The accompanying Condensed Consolidated Financial Statements are unaudited except the Consolidated Balance Sheet at December 31, 2019, which is derived from the Company’s audited financial statements, and are presented in accordance with the requirements of accounting principles generally accepted in the United States (“U.S. GAAP”) for interim reporting. They do not include all disclosures normally made and contained in annual financial statements. In management’s opinion, all adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods disclosed have been made. All such adjustments are of a normal recurring nature. These interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements, and the notes to those statements, which are included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 10, 2020.

Operating results for interim periods may not necessarily be indicative of the results of operations for the full year ending December 31, 2020 or any other future periods, due to fluctuations in demand and the prices received for natural gas, NGLs and oil, the impacts of the COVID-19 pandemic, and other factors.

Preparation in accordance with U.S. GAAP requires the Company to (1) adopt accounting policies within accounting rules set by the Financial Accounting Standards Board (“FASB”) and (2) make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and other disclosed amounts. Note 3—Summary of Significant Accounting Policies describes our significant accounting policies. The Company’s management believes the major estimates and assumptions impacting the Condensed Consolidated Financial Statements are the following:

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estimates of proved reserves of oil and natural gas, which affect the calculations of depreciation, depletion, amortization and accretion and impairment of capitalized costs of oil and natural gas properties;

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estimates of asset retirement obligations;

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estimates of the fair value of oil and natural gas properties the Company owns, particularly properties that the Company has not yet explored, or fully explored, by drilling and completing wells;

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impairment of undeveloped properties and other assets; and

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depreciation and depletion of property and equipment.

Actual results may differ from estimates and assumptions of future events and these revisions could be material. Future production may vary materially from estimated oil and natural gas proved reserves. Actual future prices may vary significantly from price assumptions.

On August 12, 2020, the Company entered into an Agreement and Plan of Merger (the “Southwestern Merger Agreement”) with Southwestern, pursuant to which the Company will merge with and into Southwestern, with Southwestern continuing as the surviving corporation (the “merger”). On the terms and subject to the conditions set forth in the Southwestern Merger Agreement, upon consummation of the merger, each issued and outstanding share of the Company’s common stock will be converted into the right to receive 1.8656 shares of Southwestern common stock.

The merger is subject to various closing conditions, including, but not limited to, (i) the adoption of the Southwestern Merger Agreement by the holders of a majority of the Company’s outstanding common stock entitled to vote, (ii) the absence of any law, order or injunction prohibiting the merger, (iii) the expiration or earlier termination of the waiting period under the Hart–Scott–Rodino Antitrust Improvements Act of 1976, as amended (which termination was received on September 9, 2020), (iv) the SEC having declared effective Southwestern’s registration statement on Form S-4 filed in connection with the merger (which the SEC declared on October 6, 2020), (v) the shares of Southwestern common stock issuable in connection with the merger having been authorized for listing on the New York Stock Exchange, upon official notice of issuance, (vi) the accuracy of each party’s representations and warranties, and (vii) each party’s compliance with its covenants and agreements contained in the Southwestern Merger Agreement.

The Southwestern Merger Agreement provides for certain termination rights for both the Company and Southwestern, including the right of either party to terminate the Southwestern Merger Agreement if the merger is not consummated by February 12, 2021 (provided certain conditions are met). Upon termination of the Southwestern Merger Agreement under specified circumstances, the Company would be required to pay Southwestern a termination fee of $9.7 million.

In connection with the merger, Southwestern filed with the SEC, on October 2, 2020, an amendment to the registration statement on Form S-4 that was originally filed on September 16, 2020, which includes a proxy statement of the Company. The proxy statement also constitutes a prospectus of Southwestern with respect to the shares of Southwestern common stock to be issued to the Company’s stockholders pursuant to the Southwestern Merger Agreement. The registration statement was declared effective by the SEC on October 6, 2020, and the Company commenced mailing the definitive proxy statement/prospectus to the Company’s stockholders on or about October 8, 2020. The Company will hold a special meeting of its stockholders on November 12, 2020 in connection with the merger. Subject to the satisfaction or waiver of the closing conditions, the merger is expected to close in the fourth quarter of 2020.

Additional information on the proposed merger is included in the Form S-4/A filed by Southwestern with the SEC on October 2, 2020, the definitive proxy statement/prospectus filed by the Company with the SEC on October 6, 2020, and this Quarterly Report, including Part II, Item 1A.