Note 5 – Long-Term Debt

Credit Agreement

On September 28, 2018, the Company and its lenders entered into the Sixth Amended and Restated Credit Agreement. The Credit Agreement, which replaced the Company’s Fifth Amended and Restated Credit Agreement, provides for a senior secured revolving credit facility with a maximum loan amount of $2.5 billion, an initial borrowing base of $1.5 billion, and initial aggregate lender commitments totaling $1.0 billion. The borrowing base is subject to regular, semi-annual redetermination, and considers the value of both the Company’s (a) proved oil and gas properties reflected in the Company’s most recent reserve report; and (b) commodity derivative contracts, each as determined by the Company’s lender group. The Company does not expect a material change to the borrowing base or the aggregate lender commitments during the next scheduled redetermination on April 1, 2019.

The Credit Agreement is scheduled to mature on the earlier of September 28, 2023, (the “Scheduled Maturity Date”), and August 16, 2022, to the extent that, on or before such date, the Company’s outstanding 2022 Senior Notes are not repurchased, redeemed, or refinanced to have a maturity date at least 91 days after the Scheduled Maturity Date unless, on August 16, 2022, both (i) the aggregate outstanding principal amount of the 2022 Senior Notes is not more than $100.0 million and (ii) after giving pro forma effect to the repayment in full at maturity of the 2022 Senior Notes then outstanding, the aggregate amount of unrestricted cash and certain types of unrestricted investments held by the Company and its Consolidated Restricted Subsidiaries plus the amount of unused availability under the Credit Agreement is at least $300.0 million.

The Company must comply with certain financial and non-financial covenants under the terms of the Credit Agreement, including covenants limiting dividend payments and requiring the Company to maintain certain financial ratios, as defined by the Credit Agreement. The financial covenants under the Credit Agreement require that the Company’s (a) total funded debt, as defined in the Credit Agreement, to adjusted EBITDAX ratio for the most recently ended four consecutive fiscal quarters (excluding the first three quarters which will use annualized adjusted EBITDAX), cannot be greater than 4.25 to 1.00 beginning with the quarter ending December 31, 2018, through and including the fiscal quarter ending December 31, 2019, and for each quarter ending thereafter, the ratio cannot be greater than 4.00 to 1.00; and (b) adjusted current ratio cannot be less than 1.0 to 1.0 as of the last day of any fiscal quarter. The Company was in compliance with all financial and non-financial covenants as of December 31, 2018, and through the filing of this report.

Interest and commitment fees are accrued based on a borrowing base utilization grid set forth in the Credit Agreement. Eurodollar loans accrue interest at the London Interbank Offered Rate, plus the applicable margin from the utilization grid, and Alternate Base Rate (“ABR”) or Swingline Loans accrue interest at a market based floating rate, plus the applicable margin from the utilization grid. Commitment fees are accrued on the unused portion of the aggregate lender commitment amount at rates from the utilization grid and are included in the interest expense line item on the accompanying statements of operations. The borrowing base utilization grid as set forth in the Credit Agreement is as follows:



Borrowing Base Utilization Percentage	<25%		≥25% <50%		≥50% <75%		≥75% <90%		≥90%
Eurodollar Loans	1.500	%	1.750	%	2.000	%	2.250	%	2.500	%
ABR Loans or Swingline Loans	0.500	%	0.750	%	1.000	%	1.250	%	1.500	%
Commitment Fee Rate	0.375	%	0.375	%	0.500	%	0.500	%	0.500	%

The following table presents the outstanding balance, total amount of letters of credit outstanding, and available borrowing capacity under the Credit Agreement as of February 7, 2019, and December 31, 2018, and under the Company’s Fifth Amended and Restated Credit Agreement as of December 31, 2017:



	As of February 7, 2019		As of December 31, 2018		As of December 31, 2017
	(in thousands)
Credit facility balance ⁽¹⁾	$	—	$	—	$	—
Letters of credit ⁽²⁾	—		200		200
Available borrowing capacity	1,000,000		999,800		924,800
Total aggregate lender commitment amount	$	1,000,000	$	1,000,000	$	925,000

____________________________________________


⁽¹⁾	Unamortized deferred financing costs attributable to the credit facility are presented as a component of other noncurrent assets on the accompanying balance sheets and totaled $6.4 million and $3.1 million as of December 31, 2018, and 2017, respectively. These costs are being amortized over the term of the credit facility on a straight-line basis.


⁽²⁾	Letters of credit outstanding reduce the amount available under the credit facility on a dollar-for-dollar basis. The letter of credit outstanding as of December 31, 2018, was released effective January 8, 2019.

Senior Notes

During the third quarter of 2018, the Company redeemed its 2021 Senior Notes, repurchased or redeemed all of its 2023 Senior Notes, repurchased a portion of its 2022 Senior Notes, and issued its 2027 Senior Notes. As of December 31, 2018, the Company’s Senior Notes consisted of 6.125% Senior Notes due 2022, 5.0% Senior Notes due 2024 (“2024 Senior Notes”), 5.625% Senior Notes due 2025 (“2025 Senior Notes”), 6.75% Senior Notes due 2026 (“2026 Senior Notes”), and 6.625% Senior Notes due 2027 (collectively referred to as “Senior Notes”). Please refer to the discussion below for additional information. The Senior Notes, net of unamortized deferred financing costs line on the accompanying balance sheets as of December 31, 2018, and 2017, consisted of the following:



	As of December 31,
	2018						2017
	Principal Amount		Unamortized Deferred Financing Costs		Principal Amount, Net of Unamortized Deferred Financing Costs		Principal Amount		Unamortized Deferred Financing Costs		Principal Amount, Net of Unamortized Deferred Financing Costs
	(in thousands)
6.50% Senior Notes due 2021	$	—	$	—	$	—	$	344,611	$	2,656	$	341,955
6.125% Senior Notes due 2022	476,796		3,921		472,875		561,796		5,800		555,996
6.50% Senior Notes due 2023	—		—		—		394,985		3,707		391,278
5.0% Senior Notes due 2024	500,000		4,688		495,312		500,000		5,610		494,390
5.625% Senior Notes due 2025	500,000		5,808		494,192		500,000		6,714		493,286
6.75% Senior Notes due 2026	500,000		6,407		493,593		500,000		7,242		492,758
6.625% Senior Notes due 2027	500,000		7,533		492,467		—		—		—
Total	$	2,476,796	$	28,357	$	2,448,439	$	2,801,392	$	31,729	$	2,769,663

The Senior Notes are unsecured senior obligations and rank equal in right of payment with all of the Company’s existing and any future unsecured senior debt and are senior in right of payment to any future subordinated debt. There are no subsidiary guarantors of the Senior Notes. The Company is subject to certain covenants under the indentures governing the Senior Notes that limit the Company’s ability to incur additional indebtedness, issue preferred stock, and make restricted payments, including dividends. The Company was in compliance with all such covenants under its Senior Notes as of December 31, 2018, and through the filing of this report. All Senior Notes are registered under the Securities Act. The Company may redeem some or all of its Senior Notes prior to their maturity at redemption prices based on a premium, plus accrued and unpaid interest as described in the indentures governing the Senior Notes.

During the third quarter of 2018, the Company used the proceeds from the issuance of its 2027 Senior Notes, as discussed below, and cash on hand to retire $395.0 million of its 2023 Senior Notes and $85.0 million of its 2022 Senior Notes through the Tender Offer and subsequent redemption of the remaining 2023 Senior Notes not repurchased as part of the Tender Offer (“2023 Senior Notes Redemption”). Total consideration paid, including accrued interest, for the retirement of the 2023 Senior Notes and the 2022 Senior Notes was $497.8 million. As a result of the Tender Offer and the 2023 Senior Notes Redemption, the Company recorded a loss on extinguishment of debt of $16.9 million for the year ended December 31, 2018. This amount included $12.9 million of premiums paid for the Tender Offer and 2023 Senior Notes Redemption and $4.0 million of accelerated unamortized deferred financing costs.

During the first quarter of 2016, the Company repurchased in open market transactions a total of $46.3 million in aggregate principal amount of certain of its 6.50% Senior Notes due 2021, 6.125% Senior Notes due 2022, and 6.50% Senior Notes due 2023 for a settlement amount of $29.9 million, excluding interest, which resulted in a net gain on extinguishment of debt of approximately $15.7 million. This amount includes a gain of $16.4 million associated with the discount realized upon repurchase, which was partially offset by approximately $700,000 related to the acceleration of unamortized deferred financing costs.

2021 Senior Notes. On June 15, 2018, the Company called for redemption all of the $344.6 million principal outstanding on its 2021 Senior Notes at a redemption price of 102.167% of the principal amount, plus accrued and unpaid interest on the principal amount of the 2021 Senior Notes redeemed (“2021 Senior Notes Redemption”). On July 16, 2018, the Company completed the 2021 Senior Notes Redemption, which resulted in the payment of total cash consideration, including accrued interest, of $355.9 million. The Company recorded a loss on extinguishment of debt of $9.8 million for the year ended December 31, 2018. This amount included $7.5 million associated with the premium paid for the 2021 Senior Notes Redemption and $2.3 million of accelerated unamortized deferred financing costs.

2022 Senior Notes. On November 17, 2014, the Company issued $600.0 million in aggregate principal amount of 6.125% Senior Notes due 2022 at par, which mature on November 15, 2022. The Company received net proceeds of $590.0 million after deducting fees of $10.0 million, which are being amortized as deferred financing costs over the life of the 2022 Notes. During the first quarter of 2016, the Company repurchased $38.2 million in aggregate principal amount of its 2022 Notes for a settlement amount of $24.3 million, excluding interest. During the third quarter of 2018, through the Tender Offer discussed above, the Company retired $85.0 million of its 2022 Senior Notes for total consideration, including accrued interest, of $89.5 million.

2023 Senior Notes. During the first quarter of 2016, the Company repurchased $5.0 million in aggregate principal amount of its 2023 Notes for a settlement amount of $3.3 million. During the third quarter of 2018, through the Tender Offer and 2023 Senior Notes Redemption discussed above, the Company redeemed the remaining outstanding $395.0 million in aggregate principal amount of its 2023 Senior Notes for total consideration, including accrued interest, of $408.3 million.

2024 Senior Notes. On May 20, 2013, the Company issued $500.0 million in aggregate principal amount of 5.0% Senior Notes due 2024 at par, which mature on January 15, 2024. The Company received net proceeds of $490.2 million after deducting fees of $9.8 million, which are being amortized as deferred financing costs over the life of the 2024 Notes.

2025 Senior Notes. On May 21, 2015, the Company issued $500.0 million in aggregate principal amount of 5.625% Senior Notes due 2025 at par, which mature on June 1, 2025. The Company received net proceeds of $491.0 million after deducting fees of $9.0 million, which are being amortized as deferred financing costs over the life of the 2025 Notes.

2026 Senior Notes. On September 12, 2016, the Company issued $500.0 million in aggregate principal amount of 6.75% Senior Notes due 2026, at par, which mature on September 15, 2026. The Company received net proceeds of $491.6 million after deducting fees of $8.4 million, which are being amortized as deferred financing costs over the life of the 2026 Notes. The net proceeds were used to partially fund the Rock Oil Acquisition that closed during the fourth quarter of 2016.

2027 Senior Notes. On August 20, 2018, the Company issued $500.0 million in aggregate principal amount of 6.625% Senior Notes due 2027. The 2027 Senior Notes were issued at par and mature on January 15, 2027. The Company received net proceeds of $492.1 million after deducting fees of $7.9 million, which are being amortized as deferred financing costs over the life of the 2027 Senior Notes. The net proceeds were used to fund the Tender Offer and 2023 Senior Notes Redemption discussed above.

Senior Convertible Notes

On August 12, 2016, the Company issued $172.5 million in aggregate principal amount of 1.50% Senior Convertible Notes due July 1, 2021, unless earlier converted. The Senior Convertible Notes are unsecured senior obligations and rank equal in right of payment with all of the Company’s existing and any future unsecured senior debt and are senior in right of payment to any future subordinated debt. The Company received net proceeds of $166.6 million after deducting fees of $5.9 million, of which a portion is being amortized over the life of the Senior Convertible Notes.

Holders may convert their Senior Convertible Notes at their option at any time prior to January 1, 2021, only under the following circumstances: (1) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on September 30, 2016, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the indenture) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after January 1, 2021, until the maturity date, holders may convert their Senior Convertible Notes at any time. The Company may not redeem the Senior Convertible Notes prior to the maturity date. Upon conversion, the Senior Convertible Notes may be settled, at the Company’s election, in shares of the Company’s common stock, cash, or a combination of cash and common stock. Holders may convert their notes based on a conversion rate of 24.6914 shares of the Company’s common stock per $1,000 principal amount of the Senior Convertible Notes, which is equal to an initial conversion price of approximately $40.50 per share, subject to adjustment.

The Company has initially elected a net-settlement method to satisfy its conversion obligation, which would result in the Company settling the principal amount in cash with any excess conversion in shares of the Company’s common stock. The Senior Convertible Notes were not convertible at the option of holders as of December 31, 2018, or through the filing of this report. Notwithstanding the inability to convert, the if-converted value of the Senior Convertible Notes as of December 31, 2018, did not exceed the principal amount.

Upon the issuance of the Senior Convertible Notes, the Company recorded $132.3 million as the initial carrying amount of the debt component, which approximated its fair value at issuance, and, was estimated by using an interest rate for nonconvertible debt with terms similar to the Senior Convertible Notes. The effective interest rate used was 7.25%. The $40.2 million excess of the principal amount of the Senior Convertible Notes over the fair value of the debt component was recorded as a debt discount and a corresponding increase in additional paid-in capital. The Company incurred transaction costs of $5.9 million relating to the issuance of the Senior Convertible Notes, which were allocated between the debt and equity components in proportion to their determined fair value amounts. The debt discount and debt-related issuance costs are amortized to the principal value of the Senior Convertible Notes as interest expense through the maturity date of July 1, 2021. Interest expense recognized on the Senior Convertible Notes related to the stated interest rate and amortization of the debt discount totaled $10.5 million, $9.9 million, and $3.7 million for the years ended December 31, 2018, 2017, and 2016, respectively.

The net carrying amount of the liability component of the Senior Convertible Notes, as reflected on the accompanying balance sheets, consisted of the following as of December 31, 2018 and 2017:



	As of December 31,
	2018			2017
	(in thousands)
Principal amount of Senior Convertible Notes	$	172,500		$	172,500
Unamortized debt discount	(22,313		)	(30,183		)
Unamortized deferred financing costs	(2,293		)	(3,210		)
Net carrying amount	$	147,894		$	139,107

The net carrying amount of the equity component of the Senior Convertible Notes recorded in additional paid-in capital on the accompanying balance sheets consisted of the following as of December 31, 2018 and 2017:



	As of December 31,
	2018			2017
	(in thousands)
Equity component due to allocation of proceeds to equity	$	40,217		$	40,217
Related issuance costs	(1,375		)	(1,375		)
Deferred tax liability	(5,267		)	(5,267		)
Net carrying amount	$	33,575		$	33,575

If the Company undergoes a fundamental change, as defined by the governing indenture, holders of the Senior Convertible Notes may require the Company to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the Senior Convertible Notes to be repurchased, plus accrued and unpaid interest. The indenture governing the Senior Convertible Notes contains customary events of default with respect to the Senior Convertible Notes, including that upon certain events of default, the trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Senior Convertible Notes by notice to the Company, may declare 100% of the principal and accrued and unpaid interest, if any, due and payable immediately. In case of certain events of bankruptcy, insolvency or reorganization involving the Company or a significant subsidiary, 100% of the principal and accrued and unpaid interest on the Senior Convertible Notes will automatically become due and payable.

The Company is subject to certain covenants under the indenture governing the Senior Convertible Notes and was in compliance with all covenants as of December 31, 2018, and through the filing of this report.

Capped Call Transactions

In connection with the issuance of the Senior Convertible Notes, the Company entered into capped call transactions with affiliates of the underwriters of such issuance. The aggregate cost of the capped call transactions was approximately $24.2 million. The capped call transactions are generally expected to reduce the potential dilution upon conversion of the Senior Convertible Notes and/or partially offset any cash payments the Company is required to make in excess of the principal amount of converted Senior Convertible Notes in the event that the market price per share of the Company’s common stock is greater than the strike price of the capped call transactions, which initially corresponds to the approximate $40.50 per share conversion price of the Senior Convertible Notes. The cap price of the capped call transactions is initially $60.00 per share. If the market price per share exceeds the cap price of the capped call transactions, there could be dilution or there would not be an offset of such potential cash payments.

The Company evaluated the capped call transactions under authoritative accounting guidance and determined that they should be accounted for as separate transactions and classified as equity instruments with no recurring fair value measurement recorded.

Capitalized Interest

Capitalized interest costs for the Company for the years ended December 31, 2018, 2017, and 2016, were $20.6 million, $12.6 million, and $17.0 million, respectively.