CHAPTER 11 PROCEEDINGS

12 Months Ended

Dec. 31, 2019

Voluntary Reorganization Under Chapter 11

On September 11, 2019, the Initial Debtors filed for reorganization under the Bankruptcy Code in the Bankruptcy Court. The Bankruptcy Court granted a motion seeking joint administration of the Chapter 11 cases.

In January 2020, the Additional Debtors filed for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Additional Debtors’ Chapter 11 cases are being jointly administered with the Initial Chapter 11 cases. The Debtors operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court.

The filing of the Debtors’ bankruptcy petitions automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors to recover, collect or secure a claim arising prior to the bankruptcy filings. Accordingly, although the bankruptcy filing triggered defaults of the Alta Mesa RBL, the 2024 Notes and the KFM Credit Facility, the creditors are generally stayed from taking any actions as a result of such defaults. Absent an order of the Bankruptcy Court, substantially all of the Initial Debtors’ prepetition liabilities are subject to compromise under the Bankruptcy Code at December 31, 2019 and substantially all of the Additional Debtors’ prepetition liabilities became subject to compromise under the Bankruptcy Code beginning in January 2020.

In September 2019, an official committee of unsecured creditors was appointed. In October 2019, the Bankruptcy Court approved proposed bidding procedures and the dates for an auction and a hearing to approve the sale or sales of assets under Section 363 of the Bankruptcy Code. The auction was held on January 15, 2020, at which a winning bid was selected for substantially all of Alta Mesa and KFM’s assets totaling $320.0 million before certain direct sales costs. The Sale Transactions are expected to close no later than mid-April 2020. Following the expected sale, we intend to provide certain transition services to the Buyer for a limited period of time and expect to wind down our remaining business during the first half of 2020, which will result in the dissolution of AMR and its subsidiaries.

Initial Orders and Other Filings

In September 2019, the Bankruptcy Court approved measures that allow the Initial Debtors to stabilize their businesses and operations. Similar orders requested by the Additional Debtors were approved by the Bankruptcy Court in January 2020. The Debtors are authorized to use cash collateral of their lenders, but the Debtors must adhere to a budget and meet certain milestones.

Liabilities Subject to Compromise

Liabilities subject to compromise at December 31, 2019 represented the Initial Debtors’ remaining prepetition liabilities that have been allowed or that the Initial Debtors anticipate will be allowed as claims in its Chapter 11 cases. The amounts represent the estimated obligations to be resolved in connection with their Chapter 11 proceedings. The differences between the estimate and the claims filed will be evaluated and resolved in connection with the claims resolution process during the pendency of Chapter 11 proceedings.

Following are the components of liabilities subject to compromise:



(in thousands)	December 31, 2019
Alta Mesa RBL	$	355,943
2024 Notes	500,000
Accounts payable and accrued liabilities	20,315
Accrued interest payable on 2024 Notes	9,516
Operating lease liabilities	11,088
Liabilities subject to compromise	$	896,862

Reorganization Items

The Initial Debtors have incurred and, along with the Additional Debtors, are expected to continue to incur significant costs associated with the bankruptcy.

Components of reorganization items, net included are:



(in thousands)	Year Ended December 31, 2019
Unamortized deferred financing fees and premiums	$	24,725
Terminated contracts	1,435
Legal and other professional advisory fees	(26,357		)
Reorganization items, net	$	(197	)

Interest Expense

The Company did not record interest expense on its 2024 Notes after the Initial Debtors’ filing for bankruptcy. We ceased accruing interest on the 2024 Notes effective upon filing of the Initial Bankruptcy Petitions as payment was unlikely to occur. Unrecorded contractual interest on the 2024 Notes was approximately $12.0 million through December 31, 2019.

Executory Contracts

Under the Bankruptcy Code, the Debtors may reject certain executory contracts with the approval of the Bankruptcy Court. Generally, the rejection of an executory contract is treated as a prepetition breach of that contract, therefore the Debtors are relieved of performing their future obligations under such executory contract, but the contract counterparty is entitled to file a general unsecured claim for damages.

Combined Financial Information of Initial Debtors

Combined Statement of Operations



(in thousands)	Year Ended December 31, 2019
Revenue
Oil	$	328,386
Natural gas	53,693
Natural gas liquids	40,026
Other	1,471
Operating revenue	423,576
Gain on sale of assets	1,488
Loss on derivatives	(11,744		)
Total revenue	413,320
Operating expenses
Lease operating	79,884
Transportation and marketing	70,324
Production taxes	19,455
Workovers	2,652
Exploration	52,354
Depreciation, depletion and amortization	120,617
Impairment of assets	556,427
General and administrative	71,823
Total operating expenses	973,536
Operating income	(560,216		)
Other income (expenses)
Interest expense	(49,823		)
Interest income	154
Reorganization items, net	(197		)
Total other income (expense), net	(49,866		)
Loss from continuing operations before income taxes	(610,082		)
Income tax provision (benefit)	—
Net loss	$	(610,082	)

Combined Balance Sheet



(in thousands)	December 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	81,669
Restricted cash	681
Accounts receivable, net	49,256
Other receivables	1,311
Related party receivables, net	17,586
Prepaid expenses and other current assets	6,340
Total current assets	156,843
Property and equipment, net
Oil and gas properties, successful efforts method	215,352
Other property and equipment	23,210
Total property and equipment, net	238,562
Other assets
Investment in subsidiary	1,505,533
Operating lease right-of-use assets, net	—
Deferred financing costs, net	—
Deposits and other long-term assets	6,116
Total other assets	1,511,649
Total assets	$	1,907,054

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accounts payable and accrued liabilities	$	58,858
Accounts payable - related parties	19,425
Advances from non-operators	811
Advances from related party	3,175
Asset retirement obligations, current portion	34
Total current liabilities	82,303
Long-term liabilities
Asset retirement obligations, net of current portion	12,995
Total long-term liabilities	12,995
Liabilities subject to compromise	896,862
Total liabilities	992,160
Partners’ capital	914,894
Total liabilities and partners’ capital	$	1,907,054

Combined Statement of Cash Flows



(in thousands)	Year Ended December 31, 2019
Cash flows from operating activities:
Net loss	$	(610,082	)
Adjustments to reconcile net loss to cash from operating activities:
Depreciation, depletion and amortization	120,617
Non-cash lease expense	2,981
Provision for uncollectible receivables	1,218
Impairment of assets	556,427
Non-cash reorganization items, net	(26,160		)
Amortization of deferred financing costs	195
Amortization of debt premium	(3,432		)
Equity-based compensation expense	5,718
Non-cash exploration expense	43,412
(Gain) loss on derivatives	11,744
Cash settlements of derivatives	7,642
Cash paid for derivatives	(1,906		)
Impact on cash from changes in:
Accounts receivable	18,783
Other receivables	4,957
Related party receivables	3,651
Prepaid expenses and other assets	(25,716		)
Advances from related party	(6,647		)
Settlement of asset retirement obligations	(234		)
Accounts payable, accrued liabilities and other liabilities	22,373
Operating lease obligations	(2,636		)
Cash from operating activities	122,905
Cash flows from investing activities:
Capital expenditures	(249,955		)
Distribution received from subsidiary	691
Cash from investing activities	(249,264		)
Cash flows from financing activities:
Proceeds from long-term debt borrowings	199,362
Repayments of long-term debt	(4,496		)
Payment of taxes withheld on equity-based compensation awards	(142		)
Cash from financing activities	194,724
Net increase in cash, cash equivalents and restricted cash	68,365
Cash, cash equivalents and restricted cash, beginning of period	13,985
Cash, cash equivalents and restricted cash, end of period	$	82,350