RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2019

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

Gathering Agreements

On August 31, 2015, Alta Mesa’s wholly owned subsidiary Oklahoma Energy entered into a Crude Oil Gathering Agreement (the “Crude Oil Gathering Agreement”) and Gas Gathering and Processing Agreement (the “Gas Gathering and Processing Agreement”) with KFM. The Gas Gathering and Processing Agreement was subsequently amended in February 2017, effective December 2016, and again in June 2018, effective April 2018. The more recent amendment to the Gas Gathering and

Processing Agreement impacts our ability to make elections with respect to the NGL portion of our production volumes but has no other effect on our consolidated financial statements.

Employees

David McClure, our former Vice President of Facilities and Infrastructure, and the son-in-law of our former President and Chief Executive Officer, Harlan H. Chappelle, received total compensation of approximately $769,000, $1,158,000, and $29,000 for the year ended December 31, 2019, the 2018 Successor Period, and the 2018 Predecessor Period, respectively. These amounts are included in general and administrative expense. Mr. McClure separated from the Company in February 2019.

Bayou City Joint Development Agreement

In January 2016, Oklahoma Energy entered into a Joint Development Agreement, as amended on June 10, 2016 and December 31, 2016, (the “JDA”), with BCE, a fund advised by Bayou City, to fund a portion of Alta Mesa’s drilling operations and to allow Alta Mesa to accelerate development of our STACK acreage. The JDA established a development plan of 60 wells in three tranches, and provided opportunities for the parties to potentially agree to an additional 20 wells. Pursuant to the JDA, BCE committed to fund 100% of Alta Mesa’s working interest share up to a maximum average well cost of $3.2 million in drilling and completion costs per well for any tranche. In exchange for funding the drilling and completion costs, BCE received 80% of our working interest in each wellbore, which BCE interest would be reduced to 20% of our initial working interest upon BCE achieving a 15% internal rate of return on the wells within a tranche and automatically further reduced to 12.5% of our initial interest upon BCE achieving a 25% internal rate of return. Following the completion of each joint well, Alta Mesa and BCE would each bear its respective proportionate working interest share of all subsequent operating costs related to such joint well.  Mr. William McMullen, one of our directors, is founder and managing partner of BCE. The approximate dollar value of the amount involved in this transaction, or Mr. McMullen’s interests in the transaction, depended on a number of factors outside his control and is not known at this time.  During the 2018 Predecessor Period, BCE advanced us approximately $39.5 million to drill wells under the JDA, a portion of which was refunded during the 2018 Successor Period. As of December 31, 2019, 61 joint wells have been drilled or spudded. As of December 31, 2019 and December 31, 2018, $3.2 million and $9.8 million, respectively of revenue payable liabilities and net advances remaining from BCE for their working interest share of the drilling and development costs arising under the JDA were included as “Advances from related party” in our consolidated balance sheets. No new wells were drilled in 2019 under the JDA and as of December 31, 2019, there were no funded horizontal wells in progress, and none were developed in 2020. On June 11, 2019, we received a letter from BCE noticing us of alleged defaults under the JDA. We dispute these allegations and intend to vigorously defend ourselves. The JDA expired in January 2020 pursuant to its terms.

BCE-Mach III LLC

BCE-Mach III LLC, a Delaware limited liability company formed by Bayou City Energy Management, LLC, a related party, and Mach Resources LLC, is the buyer of our assets pursuant to the Sale Transactions, which we expect to close no later than mid-April 2020.

High Mesa - Promissory Notes

In September 2017, Alta Mesa entered into a $1.5 million promissory note receivable with its affiliate Northwest Gas Processing, LLC, which obligation was subsequently transferred to High Mesa Services, LLC (“HMS”), a subsidiary of HMI. The promissory note bears interest, which may be paid-in-kind and added to the principal amount, at a rate of 8% per annum and matured in February 2019. At December 31, 2019 and 2018, amounts due under the promissory note totaled $1.7 million. HMS defaulted under the terms of that promissory note when it was not paid when due on February 28, 2019, and HMS has failed to cure such default. Alta Mesa subsequently declared all amounts owing under the note immediately due and payable. Alta Mesa also has an $8.5 million promissory note receivable from HMS which matures on December 31, 2019, and bears interest at 8% per annum, which may be paid-in-kind and added to the principal amount. As of December 31, 2019 and 2018, the note receivable amounted to $11.7 million. HMI disputes its obligations under the $1.5 million note and $8.5 million note referenced above as payable to Alta Mesa. We oppose HMI’s claims and believe HMI’s obligation under the notes to be valid assets of Alta Mesa and that the full amount is payable to Alta Mesa. We are pursuing remedies under both promissory notes and under applicable law in connection with repayment of the promissory note by HMS. As a result of the potential conflict of interest of certain of our directors who are also controlling holders and directors of HMI, our disinterested directors will address any potential conflicts of interest with respect to this matter. As of December 31, 2019, we have an allowance for doubtful accounts for the promissory notes totaling $13.4 million, the expense for which is included in general and administrative expense in 2018.

Interest income on the promissory notes amounted to approximately $0.9 million and $0.1 million for the 2018 Successor Period and the 2018 Predecessor Period, respectively, all recorded as paid-in-kind and added to the balance due thereunder. Due to our assessment of collectability, we did not recognize interest income related to this receivable in 2019.

High Mesa - Management Services Agreement

In connection with the Business Combination, Alta Mesa distributed its non-STACK oil and gas assets to a subsidiary of HMI, and certain subsidiaries of HMI 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. Under the HMI Agreement, during the 180-day period following the Closing (the “Initial Term”), we agreed to provide certain administrative, management and operational services necessary to manage the business of HMI and its subsidiaries (the “Services”). Thereafter, the HMI Agreement automatically renewed for additional consecutive 180-day periods (each a “Renewal Term”), unless terminated by either party upon at least 90-days written notice to the other party prior to the end of the Initial Term or any Renewal Term. As compensation for the Services, HMI agreed to pay us each month (i) a management fee of $10,000 and (ii) an amount equal to any and all costs and expenses incurred in connection with providing the Services.

Although the automatic renewal of this agreement occurred in the third quarter of 2018, the parties subsequently reached agreement to terminate the HMI Agreement effective January 31, 2019. Through April 1, 2019, we were obligated to take all actions that HMI reasonably requested to effect the transition of the Services from Alta Mesa to a successor service provider. During the transition period, HMI agreed to pay us (i) for all Services performed, (ii) an amount equal to our costs and expenses incurred in connection with providing the Services as provided for in the approved budget and (iii) an amount equal to our costs and expenses reimbursable pursuant to the HMI Agreement. Prior to 2018, we also incurred $0.8 million of costs for the direct benefit of HMI and the non-STACK assets, outside of the HMI Agreement, and pursuant to the HMI Agreement have reflected these costs as “Related party receivables” in the balance sheets. As of December 31, 2019 and December 31, 2018, we had receivables of approximately $9.8 million and $10.1 million, respectively, for costs and expenses incurred on HMI’s behalf. During 2019, we billed HMI $0.8 million for incremental costs incurred and have received approximately $1.1 million in payments. HMI has disputed certain of these amounts billed by Alta Mesa. We are pursuing remedies under applicable law in connection with repayment of this receivable.

We believe there is substantial doubt about HMI’s ability to make payment and honor its indemnification, which is further complicated by HMI’s filing for bankruptcy protection in January 2020. As a result, at December 31, 2019 and December 31, 2018, we had allowances for uncollectible accounts of $9.8 million and $9.0 million, respectively, to fully provide for the unremitted balance. We also may be subject to liabilities for the non-STACK oil and gas assets for which we should have been indemnified. We currently cannot estimate the extent of such liabilities and expect such liabilities, if any, to be addressed in connection with our pending bankruptcy proceedings.