CHAPTER 11 FILING, LIQUIDITY AND GOING CONCERN	9 Months Ended
Sep. 30, 2020
Liquidity Disclosure [Abstract]
CHAPTER 11 FILING, LIQUIDITY AND GOING CONCERN	NOTE 2 - CHAPTER 11 FILING, LIQUIDITY AND GOING CONCERN Voluntary Petitions under Chapter 11 of the Bankruptcy Code On June 28, 2020 (the “Petition Date”), Lilis Energy, Inc. and its consolidated subsidiaries Brushy Resources, Inc., ImPetro Operating LLC, ImPetro Resources, LLC, Lilis Operating Company, LLC and Hurricane Resources LLC (collectively, the “Debtors”) filed voluntary petitions seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”) commencing cases for relief under Chapter 11 of the Bankruptcy Code (the “Chapter 11 Cases”). The Chapter 11 Cases are being jointly administered under the caption In re Lilis Energy, Inc., et al., Case No. 20-33274. We are currently operating our business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court, in accordance with the applicable provisions of the Bankruptcy Code. To maintain and continue uninterrupted ordinary course operations during the bankruptcy proceedings, the Debtors filed a variety of “first day” motions seeking approval from the Bankruptcy Court for various forms of customary relief designed to minimize the effect of bankruptcy on the Debtors’ operations, customers and employees. On June 29, 2020, the Bankruptcy Court entered orders approving all requested “first day” relief. As a result, we are able to conduct normal business activities and pay all associated obligations for the period following our bankruptcy filing and (subject to caps applicable to payments of certain pre-petition obligations) certain pre-petition obligations, including, but not limited to: employee wages and benefits, pre-petition amounts owed to certain lienholders and critical vendors and funds belonging to third parties, including royalty interest and working interest holders and partners. During the pendency of the Chapter 11 Cases, all transactions outside the ordinary course of our business require the prior approval of the Bankruptcy Court. On June 28, 2020, the Debtors entered into a restructuring support agreement (the “RSA”) with (i) the lenders under our Revolving Credit Facility (other than Värde) (each as defined below) (the “Consenting RBL Lenders”) and (ii) certain investment funds and entities affiliated with Värde Partners, Inc. (collectively, “Värde”) which collectively own all of our outstanding preferred stock and a subordinated participation in that certain Second Amended and Restated Senior Secured Revolving Credit Agreement dated as of October 10, 2018 (as amended, the “Revolving Credit Agreement” and the loan facility, the “Revolving Credit Facility”), by and among Lilis Energy, Inc., as borrower, the other Debtors, as guarantors, BMO Harris Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders party thereto (“RBL Lenders”), which contemplated (a) a dual-track path in the Chapter 11 Cases whereby the Debtors would simultaneously pursue a plan of reorganization funded, in part, by a $55 million new money equity commitment (the “Värde Equity Investment”) from Värde in its sole discretion while also preparing for a potential process to sell substantially all of the Debtors’ assets in the event a definitive agreement and an executed commitment for the Värde Equity Investment could not be achieved by fifty (50) days after the commencement of the Chapter 11 Cases (the “Sales Process”), (b) a Senior Secured Super-Priority Debtor-in-Possession Credit Agreement (the “DIP Credit Agreement”) and related super-priority senior secured debtor-in-possession credit facility (the “DIP Facility”), (c) the terms of a replacement debtor-in-possession credit agreement and replacement DIP credit facility and (d) the form of an equity commitment letter contemplating the Värde Equity Commitment in Värde’s sole discretion. On August 17, 2020, the Company announced that Värde had declined to pursue the Värde Equity Investment to sponsor a Chapter 11 plan of reorganization. Immediately thereafter, the Company and the other Debtors began solely pursuing the Sales Process. In connection with Värde’s election to not pursue the Värde Equity Investment, the Debtors, the Consenting RBL Lenders and Värde entered into that certain Mutual Termination of the RSA, dated August 21, 2020 (the “Mutual Termination”). Pursuant to the RSA and the Mutual Termination, certain provisions of the RSA survive the Mutual Termination, in particular, certain commitments and obligations related to the Sales Process that will remain in full force and effect notwithstanding the Mutual Termination. On September 3, 2020 and October 13, 2020, respectively, the Debtors filed a joint liquidating Chapter 11 plan (as amended from time to time, the “Plan”) and a first amended Plan with the Bankruptcy Court. On October 14, 2020, the Bankruptcy Court approved the Debtors’ disclosure statement with respect to the Plan, which authorized the Debtors to commence votes to accept or reject the Plan. On October 16, 2020, the Debtors completed such solicitation. On October 16, 2020, the Debtors received an initial round of bids from third parties interested in acquiring substantially all of the Debtors’ assets in connection with the Sales Process. An auction in connection with the Sales Process was held on November 5, 2020, and a hearing before the Bankruptcy Court is scheduled for November 9, 2020, to consider approval of the winning bid(s) from the auction. On October 12, 2020, the Debtors, the DIP Facility Lenders, the Non-Affiliated RBL Lenders, the Värde Parties, and the Committee (collectively, the “Settlement Parties”) reached an agreement on a global settlement (the “Global Settlement”), which resolves various actual and potential disputes between the Settlement Parties. On October 12, 2020, the Debtors filed the Emergency Motion of Debtors for Entry of an Order (I) Approving the Terms of, and Authorizing the Debtors to Enter Into and Perform Under, the Settlement Agreement and (II) Granting Related Relief [Docket No. 462] (the “Settlement Motion”) seeking approval of certain aspects of the Global Settlement. On October 22, 2020, the Bankruptcy Court entered an order approving the Settlement Motion. Certain other aspects of the Global Settlement are being implemented through the Plan. There can be no assurance that the Debtors will confirm the Plan with the Bankruptcy Court and consummate a sale of substantially all of their assets pursuant to the Sales Process or complete an alternative Chapter 11 plan. For the duration of our Chapter 11 Cases, our operations and our ability to develop and execute a business plan are subject to risks and uncertainties associated with bankruptcy. DIP Facility. Upon the interim approval of the Bankruptcy Court, the Debtors, as borrower and guarantors, the Consenting RBL Lenders (in that capacity, “DIP Lenders”) and the Administrative Agent entered into the DIP Credit Agreement, under which the DIP Lenders provide the DIP Facility providing for an aggregate principal amount of (i) $15.0 million of new money revolving commitments, of which up to $5.0 million was available upon entry of the interim order, with the remainder available upon entry of the final order, plus (ii) a tranche of roll-up term loans to refinance $15.0 million of the outstanding loans under the Revolving Credit Facility, including $1.5 million pre-petition bridge loans that the Non-Affiliate RBL Lenders advanced to the Company on June 17, 2020, of which $1.5 million of roll-up term loans were incurred upon entry of an interim order, and the remaining $13.5 million incurred upon entry of the final order. On June 29, 2020, the Bankruptcy Court entered an order (the “Interim DIP Order”) granting interim approval of the DIP Facility, thereby permitting the Company to incur up to $5.0 million new money loans on an interim basis. The DIP Credit Agreement was entered into on June 30, 2020. On August 21, 2020, the Bankruptcy Court entered an order granting final approval of the DIP Facility, thereby permitting the Company to borrow an additional $10.0 million. Also on August 21, 2020, the Company used $13.5 million in roll-up term loans under the DIP Facility to refinance $13.5 million of the outstanding loan under the Revolving Credit Facility. As of September 30, 2020, there was $30.0 million outstanding balance under the DIP Credit Agreement. In connection with the Debtors’ transition to the Sales Process, the Debtors, the Administrative Agent and the DIP Facility Lenders executed several amendments between August 17, 2020 and October 30, 2020 to the DIP Credit Agreement to extend certain milestones in the DIP Facility as the Debtors pivoted to the Sales Process. The proceeds of the DIP Facility are being used to pay fees, expenses and other expenditures of the Debtors set forth in rolling budgets prepared as part of the Chapter 11 Cases, which are subject to approval by the DIP Lenders. Acceleration of Our Existing Debt and Automatic Stay Due to Chapter 11 Filing As of September 30, 2020, we had $74.9 million of indebtedness outstanding under our Revolving Credit Agreement including $25.7 million of such principal held by an affiliate of Värde which was subordinated to the indebtedness of the other RBL Lenders under the Revolving Credit Agreement. On June 5, 2020, the Debtors, the Administrative Agent, and certain lenders entered into a Limited Forbearance Agreement to the Revolving Credit Agreement (the “Forbearance Agreement”). Pursuant to the Forbearance Agreement, the Administrative Agent and the Majority Lenders agreed to refrain from exercising certain of their rights and remedies under the Revolving Credit Agreement and related documents arising solely as a result of the occurrence or continuance of certain specified defaults and events of default under the Revolving Credit Agreement (the “Specified Defaults”) during the Forbearance Period (as defined below). The Specified Defaults include the Company’s failure to make the borrowing base deficiency payment due June 5, 2020, deliver certain financial statements when due, failure to comply with requirements related to the status of trade payables and related liens and failure to maintain the leverage ratio and asset coverage ratio required by the Revolving Credit Agreement as of the fiscal quarter ended March 31, 2020. The “Forbearance Period” expired on June 26, 2020. The Company did not make the borrowing base deficiency payment. The Forbearance Agreement also deferred the scheduled spring redetermination of the borrowing base under the Revolving Credit Agreement from on or about June 5, 2020 to on or about June 26, 2020. The redetermination did not happen as a result of the Chapter 11 filing. The Forbearance Agreement permitted the lenders under the Revolving Credit Agreement, or the RBL Lenders, in their capacity as counterparties to the Company’s commodity swap agreements to unwind and liquidate such swap arrangements during the Forbearance Period and to apply any net proceeds to pay down the outstanding obligations under the Revolving Credit Agreement. The swap positions of such lenders were liquidated on June 9, 2020, for net proceeds of approximately $9.3 million, which was applied to reduce the outstanding obligations of the Company under the Revolving Credit Agreement. On June 17, 2020, certain of the RBL Lenders permitted the Company to borrow $1.5 million under the Revolving Credit Agreement. As of the filing of the Chapter 11 Cases, the remaining outstanding principal on our Revolving Credit Agreement was $89.9 million, including $25.7 million of such principal held by an affiliate of Värde which was subordinated to the indebtedness of the other RBL Lenders under the Revolving Credit Agreement. Our remaining derivative contracts were with counterparties that were not our RBL Lenders and were governed by master agreements which generally specify that a default under any of our indebtedness as well as any bankruptcy filing is an event of default which may result in early termination of the derivative contracts. As a result of our debt defaults and our bankruptcy petition, we were in default under these remaining derivative contracts. In July 2020, the remaining derivative contracts were terminated in conjunction with our bankruptcy proceedings. Furthermore, since we are in default on our indebtedness and have a bankruptcy filing, we will no longer be able to represent that we comply with the credit default or bankruptcy covenants under our derivative master agreements and thus may not be able to enter into new hedging transactions. The commencement of a voluntary proceeding in bankruptcy constitutes an immediate event of default under the Revolving Credit Agreement, resulting in the automatic and immediate acceleration of all of the Company’s outstanding debt. The Company has classified its outstanding balance under the Revolving Credit Facility as liabilities subject to compromise on its condensed consolidated balance sheet as of September 30, 2020. Subject to certain exceptions, under the Bankruptcy Code, the filing of the bankruptcy petitions on the Petition Date automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or the filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Petition Date. Creditors are stayed from taking any actions against the Debtors as a result of debt defaults, subject to certain limited exceptions permitted by the Bankruptcy Code Ability to Continue as a Going Concern We have experienced losses and working capital deficiencies, and in the past, significant negative cash flows from operations. Additionally, our liquidity and operating forecasts have been negatively impacted by the recent decrease in commodity prices and resulting temporary shut-in of wells, which has negatively impacted our ability to comply with debt covenants under our Revolving Credit Agreement. Commodity price volatility, as well as concerns about the COVID-19 pandemic, has significantly decreased worldwide demand for oil and natural gas. These factors have restricted our access to liquidity and lead the company to seek relief through filing our Chapter 11 cases. As a result, the Company has concluded these matters raise substantial doubt about the Company’s ability to continue as a going concern. Fluctuations in oil and natural gas prices have a material impact on our financial position, results of operations, cash flows and quantities of oil, natural gas and NGL reserves that may be economically produced. Historically, oil and natural gas prices have been volatile, and may be subject to wide fluctuations in the future. If continued depressed prices persist, the Company will continue to experience impairment of oil and natural gas properties, operating losses, negative cash flows from operating activities, and negative working capital. We face uncertainty regarding the adequacy of our liquidity and capital resources and have extremely limited access to additional financing. The Interim DIP Order entered by the Bankruptcy Court on June 29, 2020 approved the DIP Facility on an interim basis, thereby allowing us to borrow up to $5.0 million under the DIP Facility which we borrowed June 30, 2020. The final order by the Bankruptcy Court approving the DIP Facility and the DIP Credit Agreement allowed us to borrow the additional $10.0 million new money loans under the DIP Facility. There is no remaining available borrowing capacity under the DIP Facility as of September 30, 2020. In addition to the cash requirement necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with preparation for the Chapter 11 Cases and expect that we will continue to incur significant professional fees, costs and other expenses throughout our Chapter 11 Cases. The Company’s operations and its ability to develop and execute its business plan are subject to a high degree of risk and uncertainty associated with the Chapter 11 Cases. The outcome of the Chapter 11 Cases is subject to a high degree of uncertainty and is dependent upon factors that are outside of the Company’s control, including actions of the Bankruptcy Court and the Company’s creditors. There can be no assurance that the Debtors will confirm the Plan with the Bankruptcy Court and consummate a sale of substantially all of their assets pursuant to the Sales Process or complete an alternative Chapter 11 plan. These 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 for the twelve-month period following the date of issuance of these consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amount, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern. COVID-19 On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency due to the COVID-19 outbreak, which originated in Wuhan, China, and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. In addition, in March 2020, members of OPEC failed to agree on production levels which has caused increased supply and led to a substantial decrease in oil prices and an increasingly volatile market. The oil price war ended with a deal to cut global petroleum output but did not go far enough to offset the impact of COVID-19 on demand. If depressed pricing continues it will lead to i) reductions in availability under any reserve-based lending arrangements we may enter into or limitations in the ability to enter into reserve-based lending arrangements, ii) additional reductions in reserves, and iii) additional impairment of proved and unproved oil and gas properties. We also expect disclosures of supplemental oil and gas information to be impacted by price declines. The substantial decrease, and continued suppression, in oil prices has resulted in a full-cost ceiling impairment of $62.2 million and $94.9 million, respectively, during the three and nine months ended September 30, 2020. In response to recent commodity prices and our efforts to strengthen our capital through reducing operating costs, during April 2020 the Company elected to shut-in 12 wells which were identified as uneconomic as a result of the continued decline in commodity prices in 2020 and 19 additional wells were identified for short term shut-in through May and June 2020. In late May, 2020, 16 of the shut-in wells were back on production. Another 12 shut-in wells were back on production in early June 2020. In June 2020, the Company also laid off a significant number of employees to further reduce general and administrative costs. The full impact of the COVID-19 outbreak and the oversupply of oil and resulting decrease in oil prices continues to evolve as of the date of these financial statements. As such, it is uncertain as to the full magnitude that they will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2020. These matters could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown, which the Company expects would further impair the Company’s asset values, including reserve estimates. Further, consumer demand has decreased since the spread of the outbreak and new travel restrictions placed by governments in an effort to curtail the spread of the coronavirus. Although the Company cannot estimate the length or gravity of the impacts of these events at this time, if the pandemic and/or decreased oil prices continue, they will have a material adverse effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2020.

CHAPTER 11 FILING, LIQUIDITY AND GOING CONCERN

9 Months Ended

Sep. 30, 2020

CHAPTER 11 FILING, LIQUIDITY AND GOING CONCERN

NOTE 2 - CHAPTER 11 FILING, LIQUIDITY AND GOING CONCERN

Voluntary Petitions under Chapter 11 of the Bankruptcy Code

On June 28, 2020 (the “Petition Date”), Lilis Energy, Inc. and its consolidated subsidiaries Brushy Resources, Inc., ImPetro Operating LLC, ImPetro Resources, LLC, Lilis Operating Company, LLC and Hurricane Resources LLC (collectively, the “Debtors”) filed voluntary petitions seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”) commencing cases for relief under Chapter 11 of the Bankruptcy Code (the “Chapter 11 Cases”). The Chapter 11 Cases are being jointly administered under the caption In re Lilis Energy, Inc., et al., Case No. 20-33274. We are currently operating our business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court, in accordance with the applicable provisions of the Bankruptcy Code.

To maintain and continue uninterrupted ordinary course operations during the bankruptcy proceedings, the Debtors filed a variety of “first day” motions seeking approval from the Bankruptcy Court for various forms of customary relief designed to minimize the effect of bankruptcy on the Debtors’ operations, customers and employees. On June 29, 2020, the Bankruptcy Court entered orders approving all requested “first day” relief. As a result, we are able to conduct normal business activities and pay all associated obligations for the period following our bankruptcy filing and (subject to caps applicable to payments of certain pre-petition obligations) certain pre-petition obligations, including, but not limited to: employee wages and benefits, pre-petition amounts owed to certain lienholders and critical vendors and funds belonging to third parties, including royalty interest and working interest holders and partners. During the pendency of the Chapter 11 Cases, all transactions outside the ordinary course of our business require the prior approval of the Bankruptcy Court.

On June 28, 2020, the Debtors entered into a restructuring support agreement (the “RSA”) with (i) the lenders under our Revolving Credit Facility (other than Värde) (each as defined below) (the “Consenting RBL Lenders”) and (ii) certain investment funds and entities affiliated with Värde Partners, Inc. (collectively, “Värde”) which collectively own all of our outstanding preferred stock and a subordinated participation in that certain Second Amended and Restated Senior Secured Revolving Credit Agreement dated as of October 10, 2018 (as amended, the “Revolving Credit Agreement” and the loan facility, the “Revolving Credit Facility”), by and among Lilis Energy, Inc., as borrower, the other Debtors, as guarantors, BMO Harris Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders party thereto (“RBL Lenders”), which contemplated (a) a dual-track path in the Chapter 11 Cases whereby the Debtors would simultaneously pursue a plan of reorganization funded, in part, by a $55 million new money equity commitment (the “Värde Equity Investment”) from Värde in its sole discretion while also preparing for a potential process to sell substantially all of the Debtors’ assets in the event a definitive agreement and an executed commitment for the Värde Equity Investment could not be achieved by fifty (50) days after the commencement of the Chapter 11 Cases (the “Sales Process”), (b) a Senior Secured Super-Priority Debtor-in-Possession Credit Agreement (the “DIP Credit Agreement”) and related super-priority senior secured debtor-in-possession credit facility (the “DIP Facility”), (c) the terms of a replacement debtor-in-possession credit agreement and replacement DIP credit facility and (d) the form of an equity commitment letter contemplating the Värde Equity Commitment in Värde’s sole discretion.

On August 17, 2020, the Company announced that Värde had declined to pursue the Värde Equity Investment to sponsor a Chapter 11 plan of reorganization. Immediately thereafter, the Company and the other Debtors began solely pursuing the Sales Process. In connection with Värde’s election to not pursue the Värde Equity Investment, the Debtors, the Consenting RBL Lenders and Värde entered into that certain Mutual Termination of the RSA, dated August 21, 2020 (the “Mutual Termination”). Pursuant to the RSA and the Mutual Termination, certain provisions of the RSA survive the Mutual Termination, in particular, certain commitments and obligations related to the Sales Process that will remain in full force and effect notwithstanding the Mutual Termination.

On September 3, 2020 and October 13, 2020, respectively, the Debtors filed a joint liquidating Chapter 11 plan (as amended from time to time, the “Plan”) and a first amended Plan with the Bankruptcy Court. On October 14, 2020, the Bankruptcy Court approved the Debtors’ disclosure statement with respect to the Plan, which authorized the Debtors to commence votes to accept or reject the Plan. On October 16, 2020, the Debtors completed such solicitation. On October 16, 2020, the Debtors received an initial round of bids from third parties interested in acquiring substantially all of the Debtors’ assets in connection with the Sales Process. An auction in connection with the Sales Process was held on November 5, 2020, and a hearing before the Bankruptcy Court is scheduled for November 9, 2020, to consider approval of the winning bid(s) from the auction.

On October 12, 2020, the Debtors, the DIP Facility Lenders, the Non-Affiliated RBL Lenders, the Värde Parties, and the Committee (collectively, the “Settlement Parties”) reached an agreement on a global settlement (the “Global Settlement”), which resolves various actual and potential disputes between the Settlement Parties. On October 12, 2020, the Debtors filed the Emergency Motion of Debtors for Entry of an Order (I) Approving the Terms of, and Authorizing the Debtors to Enter Into and Perform Under, the Settlement Agreement and (II) Granting Related Relief [Docket No. 462] (the “Settlement Motion”) seeking approval of certain aspects of the Global Settlement. On October 22, 2020, the Bankruptcy Court entered an order approving the Settlement Motion. Certain other aspects of the Global Settlement are being implemented through the Plan.

There can be no assurance that the Debtors will confirm the Plan with the Bankruptcy Court and consummate a sale of substantially all of their assets pursuant to the Sales Process or complete an alternative Chapter 11 plan. For the duration of our Chapter 11 Cases, our operations and our ability to develop and execute a business plan are subject to risks and uncertainties associated with bankruptcy.

DIP Facility.

Upon the interim approval of the Bankruptcy Court, the Debtors, as borrower and guarantors, the Consenting RBL Lenders (in that capacity, “DIP Lenders”) and the Administrative Agent entered into the DIP Credit Agreement, under which the DIP Lenders provide the DIP Facility providing for an aggregate principal amount of (i) $15.0 million of new money revolving commitments, of which up to $5.0 million was available upon entry of the interim order, with the remainder available upon entry of the final order, plus (ii) a tranche of roll-up term loans to refinance $15.0 million of the outstanding loans under the Revolving Credit Facility, including $1.5 million pre-petition bridge loans that the Non-Affiliate RBL Lenders advanced to the Company on June 17, 2020, of which $1.5 million of roll-up term loans were incurred upon entry of an interim order, and the remaining $13.5 million incurred upon entry of the final order. On June 29, 2020, the Bankruptcy Court entered an order (the “Interim DIP Order”) granting interim approval of the DIP Facility, thereby permitting the Company to incur up to $5.0 million new money loans on an interim basis. The DIP Credit Agreement was entered into on June 30, 2020. On August 21, 2020, the Bankruptcy Court entered an order granting final approval of the DIP Facility, thereby permitting the Company to borrow an additional $10.0 million. Also on August 21, 2020, the Company used $13.5 million in roll-up term loans under the DIP Facility to refinance $13.5 million of the outstanding loan under the Revolving Credit Facility. As of September 30, 2020, there was $30.0 million outstanding balance under the DIP Credit Agreement.

In connection with the Debtors’ transition to the Sales Process, the Debtors, the Administrative Agent and the DIP Facility Lenders executed several amendments between August 17, 2020 and October 30, 2020 to the DIP Credit Agreement to extend certain milestones in the DIP Facility as the Debtors pivoted to the Sales Process. The proceeds of the DIP Facility are being used to pay fees, expenses and other expenditures of the Debtors set forth in rolling budgets prepared as part of the Chapter 11 Cases, which are subject to approval by the DIP Lenders.

Acceleration of Our Existing Debt and Automatic Stay Due to Chapter 11 Filing

As of September 30, 2020, we had $74.9 million of indebtedness outstanding under our Revolving Credit Agreement including $25.7 million of such principal held by an affiliate of Värde which was subordinated to the indebtedness of the other RBL Lenders under the Revolving Credit Agreement.

On June 5, 2020, the Debtors, the Administrative Agent, and certain lenders entered into a Limited Forbearance Agreement to the Revolving Credit Agreement (the “Forbearance Agreement”).

Pursuant to the Forbearance Agreement, the Administrative Agent and the Majority Lenders agreed to refrain from exercising certain of their rights and remedies under the Revolving Credit Agreement and related documents arising solely as a result of the occurrence or continuance of certain specified defaults and events of default under the Revolving Credit Agreement (the “Specified Defaults”) during the Forbearance Period (as defined below). The Specified Defaults include the Company’s failure to make the borrowing base deficiency payment due June 5, 2020, deliver certain financial statements when due, failure to comply with requirements related to the status of trade payables and related liens and failure to maintain the leverage ratio and asset coverage ratio required by the Revolving Credit Agreement as of the fiscal quarter ended March 31, 2020. The “Forbearance Period” expired on June 26, 2020. The Company did not make the borrowing base deficiency payment.

The Forbearance Agreement also deferred the scheduled spring redetermination of the borrowing base under the Revolving Credit Agreement from on or about June 5, 2020 to on or about June 26, 2020. The redetermination did not happen as a result of the Chapter 11 filing.

The Forbearance Agreement permitted the lenders under the Revolving Credit Agreement, or the RBL Lenders, in their capacity as counterparties to the Company’s commodity swap agreements to unwind and liquidate such swap arrangements during the Forbearance Period and to apply any net proceeds to pay down the outstanding obligations under the Revolving Credit Agreement. The swap positions of such lenders were liquidated on June 9, 2020, for net proceeds of approximately $9.3 million, which was applied to reduce the outstanding obligations of the Company under the Revolving Credit Agreement. On June 17, 2020, certain of the RBL Lenders permitted the Company to borrow $1.5 million under the Revolving Credit Agreement. As of the filing of the Chapter 11 Cases, the remaining outstanding principal on our Revolving Credit Agreement was $89.9 million, including $25.7 million of such principal held by an affiliate of Värde which was subordinated to the indebtedness of the other RBL Lenders under the Revolving Credit Agreement.

Our remaining derivative contracts were with counterparties that were not our RBL Lenders and were governed by master agreements which generally specify that a default under any of our indebtedness as well as any bankruptcy filing is an event of default which may result in early termination of the derivative contracts. As a result of our debt defaults and our bankruptcy petition, we were in default under these remaining derivative contracts. In July 2020, the remaining derivative contracts were terminated in conjunction with our bankruptcy proceedings. Furthermore, since we are in default on our indebtedness and have a bankruptcy filing, we will no longer be able to represent that we comply with the credit default or bankruptcy covenants under our derivative master agreements and thus may not be able to enter into new hedging transactions.

The commencement of a voluntary proceeding in bankruptcy constitutes an immediate event of default under the Revolving Credit Agreement, resulting in the automatic and immediate acceleration of all of the Company’s outstanding debt. The Company has classified its outstanding balance under the Revolving Credit Facility as liabilities subject to compromise on its condensed consolidated balance sheet as of September 30, 2020.

Subject to certain exceptions, under the Bankruptcy Code, the filing of the bankruptcy petitions on the Petition Date automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or the filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Petition Date. Creditors are stayed from taking any actions against the Debtors as a result of debt defaults, subject to certain limited exceptions permitted by the Bankruptcy Code

Ability to Continue as a Going Concern

We have experienced losses and working capital deficiencies, and in the past, significant negative cash flows from operations. Additionally, our liquidity and operating forecasts have been negatively impacted by the recent decrease in commodity prices and resulting temporary shut-in of wells, which has negatively impacted our ability to comply with debt covenants under our Revolving Credit Agreement. Commodity price volatility, as well as concerns about the COVID-19 pandemic, has significantly decreased worldwide demand for oil and natural gas. These factors have restricted our access to liquidity and lead the company to seek relief through filing our Chapter 11 cases. As a result, the Company has concluded these matters raise substantial doubt about the Company’s ability to continue as a going concern.

Fluctuations in oil and natural gas prices have a material impact on our financial position, results of operations, cash flows and quantities of oil, natural gas and NGL reserves that may be economically produced. Historically, oil and natural gas prices have been volatile, and may be subject to wide fluctuations in the future. If continued depressed prices persist, the Company will continue to experience impairment of oil and natural gas properties, operating losses, negative cash flows from operating activities, and negative working capital.

We face uncertainty regarding the adequacy of our liquidity and capital resources and have extremely limited access to additional financing. The Interim DIP Order entered by the Bankruptcy Court on June 29, 2020 approved the DIP Facility on an interim basis, thereby allowing us to borrow up to $5.0 million under the DIP Facility which we borrowed June 30, 2020. The final order by the Bankruptcy Court approving the DIP Facility and the DIP Credit Agreement allowed us to borrow the additional $10.0 million new money loans under the DIP Facility. There is no remaining available borrowing capacity under the DIP Facility as of September 30, 2020. In addition to the cash requirement necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with preparation for the Chapter 11 Cases and expect that we will continue to incur significant professional fees, costs and other expenses throughout our Chapter 11 Cases.

The Company’s operations and its ability to develop and execute its business plan are subject to a high degree of risk and uncertainty associated with the Chapter 11 Cases. The outcome of the Chapter 11 Cases is subject to a high degree of uncertainty and is dependent upon factors that are outside of the Company’s control, including actions of the Bankruptcy Court and the Company’s creditors. There can be no assurance that the Debtors will confirm the Plan with the Bankruptcy Court and consummate a sale of substantially all of their assets pursuant to the Sales Process or complete an alternative Chapter 11 plan.

These 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 for the twelve-month period following the date of issuance of these consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amount, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.

COVID-19

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency due to the COVID-19 outbreak, which originated in Wuhan, China, and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

In addition, in March 2020, members of OPEC failed to agree on production levels which has caused increased supply and led to a substantial decrease in oil prices and an increasingly volatile market. The oil price war ended with a deal to cut global petroleum output but did not go far enough to offset the impact of COVID-19 on demand. If depressed pricing continues it will lead to i) reductions in availability under any reserve-based lending arrangements we may enter into or limitations in the ability to enter into reserve-based lending arrangements, ii) additional reductions in reserves, and iii) additional impairment of proved and unproved oil and gas properties. We also expect disclosures of supplemental oil and gas information to be impacted by price declines.

The substantial decrease, and continued suppression, in oil prices has resulted in a full-cost ceiling impairment of $62.2 million and $94.9 million, respectively, during the three and nine months ended September 30, 2020.

In response to recent commodity prices and our efforts to strengthen our capital through reducing operating costs, during April 2020 the Company elected to shut-in 12 wells which were identified as uneconomic as a result of the continued decline in commodity prices in 2020 and 19 additional wells were identified for short term shut-in through May and June 2020. In late May, 2020, 16 of the shut-in wells were back on production. Another 12 shut-in wells were back on production in early June 2020. In June 2020, the Company also laid off a significant number of employees to further reduce general and administrative costs.

The full impact of the COVID-19 outbreak and the oversupply of oil and resulting decrease in oil prices continues to evolve as of the date of these financial statements. As such, it is uncertain as to the full magnitude that they will have on the Company’s financial condition, liquidity, and future results of operations.

Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2020.

These matters could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown, which the Company expects would further impair the Company’s asset values, including reserve estimates. Further, consumer demand has decreased since the spread of the outbreak and new travel restrictions placed by governments in an effort to curtail the spread of the coronavirus. Although the Company cannot estimate the length or gravity of the impacts of these events at this time, if the pandemic and/or decreased oil prices continue, they will have a material adverse effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2020.