Reorganizations (Tables)

9 Months Ended

Sep. 30, 2020

Schedule of Reconciliation of Enterprise Value to Fair Value of Successor Equity

The following table reconciles the enterprise value to the estimated fair value of the Successor's equity at the Effective Date (in thousands):


Enterprise value	$	559,205
Less: Fair value of noncontrolling interest	(242,200)
Enterprise value of Unit interests	317,005
Plus: Cash and cash equivalents	25,482
Plus: Restricted cash	7,458
Less: Fair value of capital leases	(4,622)
Less: Fair value of debt (including the fair value of current debt)	(148,000)
Fair value of Successor equity	$	197,323

Schedule of Reconciliation of Enterprise Value to the Reorganization Value

The following table reconciles the enterprise value to the reorganization value of the Successor’s assets as of the Effective Date (in thousands):


Enterprise value	$	559,205
Plus: Cash and cash equivalents	25,482
Plus: Restricted cash	7,458
Plus: Current liabilities (excluding the fair value of capital leases and current debt)	86,897
Plus: Long-term asset retirement obligation	22,415
Plus: Other long-term liabilities (excluding long-term asset retirement obligation)	24,886
Reorganization value of Successor assets	$	726,343

Schedule of Fresh-Start Adjustments


	As of September 1, 2020
	Predecessor		Reorganization Adjustments (1)			Fresh Start Adjustments (11)			Successor
ASSETS	(In thousands)
Current assets:
Cash and cash equivalents	$	32,280	$	(6,798)	(2)	$	—		$	25,482
Restricted cash	—		7,458		(3)	—			7,458
Accounts receivable, net	50,621		—			—			50,621
Materials and supplies	64		—			(64)		(12)	—
Current income tax receivable	850		—			—			850
Prepaid expenses and other	13,692		6,382		(4)	(990)		(13)	19,084
Total current assets	97,507		7,042			(1,054)			103,495
Property and equipment:
Oil and natural gas properties, on the full cost method:
Proved properties	6,539,816		—			(6,301,532)		(14)	238,284
Unproved properties not being amortized	30,205		—			(30,205)		(14)	—
Drilling equipment	1,285,024		—			(1,221,566)		(15)	63,458
Gas gathering and processing equipment	833,788		—			(583,690)		(15)	250,098
Saltwater disposal systems	43,541		—			(43,541)		(15)	—
Land and building	59,080		—			(26,445)		(15)	32,635
Transportation equipment	15,577		—			(12,263)		(15)	3,314
Other	57,427		—			(47,469)		(15)	9,958
	8,864,458		—			(8,266,711)			597,747
Less accumulated depreciation, depletion, amortization, and impairment	7,923,868		—			(7,923,868)		(14) (15)	—
Net property and equipment	940,590		—			(342,843)			597,747
Right of use asset	7,476		—			(659)		(16)	6,817
Other assets	24,666		(6,382)		(4)	—			18,284
Total assets	$	1,070,239	$	660		$	(344,556)		$	726,343


	As of September 1, 2020
	Predecessor		Reorganization Adjustments (1)			Fresh Start Adjustments (11)			Successor
LIABILITIES AND SHAREHOLDERS’ EQUITY	(In thousands)
Current liabilities:
Accounts payable	$	27,354	$	6,382	(4)	$	—		$	33,736
Accrued liabilities	36,990		(4,115)		(5)	—			32,875
Current operating lease liability	4,643		—			(669)		(16)	3,974
Current portion of long-term debt	124,000		(123,600)		(6)	—			400
Current derivative liabilities	5,089		—			—			5,089
Warrant liability	—		—			885		(17)	885
Current portion of other long-term liabilities	11,201		3,743		(7)	16		(18)	14,960
Total current liabilities	209,277		(117,590)			232			91,919
Long-term debt	16,000		131,600		(6)	—			147,600
Non-current derivative liabilities	766		—			—			766
Operating lease liability	2,760		—			11		(16)	2,771
Other long-term liabilities	61,393		(3,220)		(4) (7)	(14,409)		(18)	43,764
Liabilities subject to compromise	762,215		(762,215)		(8)	—			—
Deferred income taxes	4,466		—			(4,466)		(19)	—
Commitments and contingencies
Shareholders’ equity:
Predecessor preferred stock, $1.00 par value, 5,000,000 shares authorized, none issued at December 31, 2019	—		—			—			—
Predecessor common stock, $0.20 par value, 175,000,000 shares authorized, 55,443,393 shares issued as of December 31, 2019	10,704		(10,704)		(9)	—			—
Predecessor capital in excess of par value	650,153		(650,153)		(9)	—			—
Successor preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued at September 1, 2020	—		—			—			—
Successor common stock, $0.01 par value, 25,000,000 authorized, 12,000,000 issued at September 1, 2020	—		120		(8)	—			120
Successor capital in excess of par value	—		197,203		(8)	—			197,203
Retained earnings (deficit)	(818,679)		1,215,619		(10)	(396,940)		(20)	—
Total shareholders’ equity attributable to Unit Corporation	(157,822)		752,085			(396,940)			197,323
Non-controlling interests in consolidated subsidiaries	171,184		—			71,016		(21)	242,200
Total shareholders' equity	13,362		752,085			(325,924)			439,523
Total liabilities and shareholders’ equity	$	1,070,239	$	660		$	(344,556)		$	726,343

Reorganization Adjustments

(1)Reflects accounts recorded as of the Effective Date, including among other items, settlement of the Predecessor's liabilities subject to compromise, cancellation of the Predecessor's equity, issuance of the New Common Stock and the Warrants, repayment of certain of Predecessor's liabilities and settlement with holders of the Notes.

(2)The table below details the company’s uses of cash, under the terms of the Plan described in Note 2 – Emergence From Voluntary Reorganization Under Chapter 11 (in thousands):


Funding of the professional fees escrow account	$	(7,458)
Proceeds from Exit credit facility	8,000
Payment of debt issuance costs on the Exit credit facility	(3,225)
Payment of professional fees	(3,943)
Payment of accrued interest payable under the Predecessor credit facility	(172)
Changes in cash and cash equivalents	$	(6,798)

(3)Represents the reserve for Professional Fee Escrow of $7.5 million.

(4)Represents the reclassification of other long-term assets related to deferred compensation to prepaid expenses and other assets as the deferred compensation payout is required to be paid within 12 months from the date of emergence in accordance with the Plan. Simultaneously, the current portion of deferred compensation liability was reclassified from other long-term liabilities to accounts payable.

(5)Represents the payment of the DIP Facility interest of $0.2 million and professional fees for $3.9 million.

(6)Represents the transition of the DIP credit agreement and the Predecessor credit agreement of $124.0 million into the Exit Facility and the issuance of an additional $8.0 million under the Exit Facility.

(7)Represents the reclassification of the short-term portion of the separation benefit liabilities from non-current to current liabilities which was offset by the increase in non-current portion of liabilities.

(8)Settlement of liabilities subject to compromise and the resulting net gain were determined as follows (in thousands):


Liabilities subject to compromise before the Effective Date:
6.625% senior subordinated notes due 2021 (including accrued interest as of the Petition Date)	$	672,369
Accounts payable	1,179
Employee separation benefit plan obligations	23,394
Litigation settlements	45,000
Royalty suspense accounts payable	20,273
Total liabilities subject to compromise	762,215
Separation settlement treatment	(6,905)
Successor Common Stock and APIC(1) issued to allowed claim holders	(175,521)
Successor Common Stock and APIC for disputed claims reserve	(11,936)
Gain on settlement of liabilities subject to compromise	$	567,853

(1) Balance excludes the Successor Common Stock and APIC of $9.9 million to the 5% Equity Facility which was not a liability subject to compromise.

(9)Represents the cancellation of Predecessor Common Stock.

(10)Represents the cumulative impact to Predecessor retained earnings of the reorganization adjustments described above.

Fresh Start Adjustments

(11)Reflects accounts recorded as of the Effective Date for the fresh start adjustments based on the methodologies noted below.

(12)Represents the reclassification of materials and supplies to proved properties.

(13)Represents the write off of the Predecessor's unamortized debt fees related to the DIP Facility.

(14)Reflects a decrease of oil and natural gas properties, net, based on the methodology discussed above, and the elimination of accumulated depletion and amortization. The following table summarizes the components of oil and natural gas properties as of the Effective Date:


	Successor		Predecessor
	Fair Value		Historical Book Value
	(In thousands)
Proved properties	$	238,284	$	6,539,816
Unproved properties	—		30,205
	238,284		6,570,021
Less accumulated depletion, amortization, and impairment	—		(6,305,113)
	$	238,284	$	264,908

(15)Reflects a decrease in fair value of drilling equipment, gas gathering and processing equipment, saltwater disposal systems, land and building, transportation equipment and other property and equipment and the elimination of accumulated depreciation, based upon the methodologies discussed above. The following table summarizes the components of other property and equipment as of the Effective Date:


	Successor		Predecessor
	Fair Value		Historical Book Value
	(In thousands)
Drilling equipment	$	63,458	$	1,285,024
Gas gathering and processing equipment	250,098		833,788
Saltwater disposal systems	—		43,541
Land and building	32,635		59,080
Transportation equipment	3,314		15,577
Other	9,958		57,427
	359,463		2,294,437
Less accumulated depreciation and impairment	—		(1,618,754)
	$	359,463	$	675,683

(16)Reflects the valuation adjustments to the company’s ROU assets, current operating lease liability, and operating lease liability, adjusted for fair value of favorable and unfavorable lease terms, and the revised incremental borrowing rates of the Successor.

(17)Represents the liability for the warrants estimated using a Black-Scholes-Merton model which utilizes various market-based inputs including: stock prices, strike price, time to maturity, risk-free rate, annual volatility rate, and annual dividend yield.

(18)Represents the reclassification of the short-term portion of Asset Retirement Obligation from non-current liabilities to current as well as the fair value adjustment, which was determined using our fresh start updates to these obligations, including the application of the Successor's credit adjusted risk free rate, which now incorporates a term structure based on the estimated timing of well plugging activity, and resetting all Asset Retirement Obligations to a single layer.

(19)Represents the adjustments to deferred tax liability as a result of the cumulative tax impact of the fresh start adjustments.

The significant revisions to the carrying value of our assets and liabilities as a result of applying fresh start accounting has resulted in the company increasing its overall net deferred tax asset position upon emergence from bankruptcy. In addition to the changes in book value, the company has approximately $726.4 million of net operating losses (NOLs) carried forward to offset taxable income in future years as of the Effective Date of emergence. Approximately $584.2 million of this NOL will expire commencing in fiscal 2021 through 2037. The NOLs of approximately

$142.2 million from years ended subsequent to December 31, 2017 have an indefinite carryforward period. The amount of these NOLs which is actually available to offset future income may be severely limited due to change-in-control tax provisions.

Due to our history of operating losses and the uncertainty surrounding the realization of the deferred tax assets in future years, our management has determined that it is more likely than not that the deferred tax assets will not be realized in future periods. Accordingly, the company has recorded a 100% valuation allowance against its net deferred tax assets.

Our blended effective tax rate was 1.62% for the Predecessor period ending August 31, 2020 and 0.00% for the Successor period ending September 30, 2020 compared to 19.57% for the first nine months of 2019. The rate change was primarily due to the increase in the valuation allowance against our income tax benefit.

(20)Represents the cumulative impact of the fresh-start accounting adjustments discussed above.

(21)The valuation of the non-controlling interest was calculated by taking an income-based approach in valuing Superior as a whole. The value of the non-controlling interest was then determined based on a market-based approach for similar type investments, given the contractual rights of the related parties.

Schedule of reorganization items

The following table summarizes the components included in "Reorganization items, net" in our Condensed Consolidated Statements of Operations for the periods presented:


	Successor		Predecessor
	One Month Ended		Two Months Ended		Eight Months Ended
	September 30, 2020		August 31, 2020
	(In thousands)
Gains on settlement of liabilities subject to compromise	$	—	$	(567,853)	$	(567,853)
Fresh start accounting adjustments	—		401,406		401,406
Legal and professional fees and expenses	1,155		10,923		15,745
Acceleration of Predecessor stock compensation expense	—		1,431		1,431
Exit Facility fees	—		3,225		3,225
5% equity facility	—		9,866		9,866
Adjustment to unamortized debt issuance costs associated with the 6.625% senior subordinated notes due 2021	—		—		2,205
Total reorganization items, net	$	1,155	$	(141,002)	$	(133,975)