Description of Business and Basis of Presentation

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of Business and Basis of Presentation

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business and Business Combination

Alta Mesa Resources, Inc. (“AMR”), together with its consolidated subsidiaries (“we,” “us,” “our” or “the Company”), is an independent exploration and production company focused on the acquisition, development, exploration and production of unconventional onshore oil and natural gas reserves in the eastern portion of the Anadarko Basin in Oklahoma. We operate in two reportable business segments - Upstream and Midstream. Alta Mesa Holdings, LP (“Alta Mesa”) conducts our Upstream activities and owns our proved and unproved oil and gas properties located in an area of the Anadarko Basin commonly referred to as the STACK. We generate upstream revenue principally by the production and sale of oil, gas and NGLs. Kingfisher Midstream, LLC (“KFM”) conducts our Midstream operations. KFM has a gas and oil gathering network, a cryogenic gas processing plant with offtake capacity, field compression facilities and a produced water disposal system in the Anadarko Basin that generate revenue primarily through long-term, fee-based contracts. The KFM midstream assets are vital to our Upstream operations, which we conduct in the same region, and they are strategically positioned to provide similar services to other producers in the area.

We were originally incorporated in Delaware in November 2016 as a special purpose acquisition company under the name Silver Run Acquisition Corporation II for the purpose of effecting a merger, exchange, acquisition, purchase, reorganization or similar business combination involving it and one or more businesses. On February 9, 2018 we acquired interests in Alta Mesa, Alta Mesa Holdings GP, LLC (“Alta Mesa GP”) and KFM through a newly formed subsidiary, SRII Opco, LP (“SRII Opco”) in a transaction referred to as the “Business Combination”, and changed our name from “Silver Run Acquisition Corporation II” to “Alta Mesa Resources, Inc.”

In connection with the closing of the Business Combination, Alta Mesa distributed its non-STACK oil and gas assets and associated liabilities to its prior owner, High Mesa Holdings, LP (“High Mesa”). The non-STACK assets and liabilities are reflected as discontinued operations in the Predecessor portion of our financial statements.

As a result of our failure to comply with the continued listing requirements of the NASDAQ Capital Market (“NASDAQ”), trading in our Class A Common Stock and public warrants was suspended on September 24, 2019, and they are now traded over the counter under the trading symbols “AMRQQ” and “AMRWQ,” respectively. 

Bankruptcy Accounting

As discussed further in Note 3, on September 11, 2019, AMR, 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 AMR, the “Debtors”) filed voluntary petitions (“Bankruptcy Petitions”) for relief under Chapter 11 of the U.S. Bankruptcy Code (“Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Texas (“Bankruptcy Court”). During the pendency of the Chapter 11 proceedings, the Debtors will 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. The condensed consolidated financial statements have been prepared as if the Company is a going concern and reflect the application of Accounting Standards Codification 852 “Reorganizations” (“ASC 852”). ASC 852 requires that the financial statements, for periods subsequent to the Chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that are realized or incurred in the bankruptcy proceedings are recorded in “reorganization items, net” on the Company’s condensed consolidated statements of operations. In addition, prepetition unsecured and under-secured obligations that may be impacted by the bankruptcy reorganization process have been classified as “liabilities subject to compromise” on the Company’s condensed consolidated balance sheet at September 30, 2019. These liabilities are reported at the amounts expected to be allowed as claims by the Bankruptcy Court, although they may be settled for less. The accompanying condensed consolidated financial statements do not purport to reflect or provide for the consequences of the Chapter 11 proceedings. In particular, the condensed consolidated financial statements do not purport to show: (i) the realizable value of assets on a liquidation basis or their availability to satisfy liabilities; (ii) the amount of prepetition liabilities that may be allowed for claims or contingencies, or the status and priority thereof; (iii) the effect on stockholders’ deficit accounts of any changes that may be made to the Company’s capitalization; or (iv) the effect on operations of any changes that may be made to the Company’s business. While operating as debtor-in-possession under Chapter 11 of the Bankruptcy Code, the Company may sell or otherwise dispose of or liquidate

assets or settle liabilities in amounts other than those reflected on its condensed consolidated financial statements, subject to the approval of the Bankruptcy Court or otherwise as permitted in the ordinary course of business. Further, a plan of reorganization could materially change the amounts and classifications on the Company’s historical condensed consolidated financial statements.

Ability to Continue as a Going Concern

AMR’s only significant asset is its ownership of a partnership interest in SRII Opco. As such, we have no meaningful cash available to us to meet our obligations apart from cash held by our subsidiaries. In September 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. The Administrative Agent and the lenders have reserved their right to pursue any remedies available to them, including charging the default rate of interest, declaring any of the outstanding debt thereunder due and payable or foreclosing on, or instituting foreclosure proceedings against, or liquidating any collateral. Although the Administrative Agent and the lenders have not taken any such actions, KFM will not have access to the remaining borrowing capacity unless or until this matter is resolved, which could materially impact AMR’s and KFM’s ability to meet all financial obligations as they come due and KFM’s ability to make distributions to AMR that otherwise may have been permitted. As a result of Alta Mesa’s bankruptcy and the limitations imposed under a Bankruptcy Court approved cash collateral agreement and alleged defaults under the KFM Credit Facility, AMR’s only remaining source of liquidity is through non-debtor subsidiary SRII Opco. At October 31, 2019, SRII Opco had cash on hand of $5.5 million. We also believe that KFM will fail to meet the maintenance covenants of the KFM Credit Facility as early as the first quarter of 2020, which would prevent any further borrowings. These factors raise substantial unmitigated doubt about our ability to continue as a going concern.

Basis of Presentation

These financial statements include the consolidated financial positions, results of operations and cash flows of the Company, the AMH Debtors and our non-debtor subsidiaries, which are controlled by us. All intercompany transactions and accounts have been eliminated. These interim condensed consolidated financial statements are unaudited, but we believe these statements reflect all adjustments necessary for a fair presentation of the periods reported. All such adjustments are of a normal, recurring nature unless otherwise disclosed. These financial statements and disclosures have been prepared in accordance with the SEC’s rules for interim financial statements and do not include all the information and disclosures required by generally accepted accounting principles (“GAAP”) for complete financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2018 10-K. The results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year. We have no items of other comprehensive income during any period presented. Certain prior period amounts have been reclassified to conform to the current period presentation.