Summary Of Significant Accounting Policies

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going Concern

We are required to evaluate our ability to continue as a going concern for a period of one year following the date of issuance of our financial statements. As part of that evaluation, we took into consideration a number of factors that were previously disclosed in our 2018 10-K. Most significantly, we have seen significant reductions to our borrowing base under the Alta Mesa RBL in 2019. On April 1, 2019, our borrowing base under the Alta Mesa RBL was reduced by $30 million to $370.0 million leaving us with no meaningful remaining capacity available thereunder at that time. In August 2019, the Alta Mesa RBL lenders exercised their ability to make an optional redetermination of our borrowing base ahead of the regular redetermination scheduled in October 2019, and via this redetermination our borrowing base was reset to $200.0 million, effective August 13, 2019. As our combined borrowings and letters of credit outstanding exceeded the new borrowing base amount by $162.4 million, we had five months, beginning September 2019, to make ratable monthly payments of $32.5 million to cause utilization to be less than or equal to the borrowing base. Our Upstream business had cash on hand at August 31, 2019 of $63.0 million.

If by September 12, 2019, we had not made the first payment of $32.5 million, we would have been in default. Despite taking various actions to decrease our indebtedness and maintain our liquidity at sufficient levels to meet our commitments, on September 11, 2019, the Company, Alta Mesa, Alta Mesa GP, OEM GP, LLC, Alta Mesa Finance Services Corp, Alta Mesa Services and Oklahoma Energy Acquisitions, LP (the “AMH Debtors” and together with the Company, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Bankruptcy Court has granted a motion seeking joint administration of the Chapter 11 cases under the caption In re Alta Mesa Resources, Inc., et. al., Case No. 19-35133. The Debtors will continue to operate their businesses 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.

Certain of the Company’s other subsidiaries, including SRII Opco GP, LLC, SRII Opco, KFM and its subsidiaries Kingfisher STACK Oil Pipeline, LLC and Oklahoma Produced Water Solutions, LLC are not part of the Chapter 11 cases at this time.

On September 12, 2019, the Bankruptcy Court entered various orders requested by the Debtors in order to stabilize their businesses and operations as they entered into Chapter 11 bankruptcy proceedings, including orders authorizing the Debtors to honor certain obligations to employees, vendors, and holders of royalty interests. In addition, the AMH Debtors were authorized by the Bankruptcy Court to use cash collateral of the lenders under the Alta Mesa RBL. The cash collateral order permits the AMH Debtors to use their cash and proceeds of their collateral for an initial four week period on the terms and conditions agreed by the AMH Debtors and the lenders under the Alta Mesa RBL and set forth in the order. The terms and conditions include, without limitation, adherence to a budget with an agreed upon variance and meeting certain milestones. The ability to have continued access to the cash collateral will also be dependent upon the Bankruptcy Court’s approval of future versions of the cash collateral order and the related terms and conditions provided therein.

The Debtors have begun a marketing process to sell their assets, which may also include KFM’s midstream assets. Certain of the AMH Debtors have also filed a complaint seeking a Bankruptcy Court determination that the crude oil, gas, and water gathering agreements between Debtor Oklahoma Energy Acquisitions LP, an Alta Mesa subsidiary, and non-Debtors KFM and its subsidiaries can be rejected by the Debtors.

We have no meaningful cash available to us to meet our obligations apart from cash held by our subsidiaries. As a result of Alta Mesa’s bankruptcy and the limitations imposed under the approved cash collateral agreement, our only remaining source of liquidity is through KFM and SRII Opco. At August 31, 2019, SRII Opco had cash on hand of $5.7 million and KFM had cash on hand of $13.3 million, as well as remaining borrowing capacity of $74.0 million. Access to the remaining capacity under the KFM Credit Facility requires adherence to the terms and covenant compliance on a pro forma basis for any new borrowings. We believe that KFM will exhaust its borrowing capacity and fail to meet the maintenance covenants as early as the first quarter of 2020. On September 23, 2019, KFM received a letter from the Administrative Agent whereby the lenders under the KFM Credit Facility allege a potential event of default in respect of liens placed on KFM’s assets. Accordingly, we may not have access to the remaining borrowing capacity unless or until this matter is resolved, which could materially impact our ability to meet our financial obligations. These factors raise substantial unmitigated doubt about our ability to continue as a going concern.

Recently Issued Accounting Standards Applicable to Us

Adopted

Effective January 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires that lessees recognize a lease liability, which is a lessee’s discounted obligation to make payments under a lease, and a right-of-use asset, arising from a lessee’s right to use an asset over the lease term. Upon adoption, we used the modified retrospective method to apply the standard as of January 1, 2019 for existing leases with terms in excess of 12 months entered into prior to January 1, 2019.

Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard requires the use of a new “expected credit loss” impairment model rather than the “incurred loss” model we use today. With respect to our trade and notes receivables and certain other financial instruments,

we may be required to (i) maintain and use lifetime loss information rather than annual loss data and (ii) forecast future economic conditions and quantify the effect of those conditions on future expected losses. The standard, including related amendments, which will be effective for us no earlier than January 2020, also requires additional disclosures regarding the credit quality of our trade and notes receivables and other financial instruments. No determination has yet been made of the impact of this new standard on our financial position or results of operations.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Topic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). The amendments in this standard align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software (and hosting arrangements that include an internal-use software license). Under this new standard, a customer in a hosting arrangement that is a service contract is required to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as a prepaid asset related to the service contract and which costs to expense. The capitalized implementation costs are to be expensed over the term of the hosting arrangement and reflected in the same line in the consolidated statement of operations as the fees associated with the hosting element of the arrangement. Similarly, capitalized implementation costs are to be presented in the statement of cash flows in the same line as payments made for fees associated with the hosting element. We will adopt this new standard no earlier than January 1, 2020, although early adoption is permitted. We are currently evaluating the impact of this new standard on our consolidated financial position and results of operations and have not yet determined whether to apply the new standard retrospectively or prospectively to implementation costs incurred after the date of adoption.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements of fair value measurements. ASU 2018-13 is effective for us no earlier than January 2020. Certain disclosures are required to be applied on a retrospective basis and others on a prospective basis. We do not expect the adoption of this standard to impact our financial position or results of operations.