Note 9. Long-Term Debt

Credit Agreement

In December, 2014, the Company entered into a credit agreement providing for a $500.0 million four-year senior secured revolving credit facility (the “Credit Agreement”). The borrowing base under the Credit Agreement is subject to redetermination on May 1 and November 1 each year, as well as other elective borrowing base redeterminations. As of March 31, 2017, outstanding borrowings under the Credit Agreement bear interest at a rate elected by the Company that is equal to a base rate (which is equal to the greater of the prime rate, the Federal Funds effective rate plus 0.50%, and 1-month LIBOR plus 1.00%) or LIBOR, in each case plus the applicable margin. The applicable margin ranges from 1.25% to 2.25% for base rate loans and from 2.25% to 3.25% for LIBOR loans, in each case depending on the amount of the loan outstanding in relation to the borrowing base. The Company is obligated to pay a quarterly commitment fee of 0.50% per year on the unused portion of the borrowing base, which fee is also dependent on the amount of the loan outstanding in relation to the borrowing base. The Company is also required to pay customary letter of credit fees. Principal amounts outstanding under the Credit Agreement are due and payable in full at maturity on December 19, 2018. All of the obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the Company’s assets.

As of March 31, 2017, the Company had an $80.0 million borrowing base, of which $10.0 million of debt was outstanding, bearing an interest rate of 3.084%, as well as a $0.1 million letter of credit outstanding related to our office lease, resulting in $69.9 million of borrowing base availability under the Credit Agreement.

The Credit Agreement contains a number of customary covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability to incur additional indebtedness, create liens on asset, pay dividends, and repurchase its capital stock. In addition, the Company is required to maintain certain financial ratios, including a minimum modified current ratio which includes the available borrowing base of 1.0 to 1.0 and a maximum annualized quarterly leverage ratio of 4.0 to 1.0. The Company is also required to submit an audited annual report 120 days after the end of each fiscal year. As of March 31, 2017, the Company was in compliance with these covenants under the Credit Agreement.

Promissory Note

In July 2016, the Company issued a $5.1 million unsecured promissory note (the “Note”) to a drilling rig contractor in settlement of rig idle charges and a contract termination fee. These expenses were recorded in the Company’s Condensed Consolidated Statement of Operations during 2016. The Note is payable in monthly installments over a three-year period maturing in July 2019, bearing an annualized interest rate of 8.0% for the first 12 months, 10.0% for the subsequent 12 months, and 12.0% for the last 12 months, with no prepayment penalty. Interest expense is recognized using the effective interest method of approximately 9.1% over the life of the note. As of March 31, 2017, the Company had $3.9 million outstanding under the note with $1.6 million included in the current portion of long-term debt.

Total Long-Term Debt

The following table below summarizes long term debt (in thousands):

	March 31,			December 31,
	2017			2016
Borrowings under Credit Agreement	$	10,000		$	10,000
Promissory note		3,906			4,297
Total debt		13,906			14,297
Less: Current portion of long-term debt		(1,634	)		(1,604	)
Long-term debt	$	12,272		$	12,693

For the three months ended March 31, 2017, the Company had no borrowings and $0.4 million in repayments of borrowings.

For the three months ended March 31, 2017 and 2016, interest on borrowings averaged 4.92% and 2.79% per annum, respectively. Average interest on borrowings for the three months ended March 31, 2017 and 2016, excludes commitment fees of $0.1 million and $0.1 million, respectively. The Company did not capitalized any costs associated with its borrowings for the three months ended March 31, 2017. The Company capitalized $0.003 million of costs associated with its borrowings for the three months ended March 31, 2016. These costs are included in Other noncurrent assets on the Company’s Condensed Consolidated Balance Sheets. The Company’s policy is to capitalize the financing costs associated with the Credit Agreement and amortize those costs on a straight-line basis over the term of the Credit Agreement.