Chaparral Energy, Inc. (NYSE: CHAP) is an independent oil and natural gas
exploration and production company headquartered in Oklahoma City. Founded in
1988, Chaparral has over 207,000 net surface acres in the Mid-Continent region.
The Company is focused in the oil window of the Anadarko Basin in the heart of
Oklahoma, where it has approximately 120,000 net acres (our "Focus Areas").

The following discussion and analysis is intended to assist in understanding our
financial condition and results of operations for the three months ended
March 31, 2020 and 2019, as well as the current trends and uncertainties
relevant to the Company's future financial and operational performance. The
information should be read in conjunction with our unaudited consolidated
financial statements and the notes thereto included in this quarterly report as
well as the information included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2019.

Statements in our discussion may be forward-looking statements. These
forward-looking statements involve risks and uncertainties. We caution that a
number of factors could cause future production, revenues and expenses to differ
materially from our expectations. For more information, see "Cautionary Note
Regarding Forward-Looking Statements."

Early First Quarter Activity



At the beginning of the quarter ended March 31, 2020, Chaparral management
commenced a comprehensive cash improvement effort. The initiative, which
involves the formation and collaboration of multiple working teams, is intended
to identify, validate and implement opportunities to improve the Company's cash
flow across all parts of its business - drilling and completions capital
expenditures, lease operating expenses, production uptime and efficiency,
development planning, and general and administrative expenses. Many of the
measures identified by the teams have been implemented and are yielding expanded
cash flow at the project level already. However, because of the extraordinary
and unprecedented events affecting the oil and gas industry discussed below,
initiatives that are scale-dependent are expected to be fully realized only when
activity has resumed to more normal levels.

Macroeconomic Developments and Their Impact on the Oil and Gas Industry



The rapid, global spread of COVID-19 in the first quarter of 2020 and the
resulting economic repercussions created significant volatility in the oil and
gas industry. Stay-at-home and similar protective measures that were enacted by
federal, foreign, state and local governments to slow the spread of the virus
contributed to a significant deterioration in the domestic and global demand for
oil and gas.

Compounding the impact of COVID-19, the oil production output alliance between
Russia, Saudi Arabia and other oil producing nations ("OPEC+") broke down as
both sides were unable to reach agreement in early March 2020 over how much to
restrict production in order to stabilize crude oil prices. As a result, Saudi
Arabia and Russia both initiated efforts to increase production, driving down
oil prices. OPEC+ was later able to agree on approximately 9.7 million barrels
of oil per day of production cuts, but that announcement has done little to aid
in oil price recovery because of the significant drop in global demand.

Even though the price for oil in the commodities futures markets currently
reflect some price improvement (although still less than pre-March 2020 prices),
the current cash prices have deteriorated significantly. On April 20, 2020, the
front-month futures contract for West Texas Intermediate ("WTI") prices dipped
into the negative, and as of the time of this filing were less than $26.00 per
barrel. The front-month contract is used to calculate our settlement price for
crude sales in the current month as well as a price adjustment for the following
month. Therefore, the price shock described above will be detrimental to our
April and May 2020 crude revenues. Furthermore, producers are not able to
produce significant volumes of oil now and store it for later sale because
little or no storage capacity remains available.

This combination of events has led to an unprecedented supply-demand oil
imbalance in the range of 25 million to 28 million barrels of oil per day during
April 2020, and has created a great deal of uncertainty in the oil and gas
industry as producers make adjustments to their capital and budget strategies in
reaction to these changes.

In addition, the COVID-19 pandemic has increased volatility and caused negative
pressure in the capital and credit markets.  As a result, and in light of our
debt incurrence restrictions in our existing debt documents, we do not expect to
have access in the current environment to the capital markets or financing on
terms we would find favorable, if at all.

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Chaparral's Response and 2020 Outlook



In response, Chaparral is taking material and unusual actions to maximize the
value of its assets and improve its financial position. Because the Company has
(a) a strong hedge position for crude oil in 2020, the proceeds of which do not
require the physical delivery of any oil or gas and (b) no material volume
commitments or other contractual obligations to produce oil or gas, we
determined that it is not prudent or necessary to continue developing our
inventory or sell all of our products at current market prices.

Accordingly, we suspended all drilling and stimulation operations in early
April, deferring completions of recently drilled wells. Further, the Company
shut in the six-well Greenback pad that came online in early March even though
it was performing above expectations. Since then, the Company has begun to
shut-in operated production that is not associated with waterfloods or exposed
to well-specific mechanical or other risks. Procedures and precautions were
followed to help protect mechanical and reservoir integrity and to minimize the
cost and timing of resuming production to help ensure that production can be
resumed efficiently on these shut-in wells once commodity prices recover
sufficiently. Furthermore, in order to facilitate a swift restart of sales when
that price recovery occurs, we are taking steps now to increase crude storage in
the tank batteries at our operated lease locations. Once tank batteries are
full, we expect that the majority of our operated production will be curtailed,
with future prices determining the timing of when the wells will be turned back
online. These operational adjustments will result in lower production (with a
resulting decline in revenues) and lower costs and capital spending requirements
in the second quarter.

Liquidity and capital resources



Our primary sources of liquidity have historically been cash flows generated
from operating activities, financing provided by our revolving credit facility
or issuance of debt, and proceeds from hedge settlements.

Cash Flows from Operating Activities. As described above, in light of the
significant deterioration in commodity prices, we have shut in a substantial
number of our producing wells and have suspended all drilling and stimulation
operations. As a result, we expect the cash flows generated from our operating
activities to decline significantly, offset by (a) the related reductions in
expenses and capital expenditures and (b) proceeds from hedge settlements. The
impact of this response on liquidity during the second quarter will depend on
gas and NGL revenues prior to shut-in, how much variable lease operating expense
can be eliminated and how long the shut-ins last.

Proceeds from Revolving Credit Facility and Senior Notes Interest Payment. At
the beginning of April 2020, we significantly increased our cash balance by
borrowing an additional $105 million, which increased the total amount
outstanding under our Credit Agreement (as defined below) to $250.0 million.
Contemporaneously with the additional borrowings under the Credit Agreement, the
lenders under that agreement notified the Company regarding the Borrowing Base
Redetermination (as defined below). The Company is required to repay the
resulting $75 million borrowing base deficiency in six equal monthly
installments, plus interest, beginning on May 2, 2020. Furthermore, our next
semi-annual interest payment of $13.1 million on our 8.75% Senior Notes is due
on July 15, 2020.

Hedging. As described above in "Note 6: Derivative Instruments" above in the
accompanying financial statements, we have a strong hedge position for crude oil
in 2020 the proceeds of which do not require the physical delivery of any oil or
gas. In light of the significant difference between near-term commodity prices
and future prices, one possible strategy would be for us to increase and
lengthen our hedging position. This approach would align our hedges with our
decision to suspend drilling and to shut-in a substantial amount of production
until prices recover. However, our hedging counterparties (who are also lenders
under our Credit Agreement) have informed us that they currently do not intend
to enter into new hedges with us until we have cured the Borrowing Base
Deficiency (as defined below).

We believe that the actions that the Company has taken to draw down on its
revolving credit facility and to implement material operational changes afford
us the ability to diligently explore all credible operating and capitalization
scenarios available to us. However, our profitability outlook based on current
strip prices has resulted in a situation that raises substantial doubt about our
ability to continue as a going concern within one year of the time of this
filing. In that regard, the Company's Board of Directors has formed a Special
Committee composed of independent directors to review and evaluate strategic
alternatives to preserve and grow the value of the enterprise. We have also
retained financial and legal advisors to assist in this evaluation process. No
assurances can be given as to the outcome or timing of the evaluation, or
whether any particular transaction may be pursued or consummated.


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Indebtedness



Debt consists of the following as of the dates indicated:
(in thousands)                 March 31, 2020     December 31, 2019
8.75% Senior Notes due 2023   $      300,000     $         300,000
Credit facility                      145,000               130,000
Financing lease obligations            1,549                 1,653
Installment note payable                  58                   371
Unamortized issuance costs            (9,355 )             (10,038 )
Total debt, net               $      437,252     $         421,986



Credit facility

Pursuant to our Credit Agreement (the "Credit Agreement") with Royal Bank of
Canada, as administrative agent and issuing bank, and the additional lenders
party thereto, we have a $750.0 million credit facility collateralized by our
oil and natural gas properties and is scheduled to mature on December 21, 2022.
Availability under our credit facility is subject to financial covenants (see
"Note 4: Debt" in "Item 1. Financial Statements" of this report) and a borrowing
base predicated on the value of our oil and natural gas properties and set by
the banks semi-annually on or around May 1 and November 1 of each year. As of
March 31, 2020, our borrowing base on the credit facility was $325.0 million.
Depending on how quickly supply and demand for oil return to balance and
commodity prices reflect same, and the consequent duration of the production
shut-ins described above, our ability to remain in compliance with the financial
covenants referenced above may be materially negatively affected.

The Credit Agreement contains covenants and events of default customary for oil
and natural gas reserve-based lending facilities. Please see "Note 8: Debt" in
"Item 8 Financial Statements and Supplementary Data" of our Annual Report on
Form 10-K for the year ended December 31, 2019, for a discussion of the material
provisions of our Credit Agreement.

On April 1, 2020, we borrowed $15.0 million and on April 2, 2020, we provided
notice to our lenders to borrow an additional $90.0 million (the latter herein
referred to as the "Borrowing") which increased the total amount outstanding
under the Credit Agreement to $250.0 million. The Borrowing was made by the
Company as a precautionary measure in order to increase its cash position and
thereby provide for flexibility in the current challenging business environment
and associated uncertainties. Subsequent to the Borrowing, we were notified that
our lenders had exercised their right to make an interim redetermination of the
Company's borrowing base. The lenders' redetermination notice stated that the
Company's borrowing base was decreased from $325.0 million to $175.0 million,
effective April 3, 2020. Our lenders subsequently reaffirmed the borrowing base
at the same level on May 5, 2020, in conjunction with the Company's scheduled
semi-annual redetermination process. As a result of the April 3, 2020, borrowing
base redetermination, the Borrowing, once funded, created a borrowing base
deficiency in the amount of $75.0 million under the Credit Agreement (the
"Borrowing Base Deficiency"). The Company notified the administrative agent for
the Credit Facility on April 14, 2020, that it intends to eliminate such
Borrowing Base Deficiency by repaying the amount of the Borrowing Base
Deficiency in six equal monthly installments, with the first payment of $12.5
million plus interest made on May 1, 2020. No premium or penalty would be
charged with respect to those repayments. If the Company is unable to repay the
amount of the Borrowing Base Deficiency within the time period required under
the Credit Agreement, an event of default would occur under the Credit
Agreement.

8.75% Senior Notes



On June 29, 2018, we issued at par $300.0 million in aggregate principal amount
of our 8.75% Senior Notes maturing in July 15, 2023 in a private placement under
Rule 144A and Regulation S of the Securities Act of 1933, as amended. The net
proceeds were used to repay the outstanding balance on the credit facility at
that time and for general corporate purposes.

Please see "Note 8: Debt" in "Item 8 Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended December 31, 2018, for a discussion of the material provisions of our Senior Notes.

Finance leases

We currently have financing leases that consist of fleet trucks and office equipment. Please see "Note 17: Leases" in "Item 8. Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended December 31, 2019, for a discussion of these leases.


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Sources and uses of cash

Our primary sources of liquidity have historically been cash flows generated
from operating activities, financing provided by our revolving credit facility
or issuance of debt, and proceeds from hedge settlements. Additionally, in
recent years, asset dispositions have provided a source of cash flow for
enhancing liquidity. Our business strategy and, in certain circumstances, the
financial covenants contained in our debt instruments require that we
continuously commit substantial investment to drill and develop our oil and
natural gas properties such that production from new wells can offset the
natural production decline from existing wells.

Our net change in cash is summarized as follows:


                                                  Three months ended March 

31,


(in thousands)                                      2020                

2019

Cash flows provided by operating activities $ 12,883 $ 8,554 Cash flows used in investing activities

             (36,670 )            (63,529 )
Cash flows provided by financing activities          14,483               

28,647

Net decrease in cash during the period $ (9,304 ) $ (26,328 )




Our cash flows from operating activities are derived substantially from the
production and sale of oil and natural gas. Cash flows from operating activities
for the three months ended March 31, 2020, of $12.9 million increased compared
to the prior year quarter primarily due to higher gross revenues and lower lease
operating expenses partially offset by higher transportation and processing
deductions.

We use the net cash provided by operations to partially fund our acquisition, exploration and development activities. During 2020, we also relied on borrowings from our credit facility and cash on hand to fund our capital expenditures.

Our cash flows from investing activities typically consist of cash outflows for capital expenditures, cash inflows from asset dispositions and derivative settlement payments or receipts.



Our actual costs incurred, including costs that we have accrued for during the
three months ended March 31, 2020, are summarized in the table below.
(in thousands)                               Three months ended March 31, 2020
Acquisitions (1)                            $                             4,232
Drilling (2)                                                             43,298
Enhancements                                                              3,523
Operational capital expenditures incurred                                

51,053


Other (3)                                                                 

4,651


Total capital expenditures incurred         $                            

55,704

______________________________________________________


(1)   Includes $2.5 million recorded to unproved leasehold related to the
      drilling commitment obligation discussed above under "Contractual
      obligations."

(2) Includes $0.7 million on development of wells operated by others.




(3)   For the three months ended March 31, 2020, this amount includes $2.2
      million for capitalized general and administrative expenses, and $2.3
      million for capitalized interest.



Net cash used in investing activities during the three months ended March 31,
2020 consisted of cash outflows for capital expenditure of $49.1 million
partially offset by receipts for derivative settlements of $9.2 million and
proceeds from asset sales of $3.2 million. The asset sale proceeds primarily
consisted of proceeds from equipment, vehicles and real estate previously
classified as held-for-sale on our balance sheet. Net cash used in investing
activities during the three months ended March 31, 2019 consisted of cash
outflows for capital expenditure of $64.0 million partially offset by receipts
for derivative settlements of $0.5 million.

Net cash from financing activities during the three months ended March 31, 2020,
consisted of borrowings on our credit facility of $15.0 million partially offset
by cash outflows of $0.4 million for repayment of debt and $0.1 million for debt
financing fees. Net cash from financing activities during the three months
ended March 31, 2019, consisted of borrowings on our Credit Facility of $30.0

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million partially offset by cash outflows for repayment of debt and financing leases of $0.9 million and for treasury stock repurchases of $0.5 million.

Contractual obligations



We have numerous contractual commitments in the ordinary course of business
including debt service requirements, operating leases, financing leases, well
drilling obligations and purchase obligations. Our operating leases currently
consist of an office space lease at our headquarters and our financing leases
consist of leases on our fleet vehicles and office equipment. We have a well
drilling commitment under the terms of leasehold purchase agreements which we
entered into in 2017. The drilling commitment requires the Company to drill and
complete 10 wells on such leasehold in each of 2019, 2020, and 2021 and 15 wells
in 2022. To the extent the Company does not drill and complete the minimum
number of wells in a given year, it is required to pay the sellers of the
acreage $250,000 for each deficient well. The Company has paid the deficiency
amount related to its 2019 drilling commitment and recorded an accrual of $2.5
million in March 2020 for the deficiency on its 2020 drilling commitment as it
does not intend to drill wells on the subject acreage in 2020 given the current
commodity price environment. No determination has been made with respect to 2021
or 2022; however, if the Company fails to drill the prescribed number of wells
in either year, it would be obligated to make additional payments to the
sellers.

Surety bonds totaling $3.4 million were posted on our behalf as of March 31,
2020. We pay premiums for such bonds and, under normal circumstances, are not
required to post collateral of any kind to support their issuance. However, as a
result of the current extraordinary macroeconomic situation and the Borrowing
Base Deficiency discussed above, the surety for these bonds, on April 15, 2020,
exercised its right to demand that the Company post cash collateral in respect
of the bonds. The Company subsequently provided $0.5 million in such collateral.

Other than additional borrowings under our credit facility and the Borrowing
Base Deficiency described in "Note 4: Debt" in "Item 1: Financial Information"
of this Quarterly Report on Form 10-Q, we have not had material changes to our
contractual commitments since December 31, 2019.

Results of operations

Highlights

Our financial and operating performance in the first quarter of 2020 includes the following highlights and comparisons to the prior year quarter:

• We generated net income for the three months ended March 31, 2020, of $4.9


      million. Included in our income were gains on commodity derivative
      instruments of $78.4 million partially offset by a ceiling impairment of
      $71.4 million.


•     Our gain on commodity derivatives for the three months ended March 31,
      2020, was attributable to $9.2 million of realized settlement gains and
      $69.2 million of noncash mark-to-market gains driven by the decline in
      crude oil and NGL prices.

• We grew net production by 49% to 2,793 MBoe for the three months ended

March 31, 2020. Within our Focus Areas, net production grew 68% to 2,404


      MBoe over the same time period.


•     We lowered our lease operating expense by 18% to $10.1 million for the

three months ended March 31, 2020. Our cost reductions were accomplished


      despite an increase in production, as evidenced by the 45% decrease in
      lease operating expense per Boe to $3.61.

• We lowered general and administrative expenses on a per Boe basis by 35% to

$2.89 per Boe compared to the prior year quarter. Total general and

administrative expenses was reduced by 3% to $8.1 million for the three

months ended March 31, 2020.

• Our oil and natural gas capital expenditures for the three months ended

March 31, 2020, were $55.7 million, with $43.3 million incurred for

drilling and completions and $4.2 million on acquisitions. Our capital


      activity during this period included completing and bringing online 15
      wells, of which nine were drilled in the current quarter and six in the

prior year. We also drilled two wells scheduled to be completed subsequent


      to quarter end.




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Production

Production volumes by area were as follows (MBoe)


                          Three months ended March 31,          Increase/    Percent
                                 2020                  2019    (Decrease)     Change
Focus Areas:
Kingfisher County             750                       605        145        24.0  %
Canadian County             1,382                       476        906       190.3  %
Garfield County               236                       296        (60 )     (20.3 )%
Other                          36                        57        (21 )     (36.8 )%
Total Focus Areas           2,404                     1,434        970        67.6  %
Other                         389                       440        (51 )     (11.6 )%
Total                       2,793                     1,874        919        49.0  %



For the three months ended March 31, 2020, our total net production increased
compared to the prior year quarter. This increase is primarily due to increases
in production in our Focus Areas, primarily in Kingfisher County and Canadian
County where we brought online an additional 62 wells during the period. This
pattern of growth underscores our emphasis on developing our Focus Areas which
includes bringing online 66 gross (57 net) operated new wells in the area in the
last 12 months.

Revenues and transportation and processing



Our commodity sales are derived from the production and sale of oil, natural gas
and natural gas liquids. These revenues do not include the effects of derivative
instruments and may vary significantly from period to period as a result of
changes in volumes of production sold or changes in commodity prices.

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The following table presents information about our production and commodity sales before the effects of commodity derivative settlements:


                                  Three months ended March 31,          Increase/         Percent
                                     2020               2019           (Decrease)          Change
Commodity sales (in
thousands):
Oil                            $      37,026       $      32,802     $       4,224            12.9  %
Natural gas                            8,655              11,206            (2,551 )         (22.8 )%
Natural gas liquids                    9,682               9,217               465             5.0  %
Gross commodity sales          $      55,363       $      53,225     $       2,138             4.0  %
Transportation and
processing                            (6,512 )            (4,606 )          (1,906 )          41.4  %
Net commodity sales            $      48,851       $      48,619     $         232             0.5  %
Production:
Oil (MBbls)                              840                 618               222            35.9  %
Natural gas (MMcf)                     6,450               4,474             1,976            44.2  %
Natural gas liquids (MBbls)              878                 510               368            72.2  %
MBoe                                   2,793               1,874               919            49.0  %
Average daily production
(Boe/d)                               30,692              20,819             9,873            47.4  %
Average sales prices
(excluding derivative
settlements):
Oil per Bbl                    $       44.08       $       53.08     $       (9.00 )         (17.0 )%
Natural gas per Mcf            $        1.34       $        2.50     $       (1.16 )         (46.4 )%
NGLs per Bbl                   $       11.03       $       18.07     $       (7.04 )         (39.0 )%
Transportation and
processing per Boe             $       (2.33 )     $       (2.46 )   $        0.13            (5.3 )%
Average sales price per Boe    $       17.49       $       25.95     $       (8.46 )         (32.6 )%


Our gross commodity sales (excluding transportation and processing deductions)
for the three months ended March 31, 2020, increased due to an increase in
production across all commodities, partially offset by price decreases on all
three commodities. The table below discloses the impact of price and production
volume changes on our revenues.
                                                          Three months ended March 31, 2020 vs. 2019
                                                                                     Percentage
                                                               Sales                   change
(in thousands)                                                 change                 in sales
Change in oil sales due to:
Prices                                                   $       (7,560 )                (23.0 )%
Production                                                       11,784                   35.9  %
Total change in oil sales                                $        4,224                   12.9  %
Change in natural gas sales due to:
Prices                                                   $       (7,491 )                (66.8 )%
Production                                                        4,940                   44.1  %
Total change in natural gas sales                        $       (2,551 )                (22.8 )%
Change in natural gas liquids sales due to:
Prices                                                   $       (6,185 )                (67.1 )%
Production                                                        6,650                   72.1  %
Total change in natural gas liquids sales                $          465                    5.0  %




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Transportation and processing revenue deductions principally consist of
deductions by our customers for costs to prepare and transport production from
the wellhead to a specified sales point and processing costs of gas into natural
gas liquids. Transportation and processing deductions for the three months ended
March 31, 2020, were higher than the prior year periods due to increases in
natural gas and natural gas liquids production.

Derivative activities



Our results of operations, financial condition and capital resources are highly
dependent upon the prevailing market prices of, and demand for, oil and natural
gas. These commodity prices are subject to wide fluctuations and market
uncertainties. To mitigate a portion of this exposure, we have entered into
various types of derivative instruments, including commodity price swaps and
costless collars.

Our realized prices are impacted by realized gains and losses resulting from
commodity derivatives contracts. The following table presents information about
the effects of derivative settlements on realized prices:
                                             Three months ended March 31,
                                                2020               2019
Oil (per Bbl):
Before derivative settlements             $       44.08       $       53.08
After derivative settlements              $       49.03       $       54.71
Post-settlement to pre-settlement price           111.2 %             103.1 %
Natural gas liquids (per Bbl):
Before derivative settlements             $       11.03       $       18.07
After derivative settlements              $       14.82       $       19.18
Post-settlement to pre-settlement price           134.4 %             106.1 %
Natural gas (per Mcf):
Before derivative settlements             $        1.34       $        2.50
After derivative settlements              $        1.60       $        2.27
Post-settlement to pre-settlement price           119.4 %              90.8 %



The estimated fair values of our oil, natural gas, and NGL derivative instruments are provided below. The associated carrying values of these instruments are equal to the estimated fair values. (in thousands)

                         March 31, 2020     December 31, 2019
Derivative assets (liabilities):
Crude oil derivatives                 $        45,436    $         (21,805 )
Natural gas derivatives                         4,255                3,551
NGL derivatives                                 3,430                2,169

Net derivative assets (liabilities) $ 53,121 $ (16,085 )





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Our derivative portfolio, which was in a net liability position at the end of
2019, reverted to a net asset of $53.1 million as of March 31, 2020. The change,
which also corresponds to the non-cash fair value adjustment gain of $69.2
million in the table below, is primarily due to the steep decline in crude oil
forward prices brought on by the COVID-19 pandemic.

The effects of derivative activities on our results of operations and cash flows
were as follows:
                                                          Three months ended March 31,
                                                  2020                                   2019
                                      Non-cash                              Non-cash
                                     fair value     Settlements (paid)     fair value     Settlements (paid)
(in thousands)                       adjustment          received          adjustment          received
Derivative gains (losses):
Crude oil derivatives              $     67,240     $          4,156     $    (48,669 )   $        1,011
Natural gas derivatives                     705                1,688             (139 )           (1,061 )
NGL derivatives                           1,261                3,330           (2,723 )              565

Derivative gains (losses) $ 69,206 $ 9,174 $

(51,531 ) $ 515





We do not apply hedge accounting to any of our derivative instruments. As a
result, all gains and losses associated with our derivative contracts are
recognized immediately as "Derivative gains (losses)" in our consolidated
statements of operations. The fluctuation in derivative gains (losses) from
period to period is due primarily to the significant volatility of oil, NGL and
natural gas prices and to changes in our outstanding derivative contracts during
these periods.

Lease operating expenses
                                        Three months ended March 31,       Increase/        Percent
(in thousands, except per Boe data)         2020              2019         (Decrease)        Change
Lease operating expenses:
Focus Areas                           $         5,609     $    7,114     $     (1,505 )       (21.2 )%
Other                                           4,479          5,180             (701 )       (13.5 )%
Total lease operating expenses        $        10,088     $   12,294     $     (2,206 )       (17.9 )%
Lease operating expenses per Boe:
Focus Areas                           $          2.33     $     4.96     $      (2.63 )       (53.0 )%
Other                                 $         11.51     $    11.77     $      (0.26 )        (2.2 )%
Lease operating expenses per Boe      $          3.61     $     6.56     $  

(2.95 ) (45.0 )%





Lease operating expenses ("LOE") are sensitive to changes in demand for field
equipment, services, and qualified operational personnel, which is driven by
demand for oil and natural gas. However, the timing of changes in operating
costs may lag behind changes in commodity prices. LOE for the three months ended
March 31, 2020 was lower on a total dollar basis and on a per Boe basis compared
to the prior year quarter.  The quarter over quarter decline in total LOE was
primarily due to a decrease in water hauling costs in certain parts of our Focus
Areas as pipeline infrastructure is expanded into the area and contract rates
are locked in as well as due to reduced costs for well maintenance.  In addition
to these factors, LOE on a per Boe basis was also lower because of increased
production in areas with lower per Boe costs.

Production taxes (which include severance and ad valorem taxes)


                                      Three months ended March 31,         

Increase/ Percent


                                         2020               2019           (Decrease)        Change
Production taxes (in thousands)    $       2,750       $       2,880     $       (130 )         (4.5 )%
Production taxes per Boe           $        0.98       $        1.54     $      (0.56 )        (36.4 )%
Production taxes as % of
commodity sales                              5.0 %               5.4 %



Production taxes for the three months ended March 31, 2020 were 5% lower than
the prior year period. The quarter over quarter decrease on a dollar basis and
on a per Boe basis was primarily a result of lower revenues driven by a decline
in commodity pricing.

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Depreciation, depletion and amortization ("DD&A")


                                       Three months ended March 31,        Increase/         Percent
                                           2020              2019          (Decrease)        Change
DD&A (in thousands):
Oil and natural gas properties (1)   $        22,575     $    21,881     $        694            3.2  %
Property and equipment                           437           1,834           (1,397 )        (76.2 )%
Total DD&A                           $        23,012     $    23,715     $       (703 )         (3.0 )%
DD&A per Boe:
Oil and natural gas properties (1)   $          8.08     $     11.67     $      (3.59 )        (30.8 )%
Other fixed assets                              0.16            0.98            (0.82 )        (83.7 )%
Total DD&A per Boe                   $          8.24     $     12.65     $      (4.41 )        (34.9 )%

_________________________________________

(1) Includes accretion of asset retirement obligations





We adjust our DD&A rate on oil and natural gas properties each quarter for
changes in our estimates of oil and natural gas reserves and costs. Oil and
natural gas DD&A for the three months ended March 31, 2020 of $22.6 million was
3% higher than the prior year periods due to higher production, partially offset
by a lower DD&A rate driven by decreases in overall reserve values and future
development costs as a result of decreasing commodity prices.

General and administrative expenses ("G&A")


                                      Three months ended March 31,         Increase/         Percent
(in thousands)                           2020               2019           (Decrease)        Change
G&A:
Gross G&A expenses                 $      10,293       $      11,035     $       (742 )         (6.7 )%
Capitalized exploration and
development costs                         (2,225 )            (2,722 )            497          (18.3 )%
Net G&A expenses                           8,068               8,313             (245 )         (2.9 )%
Net G&A expense per Boe            $        2.89       $        4.44     $      (1.55 )        (34.9 )%



Net G&A of $8.1 million for the three months ended March 31, 2020, decreased 3%
from the prior year periods primarily due to reductions in payroll and benefits,
stock based compensation and severance costs partially offset by an increase in
bad debt expense. Payroll and benefits were lower as a result of a reduction in
headcount. Stock compensation expense was lower because our executive stock
grants awarded in 2017 were front loaded for three-year periods and subject to
accelerated cost recognition which results in higher expense early during the
life of a grant with graded vesting. To a lesser extent stock compensation
expense was also lower due to forfeitures in the preceding twelve months. In
addition, severance costs for employees impacted by our reductions in force
during period were lower than the prior year period. These decreases were
partially offset by an increase in credit losses on expected uncollectible
receivables. We increased our allowance for uncollectible receivables pursuant
to new accounting guidance that requires us to forecast uncollectible amounts
under an "expected loss" model as well as in consideration of current industry
conditions that have been adversely impacted by COVID-19. The table below
discloses the impact of the items discussed above.

                                     Three months ended March 31,         Increase/         Percent
(in thousands)                           2020              2019          (Decrease)         Change
Employee severance costs           $           733     $     1,058     $        (325 )        (30.7 )%
Stock compensation, gross                      660           1,419              (759 )        (53.5 )%
Credit losses on receivables                 1,517            (258 )           1,775              *
                                   $         2,910     $     2,219     $         691           31.1  %

______________________________________________

* Not meaningful


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Subleases expense

The expense consisted of our expense on operating leases for CO2 compressors
that we subleased to another operator. Both originating leases and subleases
were terminated during the third quarter of 2019. Please see "Note 1: Nature of
operations and summary of significant accounting policies" and "Note 17: Leases"
in "Item 8. Financial Statements and Supplementary Data" of our Annual Report on
Form 10-K for the year ended December 31, 2019, for a discussion of the
sublease.

Full-cost ceiling impairment



Energy commodity prices are volatile and a decline in commodity prices
negatively impacts our revenues, profitability, cash flows, liquidity (including
our borrowing base availability), and reserves, which could lead us to consider
reductions in our capital program, asset sales or organizational changes. Prices
we receive are determined by prevailing market conditions, regional and
worldwide economic and geopolitical activity, supply versus demand, weather,
seasonality and other factors that influence market conditions and often result
in significant volatility in commodity prices. We mitigate the effects of
volatility in commodity prices primarily by hedging a substantial portion of our
expected production, focusing on a competitive cost structure and maintaining
flexibility in our capital investment program with limited long-term
commitments.

Price volatility also impacts our business through the full cost ceiling test
calculation. The ceiling test calculation dictates that we use the unweighted
arithmetic average price of crude oil and natural gas as of the first day of
each month for the 12-month period ending on the balance sheet date. Since the
prices used in the cost ceiling are based on a trailing 12-month period, the
full impact of price changes on our financial statements may not be recognized
immediately but could be spread over several reporting periods.

We recorded a ceiling test impairment on our oil and natural gas properties of
$71.4 million for the three months ended March 31, 2020, primarily due to a
decrease in the price of natural gas and NGLs used to estimate our reserves, as
disclosed in the table below.

                                             March 31,      December 31,
Benchmark prices utilized in ceiling test       2020            2019
Oil (per Bbl)                               $     55.77    $       55.69
Natural gas (per MMbtu)                     $      2.30    $        2.58
Natural gas liquids (per Bbl)               $     14.97    $       16.21



The precipitous crude oil price decline caused by COVD-19 has resulted in a
first of the month price in April and May 2020 of $20.31/bbl and $19.78/bbl,
respectively. If commodity prices remain at their current level, decline, or do
not recover to a level above $55.00/bbl, we expect the trailing 12-month average
price to decline as 2020 progresses and we believe that it is probable that we
would record further ceiling test impairment losses in 2020. In addition to
commodity prices, our production rates, levels of proved reserves, estimated
future operating expenses, estimated future development costs, transfers of
unevaluated properties and other factors will determine our actual ceiling test
calculation and impairment analyses in future periods. Please see "Note 1:
Nature of operations and summary of significant accounting policies and going
concern" in "Item 1. Financial Statements" of this report for further discussion
of our ceiling test.

Income taxes

We did not record any net deferred tax benefit for the three months ended March
31, 2020, as any deferred tax asset arising from the benefit is reduced by a
valuation allowance as utilization of the loss carryforwards and realization of
other deferred tax assets cannot be reasonably assured. Please see "Note 12:
Income Taxes" in "Item 8. Financial Statement and Supplementary Data" of our
Annual Report on Form 10-K for the year ended December 31, 2019, which contains
additional information about our income taxes.

As a result of the Chapter 11 reorganization and related transactions, upon
emergence from bankruptcy, we experienced an ownership change within the meaning
of IRC Section 382 which subjected certain of the Company's tax attributes,
including our federal net operating loss carryforwards, to an IRC Section 382
limitation. If we were to experience an additional "ownership change," our
ability to offset taxable income arising after the ownership change with NOLs
generated prior to the ownership change would be limited, possibly
substantially. See "Note 1: Nature of operations and summary of significant
accounting policies and going concern" in "Item 1. Financial Statements" of this
report for our discussion of the Section 382 limitation.

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Other income and expenses



Interest expense. The following table presents interest expense for the periods
indicated:
                                                             Three months ended March 31,
(in thousands)                                                 2020                 2019
Credit facility                                          $        1,389       $          150
Senior Notes                                                      6,563                6,563
Bank fees, other interest and amortization of issuance
costs                                                             1,002                1,343
Interest expense, gross                                           8,954                8,056
Capitalized interest                                             (2,318 )             (3,492 )
Total interest expense                                   $        6,636       $        4,564
Average borrowings                                       $      446,840       $      333,708



Interest expense for the three months ended March 31, 2020, was higher than the
prior year quarter due to both an increase in gross interest expense as well as
a reduction in capitalized interest. Gross interest was higher due to increased
borrowings on our credit facility as reflected in the average borrowings
disclosed in the table above. We capitalize interest based on the carrying value
of our unevaluated non-producing leasehold excluding any amounts that are the
result of our fresh start fair value adjustment. Capitalized interest for the
three months ended March 31, 2020, was lower than the prior year period due to a
lower average carrying balance on unevaluated non-producing leasehold, for which
a large portion was impaired in the prior year.

Reorganization items



Reorganization items reflect, where applicable, expenses, gains and losses
incurred that are incremental and a direct result of the reorganization of the
business. The reorganization items disclosed in our consolidated statement of
operations consist of professional fees for continuing legal work to resolve
outstanding bankruptcy claims and fees to the U.S. Bankruptcy Trustee, which we
will continue to incur until our bankruptcy case is closed.

Non-GAAP financial measure and reconciliation



Management uses adjusted EBITDA (as defined below) as a supplemental financial
measurement to evaluate our operational trends. Items excluded generally
represent non-cash and/or non-recurring adjustments, the timing and amount of
which cannot be reasonably estimated and are not considered by management when
measuring our overall operating performance. In addition, Adjusted EBITDA is
generally consistent with the EBITDAX calculation that is used in the Ratio of
Total Debt to EBITDAX covenant under our credit facility. We consider compliance
with this covenant to be material.

Adjusted EBITDA is used as a supplemental financial measurement in the
evaluation of our business and should not be considered as an alternative to net
income, as an indicator of our operating performance, as an alternative to cash
flows from operating activities, or as a measure of liquidity. Adjusted EBITDA
is not defined under GAAP and, accordingly, it may not be a comparable
measurement to those used by other companies.

We define adjusted EBITDA as net income, adjusted to exclude (1) asset
impairments, (2) interest and other financing costs, net of capitalized
interest, (3) income taxes, (4) depreciation, depletion and amortization, (5)
non-cash change in fair value of non-hedge derivative instruments, (6) interest
income, (7) stock-based compensation expense, (8) gain or loss on disposed
assets, (9) impairment charges, (10) other significant, unusual non-cash charges
and (11) certain expenses related to our restructuring, cost reduction
initiatives, reorganization, severance costs and fresh start accounting
activities, some or all of which our lenders have permitted us to exclude when
calculating covenant compliance.


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The following tables provide a reconciliation of net loss to adjusted EBITDA for
the specified periods:
                                                              Three months ended March 31,
(in thousands)                                                  2020                2019
Net income or loss                                        $       4,917       $      (103,540 )
Interest expense                                                  6,636                 4,564
Depreciation, depletion, and amortization                        23,012                23,715

Non-cash change in fair value of derivative instruments (69,206 )

            51,531
Impact of derivative repricing                                      702                     -
Stock-based compensation expense                                    406                   802
(Gain) loss on sale of assets                                      (102 )                   1
Loss on impairment of oil and gas assets                         71,371                49,722
Loss on impairment of other assets                                  153                     -
Credit loss on uncollectible receivables                          1,517                  (258 )
Restructuring, reorganization and other                           1,317                 1,520
Adjusted EBITDA                                           $      40,723       $        28,057



Our credit facility requires us to maintain a current ratio (as defined in
Credit Agreement) of not less than 1.0 to 1.0. The definition of current assets
and current liabilities used for determination of the current ratio computed for
loan compliance purposes differs from current assets and current liabilities
determined in compliance with GAAP. Since compliance with financial covenants is
a material requirement under our Credit Agreement, we consider the current ratio
calculated under our Credit Agreement to be a useful measure of our liquidity
because it includes the funds available to us under our Credit Agreement and is
not affected by the volatility in working capital caused by changes in the fair
value of derivatives. The following table discloses the current ratio for our
loan compliance compared to the ratio calculated per GAAP:

(dollars in thousands)                       March 31, 2020     December 31, 2019
Current assets per GAAP                     $      110,889     $          

80,390


Plus-Availability under Credit Agreement           180,000               

194,406


Less-Short term derivative instruments             (48,458 )                (947 )
Current assets as adjusted                  $      242,431     $         273,849
Current liabilities per GAAP                       100,379               122,669
Less-Current derivative instruments                      -               (11,957 )
Less-Current operating lease obligation             (1,295 )              (1,259 )
Less-Current asset retirement obligation              (928 )              (2,083 )
Less-Current maturities of long term debt             (497 )                (594 )
Current liabilities as adjusted             $       97,659     $         

106,776


Current ratio per GAAP                                1.10                  

0.66


Current ratio for loan compliance                     2.48                  

2.56

Off-Balance Sheet Arrangements

At March 31, 2020, we did not have any off-balance sheet arrangements.

Critical accounting policies

For a discussion of our critical accounting policies, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2019.

Also see the footnote disclosures included in "Note 1: Nature of operations and summary of significant accounting policies and going concern" in "Item 1. Financial Statements" of this report.


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Recent accounting pronouncements

See recently adopted and issued accounting standards in "Note 1: Nature of operations and summary of significant accounting policies and going concern" in "Item 1. Financial Statements" of this report.

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