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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission file number 001-38435

HighPoint Resources Corporation
(Exact name of registrant as specified in its charter)

Delaware82-3620361
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)

555 17th Street, Suite 3700
Denver, Colorado 80202
(Address of principal executive offices, including zip code)

(303) 293-9100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, $0.001 par valueHPRNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☑  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☑  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting company 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes    ☑  No

There were 215,264,180 shares of $0.001 par value common stock outstanding on July 20, 2020.


Table of Contents
INDEX TO FINANCIAL STATEMENTS
 
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2

Table of Contents
PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

HIGHPOINT RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

June 30, 2020December 31, 2019
 (in thousands, except share data)
Assets:
Current Assets:
Cash and cash equivalents$2,736  $16,449  
Accounts receivable, net of allowance59,277  62,120  
Derivative assets72,236  3,916  
Prepayments and other current assets5,962  3,952  
Total current assets140,211  86,437  
Property and equipment - at cost, successful efforts method for oil and gas properties:
Proved oil and gas properties2,749,042  2,644,129  
Unproved oil and gas properties, excluded from amortization243,309  357,793  
Furniture, equipment and other30,739  29,804  
3,023,090  3,031,726  
Accumulated depreciation, depletion, amortization and impairment(2,235,234) (967,552) 
Total property and equipment, net787,856  2,064,174  
Derivative assets15,546    
Other noncurrent assets8,375  5,441  
Total$951,988  $2,156,052  
Liabilities and Stockholders’ Equity:
Current Liabilities:
Accounts payable and accrued liabilities$42,077  $71,638  
Amounts payable to oil and gas property owners25,226  37,922  
Production taxes payable46,985  61,507  
Derivative liabilities  4,411  
Total current liabilities114,288  175,478  
Long-term debt, net of debt issuance costs794,673  758,911  
Asset retirement obligations23,950  23,491  
Deferred income taxes2,137  97,418  
Other noncurrent liabilities14,761  17,436  
Commitments and contingencies (Note 11)
Stockholders’ Equity:
Common stock, $0.001 par value; authorized 400,000,000 shares; 215,409,996 and 213,669,597 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively, with 3,168,704 and 2,968,497 shares subject to restrictions, respectively212  211  
Additional paid-in capital1,779,906  1,777,779  
Retained earnings (accumulated deficit)(1,777,939) (694,672) 
Treasury stock, at cost: zero shares at June 30, 2020 and December 31, 2019    
Total stockholders’ equity2,179  1,083,318  
Total$951,988  $2,156,052  

See notes to Unaudited Consolidated Financial Statements.
3

Table of Contents
HIGHPOINT RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
 (in thousands, except share and per share data)
Operating Revenues:
Oil, gas and NGL production$43,300  $107,486  $122,866  $209,191  
Other operating revenues, net  98    373  
Total operating revenues43,300  107,584  122,866  209,564  
Operating Expenses:
Lease operating expense9,074  10,772  20,155  22,049  
Gathering, transportation and processing expense4,254  1,742  8,666  3,465  
Production tax expense1,449  8,905  (1,059) 12,798  
Exploration expense21  12  52  37  
Impairment and abandonment expense810  995  1,266,236  1,317  
(Gain) loss on sale of properties4,779  2,906  4,779  2,901  
Depreciation, depletion and amortization24,908  72,612  99,833  145,222  
Unused commitments4,378  4,352  8,836  8,821  
General and administrative expense12,890  12,401  23,105  25,061  
Merger transaction expense      2,414  
Other operating expenses, net(557) 4  (502) (20) 
Total operating expenses62,006  114,701  1,430,101  224,065  
Operating Income (Loss)(18,706) (7,117) (1,307,235) (14,501) 
Other Income and Expense:
Interest and other income (expense)259  154  64  468  
Interest expense(15,388) (14,381) (29,771) (28,060) 
Commodity derivative gain (loss)(33,793) 19,544  158,395  (85,647) 
Total other income and expense(48,922) 5,317  128,688  (113,239) 
Income (Loss) before Income Taxes(67,628) (1,800) (1,178,547) (127,740) 
(Provision for) Benefit from Income Taxes  (110) 95,280  29,601  
Net Income (Loss)$(67,628) $(1,910) $(1,083,267) $(98,139) 
Net Income (Loss) Per Common Share, Basic$(0.32) $(0.01) $(5.12) $(0.47) 
Net Income (Loss) Per Common Share, Diluted$(0.32) $(0.01) $(5.12) $(0.47) 
Weighted Average Common Shares Outstanding, Basic211,894,790  210,377,152  211,503,310  210,155,678  
Weighted Average Common Shares Outstanding, Diluted211,894,790  210,377,152  211,503,310  210,155,678  

See notes to Unaudited Consolidated Financial Statements.
4

Table of Contents
HIGHPOINT RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 Six Months Ended June 30,
 20202019
 (in thousands)
Operating Activities:
Net Income (Loss)$(1,083,267) $(98,139) 
Adjustments to reconcile to net cash provided by operations:
Depreciation, depletion and amortization99,833  145,222  
Deferred income taxes(95,280) (29,601) 
Impairment and abandonment expense1,266,236  1,317  
Commodity derivative (gain) loss(158,395) 85,647  
Settlements of commodity derivatives69,447  3,656  
Stock compensation and other non-cash charges2,645  6,980  
Amortization of deferred financing costs2,287  1,275  
(Gain) loss on sale of properties4,779  2,901  
Change in operating assets and liabilities:
Accounts receivable(2,413) 18,475  
Prepayments and other assets(1,905) (1,463) 
Accounts payable, accrued and other liabilities(16,441) (6,733) 
Amounts payable to oil and gas property owners(12,696) (22,923) 
Production taxes payable(14,522) (8,069) 
Net cash provided by (used in) operating activities60,308  98,545  
Investing Activities:
Additions to oil and gas properties, including acquisitions(110,841) (258,153) 
Additions of furniture, equipment and other(653) (3,574) 
Other investing activities3,189  (98) 
Net cash provided by (used in) investing activities(108,305) (261,825) 
Financing Activities:
Proceeds from debt120,000  150,000  
Principal payments on debt(85,000) (1,859) 
Other financing activities(716) (1,523) 
Net cash provided by (used in) financing activities34,284  146,618  
Increase (Decrease) in Cash and Cash Equivalents(13,713) (16,662) 
Beginning Cash and Cash Equivalents16,449  32,774  
Ending Cash and Cash Equivalents$2,736  $16,112  

See notes to Unaudited Consolidated Financial Statements.
5

Table of Contents
HIGHPOINT RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)

Three Months Ended June 30, 2020 and 2019
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
(Accumulated
Deficit)
Treasury
Stock
Total
Stockholders’
Equity
Balance at March 31, 2020$212  $1,778,571  $(1,710,311) $  $68,472  
Restricted stock activity and shares exchanged for tax withholding—  —  —  (18) (18) 
Stock-based compensation—  1,353  —  —  1,353  
Retirement of treasury stock—  (18) —  18    
Net income (loss)—  —  (67,628) —  (67,628) 
Balance at June 30, 2020$212  $1,779,906  $(1,777,939) $  $2,179  
Balance at March 31, 2019$210  $1,772,336  $(656,071) $  $1,116,475  
Restricted stock activity and shares exchanged for tax withholding—  —  —  (22) (22) 
Stock-based compensation—  1,850  —  —  1,850  
Retirement of treasury stock—  (22) —  22    
Net income (loss)—  —  (1,910) —  (1,910) 
Balance at June 30, 2019$210  $1,774,164  $(657,981) $  $1,116,393  
Six Months Ended June 30, 2020 and 2019
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
(Accumulated
Deficit)
Treasury
Stock
Total
Stockholders’
Equity
Balance at December 31, 2019$211  $1,777,779  $(694,672) $  $1,083,318  
Restricted stock activity and shares exchanged for tax withholding1  —  —  (654) (653) 
Stock-based compensation—  2,781  —  —  2,781  
Retirement of treasury stock—  (654) —  654    
Net income (loss)—  —  (1,083,267) —  (1,083,267) 
Balance at June 30, 2020$212  $1,779,906  $(1,777,939) $  $2,179  
Balance at December 31, 2018$210  $1,771,730  $(559,842) $  $1,212,098  
Restricted stock activity and shares exchanged for tax withholding—  —  —  (1,506) (1,506) 
Stock-based compensation—  3,940  —  —  3,940  
Retirement of treasury stock—  (1,506) —  1,506    
Net income (loss)—  —  (98,139) —  (98,139) 
Balance at June 30, 2019$210  $1,774,164  $(657,981) $  $1,116,393  

See notes to Unaudited Consolidated Financial Statements.
6

Table of Contents
HIGHPOINT RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

June 30, 2020

1. Organization

HighPoint Resources Corporation, a Delaware corporation, together with its wholly-owned subsidiaries (collectively, the “Company”), is an independent oil and gas company engaged in the exploration, development and production of oil, natural gas and natural gas liquids (“NGLs”). The Company became the successor to Bill Barrett Corporation (“Bill Barrett”), on March 19, 2018, upon closing of the transactions contemplated by the Agreement and Plan of Merger, dated December 4, 2017 (the “Merger Agreement”), pursuant to which Bill Barrett combined with Fifth Creek Energy Operating Company, LLC (“Fifth Creek”) (the “Merger”). As a result of the Merger, Bill Barrett became a wholly-owned subsidiary of HighPoint Resources Corporation and subsequently Bill Barrett changed its name to HighPoint Operating Corporation. The Company currently conducts its activities principally in the Denver Julesburg Basin (“DJ Basin”) in Colorado. Except where the context indicates otherwise, references herein to the “Company” with respect to periods prior to the completion of the Merger refer to Bill Barrett and its subsidiaries.

2. Summary of Significant Accounting Policies

Basis of Presentation. The accompanying Unaudited Consolidated Financial Statements include the accounts of the Company. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying consolidated financial statements include all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly, in all material respects, the Company’s interim results. However, operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. The Company’s Annual Report on Form 10-K for the year ended December 31, 2019 includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report on Form 10-Q. Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K.

Use of Estimates. In the course of preparing the Company’s financial statements in accordance with GAAP, management makes various assumptions, judgments and estimates to determine the reported amount of assets, liabilities, revenues and expenses and in the disclosure of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts initially established.

Areas requiring the use of assumptions, judgments and estimates relate to volumes of oil, natural gas and NGL reserves used in calculating depreciation, depletion and amortization (“DD&A”), the amount of expected future cash flows used in determining impairments of oil and gas properties and the amount of future capital costs used in these calculations. Assumptions, judgments and estimates also are required in determining the fair values of assets acquired and liabilities assumed in business combinations, asset retirement obligations, right-of-use assets and lease liabilities, deferred income taxes, the timing of dry hole costs, impairments of proved and unproved oil and gas properties and fair values of derivative instruments and stock-based payment awards. Further, these estimates and other factors, including those outside of the Company’s control, such as the impact of lower commodity prices, may have a significant adverse impact to the Company’s business, financial condition, results of operations and cash flows.

Accounts Receivable. Accounts receivable is comprised of the following:

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As of June 30, 2020As of December 31, 2019
 (in thousands)
Oil, gas and NGL sales$32,383  $50,171  
Due from joint interest owners (1)
23,796  9,551  
Other3,129  2,419  
Allowance for doubtful accounts(31) (21) 
Total accounts receivable$59,277  $62,120  

(1)Includes $12.9 million associated with one joint interest partner. In the event of nonpayment, the Company expects to net the outstanding amount against certain revenues payable to this joint interest partner.

Oil and Gas Properties. The following table sets forth the net capitalized costs and associated accumulated DD&A and non-cash impairments relating to the Company’s oil, natural gas and NGL producing activities:

As of June 30, 2020As of December 31, 2019
 (in thousands)
Proved properties$721,174  $725,964  
Wells and related equipment and facilities1,910,527  1,805,136  
Support equipment and facilities105,397  99,540  
Materials and supplies11,944  13,489  
Total proved oil and gas properties$2,749,042  $2,644,129  
Unproved properties 182,605  265,387  
Wells and facilities in progress60,704  92,406  
Total unproved oil and gas properties, excluded from amortization$243,309  $357,793  
Accumulated depreciation, depletion, amortization and impairment(2,224,428) (958,475) 
Total oil and gas properties, net$767,923  $2,043,447  

The Company reviews proved oil and natural gas properties for impairment on a quarterly basis or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. The Company estimates the expected undiscounted future net cash flows of its oil and gas properties using proved and risked probable and possible reserves based on an analysis of quantitative and qualitative factors existing as of the balance sheet date including the Company’s development plans and best estimate of future production, commodity pricing, reserve risking, gathering and transportation deductions, production tax rates, lease operating expenses and future development costs. The Company compares such undiscounted future net cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable. If the undiscounted future net cash flows exceed the carrying amount of the oil and gas properties, no impairment is taken. If the carrying amount of a property exceeds the undiscounted future net cash flows, the Company will impair the carrying value to fair value. The factors used to determine fair value may include, but are not limited to, recent sales prices of comparable properties, indications from marketing activities, the present value of future revenues, net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures, income taxes and various discount rates commensurate with the risk and current market conditions associated with realizing the projected cash flows.

Unproved oil and gas properties are assessed periodically for impairment based on remaining lease terms, drilling results, reservoir performance, commodity price outlooks, future plans to develop acreage, recent sales prices of comparable properties and other relevant matters.

In early 2020, global health care systems and economies began to experience strain from the spread of COVID-19, a highly transmissible and pathogenic coronavirus (the “COVID-19 pandemic”). As the virus spread, global economic activity began to slow and future economic activity was forecast to slow with a resulting decline in oil demand. In response, the Organization of Petroleum Exporting Countries (“OPEC”), along with non-OPEC oil-producing countries (collectively known as “OPEC+”), initiated discussions to lower production to support energy prices. With OPEC+ unable to agree on cuts, crude oil prices declined to an average of $30.45 per barrel for the month of March 2020, compared to an average of $59.80 per barrel for the month of December 2019. These events led to a decline in the recoverability of the carrying value of the Company’s oil and gas properties during the three months ended March 31, 2020. Since the carrying amount of the oil and gas properties was no longer recoverable, the Company impaired the carrying value to fair value. Therefore, the Company recognized non-cash impairment
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charges during the three months ended March 31, 2020, which were included within impairment and abandonment expense in the Unaudited Consolidated Statements of Operations.

For the three months ended March 31, 2020, the Company contracted with an independent third party to assist the Company in the Company’s determination of fair value associated with the Company’s proved and unproved oil and gas properties. Through the use of the Company’s production and price forecast, the third party used the income valuation technique to assist the Company in the determination of fair value for the proved developed producing (“PDP”) and proved developed non-producing (“PDN”) reserves and a market approach utilizing sales prices of comparable properties to assist the Company in the determination of fair value of the proved undeveloped (“PUD”), probable (“PROB”) and possible (“POSS”) reserves. The Company’s impairment and abandonment expense for the three and six months ended June 30, 2020 and 2019 is summarized below:

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(in thousands)
Impairment of proved oil and gas properties$  $  $1,188,566  $  
Impairment of unproved oil and gas properties    76,298    
Abandonment expense810  995  1,372  1,317  
Total impairment and abandonment expense$810  $995  $1,266,236  $1,317  

Accounts Payable and Accrued Liabilities. Accounts payable and accrued liabilities are comprised of the following:

As of June 30, 2020As of December 31, 2019
(in thousands)
Accrued drilling, completion and facility costs$12,957  $25,667  
Accrued lease operating, gathering, transportation and processing expenses7,364  8,046  
Accrued general and administrative expenses6,910  6,612  
Accrued interest payable6,681  6,832  
Trade payables3,951  17,488  
Operating lease liability1,954  1,287  
Other2,260  5,706  
Total accounts payable and accrued liabilities$42,077  $71,638  

Environmental Liabilities. Environmental expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation are expensed. Environmental liabilities are accrued when environmental assessments and/or clean-ups are probable, and the costs can be reasonably estimated. Under Wyoming law, the Company is exposed to potential obligations for plugging and abandoning wells, and associated reclamation, for assets that were sold to other industry parties in prior years. When such third parties are unable to fulfill their contractual obligations to the Company as provided for in purchase and sale agreements, landowners, as well as the Bureau of Land Management, may demand that the Company perform such activities.

Revenue Recognition. All of the Company’s sales of oil, gas and NGLs are made under contracts with customers, whereby revenues are recognized when the Company satisfies its performance obligations and the customer obtains control of the product. Performance obligations under the Company’s contracts with customers are typically satisfied at a point-in-time through monthly delivery of oil, gas and/or NGLs. Accordingly, at the end of the reporting period, the Company does not have any unsatisfied performance obligations. The Company’s contracts with customers typically include variable consideration based on monthly pricing tied to local indices and volumes delivered in the current month. The nature of the Company’s contracts with customers does not require the Company to constrain variable consideration for accounting purposes. As of June 30, 2020, the Company had open contracts with customers with terms of 1 month to 17 years, as well as evergreen contracts that renew on a periodic basis if not canceled by the Company or the customer. The Company’s contracts with customers typically require payment within one month of delivery.

Under the Company’s contracts with customers, natural gas and its components, including NGLs, are either sold to a midstream entity (which processes the natural gas and subsequently sells the resulting residue gas and NGLs) or are sold to a gas or NGL purchaser after being processed by a third party for a fee. Regardless of the contract structure type, the terms of
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these contracts compensate the Company for the value of the residue gas and NGLs at current market prices for each product. The Company’s oil is sold to multiple oil purchasers at specific delivery points at or near the wellhead. All costs incurred to gather, transport and/or process the Company’s oil, gas and NGLs after control has transferred to the customer are considered components of the consideration received from the customer and therefore are recorded in oil, gas and NGL production revenues in the Unaudited Consolidated Statements of Operations. All costs incurred prior to the transfer of control to the customer are included in gathering, transportation and processing expense in the Unaudited Consolidated Statements of Operations.

Gas imbalances from the sale of natural gas are recorded on the basis of gas actually sold by the Company. If the Company’s aggregate sales volumes for a well are greater (or less) than its proportionate share of production from the well, a liability (or receivable) is established to the extent there are insufficient proved reserves available to make-up the overproduced (or underproduced) imbalance. Imbalances were not significant in the periods presented.

Derivative Instruments and Hedging Activities. The Company periodically uses derivative financial instruments to achieve a more predictable cash flow from its oil, natural gas and NGL sales by reducing its exposure to price fluctuations. Derivative instruments are recorded at fair market value and are included in the Unaudited Consolidated Balance Sheets as assets or liabilities.

Income Taxes. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently payable plus deferred income taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred income tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when assets are recovered or liabilities are settled. Deferred income taxes also include tax credits and net operating losses that are available to offset future income taxes. Deferred income taxes are measured by applying currently enacted tax rates. A valuation allowance is recorded if it is more likely than not that all or some portion of the Company’s deferred tax assets will not be realized. The Company regularly assesses the realizability of the deferred tax assets considering all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, planning strategies and results of recent operations. The assumptions about future taxable income require significant judgment to determine if a valuation allowance is required. Changes to the Company’s development plans, changes in market prices for hydrocarbons, changes in operating results, or other factors including changes in tax law could change the valuation allowance in future periods, resulting in recognition of a tax expense or benefit.

The Company accounts for uncertainty in income taxes for tax positions taken or expected to be taken in a tax return. Only tax positions that meet the more-likely-than-not recognition threshold are recognized. The Company does not have any uncertain tax positions recorded as of June 30, 2020.

Comprehensive Income. The Company has no elements of other comprehensive income, therefore, the Company’s net income (loss) on the Unaudited Consolidated Statements of Operations represents comprehensive income.

Earnings/Loss Per Share. Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to common stock by the weighted average number of common shares outstanding during each period. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to common stock by the weighted average number of common shares outstanding and other dilutive securities. Potentially dilutive securities for the diluted net income per common share calculations consist of nonvested shares of common stock. The Company was in a net loss position for the three and six months ended June 30, 2020 and 2019; therefore, all potentially dilutive securities were anti-dilutive.

The following table sets forth the calculation of basic and diluted income (loss) per share:

 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
(in thousands, except per share amounts)
Net income (loss)$(67,628) $(1,910) $(1,083,267) $(98,139) 
Basic weighted-average common shares outstanding in period
211,895  210,377  211,503  210,156  
Diluted weighted-average common shares outstanding in period
211,895  210,377  211,503  210,156  
Basic net income (loss) per common share$(0.32) $(0.01) $(5.12) $(0.47) 
Diluted net income (loss) per common share$(0.32) $(0.01) $(5.12) $(0.47) 
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New Accounting Pronouncements. In April 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In response to the cessation of the London Interbank Offered Rate (“LIBOR”) by December 31, 2022, the FASB issued this update to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other affected transactions. The Company currently has only one contract, its credit facility, that may be impacted by this ASU. Modifications of debt contracts should be accounted for by prospectively adjusting the effective interest rate. This update has an effective period of March 12, 2020 through December 31, 2022 and allows for elections to be made by the Company in terms of how the ASU is adopted. Once elected for a Topic or Industry Subtopic, the update must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company does not believe the standard will have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The objective of this update is to improve the effectiveness of fair value measurement disclosures. ASU 2018-13 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. The standard was adopted on January 1, 2020 and did not have a material impact on the Company’s disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments, Credit Losses. The objective of this update is to amend current impairment guidance by adding an impairment model (known as the current expected credit loss model (“CECL”)) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of lifetime expected credit losses, which the FASB believes will result in more timely recognition of such losses. ASU 2016-13 was effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. The standard was adopted on January 1, 2020 and did not have a material impact on the Company’s disclosures and financial statements.

3. Supplemental Disclosures of Cash Flow Information

Supplemental cash flow information is as follows:

 Six Months Ended June 30,
 20202019
(in thousands)
Cash paid for interest$27,635  $26,689  
Cash paid for income taxes    
Cash paid for amounts included in the measurements of lease liabilities:
Cash paid for operating leases873  595  
Non-cash operating activities:
Right-of-use assets obtained in exchange for lease obligations
Operating leases (1)(2)
777  14,955  
Non-cash investing and financing activities:
Accounts payable and accrued liabilities - oil and gas properties 11,746  87,109  
Change in asset retirement obligations, net of disposals(12) (5,022) 
Retirement of treasury stock(654) (1,506) 
Properties exchanged in non-cash transactions4,753  4,561  

(1)Excludes the reclassifications of lease incentives and deferred rent balances.
(2)The six months ended June 30, 2019 included $14.0 million of right-of-use assets established with the adoption of ASC 842, Leases, effective January 1, 2019.

4. Long-Term Debt

The Company’s outstanding debt is summarized below:
 
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  As of June 30, 2020As of December 31, 2019
 Maturity DatePrincipalDebt Issuance CostsCarrying
Amount
PrincipalDebt Issuance CostsCarrying
Amount
(in thousands)
Amended Credit FacilitySeptember 14, 2023$175,000  $  $175,000  $140,000  $  $140,000  
7.0% Senior NotesOctober 15, 2022350,000  (1,954) 348,046  350,000  (2,372) 347,628  
8.75% Senior NotesJune 15, 2025275,000  (3,373) 271,627  275,000  (3,717) 271,283  
Total Long-Term Debt$800,000  $(5,327) $794,673  $765,000  $(6,089) $758,911  

Amended Credit Facility

On May 21, 2020, the Company entered into an amendment to the fourth amended and restated credit facility (the “Amended Credit Facility”), which decreased the aggregate elected commitment amount and the borrowing base from $500.0 million to $300.0 million, increased the applicable margins for interest and commitment fee rates and added provisions requiring the availability under the Amended Credit Facility to be at least $50.0 million and the Company’s weekly cash balance (subject to certain exceptions) to not exceed $35.0 million. The Company had $175.0 million and $140.0 million outstanding under the Amended Credit Facility as of June 30, 2020 and December 31, 2019, respectively. As credit support for future payments under a contractual obligation, a $21.7 million letter of credit has been issued under the Amended Credit Facility, which reduced the available borrowing capacity under the Amended Credit Facility as of June 30, 2020 to $53.3 million after taking into account the $50.0 million availability requirement. While the stated maturity date in the Amended Credit Facility is September 14, 2023, the maturity date is accelerated if the Company has more than $100.0 million of “Permitted Debt” or “Permitted Refinancing Debt” (as those terms are defined in the Amended Credit Facility) that matures prior to December 14, 2023. If that is the case, the accelerated maturity date is 91 days prior to the earliest maturity of such Permitted Debt or Permitted Refinancing Debt. Because the Company’s 7.0% Senior Notes will mature on October 15, 2022, the aggregate amount of those notes exceeds $100.0 million and the notes represent “Permitted Debt”, the maturity date specified in the Amended Credit Facility is accelerated to the date that is 91 days prior to the maturity date of those notes, or July 16, 2022.

As of May 21, 2020, interest rates on outstanding loans under the Amended Credit Facility are either adjusted LIBOR plus applicable margins of 2.5% to 3.5% or an alternate base rate, which is generally the prime rate, plus applicable margins of 1.5% to 2.5%, and the unused commitment fee is 0.5%. The applicable margins and the unused commitment fee rate are determined based on borrowing base utilization. The weighted average annual interest rate incurred on the Amended Credit Facility was 2.7% and 4.2% for the three months ended June 30, 2020 and 2019, respectively, and 3.0% and 4.1% for the six months ended June 30, 2020 and 2019, respectively.

The borrowing base under the Amended Credit Facility is determined at the discretion of the lenders and is subject to regular re-determination on or about April 1 and October 1 of each year, as well as following any property sales. The lenders can also request an interim redetermination during each six month period. The borrowing base is computed based on proved oil, natural gas and NGL reserves that have been mortgaged to the lenders, hedge positions and estimated future cash flows from the reserves calculated using future commodity pricing provided by the lenders, as well as any other outstanding debt.

The Company has financial covenants associated with its Amended Credit Facility that are measured each fiscal quarter. The Company is currently in compliance with all financial covenants and has complied with all financial covenants since issuance. However, if current market conditions continue, the Company may not be able to maintain compliance with these financial covenants. In particular, the Company may breach the debt-to-EBITDAX ratio and the current ratio covenants in the Amended Credit Facility in the latter part of 2021. Further, if the Company’s independent auditor were to include an explanatory paragraph regarding the Company’s ability to continue as a “going concern” in the auditors’ report on the Company’s financial statements for the year ending December 31, 2020, this would also cause a default under the Amended Credit Facility. If a covenant breach occurs or is likely, the Company may attempt to obtain a waiver from the lenders under the Amended Credit Facility, seek to amend the terms of the Amended Credit Facility to prevent the breach or seek to obtain alternative financing to repay the Amended Credit Facility balance outstanding. If these efforts are unsuccessful, all or a portion of the amount borrowed under the Amended Credit Facility could become due, and cross-defaults could occur under the Company’s senior notes and the Company may not have other sources of capital to repay the amounts due.

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Senior Notes

The issuer of the 7.0% Senior Notes and the 8.75% Senior Notes is HighPoint Operating Corporation (f/k/a Bill Barrett), or Subsidiary Issuer. Pursuant to supplemental indentures entered into in connection with the Merger, HighPoint Resources Corporation, or the Parent Guarantor, became a guarantor of the 7.0% Senior Notes and the 8.75% Senior Notes in March 2018. In addition, Fifth Pocket Production, LLC, or the Subsidiary Guarantor, became a subsidiary of the Subsidiary Issuer on August 1, 2019 and also guarantees the 7.0% Senior Notes and the 8.75% Senior Notes. The Parent Guarantor and the Subsidiary Guarantor, on a joint and several basis, fully and unconditionally guarantee the debt securities of the Subsidiary Issuer. The Company has no additional subsidiaries or non-guarantor subsidiaries. All covenants in the indentures governing the notes limit the activities of the Subsidiary Issuer and the Subsidiary Guarantor, including limitations on the ability to pay dividends, incur additional indebtedness, make restricted payments, create liens, sell assets or make loans to the Parent Guarantor, but in most cases the covenants in the indentures are not applicable to the Parent Guarantor. HighPoint Operating Corporation is currently in compliance with all covenants and has complied with all covenants since issuance.

Nothing in the indentures governing the 7.0% Senior Notes or the 8.75% Senior Notes prohibits the Company from repurchasing any of the notes from time to time at any price in open market purchases, negotiated transactions or by tender offer or otherwise without any notice to or consent of the holders.

5. Asset Retirement Obligations

A reconciliation of the Company’s asset retirement obligations for the six months ended June 30, 2020 is as follows (in thousands):

As of December 31, 2019$25,709  
Liabilities incurred488  
Liabilities settled(766) 
Disposition of properties(143) 
Accretion expense872  
Revisions to estimate409  
As of June 30, 2020$26,569  
Less: Current asset retirement obligations2,619  
Long-term asset retirement obligations$23,950  

6. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. These inputs can be readily observable, market corroborated or generally unobservable. A fair value hierarchy was established that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Quoted prices are available in active markets for similar assets or liabilities and in non-active markets for identical or similar instruments. Model-derived valuations have inputs that are observable or whose significant value drivers are observable. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 – Pricing inputs include significant inputs that are generally less observable than objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At each balance
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sheet date, the Company performs an analysis of all applicable instruments and includes in Level 3 all of those whose fair value is based on significant unobservable inputs.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Certain assets and liabilities are measured at fair value on a recurring basis in the Company’s Unaudited Consolidated Balance Sheets. The following methods and assumptions were used to estimate the fair values:

Cash equivalents – The highly liquid cash equivalents are recorded at fair value. Carrying value approximates fair value, which represents a Level 1 input.

Deferred compensation plan – The Company maintains a non-qualified deferred compensation plan which allows certain management employees to defer receipt of a portion of their compensation. The Company maintains assets for the deferred compensation plan in a rabbi trust. The assets of the rabbi trust are invested in publicly traded mutual funds and are recorded in other current and other long-term assets in the Unaudited Consolidated Balance Sheets. The deferred compensation plan financial assets are reported at fair value based on active market quotes, which represent Level 1 inputs.

Commodity derivatives – The fair value of crude oil, natural gas and NGL swaps and cashless collars are valued based on an income approach using various assumptions, such as quoted forward prices for commodities and time value factors. These assumptions are observable in the marketplace throughout the full term of the contract, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace, and are, therefore, designated as Level 2 inputs. The Company utilizes its counterparties’ valuations to assess the reasonableness of its own valuations. The Company currently utilizes an independent third party to perform the valuation.

The commodity derivatives have been adjusted for non-performance risk. For applicable financial assets carried at fair value, the credit standing of the counterparties is analyzed and factored into the fair value measurement of those assets. In addition, the fair value measurement of a liability has been adjusted to reflect the nonperformance risk of the Company.

The following tables set forth by level within the fair value hierarchy the Company’s non-financial assets and liabilities that were measured at fair value on a recurring basis in the Unaudited Consolidated Balance Sheets.

Level 1Level 2Level 3Total
 (in thousands)
As of June 30, 2020
Financial Assets
Deferred compensation plan$1,167  $  $  $1,167  
Commodity derivatives  91,150    91,150  
Financial Liabilities
Commodity derivatives  3,368    3,368  
As of December 31, 2019
Financial Assets
Deferred compensation plan$2,033  $  $  $2,033  
Commodity derivatives  8,890    8,890  
Financial Liabilities
Commodity derivatives  10,056    10,056  

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis in the Company’s consolidated balance sheets. The following methods and assumptions were used to estimate the fair values:

Oil and gas properties – Proved oil and natural gas properties are evaluated for impairment on a quarterly basis or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. Whenever the Company concludes the carrying value may not be recoverable, the Company estimates the expected undiscounted future net cash flows of its oil and gas properties using proved and risked probable and possible reserves based on its development plans and best estimate of future production, commodity pricing, reserve risking, gathering and transportation
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deductions, production tax rates, lease operating expenses and future development costs. The Company compares such undiscounted future net cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable. If the undiscounted future net cash flows exceed the carrying amount of the oil and gas properties, no impairment is taken. If the carrying amount of a property exceeds the undiscounted future net cash flows, the Company will impair the