On September 30, 2020 (the “Petition Date”), Lonestar Resources US Inc., along with certain of its wholly-owned subsidiaries Lonestar Resources Intermediate Inc., LNR America Inc., Lonestar Resources America Inc., Amadeus Petroleum Inc., Albany Services, L.L.C., T-N-T Engineering, Inc., Lonestar Resources Inc., Lonestar Operating, LLC, Poplar Energy, LLC, Eagleford Gas, LLC, Eagleford Gas 2, LLC, Eagleford Gas 3, LLC, Eagleford Gas 4, LLC, Eagleford Gas 5, LLC, Eagleford Gas 6, LLC, Eagleford Gas 7, LLC, Eagleford Gas 8, LLC, Eagleford Gas 10, LLC, Eagleford Gas 11, LLC, Lonestar BR Disposal LLC, and La Salle Eagle Ford Gathering Line LLC (collectively, the “Debtors”) commenced voluntary cases (the “Chapter 11 Cases”) 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 (the “Bankruptcy Court”). The Chapter 11 Cases are being administered jointly under the caption In re Lonestar Resources US Inc., et al. Case No. 20-34805 (DRJ). Wholly-owned subsidiary, Boland Building, LLC, is not a Debtor and is not included in the Chapter 11 Cases.

On September 30, 2020, the Debtors also filed with the Bankruptcy Court a prepackaged Chapter 11 Plan of Reorganization (the "Restructuring Plan") and an accompanying disclosure statement describing the Restructuring Plan and the process of soliciting votes to accept or reject the Restructuring Plan from certain of the Debtor's creditors and equity holders. The Restructuring Plan was confirmed by the Bankruptcy Court on November 12, 2020.

The Debtors continue to operate their businesses and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In general, as debtors-in-possession under the Bankruptcy Code, the Debtors are authorized to continue to operate as an ongoing business; however, they may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. To that end, to ensure the Company’s ability to continue operating in the ordinary course of business during the pendency of the Chapter 11 Cases and minimize the effect of the Chapter 11 Cases on the Company’s customers and employees, the Company filed with the Bankruptcy Court, and the Bankruptcy Court approved, motions (the “First Day Motions”) on October 1, 2020 seeking a variety of relief. Pursuant to the First Day Motions, the Bankruptcy Court authorized the Company to conduct its business in the ordinary course, including to, among other things, pay employee wages and benefits, continue to operate the cash management system and honor certain pre-petition obligations related thereto, pay certain vendors and suppliers for goods and services provided both before and after the Petition Date, and other customary operational relief.

The Company has applied FASB ASC Topic 852 Reorganizations (“ASC 852”) in preparing the unaudited condensed consolidated financial statements, which specifies the accounting and financial reporting requirements for entities reorganizing through chapter 11 bankruptcy proceedings. These requirements include distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business. Accordingly, pre-petition liabilities that may be impacted by the chapter 11 proceedings have been classified as liabilities subject to compromise on the condensed consolidated balance sheet as of September 30, 2020. Additionally, certain expenses, realized gains and losses and provisions for losses that are realized or incurred during the Chapter 11 Cases, including adjustments to the carrying value of certain indebtedness are recorded as reorganization items, net in the condensed consolidated statements of operations for the three and nine months ended September 30, 2020. As discussed above, wholly-owned subsidiary, Boland Building, LLC (“Boland”), is not a debtor in the Chapter 11 Cases. Boland holds certain of the Company’s real estate assets and corresponding mortgage obligations. Boland’s assets, liabilities and operations are not material to the Company’s condensed financial statements. Accordingly, combined financial statements of only the Debtors have not been presented.

The commencement of a voluntary proceeding in bankruptcy constituted an immediate event of default under the Company's Credit Facility (as defined in Note 7. Long-Term Debt) and the indentures governing the Company’s 11.25% Senior Notes (as defined in Note 7. Long-Term Debt), resulting in the automatic and immediate acceleration of all of the debt outstanding with the exception of the building loans held by our subsidiary, Boland Building, LLC, and certain small financing loans. The Company has classified the 11.25% Senior Notes as liabilities subject to compromise on its condensed consolidated balance sheet as of September 30, 2020. The Credit Facility was not classified as liabilities subject to compromise because it is fully secured. Please refer to Liabilities Subject to Compromise below for more information. Pursuant to the Bankruptcy Code, and as further explained below, the filing of the Chapter 11 Cases automatically stayed most actions against the Debtors, including most actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Debtors’ property.

On September 14, 2020, the Debtors entered into a Restructuring Support Agreement (“RSA”) with certain holders of the Company’s 11.25% Senior Notes and certain lenders under the Company's Credit Facility and Citibank, N.A., as agent under the Credit Facility (such holders and lenders, collectively, the “Consenting Creditors”) to support a restructuring.

Under the terms of the RSA, the Company's 11.25% Senior Notes, including accrued unpaid interest, will be converted into new equity interests of the Company (“New Equity Interests”) and extinguished. In addition, lenders under the Company’s Credit Facility who agree to accept the prepackaged plan of reorganization under chapter 11 of the Bankruptcy Code will receive their pro rata share of warrants (the “New Warrants”, as discussed further below) to purchase up to 10% of the New Equity Interests (subject to dilution only by the issuance of new equity interests under a management incentive plan (“MIP Equity”)), revolving loans under an exit revolving credit facility, and term loans under a second-out exit term facility. Holders of preferred equity interests in the Company will receive their pro rata share of 3% of the New Equity Interests (subject to dilution by the MIP Equity and the New Warrants) and holders of existing Class A Common Stock in the Company will receive their pro rata share of 1% of the New Equity Interests (subject to dilution by the MIP Equity and New Warrants).

Each of the Company’s then-existing Forbearance Agreement and Notes Forbearance Agreements (each as subsequently defined) relating to the Company’s Credit Facility and 11.25% Senior Notes terminated in connection with the filing of the Chapter 11 Cases. However, the Consenting Creditors agreed to forbear from exercising certain rights and remedies while the RSA remains in full force and effect.

Subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, assume and assign, or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. The Company rejected two executory contracts, which were approved by the Bankruptcy Court.

The accompanying condensed consolidated balance sheet as of September 30, 2020 includes amounts classified as liabilities subject to compromise. These amounts represent the Debtors' estimate as of September 30, 2020 of known or potential obligations and may differ from actual future settlement amounts paid.


(in thousands)	September 30, 2020
Accounts payable	$	5,892
Accounts payable — related parties	139
Oil, natural gas liquid and natural gas sales	20,361
Accrued liabilities	29,229
Current maturities of long-term debt	252,157
Long-term debt	260
Equity warrant liability — related parties	1
Other non-current liabilities	1,154
Total liabilities subject to compromise	$	309,193

As noted above, on October 1, 2020 the Bankruptcy Court approved the First Day Motions seeking a variety of relief. Pursuant to the First Day Motions, the Bankruptcy Court authorized the Company to conduct its business in the ordinary course, including to, among other things, pay employee wages and benefits, continue to operate the cash management system and honor certain pre-petition obligations related thereto, pay certain vendors and suppliers for goods and services provided both before and after the Petition Date, and other customary operational relief. Subsequent to the First Day Motions hearing, the Company's liabilities subject to compromise included $250.0 million for the 11.25% Senior Notes (included in current maturities of long-term debt above) and $21.1 million of accrued interest on 11.25% Senior Notes (included in accrued liabilities above).

These amounts represent the Debtors’ current estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases and may differ from actual future settlement amounts paid. Differences between liabilities estimated and claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process. The Company will continue to evaluate these liabilities throughout the chapter 11 process and adjust amounts as necessary. Such adjustments may be material.

The Debtors have incurred and will continue to incur significant costs associated with the reorganization, primarily legal and professional fees. The amount of these costs, which since the Petition Date, are being expensed as incurred, are expected to significantly affect the Company’s results of operations. In accordance with applicable guidance, costs associated with the bankruptcy proceedings have been recorded as reorganization items within the Company's accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2020.

As of September 30, 2020, reorganization items, net consist of the elimination of approximately $3.1 million of unamortized discount and issuance costs related to the 11.25% Senior Notes (as defined in Note 7. Debt), as these instruments are unsecured and, under the terms of the Reorganization Plan, the 11.25% Senior Notes will be impaired. The write-off of the 11.25% Senior Notes discount and issuance costs is a non-cash reorganization item.

The Restructuring Plan provides that, on the effective date of the Restructuring Plan, the Debtors shall enter into (a) a first-out senior secured revolving credit facility in an amount equal to 80% of the aggregate outstanding principal amount of loans and letter of credit exposure under the existing Credit Facility with any lender under the Credit Facility that agrees to accept the Restructuring Plan (the “Accepting Lenders”); provided that, on the Plan effective date, the aggregate principal amount of the new revolving credit facility shall not be less than $152 million, (b) a second-out-senior-secured term loan credit facility in an amount equal to 20% of the aggregate outstanding principal amount of loans and letter of credit exposure under the Company’s existing Credit Facility of the Accepting Lenders, and (c) if necessary, a last-out-senior-secured term loan credit facility in an amount equal to 100% of the aggregate outstanding principal amount of loans and letter of credit exposure of any lenders under the existing Credit Facility that do not accept the Restructuring Plan or otherwise are not Accepting Lenders. Each of the lenders under the existing Credit Facility has voted to accept the Restructuring Plan and, therefore, if the Restructuring Plan is consummated as expected, there will be no last-out-senior-secured term loan credit facility.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These financial statements and the notes thereto should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 filed on April 13, 2020 and subsequently amended (as amended, the “Form 10-K”). Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” “Company” or “Lonestar,” refer to Lonestar Resources US Inc. and its subsidiaries.

The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the year. In management’s opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of our consolidated financial position as of September 30, 2020 and our consolidated results of operations for the three and nine months ended September 30, 2020 and September 30, 2019.

As discussed above, the filing of the Chapter 11 Cases constituted an event of default under the Company's 11.25% Senior Notes and Credit Facility, which resulted in the automatic and immediate acceleration of all of the Company's debt outstanding with the exception of the building loans held by the subsidiary Boland Building, LLC and certain small financing loans. The Company projects that it will not have sufficient cash on hand or available liquidity to repay such debt. These conditions and events, along with uncertainties associated with the bankruptcy process, raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s ability to continue as a going concern is contingent upon, among other things, its ability to implement the Restructuring Plan, successfully emerge from the Chapter 11 Cases and generate sufficient liquidity from the Restructuring to meet its obligations and operating needs on an ongoing basis. As a result of risks and uncertainties related to the effects of disruption from the Chapter 11 Cases making it more difficult to maintain business, financing and operational relationships, the Company has concluded that management’s plans do not alleviate substantial doubt regarding the Company’s ability to continue as a going concern.

The COVID-19 pandemic has caused a rapid and precipitous drop in demand for oil, which in turn has caused oil prices to plummet since the first week of March 2020, negatively affecting the Company’s cash flow, liquidity and financial position. These events have worsened an already deteriorated oil market that resulted from the early-March 2020 failure by the group of oil producing nations known as OPEC+ to reach an agreement over proposed oil production cuts. Moreover, the uncertainty about the duration of the COVID-19 pandemic has caused storage constraints in the United States resulting from over-supply of produced oil, which has significantly decreased our realized oil prices in the second and third quarters of 2020 and potentially beyond. Oil prices are expected to continue to be volatile as a result of these events and the ongoing COVID-19 outbreak, and as changes in oil inventories, oil demand and economic performance are reported. Although some market stabilization occurred in the third quarter of 2020, activity levels for the remainder of 2020 are expected to remain low and the long-term outlook is uncertain.

The current pandemic and uncertainty about its length and depth in future periods has caused the realized oil prices the Company has received since February 2020 to be significantly reduced, adversely affecting its operating cash flow and liquidity. Although the Company has reduced its 2020 capital expenditures budget, the lower levels of cash flow may require it to shut-in production that has become uneconomic in addition to shut-ins of production that the Company performed during the second quarter of 2020 (see below).

The COVID-19 pandemic is rapidly evolving, and the ultimate impact of this pandemic is highly uncertain and subject to change. The extent of the impact of the COVID-19 pandemic on the Company's operational and financial performance will depend on future developments, including the duration and spread of the pandemic, its severity, the actions to contain the disease or mitigate its impact, related restrictions on travel, and the duration, timing and severity of the impact on domestic and global oil demand.

5.Entered into new natural gas swaps in October 2020 for January 2021 through December 2021, which hedge 10,000 MMBtu per day at an average price of $3.04 per MMBtu, and also entered into natural gas swaps for January 2022 through December 2022, which hedge 5,000 MMBtu per day at an average price of $2.70 per MMBtu. In November 2020, the Company entered into new crude oil swaps for December 2020, which hedge 4,000 barrels per day at an average price of $41.08 per barrel. The Company also entered into new crude oil swaps for January 2021 through December 2021, which hedge 1,000 barrels per day at an average price of $42.20 per barrel. Prior to the Chapter 11 Cases, the Company terminated and monetized its existing hedge portfolio in September 2020.

On July 2, 2020, the Company entered into a Forbearance Agreement, Fourteenth Amendment, and Borrowing Base Agreement with Citibank, N.A., as administrative agent and the lenders party thereto (the “Forbearance Agreement”) with respect to the Credit Facility. Pursuant to the Forbearance Agreement, among other things, (i) the lenders under the Credit Facility agreed to refrain from exercising their rights and remedies under the Credit Facility and related loan documents with respect to certain defaults until July 31, 2020, (ii) the borrowing base was redetermined to $225 million from $286 million, (iii) all proceeds of dispositions and terminations or liquidations of swap agreements were to be used to repay the Credit Facility and automatically reduced the borrowing base by the amount of the repayment and (iv) certain exceptions to the covenant restriction on investments were no longer available.

The ability of the Credit Facility lenders to exercise rights and remedies resulted from the Company's failure to comply with the current ratio with respect to the quarters ended March 31, 2020 and June 30, 2020, the leverage ratio covenant with respect to the quarter ended June 30, 2020, and the default with respect to the failure to make the interest payment due on July 1, 2020, under the 11.25% Senior Notes.

On July 31, 2020, the Company entered into a Forbearance Agreement with certain holders holding over 50% of the 11.25% Senior Notes (the “Notes Forbearance Agreement”). Pursuant to the Notes Forbearance Agreement, among other things, those certain holders of the 11.25% Senior Notes (i) agreed to refrain from exercising their rights and remedies with respect to the Payment Default and (ii) request that the trustee under the Indenture not take any remedial action as a result of the Payment Default.

As of March 31, 2020, the borrowing base and lender commitments for the Credit Facility were $290 million. The borrowing base was lowered to $286 million on June 11, 2020 as part of the Thirteenth Amendment (see Note 7. Long-Term Debt), and the borrowing base was later redetermined to $225 million from $286 million pursuant to the Forbearance Agreement on July 2, 2020, which created a deficiency between the outstanding amount borrowed under the Company's revolving credit facility and the borrowing base. The outstanding balance under the Credit Facility was $285 million as of July 2, 2020 which represents a borrowing deficiency of $60.4 million. The Company was obligated to pay the deficiency within 60 days after July 2, 2020 due to the Credit Facility being in a state of default at the time of the deficiency, which was relieved by the Forbearance Agreement (see above) . Pursuant to the Restructuring Plan and as a result of the Company’s filing of the Chapter 11 Cases, the Company did not have the obligation to pay such deficiency within that time period, and the Credit Facility will be amended and restated in connection with the Company’s exit from bankruptcy.

The carrying value of long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When it is determined that the estimated future net cash flows of an asset will not be sufficient to recover its carrying amount, an impairment loss must be recorded to reduce the carrying amount to its estimated fair value. Judgments and assumptions are inherent in management’s estimate of undiscounted future cash flows and an asset’s fair value. These judgments and assumptions include such matters as the estimation of oil and gas reserve quantities, risks associated with the different categories of oil and gas reserves, the timing of development and production, expected future commodity prices, capital expenditures, production costs, and appropriate discount rates.

The Company evaluates impairment of proved and unproved oil and gas properties on a region basis. On this basis, certain regions may be impaired because they are not expected to recover their entire carrying value from future net cash flows. As a result of this evaluation, the Company recorded impairment oil and gas properties of $199.9 million for the three months ended March 31, 2020, of which $199.0 million was proved and $0.9 million was unproved. The impairment was the result of removing development of PUD and probable reserves from future net cash flows as the Company cannot assure that they will be developed going forward in light of continued depressed commodity prices and uncertainty regarding the Company's liquidity situation. There were no events or changes in circumstances during the three months ended September 30, 2020 that indicate the carrying value may not be recoverable. However, if pricing remains depressed, it is reasonably possible that the Company may have to record impairment of its oil and gas properties in the future.

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to provide certain taxpayer relief as a result of the COVID-19 pandemic. The CARES Act included several favorable provisions that impacted income taxes, primarily the modified rules on the deductibility of business interest expense for 2019 and 2020, a five-year carryback period for net operating losses generated after 2017 and before 2021, and the acceleration of refundable alternative minimum tax credits. The CARES Act did not materially impact the Company's effective tax rates for the three and nine months ended September 30, 2020.

The Company applied for, and received, a loan under the Paycheck Protection Program ("PPP") during the second quarter of 2020 in the amount of $2.2 million. The application for this loan required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of this loan, and the forgiveness of the loan, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria. Pursuant to the Restructuring Plan, to the extent any portion of the PPP loan is not forgiven in accordance with the terms of the PPP and Cares Act, such portion of the PPP loan (if any) will be paid in full in cash. The PPP loan bears interest of 1% and, if not forgiven, has a maturity date of May 8, 2022.

The two-class method is utilized to compute earnings per common share as our Class A Participating Preferred Stock (the "Preferred Stock") is considered a participating security. Under the two-class method, losses are allocated only to those securities that have a contractual obligation to share in the losses of the Company. The Preferred Stock is not obligated to absorb Company losses and accordingly is not allocated losses. Net income attributable to common stockholders is allocated between common stock and participating securities based on the weighted average number of common shares and participating securities outstanding for the period.

Diluted earnings per share is computed similarly except that the denominator is increased to include dilutive potential common shares. Potential common shares consist of warrants, equity compensation awards and Preferred Stock. In certain circumstances adjustment to the numerator is also required for changes in income or loss resulting from the potential common shares. Basic weighted average common shares exclude shares of non-vested restricted stock. As these restricted shares vest, they will be included in the shares outstanding used to calculate basic earnings per share.


	Three Months Ended September 30,				Nine Months Ended September 30,
In thousands, except shares and per-share data	2020		2019		2020		2019
Numerator — Basic
Total net (loss) income attributable to common stockholders	$	(38,473)	$	14,058	$	(194,423)	$	(35,394)
Less: allocation to participating securities	—		(5,494)		—		—
Net (loss) income attributable to common stockholders	$	(38,473)	$	8,564	$	(194,423)	$	(35,394)

Numerator — Diluted
Net income (loss) allocated to common stockholders - basic	$	(38,473)	$	8,564	$	(194,423)	$	(35,394)
Restricted stock unit compensation gain, net of tax	$	—	$	(80)	$	—	$	—
Net income (loss) allocated to common stockholders - diluted	$	(38,473)	$	8,484	$	(194,423)	$	(35,394)

Denominator
Weighted average number of common shares — Basic	25,361,361		24,933,853		25,238,972		24,852,994
Restricted stock units converted under the treasury method	—		397,957		—		—
Weighted average number of common shares — Diluted	25,361,361		25,331,810		25,238,972		24,852,994


Earnings per share
Basic	$	(1.52)	$	0.34	$	(7.70)	$	(1.42)
Diluted	$	(1.52)	$	0.33	$	(7.70)	$	(1.42)


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Preferred stock	17,482,167	15,997,411	17,101,727	15,649,269
Warrants	760,000	760,000	760,000	760,000
Stock appreciation rights	1,010,000	1,010,000	1,010,000	1,010,000
Restricted stock units	963,049	—	921,723	1,457,701

Income Taxes. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The objective of ASU 2019-12 is to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and early adoption is permitted. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related footnote disclosures.