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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________
 FORM 10-Q
________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to              
 Commission file number: 1-13283
  pva-20200930_g1.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)
16285 PARK TEN PLACE, SUITE 500
HOUSTON, TX 77084
(Address of principal executive offices) (Zip Code)
(713722-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par ValuePVACNasdaq Global Select Market
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      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes    No  
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
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 Exchange Act subsequent to the distribution of securities under a plan confirmed by a court.    Yes   No  
 As of October 30, 2020, 15,200,435 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, 2020
 Table of Contents
Part I - Financial Information
Item Page
1.Financial Statements - unaudited.
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. Acquisitions
4. Accounts Receivable and Revenues from Contracts with Customers
5. Derivative Instruments
 6. Property and Equipment
 7. Long-Term Debt
8. Income Taxes
9. Leases
 10. Supplemental Balance Sheet Detail
 11. Fair Value Measurements
 12. Commitments and Contingencies
 13. Shareholders’ Equity
 14. Share-Based Compensation and Other Benefit Plans
 15. Interest Expense
16. 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
Off Balance Sheet Arrangements
Critical Accounting Estimates
3.Quantitative and Qualitative Disclosures About Market Risk.
4.Controls and Procedures.
Part II - Other Information
1.Legal Proceedings.
1A.Risk Factors.
5.Other Information.
6.Exhibits.
Signatures



Part I. FINANCIAL INFORMATION
Item 1.     Financial Statements.
PENN VIRGINIA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS unaudited
(in thousands, except per share data) 
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Revenues
Crude oil$63,227 $110,618 $190,732 $319,461 
Natural gas liquids2,824 3,546 6,295 12,596 
Natural gas2,563 4,215 7,273 13,782 
Gain on sales of assets, net 77 14 118 
Other revenues, net797 848 1,958 1,342 
Total revenues69,411 119,304 206,272 347,299 
Operating expenses
Lease operating8,275 11,868 27,901 33,234 
Gathering, processing and transportation5,760 6,600 16,797 16,937 
Production and ad valorem taxes4,368 7,401 13,152 20,672 
General and administrative8,585 6,876 23,801 20,173 
Depreciation, depletion and amortization37,038 46,519 114,891 129,687 
Impairments of oil and gas properties235,989  271,498  
Total operating expenses300,015 79,264 468,040 220,703 
Operating income (loss)(230,604)40,040 (261,768)126,596 
Other income (expense)
Interest expense(7,497)(8,736)(24,213)(27,270)
Derivatives(6,891)24,248 109,879 (30,166)
Other, net21 (248)(42)(134)
Income (loss) before income taxes(244,971)55,304 (176,144)69,026 
Income tax (expense) benefit1,558 (942)1,110 (1,736)
Net income (loss)$(243,413)$54,362 $(175,034)$67,290 
Net income (loss) per share:
Basic$(16.03)$3.60 $(11.54)$4.45 
Diluted$(16.03)$3.59 $(11.54)$4.44 
Weighted average shares outstanding – basic15,183 15,110 15,168 15,105 
Weighted average shares outstanding – diluted15,183 15,160 15,168 15,165 
See accompanying notes to condensed consolidated financial statements.

3


PENN VIRGINIA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME unaudited
(in thousands) 
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net income (loss)$(243,413)$54,362 $(175,034)$67,290 
Other comprehensive loss:
Change in pension and postretirement obligations, net of tax(2) (4)(2)
 (2) (4)(2)
Comprehensive income (loss)$(243,415)$54,362 $(175,038)$67,288 

See accompanying notes to condensed consolidated financial statements.
4


PENN VIRGINIA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS unaudited
(in thousands, except share data)
September 30,December 31,
 20202019
Assets  
Current assets  
Cash and cash equivalents$20,516 $7,798 
Accounts receivable, net of allowance for credit losses26,030 70,716 
Derivative assets50,414 4,131 
Income taxes receivable 1,236 
Other current assets12,836 4,458 
Total current assets109,796 88,339 
Property and equipment, net (full cost method)835,500 1,120,425 
Derivative assets2,619 2,750 
Other assets5,259 6,724 
Total assets$953,174 $1,218,238 
Liabilities and Shareholders’ Equity  
Current liabilities  
Accounts payable and accrued liabilities$48,345 $105,824 
Derivative liabilities22,861 23,450 
Total current liabilities71,206 129,274 
Other liabilities8,443 8,382 
Deferred income taxes1,393 1,424 
Derivative liabilities5,542 3,385 
Long-term debt, net518,858 555,028 
Commitments and contingencies (Note 12)
Shareholders’ equity:  
Preferred stock of $0.01 par value – 5,000,000 shares authorized; none issued
  
Common stock of $0.01 par value – 45,000,000 shares authorized; 15,200,435 and 15,135,598 shares issued as of September 30, 2020 and December 31, 2019, respectively
152 151 
Paid-in capital202,766 200,666 
Retained earnings144,877 319,987 
Accumulated other comprehensive loss(63)(59)
Total shareholders’ equity347,732 520,745 
Total liabilities and shareholders’ equity$953,174 $1,218,238 

See accompanying notes to condensed consolidated financial statements.
5


PENN VIRGINIA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS unaudited
(in thousands)
 Nine Months Ended September 30,
 20202019
Cash flows from operating activities  
Net income (loss)$(175,034)$67,290 
Adjustments to reconcile net income (loss) to net cash provided by operating activities: 
Depreciation, depletion and amortization114,891 129,687 
Impairments of oil and gas properties271,498  
Derivative contracts:
Net (gains) losses(109,879)30,166 
Cash settlements and premiums received (paid), net65,295 (4,330)
Deferred income tax expense (benefit)(31)2,972 
Gain on sales of assets, net(14)(118)
Non-cash interest expense3,336 2,544 
Share-based compensation 2,582 3,101 
Other, net23 39 
Changes in operating assets and liabilities, net17,056 12,862 
Net cash provided by operating activities189,723 244,213 
Cash flows from investing activities  
Acquisitions, net (5,956)
Capital expenditures(139,010)(291,733)
Proceeds from sales of assets, net83 215 
Net cash used in investing activities(138,927)(297,474)
Cash flows from financing activities  
Proceeds from credit facility borrowings51,000 62,400 
Repayment of credit facility borrowings(89,000)(13,000)
Debt issuance costs paid(78)(2,616)
Net cash provided by (used in) financing activities(38,078)46,784 
Net increase (decrease) in cash and cash equivalents12,718 (6,477)
Cash and cash equivalents – beginning of period7,798 17,864 
Cash and cash equivalents – end of period$20,516 $11,387 
Supplemental disclosures:  
Cash paid for:  
Interest, net of amounts capitalized$20,959 $24,721 
Income taxes, net of (refunds)$(2,471)$ 
Reorganization items, net$ $79 
Non-cash investing and financing activities:
Changes in accounts receivable related to acquisitions$ $(152)
Changes in accrued liabilities related to acquisitions$ $(504)
Changes in accrued liabilities related to capital expenditures$(30,579)$2,672 
Changes in other liabilities for asset retirement obligations related to acquisitions$ $83 
 

See accompanying notes to condensed consolidated financial statements.
6


PENN VIRGINIA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS unaudited
For the Quarterly Period Ended September 30, 2020
(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 focused on the onshore exploration, development and production of oil, natural gas liquids (“NGLs”) and natural gas. Our current operations consist of drilling unconventional horizontal development wells and operating our producing wells in the Eagle Ford Shale (the “Eagle Ford”) in Gonzales, Lavaca, Fayette and DeWitt Counties in South Texas. We operate in and report our financial results and disclosures as one segment, which is the exploration, development and production of crude oil, NGLs and natural gas.

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 (“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, 2019. Operating results for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
Adoption of Recently Issued Accounting Pronouncements
Effective January 1, 2020, we adopted and began applying the relevant guidance provided in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) 2016–13, Measurement of Credit Losses on Financial Instruments (“ASU 2016–13”). We adopted ASU 2016–13 using the optional transition approach with a charge to the beginning balance of retained earnings as of January 1, 2020 (see Note 4 for the impact and disclosures associated with the adoption of ASU 2016–13). Comparative periods and related disclosures have not been restated for the application of ASU 2016–13.
Risks and Uncertainties
As an oil and gas exploration and development company, we are exposed to a number of risks and uncertainties that are inherent to our industry. In addition to such industry-specific risks, the global public health crisis associated with the novel coronavirus (“COVID-19”) has, and is anticipated to continue to have, an adverse effect on global economic activity for the immediate future and has resulted in travel restrictions, business closures, limitations to person-to-person contact and the institution of quarantining and other restrictions on movement in many communities. The slowdown in global economic activity attributable to COVID-19 has resulted in a dramatic decline in the demand for energy, which directly impacts our industry and the Company. In addition, global crude oil prices experienced a collapse starting in early March 2020 as a direct result of disagreements between the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (together with OPEC, collectively “OPEC+”) with respect to production curtailments. Production curtailment allocations were ultimately agreed to by OPEC+ in the second quarter of 2020 and while these curtailment efforts have generally held through the third quarter of 2020 leading to a modest recovery in prices from their historic lows at the height of the COVID-19 pandemic, the group is scheduled to formally meet again at the end of November 2020 to assess the circumstances heading into 2021.
Despite a significant decline in drilling by U.S. producers that began in mid-March 2020, domestic supply and demand imbalances continue to create operational stress with respect to capacity limitations associated with storage, pipeline and refining infrastructure, particularly within the Gulf Coast region. Limited progress in containing the COVID-19 pandemic domestically, including the effects of recent spikes in many regions of the United States, including Texas, has hampered economic recovery. Furthermore, government stimulus and economic relief efforts are uncertain and additional economic support may be required in order to stabilize and enhance current domestic economic activity levels. These efforts are further impacted by election year uncertainties and related political conflicts. The combined effect of these global and domestic factors is anticipated to have a continuing adverse impact on the industry in general and our operations specifically.

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During 2020, we initiated several actions to mitigate the anticipated adverse economic conditions for the immediate future and to support our financial position and liquidity. The more significant actions that we took during that time included: (i) temporarily suspending our drilling program from April through September 2020, (ii) curtailing production through selected well shut-ins for a period of several weeks in April and May, (iii) securing crude oil storage capacity (see Note 12) in order to maintain a reasonable level of production to (a) allow for the continued marketing of NGLs and natural gas rather than delaying revenues through additional shut-ins and (b) capitalize on potential increases in commodity prices, (iv) substantially expanding the scope and range of our commodity derivatives portfolio (see Note 5), (v) utilizing certain provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and related regulations, the most significant of which resulted in the receipt in June 2020 of an accelerated refund of our remaining refundable alternative minimum tax (“AMT”) credit carryforwards in the amount of $2.5 million and (vi) elimination of annual cost-of-living and similar adjustments to our salaries and wages for 2020, and in July 2020, a limited reduction-in-force (“RIF”). We incurred and paid employee termination and severance benefits of approximately $0.2 million in connection with the limited RIF and those costs have been included in G&A.
Executive Transition
In August 2020, we appointed Darrin Henke our new president and chief executive officer, or CEO, and director following the retirement of John Brooks. We incurred incremental G&A costs of approximately $1.2 million, in connection with Mr. Henke’s appointment and Mr. Brooks’ separation.
Going Concern Presumption
Our unaudited Condensed Consolidated Financial Statements 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.
Subsequent Events
On November 2, 2020, we entered into the following agreements in connection with the previously announced strategic transaction between the Company and certain affiliates of Juniper Capital Advisors, L.P. (“Juniper”):
a Contribution Agreement (the “Contribution Agreement”), among the Company, a newly formed subsidiary of the Company (the “Partnership”), and an affiliate of Juniper (“Purchaser”), pursuant to which, among other things, upon the satisfaction of the terms and conditions set forth therein, (i) the Company will contribute to the Partnership all of its equity interests in Penn Virginia Holding Corp., a Delaware corporation, that will be converted into a limited liability company prior to the closing date of the Transactions (as defined below) (the “Closing Date”), in exchange for a number of newly issued common units representing limited partner interests of the Partnership (the “Common Units”) equal to the number of shares of the Company’s common stock outstanding as of the Closing Date and (ii) Purchaser will contribute to the Partnership, as a capital contribution, $150 million in exchange for 17,142,857 newly issued Common Units. In addition, the Company will issue to Purchaser 171,429 shares of newly designated Series A Preferred Stock, par value $0.01, of the Company (the “Preferred Stock”) (which Preferred Stock will be a non-economic voting interest), at a price equal to the par value of the shares acquired (such transactions contemplated by the Contribution Agreement, the “Equity Transaction”); and
an Asset Contribution Agreement (the “Asset Agreement”), by and among Rocky Creek Resources, LLC, an affiliate of Juniper (“Rocky Creek”), the Company and the Partnership, pursuant to which the Company will purchase certain oil and gas leasehold and other real and personal property interests in Lavaca County, Texas and Fayette County, Texas and assume certain liabilities from Rocky Creek, in exchange for 4,959,000 newly issued Common Units at a price per unit of $7.74, or $38,382,660 in the aggregate, subject to adjustment as set forth therein. In addition Rocky Creek will acquire 49,590 shares of Preferred Stock at a price equal to the par value of the shares acquired (such transactions contemplated by the Asset Agreement, the “Asset Transaction” and together with the Equity Transaction, the “Transactions”).
After completion of the Transactions, Juniper is expected to own approximately 59 percent of Penn Virginia’s equity. As part of the transaction, Juniper will be restricted from selling any of its equity securities in Penn Virginia for six months following the closing of the transaction.
We expect to use $50.0 million of the cash proceeds to pay down and restructure our $200 million Second Lien Credit Agreement dated as of September 29, 2017 (the “Second Lien Facility”), with the balance of the cash proceeds used to significantly reduce the amount outstanding under our credit agreement (the “Credit Facility”) and to pay transaction fees and expenses.
Following the closing, Edward Geiser, Juniper’s Managing Partner, will serve as Penn Virginia’s Chairman of the Board, and Juniper will appoint four additional members to the Board. Darrin Henke and the other members of our senior management are expected to continue in their roles, and the Company’s current directors, including Mr. Henke, will remain on the Board immediately following the closing.

8


On November 2, 2020, we also entered into an amendment to the Second Lien Facility. Upon the consummation of the Transactions and the satisfaction of certain other conditions precedent, including the prepayment of $50 million of outstanding advances under the Second Lien Facility and the prepayment of $100 million of outstanding loans under the Credit Facility (less all applicable costs, fees and expenses in connection with the Transactions and the Second Lien Facility and Credit Facility), the amendment provides that, among other things, the Second Lien Facility will be automatically amended to (1) extend the maturity date of the Second Lien Facility to September 29, 2024 (the “Maturity Date”), (2) increase the margin applicable to advances under the Second Lien Facility; (3) impose certain limitations on capital expenditures, acquisitions and investments if the Asset Coverage Ratio (as defined therein) at the end of any fiscal quarter is less than 1.25 to 1.00 and (4) require maximum and, in certain circumstances as described therein, minimum hedging arrangements. In addition, upon the consummation of the Transactions and the satisfaction of certain other conditions precedent, the guarantee of the Company will be released and the Partnership will become a guarantor.
Upon the effective date of the amendment, we will be required to make quarterly amortization payments equal to $1,875,000, and outstanding borrowings under the Second Lien Facility will bear interest at a rate equal to, at the option of the borrower, either (a) customary reference rate based on the prime rate plus an applicable margin of 8.25% or (b) a customary London interbank offered rate (“LIBOR”) plus an applicable margin of 7.25%; provided that the applicable margin will increase to 9.25% and 8.25% respectively during any quarter in which the quarterly amortization payment is not made.
The Transactions are expected to close in the first quarter of 2021, subject to the satisfaction of customary closing conditions, including obtaining the requisite shareholder and regulatory approvals as well as approval under the Credit Facility.
Each of the Contribution Agreement and Asset Agreement contain certain termination rights. The Contribution Agreement provides that, upon termination of the Contribution Agreement under certain circumstances, we would be required to pay Purchaser a termination fee equal to $7,500,000 or reimburse Purchaser for certain expenses. The Asset Agreement provides that, upon termination of the Asset Agreement under certain circumstances, we would be required to pay Rocky Creek a termination fee equal to $1,919,133 or reimburse Rocky Creek for certain expenses. In the event the Company is required to reimburse either the Purchaser’s or Rocky Creek’s expenses, the expense reimbursement under the Asset Agreement and Contribution Agreement will not exceed $2,826,000 in aggregate.
During the third quarter of 2020, we incurred certain professional fees and consulting costs of approximately $0.5 million in connection with the Transactions which were recognized in G&A.
Management has evaluated all of our activities through the issuance date of our Condensed Consolidated Financial Statements and has concluded that, other than the aforementioned Transactions, no subsequent events have occurred that would require recognition in our Condensed Consolidated Financial Statements or disclosure in the Notes thereto.

3.    Acquisitions
Eagle Ford Working Interests
In 2019, we acquired working interests in certain properties for which we are the operator from our joint venture partners therein for cash consideration of approximately $6.5 million. Funding for this acquisition was provided by borrowings under the Credit Facility.


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4.       Accounts Receivable and Revenues from Contracts with Customers
Accounts Receivable and Major Customers
The following table summarizes our accounts receivable by type as of the dates presented:
September 30,December 31,
 20202019
Customers$24,443 $63,165 
Joint interest partners1,741 6,929 
Other 674 
 26,184 70,768 
Less: Allowance for credit losses(154)(52)
 $26,030 $70,716 
For the nine months ended September 30, 2020, three customers accounted for $113.4 million, or approximately 56%, of our consolidated product revenues. The revenues generated from these customers during the nine months ended September 30, 2020, were $46.0 million, $40.4 million and $27.0 million, or 23%, 20% and 13% of the consolidated total, respectively. As of September 30, 2020 and December 31, 2019, $17.9 million and $34.6 million, or approximately 73% and 55%, respectively, of our consolidated accounts receivable from customers was related to these customers. For the nine months ended September 30, 2019, four customers accounted for $261.4 million, or approximately 76%, of our consolidated product revenues. No significant uncertainties exist related to the collectability of amounts owed to us by any of these customers. As of September 30, 2020 and December 31, 2019, the allowance for credit losses is entirely attributable to receivables from joint interest partners.
Credit Losses and Allowance for Credit Losses
Adoption of ASU 2016–13
Effective January 1, 2020, we adopted ASU 2016–13 and have applied the guidance therein to our portfolio of accounts receivable including those from our customers and our joint interest partners. We have adopted ASU 2016–13 using the modified retrospective method resulting in an adjustment of less than $0.1 million to the beginning balance of retained earnings and a corresponding increase to the allowance for credit losses as of January 1, 2020.
Accounting Policies for Credit Losses
We monitor and assess our portfolio of accounts receivable, including those from our customers, our joint interest partners and others, when applicable, for credit losses on a monthly basis as we originate the underlying financial assets. Our review process and related internal controls take into appropriate consideration (i) past events and historical experience with the identified portfolio segments, (ii) current economic and related conditions within the broad energy industry as well as those factors with broader applicability and (iii) reasonable supportable forecasts consistent with other estimates that are inherent in our financial statements. In order to facilitate our processes for the review and assessment of credit losses, we have identified the following portfolio segments which are described below: (i) customers for our commodity production and (ii) joint interest partners which are further stratified into the following sub-segments: (a) mutual operators which includes joint interest partners with whom we are a non-operating joint interest partner in properties for which they are the operator, (b) large partners consisting of those legal entities that maintain a working interest of at least 10 percent in properties for which we are the operator and (c) all others which includes legal entities that maintain working interests of less than 10 percent in properties for which we are the operator as well as legal entities with whom we no longer have an active joint interest relationship, but continue to have transactions, including joint venture audit settlements, that from time-to-time give rise to the origination of new accounts receivable.
Customers. We sell our commodity products to approximately 20 customers. A substantial majority of these customers are large, internationally recognized refiners and marketers in the case of our crude oil sales and large domestic processors and interstate pipelines with respect to our NGL and natural gas sales. As noted in our disclosures regarding major customers above, a significant portion of our outstanding customer accounts receivable are concentrated within a group of up to five customers at any given time. Due primarily to the historical market efficiencies and generally timely settlements associated with commodity sale transactions for crude oil, NGLs and natural gas, we have assessed this portfolio segment at zero risk for credit loss upon the adoption of ASU 2016–13 and for each of the nine months included in the period ended September 30, 2020. Historically, we have never experienced a credit loss with such customers including the periods during the 2008-2009 financial crisis and the more recent periods of significant commodity price declines. While we believe that the receivables that originated in September 2020 will be fully collected despite the ongoing uncertainty associated with the COVID-19 pandemic and the related global energy market disruptions, future originations of customer receivables will continue to be assessed with a greater emphasis on current economic conditions and reasonable supportable forecasts.

10


Mutual Operators. As of September 30, 2020, we had mutual joint interest partner relationships with three upstream producers that also operate properties within the Eagle Ford for which we have non-operated working interests. Historically we have had full and timely collection experiences with these entities and we ourselves are timely with respect to our payments to them of joint venture costs. Upon adoption of ASU 2016–13, we had assessed this portfolio segment at zero risk for credit loss; however, in light of the potential for liquidity concerns due to current economic conditions in the near-term, we have assessed receivables originating in 2020 with a five percent risk.
Large Partners. As of September 30, 2020, four legal entities had working interests of 10 percent or greater in properties that we operate. These entities are primarily passive investors. Historically we have had full and timely collection experiences with these entities. Upon adoption of ASU 2016–13, we had assessed this portfolio segment at a risk of one percent for credit loss; however, in light of the potential for liquidity concerns due to current economic conditions in the near-term, we have increased the assessed receivables originating in 2020 to a two percent risk.
All Others. As of September 30, 2020, approximately 30 legal entities had working interests of less than 10 percent in properties that we operate. Historically, this is the only portfolio segment with whom we have experienced credit losses. Generally, this group includes passive investors and smaller producers that may not have the wherewithal or alternative sources of liquidity to settle their obligations to us in the event of individual challenges unique to smaller entities as well as adverse economic conditions in general. Upon adoption of ASU 2016–13, we had assessed this portfolio segment at a risk of five percent for credit loss; however, in light of the potential for liquidity concerns due to current economic conditions in the near-term, we have increased the assessed receivables originated in 2020 to a 10 percent risk. As of September 30, 2020, approximately $0.2 million of accounts receivables attributable to this portfolio segment was past due, or over 60 days.
Supplemental Disclosures
    The following table summarizes the activity in our allowance for credit losses, by portfolio segment, for the nine months ended September 30, 2020:
Joint Interest Partners
CustomersMutual OperatorsLarge PartnersAll OthersTotal
Balance at beginning of period$ $ $ $52 $52 
Adjustment upon adoption  60 16 76 
Provision for expected credit losses 5 7 14 26 
Write-offs and recoveries     
Balance at end of period$ $5 $67 $82 $154 


5.    Derivative Instruments
We utilize derivative instruments, typically swaps, put options and call options which are placed with financial institutions that we believe are acceptable credit risks, to mitigate our financial exposure to commodity price volatility associated with anticipated sales of our future production and volatility in interest rates attributable to our variable rate debt instruments. Our derivative instruments are not formally designated as hedges in the context of GAAP. While the use of derivative instruments limits the risk of adverse commodity price and interest rate movements, such use may also limit the beneficial impact of future product revenues and interest expense from favorable commodity price and interest rate movements. From time to time, we may enter into incremental derivative contracts in order to increase the notional volume of production we are hedging, restructure existing derivative contracts or enter into other derivative contracts resulting in modification to the terms of existing contracts. In accordance with our internal policies, we do not utilize derivative instruments for speculative purposes.
Commodity Derivatives
The following is a general description of the commodity derivative instruments we have employed:
Swaps. A swap contract is an agreement between two parties pursuant to which the parties exchange payments at specified dates on the basis of a specified notional amount, or the swap price, with the payments calculated by reference to specified commodities or indexes. The counterparty to a swap contract is required to make a payment to us based on the amount of the swap price in excess of the settlement price multiplied by the notional volume if the settlement price for any settlement period is below the swap price for such contract. We are required to make a payment to the counterparty based on the amount of the settlement price in excess of the swap price multiplied by the notional volume if the settlement price for any settlement period is above the swap price for such contract.

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Put Options. A put option has a defined strike, or floor price. We have entered into put option contracts in the roles of buyer and seller depending upon our particular hedging objective. The buyer of the put option pays the seller a premium to enter into the contract. When the settlement price is below the floor price, the seller pays the buyer an amount equal to the difference between the settlement price and the strike price multiplied by the notional volume. When the settlement price is above the floor price, the put option expires worthless. Certain of our purchased put options have deferred premiums. For the deferred premium puts, we agree to pay a premium to the counterparty at the time of settlement.
Call Options. A call option has a defined strike, or ceiling price. We have entered into call option contracts in the roles of buyer and seller depending upon our particular hedging objective. The buyer of the call option pays the seller a premium to enter into the call option. When the settlement price is above the ceiling price, the seller pays the buyer an amount equal to the difference between the settlement price and the strike price multiplied by the notional volume. When the settlement price is below the ceiling price, the call option expires worthless.
We typically combine swaps, purchased put options, purchased call options, sold put options and sold call options in order to achieve various hedging objectives. Certain of these objectives result in combinations that operate as collars which include purchased put options and sold call options, three-way collars which include purchased put options, sold put options and sold call options, and enhanced swaps, which include either sold put options or sold call options with the associated premiums rolled into an enhanced fixed price swap, among others.
We determine the fair values of our commodity derivative instruments using industry-standard models that consider various assumptions, including current market value and contractual prices for the underlying instruments, implied volatilities, time value and nonperformance risk. For the current market prices, we use third-party quoted forward prices, as applicable, for NYMEX West Texas Intermediate (“NYMEX WTI”), Magellan East Houston (“MEH”) crude oil and NYMEX Henry Hub (“NYMEX HH”) natural gas closing prices as of the end of the reporting period. Nonperformance risk is incorporated by utilizing 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.
The following table sets forth our commodity derivative positions, presented on a net basis by period of maturity, as of September 30, 2020:
4Q20201Q20212Q20213Q20214Q2021
NYMEX WTI Crude Swaps
Average Volume Per Day (barrels)10,174 3,333 3,297 
Weighted Average Swap Price ($/barrel)$57.59 $55.89 $55.89 
NYMEX WTI Purchased Puts/Sold Calls
Average Volume Per Day (barrels)2,000 6,667 6,593 4,891 4,891 
Weighted Average Purchased Put Price ($/barrel)$48.00 $44.50 $44.50 $40.67 $40.67 
Weighted Average Sold Call ($/barrel)$57.10 $53.53 $53.53 $53.50 $53.50 
NYMEX WTI Sold Puts
Average Volume Per Day (barrels)3,783 11,667 11,538 4,891 4,891 
Weighted Average Sold Put Price ($/barrel)$43.55 $36.93 $36.93 $35.00 $35.00 
MEH-WTI Basis Swaps
Average Volume Per Day (barrels)6,348 
Weighted Average Fixed Basis Price ($/barrel)$1.31 
NYMEX WTI Crude CMA Roll Basis Swaps
Average Volume Per Day (barrels)2,174 
Weighted Average Swap Price ($/barrel)$(0.42)
NYMEX HH Purchased Puts/Sold Calls
Average Volume Per Day (MMBtus)12,804 10,000 9,890 9,783 9,783 
Weighted Average Purchased Put ($/MMBtu)$2.00 $2.61 $2.61 $2.61 $2.61 
Weighted Average Sold Call ($/MMBtu)$2.21 $3.12 $3.12 $3.12 $3.12 
NYMEX HH Sold Puts
Average Volume Per Day (MMBtus)6,667 6,593 6,522 6,522 
Weighted Average Sold Put Price ($/MMBtus)$2.00 $2.00 $2.00 $2.00 
As of September 30, 2020, we were unhedged with respect to NGL production.
Interest Rate Derivatives
We have entered into a series of interest rate swap contracts (the “Interest Rate Swaps”) to establish fixed interest rates on a portion of our variable interest rate indebtedness under the Credit Facility and the Second Lien Facility. The notional amount of the Interest Rate Swaps totals $300 million, with us paying a weighted average fixed rate of 1.36% on the notional amount, and the counterparties paying a variable rate equal to LIBOR through May 2022.
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Financial Statement Impact of Derivatives
The impact of our derivative activities on income is included in the “Derivatives” caption on our Condensed Consolidated Statements of Operations. The effects of derivative gains and (losses) and cash settlements are reported as adjustments to reconcile net income to net cash provided by operating activities. These items are recorded in the “Derivative contracts” section of our Condensed Consolidated Statements of Cash Flows under “Net (gains) losses” and “Cash settlements, net.”
The following table summarizes the effects of our derivative activities for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Interest rate swap gains (losses) recognized in the Consolidated Statements of Operations$32 $ $(7,527)$ 
Commodity gains (losses) recognized in the Consolidated Statements of Operations(6,923)24,248 117,406 (30,166)
$(6,891)$24,248 $109,879 $(30,166)
Interest rate cash settlements recognized in the Consolidated Statements of Cash Flows$(919)$ $(1,287)$ 
Commodity cash settlements and premiums received (paid) recognized in the Consolidated Statements of Cash Flows7,337 (423)66,582 (4,330)
$6,418 $(423)$65,295 $(4,330)
The following table summarizes the fair values of our derivative instruments presented on a gross basis, as well as the locations of these instruments on our Condensed Consolidated Balance Sheets as of the dates presented:
  September 30, 2020December 31, 2019
  DerivativeDerivativeDerivativeDerivative
TypeBalance Sheet LocationAssetsLiabilitiesAssetsLiabilities
Interest rate contractsDerivative assets/liabilities - current$ $3,601 $ $ 
Commodity contractsDerivative assets/liabilities – current50,414 19,260 4,131 23,450 
Interest rate contractsDerivative assets/liabilities - noncurrent 2,639   
Commodity contractsDerivative assets/liabilities – noncurrent2,619 2,903 2,750 3,385 
  $53,033 $28,403 $6,881 $26,835 
As of September 30, 2020, we reported net commodity derivative assets of $30.9 million and net Interest Rate Swap liabilities of $6.2 million. The contracts associated with these positions are with seven counterparties for commodity derivatives and four counterparties for Interest Rate Swaps, all of which are investment grade financial institutions and are participants in the Credit Facility. This concentration may impact our overall credit risk in that these counterparties may be similarly affected by changes in economic or other conditions.
The agreements underlying our derivative instruments include provisions for the netting of settlements with the counterparties for contracts of similar type. 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.

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6.    Property and Equipment
The following table summarizes our property and equipment as of the dates presented: 
 September 30,December 31,
 20202019
Oil and gas properties:  
Proved$1,509,097 $1,409,219 
Unproved52,910 53,200 
Total oil and gas properties1,562,007 1,462,419 
Other property and equipment27,495 25,915 
Total properties and equipment1,589,502 1,488,334 
Accumulated depreciation, depletion and amortization(754,002)(367,909)
 $835,500 $1,120,425 
Unproved property costs of $52.9 million and $53.2 million have been excluded from amortization as of September 30, 2020 and December 31, 2019, respectively. We transferred $4.5 million and $0.2 million of undeveloped leasehold costs associated with acreage unlikely to be drilled or associated with proved undeveloped reserves, including capitalized interest, from unproved properties to the full cost pool during the nine months ended September 30, 2020 and 2019, respectively. We capitalized internal costs of $1.3 million and $3.2 million and interest of $2.1 million and $3.2 million during the nine months ended September 30, 2020 and 2019, respectively, in accordance with our accounting policies. Average depreciation, depletion and amortization per barrel of oil equivalent of proved oil and gas properties was $16.63 and $17.47 for the nine months ended September 30, 2020 and 2019, respectively.
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 (the “Ceiling Test”). As of September 30, 2020, the carrying value of our proved oil and gas properties exceeded the limit determined by the Ceiling Test by $236.0 million. Accordingly, we recorded an impairment of our oil and gas properties by this amount in the three months ended September 30, 2020 and, when combined with the $35.5 million recorded in the second quarter, $271.5 million in the nine months ended September 30, 2020. Because the Ceiling Test utilizes commodity prices based on a trailing twelve month average, it does not, as of September 30, 2020, fully reflect the substantial decline in commodity prices due to the economic impact of the COVID-19 pandemic and the ongoing disruption in global energy markets. Accordingly, we may incur additional impairments during the fourth quarter of 2020 and into the first quarter of 2021.

7.    Long-Term Debt
The following table summarizes our debt obligations as of the dates presented:
September 30, 2020December 31, 2019
Principal
Unamortized Discount and Deferred Issuance Costs 1, 2
Principal
Unamortized Discount and Deferred Issuance Costs 1, 2
Credit facility $324,400 $362,400 
Second lien term loan200,000 $5,542 200,000 $7,372 
Totals524,400 $5,542 562,400 $7,372 
Less: Unamortized discount 2
(1,814)(2,415)
Less: Unamortized deferred issuance costs 1, 2
(3,728)(4,957)
Long-term debt, net$518,858 $555,028 
_______________________
1     Excludes issuance costs of the Credit Facility, which represent costs attributable to the access to credit over its contractual term, that have been presented as a component of Other assets (see Note 10) and are being amortized over the term of the Credit Facility using the straight-line method.
2 Discount and issuance costs of the Second Lien Facility are being amortized over the term of the underlying loan using the effective-interest method.

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Credit Facility
In April 2020, we entered into the Borrowing Base Redetermination Agreement and Amendment No. 7 to Credit Agreement (the “Seventh Amendment”). The Seventh Amendment, which became effective on April 30, 2020, provides a $1.0 billion revolving commitment and initially provided for a $400 million borrowing base, including a $25 million sublimit for the issuance of letters of credit. The borrowing base decreased to $375 million in accordance with the terms of the Seventh Amendment effective July 1, 2020 and, effective October 1, 2020, availability under the Credit Facility is further limited to a maximum of $350 million until the next redetermination of the borrowing base. During the nine months ended September 30, 2020, we incurred and capitalized approximately $0.1 million of issue and other costs associated with the Seventh Amendment and wrote-off $0.9 million of previously capitalized issue costs due to the decrease in the borrowing base associated with the Seventh Amendment. Availability under the Credit Facility may not exceed the lesser of the aggregate commitments or the borrowing base, provided that effective October 1, 2020, availability under the Credit Facility is limited to a maximum of $350 million. The borrowing base under the Credit Facility is redetermined semi-annually, generally in the Spring and Fall of each year. The Fall 2020 borrowing base redetermination is in process. Additionally, we and the Credit Facility lenders may, upon request, initiate a redetermination at any time during the six-month period between scheduled redeterminations. The Credit Facility is available to us for general corporate purposes, including working capital. We had $0.4 million in letters of credit outstanding as of September 30, 2020 and December 31, 2019.
The Credit Facility is scheduled to mature in May 2024; provided that on June 30, 2022, unless we have either extended the maturity date of the Second Lien Facility described below to a date that is at least 91 days after May 7, 2024 or have repaid our Second Lien Facility in full, the maturity date of the Credit Facility will be June 30, 2022.
The outstanding borrowings under the Credit Facility bear interest at a rate equal to, at our option, either (a) a customary reference rate plus an applicable margin ranging from 1.50% to 2.50%, determined based on the utilization level under the Credit Facility or (b) a Eurodollar rate, including LIBOR through 2021, plus an applicable margin ranging from 2.50% to 3.50%, determined based on the utilization level under the Credit Facility. 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 Eurodollar borrowings is payable every one, three or six months, at the election of the borrower, and is computed on the basis of a year of 360 days. As of September 30, 2020, the actual weighted-average interest rate on the outstanding borrowings under the Credit Facility was 3.41%. Unused commitment fees are charged at a rate of 0.50%.
The Credit Facility is guaranteed by us and all of our subsidiaries (the “Guarantor Subsidiaries”). The guarantees under the Credit Facility are full and unconditional and joint and several. Substantially all of our consolidated assets are held by the Guarantor Subsidiaries. There are no significant restrictions on our ability or any of the Guarantor Subsidiaries to obtain funds through dividends, advances or loans. The obligations under the Credit Facility are secured by a first priority lien on substantially all of our assets.
The Credit Facility requires us to maintain (1) a minimum current ratio (as defined in the Credit Facility, which considers the unused portion of the total commitment as a current asset), measured as of the last day of each fiscal quarter of 1.00 to 1.00 and (2) a maximum leverage ratio (consolidated indebtedness to adjusted earnings before interest, taxes, depreciation, depletion, amortization and exploration expenses, both as defined in the Credit Facility), measured as of the last day of each fiscal quarter of 3.50 to 1.00.
The Credit Facility 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, weekly cash balance reports, 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. In addition, the Credit Facility contains certain anti-cash hoarding provisions, including the requirement to repay outstanding loans and cash collateralize outstanding letters of credit on a weekly basis in the amount of any cash on the balance sheet (subject to certain exceptions) in excess of $25 million.
The Credit Facility contains events of default and remedies. If we do not comply with the financial and other covenants in the Credit Facility, the lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the Credit Facility.
As of September 30, 2020, and through the date upon which the Condensed Consolidated Financial Statements were issued, we were in compliance with all of the covenants under the Credit Facility.

15


Second Lien Facility
On September 29, 2017, we entered into the Second Lien Facility. We received net proceeds of $187.8 million from the Second Lien Facility net of an original issue discount (“OID”) of $4.0 million and issue costs of $8.2 million. The proceeds from the Second Lien Facility were used to fund a significant acquisition and related fees and expenses. The maturity date under the Second Lien Facility is currently September 29, 2022. In connection with the anticipated closing of the Transactions, the maturity of the Second Lien Facility will be extended to September 2024 (see the discussion in Note 2 for further detail with respect to the amendment to the Second Lien Facility dated November 2, 2020).
The outstanding borrowings under the Second Lien Facility bear interest at a rate equal to, at our option, either (a) a customary reference rate based on the prime rate plus an applicable margin of 6.00% or (b) a customary LIBOR rate, with a floor of 1.00%, plus an applicable margin of 7.00%. As of September 30, 2020, the actual interest rate of outstanding borrowings under the Second Lien Facility was 8.00%. Amounts under the Second Lien Facility were borrowed at a price of 98% with an initial interest rate of 8.34%, resulting in an effective interest rate of 9.89%. 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 or three months (including in three-month intervals if we select a six-month interest period), at our election and is computed on the basis of a 360-day year. We have the right, to the extent permitted under the Credit Facility and an intercreditor agreement between the lenders under the Credit Facility and the lenders under the Second Lien Facility, to prepay loans under the Second Lien Facility at any time, subject to customary “breakage” costs with respect to eurocurrency loans.
The Second Lien Facility is collateralized by substantially all of the Company’s and its subsidiaries’ assets with lien priority subordinated to the liens securing the Credit Facility. The obligations under the Second Lien Facility are guaranteed by us and the Guarantor Subsidiaries.
The Second Lien Facility has no financial covenants, but 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.
As illustrated in the table above, the OID and issue costs of the Second Lien Facility are presented as reductions to the outstanding term loans. These costs are subject to amortization using the interest method over the five-year term of the Second Lien Facility.
As of September 30, 2020, and through the date upon which the Consolidated Financial Statements were issued, we were in compliance with all of the covenants under the Second Lien Facility.

8.    Income Taxes
We recognized a federal and state income tax expense for the nine months ended September 30, 2020 at the blended rate of 21.6%. The federal and state tax expense was offset by an adjustment to the valuation allowance against our net deferred tax assets resulting in an effective tax rate of 0.6%, which is fully attributable to the State of Texas. The provision also reflects a reclassification of $1.2 million from deferred tax assets for our remaining refundable AMT credit carryforwards which were accelerated due to certain income tax provisions provided in the CARES Act. In June 2020, we received a refund of $2.5 million for the aforementioned AMT credit carryforwards. Our net deferred income tax liability balance of $1.4 million as of September 30, 2020 is fully attributable to the State of Texas and primarily related to property and equipment.
We recognized a federal and state income tax benefit for the nine months ended September 30, 2019 at the blended rate of 21.6%; however, the federal and state tax expense was offset by an adjustment to the valuation allowance against our net deferred tax assets resulting in an effective tax rate of 2.5% which related to Texas deferred tax expense.
We had no liability for unrecognized tax benefits as of September 30, 2020. There were no interest and penalty charges recognized during the periods ended September 30, 2020 and 2019. Tax years from 2015 forward remain open to examination by the major taxing jurisdictions to which the Company is subject; however, net operating losses originating in prior years are subject to examination when utilized.

9.    Leases
Lease Arrangements and Supplemental Disclosures
We generally have lease arrangements for office facilities and certain office equipment, certain field equipment including compressors, drilling rigs, crude oil storage tank capacity, land easements and similar arrangements for rights-of-way and certain gas gathering and gas lift assets. Our short-term leases included in the disclosures below are primarily comprised of our contractual arrangements with certain vendors for operated drilling rigs, crude oil storage tank capacity and our field compressors. Our primary variable lease was represented by our field gas gathering and gas lift agreement with a midstream service provider and the lease payments are charged on a volumetric basis at a contractual fixed rate.
16


The following table summarizes the components of our total lease cost for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Operating lease cost$215 $208 $645 $565 
Short-term lease cost2,675 9,969 18,566 33,024 
Variable lease cost5,754 6,777 16,401 17,420 
Less: Amounts charged as drilling costs 1
(1,978)(9,224)(16,309)(30,865)
Total lease cost recognized in the Condensed Consolidated Statement of Operations 2
$6,666 $7,730 $19,303 $20,144 
___________________
1    Represents the combined gross amounts incurred and (i) capitalized as drilling costs for our working interest share and (ii) billed to joint interest partners for their working interest share for short-term leases of operated drilling rigs.
2    Includes $3.0 million and $3.9 million and $8.6 million and $8.9 million recognized in Gathering, processing and transportation expense (“GPT”), $3.5 million and $3.6 million and $10.1 million and $10.7 million recognized in Lease operating expense (“LOE”) for the three and nine months ended September 30, 2020 and 2019, respectively, and $0.2 million and $0.6 million recognized in G&A for each of the three and nine months ended September 30, 2020 and 2019, respectively.
The following table summarizes supplemental cash flow information related to leases for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$236 $221 $707 $442 
ROU assets obtained in exchange for lease obligations:
Operating leases 1
$82 $ $388 $3,325 
___________________
1    Includes $2.5 million recognized upon the adoption of Accounting Standards Codification Topic 842 (“ASC842”) in 2019.

The following table summarizes supplemental balance sheet information related to leases as of the dates presented:
September 30,December 31,
20202019
ROU assets – operating leases$2,625 $2,740 
Current operating lease obligations$953 $847 
Noncurrent operating lease obligations1,948 2,232 
Total operating lease obligations$2,901 $3,079 
Weighted-average remaining lease term – operating leases3.3 years4.1 years
Weighted-average discount rate – operating leases3.25 %5.97 %
Remaining maturities of operating lease obligations as of September 30, 2020:
2020$236 
2021936 
2022874 
2023872 
2024 and thereafter145 
Total undiscounted lease payments3,063 
Less: imputed interest(162)
Total operating lease obligations$2,901 

17


10.    Supplemental Balance Sheet Detail
The following table summarizes components of selected balance sheet accounts as of the dates presented:
 September 30,December 31,
 20202019
Other current assets:  
Tubular inventory and well materials 1
$6,430 $2,989 
Prepaid expenses 1
6,406 1,469 
 $12,836 $4,458 
Other assets:  
Deferred issuance costs of the Credit Facility, net of amortization$2,524 $3,952 
Right-of-use assets – operating leases2,625 2,740 
Other110 32 
 $5,259 $6,724 
Accounts payable and accrued liabilities:  
Trade accounts payable $3,522 $30,098 
Drilling costs4,651 18,832 
Royalties27,936 44,537 
Production, ad valorem and other taxes5,352 3,244 
Compensation3,877 5,272 
Interest 647 730 
Current operating lease obligations953 847 
Other1,407 2,264 
 $48,345 $105,824 
Other liabilities:  
Asset retirement obligations$5,321 $4,934 
Noncurrent operating lease obligations1,948 2,232 
Defined benefit pension obligations 785 873 
Postretirement health care benefit obligations 389 343 
 $8,443 $8,382 
_______________________
1     The balances as of September 30, 2020 include $3.9 million for the purchase of certain tubular and well materials and $3.6 million for the prepayment of drilling and completion services in advance of the restart of drilling projects beginning in October 2020 as well as $0.8 million of capitalized costs associated with crude oil in storage.

11.    Fair Value Measurements
We apply the authoritative accounting provisions included in GAAP for measuring the 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 our Credit Facility and Second Lien Facility borrowings. As of September 30, 2020, the carrying values of all of these financial instruments approximated fair value.

18


Recurring Fair Value Measurements
Certain financial assets and liabilities are measured at fair value on a recurring basis on our Condensed Consolidated Balance Sheets. The following tables summarize the valuation of those assets and (liabilities) as of the dates presented:
 As of September 30, 2020
 Fair ValueFair Value Measurement Classification
DescriptionMeasurementLevel 1Level 2Level 3
Assets:    
Interest rate swap assets – current$ $ $ $ 
Interest rate swap assets – noncurrent$ $ $ $ 
Commodity derivative assets – current$50,414 $ $50,414 $ 
Commodity derivative assets – noncurrent$2,619 $ $2,619 $ 
Liabilities:    
Interest rate swap liabilities – current$(3,601)$— $(3,601)$— 
Interest rate swap liabilities – noncurrent$(2,639)$—