Form 8-K filed by EQT CORP on 2021-07-22
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported): July 22, 2021  (July 21, 2021)

 

EQT CORPORATION

(Exact name of registrant as specified in its charter)

 

Pennsylvania   001-3551   25-0464690
(State or Other Jurisdiction
of Incorporation)
  (Commission File Number)   (IRS Employer
Identification Number)

 

625 Liberty Avenue, Suite 1700, Pittsburgh, Pennsylvania 15222

(Address of principal executive offices, including zip code)

 

(412) 553-5700

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) 

¨    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities Registered Pursuant to Section 12(b) of the Act:

 

Title of each class   Trading symbol(s)   Name of each exchange on which registered
Common Stock, no par value   EQT   New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

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. ¨

 

 

 

 

 

Introductory Note

 

On July 21, 2021, EQT Corporation (the “Company”) consummated the previously announced acquisition (the “Acquisition”) of Alta Marcellus Development, LLC, a Delaware limited liability company (“ARD Marcellus”), and ARD Operating, LLC, a Delaware limited liability company (“ARD” and, together with ARD Marcellus, the “Alta Target Entities”), pursuant to that certain Membership Interest Purchase Agreement, dated May 5, 2021 (the “Purchase Agreement”), by and among the Company, EQT Acquisition HoldCo LLC (a wholly owned indirect subsidiary of the Company), Alta Resources Development, LLC, a Delaware limited liability company (“Alta Resources”), and the Alta Target Entities. The Alta Target Entities collectively hold all of Alta Resources’ upstream and midstream assets. The events described in this Current Report on Form 8-K took place in connection with the closing of the Acquisition.

 

The Company plans to provide an update with respect to the Acquisition and corresponding integration plans, as well as revised 2021 financial and operational guidance that reflects the Acquisition, in conjunction with its second quarter earnings and conference call scheduled for July 29, 2021.

 

Item 1.01 Entry into a Material Definitive Agreement.

 

Upon consummation of the Acquisition, pursuant to the terms of the Purchase Agreement, the Company and certain direct and indirect equityholders of Alta Resources or their designees (together with their permitted assignees, the “Alta RRA Holders”) entered into that certain Registration Rights Agreement, dated as of July 21, 2021 (the “Registration Rights Agreement”). Under the Registration Rights Agreement, among other things, subject to certain requirements and exceptions, the Company is required to file with the Securities and Exchange Commission, no later than three business days following the closing of the Acquisition, a registration statement on Form S-3 (or amend an existing shelf registration statement previously filed by it) to permit the public resale of all of the Registrable Securities (as defined in the Registration Rights Agreement) by the Alta RRA Holders from time to time as permitted by Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), and to use its commercially reasonable efforts to cause such registration statement to remain effective until all of the Registrable Securities have ceased to be Registrable Securities or the earlier termination of the Registration Rights Agreement pursuant to its terms. Furthermore, under the Registration Rights Agreement, the Alta RRA Holders have certain demand rights and piggyback registration rights with respect to certain other underwritten offerings conducted by the Company for its own account or other shareholders of the Company. The Registration Rights Agreement contains customary indemnification and contribution obligations of the Company for the benefit of the Alta RRA Holders and vice versa (provided, however, that each Alta RRA Holder’s indemnification and contribution obligation is limited to the net proceeds received by such Alta RRA Holder from the sale of Registrable Securities pursuant to an offering made in accordance with the Registration Rights Agreement), in each case, subject to certain qualifications and exceptions.

 

In connection with entering into the Registration Rights Agreement, the Company also entered into a lockup agreement with each of the Alta RRA Holders (collectively, the “Lockup Agreements”), pursuant to which, among other things, each Alta RRA Holder agreed not to sell its portion of the Stock Consideration (as defined below) during the 180 days following the closing of the Acquisition; provided, however, that (i) the Alta RRA Holders may sell up to 25% of the Registrable Securities in a single shelf underwritten offering between the 31st day following closing and the 90th day following closing and up to an aggregate of 50% of the Registrable Securities pursuant to up to two shelf underwritten offerings in the first 180 days following closing, and (ii) certain Alta RRA Holders may sell their pro rata portion of up to an aggregate amount of 2,500,000 additional shares of common stock, no par value, of the Company under certain circumstances and subject to certain limitations. Pursuant to the Lockup Agreements, the Company also agreed with each Alta RRA Holder not to sell shares of common stock during the first 30 days following the closing of the Acquisition.

 

The foregoing description of the Registration Rights Agreement and the Lockup Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Registration Rights Agreement (including the form of Lockup Agreement), a copy of which is attached hereto as Exhibit 10.1 and incorporated herein by reference.

 

 

 

  

Item 2.01. Completion of Acquisition or Disposition of Assets.

 

The disclosure set forth in the “Introductory Note” above is incorporated into this Item 2.01 by reference. As a result of the Acquisition and on the terms and pursuant to the conditions contained in the Purchase Agreement, on July 21, 2021, Alta Resources sold to the Company, and the Company purchased and accepted, all of the issued and outstanding equity interests of the Alta Target Entities (the “Target Interests”), free and clear of all liens (other than liens arising under federal and state securities laws, arising pursuant to the governing documents of the Alta Target Entities or imposed by the Company or any of its affiliates).

 

Pursuant to the Purchase Agreement, the consideration to be paid to Alta Resources for the Acquisition consists of $1.0 billion in cash and 105,306,346 shares of common stock, which shares represented an aggregate dollar value equal to $1.925 billion as of the date of the Purchase Agreement based on the 30-day volume-weighted average price of a share of common stock as of May 4, 2021 ($18.28), subject to customary purchase price adjustments. As a result of such purchase price adjustments, upon consummation of the Acquisition on July 21, 2021, 98,789,388 shares of common stock (the “Stock Consideration”) were issued to certain direct and indirect equityholders of Alta Resources or their designees (the “Issuance”).

 

The foregoing description of the Acquisition and the Purchase Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, reference to the Purchase Agreement, which was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 7, 2021 and is incorporated by reference herein.

 

Item 3.02. Unregistered Sales of Equity Securities.

 

The information set forth in Item 2.01 of this Current Report on Form 8-K is incorporated by reference in response to this Item 3.02. The Issuance was completed in reliance upon the exemption from the registration requirements of the Securities Act, provided by Section 4(a)(2) thereof as a transaction by an issuer not involving any public offering.

 

Item 9.01.  Financial Statements and Exhibits.

 

(a)       Financial statements of businesses acquired

 

The audited consolidated financial statements of Alta Resources and its subsidiaries as of June 30, 2020 and 2019, and for each of the three years in the period ended June 30, 2020, and the notes related thereto, are attached to this Current Report on Form 8-K as Exhibit 99.1 and are incorporated herein by reference.

 

The unaudited condensed consolidated financial statements of Alta Resources and its subsidiaries as of March 31, 2021 and for the nine months ended March 31, 2021 and 2020, and the notes related thereto, are attached to this Current Report on Form 8-K as Exhibit 99.2 and are incorporated herein by reference.

 

(b)        Pro forma financial information

 

The unaudited pro forma condensed combined balance sheet of the Company and its subsidiaries as of March 31, 2021 and the unaudited pro forma condensed combined statements of operations of the Company and its subsidiaries for the three months ended March 31, 2021 and the year ended December 31, 2020, and the notes related thereto, are attached to this Current Report on Form 8-K as Exhibit 99.3 and are incorporated herein by reference.

 

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(d)        Exhibits

 

Exhibit No. Description
   
10.1 Registration Rights Agreement, dated as of July 21, 2021, by and among EQT Corporation and certain security holders thereof parties thereto, and Form of Lock-Up Agreement.

 

23.1 Consent of Moss Adams LLP.
   
23.2 Consent of Netherland, Sewell & Associates, Inc.
   
99.1 Audited consolidated financial statements of Alta Resources Development, LLC and its subsidiaries as of June 30, 2020 and 2019, and for each of the three years in the period ended June 30, 2020, and the notes related thereto.
   
99.2 Unaudited condensed consolidated financial statements of Alta Resources Development, LLC and its subsidiaries as of March 31, 2021 and for the nine months ended March 31, 2021 and 2020, and the notes related thereto.
   
99.3 Unaudited pro forma condensed combined balance sheet of EQT Corporation and its subsidiaries as of March 31, 2021 and unaudited pro forma condensed combined statements of operations of EQT Corporation and its subsidiaries for the three months ended March 31, 2021 and the year ended December 31, 2020, and the notes related thereto.
   
99.4 Reserves report prepared by Netherland, Sewell & Associates, Inc., dated May 3, 2021, with respect to estimates of reserves and future revenue of Alta Marcellus Development, LLC as of June 30, 2020.
   
99.5 Audit letter prepared by Netherland, Sewell & Associates, Inc., dated May 5, 2021, with respect to estimates of reserves and future revenue of Alta Marcellus Development, LLC as of December 31, 2020.
   
104 Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

EQT CORPORATION 

     
Date:  July 22, 2021 By: /s/ William E. Jordan
  Name: William E. Jordan
  Title: Executive Vice President, General Counsel and Corporate Secretary

 

 

 

 

Exhibit 10.1

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of July 21, 2021, is by and among EQT Corporation, a Pennsylvania corporation (the “Company”), each of the other parties listed on the signature pages attached hereto (the “Initial Holders”), and the other Holders from time to time parties hereto.

 

RECITALS:

 

WHEREAS, this Agreement is being entered into pursuant to the Membership Interest Purchase Agreement, dated as of May 5, 2021, by and among Alta Resources Development, LLC, a Delaware limited liability company, Alta Marcellus Development, LLC, a Delaware limited liability company, ARD Operating, LLC, a Delaware limited liability company, EQT Acquisition Holdco LLC, a Delaware limited liability company, and the Company (the “Purchase Agreement”);

 

WHEREAS, in connection with closing of the transactions contemplated by the Purchase Agreement (the “Closing”), on the date hereof the Company is issuing to the Initial Holders 98,789,388 shares of Company Common Stock (such shares of Company Common Stock, the “Shares”) in the aggregate; and

 

WHEREAS, the Company has required, as a condition to its willingness to enter into this Agreement, the Company and each Holder, simultaneously herewith, enter into lock-up agreements, dated as of the date hereof, on terms substantially similar to those set forth on Exhibit A hereto (together, as may be amended, the (“RRA Lock-Up Agreements”).

 

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, the parties hereby agree as follows:

 

Article I.
DEFINITIONS

 

As used herein, the following terms shall have the following respective meanings:

 

Adoption Agreement” means an Adoption Agreement in the form attached hereto as Exhibit B.

 

Affiliate” means (a) as to any Person, other than an individual Holder, any other Person who directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person and (b) as to any individual, (i) any Relative of such individual, (ii) any trust whose primary beneficiaries are one or more of such individual and such individual’s Relatives, (iii) the legal representative or guardian of such individual or any of such individual’s Relatives if one has been appointed and (iv) any Person controlled by one or more of such individual or any Person referred to in clauses (i), (ii) or (iii) above. As used in this definition, the term “control,” including the correlative terms “controlling,” “controlled by” and “under common control with,” means possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or any partnership or other ownership interest, by contract or otherwise) of a Person. For the avoidance of doubt, for purposes of this Agreement, (a) (i) the Company, on the one hand, and the Holders, on the other hand, shall not be considered Affiliates and (ii) any fund, entity or account managed, advised or sub-advised, directly or indirectly, by a Holder or any of its Affiliates, shall be considered an Affiliate of such Holder and (b) with respect to any fund, entity or account managed, advised or sub-advised directly or indirectly, by any Holder or any of its Affiliates, the direct or indirect equity owners thereof, including limited partners of any Holder or any Affiliate thereof, shall be considered an Affiliate of such Holder.

 

 

 

 

Agreement” has the meaning set forth in the introductory paragraph.

 

Board” means the board of directors of the Company.

 

Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized or required by applicable law to be closed in Houston, Texas.

 

Closing” has the meaning set forth in the recitals.

 

Commission” means the Securities and Exchange Commission or any successor governmental agency.

 

Company” has the meaning set forth in the introductory paragraph.

 

Company Common Stock” means the common stock, no par value, of the Company.

 

Company Securities” has the meaning set forth in Section 2.04(c)(i).

 

Determination Date” means the date on which a Requesting Holder makes a Shelf Underwritten Offering Request.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

 

Holder Demand Notice” has the meaning set forth in Section 2.02(b).

 

Indemnified Party” has the meaning set forth in Section 3.03.

 

Indemnifying Party” has the meaning set forth in Section 3.03.

 

Initial Holders” has the meaning set forth in the introductory paragraph.

 

Initial Demand Registrations” has the meaning set forth in Section 2.02(a).

 

Investor Designee” means Alta Resources, L.L.C.

 

Holder” means any record holder of Registrable Securities.

 

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Losses” has the meaning set forth in Section 3.01.

 

Majority Holders” means, at any time, the Holder or Holders of more than 50% of the Registrable Securities at such time.

 

Managing Underwriter” means, with respect to any Underwritten Offering, the lead book-running manager(s) of such Underwritten Offering.

 

Notice Response Period” has the meaning set forth in Section 2.02(b).

 

Opt-Out Notice” has the meaning set forth in Section 2.11.

 

Permitted Transferee” means (a) with respect to any Initial Holder, any of the direct or indirect partners, shareholders or members of such Initial Holder or any trust, family partnership or family limited liability company, the sole beneficiaries, partners or members of which are such Initial Holder or Relatives of such Initial Holder and (b) any Affiliate of a Holder, in each case provided that such Transferee has delivered to the Company a duly executed Adoption Agreement.

 

Person” means any individual, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or other entity, whether acting in an individual, fiduciary or other capacity.

 

Piggybacking Holder” has the meaning set forth in Section 2.04(a).

 

Piggyback Notice” has the meaning set forth in Section 2.04(a).

 

Piggyback Notice Response Period” has the meaning set forth in Section 2.04(a).

 

Piggyback Underwritten Offering” has the meaning set forth in Section 2.04(a).

 

Purchase Agreement” has the meaning set forth in the recitals.

 

Registrable Securities” means (a) the Shares and (b) any securities issued or issuable with respect to the Shares by way of distribution or in connection with any reorganization or other recapitalization, merger, consolidation or otherwise; provided, however, that a Registrable Security shall cease to be a Registrable Security when (i) a Registration Statement covering such Registrable Security has become effective under the Securities Act and such Registrable Security has been disposed of pursuant to such Registration Statement, (ii) such Registrable Security is disposed of under Rule 144 under the Securities Act or any other exemption from the registration requirements of the Securities Act as a result of which the legend on any certificate or book-entry notation representing such Registrable Security restricting transfer of such Registrable Security has been removed in accordance with Section 9.14 of the Purchase Agreement, or (iii) such Registrable Security has been sold or disposed of in a transaction in which the Transferor’s rights under this Agreement are not assigned to the Transferee pursuant to Section 5.02; and provided, further, that any security that has ceased to be a Registrable Security shall not thereafter become a Registrable Security and any security that is issued or distributed in respect of securities that have ceased to be Registrable Securities shall not be a Registrable Security.

 

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Registration Expenses” means all expenses incurred by the Company in complying with Article II, including, without limitation, all registration and filing fees, printing expenses, road show expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including counsel fees) incurred in connection with complying with state securities or “blue sky” laws, fees of the Financial Industry Regulatory Authority, Inc., and fees of transfer agents and registrars, but excluding any Selling Expenses.

 

Registration Statement” means any registration statement of the Company filed or to be filed with the Commission under the Securities Act, including the related prospectus, amendments and supplements to such registration statement, and including pre- and post-effective amendments, and all exhibits and all material incorporated by reference in such registration statement.

 

Relative” means, with respect to any natural person: (a) such natural person’s spouse, (b) any lineal descendant, parent, grandparent, great grandparent or sibling or any lineal descendant of such sibling (in each case whether by blood or legal adoption), and (c) the spouse of a natural person described in clause (b) of this definition.

 

Requesting Holder” means any Holder or group of Holders that makes a Shelf Underwritten Offering Request. From Closing until January 17, 2022, the Investor Designee shall be the only Person that can be a Requesting Holder.

 

Requesting Holder and Shelf Piggybacking Holders Securities” has the meaning set forth in Section 2.02(c)(i).

 

RRA Lock-Up Agreements” has the meaning set forth in the recitals.

 

Section 2.02 Maximum Number of Shares” has the meaning set forth in Section 2.02(c).

 

Section 2.04 Maximum Number of Shares” has the meaning set forth in Section 2.04(c).

 

Securities Act” means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. References to any rule under the Securities Act shall be deemed to refer to any similar or successor rule or regulation.

 

Selling Expenses” means all (a) underwriting fees, discounts and selling commissions allocable to the sale of Registrable Securities, (b) transfer taxes allocable to the sale of the Registrable Securities, (c) costs or expenses related to any roadshows conducted in connection with the marketing of any Shelf Underwritten Offering and (d) fees and expenses of counsel engaged by any Holders (subject to Article III).

 

Selling Holder” means a Holder selling Registrable Securities pursuant to a Registration Statement.

 

Shares” has the meaning set forth in the recitals.

 

Shelf Piggybacking Holder” has the meaning set forth in Section 2.02(b).

 

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Shelf Registration Statement” has the meaning set forth in Section 2.01(a).

 

Shelf Underwritten Offering” has the meaning set forth in Section 2.02(a).

 

Shelf Underwritten Offering Request” has the meaning set forth in Section 2.02(a).

 

Suspension Period” has the meaning set forth in Section 2.03.

 

Transfer” means any offer, sale, pledge, encumbrance, hypothecation, entry into any contract to sell, grant of an option to purchase, short sale, assignment, transfer, exchange, gift, bequest or other disposition, direct or indirect, in whole or in part, by operation of law or otherwise. “Transfer,” when used as a verb, and “Transferee” and “Transferor” have correlative meanings.

 

Underwritten Offering” means an offering (including an offering pursuant to a Shelf Registration Statement) in which shares of Company Common Stock are sold to an underwriter on a firm commitment basis for reoffering to the public.

 

Underwritten Offering Filing” means (a) with respect to a Shelf Underwritten Offering, a preliminary prospectus supplement (or prospectus supplement if no preliminary prospectus supplement is used) to the Shelf Registration Statement relating to such Shelf Underwritten Offering, and (b) with respect to a Piggyback Underwritten Offering, (i) a preliminary prospectus supplement (or prospectus supplement if no preliminary prospectus supplement is used) to an effective shelf Registration Statement (other than the Shelf Registration Statement) in which Registrable Securities could be included and Holders could be named as selling security holders without the filing of a post-effective amendment thereto (other than a post-effective amendment that becomes effective upon filing) or (ii) a Registration Statement (other than the Shelf Registration Statement), in each case relating to such Piggyback Underwritten Offering.

 

UW Lock-Up Agreement” has the meaning set forth in Section 2.08(a).

 

WKSI” means a well-known seasoned issuer (as defined in Rule 405 under the Securities Act).

 

Article II.
REGISTRATION RIGHTS

 

Section 2.01         Shelf Registration.

 

(a)            The Company shall, as soon as practicable after the date hereof, but in any event within three Business Days after the date hereof, file a Registration Statement, or amend an existing shelf registration previously filed by the Company (provided that such amendment becomes effective upon filing with the Commission) (the “Shelf Registration Statement”), under the Securities Act to permit the public resale of all the Registrable Securities by the Holders from time to time as permitted by Rule 415 under the Securities Act and shall use commercially reasonable efforts to cause such Registration Statement to become or be declared effective as soon as practicable after the filing thereof, including by filing an automatic shelf registration statement that becomes effective upon filing with the Commission in accordance with Rule 462(e) under the Securities Act to the extent the Company is then a WKSI. Promptly following the effective date of the Shelf Registration Statement, the Company shall notify the Holders of the effectiveness of such Registration Statement.

 

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(b)            The Shelf Registration Statement shall be on Form S-3 or, if Form S-3 is not then available to the Company, on Form S-1 or such other form of registration statement as is then available to effect a registration for resale of such Registrable Securities and shall contain a prospectus in such form as to permit any Holder to sell such Registrable Securities pursuant to Rule 415 under the Securities Act (or any successor or similar rule adopted by the Commission then in effect) at any time beginning on the effective date for such Registration Statement. The Shelf Registration Statement shall provide for the resale pursuant to any method or combination of methods legally available to the Holders and requested by the Majority Holders.

 

(c)            The Company shall use commercially reasonable efforts to cause the Shelf Registration Statement to remain effective, and to be supplemented and amended to the extent necessary to ensure that the Shelf Registration Statement is available or, if not available, that another Registration Statement is available, for the resale of all the Registrable Securities by the Holders until all of the Registrable Securities have ceased to be Registrable Securities or the earlier termination of this Agreement (as to all Holders) pursuant to Section 6.01.

 

(d)            When effective, (i) the Shelf Registration Statement (including the documents incorporated therein by reference) will comply as to form in all material respects with all applicable requirements of the Securities Act and the Exchange Act and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (ii) in the case of any prospectus contained in the Shelf Registration Statement, such prospectus will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which such statements are made, not misleading.

 

Section 2.02         Underwritten Shelf Offering Requests.

 

(a)            From Closing until January 17, 2022, in the event that a Holder or group of Holders elects to dispose of Registrable Securities under a Registration Statement pursuant to an Underwritten Offering and reasonably expects gross proceeds of at least $200 million from such Underwritten Offering (including proceeds attributable to any Registrable Securities included in such Underwritten Offering by any Shelf Piggybacking Holders), the Company shall, at the request (a “Shelf Underwritten Offering Request”) of the Investor Designee, enter into an underwriting agreement in a form as is customary in Underwritten Offerings of securities by the Company with the underwriter or underwriters selected pursuant to Section 2.02(d) and shall take all such other reasonable actions as are requested by the Managing Underwriter of such Underwritten Offering and/or the Requesting Holder in order to expedite or facilitate the disposition of such Registrable Securities and, subject to Section 2.02(c), the Registrable Securities requested to be included by any Shelf Piggybacking Holder (a “Shelf Underwritten Offering”); provided, however, that the Company shall have no obligation to facilitate or participate in (i) any Shelf Underwritten Offering on or before August 20, 2021, (ii) more than one Shelf Underwritten Offering between August 21, 2021 and October 19, 2021, or (iii) more than two Shelf Underwritten Offerings between Closing and January 17, 2022 (the “Initial Demand Registrations”); and provided, further, that the Initial Demand Registrations shall be subject to the limitations set forth in Section 1.01(b)(i) of the RRA Lock-Up Agreements. Following January 17, 2022, any Holder or group of Holders that owns an aggregate amount of Registrable Securities that is equal to or greater than $200 million as determined by reference to the volume weighted average price for such Registrable Securities on any securities exchange or market on which the Shares are then listed or quoted for the ten (10) trading days immediately preceding the applicable Determination Date shall have the right to make a Shelf Underwritten Offering Request if such Holder or group of Holders reasonably expects gross proceeds of at least $200 million from such Shelf Underwritten Offering (including proceeds attributable to any Registrable Securities included in such Shelf Underwritten Offering by any Shelf Piggybacking Holders) (the “Subsequent Demand Registrations”); provided, however, that the Company shall have no obligation to facilitate or participate in more than three Shelf Underwritten Offerings in any 12-month period.

 

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(b)           If the Company receives a Shelf Underwritten Offering Request, it will give written notice of such proposed Shelf Underwritten Offering to each Holder (other than the Requesting Holder), which notice shall be held in strict confidence by such Holders and shall include the anticipated filing date of the related Underwritten Offering Filing and, if known, the number of shares of Company Common Stock that are proposed to be included in such Shelf Underwritten Offering, and of such Holders’ rights under this Section 2.02(b). Such notice shall be given promptly (and in any event at least five Business Days before the filing of the Underwritten Offering Filing or two Business Days before the filing of the Underwritten Offering Filing in connection with a bought or overnight Underwritten Offering) (a “Holder Demand Notice”); provided, that if the Shelf Underwritten Offering is a bought or overnight Underwritten Offering and the Managing Underwriter advises the Company and the Requesting Holder in writing that the giving of notice pursuant to this Section 2.02(b) would adversely affect the offering, no such notice shall be required (and such Holders shall have no right to include Registrable Securities in such bought or overnight Underwritten Offering); and provided further, that the Company shall not so notify any such other Holder that has notified the Company (and not revoked such notice) requesting that such Holder not receive notice from the Company of any proposed Shelf Underwritten Offering. Each such Holder shall then have three Business Days (or one Business Day in the case of a bought or overnight Underwritten Offering) after the date on which the Holders received notice pursuant to this Section 2.02(b) (the “Notice Response Period”) to request inclusion of Registrable Securities in the Shelf Underwritten Offering (which request shall specify the maximum number of Registrable Securities intended to be disposed of by such Holder and such other information as is reasonably required to effect the inclusion of such Registrable Securities) (any such Holder making such request, a “Shelf Piggybacking Holder”). If no request for inclusion from a Holder is received within such Notice Response Period, such Holder shall have no further right to participate in such Shelf Underwritten Offering.

 

(c)           If the Managing Underwriter of the Shelf Underwritten Offering shall inform the Company and the Requesting Holders in writing, with a copy to be provided upon request to any Shelf Piggybacking Holder, of its good faith belief that the number of Registrable Securities requested to be included in such Shelf Underwritten Offering by the Shelf Piggybacking Holders (and any other shares of Company Common Stock requested to be included by any other Persons having registration rights with respect to such offering), when added to the number of Registrable Securities proposed to be offered by the Requesting Holders, would materially adversely affect such offering, then the Company shall include in the applicable Underwritten Offering Filing, to the extent of the total number of Registrable Securities that the Company is so advised can be sold in such Shelf Underwritten Offering without so materially adversely affecting such offering (the “Section 2.02 Maximum Number of Shares”), Registrable Securities in the following priority:

 

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(i)           First, all Registrable Securities that the Requesting Holder and Shelf Piggybacking Holders requested to be included therein (the “Requesting Holder and Shelf Piggybacking Holders Securities”) (pro rata among the Requesting Holders and Shelf Piggybacking Holders based on the number of Registrable Securities each requested to be included); and

 

(ii)          Second, to the extent that the number of Requesting Holder and Shelf Piggybacking Holders Securities is less than the Section 2.02 Maximum Number of Shares, the shares of Company Common Stock requested to be included by any other Persons having registration rights with respect to such offering, pro rata among such other Persons based on the number of shares of Company Common Stock each requested to be included.

 

(d)           The Company shall be entitled, subject to the Requesting Holder’s consent (which is not to be unreasonably withheld, conditioned or delayed), to select the Managing Underwriter in connection with any Shelf Underwritten Offering. The Requesting Holders shall determine the pricing of the Registrable Securities offered pursuant to any Shelf Underwritten Offering and the applicable underwriting discounts and commissions and determine the timing of any such Shelf Underwritten Offering, subject to Section 2.03.

 

Section 2.03         Delay and Suspension Rights. Notwithstanding any other provision of this Agreement, the Company may (a) delay filing or effectiveness of a Shelf Registration Statement (or any amendment thereto) or effecting a Shelf Underwritten Offering or (b) suspend the Holders’ use of any prospectus that is a part of a Shelf Registration Statement upon written notice to each Holder whose Registrable Securities are included in such Shelf Registration Statement (provided that in no event shall such notice contain any material non-public information regarding the Company) (in which event such Holder shall discontinue sales of Registrable Securities pursuant to such Registration Statement but may settle any then-contracted sales of Registrable Securities), in each case for a period of up to (i) 60 days if such period begins on or before January 17, 2022 or (ii) 90 days if such period begins after January 17, 2022, in each case if the Board determines, in good faith, that (w) such delay or suspension is in the best interest of the Company and its stockholders generally due to a pending financing or other transaction involving the Company, including a proposed sale of shares of Company Common Stock by the Company for its own account, (x) such registration or offering would render the Company unable to comply with applicable securities laws, (y) such registration or offering would require disclosure of material information that the Company would otherwise not have to disclose at such time or (z) such registration or offering would be materially detrimental to the Company (any such period, a “Suspension Period”); provided, however, that the Company may not exercise its delay and suspension rights under this Section 2.03 more than (i) once prior to January 17, 2022 or (ii) twice in any twelve consecutive month period. For the purposes of calculating the number of days of one or more Suspension Periods under this Section 2.03, such number shall include any number of days during the applicable period during which the Holders were obligated to discontinue their disposition of Registrable Securities pursuant to Section 2.06(b) of this Agreement.

 

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Section 2.04         Piggyback Registration Rights.

 

(a)            Subject to Section 2.04(c), if the Company at any time proposes to file an Underwritten Offering Filing for an Underwritten Offering of shares of Company Common Stock for its own account (a “Piggyback Underwritten Offering”), it will give written notice of such Piggyback Underwritten Offering to each Holder, which notice shall be held in strict confidence by such Holders and shall include the anticipated filing date of the Underwritten Offering Filing and, if known, the number of shares of Company Common Stock that are proposed to be included in such Piggyback Underwritten Offering, and of such Holders’ rights under this Section 2.04(a). Such notice shall be given promptly (and in any event at least five Business Days before the filing of the Underwritten Offering Filing or two Business Days before the filing of the Underwritten Offering Filing in connection with a bought or overnight Underwritten Offering) (a “Piggyback Notice”); provided, that if the Piggyback Underwritten Offering is a bought or overnight Underwritten Offering and the Managing Underwriter advises the Company in writing that the giving of notice pursuant to this Section 2.04(a) would adversely affect the offering, no such notice shall be required (and such Holders shall have no right to include Registrable Securities in such bought or overnight Underwritten Offering). Each such Holder shall then have three Business Days (or one Business Day in the case of a bought or overnight Underwritten Offering) after the date on which the Holders received notice (the “Piggyback Notice Response Period”) pursuant to this Section 2.04(a) to request inclusion of Registrable Securities in the Piggyback Underwritten Offering (which request shall specify the maximum number of Registrable Securities intended to be disposed of by such Holder and such other information as is reasonably required to effect the inclusion of such Registrable Securities) (any such Holder making such request, a “Piggybacking Holder”). If no request for inclusion from a Holder is received within the Piggyback Notice Response Period, such Holder shall have no further right to participate in such Piggyback Underwritten Offering. Subject to Section 2.04(c), the Company shall use its commercially reasonable efforts to include in the Piggyback Underwritten Offering all Registrable Securities that the Company has been so requested to include by the Piggybacking Holders; provided, however, that if, at any time after giving written notice of a proposed Piggyback Underwritten Offering pursuant to this Section 2.04(a) and prior to the execution of an underwriting agreement with respect thereto, the Company shall determine for any reason not to proceed with or to delay such Piggyback Underwritten Offering, the Company shall give written notice of such determination to the Piggybacking Holders (which such Holders will hold in strict confidence) and (i) in the case of a determination not to proceed, shall be relieved of its obligation to include any Registrable Securities in such Piggyback Underwritten Offering (but not from any obligation of the Company to pay the Registration Expenses in connection therewith), and (ii) in the case of a determination to delay, shall be permitted to delay inclusion of any Registrable Securities for the same period as the delay in including the shares of Company Common Stock to be sold for the Company’s account.

 

(b)            Each Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any Piggyback Underwritten Offering at any time prior to the execution of an underwriting agreement with respect thereto by giving an Opt-Out Notice to the Company requesting that such Holder not receive notice from the Company of any proposed Piggyback Underwritten Offering; provided, however, that such Holder may later revoke any such Opt-Out Notice in writing; provided, further, that if the Company has provided a Piggyback Notice at the time a Holder revokes its Opt-Out Notice, such revocation shall not extend the Piggyback Notice Response Period. Following receipt of an Opt-Out Notice from a Holder (unless subsequently revoked), the Company shall not, and shall not be required to, deliver any notice to such Holder pursuant to this Section 2.4 and such Holder shall no longer be entitled to participate in any Piggyback Underwritten Offering.

 

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(c)            If the Managing Underwriter of the Piggyback Underwritten Offering shall inform the Company in writing of its good faith belief that the number of Registrable Securities requested to be included in such Piggyback Underwritten Offering, when added to the number of shares of Company Common Stock proposed to be offered by the Company (and any other shares of Company Common Stock requested to be included by any other Persons having registration rights on parity with the Piggybacking Holders with respect to such offering), would materially adversely affect such offering, then the Company shall include in such Piggyback Underwritten Offering, to the extent of the total number of securities which the Company is so advised can be sold in such offering without so materially adversely affecting such offering (the “Section 2.04 Maximum Number of Shares”), shares of Company Common Stock in the following priority:

 

(i)           First, if the Piggyback Underwritten Offering is for the account of the Company, all shares of Company Common Stock that the Company proposes to include for its own account (the “Company Securities”); and

 

(ii)          Second, if the Piggyback Underwritten Offering is for the account of the Company, to the extent that the number of Company Securities is less than the Section 2.04 Maximum Number of Shares, the shares of Company Common Stock requested to be included by the Piggybacking Holders and holders of any other shares of Company Common Stock requested to be included by Persons having rights of registration on parity with the Piggybacking Holders with respect to such offering, pro rata among the Piggybacking Holders and such other holders based on the number of shares of Company Common Stock each requested to be included.

 

(d)           The Company shall select the underwriters in any Piggyback Underwritten Offering and shall determine the pricing of the shares of Company Common Stock offered pursuant to any Piggyback Underwritten Offering, the applicable underwriting discounts and commissions and the timing of any such Piggyback Underwritten Offering.

 

Section 2.05         Participation in Underwritten Offerings.

 

(a)            In connection with any Underwritten Offering contemplated by Sections 2.02 or 2.04, the underwriting agreement into which each Selling Holder and the Company shall enter into shall contain such representations, covenants, indemnities (subject to Article III) and other rights and obligations as are customary in Underwritten Offerings of securities by the Company; provided that the Company shall not be required to make any representations or warranties with respect to written information specifically provided by a Selling Holder for inclusion in the applicable Registration Statement. No Selling Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Selling Holder’s authority to enter into such underwriting agreement and to sell, and its ownership of and title to, the securities being registered on its behalf, its intended method of distribution and any other representation required by law or reasonably requested by the underwriters.

 

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(b)            Any participation by Holders in a Piggyback Underwritten Offering shall be in accordance with the plan of distribution of the Company.

 

(c)            In connection with any Piggyback Underwritten Offering in which any Holder includes Registrable Securities pursuant to Section 2.04, such Holder agrees to (i) supply any information reasonably requested by the Company in connection with the preparation of a Registration Statement and/or any other documents relating to such registered offering and (ii) execute and deliver any agreements and instruments being executed by all holders on substantially the same terms reasonably requested by the Company or the Managing Underwriter, as applicable, to effectuate such registered offering, including, without limitation, underwriting agreements (subject to Section 2.05(a)), custody agreements, lock-ups, “hold back” agreements pursuant to which such Holder agrees not to sell or purchase any securities of the Company for the same period of time following the registered offering as is agreed to by the Company and the other participating holders, powers of attorney and questionnaires.

 

(d)            If the Company or Managing Underwriter, as applicable, requests that the Holders take any of the actions referred to in Section 2.05(c), the Holders shall take such action promptly but in any event within three Business Days following the date of such request.

 

Section 2.06      Registration Procedures.

 

(a)            In connection with its obligations under this Article II, the Company will:

 

(i)             promptly prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such Registration Statement;

 

(ii)            furnish to each Selling Holder such number of conformed copies of such Registration Statement and of each such amendment and supplement thereto (in each case including without limitation all exhibits), such number of copies of the prospectus contained in such Registration Statement (including without limitation each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller may reasonably request;

 

(iii)           if applicable, use commercially reasonable efforts to register or qualify all Registrable Securities and other securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions as each Selling Holder thereof shall reasonably request, to keep such registration or qualification in effect for so long as such Registration Statement remains in effect, and to take any other action which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this clause (iii) be obligated to be so qualified or to consent to general service of process in any such jurisdiction;

 

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(iv)           in connection with an Underwritten Offering, use all commercially reasonable efforts to provide to each Selling Holder a copy of any auditor “comfort” letters, customary legal opinions or reports of the independent petroleum engineers of the Company relating to the oil and gas reserves of the Company, in each case that have been provided to the Managing Underwriter in connection with the Underwritten Offering;

 

(v)            promptly notify each Selling Holder, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and at the request of any such seller promptly prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;

 

(vi)           otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, and shall furnish to each such Selling Holder at least the Business Day prior to the filing thereof a copy of any amendment or supplement to such Registration Statement or prospectus;

 

(vii)          provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such Registration Statement from and after a date not later than the effective date of such Registration Statement;

 

(viii)        cause all Registrable Securities covered by such Registration Statement to be listed on any securities exchange on which the Company Common Stock is then listed; and

 

(ix)           enter into such customary agreements and take such other actions as the Selling Holder or Selling Holders shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including, in the case of a Shelf Underwritten Offering or Piggyback Underwritten Offering, to agree, and to cause its directors and “executive officers” (as defined under Section 16 of the Exchange Act) to agree, to customary “lock-up” arrangements for up to 45 days with the underwriters thereof to the extent reasonably requested by the Managing Underwriters, subject to exceptions for permitted sales by directors and executive officers during such period consistent with underwritten offerings previously conducted by the Company).

 

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(b)            Each Holder agrees by acquisition of such Registrable Securities that upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.06(a)(v), such Holder will forthwith discontinue such Holder’s disposition of Registrable Securities pursuant to the Registration Statement until such Holder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.06(a)(v) as filed with the Commission or until it is advised in writing by the Company that the use of such Registration Statement may be resumed, and, if so directed by the Company, will deliver to the Company (at the Company’s expense) all copies, other than permanent file copies, then in such Holder’s possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. The Company may provide appropriate stop orders to enforce the provisions of this Section 2.06(b).

 

Section 2.07      Cooperation by Holders. The Company shall have no obligation to include Registrable Securities of a Holder in any Registration Statement or Underwritten Offering if such Holder has failed to timely furnish such information that the Company determines, after consultation with its counsel, is reasonably required in order for any registration statement or prospectus supplement, as applicable, to comply with the Securities Act.

 

Section 2.08      Lock-Up Agreements. In connection with any Underwritten Offering contemplated by Section 2.02, if reasonably requested by the Managing Underwriter of such Underwritten Offering, each Holder of Registrable Securities participating in such Underwritten Offering shall enter into a customary lock-up agreement with the Managing Underwriter of such Underwritten Offering to not make any sale or other disposition of any Company Common Stock owned by such Holder (a “UW Lock-Up Agreement”); provided that all executive officers and directors of the Company are bound by and have entered into substantially similar UW Lock-Up Agreements on terms no more favorable than any UW Lock-Up Agreement to be entered into by a Holder in connection with such Underwritten Offering; provided further, that nothing herein, and no UW Lock-Up Agreement, shall prevent any Holder from (i) making a distribution of Registrable Securities to any of its partners, members or stockholders thereof or a transfer of Registrable Securities to an Affiliate that is otherwise in compliance with the applicable securities laws, so long as such distributees or transferees, as applicable, agree to be bound by the restrictions set forth in this Section 2.08 or (ii) making sales of shares of Company Common Stock that were purchased in the open market; and provided further, that the foregoing provisions shall only be applicable to the Holders if all Holders are treated similarly with respect to any release prior to the termination of the lock-up period such that if any Holder is released, then all Holders shall also be released to the same extent on a pro rata basis. The Company may impose stop-transfer instructions with respect to the shares of Company Common Stock (or other securities) subject to a UW Lock-Up Agreement until the end of the applicable period of such UW Lock-Up Agreement. The provisions of this Section 2.08 shall cease to apply to such Holder once such Holder no longer beneficially owns any Registrable Securities.

 

Section 2.09      Expenses. The Company shall be responsible for all Registration Expenses incident to its performance of or compliance with its obligations under this Article II. Each Selling Holder shall pay its pro rata share of all Selling Expenses in connection with any sale of its Registrable Securities hereunder.

 

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Section 2.10      Other Registration Rights. From and after the date hereof, the Company shall not, without the prior written consent of the Majority Holders, enter into any agreement with any current or future holder of any securities of the Company that would allow such current or future holder to require the Company to include securities in any registration statement filed by the Company for such Holders on a basis other than pari passu with, or expressly subordinate to, the piggyback rights of the Holders hereunder provided, that in no event shall the Company enter into any agreement that would permit another holder of securities of the Company to participate on a pari passu basis (in terms of priority of cut-back based on advice of underwriters) with a Requesting Holder or a Shelf Piggybacking Holder in a Shelf Underwritten Offering.

 

Section 2.11      Opt-Out Notices. Any Holder may deliver written notice (an “Opt-Out Notice”) to the Company requesting that such Holder not receive notice from the Company of the proposed filing of any Shelf Underwritten Offering, Piggyback Underwritten Offering, the withdrawal of any Shelf Underwritten Offering or Piggyback Underwritten Offering or any event that would lead to a Suspension Period as contemplated by Section 2.03; provided, however, that such Holder may later revoke any such Opt-Out Notice in writing; provided, further, that if the Company has provided a Holder Demand Notice or a Piggyback Notice at the time a Holder revokes its Opt-Out Notice, such revocation shall not extend the Notice Response Period or the Piggyback Notice Response Period, as applicable. Following receipt of an Opt-Out Notice from a Holder (unless subsequently revoked), the Company shall not deliver any notice to such Holder pursuant to Section 2.02, Section 2.03, Section 2.04 or Section 2.06, as applicable, and such Holder shall no longer be entitled to the rights associated with any such notice and each time prior to a Holder’s intended use of an effective Registration Statement, such Holder will notify the Company in writing at least two Business Days in advance of such intended use, and if a notice of a Suspension Period was previously delivered (or would have been delivered but for the provisions of this Section 2.11) and the Suspension Period remains in effect, the Company will so notify such Holder, within one Business Day of such Holder’s notification to the Company, by delivering to such Holder a copy of such previous notice of such Suspension Period, and thereafter will provide such Holder with the related notice of the conclusion of such Suspension Period immediately upon its availability.

 

Article III.
INDEMNIFICATION AND CONTRIBUTION

 

Section 3.01      Indemnification by the Company. The Company will indemnify and hold harmless each Selling Holder, its officers and directors and each Person (if any) that controls such Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities, costs and expenses (including attorneys’ fees) (“Losses”) caused by, arising out of, resulting from or related to any untrue statement or alleged untrue statement of a material fact (a) contained in any Registration Statement relating to the Registrable Securities (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (b) included in any prospectus relating to the Registrable Securities (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, provided, however, that such indemnity shall not apply to that portion of such Losses caused by, or arising out of, any untrue statement, or alleged untrue statement or any such omission or alleged omission, to the extent such statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of such Holder expressly for use therein.

 

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Section 3.02      Indemnification by the Holders. Each Holder agrees to indemnify and hold harmless the Company, its officers and directors and each Person (if any) that controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all Losses caused by, arising out of, resulting from or related to any untrue statement or alleged untrue statement of a material fact (a) contained in any Registration Statement relating to Registrable Securities (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (b) included in any prospectus relating to the Registrable Securities (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, only to the extent such statement or omission was made in reliance upon and in conformity with information furnished in writing by or on behalf of such Holder expressly for use in any Registration Statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or any preliminary prospectus.

 

Section 3.03      Indemnification Procedures. In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to Section 3.01 or 3.02, such Person (the “Indemnified Party”) shall promptly notify the Person against whom such indemnity may be sought (the “Indemnifying Party”) in writing (provided that the failure of the Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Article III, except to the extent the Indemnifying Party is actually prejudiced by such failure to give notice), and the Indemnifying Party shall be entitled to participate in such proceeding and, unless in the reasonable opinion of outside counsel to the Indemnified Party a conflict of interest between the Indemnified Party and Indemnifying Party may exist in respect of such claim, to assume the defense thereof jointly with any other Indemnifying Party similarly notified, to the extent that it chooses, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the Indemnifying Party to such Indemnified Party that it so chooses, the Indemnifying Party shall not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that (a) if the Indemnifying Party fails to assume the defense or employ counsel reasonably satisfactory to the Indemnified Party, (b) if such Indemnified Party who is a defendant in any action or proceeding which is also brought against the Indemnifying Party reasonably shall have concluded that there may be one or more legal defenses available to such Indemnified Party which are not available to the Indemnifying Party or (c) if representation of both parties by the same counsel is otherwise inappropriate under applicable standards of professional conduct then, in any such case, the Indemnified Party shall have the right to assume or continue its own defense as set forth above (but with no more than one firm of counsel for all Indemnified Parties in each jurisdiction, except to the extent any Indemnified Party or Parties reasonably shall have concluded that there may be legal defenses available to such party or parties which are not available to the other Indemnified Parties or to the extent representation of all Indemnified Parties by the same counsel is otherwise inappropriate under applicable standards of professional conduct) and the Indemnifying Party shall be liable for any expenses therefor. No Indemnifying Party shall, without the written consent of the Indemnified Party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnified Party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the Indemnified Party from all liability arising out of such action or claim and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of any Indemnified Party.

 

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Section 3.04      Contribution.

 

(a)            If the indemnification provided for in this Article III is unavailable to an Indemnified Party in respect of any losses, claims, damages or liabilities in respect of which indemnity is to be provided hereunder, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall to the fullest extent permitted by law contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of such party in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company (on the one hand) and a Holder (on the other hand) shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

(b)            The Company and each Holder agree that it would not be just and equitable if contribution pursuant to this Article III were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section 3.04(a). The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities referred to in Section 3.04(a) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Article III, no Holder shall be liable for indemnification or contribution pursuant to this Article III for any amount in excess of the net proceeds of the offering received by such Holder, less the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

 

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Article IV.
RULE 144

 

With a view to making available the benefits of certain rules and regulations of the Commission that may permit the resale of the Registrable Securities without registration, the Company agrees to use its commercially reasonable efforts to:

 

(a)            make and keep public information regarding the Company available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after the date hereof;

 

(b)            file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at all times from and after the date hereof; and

 

(c)            so long as a Holder owns any Registrable Securities, furnish (i) to the extent accurate, forthwith upon request, a written statement of the Company that it has complied with the reporting requirements of Rule 144 under the Securities Act and (ii) unless otherwise available via the Commission’s EDGAR filing system, to such Holder forthwith upon request a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as such Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such Holder to sell any such securities without registration.

 

Article V.
LEGENDS AND TRANSFER OF RIGHTS

 

Section 5.01      Share Legend.

 

(a)            Each certificate or book-entry notation representing the Shares shall (unless otherwise permitted by the provisions of Section 5.01(b)) bear a legend in substantially the following form:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.

 

(b)            The legend on any shares of Company Common Stock covered by this Agreement shall be removed if (i) such shares of Company Common Stock are sold pursuant to an effective registration statement, (ii) a registration statement covering the resale of such shares of Company Common Stock is effective under the Securities Act and the applicable holder of such share of Company Common Stock delivers to the Company a representation letter agreeing that such shares of Company Common Stock will be sold under such effective registration statement, (iii) if such shares of Company Common Stock may be sold by the holder thereof free of restrictions pursuant to Rule 144(b) under the Securities Act or (iv) such shares of Company Common Stock are being sold, assigned or otherwise transferred pursuant to Rule 144 under the Securities Act; provided, that with respect to clause (iii) or (iv) above, the holder of such shares of Company Common Stock has provided all necessary documentation and evidence (which may include an opinion of counsel) as may reasonably be required by the Company to confirm that the legend may be removed under applicable securities law. The Company shall cooperate with the applicable holder of Company Common Stock covered by this Agreement to effect removal of the legend on such shares pursuant to this Section 5.01(b) as soon as reasonably practicable after delivery of notice from such holder that the conditions to removal are satisfied (together with any documentation required to be delivered by such holder pursuant to the immediately preceding sentence). The Company shall bear all direct costs and expenses associated with the removal of a legend pursuant to this Section 5.01(b).

 

17 

 

 

Section 5.02     Transfer of Rights. The rights to registration and other rights under this Agreement may be assigned to a Transferee of Registrable Securities if such Transferee is a Permitted Transferee.

 

Article VI.
MISCELLANEOUS

 

Section 6.01     Termination. This Agreement shall terminate, and the parties shall have no further rights or obligations hereunder on (a) the fifth anniversary of the date hereof or (b) as to any Holder, following July 21, 2023, on such earlier date on which both (i) such Holder, together with such Holder’s Affiliates, owns less than 1.0% of the issued and outstanding shares of Company Common Stock and (ii) all Registrable Securities owned by such Holder and such Holder’s Affiliates may be sold without restriction pursuant to Rule 144 under the Securities Act and the Company is compliant with Rule 144(c) under the Securities Act.

 

Section 6.02      Severability. If any provision of this Agreement shall be determined to be illegal and unenforceable by any court of law, the remaining provisions shall be severable and enforceable in accordance with their terms.

 

Section 6.03      Governing Law; Waiver of Jury Trial.

 

(a)            This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of laws that would direct the application of the laws of another jurisdiction.

 

(b)            THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY AGAINST ANOTHER IN ANY MATTER WHATSOEVER ARISING OUT OF OR IN RELATION TO OR IN CONNECTION WITH THIS AGREEMENT. FURTHER, NOTHING HEREIN SHALL DIVEST A COURT OF COMPETENT JURISDICTION OF THE RIGHT AND POWER TO GRANT A TEMPORARY RESTRAINING ORDER, TO GRANT TEMPORARY INJUNCTIVE RELIEF, OR TO COMPEL SPECIFIC PERFORMANCE OF ANY DECISION OF AN ARBITRAL TRIBUNAL MADE PURSUANT TO THIS PROVISION.

 

Section 6.04      Adjustments Affecting Registrable Securities. The provisions of this Agreement shall apply to any and all shares of capital stock of the Company or any successor or assignee of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for or in substitution for Registrable Securities, by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise in such a manner and with such appropriate adjustments as to reflect the intent and meaning of the provisions hereof and so that the rights, privileges, duties and obligations hereunder shall continue with respect to the capital stock of the Company as so changed.

 

18 

 

 

Section 6.05      Binding Effects; Benefits of Agreement. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and each Holder and its successors and assigns. Except as provided in Section 5.02, neither this Agreement nor any of the rights, benefits or obligations hereunder may be assigned or transferred, by operation of law or otherwise, by any Holder without the prior written consent of the Company.

 

Section 6.06      Notices. All notices or other communications which are required or permitted hereunder shall be in writing and shall be deemed to have been given if (a) personally delivered, (b) sent by nationally recognized overnight courier, (c) sent by registered or certified mail, postage prepaid, return receipt requested, or (d) sent by email. Such notices and other communications must be sent to the following addresses or email addresses:

 

(a)            If to the Company, to:

 

EQT Corporation 

625 Liberty Avenue, Suite 1700 

Pittsburgh, Pennsylvania 15222 

Attention: General Counsel 

Email: [email protected]

 

with copies (which shall not constitute notice) to:

 

Latham & Watkins LLP 

811 Main Street, Suite 3700 

Houston, Texas 77002 

Attention: Jeffrey S. Munoz; John M. Greer; Chris B. Bennett 

Email: [email protected]; [email protected]; [email protected]

 

(b)            If to an Initial Holder, to the address or email address of such Initial Holder as they appear on such Initial Holder’s signature page attached hereto or such other address or email address as may be designated in writing by such Holder; and

 

(c)            If to any other Holders, to their respective addresses or email addresses set forth on the applicable Adoption Agreement; or to such other address or email address as the party to whom notice is to be given may have furnished to such other party in writing in accordance herewith. Any such communication shall be deemed to have been received (a) when delivered, if personally delivered, (b) the next Business Day after delivery, if sent by nationally recognized, overnight courier, (c) on the third Business Day following the date on which the piece of mail containing such communication is posted, if sent by first-class mail or (d) on the date sent, if sent by email during normal business hours of the recipient or on the next Business Day, if sent by email after normal business hours of the recipient.

 

19 

 

 

Section 6.07      Modification; Waiver. This Agreement may be amended, modified or supplemented only by a written instrument duly executed by the Company, the Investor Designee and the Majority Holders, provided, however, that this Agreement may not be amended, modified or supplemented in a manner that is disproportionately adverse to the rights of a Holder under this Agreement as compared to the other Holders under this Agreement without the prior written consent of such Holder. No course of dealing between the Company and the Holders (or any of them) or any delay in exercising any rights hereunder will operate as a waiver of any rights of any party to this Agreement. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

 

Section 6.08      Entire Agreement. Except as otherwise expressly provided herein, this Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings of the parties in connection therewith.

 

Section 6.09      Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts taken together shall constitute but one agreement.

 

[signature page follows] 

 

20 

 

 

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its undersigned duly authorized representative as of the date first written above.

 

  EQT CORPORATION
     
  By: /s/ Toby Z. Rice
  Name: Toby Z. Rice
  Title: President and Chief Executive Officer

 

[Signature Page to Registration Rights Agreement]

 

 

 

  

  HOLDERS:
   
  Alotta Oil Company
     
  By: /s/ Stuart W. Stedman
  Name: Stuart W. Stedman
  Title: President

 

  Address: [Personal information redacted]
  Contact Person: Stuart W Stedman  
  Email: [Personal information redacted]

 

  ARI 1740 Fund, L.P.
     
  By: /s/ Matthew Swaim   
  Name: Matthew Swaim
  Title: CEO

 

  Address: [Personal information redacted]
  Contact Person: Katrina Wolfe
  Email: [Personal information redacted]

 

  Aviral Sharma
     
  By: /s/ Aviral Sharma   
  Name: Aviral Sharma

 

  Address: [Personal information redacted]
  Email: [Personal information redacted]

 

  Baupost Group Securities, L.L.C.
     
  By: /s/ Thomas W. Blumenthal  
  Name: Thomas W. Blumenthal
  Title: Partner

 

  Address: [Personal information redacted]
  Contact Person: Thomas W. Blumenthal
  Email: [Personal information redacted]

 

[Signature Page to Registration Rights Agreement] 

 

 

 

 

  Bufflehead Exploration, Inc.
     
  By: /s/ M. Kent Mitchell  
  Name: M. Kent Mitchell
  Title: Manager

 

  Address: [Personal information redacted]
  Contact Person: M. Kent Mitchell
  Email: [Personal information redacted]

 

  Bufflehead Holdings, LLC
     
  By: /s/ M. Kent Mitchell  
  Name: M. Kent Mitchell
  Title: Manager

 

  Address: [Personal information redacted]
  Contact Person: M. Kent Mitchell
  Email: [Personal information redacted]

 

  Conrad N. Hilton Foundation
     
  By: /s/ Michael Buchman
  Name: Michael Buchman
  Title: Vice President and CIO

 

  Address: [Personal information redacted]
  Contact Person: Investment Office
  Email: [Personal information redacted]

 

  Dolomite Resources, Inc.
     
  By: /s/ Spiros Vassilakis
  Name: Spiros Vassilakis
  Title: Vice President

 

  Address: [Personal information redacted]
  Contact Person: Spiros Vassilakis
  Email: [Personal information redacted]

 

[Signature Page to Registration Rights Agreement]

 

 

 

 

  Doug Van Brunt
     
  By: /s/ Doug Van Brunt
  Name: Doug Van Brunt

 

  Address: [Personal information redacted]
  Email: [Personal information redacted]

 

  Edward J. Greenberg Revocable Trust
     
  By: /s/ Edward J. Greenberg
  Name: Edward J. Greenberg
  Title: Trustee

 

  Address: [Personal information redacted]
  Contact Person: Edward J. Greenberg
   Email: [Personal information redacted]

 

   
  FA Corp.
     
  By: /s/ Andrew K. Golden
  Name: Andrew K. Golden
  Title: President

 

  Address: [Personal information redacted]
  Contact Person: Theo Kim
   Email: [Personal information redacted]

 

  GMB Ventures, LLC
     
  By: /s/ C. Grant Mitchell
  Name: C. Grant Mitchell
  Title: Manager-Member
   
  Address: [Personal information redacted]
  Contact Person: C. Grant Mitchell
  Email: [Personal information redacted]

 

[Signature Page to Registration Rights Agreement]

 

 

 

 

  GSO Energy Select Opportunities Fund AIV-2 LP
     
  By: /s/ Marisa J. Beeney
  Name: Marisa J. Beeney
  Title: Authorized Signatory
   
  GSO COF III AIV-2 LP
     
  By: /s/ Marisa J. Beeney
  Name: Marisa J. Beeney
  Title: Authorized Signatory
   
  GSO Energy Partners-B LP
     
  By: /s/ Marisa J. Beeney
  Name: Marisa J. Beeney
  Title: Authorized Signatory
   
  GSO Energy Partners-C II LP
     
  By: /s/ Marisa J. Beeney
  Name: Marisa J. Beeney
  Title: Authorized Signatory
   
  GSO Energy Partners-D LP
     
  By: /s/ Marisa J. Beeney
  Name: Marisa J. Beeney
  Title: Authorized Signatory

 

  Address: [Personal information redacted]
  Contact Person: General Counsel
  Email: [Personal information redacted] 

 

[Signature Page to Registration Rights Agreement]

 

 

 

 

  Indigo 2009, LLC
   
  By: Fourth Century, LLC, its Manager
  By: 3C Corporation, its Manager

 

  By: /s/ Alexander C. Banker
  Name: Alexander C. Banker
  Title: Vice President and Treasurer
   
  Address: [Personal information redacted]
  Contact Person: John Ricotta
  Email: [Personal information redacted]

 

  J. Todd Mitchell
     
  By: /s/ J. Todd Mitchell
  Name: J. Todd Mitchell
   
  Address: [Personal information redacted]
  Email: [Personal information redacted]

 

  Jennifer Lauren Odinet
     
  By: /s/ Jennifer Lauren Odinet
  Name: Jennifer Lauren Odinet
   
  Address: [Personal information redacted]
  Email: [Personal information redacted]

 

  Jennifer McCarthy
     
  By: /s/ Jennifer McCarthy
  Name: Jennifer McCarthy
   
  Address: [Personal information redacted]
  Email: [Personal information redacted]

 

  John Montgomery
     
  By: /s/ John Montgomery
  Name: John Montgomery
   
  Address: [Personal information redacted]
  Email: [Personal information redacted]

 

[Signature Page to Registration Rights Agreement]

 

 

 

 

 

  Joseph C. Walton and Molly E. Walton
     
  By: /s/ Joseph C. Walton and Molly E. Walton
  Name: Joseph C. Walton and Molly E. Walton
   
  Address: [Personal information redacted]
Contact Person: Joseph Walton
Email: [Personal information redacted]
   
  Joseph Greenberg
     
  By: /s/ Joseph Greenberg
  Name: Joseph Greenberg
   
  Address: [Personal information redacted]
Email: [Personal information redacted]
   
  Katherine Brooks
     
  By: /s/ Katherine Brooks
  Name: Katherine Brooks
   
  Address: [Personal information redacted]
Email: [Personal information redacted]
   
  KiwiEnergy, Ltd.
   
  By: KiwiGroup, L.L.C., General Partner
     
  By: /s/ Mark E. Gregg
  Name: Mark E. Gregg
  Title: President and CEO
   
  Address: [Personal information redacted]
Contact Person: Mark Gregg
Email: [Personal information redacted]
   
  Laura Drum
     
  By: /s/ Laura Drum
  Name: Laura Drum
   
  Address: [Personal information redacted]
Email: [Personal information redacted]

 

[Signature Page to Registration Rights Agreement]

 

 

 

 

  Lauren Ford
     
  By: /s/ Lauren Ford
  Name: Lauren Ford
   
  Address: [Personal information redacted]
Email: [Personal information redacted]
   
  Maria Clare Mitchell 2012 Gift Trust
   
  By: /s/ J. Todd Mitchell
  Name: J. Todd Mitchell
  Title: Trustee
   
  Address: [Personal information redacted]
Contact Person: Todd Mitchell
Email: [Personal information redacted]
   
  Nicholas Colyer Mitchell 2012 Gift Trust(19)
   
  By: /s/ J. Todd Mitchell
  Name: J. Todd Mitchell
  Title: Trustee
   
  Address: [Personal information redacted]
Contact Person: Todd Mitchell
Email: [Personal information redacted]
   
  Nicola Atkinson
     
  By: /s/ Nicola Atkinson
  Name: Nicola Atkinson
   
  Address: [Personal information redacted]
Email: [Personal information redacted]
   
  Owen Hammond Worley
     
  By: /s/ Owen Hammond Worley
  Name: Owen Hammond Worley
   
  Address: [Personal information redacted]
Email: [Personal information redacted]

 

[Signature Page to Registration Rights Agreement]

 

 

 

 

  Piney Point Energy Ventures, LLC
   
  By:

/s/ Spiros Vassilakis

  Name: Spiros Vassilakis
  Title: Vice President
   
 

Address: [Personal information redacted]

Contact Person: Spiros Vassilakis

Email: [Personal information redacted]

   
  Red Alta LLC
   
  By:

/s/ Mark A. Shoberg

  Name: Mark A. Shoberg
  Title: Authorized Person
   
 

Address: [Personal information redacted]

Contact Person: Mark A. Shoberg

Email: [Personal information redacted]

   
  Richard K. Steeg
     
  By:

/s/ Richard K. Steeg

  Name: Richard K. Steeg
   
 

Address: [Personal information redacted]

Email: [Personal information redacted]

   
  Stedman West Family Partnership, Ltd.
   
  By:

/s/ Stuart W. Stedman

  Name: Stuart W. Stedman
  Title: Sole Manager of G.P.
   
 

Address: [Personal information redacted]

Contact Person: Stuart W. Stedman

Email: [Personal information redacted]

 

[Signature Page to Registration Rights Agreement]

 

 

 

 

  Stephen A. Kelly
     
  By:

/s/ Stephen A. Kelly

  Name: Stephen Kelly
   
 

Address: [Personal information redacted]

Email: [Personal information redacted]

   
  Susan M. Greenberg Revocable Trust
   
  By:

/s/ Susan M. Greenberg

  Name: Susan M. Greenberg
  Title: Trustee
   
 

Address: [Personal information redacted]

Contact Person: Susan M. Greenberg

Email: [Personal information redacted]

   
  The Broad Foundation
   
  By:

/s/ Julie Baker

  Name: Julie Baker
  Title: Attorney-in-Fact
   
 

Address: [Personal information redacted]

Contact Person: K.C. Krieger

Email: [Personal information redacted]

   
  The David and Lucile Packard Foundation
   
  By:

/s/ Kimberly Sargent

  Name: Kimberly Sargent
  Title: Chief Investment Officer
   
 

Address: [Personal information redacted]

Contact Person: David Cormier

Email: [Personal information redacted]

 

[Signature Page to Registration Rights Agreement]

 

 

 

 

  Townes G. Pressler 2012 GTSE Family Trust
   
  By:

/s/ Townes G. Pressler, Jr.

  Name: Townes G. Pressler, Jr.
  Title: Co-Trustee
   
   
  By:

/s/ Penny P. Pressler

  Name: Penny P. Pressler
  Title: Co-Trustee
   
 

Address: [Personal information redacted]

Contact Person: Townes G. Pressler

Email: [Personal information redacted]

   
  UBS Rollover IRA Y633234
   
  By:

/s/ Richard A. Shortz

  Name: Richard A. Shortz
  Title: Beneficiary
   
 

Address: [Personal information redacted]

Contact Person: Richard Shortz

Email: [Personal information redacted]

   
  Walton Mitchell and Company, Inc.
   
  By:

/s/ J. Todd Mitchell

  Name: J. Todd Mitchell
  Title: President
   
 

Address: [Personal information redacted]

Contact Person: Todd Mitchell

Email: [Personal information redacted]

   
  Walton RM RBO James M. - TR
   
  By:

/s/ Bart C. Carletto

  Name: Bart C. Carletto
  Title:

On behalf of BNY Mellon, N.A., Trustee

Vice President

   
 

Address: [Personal information redacted]

Contact Person: Bart Carletto

Email: [Personal information redacted]

 

[Signature Page to Registration Rights Agreement]

 

 

 

 

  Wesley West Minerals, Ltd.
   
  By:

/s/ Stuart W. Stedman

  Name: Stuart W. Stedman
  Title: Sole Manager of Stedman West Land and Cattle Company LLC, General Partner
   
 

Address: [Personal information redacted]

Contact Person: Stuart W. Stedman

Email: [Personal information redacted]

   
  William “Lee” Chenault
     
  By:

/s/ William Chenault

  Name: William “Lee” Chenault
   
 

Address: [Personal information redacted]

Email: [Personal information redacted]

   
  Yana Management Company
   
  By:

/s/ Stuart W. Stedman

  Name: Stuart W. Stedman
  Title: President
   
 

Address: [Personal information redacted]

Contact Person: Stuart W. Stedman

Email: [Personal information redacted]

 

[Signature Page to Registration Rights Agreement]

 

 

 

 

EXHIBIT A

form of RRA Lock-up AGREEMENT

 

This Lockup Agreement (this “Agreement”) is dated as of July 21, 2021 and is between EQT Corporation, a Pennsylvania corporation (the “Company”), and [ ˜ ], a [ ˜ ] (the “Holder”). Capitalized terms used but not defined herein shall have the meanings assigned to them in the Registration Rights Agreement (as defined below).

 

WHEREAS, this Agreement is being entered into pursuant to that Registration Rights Agreement, dated as of July 21, 2021, by and among the Company and the other parties thereto (the “Registration Rights Agreement”);

 

WHEREAS, the parties hereto wish to set forth herein certain understandings between such parties with respect to restrictions, in the case of Holder, on the transfer of Company Common Stock and, in the case of the Company, the issuance or sale of Company Common Stock.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, the parties hereby agree as follows:

 

Article I.

LOCKUP

 

Section 1.01

 

(a)            Except as provided in Section 1.01(b), from the date of Closing to and including January 17, 2022, Holder agrees that it shall not offer, sell, contract to sell (including any short sale), pledge, hypothecate, establish an open “put equivalent position” within the meaning of Rule 16a-1(h) under the Exchange Act, grant any option, right or warrant for the sale of, purchase any option or contract to sell, sell any option or contract to purchase, or otherwise encumber, dispose of or transfer, or grant any rights with respect to, directly or indirectly, any shares of Company Common Stock or securities convertible into or exchangeable or exercisable for any shares of Common Stock, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the Company Common Stock, whether any such aforementioned transaction is to be settled by delivery of the Company Common Stock or such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of the Company, which consent may be withheld in the Company’s sole discretion. Following January 17, 2022, Holder will have the right to resell any Registrable Securities held by Holder, including (i) in non-underwritten resales under the Registration Statement, (ii) pursuant to Subsequent Demand Registrations, (iii) pursuant to Rule 144 under the Securities Act or (iv) pursuant to any other applicable exemption from the registration requirements of the Securities Act, in each case, subject to Section 2.03.

 

 

 

 

(b)            Notwithstanding Section 1.01(a), from the date of Closing to and including January 17, 2022:

 

(i)             The Holder may sell up to an aggregate of 50% of the Registrable Securities held by such Holder (the “Aggregate Threshold Amount”) pursuant to the Initial Demand Registrations; provided, however, that the Holder may not sell more than an aggregate of 25% of the Registrable Securities held by such Holder in any Initial Demand Registration made pursuant to Section 2.02(a)(ii) of the Registration Rights Agreement (the “Interim Threshold Amount”); provided, further, that the Company may, in its sole discretion, increase the Aggregate Threshold Amount or Interim Threshold Amount if requested by the Investor Designee in connection with the Initial Demand Registrations; provided further that if a party to the Registration Rights Agreement elects not to participate in an Initial Demand Registration or a participant in an Initial Demand Registration elects not to sell a number of Registrable Securities equal to such holder’s Interim Threshold Amount or Aggregate Threshold Amount, as the case may, then Holder may elect to sell an additional number of Registrable Securities held by such Holder in such Initial Demand Registration so long as the total number of Registrable Securities sold by all participants in the Initial Demand Registrations does not exceed 50% of the Registrable Securities or 25% of the Registrable Securities in any Initial Demand Registration made pursuant to Section 2.02(a)(ii) of the Registration Rights Agreement; and

 

(ii)            The Holder may sell up to an aggregate of [ ˜ ]1 Shares pursuant to (a) non-underwritten resales under the Registration Statement, (b) Rule 144 under the Securities Act, or (c) any other applicable exemption from the registration requirements of the Securities Act, in each case, subject to the delay and suspension rights set forth in Section 2.03 of the Registration Rights Agreement.

 

(c)            From the date of Closing to and including August 20, 2021, the Company agrees that it shall not offer, sell, contract to sell, grant any option, right or warrant for the sale of, purchase any option or contract to sell, sell any option or contract to purchase, or otherwise grant any rights with respect to, directly or indirectly, any shares of Company Common Stock or securities convertible into or exchangeable or exercisable for any shares of Company Common Stock or enter into a transaction which would have the same effect, or publicly disclose the intention to make any such offer or sale or to enter into any such transaction or other arrangement, without, in each case, the prior written consent of the Investor Designee, which consent may be withheld in the Investor Designee’s sole discretion, except for (A) issuance of Company Common Stock upon (1) exercise of options, (2) settlement of performance share units, (3) vesting of restricted shares, (4) vesting of shares issued at the election of a participant or as a matching contribution under employee 401(k) plans, (5) the vesting of deferred stock units, (6) settlement of phantom units and (7) elections under employee stock purchase programs, in each case, granted under the Company’s benefit and compensation plans as in effect on the date of this Agreement, (B) the issuance of Company Common Stock, restricted stock, stock options, performance share units, phantom units, or other stock performance awards under the Company’s benefit and compensation plans as in effect on the date of this Agreement or under the EQT Corporation 2020 Long-Term Incentive Plan, and (C) the offer and sale of shares of Company Common Stock in accordance with the Company’s 2009 Dividend Reinvestment and Stock Purchase Plan as in effect on the date of this Agreement.

 

 

 

1 Note to Draft: The pro rata amount of 2,500,000 shares of Company Common Stock held by such Holder.

 

34

 

 

Article II.
MISCELLANEOUS

 

Section 2.01            Severability. If any provision of this Agreement shall be determined to be illegal and unenforceable by any court of law, the remaining provisions shall be severable and enforceable in accordance with their terms.

 

Section 2.02            Governing Law; Waiver of Jury Trial.

 

(a)            This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of laws that would direct the application of the laws of another jurisdiction.

 

(b)            THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY AGAINST ANOTHER IN ANY MATTER WHATSOEVER ARISING OUT OF OR IN RELATION TO OR IN CONNECTION WITH THIS AGREEMENT. FURTHER, NOTHING HEREIN SHALL DIVEST A COURT OF COMPETENT JURISDICTION OF THE RIGHT AND POWER TO GRANT A TEMPORARY RESTRAINING ORDER, TO GRANT TEMPORARY INJUNCTIVE RELIEF, OR TO COMPEL SPECIFIC PERFORMANCE OF ANY DECISION OF AN ARBITRAL TRIBUNAL MADE PURSUANT TO THIS PROVISION.

 

Section 2.03            Binding Effects; Benefits of Agreement. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and Holder and its successors and assigns. Neither this Agreement nor any of the rights, benefits or obligations hereunder may be assigned or transferred, by operation of law or otherwise, by a party hereto without the prior written consent of the other party.

 

Section 2.04            Notices. All notices or other communications which are required or permitted hereunder shall be in writing and shall be deemed to have been given if (a) personally delivered, (b) sent by nationally recognized overnight courier, (c) sent by registered or certified mail, postage prepaid, return receipt requested, or (d) sent by email. Such notices and other communications must be sent to the following addresses or email addresses:

 

(a)            If to the Company, to:

 

EQT Corporation

625 Liberty Avenue, Suite 1700

Pittsburgh, Pennsylvania 15222

Attention: General Counsel

Email: [email protected]

 

35

 

 

with copies (which shall not constitute notice) to:

 

Latham & Watkins LLP

811 Main Street, Suite 3700

Houston, Texas 77002

Attention: Jeffrey S. Munoz; John M. Greer; Chris B. Bennett

Email: [email protected]; [email protected]; [email protected]

 

(b)            If to Holder, to the address or email address of Holder as they appear on Holder’s signature page attached hereto or such other address or email address as may be designated in writing by Holder.

 

Section 2.05            Modification; Waiver. This Agreement may be amended, modified or supplemented only by a written instrument duly executed by the Company and the Holder. No course of dealing between the Company and the Holder or any delay in exercising any rights hereunder will operate as a waiver of any rights of any party to this Agreement. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

 

Section 2.06            Entire Agreement. Except as otherwise expressly provided herein, this Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings of the parties in connection therewith.

 

Section 2.07            Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts taken together shall constitute but one agreement.

 

[signature page follows]

 

36

 

 

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its undersigned duly authorized representative as of the date first written above.

 

  EQT CORPORATION
     
  By:  
  Name: Toby Z. Rice
  Title: President and Chief Executive Officer

 

[Signature Page to Lockup Agreement]

 

 

 

 

  HOLDER:
   
  [HOLDER]
     
  By:  
  Name:  
  Title:  
   
  Address:    
  Contact Person:
  Email:  

 

[Signature Page to Lockup Agreement]

 

 

 

 

EXHIBIT B

ADOPTION AGREEMENT

 

This Adoption Agreement (“Adoption Agreement”) is executed by the undersigned transferee (“Transferee”) pursuant to the terms of [each of (a)]2 the Registration Rights Agreement, dated as of [●], 2021, among EQT Corporation, a Pennsylvania corporation (the “Company”), and the Holders party thereto (as amended from time to time, the “Registration Rights Agreement”) [and (b) the Lock-Up Agreement, dated as of [●], 2021, between the Company and the Holder (as amended from time to time, the “Lock-Up Agreement” and, together with the Registration Rights Agreement, the “Registration Rights and Lock-Up Agreements”)]. Terms used and not otherwise defined in this Adoption Agreement have the meanings set forth in the Registration Rights [and Lock-Up] Agreement[s].

 

By the execution of this Adoption Agreement, the Transferee agrees as follows:

 

1. Acknowledgement. Transferee acknowledges that Transferee is acquiring certain shares of Company Common Stock subject to the terms and conditions of the Registration Rights [and Lock-Up] Agreement[s], among the Company and the Holders party thereto.

 

2. Agreement. Transferee (a) agrees that the shares of Company Common Stock acquired by Transferee shall be bound by and subject to the terms of the Registration Rights [and Lock-Up] Agreement[s], pursuant to the terms thereof, and (b) hereby adopts the Registration Rights [and Lock-Up] Agreement[s] with the same force and effect as if he, she or it were originally a party thereto.

 

3. Notice. Any notice required as permitted by the Registration Rights [and Lock-Up] Agreement[s] shall be given to Transferee at the address listed below Transferee’s signature.

 

4. Joinder. The spouse of the undersigned Transferee, if applicable, executes this Adoption Agreement to acknowledge its fairness and that it is in such spouse’s best interest, and to bind such spouse’s community interest, if any, in the shares of Company Common Stock and other securities referred to above and in the Registration Rights [and Lock-Up] Agreement[s], to the terms of the Registration Rights [and Lock-Up] Agreement[s].

 

Signature:  
   
   
   
   
   
   
Address:  
Contact Person:  
Telephone Number:  
Email:  
   

 

 

 

2 Note to Draft: Bracketed language to be included only if an Adoption Agreement is entered into during the term of the Lockup Agreements.

 

B-1

 

 

Exhibit 23.1 

 

Consent of Independent Auditor

 

We hereby consent to the incorporation by reference in the following Registration Statements and related Prospectuses of EQT Corporation and its predecessors:

 

·Registration Statement (Form S-3 No. 333-234151) pertaining to the registration of Debt Securities, Preferred Stock and Common Stock,
·Registration Statement (Form S-3 No. 333-158198) pertaining to the 2009 Dividend Reinvestment and Stock Purchase Plan,
·Registration Statement (Post-Effective Amendment No. 1 on Form S-8 to Form S-4 No. 333-219508) pertaining to the Rice Energy Inc. 2014 Long-Term Incentive Plan,
·Registration Statement (Form S-8 No. 333-221529) pertaining to the Rice Energy Inc. 2014 Long-Term Incentive Plan,
·Registration Statement (Form S-8 No. 333-82193) pertaining to the 1999 Non-Employee Directors’ Stock Incentive Plan,
·Registration Statement (Form S-8 No. 333-32410) pertaining to the Deferred Compensation Plan and the Directors’ Deferred Compensation Plan,
·Registration Statement (Form S-8 No. 333-122382) pertaining to the 2005 Employee Deferred Compensation Plan and the 2005 Directors’ Deferred Compensation Plan,
·Registration Statement (Form S-8 No. 333-152044) pertaining to the 2008 Employee Stock Purchase Plan,
·Registration Statement (Form S-8 No. 333-158682) pertaining to the 2009 Long-Term Incentive Plan,
·Registration Statement (Form S-8 No. 333-195625) pertaining to the 2014 Long-Term Incentive Plan,
·Registration Statement (Form S-8 No. 333-232657) pertaining to the 2019 Long-Term Incentive Plan,
·Registration Statement (Form S-8 No. 333-237953) pertaining to the 2020 Long-Term Incentive Plan, and
·Registration Statement (Form S-8 No. 333-230969) pertaining to the Stock Option Inducement Award Agreement, dated April 22, 2019; the Performance Share Unit Inducement Award Agreement, dated April 22, 2019; the Restricted Stock Inducement Award Agreement (Cliff Vesting), dated April 22, 2019; and the Restricted Stock Inducement Award Agreement (Ratable Vesting), dated April 22, 2019;

 

of our report dated September 28, 2020 with respect to the consolidated financial statements of Alta Resources Development, LLC and its subsidiaries as of June 30, 2020 and 2019, and for each of the three years in the period ended June 30, 2020, included in or made a part of this Current Report on Form 8-K.

 

/s/ Moss Adams LLP

 

Houston, Texas
July 21, 2021

 

 

 

Exhibit 23.2

 

 

 

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS

 

We hereby consent to the incorporation by reference in the following Registration Statements and related Prospectuses (collectively, the "SEC Filings"):

 

·Registration Statement (Form S-3 No. 333-234151) pertaining to the registration of Debt Securities, Preferred Stock and Common Stock,
·Registration Statement (Form S-3 No. 333-158198) pertaining to the 2009 Dividend Reinvestment and Stock Purchase Plan,
·Registration Statement (Post-Effective Amendment No. 1 on Form S-8 to Form S-4 No. 333-219508) pertaining to the Rice Energy Inc. 2014 Long-Term Incentive Plan,
·Registration Statement (Form S-8 No. 333-221529) pertaining to the Rice Energy Inc. 2014 Long-Term Incentive Plan,
·Registration Statement (Form S-8 No. 333-82193) pertaining to the 1999 Non-Employee Directors' Stock Incentive Plan,
·Registration Statement (Form S-8 No. 333-32410) pertaining to the Deferred Compensation Plan and the Directors' Deferred Compensation Plan,
·Registration Statement (Form S-8 No. 333-122382) pertaining to the 2005 Employee Deferred Compensation Plan and the 2005 Directors' Deferred Compensation Plan,
 ·Registration Statement (Form S-8 No. 333-152044) pertaining to the 2008 Employee Stock Purchase Plan,
·Registration Statement (Form S-8 No. 333-158682) pertaining to the 2009 Long-Term Incentive Plan,
·Registration Statement (Form S-8 No. 333-195625) pertaining to the 2014 Long-Term Incentive Plan,
·Registration Statement (Form S-8 No. 333-232657) pertaining to the 2019 Long-Term Incentive Plan,
·Registration Statement (Form S-8 No. 333-237953) pertaining to the 2020 Long-Term Incentive Plan, and
·Registration Statement (Form S-8 No. 333-230969) pertaining to the Stock Option Inducement Award Agreement, dated April 22, 2019; the Performance Share Unit Inducement Award Agreement, dated April 22, 2019; the Restricted Stock Inducement Award Agreement (Cliff Vesting), dated April 22, 2019; and the Restricted Stock Inducement Award Agreement (Ratable Vesting), dated April 22, 2019;

 

of our audit letter dated May 5, 2021 and reserves report dated May 3, 2021 with respect to estimates of reserves and future revenue of Alta Marcellus Development, LLC as of December 31, 2020 and June 30, 2020, respectively, included in or made a part of this Current Report on Form 8-K.

 

We have no interest of a substantial or material nature in EQT Corporation or any of its affiliates. We have not been employed on a contingent basis, and we are not connected with EQT Corporation, or any affiliate, as a promoter, underwriter, voting trustee, director, officer, employee or affiliate.

 

  Sincerely,

 

  NETHERLAND, SEWELL & ASSOCIATES, INC.

 

By:/s/ Richard B. Talley, Jr.
    Richard B. Talley, Jr., P.E.
    Senior Vice President

 

Houston, Texas

July 22, 2021

 

Please be advised that the digital document you are viewing is provided by Netherland, Sewell & Associates, Inc. (NSAI) as a convenience to our clients. The digital document is intended to be substantively the same as the original signed document maintained by NSAI. The digital document is subject to the parameters, limitations, and conditions stated in the original document. In the event of any differences between the digital document and the original document, the original document shall control and supersede the digital document.

 

 

 

 

 

 

Exhibit 99.1

 

 

 

Report of Independent Auditors

 

The Board of Managers and Members
Alta Resources Development, LLC

 

Report on the Financial Statements

 

We have audited the accompanying consolidated financial statements of Alta Resources Development, LLC and its subsidiaries, which comprise the consolidated balance sheets as of June 30, 2020 and 2019, and the related consolidated statements of income, changes in members’ equity, and cash flows for each of the three years in the period ended June 30, 2020, and the related notes to the consolidated financial statements (collectively, the “financial statements”).

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Alta Resources Development, LLC and its subsidiaries as of June 30, 2020 and 2019, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2020 in accordance with accounting principles generally accepted in the United States of America.

 

/s/ Moss Adams LLP

 

Houston, Texas
September 28, 2020

 

 

 

  

Alta Resources Development, LLC

Consolidated Balance Sheets

  

   June 30, 
   2020   2019 
         
   (Amounts in thousands) 
ASSETS       
CURRENT ASSETS:      
Cash and cash equivalents  $11,986   $27,103 
Accounts receivable:        
Natural gas sales receivables   35,672    47,041 
Joint interest billings and other   3,394    4,803 
Advance to affiliates   609     
Assets from risk management activities   37,544    30,783 
Prepaid expenses and other current assets   1,952    1,744 
Total current assets   91,157    111,474 
PROPERTY AND EQUIPMENT:        
Natural gas properties – full cost method:        
Evaluated properties   2,074,787    1,784,303 
Unevaluated properties   8,146    7,055 
Less: accumulated depreciation, depletion and amortization   (661,327)   (351,344)
Net natural gas properties   1,421,606    1,440,014 
Other property and equipment – net of accumulated depreciation of $2,166 and $1,525 as of June 30, 2020 and 2019, respectively   1,231    1,357 
Net property and equipment   1,422,837    1,441,371 
NON-CURRENT ASSETS:        
Assets from risk management activities   290    6,140 
Note receivable from affiliates and other   2,439     
Total non-current assets   2,729    6,140 
TOTAL ASSETS  $1,516,723   $1,558,985 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

Alta Resources Development, LLC

Consolidated Balance Sheets

 

   June 30, 
   2020   2019 
         
   (Amounts in thousands) 
LIABILITIES AND MEMBERS’ EQUITY          
CURRENT LIABILITIES:          
Accounts payable  $22,822   $18,319 
Accrued capital expenditures   49,193    27,833 
Accrued liabilities   13,969    13,887 
Revenue-related payables   29,775    38,514 
Liabilities from risk management activities   7,811    16,942 
Total current liabilities   123,570    115,495 
NON-CURRENT LIABILITIES:          
Long-term debt, net   604,155    621,126 
Asset retirement obligations   21,526    18,961 
Liabilities from risk management activities   22,551    8,628 
Other liabilities   2,405    2,591 
Total non-current liabilities   650,637    651,306 
Total liabilities   774,207    766,801 
COMMITMENTS AND CONTINGENCIES (Note 5)          
MEMBERS’ EQUITY:          
Class A members — contributed capital, net of distributions and fees   20,919    27,011 
Class B members — contributed capital, net of distributions and fees   262,376    338,784 
Retained earnings   459,221    426,389 
Total members’ equity   742,516    792,184 
TOTAL LIABILITIES AND MEMBERS’ EQUITY  $1,516,723   $1,558,985 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

Alta Resources Development, LLC

Consolidated Statements of Income

  

   Years Ended June 30, 
   2020   2019   2018 
             
   (Amounts in thousands) 
REVENUES:         
Natural gas revenues  $448,076   $684,406   $483,575 
Other operating revenues   15,217    9,756    7,115 
Net gain (loss) on commodity risk management activities   103,716    (4,822)   13,989 
Total revenues   567,009    689,340    504,679 
COSTS AND EXPENSES:            
Gathering, transportation and compression   109,670    99,141    97,183 
Direct operating   55,799    53,383    45,060 
Depreciation, depletion and amortization   171,562    158,192    157,831 
Impairment of natural gas properties   139,063         
General and administrative   8,631    10,791    16,802 
Accretion of asset retirement obligations   1,618    1,433    1,242 
Total costs and expenses   486,343    322,940    318,118 
OTHER INCOME (EXPENSE):            
Interest expense, net and other   (35,048)   (52,016)   (43,060)
Net gain (loss) on interest rate derivatives   (12,786)   (7,099)   427 
Total other expense   (47,834)   (59,115)   (42,633)
NET INCOME  $32,832   $307,285   $143,928 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

Alta Resources Development, LLC

Consolidated Statements of Changes in Members’ Equity

 

   For the Years Ended June 30, 2020, 2019, and 2018 
   Class A
Member
   Class B
Members
   Total Members’
Equity
 
             
   (Amounts in thousands) 
BALANCES, July 1, 2017  $57,510   $721,661   $779,171 
Distributions   (18,357)   (230,243)   (248,600)
Net income   10,628    133,300    143,928 
BALANCES, June 30, 2018   49,781    624,718    674,499 
Distributions   (14,000)   (175,600)   (189,600)
Net income   22,690    284,595    307,285 
BALANCES, June 30, 2019   58,471    733,713    792,184 
Distributions   (6,092)   (76,408)   (82,500)
Net income   2,424    30,408    32,832 
BALANCES, June 30, 2020  $54,803   $687,713   $742,516 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

Alta Resources Development, LLC

Consolidated Statements of Cash Flows

 

   Years Ended June 30, 
   2020   2019   2018 
             
   (Amounts in Thousands) 
CASH FLOWS FROM OPERATING ACTIVITIES:               
Net income  $32,832 $  307,285   $143,928 
Adjustments to reconcile net income to cash provided by operating activities:               
Depreciation, depletion and amortization   171,562    158,192    157,831 
Impairment of natural gas properties   139,063         
Accretion of asset retirement obligations   1,618    1,433    1,242 
Amortization of deferred financing costs   2,967    2,463    2,420 
Unrealized gain on commodity risk management activities   (7,276)   (52,373)   (6,903)
Unrealized loss (gain) on interest rate derivatives   11,157    7,157    (484)
Changes in operating assets and liabilities:               
Accounts receivable   12,778    (8,525)   23,172 
Note receivable from affiliates and other   (2,400)        
Prepaid expenses, advance to affiliates and other assets   (817)   1,113    (1,381)
Accounts payable, accrued liabilities and other liabilities   (4,337)   20,208    45,275 
Settlement of asset retirement obligations   (160)   (802)    
Net cash provided by operating activities   356,987    436,151    365,100 
CASH FLOWS FROM INVESTING ACTIVITIES:               
Additions to natural gas properties and other property and equipment   (269,627)   (208,196)   (132,345)
Acquisitions of natural gas properties       (25,000)   (113,992)
Proceeds from sale of natural gas properties           1,016 
Net cash used in investing activities   (269,627)   (233,196)   (245,321)
CASH FLOWS FROM FINANCING ACTIVITIES:               
Proceeds from long-term debt   350,214    461,000    489,000 
Payments of long-term debt   (370,152)   (465,220)   (390,513)
Member distributions   (82,500)   (189,600)   (248,600)
Deferred financing costs and other   (39)   (1,453)    
Net cash used in financing activities   (102,477)   (195,273)   (150,113)
NET CHANGE IN CASH AND CASH EQUIVALENTS   (15,117)   7,682    (30,334)
CASH AND CASH EQUIVALENTS, beginning of year   27,103    19,421    49,755 
CASH AND CASH EQUIVALENTS, end of year  $11,986   $27,103   $19,421 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:               
Cash paid for interest  $32,487   $49,291   $39,725 
NON-CASH ACTIVITIES:               
Accrual for capital expenditures  $49,193   $27,833   $31,118 
Asset retirement obligations incurred  $1,107   $1,396   $147 
Asset retirement obligations assumed in business acquisitions  $   $   $1,618 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

Note 1 — Organization and Summary of Significant Accounting Policies

 

Organization and Principles of Consolidation

 

Alta Resources Development, LLC is a Delaware limited liability company formed on July 24, 2015, together with its subsidiaries (collectively, the Company) to engage in the acquisition, exploration and development of onshore oil and natural gas assets in North America. The Company’s consolidated financial statements presented herein include the accounts of ARD Operating, LLC and Alta Marcellus Development, LLC (AMD) for which the Company owns 100% of each, as well as Alta Marcellus Midstream, LLC (AMM), Alta Energy Marketing, LLC (AEM), and Alta Marcellus E&P, LLC, which was dissolved July 2, 2018, all of which are 100% owned by AMD.

 

The Company operates in one segment, natural gas and oil development, exploitation, exploration and production in North America. The Company’s corporate office is located in Houston, Texas, its field office is located in Williamsport, Pennsylvania and its operations are principally located in seven counties in Pennsylvania.

 

Basis of Presentation

 

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The consolidated financial statements include the accounts of the Company and its subsidiaries after eliminating all significant intercompany balances and transactions.

 

Reclassifications

 

Certain 2019 and 2018 amounts have been reclassified to conform to current presentation. These reclassifications had no effect on 2019 or 2018 net income, total assets and liabilities, members’ equity, or cash flows.

 

Recently Adopted Accounting Standard

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) Accounting Standards Codification (ASC) 606, as subsequently amended. ASC 606 supersedes current revenue recognition requirements in ASC 605, Revenue Recognition, and industry-specific guidance. The codification requires an entity to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. The Company adopted this standard as of July 1, 2019 using the modified retrospective transition method. The implementation of this standard did not result in a cumulative-effect adjustment on date of adoption and did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

 

In March 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230), which clarifies classification of certain cash receipts and payments on the statement of cash flows. The Company adopted this standard on July 1, 2019 on a retrospective basis. The adoption of this ASU did not have a material impact on the Company’s consolidated cash flow presentation.

 

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), which clarifies the definition of a business by adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of a business. This ASU provides a screen to determine when a set of assets is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set of assets is not a business. If the screen is not met, this ASU (1) requires that to be considered a business, a set of assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) removes the evaluation of whether a market participant could replace the missing elements. The Company adopted this standard effective July 1, 2019. The adoption did not have a material impact on the Company’s consolidated financial statements.

 

Accounting Standards Not Yet Adopted

 

In February 2016, the FASB Issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a lease liability and a right-of-use asset for all leases, including operating leases, with a term greater than 12 months on the balance sheet. The provisions of ASU 2016-02 also modify the definition of a lease and outline the requirements for recognition, measurement, presentation, and disclosure of leasing arrangements by both lessees and lessors. This ASU is to be adopted using a modified retrospective approach. In May 2020, the FASB elected to defer the effective date for private companies to fiscal years beginning after December 15, 2021 and for interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the effect that adopting this guidance will have on its consolidated financial statements.

 

 

 

 

Accounting Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. The most significant estimates pertain to natural gas reserve quantities and related cash flow estimates that form the basis for (i) the allocation of purchase price to evaluated and unevaluated properties, (ii) calculation of depreciation, depletion and amortization (DD&A) of natural gas properties, and (iii) the full cost ceiling test. Management emphasizes that reserve estimates are inherently imprecise and that estimates of reserves of non-producing properties and more recent discoveries are more imprecise than those for properties with long production histories. Other significant estimates include (a) estimated quantities and prices of natural gas sold but not collected, as of period-end; (b) accruals of capital and operating costs; (c) current asset retirement costs, settlement date, inflation rate and credit-adjusted-risk-free rate used in estimating asset retirement obligations; (d) assumptions and calculation techniques used in estimating the fair value of derivative financial instruments, as considered in Note 6; and (e) estimates of expenses related to legal, environmental and other contingencies, as considered in Note 5. Actual results could differ from the estimates and assumptions used in the preparation of the Company’s consolidated financial statements.

 

Significant Accounting Policies

 

Cash and Cash Equivalents

 

The Company considers cash equivalents to include all cash items, such as time deposits and short-term investments, including money market accounts, which mature in three months or less from the time of purchase.

 

Accounts Receivable

 

Accounts receivable consist of uncollateralized natural gas revenues due under normal trade terms, as well as joint interest billings due from working interest owners of natural gas properties for their share of expenses paid on their behalf by the Company. Management reviews receivables periodically and reduces the carrying amount by a valuation allowance that reflects management’s best estimate of the amount that may not be collectible. There was no valuation allowance as of June 30, 2020 and 2019.

 

Natural Gas Producing Activities

 

The Company follows the full cost method of accounting for natural gas properties. Under the full cost method, all costs associated with property acquisition, exploration, and development activities are capitalized. Capitalized costs include lease acquisitions, geological and geophysical work, delay rentals, cost of drilling, completing and equipping successful and unsuccessful natural gas wells and direct internal costs. Sales or other dispositions of natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change.

 

The capitalized costs of natural gas properties, plus estimated future development costs relating to proved reserves and estimated cost of dismantlement and abandonment are amortized on a unit-of-production method over the estimated productive life of the proved natural gas reserves. Unevaluated natural gas properties are excluded from this calculation. DD&A expense for the Company’s natural gas properties totaled approximately $170.9 million, $157.4 million and $157.2 million for the years ended June 30, 2020, 2019 and 2018, respectively.

 

Capitalized natural gas property costs are limited to an amount (the ceiling limitation) equal to the sum of the following:

 

  a) The present value of estimated future net revenues from the projected production of proved natural gas reserves, calculated using the twelve-month average of the first-day-of-the-month prices adjusted for location and quality differentials during the fiscal year (with consideration of price changes only to the extent provided by contractual arrangements) and a discount factor of 10%;
     
  b) The cost of investments in unevaluated properties excluded from the costs being amortized; and
     
  c) The lower of cost or estimated fair value of unevaluated properties included in the costs being amortized.

 

 

 

  

When it is determined that natural gas property costs exceed the ceiling limitation, an impairment charge is recorded to reduce carrying value to the ceiling limitation. For the year ended June 30, 2020, the Company recorded an impairment expense of approximately $139.1 million primarily due to a decrease in prices from $3.018 per MMBTU in 2019 to $2.066 per MMBTU in 2020. For the years ended June 30, 2019 and 2018, the ceiling with respect to the Company’s domestic natural gas properties exceeded the net capitalized costs by more than 100% and 35%, respectively, and the Company did not record an impairment.

 

The costs of certain unevaluated leasehold acreage and certain wells being drilled are not amortized. The Company excludes all costs until proved reserves are found or until it is determined that the costs are impaired. Costs not amortized are periodically assessed for possible impairments or reductions in value. If an impairment is indicated, the amount is charged to the full cost pool, where it is subject to depletion and the ceiling limitation. Sales or other dispositions of unevaluated leasehold acreage are accounted for as adjustments to capitalized costs, with no gain recorded unless the proceeds exceed the carrying value of the related property.

 

Asset Retirement Obligations

 

The fair value of asset retirement obligations is recorded in the period in which it is incurred if a reasonable estimate of fair value can be made, and the corresponding cost is capitalized as part of the carrying amount of the related long-lived asset. The fair value of the asset retirement obligations is measured using expected future cash outflows adjusted for inflation and discounted to net present value at the Company’s credit-adjusted risk-free interest rate. Given the unobservable nature of the inputs, the initial measurement of the obligation is considered to be a non-recurring Level 3 fair value estimate. As discussed in “Fair Value Measurements and Fair Value of Financial Instruments,” Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. The liability is accreted to its then present value each period, and the capitalized cost is depleted or amortized over the estimated recoverable reserves using the units-of-production method. If the liability is settled for an amount other than the recorded amount, the variance is recorded to the full cost pool.

 

The following table is a reconciliation of the asset retirement obligations for the years ended June 30, 2020, 2019 and 2018:

 

   (Amounts in
Thousands)
 
Asset retirement obligations at July 1, 2017  $13,927 
Liabilities incurred   147 
Liabilities assumed in business acquisitions   1,618 
Accretion expense   1,242 
Asset retirement obligations at June 30, 2018   16,934 
Liabilities incurred   1,396 
Liabilities settled   (802)
Accretion expense   1,433 
Asset retirement obligations at June 30, 2019   18,961 
Liabilities incurred   1,107 
Liabilities settled   (160)
Accretion expense   1,618 
Asset retirement obligations at June 30, 2020  $21,526 

 

Other Property and Equipment

 

Other property and equipment are carried at cost. Depreciation is calculated using the straight-line method over estimated useful lives that range between 3 to 15 years. Gain or loss on retirement, sale, or other disposition of these assets is included in income in the period of disposition. Costs of major repairs that extend the useful life are capitalized and depreciated over the estimated remaining useful life of the asset. Costs for maintenance and repairs are expensed as incurred. Depreciation and amortization expense for the Company’s other property and equipment totaled approximately $0.6 million, $0.8 million and $0.6 million for the years ended June 30, 2020, 2019 and 2018, respectively.

 

 

 

 

Deferred Financing Costs

 

The Company capitalizes certain direct costs associated with the issuance of long-term debt, which is then amortized over the lives of the respective debt using the straight-line method, which approximates the interest method. The amortization of deferred financing cost is recognized in interest expense, net and other in the Company’s consolidated statements of income. Deferred financing costs are recorded as a direct deduction from the carrying amount of long-term debt.

 

Deferred Offering Costs

 

The Company incurred certain offering costs in connection with obtaining capital commitments from various third-party investors and reflected as a direct reduction of members’ equity upon funding of capital commitments.

 

Fair Value Measurements and Fair Value of Financial Instruments

 

U.S. GAAP defines fair value, establishes a framework for measuring fair value and explains the related disclosure requirements. U.S. GAAP indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability and defines fair value based upon an exit price model.

 

U.S. GAAP establishes a valuation hierarchy under Accounting Standards Codification (ASC) 820 for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, long-term debt and derivative instruments. The recorded value of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value based on their short-term nature. The carrying value of long-term debt approximates fair value as the associated interest rate approximates current market rates. The estimated fair values of the derivatives have been determined using available market data and valuation methodologies (see Note 6).

 

Concentration and Credit Risk

 

The Company’s operations are concentrated in the Marcellus shale formation. This concentration of purchasers and joint interest owners may impact the Company’s overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions. Additionally, factors adversely affecting the oil and gas exploration and production industry could adversely affect the Company and its customers. The Company does not anticipate any material impact on its financial results due to non-performance by the third parties.

 

The purchasers of the Company’s marketed natural gas production consist primarily of independent marketers, major and independent oil and natural gas companies and gas pipeline companies. During the year ended June 30, 2020, two individual purchasers each accounted for more than 10% of the Company’s total marketed sales for the year: Sequent Energy Management, L.P. (15%) and PSEG Energy Resources & Trade LLC (12%). Natural gas sales receivable due from two purchasers individually accounted for more than 10% of the Company’s natural gas sales receivables as of June 30, 2020: Sequent Energy Management, L.P. (16%) and PSEG Energy Resources & Trade LLC (13%). During the year ended June 30, 2019, two individual purchasers each accounted for more than 10% of the Company’s total marketed sales for the year: Anadarko Energy Services Company (20%) and Sequent Energy Management, L.P. (15%). Natural gas sales receivable due from four purchasers individually accounted for more than 10% of the Company’s natural gas sales receivable as of June 30, 2019: Anadarko Energy Services Company (13%), Mercuria Energy America, Inc. (12%), PSEG Energy Resources & Trade LLC (13%), and Sequent Energy Management, L.P. (12%). For the year ended June 30, 2018, three individual purchasers each accounted for more than 10% of the Company’s total marketed sales for the year: Anadarko Energy Services Company (24%), Sequent Energy Management, L.P. (16%), and Castleton Commodities Merchant Trading (11%).

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable and derivative financial instruments. The credit risk associated with the receivables and derivative financial instruments are mitigated by monitoring customers’ and counterparties’ creditworthiness. The Company does not believe that the loss of any of these customers would have a material adverse effect because alternative customers are readily available.

 

 

 

 

Additionally, the Company places cash and cash equivalents with high quality financial institutions and at times may exceed the federally insured limits. The Company has not experienced a loss in such accounts nor does it expect any related losses in the near-term.

 

Revenue Recognition

 

On July 1, 2019, the Company adopted ASC 606, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts which were not completed as of July 1, 2019. Under the modified retrospective method, the Company recognizes the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings; however, no adjustment was required as a result of adopting the new revenue standard. Results for reporting periods beginning after July 1, 2019 are presented under the new revenue standard. The comparative information has not been restated and continues to be reported under the historic accounting standards in effect for those periods.

 

Natural Gas Sales

 

The Company applies the sales method of accounting for natural gas revenue. Natural gas sales revenues are generally recognized when control of the product is transferred to the customer and collectability is reasonably assured. The Company markets the majority of its natural gas production, both operated and non-operated taken in kind. An immaterial portion of its non-operated production not taken in kind is marketed by third party operators.

 

The Company delivers product to the ultimate third-party purchaser at a contractually agreed-upon delivery point. Consideration received is typically priced at or near the applicable published natural gas index price for the producing area from the purchaser, or, when applicable, at various delivered locations applicable to Company’s natural gas transportation contracts. Revenue is recognized when control transfers to the purchaser at the delivery point based on the price received from the purchaser. The Company evaluated whether it was the principal or the agent in the transaction and concluded the Company is the principal as the ultimate third party is its customer and revenue is recognized on a gross basis, with gathering, compression and transportation fees presented as an expense.

 

Under the sales method, revenues are recognized based on the actual volume of natural gas sold to purchasers. The Company and other joint owners may sell more or less than their entitled share of production. Production volume is monitored to minimize these natural gas imbalances. Over and under deliveries are recorded when future estimated reserves are not adequate to cover the imbalance. As of June 30, 2020 and 2019, there is no asset or liability recorded for imbalances.

 

Marketing

 

AEM buys natural gas utilizing separate purchase transactions, generally with separate counterparties and subsequently sells that natural gas under separate contracts or under its existing contracts. In these arrangements, AEM takes control of the natural gas purchased prior to delivery. Revenues and expenses related to these transactions are reported gross in accordance with applicable accounting standards. Revenues related to these activities are presented in Marketing revenues.

 

Midstream

 

AMM has interests in certain gathering systems that provide gathering, transportation and compression services to AEM as well as third parties. AMM receives and gathers shipper (customer) gas from specified receipt points to the delivery point(s) specified under each agreement. In addition, compression services may be provided on an as needed basis. These agreements are typically interruptible and usage- based such that third-party customers pay an agreed upon rate per MMBtu subject to gathering or compression, which are accounted for as Midstream revenues.

 

Certain of the gathering systems which serve the Company’s operating area are operated by the Company but are not wholly owned. AMM owns 50% of these certain gathering systems and does not receive additional revenues as operator of these gathering systems. AMM and the other co-owners in these systems share in revenues, operating costs and capital expenditures in proportion to their respective ownership interests. Revenues related to these activities are presented in Midstream revenues. The gathering, compression and transportation fees are presented as Gathering, transportation and compression expense. Any amounts recovered from co-owners in respect of their share of operating or capital costs are offset against the related expense such that Alta reports only its net share, consistent with proportionate consolidation guidance.

 

 

 

 

Income Taxes

 

The Company elected to be taxed as a partnership for federal income tax purposes and therefore is not subject to federal income taxes. The members are liable for the federal income taxes attributable to their allocable share of the Company’s taxable income. The Company had no state income tax expense during the years ended June 30, 2020, 2019 and 2018, respectively, related to its operations in the states of Texas and Pennsylvania.

 

As of June 30, 2020, the Company had no unrecognized tax benefits or accrued interest or penalties associated with unrecognized tax benefits. The Company does not expect that the amounts of unrecognized tax benefits will change significantly within the next 12 months. The Company’s policy is to recognize interest related to any unrecognized tax benefits as interest expense and penalties as operating expenses, and the Company did not incur any such interest from unrecognized tax benefits or penalties during the years ended June 30, 2020, 2019 and 2018.

 

All of the Company’s tax returns filed since its inception date are subject to audit by federal or state tax authorities. For tax years beginning on or after June 30, 2019, the Company is subject to partnership audit rules enacted as part of the Bipartisan Budget Act of 2015 (the Centralized Partnership Audit Regime). Under the Centralized Partnership Audit Regime, any IRS audit of the Company would be conducted at the Company level, and if the IRS determines an adjustment, the default rule is that the Company would pay an “imputed underpayment” including interest and penalties, if applicable. The Company may instead elect to make a “push-down” election, in which case the partners for the year that is under audit would be required to take into account the adjustments on their own personal income tax returns. In the event of an examination of the Company’s tax return, the tax liability of the member could be changed if an adjustment in the Company’s income is ultimately sustained by the taxing authorities. If the Company received an imputed underpayment notice, a determination will be made based on the relevant facts and circumstances that exist at the time. Any payments that the Company ultimately makes on behalf of its current partners will be reflected as a dividend, rather than tax expense at the time such dividend is declared.

 

Note 2 — Acquisitions of Natural Gas Properties

 

Southwestern

 

On June 13, 2019, the Company completed the acquisition of certain Marcellus Shale assets from SWN Production Company, LLC (Southwestern) for an initial purchase price of approximately $25.0 million, subject to normal and customary purchase price adjustments. The Company accounted for this acquisition as an asset purchase and recorded these assets as evaluated properties.

 

Note 3 — Long-Term Debt

 

Long-term debt consisted of the following as of June 30:

 

   2020   2019 
         
   (Amounts in Thousands) 
Revolving line of credit  $509,355   $522,500 
Senior secured second lien notes   102,274    109,067 
Total long-term debt   611,629    631,567 
Less: deferred financing costs   (7,474)   (10,441)
LONG-TERM DEBT, net  $604,155   $621,126 

 

Maturities of long-term debt at June 30, 2020 are as follows (in thousands):

 

2021  $  —  
2022   —  
2023   —  
2024   611,629 
TOTAL  $611,629 

 

 

 

 

Credit Agreement

 

Effective April 24, 2020, AMD amended its secured revolving credit agreement (the Revolving Credit Facility) to increase the range of applicable margins for ABR Loans and Eurodollar Loans and modify certain covenants. The Revolving Credit Facility provides a facility with a $1.25 billion commitment and a borrowing base of $800.0 million as of June 30, 2020. The borrowing base can be re-determined on a semi-annual basis, October and April, (a Scheduled Redetermination) or as may be requested one time in between each Scheduled Redetermination by the Lenders or the Company. To the extent that the borrowing base is re-determined at an amount that is below the amount currently outstanding, AMD has options under the Revolving Credit Facility including repayment of the amount borrowed above the re-determined borrowing base over a period of up to six months, provision of additional collateral equal to the amount borrowed above the re-determined borrowing base, or other alternatives as negotiated with the Lenders. The Revolving Credit Facility has a maturity date of the earlier of (a) March 31, 2024 or (b) to the extent any Permitted Second Lien Debt is outstanding as of such date, the date that is one hundred eighty (180) days prior to the earliest maturity date in respect of any such Permitted Second Lien Debt.

 

The obligations under the Revolving Credit Facility and guarantees of those obligations are secured by substantially all of AMD’s assets. Under the Revolving Credit Facility, AMD may also obtain letters of credit, the issuance of which would reduce a corresponding amount available for borrowing. As of June 30, 2020 and 2019, the amount borrowed under the Revolving Credit Facility was $509.4 million and $522.5 million, the value of letters of credit issued under the Revolving Credit Facility was $25.9 million for both periods, and the amount remaining available for borrowing was $264.8 million and $251.6 million, respectively.

 

Pursuant to the Revolving Credit Facility agreement, interest on borrowings are calculated using either the Alternate Base Rate plus an applicable margin for Alternate Base Rate Loans (ABR Loans) or the adjusted London Interbank Offered Rate (LIBOR) over a term elected by AMD plus an applicable margin for Eurodollar Loans. The Alternate Base Rate is defined as the greater of (a) the prime rate established by the Administrative Agent, (b) the federal funds rate in effect plus 0.50% and (c) the daily one-month LIBOR plus 1.00%. The amendment increased the range of applicable margins for ABR Loans and Eurodollar Loans to a range of 2.50% to 3.50% from a range of 2.00% to 3.00%. The specific applicable margin used to determine the rate of each loan is based upon the current utilization of the borrowing base. In addition to interest, the banks receive various fees, including a commitment fee on the unutilized borrowing base. The commitment fee was also amended to be 0.500% per annum at all times, compared to 0.500% per annum if greater than 50% of the borrowing base is utilized and 0.375% per annum if less than 50% of the borrowing base is utilized previously. The Company had no ABR Loans outstanding as of June 30, 2020 and 2019. The weighted-average interest rate on loan amounts outstanding under the Revolving Credit Facility as of June 30, 2020 and 2019, was 3.18% and 4.81%, respectively.

 

The Revolving Credit Facility contains certain financial covenants typical for these types of agreements, including current ratio and total debt to EBITDAX (as defined in the Credit Agreement) ratio. Pursuant to the amendment of the Revolving Credit Facility, certain covenants were modified or added, as follows:

 

  Maintenance of the consolidated leverage covenant was reduced from 4.0x debt / EBITDA to 3.5x debt / EBITDA.
     
  The restricted payments test was amended from 3.0x debt / EBITDA to 2.5x debt / EBITDA.
     
  Addition of certain industry anti-cash hoarding provisions, including requiring prepayment of excess cash over certain thresholds first to any ABR Borrowings outstanding then ratably to Eurodollar Borrowings then outstanding.

 

As of June 30, 2020, AMD was in compliance with all of its financial covenants under the Revolving Credit Facility.

 

Senior Secured Second Lien Notes

 

On March 31, 2017, AMD closed $300 million aggregate principal amount of 7.75% Senior Secured Second-Priority Notes due March 31, 2024 (the Senior Secured Second Lien Notes) in a private offering pursuant to an indenture dated as of March 31, 2017 (the Senior Secured Second Lien Notes Indenture). The obligations under the Senior Secured Second Lien Notes and guarantees of those obligations are secured by substantially all of AMD’s assets.

 

The Senior Secured Second Lien Notes are guaranteed by AMD’s subsidiary guarantors Alta Marcellus Midstream, LLC and Alta Energy Marketing, LLC. Interest accrues at the rate of 7.75% per annum and is payable quarterly in arrears on March 30, June 30, September 30 and December 30 of each year during the term. The amount outstanding on the Senior Secured Second Lien Notes was $102.3 million and $109.1 million on June 30, 2020 and 2019, respectively. The covenants and events of default under AMD’s Senior Secured Second Lien Notes Indenture are substantially similar to the Revolving Credit Facility, with the exception of the following. In May 2019, the Company amended the Senior Secured Second Lien Notes to reduce its hedging covenant from two years to one year, for 65% of proved developed producing reserves, while the Revolving Credit Facility does not have a hedging obligation. On June 30, 2020, AMD was in compliance with all of its financial covenants under the Senior Secured Second Lien Notes Indenture.

 

 

 

 

Note 4 — Members’ Equity

 

Pursuant to the limited liability company agreement dated July 24, 2015, as amended, (the LLC Agreement), the Company has an initial term of ten years, and the Board of Managers shall have the right to extend the term of the Company for additional successive extensions of two years by approval of the Company’s Membership Advisory Committee (MAC), as determined in the LLC Agreement.

 

The Company has three classes of membership interests consisting of Class A, Class B, and Class C. Each of Class A and Class B members may vote in proportion to their respective ownership percentage as of a predetermined date of record. Class A members have the authority to appoint members to the Company’s Board of Managers upon majority of Class A member’s approval, provided, however, unless otherwise approved by the MAC, the Operator Key Persons as defined in the LLC Agreement shall serve on the Board. Distributions of available cash shall be made in accordance with the LLC Agreement. The Class C membership interest holder is entitled to distributions only after Class A and Class B members have received their respective distributions as defined in the LLC Agreement. Profits and losses of the Company are allocated to its members pursuant to the LLC Agreement. The Class C membership interest is non-voting and constitutes Profits Interests in accordance with Internal Revenue Code.

 

As of June 30, 2020, the Company had aggregate capital contributions from various institutional investors of approximately $816.0 million with no further capital contribution commitments remaining. Members’ liabilities are limited to their capital contributions. As of June 30, 2020, the Company had made aggregate cash distributions of approximately $520.7 million to its investors.

 

Note 5 — Commitments and Contingencies

 

Commitments

 

Operating Leases — In July 2017, the Company entered into an office space lease in Houston, Texas under a non-cancelable operating lease, which expires in January 2029. In addition, the Company has a field office and several other leases in Pennsylvania to support its field operations; these non-cancellable operating leases have expiration dates up to December 2024.

 

Future minimum lease payments through 2029 under the non-cancellable operating leases as of June 30, 2020 are as follows (in thousands):

 

Years Ending June 30,    
2021  $1,624 
2022   1,424 
2023   1,444 
2024   1,465 
2025   1,236 
Thereafter   4,434 
TOTAL  $11,627 

 

The Company incurred approximately $1.3 million, $1.5 million and $1.3 million in rent expense for the years ended June 30, 2020, 2019 and 2018, respectively.

 

Firm Transportation — The Company has access to firm transportation capacity to delivered pricing locations that have historically priced higher than Marcellus in-basin prices. The Company believes it will have sufficient production quantities to meet substantially all of its commitments but may be required to purchase natural gas from third parties to satisfy shortfalls should they occur.

 

 

 

 

 

A summary of the Company’s future minimum obligations under transportation agreements as of June 30, 2020 are as follows (in thousands):

 

Years Ending June 30,    
2021  $24,229 
2022   20,745 
2023   11,985 
2024   7,159 
2025   7,159 
Thereafter   16,705 
TOTAL  $87,982 

 

Demand Charges — The Company is obligated under certain of these firm transportation arrangements to pay a demand charge for firm capacity rights on pipeline systems regardless of the amount of pipeline capacity utilized by the Company. If the Company does not utilize the capacity, it can release it to others, thus reducing its potential liability. Pursuant to these agreements, the Company must pay annual demand charges of approximately $12.3 million; these agreements expire between October 2028 and November 2033.

 

Delivery Commitments — The Company has natural gas sales agreements that have minimum delivery commitments ranging from 13,500 MMBtu per day to 54,000 MMBtu per day and expire between October 2021 and October 2033. The Company believes it is able to fulfill these contractual obligations from its own production; however, third party volumes may be purchased to satisfy these commitments.

 

Contingencies

 

There are currently various suits and claims pending against Anadarko for which the Company owes an obligation of indemnity that has arisen in the ordinary course of business, including contract disputes, property damage claims and title disputes. Management believes that the resolution of these suits and claims will not, individually or in the aggregate, have a material effect on the Company’s consolidated financial position, results of operations or cash flow. The Company records reserves for contingencies when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated.

 

Note 6 — Risk Management Activities

 

The Company has entered into various derivative contracts to manage its exposure to natural gas price fluctuations on a portion of its anticipated future production volumes for the years 2021 through 2023. These derivatives include natural gas price swaps and basis differential swaps. The Company’s commodity derivative instruments generally serve as effective economic hedges of commodity risk exposure; however, the Company has elected not to account for the derivatives as cash flow hedges. As such, the Company recognizes all changes in fair value of its commodities derivatives in net gain (loss) on price risk management activities in revenues in its consolidated statements of income. The resulting cash flows are reported as cash flows from operating activities.

 

The Company also entered into various derivative contracts to hedge the impact of market fluctuations in LIBOR, which is the floating rate that applies to the borrowings under the Revolving Credit Facility. As of June 30, 2020, the Company has $225 million LIBOR swaps outstanding, which represents a portion of the expected Revolving Credit Facility balance through its remaining term. The Company’s interest rate derivative instruments generally serve as effective economic hedges of interest rate risk exposure; however, the Company has elected not to account for the derivatives as cash flow hedges. As such, the Company recognizes all changes in fair value of its interest rate derivatives in net gain (loss) on interest rate derivatives on its consolidated statements of income.

 

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2020 and 2019.

 

 

 

 

Assets (Liabilities) Measured at Fair Value on a Recurring Basis

 

   Quoted in
Active Markets
for Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
   Total Balance 
                 
   (Amounts in thousands) 
June 30, 2020                    
Commodity swaps  $ —     $28,747   $ —     $28,747 
Basis swaps  $ —     $(3,445)  $ —     $(3,445) 
Interest rate swaps  $ —     $(17,830)  $ —     $(17,830)

  

   Quoted in
Active Markets
for Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
   Total Balance 
                 
   (Amounts in thousands) 
June 30, 2019                    
Commodity swaps  $ —     $44,955   $ —     $44,955 
Basis swaps  $ —     $(26,929)  $ —     $(26,929)
Interest rate swaps  $ —     $(6,673)  $ —     $(6,673)

  

The Company had the following commodity and interest rate derivatives outstanding:

 

   Asset Derivatives  Liability Derivatives
As of June 30, 2020  Balance Sheet Location  Fair Value   Balance Sheet Location  Fair Value 
               
   (Amounts in thousands)
Current                
Commodity contracts  Assets from risk management activities  $37,544   Liabilities from risk management activities  $(2,700)
Interest rate contracts  Assets from risk management activities    —    Liabilities from risk management activities   (5,111)
       37,544       (7,811)
Non-current                
Commodity contracts  Assets from risk management activities   290   Liabilities from risk management activities   (9,832)
Interest rate contracts  Assets from risk management activities    —    Liabilities from risk management activities   (12,719)
       290       (22,551)
TOTAL DERIVATIVES     $37,834      $(30,362)

 

 

 

 

    Asset Derivatives   Liability Derivatives
As of June 30, 2019   Balance Sheet Location   Fair Value     Balance Sheet Location   Fair Value  
                     
    (Amounts in thousands)
Current                        
Commodity contracts   Assets from risk management activities   $ 30,783     Liabilities from risk management activities   $ (15,853 )
Interest rate contracts   Assets from risk management activities      —      Liabilities from risk management activities     (1,089 )
          30,783           (16,942 )
Non-current                        
Commodity contracts   Assets from risk management activities     6,140     Liabilities from risk management activities     (3,044 )
Interest rate contracts   Assets from risk management activities      —      Liabilities from risk management activities     (5,584 )
          6,140           (8,628 )
TOTAL DERIVATIVES       $ 36,923         $ (25,570 )

 

The following tables present the gross asset and liability balances of the Company’s commodity derivative instruments, the amounts subject to master netting arrangements, and the amounts presented on a net basis:

 

   As of June 30, 
   2020   2019 
         
   (Amounts in thousands)  
Commodity Derivative Assets     
Gross amounts of recognized assets  $107,681   $45,776 
Gross amounts offset in the consolidated balance sheets   (69,847)   (8,853)
Net amount of assets presented in the consolidated balance sheets  $37,834   $36,923 
Commodity Derivative Liabilities          
Gross amounts of recognized liabilities  $(82,379)  $(27,750)
Gross amounts offset in the consolidated balance sheets   69,847    8,853 
Net amount of liabilities presented in the consolidated balance sheets  $(12,532)  $(18,897)

 

 

 

 

The Company recognized the following commodity and interest rate derivative activities during the years ended June 30, 2020, 2019 and 2018, respectively.

 

   For the Years Ended June 30, 
Location of Gain (Loss) Recognized on Statements of Income  2020   2019   2018 
             
   (Amounts in thousands) 
Revenue               
Cash received (paid) on settlement of derivative instruments               
(Loss) gain on derivative instruments  $96,440   $(57,195)  $7,086 
Non-cash gain (loss) on derivative instruments               
Gain on derivative instruments   7,276    52,373    6,903 
Net gain (loss) on price risk management activities  $103,716   $(4,822)  $13,989 
Other Income (Expense)               
Cash received (paid) on settlement of derivative instruments               
(Loss) gain on derivative instruments  $(1,629)  $58   $(56)
Non-cash gain (loss) on derivative instruments               
Gain (loss) on derivative instruments   (11,157)   (7,157)   483 
Net gain (loss) on interest rate derivatives  $(12,786)  $(7,099)  $427 

 

Open commodity price derivative contracts as of June 30, 2020 by fiscal year are as follows:

 

   Range of Price   Quantity (MMBTU)     
Instrument Type   $/MMBTU   2021   2022   2023   Total   Fair Value 
                       (Amounts in thousands) 
Swap  $2.19 – $2.54    905,000    920,000     —     1,825,000   $(494)
Swap  $2.17 – $2.97    24,675,000    10,120,000     —     34,795,000    6,104 
Swap  $2.18 – $2.80    6,410,000    1,840,000     —     8,250,000    1,371 
Swap  $2.17 – $3.09    9,065,000    9,185,000    920,000    19,170,000    (138)
Swap  $2.07 – $2.95    22,947,600    5,520,000     —     28,467,600    8,200 
Swap  $2.14 – $2.97    4,555,000    2,760,000     —     7,315,000    (102)
Swap  $2.23 – $3.10    5,460,000    3,680,000     —     9,140,000    720 
Swap  $2.18 – $2.97    11,885,000    4,600,000     —     16,485,000    2,633 
Swap  $2.18 – $3.09    19,577,054    13,340,000     —     32,917,054    (732)
Swap  $2.19 – $3.09    5,445,000    4,600,000     —     10,045,000    (381)
Swap  $2.10 – $3.09    22,835,000    11,025,000    920,000    34,780,000    6,586 
Swap  $2.14 – $3.09   17,994,200    7,360,000     —     25,354,200    4,980 
       151,753,854    74,950,000    1,840,000    228,543,854   $28,747 

 

 

 

 

Open commodity price derivative contracts as of June 30, 2019 by fiscal year are as follows:

 

   Range of Price    Quantity (MMBTU)      
Instrument Type  $/MMBTU   2020    2021    2022    Total    Fair Value 
                           (Amounts in
thousands)
 
Swap  $2.67 – $2.94   5,663,110     —      —     5,663,110   $2,168 
Swap  $2.46 – $3.20   15,329,647    11,945,000    920,000    28,194,647    6,643 
Swap  $2.48 – $3.15   6,997,036    1,840,000     —     8,837,036    2,513 
Swap  $2.53 – $3.10   19,986,566    10,730,000     —     30,716,566    7,771 
Swap  $2.44 – $2.91   1,820,000    2,745,000    920,000    5,485,000    439 
Swap  $2.51 – $3.15   27,926,265    5,520,000     —     33,446,265    10,316 
Swap  $2.47 – $2.94   5,641,092    2,759,554    920,000    9,320,646    1,617 
Swap  $2.46 – $3.19   19,930,809    11,945,000    920,000    32,795,809    8,388 
Swap  $2.52 – $3.11   11,030,351    7,994,200     —     19,024,551    5,100 
       114,324,876    55,478,754    3,680,000    173,483,630   $44,955 

  

Open basis price derivative contracts as of June 30, 2020 by fiscal year are as follows: 

 

    Range of Price   Quantity (MMBTU)        
Instrument Type   $/MMBTU   2021     2022     2023     Total     Fair Value  
                                          (Amounts in
thousands)
 
Basis Swap   $(0.77) – $(0.38)     7,677,600       1,840,000        —        9,517,600     $ (601 )
Basis Swap   $(0.56) – $2.82     6,100,000       1,840,000        —        7,940,000       (3 )
Basis Swap   $(0.82) – $(0.38)     8,175,000       7,345,000       920,000       16,440,000       (158 )
Basis Swap   $(0.96) – $4.45     33,815,000       14,705,000       920,000       49,440,000       (2,810 )
Basis Swap   $(0.77) – $(0.39)     5,460,000       3,680,000        —        9,140,000       (30 )
Basis Swap   $(0.79) – $4.61     32,510,000       12,880,000        —        45,390,000       (217 )
Basis Swap   $(0.89) – $3.75     26,337,054       13,340,000        —        39,677,054       231  
Basis Swap   $(0.79) – $4.54     20,875,000       17,480,000        —        38,355,000       1,717  
Basis Swap   $(0.62) – $4.94     21,764,200       1,840,000        —        23,604,200       (1,574 )
      162,713,854       74,950,000       1,840,000       239,503,854     $ (3,445 )

 

Open basis price derivative contracts as of June 30, 2019 by fiscal year are as follows:

 

    Range of Price     Quantity (MMBTU)        
Instrument Type   $/MMBTU     2020     2021     2022     Total     Fair Value  
                                          (Amounts in
thousands)
 
Basis Swap   $(0.90) – $(0.36)     12,840,000       3,680,000        —        16,520,000     $ (2,511 )
Basis Swap   $(0.92) – $2.82     34,026,440       5,195,000       920,000       40,141,440       (8,181 )
Basis Swap   $0.22 – $0.96     28,895,515       13,800,000        —        42,695,515       (6,656 )
Basis Swap   $(0.79) – $1.23     14,740,000       14,305,000       920,000       29,965,000       (119 )
Basis Swap   $(0.89) – $(0.04)     9,745,341       2,774,554        —        12,519,895       (1,498 )
Basis Swap   $(0.62) – $4.94     20,074,600       21,764,200       1,840,000       43,678,800       (7,964 )
      120,321,896       61,518,754       3,680,000       185,520,650     $ (26,929 )

  

 

 

 

 Open interest rate derivative contracts as of June 30, 2020 are as follows:

 

Instrument Type   Range of
Fixed Rates
  Notional Amount     From   To   Fair Value  
      (Amounts in
thousands)
          (Amounts in
thousands)
 
1 Month LIBOR Swap   2.12 – 2.73%   $ 225,000     7/1/2020   3/31/2021   $ (3,810 )
1 Month LIBOR Swap   2.12 – 2.74%   $ 225,000     4/1/2021   3/31/2022     (5,214 )
1 Month LIBOR Swap   2.12 – 2.13%   $ 225,000     4/1/2022   3/31/2023     (4,543 )
1 Month LIBOR Swap   2.12 – 2.13%   $ 225,000     4/1/2023   3/31/2024     (4,263 )
                      $ (17,830 )

 

Open interest rate derivative contracts as of June 30, 2019 are as follows:

 

Instrument Type   Range of
Fixed Rates
  Notional Amount     From   To   Fair Value  
      (Amounts in
thousands)
          (Amounts in
thousands)
 
1 Month LIBOR Swap   2.12 – 2.58%   $ 225,000     7/1/2019   3/31/2020   $ (642 )
1 Month LIBOR Swap   2.12 – 2.73%   $ 225,000     4/1/2020   3/31/2021     (2,075 )
1 Month LIBOR Swap   2.12 – 2.74%   $ 225,000     4/1/2021   3/31/2022     (1,885 )
1 Month LIBOR Swap   2.12 – 2.13%   $ 225,000     4/1/2022   3/31/2023     (1,179 )
1 Month LIBOR Swap   2.12 – 2.13%   $ 225,000     4/1/2023   3/31/2024     (892 )
              $ (6,673 )

  

Note 7 — Employee Benefits

 

401(K) Plan

 

Effective July 1, 2017, the Company adopted a defined contribution plan (the Benefit Plan) that complies with Section 401(k) of the Internal Revenue Code. All employees are eligible to participate immediately upon date of hire, and all participants are eligible for the employer non-discretionary match at 100%, up to 6% of a participant’s eligible compensation. Participants may elect voluntary salary deferral contributions withheld from their salary based on an elected percentage of up to 100%, subject to annual individual statutory deferral limitations. Participants are immediately vested in their elective contributions and employer non-discretionary matching plus actual earnings thereon. Vesting in the employer’s discretionary contribution portion of their accounts prior plus actual earnings thereon is based on years of credited service. For employer’s discretionary contributions, participants are vested immediately upon completing three full years of service. Upon separation, participants are entitled to the vested portion of their accounts. Employer contribution expense for the years ended June 30, 2020, 2019 and 2018 was approximately $1.0 million, $1.0 million and $0.7 million, respectively, and recorded in general and administrative expense.

 

Long-Term Incentive Plan

 

Effective October 31, 2018, Alta Resources, LLC, a member of Alta Resources Holdings, LLC (Class C member), adopted a long term incentive plan (the LTIP Plan) to award and retain employees of the Company by providing participating employees with an opportunity to receive additional compensation in connection with the future success of the Company, by providing a Phantom Unit. A Phantom Unit is defined in the LTIP Plan as a notional unit that, once vested, permits the holder to receive the applicable Distribution Value and/or Unit Value (two award components). Phantom Units vest in three ratable, annual installments beginning on the first anniversary from the initial date of grant. Vesting is contingent on the participant’s continued employment, with certain exceptions. On a change in control, 100% of any unvested units vest only if the participant continues employment through the date of change in control. Vesting conditions vary with respect to termination cause.

 

The Company accounts for the first component of the award (the Distribution Value) as an in-substance profit-sharing arrangement in accordance with ASC 710, Compensation. No distribution pursuant to the LTIP Plan was declared as of June 30, 2020 and 2019, and therefore no compensation expense was recognized during the years ended June 30, 2020 and 2019.

 

 

 

 

The second component of the award (the Unit Value) provides rights to the residual equity interest in the Company, whereby the employee has a put right prior to an ultimate liquidation event for 85% of the then-determined fair value. Additionally, the employee may only sell, in any one calendar year, a maximum of 20% of the greatest number of Phantom Units held by the employee during their employment with the Company or any of its affiliates. Furthermore, a participant may not sell more than 50% in the aggregate of the greatest number of Phantom Units held by the employee during their employment with the Company or any of its affiliates. Vesting is dependent upon: 1) liquidation event or change in control, as defined in the LTIP Plan, and 2) employment condition through the date of liquidation or change in control. The Company accounts for the second component in accordance with ASC 718, Compensation — Stock Compensation, as a liability award. However, as the preceding performance conditions were not considered probable as of the grant date and furthermore not estimable as of June 30, 2020 and 2019, no compensation expense was recognized during the years ended June 30, 2020 and 2019.

 

In May 2020, a portion of these units vested in accordance with the above vesting schedule. The Company opened the sellback window to employees between August 17 through 28, 2020. An immaterial portion of units were sold back to the Company.

 

Note 8 — Revenue from Contracts with Customers

 

Disaggregation of Revenue

 

The Company has identified the major revenue streams within the scope of ASC 606: Natural gas sales, Marketing and Midstream. A detailed summary for each disaggregated category of revenue is below:

 

   Years Ended June 30, 
   2020   2019   2018 
             
   (Amounts in thousands) 
Revenue from Contracts with Customers               
Natural gas revenues  $448,076   $684,406   $483,575 
Other operating               
Marketing   10,135    4,872    59 
Midstream   4,811    4,290    7,043 
Total other operating   14,946    9,162    7,102 
Total revenue from contracts with customers   463,022    693,568    490,677 
Net gain (loss) on commodity risk management activities   103,716    (4,822)   13,989 
Other revenues   271    594    13 
Total revenues  $567,009   $689,340   $504,679 

 

Transaction Price Allocated to Remaining Performance Obligations

 

A significant number of the Company’s product sales have a contract term of one year or less. For those contracts, the Company has utilized the practical expedient allowed in ASC 606 that exempts it from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

 

For the Company’s product sales that have a contract term greater than one year, the Company has also utilized the practical expedient waiving the requirement to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, each unit of product generally represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required. Currently, the Company’s product sales that have a contractual term greater than one year have no long-term fixed consideration.

 

Contract Balances

 

Under the Company’s sales contracts, it invoices its customers once its performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s product sales contracts do not give rise to contract assets  or liabilities. Accounts receivable attributable to the Company’s revenue contracts with customers was $37.8 million at June 30, 2020 and $47.8 million at June 30, 2019.

 

 

 

 

 

 

Prior−Period Performance Obligations

 

The Company records revenue in the month production is delivered to the purchaser. However, settlement statements for certain natural gas sales may be received for one to three months after the date production is delivered, and as a result, the Company is required to estimate the amount of production that was delivered to the purchaser and the price that will be received for the sale of the product. The Company records the differences between its estimates and the actual amounts for product sales in the month that payment is received from the purchaser. Any identified differences between its revenue estimates and actual revenue received historically have not been significant. For the year ended June 30, 2020, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was not material.

 

Note 9 — Related Party Transactions

 

On December 20, 2019, the Company executed a $2.4 million Secured Non-Recourse Promissory Note (Note) with Alta Resources Holdings, LLC, a related party, as an advance of Profits Interest. Pursuant to the Note, interest is accrued at 2%. The principal and accrued interest is due upon Alta Resources Holdings, LLC’s receipt of its distributed Class C membership interest. Amounts due from Alta Resources Holdings, LLC are included in note receivable from affiliates and other in the accompanying consolidated balance sheets of approximately $2.4 million as of June 20, 2020.

 

As of June 30, 2020, the Company covered approximately $0.6 million of assets and expenses on behalf of Alta Resources Development II, LLC, a related party, in anticipation of its establishment, which became effective on July 1, 2020. In connection, the Company executed the Management and Administrative Services Agreement (MASA) on July 10, 2020 for administrative support and management functions to evaluate prospective oil and gas properties. Amounts due from Alta Resources Development II, LLC are included in advance to affiliates in the accompanying consolidated balance sheets of approximately $0.6 million as of June 30, 2020.

 

Note 10 — Subsequent Events

 

Management considered subsequent events through September 28, 2020, the date on which the Company’s consolidated financial statements were available for issuance.

 

Note 11 — Natural Gas Producing Activities (Unaudited)

 

The following supplementary information summarized presents the results of natural gas activities in accordance with the full cost method of accounting for production activities.

 

Costs Incurred Related to Natural Gas Operations

 

The following tables present total aggregate capitalized costs and costs incurred related to natural gas production activities.

 

   Years Ended June 30, 
   2020   2019   2018 
             
   (Amounts in thousands) 
Capitalized costs               
Evaluated properties(1)  $2,074,787   $1,784,303   $1,552,914 
Unevaluated properties   8,146    7,055    7,141 
Total capitalized costs   2,082,933    1,791,358    1,560,055 
Less: Accumulated depletion and impairment   (661,327)   (351,344)   (193,917)
Net capitalized costs  $1,421,606   $1,440,014   $1,366,138 

 

 

(1) Amounts in 2019 include $25.0 million the purchase interests in producing units and undeveloped acreage in Alta’s operated properties from Southwestern Energy. Amounts in 2018 include $116.4 million for the purchase interests in producing units, undeveloped acreage and associated midstream interests in Alta’s operated properties from Ultra Petroleum.

 

 

 

 

Results of Operations for Producing Activities

 

The following table presents the results of operations related to natural gas production.

 

   Years Ended June 30, 
   2020   2019   2018 
             
   (Amounts in thousands) 
Sales of natural gas   $448,076   $684,406   $485,168 
Transportation and processing    157,435    144,557    132,019 
Lease Operating Expense    39,186    39,644    39,136 
Depreciation and depletion    170,921    157,426    157,205 
Impairment and expiration of leases    139,063         
Results of operations from producing activities, excluding corporate overhead   $(58,529)  $342,779   $156,808 

 

Reserve Information

 

Proved developed reserves represent only those reserves expected to be recovered from existing wells and support equipment. Proved undeveloped reserves represent proved reserves expected to be recovered from new wells after substantial development costs are incurred.

 

The Company’s estimate of proved natural gas reserves was prepared by Netherland, Sewell & Associates, Inc. (NSAI), an independent consulting firm hired by management. Since 1961, NSAI has evaluated oil and gas properties and independently certified petroleum reserves quantities in the United States and internationally. NSAI has estimated 100% of the total net natural gas proved reserves attributable to the Company’s interests as of June 30, 2020, 2019 and 2018 in accordance with the definitions and regulation of the U.S. Securities and Exchange Commission and, with the exception of the exclusion of future income taxes, conform to the FASB ASC No 932, Extractive Activities — Oil & Gas. Standard engineering and geoscience methods, or a combination of methods, including performance analysis, volumetric analysis, and analogy and material balance were utilized in the evaluation of reserves. All of the Company’s proved reserves are located in the United States.

 

The engineer primarily responsible for providing Company data necessary for the preparation of the reserves estimate holds a Bachelor of Science degree in Mining Engineering from the National Institute of Technology in India and a Master’s Degree in Petroleum Engineering from the University of Texas at Austin and has 15 years of experience in the oil and gas industry. To support the accurate and timely preparation and disclosure of its reserve estimates, the Company established internal controls over its reserve estimation processes and procedures, including the following: the price, heat content conversion rate and cost assumptions used in the economic model to determine the reserves are reviewed by management; division of interest and production volumes are reconciled between the system used to calculate the reserves and other accounting/measurement systems; and the reserves reconciliation between prior year reserves and current year reserves is reviewed by senior management.

 

   Year ended June 30, 
   2020   2019   2018 
             
   (Volumes in Mmcf) 
Balance at July 1   3,679,226    2,643,329    2,577,715 
Revisions of previous estimates    405,928    784,086    (282,995)
Extensions, discoveries and other additions        248,345    149,680 
Acquisitions        237,621    381,063 
Production    (264,537)   (234,155)   (182,134)
Balance at June 30    3,820,617    3,679,226    2,643,329 
Proved developed reserves as of               
Balance at July 1    1,737,819    1,654,683    1,450,248 
Balance at June 30    1,943,820    1,737,819    1,654,683 
Proved undeveloped reserves as of               
Balance at July 1    1,941,407    988,646    1,127,467 
Balance at June 30    1,876,797    1,941,407    988,646 

 

 

 

 

The change in reserves during the year ended June 30, 2020 resulted from the following:

 

Positive revisions of 405.9 Bcf due primarily to changes in working interests and net revenue interests, adjustments to the development schedule, improved development pacing and type curve updates to reflect well outperformance relative to type curve.

 

The change in reserves during the year ended June 30, 2019 resulted from the following:

 

Extensions, discoveries and other additions of 248.3 Bcfe exceeded 2019 production of 234.2 Bcfe which was primarily due to the eastward expansion of Altas Warrensville area within the 5-year window.
Positive revisions of 784.1 Bcf primarily due to outperformance in Altas operated area and sufficient data to demonstrate the uplift from Altas modern completion approach as compared to the well performance of the prior operator.
Purchase of hydrocarbons in place of 237.6 Bcfe due to the Southwestern Acquisition described in Note 2.

 

The change in reserves during the year ended June 30, 2018 resulted from the following:

 

Extensions, discoveries and other additions of 149.7 Bcf primarily due to proved undeveloped additions associated with acreage that was excluded from prior year proved reserves bookings, but subsequently became proved due to inclusion within the Companys five-year drilling plan and the completion of certain drilled but uncompleted wells that had not been included in prior reports 5-year development window.
Negative revisions of 283.0 Bcfe from proved developed locations, due changes in development pace pushing wells out of the 5-year development window.
Purchase of hydrocarbons in place of 381.1 Bcfe due to the Ultra Acquisition.

 

Standard Measure of Discounted Future Cash Flow

 

Management cautions that the standard measure of discounted future cash flows should not be viewed as an indication of the fair market value of natural gas and oil producing properties, nor of the future cash flows expected to be generated therefrom. The information presented does not give recognition to future changes in estimated reserves, selling prices or costs and has been discounted at a rate of 10%.

 

The following table summarizes estimated future net cash flows from natural gas and crude oil reserves.

 

   Year ended June 30, 
   2020   2019   2018 
             
   (Amounts in thousands) 
Future cash flows   $5,988,487   $10,030,339   $6,576,981 
Future production costs    (2,052,950)   (2,444,720)   (2,013,569)
Future development costs    (1,040,484)   (1,137,618)   (833,393)
Future net cash flows    2,895,053    6,448,001    3,730,019 
10% annual discount for estimated timing of cash flows    (1,520,154)   (3,540,245)   (1,882,152)
Standardized measure of discounted future net cash flows   $1,374,899   $2,907,756   $1,847,867 

 

The above cash flows include approximately $122.9 million, $120.4 million and $107.7 million for future plugging and abandonment costs as of June 30, 2020, 2019 and 2018, respectively.

 

For 2020, reserves were computed using gas prices based on the 12-month unweighted arithmetic average of the first-day-of-the-month price for each month in the period July 2019 through June 2020. The average Henry Hub spot price of $2.066 per MMBtu was adjusted for energy content, transportation fees, and market differentials. The fees associated with the Companys firm transportation contracts were included as a deduction to gas revenue. Gas prices were held constant throughout the lives of the properties. The average adjusted gas price weighted by production over the lives of the properties was $1.567 per Mcf.

 

 

 

 

For 2019, reserves were computed using gas prices based on the 12-month unweighted arithmetic average of the first-day-of-the-month price for each month in the period July 2018 through June 2019. The average Henry Hub spot price of $3.018 per MMBtu was adjusted for energy content, transportation fees, and market differentials. The fees associated with the Companys firm transportation contracts were included as a deduction to gas revenue. Gas prices were held constant throughout the lives of the properties. The average adjusted gas price weighted by production over the lives of the properties was $2.726 per Mcf.

 

For 2018, reserves were computed using gas prices based on the 12-month unweighted arithmetic average of the first-day-of-the-month price for each month in the period July 2017 through June 2018. The average Henry Hub spot price of $2.917 per MMBtu was adjusted for energy content, transportation fees, and market differentials. The fees associated with the Companys firm transportation contracts were included as a deduction to gas revenue. Gas prices were held constant throughout the lives of the properties. The average adjusted gas price weighted by production over the lives of the properties was $2.488 per Mcf.

 

The following table summarizes the changes in the standardized measure of discounted future net cash flows:

 

   Year ended June 30, 
   2020   2019   2018 
             
   (Amounts in thousands) 
Net changes in prices, production and development costs   $(1,802,302)  $440,484   $250,840 
Revisions of previous quantity estimates    23,115    630,841    (691)
Sales and transfers of natural gas and oil produced – net    (251,455)   (500,205)   (321,099)
Accretion of discount    290,776    184,787    132,194 
Extensions, discoveries and improved recovery, less related costs        169,999    117,931 
Acquisitions        174,200    296,202 
Previously estimated development costs incurred    225,647    35,397    68,282 
Timing and other    (18,638)   (75,614)   (17,730)
Net change for the year    (1,532,857)   1,059,889    525,929 
Beginning of year    2,907,756    1,847,867    1,321,938 
End of year   $1,374,899   $2,907,756   $1,847,867 

 

 

 

 

Exhibit 99.2

 

Alta Resources Development, LLC

Condensed Consolidated Balance Sheets (Unaudited) 

 

  March 31,
2021
    June 30,
2020
 
             
  (Amounts in thousands)  
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents   $ 25,122     $ 11,986  
Accounts receivable:            
Natural gas sales receivables     87,378       35,672  
Joint interest billings and other     3,913       3,394  
Assets from risk management activities     28,435       37,544  
Advance to affiliates     227       609  
Prepaid expenses and other current assets     1,774       1,952  
Total current assets     146,849       91,157  
PROPERTY AND EQUIPMENT:            
Natural gas properties – full cost method:            
Evaluated properties     2,274,967       2,074,787  
Unevaluated properties     10,751       8,146  
Less: accumulated depletion, amortization and impairment     (1,432,160 )     (661,327 )
Net natural gas properties     853,558       1,421,606  
Other property and equipment – net of accumulated depreciation of $2,427 and $2,166     1,044       1,231  
Net property and equipment     854,602       1,422,837  
NON-CURRENT ASSETS:            
Assets from risk management activities     7,230       290  
Note receivable from affiliates and other     2,510       2,439  
Total non-current assets     9,740       2,729  
TOTAL ASSETS   $ 1,011,191     $ 1,516,723  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

 

 Alta Resources Development, LLC

Condensed Consolidated Balance Sheets (Unaudited)

 

  March 31,
2021
    June 30,
2020
 
             
  (Amounts in thousands)  
LIABILITIES AND MEMBERS’ EQUITY        
CURRENT LIABILITIES:        
Accounts payable   $ 26,414     $ 22,822  
Accrued capital expenditures     24,880       49,193  
Accrued liabilities     19,765       13,969  
Revenue-related payables     47,301       29,775  
Liabilities from risk management activities     27,054       7,811  
Total current liabilities     145,414       123,570  
NON-CURRENT LIABILITIES:            
Long-term debt, net     520,935       604,155  
Asset retirement obligations     23,637       21,526  
Liabilities from risk management activities     8,944       22,551  
Other liabilities     2,228       2,405  
Total non-current liabilities     555,744       650,637  
COMMITMENTS AND CONTINGENCIES            
MEMBERS’ EQUITY:            
Class A members – contributed capital, net of distributions and fees     19,516       20,919  
Class B members – contributed capital, net of distributions and fees     244,779       262,376  
Retained earnings     45,738       459,221  
Total members’ equity     310,033       742,516  
TOTAL LIABILITIES AND MEMBERS’ EQUITY   $ 1,011,191     $ 1,516,723  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

 

 Alta Resources Development, LLC

Condensed Consolidated Statements of Operations (Unaudited)

 

  Nine Months Ended March 31,  
  2021     2020  
             
  (Amounts in thousands)  
REVENUES:        
Natural gas revenues   $ 446,651     $ 354,708  
Other operating revenues     16,052       11,212  
Net gain on commodity risk management activities     71,572       98,102  
    534,275       464,022  
COSTS AND EXPENSES:            
Gathering, transportation and compression     104,683       79,230  
Direct operating     45,643       41,895  
Depreciation, depletion and amortization     139,453       126,069  
Impairment of natural gas properties     631,641        
General and administrative     4,847       6,972  
Accretion of asset retirement obligations     1,316       1,182  
    927,583       255,348  
INCOME (LOSS) FROM OPERATIONS     (393,308 )     208,674  
OTHER INCOME (EXPENSE):            
Interest expense, net and other     (22,582 )     (27,455 )
Net gain (loss) on interest rate derivatives     2,407       (11,135 )
Total other expense     (20,175 )     (38,590 )
NET INCOME (LOSS)   $ (413,483 )   $ 170,084  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

 

Alta Resources Development, LLC

Condensed Consolidated Statements of Changes in Members’ Equity (Unaudited)

 

  For the Nine Months Ended March 31, 2021 and 2020  
  Class A
Member
    Class B
Members
    Total Members’
Equity
 
                   
  (Amounts in thousands)  
BALANCES, July 1, 2019   $ 58,471     $ 733,713     $ 792,184  
Distributions     (2,843 )