COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments

Firm Natural Gas Transportation Commitments

We have entered into certain firm commitments intended to secure capacity on third party pipelines for transportation of natural gas that extend through 2036 with the following remaining minimum commitments at December 31, 2019:

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(in thousands)	Upstream		Midstream⁽¹⁾		Total
2020	$	12,236	$	6,116	$	18,352
2021	12,236		6,116		18,352
2022	12,236		5,859		18,095
2023	12,236		5,676		17,912
2024	5,666		5,676		11,342
Thereafter	19,358		64,328		83,686
	$	73,968	$	93,771	$	167,739

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(1)	Total cash payments required for committed capacity in MMBtus of 45,750,000 in 2020, 45,625,000 in 2021, 40,275,000 in 2022, 36,500,000 in 2023, 36,600,000 in 2024 and 413,850,000 thereafter. KFM does not currently utilize the full amount of contracted capacity but strives to release capacity to third parties to attempt to minimize the under-utilization.

Other Commitments

KFM has entered into 2 commitments with other midstream providers with the following significant terms:

•

An annual commitment for 3,650,000 mcf of processing volumes that runs through December 31, 2021. KFM is required to pay $0.85 per mcf for any shortfall volumes. Volumes processed under this contract are sold to the processor at market value after processing. KFM has entered into an agreement with Alta Mesa whereby Alta Mesa will reimburse KFM for half of the expenses associated with any shortfall.


•	A commitment for approximately $128,000 per month of processing services that runs through December 31, 2021. Although there are no associated volumetric minimums, KFM is required to pay for the value of any shortfall from the approximately $128,000 monthly fee. Any volumes processed under this contract are sold to the processor at prevailing market prices after processing.

Pursuant to the expected Sale Transactions, we anticipate certain of these firm and other commitments will be assumed by the Buyer. As part of the Chapter 11 proceedings any remaining commitments will be rejected by the Bankruptcy Court.

Contingencies

Environmental claims

Various landowners have sued Alta Mesa in lawsuits concerning several fields in which Alta Mesa’s subsidiaries have, or historically had, operations. The lawsuits seek injunctive relief and other relief, including unspecified amounts in both actual and punitive damages for alleged breaches of mineral leases and alleged failure to restore the plaintiffs’ lands from alleged contamination and otherwise from its oil and gas operations. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of the various environmental claims or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any material amounts for these claims as of December 31, 2019.

Litigation

On January 30, 2019, the Company, James T. Hackett, our then interim Chief Executive Officer and Chairman of the Board, certain of our former and current directors, Thomas J. Walker, our former Chief Financial Officer, and Riverstone Investment Group LLC were named as defendants in a putative securities class action filed in the United States District Court for the Southern District of New York (“SDNY Complaint”). The plaintiff, Plumbers and Pipefitters National Pension Fund, alleges that the defendants disseminated a false and misleading proxy statement in connection with the Business Combination and, therefore, violated Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14-9 promulgated thereunder. In addition, the plaintiff alleges that Riverstone and the individual defendants violated Section 20(a) of the Exchange Act. The plaintiff is seeking compensatory and/or rescissory damages against the defendants. The District Court transferred this action to the U.S. District Court for the Southern District of Texas.

On March 14 and 19, 2019, two additional putative securities class action complaints were filed in the U.S. District Court for the Southern District of Texas (“SDTX Complaints”) against the same defendants named in the SDNY Complaint, and Harlan H. Chappelle, our former President and Chief Executive Officer, and Michael A. McCabe, our former Chief Financial Officer. These complaints include the same claims asserted in the initial complaint, but also add claims under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder against us and certain of our current and former officers and directors on behalf of all persons or entities who purchased or otherwise acquired Silver Run or AMR securities between March 24, 2017, and February 25, 2019. The new claims are based upon alleged misstatements contained in our proxy statement and made after the Business Combination. The plaintiffs seek compensatory and/or rescissory damages against the defendants.

On December 19, 2019, the U.S. District Court for the Southern District of Texas consolidated the three putative securities class action lawsuits into a single action. On January 16, 2020, the Court entered a stipulated order appointing Plumbers and Pipefitters National Pension Fund and the First New York Group (consisting of FNY Partners Fund LP, FNY Managed Accounts LLC, and Paul J. Burbach) as co-lead plaintiffs and appointing Camelot Event Driven Fund as an additional consolidated class representative. The amended Consolidated Putative Securities Class Action complaint is due March 16, 2020. The commencement of the Chapter 11 proceedings automatically stayed these actions against the Company.

The outcome of the above consolidated class actions is uncertain, and while we believe that we have valid defenses to the plaintiff’s claims and intend to defend the lawsuits vigorously, no assurance can be given as to the outcome of the lawsuits.

On March 1, 2017, Mustang Gas Products, LLC (“Mustang”) filed suit in the District Court of Kingfisher County, Oklahoma, against Oklahoma Energy Acquisitions, LP, and eight other entities, including certain of our affiliates and subsidiaries. Mustang alleges that (1) Mustang is a party to gas purchase agreements with Oklahoma Energy containing gas dedication covenants that burden land, leases and wells in Kingfisher County, Oklahoma, and (2) Oklahoma Energy, in concert with the other defendants, has wrongfully diverted gas sales to KFM in contravention of these agreements. Mustang asserts claims for declaratory judgment, anticipatory repudiation and breach of contract against Oklahoma Energy only. Mustang also claims tortious interference with contract, conspiracy, and unjust enrichment/constructive trust against all defendants. We believe that the allegations contained in this lawsuit are without merit and intend to vigorously defend ourselves. The Mustang litigation was automatically stayed on the commencement of the Chapter 11 proceedings.

Mustang filed an adversary proceeding (Mustang Gas Products LLC v. Oklahoma Energy Acquisitions, LP et al., Adversary Proceeding No. 20-03015 (Bankr. S.D. Tex.)) against Oklahoma Energy Acquisitions, LP (“OEA”) and other defendants on January 20, 2020, alleging that gas dedication covenants running with the land have a value of not less than $37 million, and entitle Mustang to a corresponding portion of the proceeds of the forthcoming sale of all or substantially all of OEA’s assets. OEA denies these allegations and intends to defend the case vigorously. OEA’s time to respond to Mustang’s complaint has been extended until 15 days after the bankruptcy court enters an order on the pending motion to dismiss filed by the Administrative Agent to the Alta Mesa RBL. It is not possible at this stage of the case to estimate the likelihood of an unfavorable outcome or the range of damages that may be awarded.

In August 2017, Biloxi Marsh Lands (“Biloxi”) filed suit in the 34th District Court for the Parish of St. Bernard, Louisiana, against Meridian Resource & Exploration LLC (“Meridian”, a subsidiary of HMI), Alta Mesa, and other defendants. Biloxi alleges negligent construction, installation, maintenance, use and operation of a pipeline. In lieu of litigating corporate structure allegations and to reduce potential litigation expenses, Alta Mesa stipulated with respect to Biloxi that it would be bound by and assume liability and responsibility for any unpaid debts, obligations or final judgments that may be entered against Meridian in favor of Biloxi in this matter. However, these allegations relate to non-STACK oil and gas assets that Alta Mesa distributed to a subsidiary of HMI prior to the Business Combination. In connection with that distribution, certain HMI subsidiaries agreed to indemnify and hold Alta Mesa harmless from any liabilities associated with those non-STACK oil and gas assets, regardless of when those liabilities arose. Consequently, we believe that any potential damages incurred by Alta Mesa or Meridian as a result of these allegations are the responsibility of HMI. There is no guarantee that HMI will pay any settlement amounts or judgments rendered against Alta Mesa or Meridian. In addition, Alta Mesa’s ability to collect any amounts due pursuant to these indemnification obligations will depend upon the liquidity and solvency of HMI, which recently filed for relief under Chapter 7 of the Bankruptcy Code in the Bankruptcy Court. The commencement of the Chapter 11 proceedings automatically stayed these against the Company.

SEC Investigation

The SEC is conducting a formal investigation into, among other things, the facts involved in the fair value measurements used in accounting for the Business Combination and the impairment charge recognized during 2018. We are cooperating with this investigation. At this point we are unable to predict the timing or outcome of this investigation. If the SEC determines that violations of the federal securities laws have occurred, the agency has a broad range of civil penalties and other remedies available, some of which, if imposed on us, could be material to our business, financial condition or results of operations.

Other contingencies

We are subject to legal proceedings, claims and liabilities arising in the ordinary course of business, the outcomes of which cannot be reasonably estimated. Accruals for losses associated with litigation are made when losses are deemed probable and can be reasonably estimated. Because legal proceedings are inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about uncertain future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters.

Performance appreciation rights.

Our Predecessor had a plan that was intended to provide incentive compensation to key employees and consultants. We canceled all amounts due under the plan at the time of the Business Combination, but recognized and paid $10.9 million as strategic costs in G&A during the 2018 Successor Period.