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Equity Exchange Transactions | 12 Months Ended
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Dec. 31, 2017
Equity Exchange Transactions [Abstract] |
Equity Exchange Transactions |
2. | Equity Exchange Transactions
Debt exchange On November 2, 2016, we entered into an exchange agreement with Wilks Brothers, LLC and SDW Investments, LLC (collectively, “Wilks”), the largest holder of our 7% Senior Notes due 2021 (the “Senior Notes”), to exchange $130,552,000 principal amount of our Senior Notes for 39,165,600 newly issued shares of common stock, par value $0.01 per share (the “Initial Exchange”). On January 26, 2017, our stockholders approved the Exchange Transactions (defined below) and an increase in our authorized common stock from 90 million shares to 180 million shares. We closed the Initial Exchange on January 27, 2017, and paid $1.1 million of accrued interest on the Senior Notes held by Wilks. In connection with the Initial Exchange, a second supplemental indenture became effective, which removed certain covenants and events of default from the indenture governing our Senior Notes and eliminated certain restrictive covenants discussed in Note 3. On March 22, 2017, we exchanged an additional $14,528,000 principal amount of outstanding Senior Notes for 4,009,728 shares of our common stock (the “Follow-On Exchange”). The Initial Exchange and the Follow-On Exchange (together, the “Exchange Transactions”) reduced the principal amount of outstanding Senior Notes by $145.1 million and reduced interest payments by $44.3 million over the remaining term of the Senior Notes. The Exchange Transactions were accounted for as a debt extinguishment. A gain of $5.1 million was recognized on the Exchange Transactions for the difference between the fair market value of the shares issued, a Level 1 fair value measurement, and the net carrying value of the Senior Notes exchanged. We incurred equity issuance costs of $2.8 million related to the Exchange Transactions, which were recorded as a reduction to additional paid-in capital. The Exchange Transactions triggered a cumulative change in ownership of our common stock by more than 50% under Section 382 of the Internal Revenue Code as of March 22, 2017. This established an annual limitation on the usage of our pre-change net operating losses (“NOLs”) in the future. Accordingly, we reduced our NOL deferred tax assets by $139.1 million. Acquisition On November 1, 2017, we entered into a definitive agreement to acquire producing properties directly adjacent to our acreage in the Permian Basin (the “Bolt-On Acquisition”). The Bolt-On Acquisition closed on November 20, 2017, and we issued 7,573,403 newly issued shares of common stock, par value $0.01 per share, with an effective date of September 1, 2017. The purchase price is subject to customary post-closing adjustments, and is expected to be finalized in the first quarter of 2018. Any adjustments to the purchase price are expected to be settled in shares of common stock. The Bolt-On Acquisition was accounted for using the acquisition method under ASC Topic 805, “Business Combinations,” which requires the acquired assets and liabilities to be recorded at fair values as of the acquisition date. The results of operations attributable to the Bolt-On Acquisition are included in our consolidated statements of operations beginning on November 20, 2017. We recognized revenue of $0.5 million from these assets from November 20, 2017 to December 31, 2017. In connection with the Bolt-On Acquisition, we incurred $0.1 million of acquisition-related costs which were expensed as incurred and are included in general and administrative expenses on our consolidated statements of operations. We are in the process of identifying and determining the fair values of the assets acquired and liabilities assumed, pursuant to the Bolt-On Acquisition, and as a result, the estimates for fair value are subject to change. We anticipate certain changes, including, but not limited to, adjustments to working capital that are expected to be finalized prior to the measurement period’s expiration. The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed as a result of the Bolt-On Acquisition (in thousands):
Accounts receivable |  | $ | 558 |
Proved leasehold costs |  |  | 13,865 |
Lease and well equipment |  |  | 3,466 |
Total assets acquired |  |  | 17,889 |
Accounts payable |  |  | (106 | )
Oil, NGLs and gas sales payable |  |  | (255 | )
Accrued liabilities |  |  | (25 | )
Asset retirement obligations |  |  | (71 | )
Total liabilities assumed |  |  | (457 | )
Estimated fair value of net assets acquired |  | $ | 17,432 |
We estimated the fair value of oil and gas properties and equipment and asset retirement obligations as of November 20, 2017, using a discounted cash flow model, which is a non-recurring Level 3 fair value measurement. Significant inputs to the valuation of natural gas and oil properties include estimates of: (i) future sales prices for oil and gas based on NYMEX strip prices, (ii) pricing adjustments for differentials, (iii) production costs, (iv) future oil and gas reserves to be recovered and the timing thereof, and (v) discount rates.

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