Quarterly report pursuant to Section 13 or 15(d)

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation

The financial information included herein is unaudited. The balance sheet as of December 31, 2018 has been derived from the Company’s audited financial statements for the year ended December 31, 2018. However, such information includes all adjustments (consisting of normal recurring adjustments and change in accounting principles) that are, in the opinion of management, necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods. The results of operations for interim periods are not necessarily indicative of the results to be expected for an entire year.

Certain information, accounting policies, and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted in this Form 10-Q pursuant to certain rules and regulations of the Securities and Exchange Commission (“SEC”).  The condensed financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2018, which were included in the Company’s 2018 Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

The preparation of financial statements under GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  The most significant estimates relate to proved crude oil and natural gas reserves, estimates relating to certain crude oil and natural gas revenues and expenses, fair value of derivative instruments, fair value of contingent consideration, acquisition date fair values of assets acquired and liabilities assumed, impairment of oil and natural gas properties, asset retirement obligations and deferred income taxes.  Actual results may differ from those estimates.

Adopted and Recently Issued Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”). The objective of this ASU is to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. The FASB subsequently issued various ASUs which provided additional implementation guidance, and these ASUs collectively make up FASB ASC Topic 842 – Leases (“ASC 842”). ASC 842 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The standard permits retrospective application through recognition of a cumulative-effect adjustment at the beginning of either the earliest reporting period presented or the period of adoption. ASC 842 does not apply to leases used in the exploration or use of minerals, oil, natural gas, or other similar non-regenerative resources. The Company adopted ASC 842 effective January 1, 2019 using the modified retrospective method as of the adoption date. The Company has completed the assessment of its existing accounting policies and enhancement of its internal controls. The standard did not have a material impact on the Company’s statement of operations or cash flows.
Revenue Recognition

The Company’s revenues are primarily derived from its interests in the sale of oil and natural gas production. The Company recognizes revenue from its interests in the sales of oil and natural gas in the period that its performance obligations are satisfied. Performance obligations are satisfied when the customer obtains control of product, when the Company has no further obligations to perform related to the sale, when the transaction price has been determined and when collectability is probable. The sales of oil and natural gas are made under contracts which the third-party operators of the wells have negotiated with customers, which typically include variable consideration that is based on pricing tied to local indices and volumes delivered in the current month. The Company receives payment from the sale of oil and natural gas production from one to three months after delivery. At the end of each month when the performance obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are accrued in trade receivables, net in the balance sheets. Variances between the Company’s estimated revenue and actual payments are recorded in the month the payment is received, however, differences have been and are insignificant. Accordingly, the variable consideration is not constrained.

The Company does not disclose the value of unsatisfied performance obligations under its contracts with customers as it applies the practical exemption in accordance with ASC 606. The exemption, as described in ASC 606-10-50-14(a), applies to variable consideration that is recognized as control of the product is transferred to the customer. Since each unit of product represents a separate performance obligation, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

The Company’s oil is typically sold at delivery points under contracts terms that are common in our industry. The Companys natural gas produced is delivered by the well operators to various purchasers at agreed upon delivery points under a limited number of contract types that are also common in our industry. Regardless of the contract type, the terms of these contracts compensate the well operators for the value of the oil and natural gas at specified prices, and then the well operators will remit payment to the Company for its share in the value of the oil and natural gas sold.

A wellhead imbalance liability equal to the Company’s share is recorded to the extent that the Company’s well operators have sold volumes in excess of its share of remaining reserves in an underlying property. However, for the three months ended March 31, 2019 and 2018, the Company’s natural gas production was in balance, meaning its cumulative portion of natural gas production taken and sold from wells in which it has an interest equaled its entitled interest in natural gas production from those wells.

The Company’s disaggregated revenue has two revenue sources which are oil sales and natural gas and NGL sales and only operates in one geographic area, the Williston Basin in North Dakota and Montana. Oil sales for the three months ended March 31, 2019 and 2018 were $123.6 million and $79.1 million, respectively. Natural gas and NGL sales for the three months ended March 31, 2019 and 2018 were $9.1 million and $7.7 million, respectively.

Net Income (Loss) Per Common Share

Basic earnings per share (“EPS”) are computed by dividing net income (loss) (the numerator) by the weighted average number of common shares outstanding for the period (the denominator).  Diluted EPS is computed by dividing net income (loss) by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each period.  Potential common shares include stock options and restricted stock.  The number of potential common shares outstanding relating to stock options and restricted stock is computed using the treasury stock method.

The reconciliation of the denominators used to calculate basic EPS and diluted EPS for the three months ended March 31, 2019 and 2018 are as follows:
  Three Months Ended
March 31,
(In Thousands, except per share data) 2019 2018
Net Income (Loss) $ (107,162) $ 2,965 
Weighted Average Common Shares Outstanding:
Weighted Average Common Shares Outstanding – Basic 371,449  65,215 
Plus: Potentially Dilutive Common Shares Including Stock Options and Restricted Stock —  168 
Weighted Average Common Shares Outstanding – Diluted 371,449  65,383 
Net Income (Loss) per Common Share
Basic $ (0.29) $ 0.05 
Diluted $ (0.29) $ 0.05 

During three months ended March 31, 2019, the Company had a net loss and therefore the diluted net income (loss) per common share calculation for that period excludes the anti-diluted effect of 1,278,489 shares of restricted stock awards.

During three months ended March 31, 2018, the diluted net income (loss) per common share calculation for that period excludes the anti-diluted effect of 21,820 shares of restricted stock awards and 45,206 common shares for stock options.

Supplemental Cash Flow Information

The following reflects the Company’s supplemental cash flow information:
Three Months Ended March 31,
(In thousands) 2019 2018
Supplemental Cash Items:
Cash Paid During the Period for Interest $ 16,929  $ 7,631 
Cash Paid During the Period for Income Taxes —  — 
Non-cash Investing Activities:
Oil and Natural Gas Properties Included in Accounts Payable 133,872  85,068 
Capitalized Asset Retirement Obligations 226  184 
Compensation Capitalized on Oil and Gas Properties 84  54 
Non-cash Financing Activities:
Issuance of 8.50% Second Lien Notes due 2023 - PIK Interest 1,738  — 
Contingent Consideration Settlements 2,887  —