensive income (loss)
$
(3,441
)
 
 
$
1,054,181

 
$
(111,426
)

See accompanying notes to condensed consolidated financial statements.

5



PENN VIRGINIA CORPORATION
(DEBTOR-IN-POSSESSION MAY 12, 2016 THROUGH SEPTEMBER 12, 2016)
CONDENSED CONSOLIDATED BALANCE SHEETS unaudited
(in thousands, except share data)
 
Successor
 
 
Predecessor
 
As of
 
 
As of
 
September 30,
 
 
December 31,
 
2016
 
 
2015
Assets
 

 
 
 

Current assets
 

 
 
 

Cash and cash equivalents
$
13,994

 
 
$
11,955

Accounts receivable, net of allowance for doubtful accounts
32,137

 
 
47,965

Derivative assets
446

 
 
97,956

Other current assets
3,518

 
 
7,104

Total current assets
50,095

 
 
164,980

Property and equipment, net
251,200

 
 
344,395

Other assets
5,571

 
 
8,350

Total assets
$
306,866

 
 
$
517,725

 
 
 
 
 
Liabilities and Shareholders’ Equity (Deficit)
 

 
 
 

Current liabilities
 

 
 
 

Accounts payable and accrued liabilities
$
45,432

 
 
$
103,525

Derivative liabilities
3,888

 
 

Current portion of long-term debt, net of unamortized issuance costs

 
 
1,224,383

Total current liabilities
49,320

 
 
1,327,908

Other liabilities
4,451

 
 
104,938

Derivative liabilities
11,291

 
 

Long-term debt
54,350

 
 

 
 
 
 
 
Commitments and contingencies (Note 13)


 
 


 
 
 
 
 
Shareholders’ equity (deficit):
 

 
 
 

Predecessor preferred stock of $100 par value – 100,000 shares authorized; Series A – 3,915 shares issued as of December 31, 2015 and Series B – 27,551 issued as of December 31, 2015, each with a redemption value of $10,000 per share

 
 
3,146

Predecessor common stock of $0.01 par value – 228,000,000 shares authorized; 81,252,676 shares issued as of December 31, 2015

 
 
628

Predecessor paid-in capital

 
 
1,211,088

Predecessor deferred compensation obligation

 
 
3,440

Predecessor accumulated other comprehensive income

 
 
422

Predecessor treasury stock – 455,689 shares of common stock, at cost, as of December 31, 2015,

 
 
(3,574
)
Successor preferred stock of $0.01 par value – 5,000,000 shares authorized; none issued

 
 

Successor common stock of $0.01 par value – 45,000,000 shares authorized; 14,992,018 shares issued as of September 30, 2016
150

 
 

Successor paid-in capital
190,745

 
 

Accumulated deficit
(3,441
)
 
 
(2,130,271
)
Total shareholders’ equity (deficit)
187,454

 
 
(915,121
)
Total liabilities and shareholders’ equity (deficit)
$
306,866

 
 
$
517,725


See accompanying notes to condensed consolidated financial statements.

6



PENN VIRGINIA CORPORATION
(DEBTOR-IN-POSSESSION MAY 12, 2016 THROUGH SEPTEMBER 12, 2016)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS unaudited
(in thousands)
 
Successor
 
 
Predecessor
 
Period From
 
 
Period From
 
 
 
September 13, 2016 Through
 
 
January 1, 2016 Through
 
Nine Months Ended
 
September 30, 2016
 
 
September 12, 2016
 
September 30, 2015
Cash flows from operating activities
 

 
 
 
 
 

Net income (loss)
$
(3,441
)
 
 
$
1,054,602

 
$
(111,394
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 

Non-cash reorganization items

 
 
(1,178,302
)
 

Depreciation, depletion and amortization
2,029

 
 
33,582

 
253,056

Impairments

 
 

 
1,084

Accretion of firm transportation obligation

 
 
317

 
705

Derivative contracts:
 
 
 
 
 
 
Net losses (gains)
4,369

 
 
8,333

 
(52,073
)
Cash settlements, net

 
 
48,008

 
104,590

Deferred income tax expense

 
 

 
266

Gain on sales of assets, net

 
 
(1,261
)
 
(50,803
)
Non-cash exploration expense

 
 
6,038

 
4,903

Non-cash interest expense
38

 
 
22,189

 
3,504

Share-based compensation (equity-classified)

 
 
1,511

 
3,369

Other, net

 
 
(13
)
 
(17
)
Changes in operating assets and liabilities, net
585

 
 
35,243

 
5,051

Net cash provided by operating activities
3,580

 
 
30,247

 
162,241

 
 
 
 
 
 
 
Cash flows from investing activities
 

 
 
 
 
 

Capital expenditures

 
 
(15,359
)
 
(324,876
)
Proceeds from sales of assets, net

 
 
224

 
73,670

Other, net

 
 
1,186

 

Net cash used in investing activities

 
 
(13,949
)
 
(251,206
)
 
 
 
 
 
 
 
Cash flows from financing activities
 

 
 
 
 
 

Proceeds from revolving credit facility borrowings

 
 
75,350

 
203,000

Repayment of revolving credit facility borrowings
(21,000
)
 
 
(119,121
)
 
(98,000
)
Debt issuance costs paid

 
 
(3,011
)
 
(744
)
Proceeds received from rights offering, net

 
 
49,943

 

Dividends paid on preferred stock

 
 

 
(18,201
)
Net cash (used in) provided by financing activities
(21,000
)
 
 
3,161

 
86,055

Net (decrease) increase in cash and cash equivalents
(17,420
)
 
 
19,459

 
(2,910
)
Cash and cash equivalents – beginning of period
31,414

 
 
11,955

 
6,252

Cash and cash equivalents – end of period
$
13,994

 
 
$
31,414

 
$
3,342

 
 
 
 
 
 
 
Supplemental disclosures:
 

 
 
 
 
 

Cash paid for:
 

 
 
 
 
 

Interest
$

 
 
$
4,331

 
$
47,489

Income taxes paid (refunds received)
$

 
 
$
(35
)
 
$
7

Reorganization items, net
$

 
 
$
30,990

 
$

Non-cash investing and financing activities:
 
 
 
 
 
 
Common stock issued in exchange for liabilities
$

 
 
$
140,952

 
$

Changes in accrued liabilities related to capital expenditures
$

 
 
$
(11,301
)
 
$
(41,800
)
Derivatives settled to reduce outstanding debt
$

 
 
$
51,979

 
$

 
See accompanying notes to condensed consolidated financial statements.

7



PENN VIRGINIA CORPORATION
(DEBTOR-IN-POSSESSION MAY 12, 2016 THROUGH SEPTEMBER 12, 2016)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS unaudited
For the Quarterly Period Ended September 30, 2016
(in thousands, except per share amounts or where otherwise indicated)

1. 
Nature of Operations
Penn Virginia Corporation (together with its consolidated subsidiaries, unless the context otherwise requires, “Penn Virginia,” the “Company,” “we,” “us” or “our”) is an independent oil and gas company engaged in the onshore exploration, development and production of oil, natural gas liquids (“NGLs”) and natural gas. Our current operations consist primarily of drilling unconventional horizontal development wells and operating our producing wells in the Eagle Ford Shale (the “Eagle Ford”) in South Texas. Our operations are substantially concentrated with over 90 percent of our production, revenues and capital expenditures being attributable to this region. We also have less significant operations in Oklahoma, primarily non-operated properties in the Granite Wash. In August 2016, we terminated our remaining operations in the Marcellus Shale in Pennsylvania and are currently in the process of remediating the sites of our former wells in that region.

2.
Basis of Presentation
Our unaudited Condensed Consolidated Financial Statements include the accounts of Penn Virginia and all of our subsidiaries. Intercompany balances and transactions have been eliminated. Our Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Preparation of these statements involves the use of estimates and judgments where appropriate. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of our Condensed Consolidated Financial Statements have been included. Our Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes included in our Annual Report on Form 10-K for the year ended December 31, 2015. Operating results for the nine months ended September 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. Certain amounts for the corresponding 2015 periods have been reclassified to conform to the current year presentation. These reclassifications have no impact on our previously reported results of operations, balance sheets or cash flows.
Management has evaluated all of our activities through the issuance date of our Condensed Consolidated Financial Statements and has concluded that no subsequent events have occurred that would require recognition in our Condensed Consolidated Financial Statements or disclosure in the Notes thereto.
Comparability of Financial Statements to Prior Periods
As discussed in further detail in Note 4 below, we have adopted and applied the relevant guidance provided in U.S. GAAP with respect to the accounting and financial statement disclosures for entities that have emerged from bankruptcy proceedings (“Fresh Start Accounting”). Accordingly, our Condensed Consolidated Financial Statements and Notes after September 12, 2016, are not comparable to the Condensed Consolidated Financial Statements and Notes prior to that date. To facilitate our financial statement presentations, we refer to the reorganized company in these Condensed Consolidated Financial Statements and Notes as the “Successor” for periods subsequent to September 12, 2016, and “Predecessor” for periods prior to September 13, 2016. Furthermore, our Condensed Consolidated Financial Statements and Notes have been presented with a “black line” division to delineate the lack of comparability between the Predecessor and Successor. In addition, and as referenced in Note 7 below, we have adopted the full cost method of accounting for our oil and gas properties effective with our adoption of Fresh Start Accounting. Accordingly, our results of operations and financial position for the Successor periods will be substantially different from our historic trends.
We have applied the relevant guidance provided in U.S. GAAP with respect to the accounting and financial statement disclosures for entities that have filed petitions with the bankruptcy court and expect to reorganize as going concerns in preparing our Condensed Consolidated Financial Statements and Notes through the period ended September 12, 2016, or Predecessor periods. That guidance requires that, for periods subsequent to our bankruptcy filing on May 12, 2016, or post-petition periods, certain transactions and events that were directly related to our reorganization be distinguished from our normal business operations. Accordingly, certain revenues, expenses, realized gains and losses and provisions that were realized or incurred in the bankruptcy proceedings have been included in “Reorganization items, net” on our Condensed Consolidated Statement of Operations for the period ended September 12, 2016. In addition, certain liabilities and other obligations incurred prior to May 12, 2016, or pre-petition periods, have been classified in “Liabilities subject to compromise” on our Predecessor Condensed Consolidated Balance Sheet through September 12, 2016. Further detail for our “Reorganization items, net” and “Liabilities subject to compromise” are provided in Note 4 below.

8



Going Concern Presumption
Our unaudited Condensed Consolidated Financial Statements for the Successor periods have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and other commitments in the normal course of business. As referenced in Note 3 below, we operated as a “debtor-in-possession” through September 12, 2016, during which time there was inherent doubt as to our ability to continue as a going concern.
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)2016–09, Improvements to Employee Share-based Payment Accounting (“ASU 2016–09”), which simplifies the accounting for share-based compensation. The areas for simplification that are applicable to publicly-held companies are as follows: (i) Accounting for Income Taxes, (ii) Classification of Excess Tax Benefits on the Statement of Cash Flows, (iii) Forfeitures, (iv) Minimum Statutory Tax Withholding Requirements and (v) Classification of Employee Taxes Paid on the Statement of Cash Flows when an employer withholds shares for tax-withholding purposes. The effective date of ASU 2016–09 is January 1, 2017, with early adoption permitted. We adopted ASU 2016–09 on September 12, 2016 effective upon our emergence from bankruptcy. As of September 30, 2016, we did not have any awards issued in the form of share-based compensation. Accordingly, the adoption of ASU 2016–09 had no impact on our Condensed Consolidated Financial Statements and Notes.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016–13, Measurement of Credit Losses on Financial Instruments (“ASU 2016–13”), which changes the recognition model for the impairment of financial instruments, including accounts receivable, loans and held-to-maturity debt securities, among others. ASU 2016–13 is required to be adopted using the modified retrospective method by January 1, 2020, with early adoption permitted. ASU 2016–13 will have applicability to our accounts receivable portfolio, particularly those receivables attributable to our joint interest partners. At this time, we do not anticipate that the adoption of ASU 2016–13 will have a significant impact on our Consolidated Financial Statements and related disclosures; however, we are currently in the early stages of evaluating the requirements and the period for which we will adopt the standard.
In February 2016, the FASB issued ASU 2016–02, Leases (“ASU 2016–02”), which will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with terms of more than twelve months. Consistent with current U.S. GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. ASU 2016–02 also will require disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases. The effective date of ASU 2016–02 is January 1, 2019, with early adoption permitted. We are continuing to evaluate the effect that ASU 2016–02 will have on our Consolidated Financial Statements and related disclosures as well as the period for which we will adopt the standard. We believe that ASU 2016–02 will likely be applicable to our oil and natural gas gathering commitment arrangements as described in Note 13, our existing leases for office facilities and certain office equipment and potentially to certain drilling rig contracts with terms in excess of twelve months.
In May 2014, the FASB issued ASU 2014–09, Revenues from Contracts with Customers (“ASU 2014–09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014–09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method upon adoption. While traditional commodity sales transactions, property conveyances and joint interest arrangements in the oil and gas industry are not expected to be significantly impacted by ASU 2014–09, natural gas imbalances and other non-product revenues, including our ancillary marketing, gathering and transportation and water service revenues could be affected. Accordingly, we are continuing to evaluate the effect that ASU 2014–09 will have on our Consolidated Financial Statements and related disclosures, with a more focused analysis on these other revenue sources. We have not yet selected a transition method nor have we determined the period for which we will adopt the new standard.
3.
Chapter 11 Proceedings and Emergence
On May 12, 2016 (the “Petition Date”), we and eight of our subsidiaries (the “Chapter 11 Subsidiaries”) filed voluntary petitions (In re Penn Virginia Corporation, et al, Case No. 16-32395) seeking relief under Chapter 11 of Title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”).
On August 11, 2016 (the “Confirmation Date”), the Bankruptcy Court confirmed our Second Amended Joint Chapter 11 Plan of Reorganization of Penn Virginia Corporation and its Debtor Affiliates (the “Plan”), and we subsequently emerged from bankruptcy on September 12, 2016 (the “Effective Date”).

9



Debtors-In-Possession. From the Petition Date through the Effective Date, we and the Chapter 11 Subsidiaries operated our business as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code. The Bankruptcy Court granted all “first day” motions filed by us and the Chapter 11 Subsidiaries, which were designed primarily to minimize the impact of the Chapter 11 proceedings on our normal day-to-day operations, our customers, regulatory agencies, including taxing authorities, and employees. As a result, we were able to conduct normal business activities and pay all associated obligations for the post-petition period and we were also authorized to pay and have paid (subject to limitations applicable to payments of certain pre-petition obligations) pre-petition employee wages and benefits, pre-petition amounts owed to certain lienholders, amounts due to taxing authorities for production and other related taxes and funds belonging to third parties, including royalty and working interest holders.
Pre-Petition Agreements. Immediately prior to the Petition Date, the holders (the “Ad Hoc Committee”) of approximately 86 percent of the $1,075 million principal amount of our 7.25% Senior Notes due 2019 (the “2019 Senior Notes”) and 8.50% Senior Notes due 2020 (the “2020 Senior Notes” and, together with the 2019 Senior Notes, the “Senior Notes”) agreed to a restructuring support agreement (the “RSA”) that set forth the general framework of the Plan and the timeline for the Chapter 11 proceedings. In addition, we entered into a backstop commitment agreement (the “Backstop Commitment Agreement”) with the parties thereto (collectively, the “Backstop Parties”), pursuant to which the Backstop Parties committed to provide a $50.0 million commitment to backstop a rights offering (the “Rights Offering”) that was conducted in connection with the Plan.
Plan of Reorganization. Pursuant to the terms of the Plan, which was supported by us, the holders (the “RBL Lenders”) of 100 percent of the claims attributable to our pre-petition revolving credit agreement (as amended, the “RBL”), the Ad Hoc Committee and the Official Committee of Unsecured Claimholders (the “UCC”), the following transactions were completed subsequent to the Confirmation Date and prior to or at the Effective Date:
the approximately $1,122 million of indebtedness, including accrued interest, attributable to our Senior Notes and certain other unsecured claims were exchanged for 6,069,074 shares representing 41 percent of the Successor’s common stock (“New Common Stock”);
a total of $50 million of proceeds were received on the Effective Date from the Rights Offering resulting in the issuance of 7,633,588 shares representing 51 percent of New Common Stock to holders of claims arising under the Senior Notes, certain holders of general unsecured claims and to the Backstop Parties;
the Backstop Parties received a backstop fee comprised of 472,902 shares representing three percent of New Common Stock;
an additional 816,454 shares representing five percent of New Common Stock were authorized for disputed general unsecured claims and non-accredited investor holders of the Senior Notes and 749,600 shares representing five percent of the New Common Stock outstanding were reserved for issuance under a new management incentive plan;
on the Effective Date, we entered into a shareholders agreement and a registration rights agreement and amended our articles of incorporation and bylaws for the authorization of the New Common Stock and to provide customary registration rights thereunder, among other corporate governance actions;
holders of claims arising under the RBL were paid in full from cash on hand, $75.4 million from borrowings under our new revolving credit agreement (the “Revolver”) (see Note 8 below) and proceeds from the Rights Offering;
the debtor-in-possession credit facility (the “DIP Facility”), under which there were no outstanding borrowings at any time from the Petition Date through the Effective Date, was canceled and less than $0.1 million in fees were paid in full in cash;
certain other priority claims were paid in full in cash, reinstated or otherwise treated in a manner acceptable to the creditor claim-holders;
a cash reserve of $2.7 million was established for certain other secured, priority or convenience claims pending resolution as of the Effective Date;
an escrow account for professional service fees attributable to our advisers and those of the UCC was funded by us with cash of $14.6 million, and we paid $7.2 million for professional fees and expenses on behalf of the RBL Lenders, the Ad Hoc Committee and the indenture trustee for the Senior Notes;
on the Effective Date, our previous interim Chief Executive Officer, Edward B. Cloues, and each member of our board of directors resigned and was replaced by three new board members: Darin G. Holderness, CPA, Marc McCarthy and Harry Quarls;
our Predecessor preferred stock and common stock was canceled, extinguished and discharged; and
all of our Predecessor share-based compensation plans and supplemental employee retirement plan (the “SERP”) entitlements were canceled.
While our emergence from bankruptcy is effectively complete, certain administrative activities will continue under the authority of the Bankruptcy Court for the next several months.

10



4.
Fresh Start Accounting 
We adopted Fresh Start Accounting on the Effective Date in connection with our emergence from bankruptcy. As referenced below, our reorganization value of $334.0 million, immediately prior to emergence was substantially less than our post-petition liabilities and allowed claims. Furthermore and in connection with our reorganization, we experienced a change in control as the outstanding common and preferred shares of the Predecessor were canceled and substantially all of the New Common Stock was issued to the Predecessor’s creditors, primarily former holders of our Senior Notes. Accordingly, the holders of the Predecessor’s common and preferred shares effectively received no shares of the Successor. The adoption of Fresh Start Accounting results in a new reporting entity, the Successor, for financial reporting purposes. The presentation is analogous to that of a new business entity such that the Successor is presented with no beginning retained earnings or deficit on the Effective Date.
Reorganization Value
Reorganization value represents the fair value of the Successor’s total assets prior to the consideration of liabilities and is intended to approximate the amount a willing buyer would pay for the assets immediately after a restructuring. The reorganization value, which was derived from the Successor’s enterprise value, was allocated to our individual assets based on their estimated fair values.
Enterprise value represents the estimated fair value of an entity’s long term debt and shareholders’ equity. The Successor’s enterprise value, as approved by the Bankruptcy Court in support of the Plan, was estimated to be within a range of $218 million to $382 million with a mid-point value of $300 million. Based on the estimates and assumptions utilized in our Fresh Start Accounting process, we estimated the Successor’s enterprise value to be approximately $266.2 million after the consideration of cash and cash equivalents on hand at the Effective Date.
The following table reconciles the enterprise value, net of cash and cash equivalents, to the estimated fair value of our Successor common stock as of the Effective Date:
Enterprise value
 
$
234,831

Plus: Cash and cash equivalents
 
31,414

Less: Fair value of debt
 
(75,350
)
Fair value of Successor common stock
 
$
190,895

Shares outstanding as of September 12, 2016
 
14,992,018

Per share value
 
$
12.73

The following table reconciles the enterprise value to the reorganization value of our Successor assets as of the Effective Date:
Enterprise value
 
$
234,831

Plus: Cash and cash equivalents
 
31,414

Plus: Current liabilities
 
54,171

Plus: Noncurrent liabilities excluding long-term debt
 
13,558

Reorganization value
 
$
333,974

Valuation Process
Our valuation analysis was prepared with the assistance of an independent third-party consultant utilizing reserve information prepared by our independent reserve engineers, internal development plans and schedules, other internal financial information and projections and the application of standard valuation techniques including risked net asset value analysis and comparable public company metrics.
Our principal assets include the Successor’s oil and gas properties. We determined the fair value of our oil and gas properties based on the discounted cash flows expected to be generated from these assets. Our analyses were based on market conditions and reserves in place as confirmed by our independent petroleum engineers. The proved reserves were segregated into various geographic regions, including sub-regions within the Eagle Ford where a substantial portion of our assets are located, for which separate risk factors were determined based on geological characteristics. Due to the limited drilling plans that we have in place, proved undeveloped locations were risked accordingly. Future cash flows were estimated by using NYMEX forward prices for West Texas Intermediate crude oil and Henry Hub natural gas with inflation adjustments applied to periods beyond a five-year horizon. These prices were adjusted for differentials realized by us for location and product quality. Gathering and transportation costs were estimated based on agreements that we have in place and development and operating costs were based on our most recent experience and adjusted for inflation in future years. The risk-adjusted after-tax cash flows

11



were discounted at a rate of 13.5%. This rate was determined from a weighted-average cost of capital computation which utilized a blended expected cost of debt and expected returns on equity for similar industry participants. Plugging and abandonment costs were also identified and measured in this process in order to determine the fair value of the Successor’s asset retirement obligations (“AROs”) attributable to our proved developed reserves on the Effective Date. Based on this valuation process, we determined fair values of $121.9 million for our proved reserves and $2.7 million for the related AROs.
With respect to the valuation of our undeveloped acreage, we segregated our current lease holdings in the Eagle Ford into prospect regions in which we have significant developed acreage and those in which we have not yet initiated any significant drilling activity. For those prospects within previously developed regions, we applied a multiple based on recent transactions involving acreage deemed comparable to our acreage for each targeted formation. Based on this valuation process, we determined a fair value of $92.5 million for our undeveloped acreage within previously developed regions of the Eagle Ford. For those lease holdings in other areas of the Eagle Ford, we disregarded those prospects for which lease expirations will occur during the remainder of 2016 as well as those for which future drilling is considered uneconomical at current commodity prices. A reduced multiple was then applied to this adjusted undeveloped acreage consistent with recent transactions for acreage deemed comparable to our acreage resulting in a fair value of $8.3 million. We attributed no value to our limited undeveloped lease holdings in all areas other than the Eagle Ford.
Our remaining equipment and other fixed assets were valued at $26.7 million primarily using a cost approach that incorporated depreciation and obsolescence to the extent applicable on an asset-by-asset basis. The most significant of these assets is our water facility in South Texas which is integral to our regional operations. Accordingly, this asset, for which we determined a fair value of $23.4 million, is included in our full cost pool for purposes of determining our depletion, depreciation and amortization (“DD&A”) attributable to our oil and gas production. Certain assets, particularly personal property including office equipment and vehicles, among others, were valued based on market data for comparable assets to the extent such information was available.
The remaining reorganization value is attributable to certain natural gas imbalance receivables, cash and cash equivalents, working capital assets including accounts receivable, prepaid items, current derivative assets and debt issuance costs. Our natural gas imbalance receivables, which are fully attributable to our Mid-Continent operations in the Granite Wash, were valued using NYMEX spot prices for Henry Hub natural gas adjusted for basis differentials for transportation. Our accounts receivable, including amounts receivable from our joint venture partners, were subjected to analysis on an individual basis and reserved to the extent we believe was appropriate. Collectively, these remaining assets, including our current derivative assets which are marked-to-market on a monthly basis, are stated at their fair values on the Effective Date. The reorganization value also includes $3.0 million of issuance costs attributable to the Revolver under which we initially borrowed $75.4 million. This amount has been capitalized in accordance with GAAP as it represents costs attributable to the access to credit over the term of the Revolver.
Our liabilities on the Effective Date include the aforementioned borrowings under the Revolver, working capital liabilities including accounts payable and accrued liabilities, a reserve for certain litigation matters, pension and health care obligations attributable to certain retirees, AROs, and derivative liabilities. As the Revolver is current and is a variable-rate financial instrument, it is stated at its fair value. Our working capital liabilities and litigation reserve are ordinary course obligations and their carrying amounts approximate their fair values. We revalued our retiree obligations based on data from our independent actuaries and have been stated at their fair values. The AROs were valued in connection with the valuation process attributable to our oil and gas reserves as discussed above. Finally, our derivative liabilities have also been stated at their fair value as they are marked-to-market on a monthly basis.

12



Successor Balance Sheet
The following table reflects the reorganization and application of Fresh Start Accounting adjustments on our Condensed Consolidated Balance Sheet as of September 12, 2016:
 
 
 
 
 
Reorganization
 
Fresh Start
 
 
 
 
 
Predecessor
 
Adjustments
 
Adjustments
 
Successor
Assets
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
48,718

 
$
(17,304
)
(1
)
$

 
$
31,414

 
Accounts receivable, net of allowance for doubtful accounts
35,606

 
4,292

(2
)

 
39,898

 
Derivative assets
397

 

 

 
397

 
Other current assets
3,966

 
(832
)
(3
)

 
3,134

 
 
Total current assets
88,687

 
(13,844
)
 

 
74,843

Property and equipment, net
309,261

 

 
(55,751
)
(12
)
253,510

Other assets
6,902

 
(1,281
)
(4
)

 
5,621

 
 
Total assets
$
404,850

 
$
(15,125
)
 
$
(55,751
)
 
$
333,974

 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Deficit
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
77,151

 
$
(21,166
)
(5
)
$
(3,455
)
(13
)
$
52,530

 
Derivative liabilities
1,641

 

 

 
1,641

 
Current maturities of long-term debt
113,653

 
(113,653
)
(6
)

 

 
 
Total current liabilities
192,445

 
(134,819
)
 
(3,455
)
 
54,171

 
 
 
 
 
 
 
 
 
 
Other liabilities
84,953

 
100

(5
)
(80,615
)
(14
)
4,438

Derivative liabilities
9,120

 

 

 
9,120

Long-term debt

 
75,350

(7
)

 
75,350

Liabilities subject to compromise
1,154,163

 
(1,154,163
)
(8
)

 

 
 
 
 
 
 
 
 
 
 
Shareholders’ equity (deficit)
 
 
 
 
 
 
 
 
Preferred stock (Predecessor)
1,880

 
(1,880
)
(9
)

 

 
Common stock (Predecessor)
697

 
(697
)
(9
)

 

 
Paid-in capital (Predecessor)
1,213,797

 
(1,213,797
)
(9
)

 

 
Deferred compensation obligation (Predecessor)
3,440

 
(3,440
)
(9
)

 

 
Accumulated other comprehensive income (Predecessor)
383

 
(383
)
(9
)

 

 
Treasury stock (Predecessor)
(3,574
)
 
3,574

(9
)

 

 
Common stock (Successor)

 
150

(10
)

 
150

 
Paid-in capital (Successor)

 
190,745

(10
)

 
190,745

 
Accumulated deficit
(2,252,454
)
 
2,224,135

(11
)
28,319

(15
)

 
 
Total shareholders’ equity (deficit)
(1,035,831
)
 
1,198,407

 
28,319

 
190,895

 
 
Total liabilities and shareholders’ equity (deficit)
$
404,850

 
$
(15,125
)
 
$
(55,751
)
 
$
333,974



13



Reorganization Adjustments
1.
Represents the net cash payments that occurred on the Effective Date:
Sources:
 
 
 
Proceeds from the Revolver
$
75,350

 
 
Proceeds from the Rights Offering, net of issuance costs
49,943

 
 
Total sources
 
 
$
125,293

Uses:
 
 
 
Repayment of RBL
$
113,653

 
 
Accrued interest payable on RBL
1,374

 
 
DIP Facility fees
12

 
 
Debt issue costs of the Revolver
3,011

 
 
Funding of professional fee escrow account
14,575

 
 
RBL lender professional fees and expenses
455

 
 
Ad Hoc Committee and indenture trustee professional fees and expenses
6,782

 
 
Payment of certain allowed claims and settlements
2,735

 
 
Total uses
 
 
142,597

 
 
 
$
(17,304
)
2.
Represents the reclassification of SERP assets to a current receivable from other noncurrent assets upon the cancellation of the underlying plan and the reversion of the assets to the Successor.
3.
Represents the write-off of certain prepaid directors and officers tail insurance.
4.
Represents the capitalization of debt issuance costs attributable to the Revolver, net of the reclassification of SERP assets as discussed in item (2) above.
5.
Represents the payment of professional fees on behalf of the RBL Lenders, the Ad Hoc Committee and the UCC, indenture trustee fees and expenses, interest payable on the RBL as well as certain allowed claims and settlements net of the establishment of reserves and the reinstatement of certain other obligations.
6.
Represents the repayment of the RBL in cash in full.
7.
Represents the initial borrowings under the Revolver.
8.
Liabilities subject to compromise were settled as follows in accordance with the Plan:
Liabilities subject to compromise prior to the Effective Date:
 
 
 
Senior Notes
$
1,075,000

 
 
Interest on Senior Notes
47,213

 
 
Firm transportation obligation
11,077

 
 
Compensation – related
9,733

 
 
Deferred compensation
4,676

 
 
Trade accounts payable
1,487

 
 
Litigation claims
1,092

 
 
Other accrued liabilities
3,885

 
 
 
 
 
$
1,154,163

Amounts settled in cash, reinstated or otherwise reserved at emergence
 
 
(3,915
)
Gain on settlement of liabilities subject to compromise
 
 
$
1,150,248

9.
Represents the cancellation of our Predecessor preferred and common stock and related components of our Predecessor shareholders’ deficit.
10.
Represents the issuance of 14,992,018 shares of New Common Stock with a fair value of $12.73 per share.



14



11.
Represents the cumulative impact of the reorganization adjustments described above:
Gain on settlement of of liabilities subject to compromise
 
 
$
1,150,248

Fair value of equity allocated to:
 
 
 
Unsecured creditors on the Effective Date
174,477

 
 
Unsecured creditors pending resolution on the Effective Date
10,396

 

Backstop Parties in the form of a Commitment Premium
6,022

 
 
 
 
 
190,895

Cancellation of Predecessor shareholders’ deficit
 
 
882,992

Net impact to Predecessor accumulated deficit
 
 
$
2,224,135

Fresh Start Adjustments
12.
Represents the Fresh Start Accounting valuation adjustments applied to our oil and gas properties and other equipment.
13.
Represents the accelerated recognition of the current portion of previously deferred gains on sales of assets attributable to the accounting presentation required by GAAP under the Predecessor.
14.
Represents the recognition of Fresh Start Accounting adjustments to: (i) our AROs attributable to the revalued oil and gas properties and (ii) our retiree obligations based on actuarial measurements, as well as the accelerated recognition of the noncurrent portion of previously deferred gains on sales of assets attributable to the accounting presentation required by GAAP under the Predecessor.
15.
Represents the cumulative impact of the Fresh Start Accounting adjustments discussed above.
Reorganization Items. As described above in Note 2, our Condensed Consolidated Statements of Operations for the periods ended September 12, 2016 include “Reorganization items, net,” which reflects gains recognized on the settlement of liabilities subject to compromise and costs and other expenses associated with the Chapter 11 proceedings, principally professional fees, and the costs associated with the DIP Facility. These post-petition costs for professional fees, as well as administrative fees charged by the U.S. Trustee, have been reported in “Reorganization items, net” in our Condensed Consolidated Statement of Operations as described above. Similar costs that were incurred during the pre-petition periods have been reported in “General and administrative” expenses.
The following table summarizes the components included in “Reorganization items, net” in our Condensed Consolidated Statements of Operations for the periods presented:
 
July 1 through
 
January 1 through
 
September 12,
 
September 12,
 
2016
 
2016
Gains on the settlement of liabilities subject to compromise
$
1,150,248

 
$
1,150,248

Fresh start accounting adjustments
28,319

 
28,319

Legal and professional fees and expenses
(22,739
)
 
(29,976
)
Settlements attributable to contract amendments
(2,550
)
 
(2,550
)
DIP Facility costs and commitment fees
(27
)
 
(170
)
Write-off of prepaid directors and officers insurance
(832
)
 
(832
)
Other reorganization items
(46
)
 
(46
)
 
$
1,152,373

 
$
1,144,993




15



5.       Accounts Receivable and Major Customers
The following table summarizes our accounts receivable by type as of the dates presented:
 
Successor
 
 
Predecessor
 
September 30,
 
 
December 31,
 
2016
 
 
2015
Customers
$
19,221

 
 
$
23,481

Joint interest partners
8,201

 
 
18,381

Other 1
7,158

 
 
7,658

 
34,580

 
 
49,520

Less: Allowance for doubtful accounts
(2,443
)
 
 
(1,555
)
 
$
32,137

 
 
$
47,965

_______________________
1 Includes amounts owed to us from joint venture partners for acquisitions in prior periods, severance tax refunds approved by state taxing authorities to be returned to us and other miscellaneous non-operating items. The balance as of September 30, 2016 also includes a $4.3 million receivable from the trustee of the SERP for the reversion of plan assets to the Successor.
For the nine months ended September 30, 2016, or combined Predecessor and Successor periods, three customers accounted for $93.5 million, or approximately 94%, of our consolidated product revenues. The revenues generated from these customers during the nine months ended September 30, 2016 were $64.1 million, $15.8 million and $13.6 million or 64%, 16% and 14% of the consolidated total, respectively. As of September 30, 2016, $16.2 million, or approximately 88%, of our consolidated accounts receivable from customers was related to these customers. For the nine months ended September 30, 2015, two customers accounted for $108.4 million, or approximately 50%, of our consolidated product revenues. The revenues generated from these customers during the nine months ended September 30, 2015 were $62.3 million and $46.1 million, or approximately 29%, and 21% of the consolidated total, respectively. As of December 31, 2015, $21.1 million, or approximately 90%, of our consolidated accounts receivable from customers was related to these customers. No significant uncertainties exist related to the collectability of amounts owed to us by any of these customers.

6.
Derivative Instruments
We utilize derivative instruments to mitigate our financial exposure to crude oil and natural gas price volatility. Our derivative instruments are not formally designated as hedges in the context of U.S. GAAP.
Commodity Derivatives
We typically utilize collars and swaps, which are placed with financial institutions that we believe are acceptable credit risks, to hedge against the variability in cash flows associated with anticipated sales of our future oil and gas production. While the use of derivative instruments limits the risk of adverse price movements, such use may also limit future revenues from favorable price movements.
The counterparty to a collar or swap contract is required to make a payment to us if the settlement price for any settlement period is below the floor or swap price for such contract. We are required to make a payment to the counterparty if the settlement price for any settlement period is above the ceiling or swap price for such contract. Neither party is required to make a payment to the other party if the settlement price for any settlement period is equal to or greater than the floor price and equal to or less than the ceiling price for such contract.
We determine the fair values of our commodity derivative instruments based on discounted cash flows derived from third-party quoted forward prices for NYMEX Henry Hub gas and West Texas Intermediate crude oil closing prices as of the end of the reporting period. The discounted cash flows utilize discount rates adjusted for the credit risk of our counterparties if the derivative is in an asset position and our own credit risk if the derivative is in a liability position.
We terminated all of our pre-petition derivative contracts for $22.9 million, $22.6 million and $17.5 million and reduced our amounts outstanding under the RBL by $22.9 million, $16.6 million and $12.5 million in March 2016, April 2016 and May 2016, respectively. In connection with these transactions, the counterparties to the derivative contracts, which are also affiliates of lenders under the RBL, transferred the cash proceeds that were used for RBL repayments directly to the administrative agent under the RBL. Accordingly, all of these RBL repayments have been presented as non-cash financing activities on our Condensed Consolidated Statement of Cash Flows for the period January 1, 2016 through September 12, 2016.
On May 13, 2016, the Bankruptcy Court approved our motion to enter into new commodity derivative contracts. Accordingly, we hedged a substantial portion of our future crude oil production through the end of 2019, as required in the RSA, at a weighted-average price of approximately $48.62 per barrel. We are currently unhedged with respect to natural gas production.

16



The following table sets forth our commodity derivative positions as of September 30, 2016:
 
 
 
Average
 
 
 
 
 
 
 
 
 
Volume Per
 
Weighted Average Price
 
Fair Value
 
Instrument
 
Day
 
Floor/Swap
 
Ceiling
 
Asset
 
Liability
Crude Oil:
 
 
(barrels)
 
($/barrel)
 
 
 
 
Fourth quarter 2016
Swaps
 
5,940

 
$
47.69

 
 
 
$

 
$
709

First quarter 2017
Swaps
 
4,408

 
$
48.62

 
 
 

 
737

Second quarter 2017
Swaps
 
4,408

 
$
48.62

 
 
 

 
1,106

Third quarter 2017
Swaps
 
4,408

 
$
48.62

 
 
 

 
1,335

Fourth quarter 2017
Swaps
 
4,408

 
$
48.62

 
 
 

 
1,518

First quarter 2018
Swaps
 
3,476

 
$
49.12

 
 
 

 
1,131

Second quarter 2018
Swaps
 
3,476

 
$
49.12

 
 
 

 
1,244

Third quarter 2018
Swaps
 
3,476

 
$
49.12

 
 
 

 
1,353

Fourth quarter 2018
Swaps
 
3,476

 
$
49.12

 
 
 

 
1,451

First quarter 2019
Swaps
 
2,916

 
$
49.90

 
 
 

 
1,051

Second quarter 2019
Swaps
 
2,916

 
$
49.90

 
 
 

 
1,117

Third quarter 2019
Swaps
 
2,916

 
$
49.90

 
 
 

 
1,179

Fourth quarter 2019
Swaps
 
2,916

 
$
49.90

 
 
 

 
1,247

Financial Statement Impact of Derivatives
The impact of our derivative activities on income is included in “Derivatives” in our Condensed Consolidated Statements of Operations. The following tables summarize the effects of our derivative activities for the periods presented:
 
Successor
 
 
Predecessor
 
Period From September 13, 2016
 
 
Period from July 1, 2016
 
Three Months Ended
 
Through September 30, 2016
 
 
through September 12, 2016
 
September 30, 2015
 
 
 
 
 
 
 
Derivative gains (losses)
$
(4,369
)
 
 
$
8,934

 
$
44,701

 
Successor
 
 
Predecessor
 
Period From September 13, 2016
 
 
Period From January 1, 2016
 
Nine Months Ended
 
Through September 30, 2016
 
 
Through September 12, 2016
 
September 30, 2015
 
 
 
 
 
 
 
Derivative gains (losses)
$
(4,369
)
 
 
$
(8,333
)
 
$
52,073

The effects of derivative gains and (losses) and cash settlements (except for those cash settlements attributable to the aforementioned termination transactions) are reported as adjustments to reconcile net income (loss) to net cash provided by operating activities. These items are recorded in “Derivative contracts” on our Condensed Consolidated Statements of Cash Flows under “Net losses (gains)” and “Cash settlements, net.”
The following table summarizes the fair values of our derivative instruments, as well as the locations of these instruments on our Condensed Consolidated Balance Sheets as of the dates presented:
 
 
 
Successor
 
 
Predecessor
 
 
 
Fair Values as of
 
 
 
September 30, 2016
 
 
December 31, 2015
 
 
 
Derivative
 
Derivative
 
 
Derivative
 
Derivative
Type
 
Balance Sheet Location
Assets
 
Liabilities
 
 
Assets
 
Liabilities
Commodity contracts
 
Derivative assets/liabilities – current
$
446

 
$
3,888

 
 
$
97,956

 
$

Commodity contracts
 
Derivative assets/liabilities - noncurrent

 
11,291

 
 

 

 
 
 
$
446

 
$
15,179

 
 
$
97,956

 
$


17



As of September 30, 2016, we reported a net commodity derivative liability of $14.7 million. The contracts associated with this position are with three counterparties, all of which are investment grade financial institutions. This concentration may impact our overall credit risk, either positively or negatively, in that these counterparties may be similarly affected by changes in economic or other conditions. We have neither paid to, nor received from, our counterparties any cash collateral in connection with our derivative positions. Furthermore, our derivative contracts are not subject to margin calls or similar accelerations. No significant uncertainties exist related to the collectability of amounts that may be owed to us by these counterparties.
7.
Property and Equipment
The following table summarizes our property and equipment as of the dates presented: 
 
Successor
 
 
Predecessor
 
September 30,
 
 
December 31,
 
2016
 
 
2015
Oil and gas properties:
 

 
 
 

Proved
$
241,308

 
 
$
2,678,415

Unproved
8,338

 
 
6,881

Total oil and gas properties
249,646

 
 
2,685,296

Other property and equipment
3,574

 
 
31,365

Total properties and equipment
253,220

 
 
2,716,661

Accumulated depreciation, depletion and amortization
(2,020
)
 
 
(2,372,266
)
 
$
251,200

 
 
$
344,395

We account for our oil and gas properties by applying the full cost method in the Successor period whereas we utilized the successful efforts method during the Predecessor periods.
The following describes our accounting policies with respect to our oil and gas properties and equipment:
Under the full cost method of accounting for oil and gas properties, all costs incurred in the exploration, development and acquisition of oil and gas reserves are capitalized. Such costs may be incurred both prior to and after the acquisition of a property and include lease acquisitions, geological and geophysical, or seismic, drilling, completion and equipment costs. Internal costs incurred that are directly attributable to exploration, development and acquisition activities undertaken by us for our own account, and which are not attributable to production, general corporate overhead or similar activities are also capitalized.
Depreciation, depletion and amortization (“DD&A”) of our oil and gas properties is computed using the units-of-production method. We apply this method by multiplying the unamortized cost of our proved oil and gas properties, net of estimated salvage plus future development costs, by a rate determined by dividing the physical units of oil and gas produced during the period by the total estimated units of proved oil and gas reserves at the beginning of the period.
At the end of each quarterly reporting period, the unamortized cost of our oil and gas properties, net of deferred income taxes, is limited to the sum of the estimated discounted future net revenues from proved properties adjusted for costs excluded from amortization and related income taxes (“Ceiling Test”). The estimated discounted future net revenues are determined using the prior 12-month’s average price based on closing prices on the first day of each month, adjusted for differentials, discounted at 10%. The calculation of the Ceiling Test and provision for DD&A are based on estimates of proved reserves. There are significant uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production, timing and plan of development.


18



8.
Debt Obligations
The following table summarizes our debt obligations as of the dates presented:
 
Successor
 
 
Predecessor
 
September 30, 2016
 
 
December 31, 2015
 
Principal
 
Unamortized Issuance Costs 1
 
 
Principal
 
Unamortized Issuance Costs 1
Revolving credit facility 2
$
54,350

 
 
 
 
$

 
 
Pre-petition revolving credit facility 3

 
 
 
 
170,000

 
 
Senior notes due 2019

 
$

 
 
300,000

 
$
3,295

Senior notes due 2020

 

 
 
775,000

 
17,322

Totals
54,350

 
$

 
 
1,245,000

 
$
20,617

Less: Unamortized issuance costs

 
 
 
 
(20,617
)
 
 
Less: Amounts classified as current

 
 
 
 
(1,224,383
)
 
 
Long-term debt, net of unamortized issuance costs
$
54,350

 
 
 
 
$

 
 
____________________
1 Issuance costs attributable to the Senior Notes were subject to an accelerated write-off in advance of our bankruptcy filing during the three months ended June 30, 2016.
2 Issuance costs attributable to the Revolver, which represent costs attributable to the access to credit over the Revolver’s contractual term, have been presented as a component of Other assets (see Note 11).
3 Issuance costs attributable to the RBL were presented as a component of Other assets (see Note 11) prior to the accelerated write-off in advance of our bankruptcy filing during the three months ended June 30, 2016.
Revolving Credit Facility
Upon the Effective Date, we entered into the Revolver. The Revolver provides for a $200 million revolving commitment and has an initial borrowing base of $128 million. The Revolver also includes a $5.0 million sublimit for the issuance of letters of credit, of which $0.8 million was outstanding as of September 30, 2016. The Revolver is governed by a borrowing base calculation, which is redetermined semi-annually, and the availability under the Revolver may not exceed the lesser of the aggregate commitments and the borrowing base. The Revolver is scheduled for its initial redetermination in April 2017. The Revolver is available to us to pay expenses associated with Chapter 11 and for general corporate purposes including working capital. The Revolver matures in September 2020.
The outstanding borrowings under the Revolver bear interest at a rate equal to, at our option, either (a) a customary reference rate plus an applicable margin ranging from 2.00% to 3.00%, determined based on the average availability under the Revolver or (b) a customary London interbank offered rate (“LIBOR”) plus an applicable margin ranging from 3.00% to 4.00%, determined based on the average availability under the Revolver. Interest on reference rate borrowings is payable quarterly in arrears and is computed on the basis of a year of 365/366 days, and interest on eurocurrency borrowings is payable every one, three or six months, at the election of the Borrower, and is computed on the basis of a 360-day year. As of September 30, 2016, the actual interest rate on the outstanding borrowings under the Revolver was 3.770% which is derived from the LIBOR rate of 0.520% plus an applicable margin of 3.250%. Unused commitment fees are charged at a rate of 0.50%.
The Revolver is guaranteed by us and all of our subsidiaries (the “Guarantor Subsidiaries”). The guarantees under the Revolver are full and unconditional and joint and several. Substantially all of our consolidated assets are held by the Guarantor Subsidiaries. The parent company has no material independent assets or operations. The obligations under the Revolver are secured by a first priority lien on substantially all of our assets.
The Revolver requires us to maintain (1) a minimum interest coverage ratio (adjusted earnings before interest, taxes, depreciation, depletion, amortization and exploration expenses as defined in the Revolver (“EBITDAX”) to adjusted interest expense), measured as of the last day of each fiscal quarter, of 3.00 to 1.00, (2) a minimum current ratio (as defined in the Revolver), measured as of the last day of each fiscal quarter of 1.00 to 1.00, and (3) a maximum leverage ratio (consolidated indebtedness to adjusted EBITDAX), measured as of the last day of each fiscal quarter, initially of 4.00 to 1.00, decreasing on December 31, 2017 to 3.75 to 1.00 and on March 31, 2018 and thereafter to 3.50 to 1.00. In accordance with the terms of the Revolver, the quarter ending December 31, 2016 will be the first period for which we are required to comply with these covenants.
The Revolver also contains customary affirmative and negative covenants, including as to compliance with laws (including environmental laws, ERISA and anti-corruption laws), maintenance of required insurance, delivery of quarterly and annual financial statements, oil and gas engineering reports and budgets, maintenance and operation of property (including oil and gas properties), restrictions on the incurrence of liens and indebtedness, merger, consolidation or sale of assets, payment of dividends, and transactions with affiliates and other customary covenants.

19



The Revolver contains customary events of default and remedies for credit facilities of this nature. If we do not comply with the financial and other covenants in the Revolver, the lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the Revolver.
Pre-Petition Revolving Credit Agreement
As described in Notes 3 and 4, our principal and interest obligations outstanding under the RBL as well as certain associated fees and expenses were satisfied in cash in full on the Effective Date. These obligations were funded from a combination of cash on hand, proceeds from the Rights Offering and proceeds from initial borrowings under the Revolver.
2019 Senior Notes and 2020 Senior Notes
The Senior Notes have been included in “Liabilities subject to compromise” on the Condensed Consolidated Balance Sheet of the Predecessor as of September 12, 2016 (see Note 4) and have been included in “Current liabilities” as of December 31, 2015. As described in Notes 3 and 4, the Senior Notes were canceled upon our emergence from bankruptcy.

9.
Income Taxes
We recognized a federal income tax benefit for each of the periods ended September 12, 2016 (Predecessor) and September 30, 2016 (Successor) at the statutory rate of 35%; however, the federal tax benefit was fully offset by a valuation allowance against our net deferred tax assets. We considered both the positive and negative evidence in determining that it was more likely than not that some portion or all of our deferred tax assets will not be realized, primarily as a result of cumulative losses. We recognized income tax benefits for the three and nine months ended September 30, 2015 due primarily to a federal return to provision adjustment partially offset by a minimal deferred state income tax expense. We received a state income tax refund of less than $0.1 million during the period ended September 12, 2016.
We have evaluated the impact of the reorganization, including the change in control, resulting from our emergence from bankruptcy. From an income tax perspective, the most significant impact is attributable to our carryover tax attributes associated with our net operating losses (“NOLs”). We believe that the Successor will be able to fully absorb the cancellation of debt income realized by the Predecessor in connection with the reorganization with its adjusted NOL carryovers. The amount of the remaining NOL carryovers and the tax basis of our properties will be limited under Section 382 of the Internal Revenue Code due to the change in control as referenced in Notes 3 and 4. As the tax basis of our assets, primarily our oil and gas properties, is in excess of the carrying value, as adjusted in the Fresh Start Accounting process, the Successor is in a net deferred tax asset position. We have determined that it is more likely than not that we will not realize future income tax benefits from the additional tax basis and our remaining NOL carryovers. Accordingly, we have provided for a full valuation allowance of the underlying deferred tax assets.

10.
Exit Activities
We have committed to a number of actions, or exit activities, consistent with our current business plans for which we have continuing financial commitments. The most significant of these activities are attributable to an overall reduction in the scope and scale of our organization and require payments to satisfy obligations associated with the underlying commitments. The following summarizes our most significant exit activities.
Reductions in Force
In connection with efforts to reduce our administrative costs, we took certain actions to reduce our total employee headcount. In February, June and September, we reduced our total employee headcount by 45 employees. We paid a total of $1.9 million, including $1.2 million in severance and termination benefits and $0.7 million in retention bonuses during the nine months ended September 2016, and $0.1 million in severance and termination benefits during October 2016. The employment of nine employees scheduled for termination was extended with a payout of $0.2 million in retention bonuses, included in the above retention. Estimated severance and termination benefits for these employees is expected to be $0.3 million. The affected employees must continue to provide services through each of their extension dates in order to receive these benefits. Accordingly, we incurred a charge and established an accrual representing the period for which these benefits have been earned.
The costs associated with these reduction-in-force and retention actions are included as a component of our “General and administrative” expenses on our Condensed Consolidated Statements of Operations. The related obligations are included in “Accounts payable and accrued liabilities” on our Condensed Consolidated Balance Sheet.
Drilling Rig Termination
In connection with the suspension of our 2016 drilling program in the Eagle Ford, we terminated our one remaining drilling rig contract and incurred $1.3 million in early termination charges. As this obligation represented a pre-petition liability of the Predecessor, it was discharged and included in “Reorganization items, net” on our Condensed Consolidated Statements of Operations. The vendor recovered a portion of the amount in the form of New Common Stock.

20



Firm Transportation Obligation
We had a contractual obligation for certain firm transportation capacity in the Appalachian region that was scheduled to expire in 2022 and, as a result of the sale of our natural gas assets in this region in 2012, we no longer had production available to satisfy this commitment. We originally recognized a liability in 2012 representing this obligation for the estimated discounted future net cash outflows over the remaining term of the contract. The accretion of the obligation through the Petition Date, net of any recoveries from periodic sales of our contractual capacity, was charged as an offset to Other revenue. In connection with our emergence from bankruptcy, we rejected the underlying contract and the obligation was discharged and included in “Reorganization items, net” on our Condensed Consolidated Statements of Operations. The vendor recovered a portion of the amount in the form of New Common Stock.

11.
Additional Balance Sheet Detail
The following table summarizes components of selected balance sheet accounts as of the dates presented:
 
Successor
 
 
Predecessor
 
September 30,
 
 
December 31,
 
2016
 
 
2015
Other current assets:
 

 
 
 

Tubular inventory and well materials
$
2,154

 
 
$
2,878

Prepaid expenses
1,357

 
 
4,184

Other
7

 
 
42

 
$
3,518

 
 
$
7,104

Other assets:
 

 
 
 

Assets of SERP 1
$

 
 
$
4,123

Deferred issuance costs of the revolving credit facilities 2
2,973

 
 
1,572

Other
2,598

 
 
2,655

 
$
5,571

 
 
$
8,350

Accounts payable and accrued liabilities:
 

 
 
 

Trade accounts payable
$
7,926

 
 
$
11,603

Drilling costs
1,475

 
 
12,074

Royalties and revenue – related
28,203

 
 
39,119

Compensation – related
2,164

 
 
9,904

Interest
125

 
 
15,531

Other
5,539

 
 
15,294

 
$
45,432

 
 
$
103,525

Other liabilities:
 

 
 
 

Deferred gains on sales of assets
$

 
 
$
82,943

Firm transportation obligation

 
 
10,705

Asset retirement obligations
2,696

 
 
2,621

Defined benefit pension obligations
1,132

 
 
1,129

Postretirement health care benefit obligations
523

 
 
731

Compensation – related

 
 
1,447

Deferred compensation – SERP obligations and other

 
 
4,434

Other
100

 
 
928

 
$
4,451

 
 
$
104,938

_______________________
1 In connection with our emergence from bankruptcy, the assets of the SERP reverted to us upon the release of claims by our employees attributable to certain deferred compensation arrangements in September 2016. The SERP assets were liquidated by the plan trustee in November 2016 and the cash value was transferred to us (see Notes 3, 4 and 5).
2 The balance as of September 30, 2016 includes those costs, net of amortization, attributable to the Revolver. Deferred issuance costs attributable to the RBL, which represents the amounts outstanding as of December 31, 2015, were charged in full to interest expense during the three months ended June 30, 2016 in advance of our Chapter 11 filing.



21



12.
Fair Value Measurements
We apply the authoritative accounting provisions for measuring fair value of both our financial and nonfinancial assets and liabilities. Fair value is an exit price representing the expected amount we would receive upon the sale of an asset or that we would expect to pay to transfer a liability in an orderly transaction with market participants at the measurement date.
Our financial instruments that are subject to fair value disclosure consist of cash and cash equivalents, accounts receivable, accounts payable, derivatives and long-term debt. As of September 30, 2016, the carrying values of all of these financial instruments approximated fair value.
The following table summarizes the fair value of our debt obligations with fixed interest rates, which is estimated based on the published market prices for these financial liabilities, as of the dates presented:
 
Successor
 
 
Predecessor
 
September 30, 2016
 
 
December 31, 2015
 
Fair
Value
 
Carrying
Value
 
 
Fair
Value
 
Carrying
Value
Senior Notes due 2019 1
$

 
$

 
 
$
40,830

 
$
300,000

Senior Notes due 2020 1

 

 
 
125,473

 
775,000

 
$

 
$

 
 
$
166,303

 
$
1,075,000

______________________
1 The Senior Notes were canceled upon our emergence from bankruptcy.
Recurring Fair Value Measurements
Certain financial assets and liabilities are measured at fair value on a recurring basis in our Condensed Consolidated Balance Sheets. The following tables summarize the valuation of those assets and liabilities as of the dates presented:
 
 
Successor As of September 30, 2016
 
 
Fair Value
 
Fair Value Measurement Classification
Description
 
Measurement
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 

 
 

 
 

 
 

Commodity derivative assets – current
 
$
446

 
$

 
$
446

 
$

Assets of SERP 1
 
4,292

 
4,292

 

 

Liabilities:
 
 

 
 

 
 

 
 

Commodity derivative liabilities – current
 
(3,888
)
 

 
(3,888
)
 

Commodity derivative liabilities – noncurrent
 
(11,291
)
 

 
(11,291
)
 

______________________
1 In connection with our emergence from bankruptcy, the assets of the SERP reverted to us upon the release of claims by our employees attributable to certain deferred compensation arrangements in September 2016. The SERP assets were liquidated by the plan trustee in October 2016 and the cash value, which was included in accounts receivable as of September 30, 2016, was transferred to us for general corporate purposes.
 
 
Predecessor As of December 31, 2015
 
 
Fair Value
 
Fair Value Measurement Classification
Description
 
Measurement
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 

 
 

 
 

 
 

Commodity derivative assets – current
 
$
97,956

 
$

 
$
97,956

 
$

Assets of SERP
 
4,123

 
4,123

 

 

Liabilities:
 
 

 
 

 
 

 
 

Deferred compensation – SERP obligations
 
(4,125
)
 
(4,125
)
 

 

Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one level of the fair value hierarchy to another level. In such instances, the transfer is deemed to have occurred at the beginning of the quarterly period in which the event or change in circumstances that caused the transfer occurred. There were no transfers during the nine months ended September 30, 2016 and 2015.

22



We used the following methods and assumptions to estimate fair values for the financial assets and liabilities described below:
Commodity derivatives: We determine the fair values of our commodity derivative instruments based on discounted cash flows derived from third-party quoted forward prices for West Texas Intermediate crude oil and NYMEX Henry Hub gas closing prices as of the end of the reporting periods. We generally use the income approach, using valuation techniques that convert future cash flows to a single discounted value. Each of these is a level 2 input.
Assets of SERP: We held various publicly traded equity securities in a Rabbi Trust as assets for funding certain deferred compensation obligations. The fair values were based on quoted market prices, which are level 1 inputs.
Deferred compensation SERP obligations: Certain of our deferred compensation obligations were ultimately to be settled in cash based on the underlying fair value of certain assets, including those held in the Rabbi Trust. The fair values were based on quoted market prices, which are level 1 inputs.
Non-Recurring Fair Value Measurements
The most significant non-recurring fair value measurements utilized in the preparation of our Condensed Consolidated Financial Statements are those attributable to the recognition and measurement of the Successor's net assets with respect to the application of Fresh Start Accounting. Those measurements are more fully described in Note 4. In addition, we utilize non-recurring fair value measurements with respect to the recognition and measurement of asset impairments, particularly during our Predecessor periods during which time we applied the successful efforts method to our oil and gas properties, as well as the initial determination of AROs associated with the ongoing development of new oil and gas properties.
The factors used to determine fair value for purposes of recognizing and measuring asset impairments while we applied the successful efforts method to our oil and gas properties during our Predecessor periods included, but were not limited to, estimates of proved and risk-adjusted probable reserves, future commodity prices, indicative sales prices for properties, the timing of future production and capital expenditures and a discount rate commensurate with the risk reflective of the lives remaining for the respective oil and gas properties. Under the full cost method, we apply a ceiling test determination utilizing prescribed procedures as described in Note 7. The full cost method is substantially different from the successful efforts method which relies upon fair value measurements. Because these significant fair value inputs were typically not observable, we have categorized the amounts as level 3 inputs.
The determination of the fair value of AROs is based upon regional market and facility specific information. The amount
of an ARO and the costs capitalized represent the estimated future cost to satisfy the abandonment obligation using current
prices that are escalated by an assumed inflation factor after discounting the future cost back to the date that the abandonment
obligation was incurred using a rate commensurate with the risk, which approximates our cost of funds. Because these
significant fair value inputs are typically not observable, we have categorized the initial estimates as level 3 inputs.
13.
Commitments and Contingencies
Gathering and Intermediate Transportation Commitments
We have long-term agreements with Republic Midstream, LLC (“Republic Midstream”) and Republic Midstream Marketing, LLC (“Republic Marketing” and, together with Republic Midstream, collectively, “Republic”) to provide for gathering and intermediate pipeline transportation services for a substantial portion of our crude oil and condensate production in the South Texas region as well as volume capacity support for certain downstream interstate pipeline transportation.
In August 2016, the Bankruptcy Court approved a settlement with Republic and authorized the assumption of certain amended agreements with Republic (the “Amended Agreements”). We paid Republic $0.3 million in connection with the settlement which is included in “Reorganization items, net” in our Condensed Consolidated Statements of Operations.
Under the terms of the Amended Agreements, Republic is obligated to gather and transport our crude oil and condensate from within a dedicated area in the Eagle Ford (the “Dedication Area”) via a gathering system and intermediate takeaway pipeline connecting to a downstream interstate pipeline operated by a third party. The amended gathering agreement reduced our minimum volume commitment from 15,000 to 8,000 barrels of oil per day. The term of the amended gathering agreement runs through 2041, with the term of the minimum volume commitment extended from 10 to 15 years.
Under the amended marketing agreement, we have a 10-year commitment to sell 8,000 barrels per day of crude oil to Republic, or any third party, utilizing Republic Marketing’s capacity on a certain downstream interstate pipeline.
Excluding the potential impact of the effects of price escalation from commodity price changes, the minimum fee requirements under the Amended Agreements are as follows: $3.9 million for the remainder of 2016, $9.6 million for 2017, $10.4 million for 2018, $11.7 million for 2019, $13.0 million for 2020 through 2025, $7.4 million for 2026, $3.8 million for 2027 through 2030 and $2.2 million for 2031.

23



Legal and Regulatory
We are involved, from time to time, in various legal proceedings arising in the ordinary course of business. While the ultimate results of these proceedings cannot be predicted with certainty, our management believes that these claims will not have a material effect on our financial position, results of operations or cash flows. During the quarter ended September 30, 2016, we reduced our reserve for a litigation matter to $0.1 million from $0.9 million due to our expected dismissal from the subject litigation. As of September 30, 2016, we also had AROs of approximately $2.7 million attributable to the plugging of abandoned wells. 
14.
Shareholders’ Equity
The following tables summarize the components of our shareholders equity (deficit) and the changes therein as of and for the Predecessor period from December 31, 2015, through September 12, 2016 and the Successor period from September 13, 2016 through September 30, 2016:
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred
 
Other
 
 
 
 
 
Preferred
 
Common
 
Paid-in
 
Accumulated
 
Compensation
 
Comprehensive
 
Treasury
 
 
 
Stock 2
 
Stock 2
 
Capital 2
 
Deficit
 
Obligation
 
Income 3
 
Stock
 
Total
Balance, December 31, 2015 (Predecessor)
$
3,146

 
$
628