10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10‑Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,2015
Or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Numbers:

Denver Parent Corporation 333‑191602

Venoco, Inc. 001-33152

Denver Parent Corporation

Venoco, Inc.

Delaware Delaware (State or other jurisdiction of incorporation or organization)	46-0821005 77-0323555 (I.R.S. Employer Identification Number)
370 17th Street, Suite 3900 Denver, Colorado (Address of principal executive offices)	80202‑1370 (Zip Code)

Registrant’s telephone number, including area code: (303) 626‑8300

N/A

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

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Venoco, Inc.	YES ☐	NO ☒
Denver Parent Corporation	YES ☐	NO ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Venoco, Inc.	YES ☒	NO ☐
Denver Parent Corporation	YES ☒	NO ☐

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

Venoco, Inc.	Large accelerated filer ☐	Accelerated filer ☐	Non‑accelerated filer ☒ (Do not check if a smaller reporting company)	Smaller reporting company ☐
Denver Parent Corporation	Large accelerated filer ☐	Accelerated filer ☐	Non‑accelerated filer ☒ (Do not check if a smaller reporting company)	Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).

Venoco, Inc.	YES ☐	NO ☒
Denver Parent Corporation	YES ☐	NO ☒

As of November 12, 2015, there were 30,297,459 shares of common stock of Denver Parent Corporation and 29,936,378 shares of common stock of Venoco, Inc. outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 10-Q contains forward-looking statements. The use of any statements containing the words “anticipate,” “intend,” “believe,” “estimate,” “project,” “expect,” “plan,” “should” or similar expressions are intended to identify such statements. Forward-looking statements included in this report relate to, among other things, expected future production, expenses and cash flows, the nature, timing and results of capital expenditure projects, amounts of future capital expenditures, our future debt levels and liquidity, Venoco’s future ability to pay cash dividends and Venoco’s and Denver Parent Corporation’s compliance with obligations under their respective debt agreements. The expectations reflected in such forward-looking statements may prove to be incorrect. Disclosure of important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are included under the heading “Risk Factors” in this report and in the Venoco, Inc. / Denver Parent Corporation Annual Report on Form 10-K for the year ended December 31, 2014. Certain cautionary statements are also included elsewhere in this report, including, without limitation, in conjunction with the forward-looking statements. All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. We undertake no obligation to update any forward-looking statement. Factors that could cause actual results to differ materially from our expectations include, among others, those factors referenced in the “Risk Factors” section of this report and the Venoco, Inc. / Denver Parent Corporation Annual Report on Form 10-K for the year ended December 31, 2014 and such things as:

· changes in oil and natural gas prices, including reductions in prices that would adversely affect our revenues, income, cash flow from operations, liquidity and reserves;

· adverse conditions in global credit markets and in economic conditions generally;

· risks relating to the concentration of our properties in a limited number of areas in California;

· risks related to our indebtedness and a potential inability to effect deleveraging transactions or otherwise reduce those risks;

· our ability to replace oil and natural gas reserves;

· risks arising out of our hedging transactions;

· our inability to access oil and natural gas markets due to operational impediments, including as a result of the shutdown of the pipeline that transports production from Platform Holly;

· uninsured or underinsured losses in, or operational problems affecting, our operations;

· variable nature and uncertainty in reserve estimates and expected production rates;

· risks associated with litigation, arbitration or other legal proceedings that we are involved in, including the costs of participating in those proceedings and the risk of adverse outcomes;

· exploitation, development and exploration results, which will depend on, among other things, our ability to identify productive intervals and drilling and completion techniques necessary to achieve commercial production from those intervals;

· the consequences of changes we have made, or may make from time to time in the future, to our capital expenditure budget, including the impact of those changes on our production levels, reserves, results of operations and liquidity;

· challenges and difficulties in managing expenses, including expenses associated with asset retirement obligations;

· a lack of available capital and financing;

· the potential unavailability of drilling rigs and other field equipment and services;

· the existence of unanticipated liabilities or problems relating to acquired businesses or properties;

· difficulties involved in the integration of operations we have acquired or may acquire in the future;

· the effect of any business combination, joint venture or other significant transaction we may pursue or have pursued, or the costs of litigation related thereto, and purchase price or other adjustments in connection with such transactions that may be unfavorable to us;

1

· factors affecting the nature and timing of our capital expenditures;

· the impact and costs related to compliance with or changes in laws or regulations governing or affecting our operations, including changes resulting from the Deepwater Horizon well blowout in the Gulf of Mexico, from the Dodd-Frank Wall Street Reform and Consumer Protection Act or its implementing regulations, from regulations relating to greenhouse gas emissions and possible regulatory responses to the spill that resulted in the shutdown of the pipeline that transports Platform Holly production;

· delays, denials or other problems relating to our receipt of operational consents and approvals from governmental entities and other parties;

· environmental liabilities;

· loss of senior management or technical personnel;

· natural disasters, including severe weather;

· acquisitions and other business opportunities (or the lack thereof) that may be presented to and pursued by us;

· risk factors discussed in this report; and

· other factors, many of which are beyond our control.

EXPLANATORY NOTE

This Quarterly Report on Form 10-Q is a combined report being filed by Denver Parent Corporation (“DPC”) and Venoco, Inc. (“Venoco”), a direct 100% owned subsidiary of DPC. DPC is a holding company formed to acquire all of the common stock of Venoco in a going private transaction that was completed in October 2012. Unless otherwise indicated or the context otherwise requires, (i) references to “DPC” refer only to DPC, (ii) references to the “Company,” “we,” “our” and “us” refer, for periods following the going private transaction, to DPC and its subsidiaries, including Venoco and its subsidiaries, and for periods prior to the going private transaction, to Venoco and its subsidiaries and (iii) references to “Venoco” refer to Venoco and its subsidiaries. Each registrant included herein is filing on its own behalf all of the information contained in this quarterly report that pertains to such registrant. When appropriate, disclosures specific to DPC or Venoco are identified as such. Each registrant included herein is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information. Where the information provided is substantially the same for both companies, such information has been combined. Where information is not substantially the same for both companies, we have provided separate information. In addition, separate financial statements for each company are included in the Financial Statements section.

We operate DPC and Venoco as one business, with one management team. Management believes combining the Quarterly Reports on Form 10-Q of DPC and Venoco provides the following benefits:

· Enhances investors’ understanding of DPC and Venoco by enabling investors to view the business as a whole, the same manner in which management views and operates the business;

· Provides a more readable presentation of required disclosures with less duplication, since a substantial portion of the disclosures apply to both DPC and Venoco; and

· Creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

All of Venoco’s net assets are owned by DPC and all of DPC’s operations are conducted by Venoco.

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VENOCO, INC. AND SUBSIDIARIES AND DENVER PARENT

CORPORATION AND SUBSIDIARIES

Form 10-Q for the Quarterly Period Ended September 30,2015

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	4
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets at December 31, 2014 and September 30,2015	4
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30,2014 and the Three and Nine Months Ended September 30,2015	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30,2015	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30,2014 and the Nine Months Ended September 30,2015	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	37
PART II.	OTHER INFORMATION	38
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
Signatures		40

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

VENOCO, INC. AND SUBSIDIARIES AND DENVER PARENT
CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share amounts)

					Denver Parent
	Venoco, Inc.				Corporation
	December 31,		September 30,		December 31,		September 30,
	2014		2015		2014		2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	15,455	$	94,708	$	15,656	$	94,840
Restricted funds		—		79,588		—		79,588
Accounts receivable		14,912		9,979		14,912		9,979
Inventories		3,370		3,329		3,370		3,329
Other current assets		4,715		4,088		4,721		4,089
Commodity derivatives		48,298		37,240		48,298		37,240
Total current assets		86,750		228,932		86,957		229,065
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Oil and gas properties, full cost method of accounting
Proved		1,866,415		1,888,417		1,866,415		1,888,417
Unproved		8,360		8,536		8,360		8,536
Accumulated depletion		(1,400,738)		(1,757,603)		(1,400,738)		(1,757,603)
Net oil and gas properties		474,037		139,350		474,037		139,350
Other property and equipment, net of accumulated depreciation and amortization of $14,566 and $14,787 at December 31, 2014 and September 30, 2015, respectively		14,477		13,366		14,477		13,366
Net property, plant and equipment		488,514		152,716		488,514		152,716
OTHER ASSETS:
Commodity derivatives		29,793		6,558		29,793		6,558
Deferred loan costs		7,128		11,353		11,614		14,625
Other		4,069		4,277		4,069		4,277
Total other assets		40,990		22,188		45,476		25,460
TOTAL ASSETS	$	616,254	$	403,836	$	620,947	$	407,241
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	20,535	$	24,188	$	20,535	$	24,188
Interest payable		17,329		8,814		17,329		8,814
Share-based compensation		2,236		191		2,236		191
Total current liabilities		40,100		33,193		40,100		33,193
LONG-TERM DEBT		565,000		691,389		840,065		995,565
ASSET RETIREMENT OBLIGATIONS		30,351		33,076		30,351		33,076
SHARE-BASED COMPENSATION		648		463		648		463
Total liabilities		636,099		758,121		911,164		1,062,297
COMMITMENTS AND CONTINGENCIES (note 7)
STOCKHOLDERS’ EQUITY (DEFICIT):
Common stock, $.01 par value (200,000,000 shares authorized for Venoco and 100,000,000 shares for DPC; 29,936,378 Venoco shares issued and outstanding at December 31, 2014 and September 30, 2015; 30,297,459  DPC shares issued and outstanding at December 31, 2014 and September 30, 2015)		299		299		303		303
Additional paid-in capital		285,120		285,616		73,902		74,398
Retained earnings (accumulated deficit)		(305,264)		(640,200)		(364,422)		(729,757)
Total stockholders’ equity (deficit)		(19,845)		(354,285)		(290,217)		(655,056)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	616,254	$	403,836	$	620,947	$	407,241

See notes to condensed consolidated financial statements.

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VENOCO, INC. AND SUBSIDIARIES AND DENVER PARENT
CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands)

	Venoco, Inc.								Denver Parent Corporation
	Three Months Ended				Nine Months Ended				Three Months Ended				Nine months ended
	September 30,				September 30,				September 30,				September 30,
	2014		2015		2014		2015		2014		2015		2014		2015
REVENUES:
Oil and natural gas sales	$	57,242	$	10,646	$	186,343	$	49,712	$	57,242	$	10,646	$	186,343	$	49,712
Other		609		508		1,544		1,730		609		508		1,544		1,730
Total revenues		57,851		11,154		187,887		51,442		57,851		11,154		187,887		51,442
EXPENSES:
Lease operating expense		18,225		12,955		55,878		41,093		18,225		12,955		55,878		41,093
Production and property taxes		2,124		747		6,130		4,906		2,124		747		6,130		4,906
Transportation expense		51		54		157		147		51		54		157		147
Depletion, depreciation and amortization		11,759		4,260		34,729		20,315		11,759		4,260		34,729		20,315
Impairment		—		191,800		817		337,830		—		191,800		817		337,830
Accretion of asset retirement obligations		629		525		1,852		1,536		629		525		1,852		1,536
General and administrative, net of  amounts capitalized		1,352		5,890		19,004		19,597		1,403		5,890		19,394		19,666
Total expenses		34,140		216,231		118,567		425,424		34,191		216,231		118,957		425,493
Income (loss) from operations		23,711		(205,077)		69,320		(373,982)		23,660		(205,077)		68,930		(374,051)
FINANCING COSTS AND OTHER:
Interest expense, net		13,635		18,711		39,926		50,048		22,613		28,885		65,502		79,158
Amortization of deferred loan costs		887		973		2,583		3,060		1,151		1,656		3,338		4,280
Loss (gain) on extinguishment of debt		—		—		—		(67,515)		—		—		—		(67,515)
Commodity derivative losses (gains), net		(30,336)		(21,439)		(13,521)		(24,639)		(30,336)		(21,439)		(13,521)		(24,639)
Total financing costs and other		(15,814)		(1,755)		28,988		(39,046)		(6,572)		9,102		55,319		(8,716)
Income (loss) before income taxes		39,525		(203,322)		40,332		(334,936)		30,232		(214,179)		13,611		(365,335)
INCOME TAX PROVISION (BENEFIT)		—		—		—		—		—		—		—		—
Net income (loss)	$	39,525	$	(203,322)	$	40,332	$	(334,936)	$	30,232	$	(214,179)	$	13,611	$	(365,335)

See notes to condensed consolidated financial statements.

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VENOCO, INC. AND SUBSIDIARIES AND DENVER PARENT
CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)

VENOCO, INC. AND SUBSIDIARIES

						Retained
				Additional		Earnings
	Common Stock			Paid-in		(Accumulated
	Shares	Amount		Capital		Deficit)		Total
BALANCE AT DECEMBER 31, 2014	29,936		299		285,120		(305,264)		(19,845)
Excess of share-based compensation expense recognized over payments made	—		—		496		—		496
Net income (loss)	—		—		—		(334,936)		(334,936)
BALANCE AT SEPTEMBER 30, 2015	29,936	$	299	$	285,616	$	(640,200)	$	(354,285)

DENVER PARENT CORPORATION AND SUBSIDIARIES

						Retained
				Additional		Earnings
	Common Stock			Paid-in		(Accumulated
	Shares	Amount		Capital		Deficit)		Total
BALANCE AT DECEMBER 31, 2014	30,297		303		73,902		(364,422)		(290,217)
Excess of share-based compensation expense recognized over payments made					496		—		496
Net income (loss)	—		—		—		(365,335)		(365,335)
BALANCE AT SEPTEMBER 30, 2015	30,297	$	303	$	74,398	$	(729,757)	$	(655,056)

See notes to condensed consolidated financial statements.

6

VENOCO, INC. AND SUBSIDIARIES AND DENVER PARENT
CORPORATION ANDSUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	Venoco, Inc.				Denver Parent Corporation
	Nine Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2015		2014		2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	40,332	$	(334,936)	$	13,611	$	(365,335)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depletion, depreciation and amortization		34,729		20,315		34,729		20,315
Impairment		817		337,830		817		337,830
Accretion of asset retirement obligations		1,852		1,536		1,852		1,536
Share-based compensation		1,601		496		1,601		496
Interest paid-in-kind		—		9,105		16,916		36,892
Amortization of deferred loan costs		2,583		3,060		3,338		4,280
Loss (gain) on extinguishment of debt		—		(67,515)		—		(67,515)
Amortization of bond discounts and other		—		2,848		809		4,170
Unrealized commodity derivative (gains) losses and amortization of premiums		(22,931)		34,293		(22,931)		34,293
Changes in operating assets and liabilities:
Accounts receivable		4,869		4,933		5,030		4,933
Inventories		1,317		41		1,317		41
Other current assets		112		511		40		511
Other assets		1,815		(208)		1,815		(208)
Accounts payable and accrued liabilities		(8,128)		(9,335)		(19,884)		(9,335)
Share-based compensation liabilities		(24,348)		(2,230)		(24,348)		(2,230)
Net premiums paid on derivative contracts		—		—		—		—
Net cash provided by operating activities		34,620		744		14,712		674
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties		(75,836)		(16,125)		(75,836)		(16,125)
Acquisitions of oil and natural gas properties		(38)		(15)		(38)		(15)
Expenditures for other property and equipment		(512)		(169)		(512)		(169)
Proceeds provided by sale of oil and natural gas properties		—		1,846		—		1,846
Net cash (used in) investing activities		(76,386)		(14,463)		(76,386)		(14,463)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt		182,000		340,000		182,000		340,000
Principal payments on long-term debt		(122,000)		(155,000)		(122,000)		(155,000)
Payments for deferred loan costs		(371)		(14)		(496)		(14)
Debt issuance costs		—		(12,426)		—		(12,426)
Increase in restricted cash		—		(79,588)		—		(79,588)
Dividend to Denver Parent Corporation		(3,905)		—		—		—
Net cash provided by (used in) financing activities		55,724		92,972		59,504		92,972
Net (decrease) increase in cash and cash equivalents		13,958		79,253		(2,170)		79,183
Cash and cash equivalents, beginning of period		828		15,455		17,336		15,656
Cash and cash equivalents, end of period	$	14,786	$	94,708	$	15,166	$	94,840
Supplemental Disclosure of Cash Flow Information—
Cash paid for interest	$	51,172	$	44,277	$	70,749	$	44,277
Cash paid (received) for income taxes	$	—	$	—	$	—	$	—
Supplemental Disclosure of Noncash Activities—
(Decrease) increase in accrued capital expenditures	$	(3,823)	$	6,096	$	(3,823)	$	6,096
Excess of share-based compensation expense recognized over payments made	$	—	$	496	$	—	$	496

See notes to condensed consolidated financial statements.

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VENOCO, INC. AND SUBSIDIARIES AND DENVER PARENT

CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES

Description of Operations  Denver Parent Corporation, a Delaware corporation (“DPC”), was formed in January 2012 for the purpose of acquiring all of the outstanding common stock of Venoco, Inc., a Delaware corporation (“Venoco”), in a transaction referred to as the “going private transaction”. The going private transaction was completed in October 2012. DPC has no operations and no material assets other than 100% of the common stock of Venoco. Venoco is engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties with a focus on properties offshore and onshore in California.

Basis of Presentation  In 2011, Venoco’s board of directors received a proposal from its then‑chairman and chief executive officer, Timothy Marquez, to acquire all of the outstanding shares of common stock of Venoco of which he was not the beneficial owner for $12.50 per share in cash. On October 3, 2012, Mr. Marquez and certain of his affiliates, including DPC, completed the going private transaction and acquired all of the outstanding stock of Venoco. As a result, Venoco’s common stock is no longer publicly traded and Venoco is a wholly owned subsidiary of DPC. DPC is majority‑owned and controlled by Mr. Marquez and his affiliates.

This Quarterly Report on Form 10‑Q is a combined report being filed by DPC and Venoco. Unless otherwise indicated or the context otherwise requires, (i) references to “DPC” refer only to DPC, (ii) references to the “Company,” “we,” “our” and “us” refer, for periods following the going private transaction, to DPC and its subsidiaries, including Venoco and its subsidiaries, and for periods prior to the going private transaction, to Venoco and its subsidiaries and (iii) references to “Venoco” refer to Venoco and its subsidiaries. Each registrant included herein is filing on its own behalf all of the information contained in this report that pertains to such registrant. When appropriate, disclosures specific to DPC and Venoco are identified as such. Each registrant included herein is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information. Where the information provided is substantially the same for both companies, such information has been combined. Where information is not substantially the same for both companies, we have provided separate information. In addition, separate financial statements for each company are included in this report.

The unaudited condensed consolidated financial statements include the accounts of DPC and its subsidiaries, and Venoco and its subsidiaries. All such subsidiaries are wholly owned. The financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all material adjustments considered necessary for a fair presentation of the Company’s interim results have been reflected. All such adjustments are considered to be of a normal recurring nature. The Company has evaluated subsequent events and transactions for matters that may require recognition or disclosure in the financial statements. The Annual Report on Form 10‑K for the year ended December 31, 2014 for Venoco and DPC includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this report. The results for interim periods are not necessarily indicative of annual results.

In the course of preparing the condensed consolidated financial statements, management makes various assumptions, judgments and estimates to determine the reported amount of assets, liabilities, revenue and expenses, and in the disclosures of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts initially established.

Liquidity The additional indebtedness that  the Company  incurred  in connection with and following the going private  transaction has increased  debt-and liquidity-related risks. We have undertaken a variety of measures to reduce our indebtedness, including sales of our Sacramento Basin and West Montalvo properties for an aggregate price of approximately $450 million.  However, our deleveraging efforts have been impacted by various operational issues,

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including an extended shutdown of the pipeline that transports our South Ellwood field production in 2014 and an additional extended shutdown of the same pipeline resulting from a spill that occurred in the second quarter of 2015. Our deleveraging efforts have also been affected by the dramatic decline in the price of oil that occurred over the second half of 2014 and continuing low prices in 2015. As a result of the debt restructuring transaction in April 2015 (see note 2), Venoco’s revolving credit facility was terminated.  However, prior to that termination, the Company was required to obtain numerous amendments to and waivers from the lenders under the facility as a result of these factors. We may be forced to seek further amendments or waivers from current or future lenders, and there is no assurance that we will be able to obtain them in a timely manner or at all.  The April 2015 debt transactions resulted in an increase in our overall indebtedness, but improved our near term liquidity.  We are currently exploring additional deleveraging efforts and our planned capital expenditures for 2015 are significantly reduced relative to prior years.  However, there can be no assurance that any deleveraging efforts will be successful or that we will be able to maintain adequate liquidity and compliance with our debt and other obligations.

Income Taxes The Company computes its quarterly taxes under the effective tax rate method based on applying an anticipated annual effective rate to its year‑to‑date income or loss, except for discrete items. Income taxes for discrete items are computed and recorded in the period in which the specific transaction occurs.

As of December 31, 2014, DPC  has net operating loss carryovers  ("NOLs") of $499 million for federal  income  tax purposes and $459 million for financial reporting  purposes,  and Venoco  has net NOLs as of December 31, 2014 of $418 million for federal  income  tax purposes  and $377 million for financial reporting  purposes. The difference  between  the federal  income  tax NOLs and the financial reporting  NOLs of $40 million for DPC relates  to tax deductions for compensation expense  for financial reporting  purposes  for which the benefit  will not be recognized  until the related  deductions reduce taxes payable. The net operating loss carryovers may be carried back two years and forward twenty years from the year the net operating loss was generated. The net operating losses may be used to offset taxable income through 2034.

Venoco has incurred losses before income taxes in 2008, 2009, and 2012 as well as tax losses in each of the tax years from 2008 through 2013. DPC has incurred losses before income taxes in 2008, 2009, 2012, 2013 and 2014 as well as taxable losses in each of the tax years from 2008 through 2014. These  losses and expected  future  taxable losses were a key consideration that  led each of Venoco  and DPC  to provide  a full valuation  allowance  against  its net deferred tax assets as of December 31, 2014 and September 30, 2015, since it cannot  conclude  that  it is more  likely than  not that  its net deferred tax assets will be fully realized  on future  income  tax returns.

The ultimate  realization  of deferred tax assets is dependent upon  the generation of future  taxable income  during  the periods  in which those  temporary  differences  become  deductible.  At each reporting period,  management considers  the scheduled  reversal  of deferred tax liabilities, available taxes in carryback  periods,  tax planning  strategies  and projected  future  taxable income  in making this assessment.  Future  events or new evidence  which may lead the Company  to conclude  that  it is more likely than  not that  its net deferred tax assets will be realized  include,  but are not limited  to, cumulative  historical  pre-tax  earnings;  consistent  and sustained  pre-tax  earnings;  sustained  or continued improvements in oil and natural  gas commodity  prices; meaningful  incremental oil production and proved  reserves  from the Company’s development efforts  at its Southern California  legacy properties; consistent,  meaningful  production and proved  reserves  from the Company’s onshore  Monterey  shale project;  meaningful  production and proved  reserves  from the CO2  project  at the Hastings  Complex; and taxable events resulting  from one or more  deleveraging  transactions. The Company will continue to evaluate whether the valuation allowance is needed in future reporting periods.

As long as the Company  concludes  that  it will continue  to have a need  for a full valuation allowance  against  its net deferred tax assets, the Company  likely will not have any income  tax expense or benefit  other  than  for federal  alternative  minimum  tax expense,  a release  of a portion  of the valuation  allowance  for net operating loss carryback  claims or for state  income  taxes.

Oil and Gas Properties The Company performs a full-cost ceiling test on a quarterly basis. The test establishes a limit (ceiling) on the book value of oil and gas properties. The capitalized costs of oil and gas properties, net of accumulated depreciation, depletion and amortization (DD&A) and the related deferred income taxes, may not exceed

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this "ceiling." The ceiling limitation is equal to the sum of: (i) the present value of estimated future net revenues from the projected production of proved oil and gas reserves, excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet, calculated using the average oil and natural gas sales price received by the Company as of the first trading day of each month over the preceding twelve months (such prices are held constant throughout the life of the properties) and a discount factor of 10%; (ii) the cost of unproved and unevaluated properties excluded from the costs being amortized; (iii) the lower of cost or estimated fair value of unproved properties included in the costs being amortized; and (iv) related income tax effects. If capitalized costs exceed this ceiling, the excess is charged to expense in the accompanying consolidated statements of operations.

At September 30, 2015, capitalized costs exceeded the ceiling and the Company recorded an impairment of oil and gas properties of $192 million for the quarter ended September 30, 2015. During the nine months ended September 30, 2015, the company recorded impairment of $338 million.  The impairment was primarily due to continued low commodity prices, which resulted in a reduction of the discounted present value of the Company's proved oil and natural gas reserves.  We will likely be required to recognize additional impairments of oil and gas properties in future periods if we continue to experience an extended period of low commodity prices, which will result in a downward adjustment to our estimated proved reserves and the associated present value of estimated future net revenues, or if we incur actual development costs in excess of the estimated costs used in preparing our reserve reports.

Reclassifications  Certain amounts in prior years footnotes to the financials statements have been reclassified to the 2015 presentation. Reclassified amounts were not material to the financial presentation.

Recently Issued Accounting Standards  In May 2014, the FASB issued new authoritative accounting guidance related to the recognition of revenue.  This authoritative accounting  guidance  is effective for the annual  period  beginning  after  December 15, 2017, including  interim  periods  within that  reporting period,  and is to be applied  using one of two acceptable  methods.  The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s consolidated financial statements and disclosures.

In August  2014, the FASB issued ASU No. 2014-15, Presentation of Financial  Statements—Going Concern,  which requires  management to evaluate  whether  there  is substantial  doubt  about  an entity’s ability to continue  as a going concern  and provide  related  footnote  disclosures.  The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The standard allows for either a full retrospective or modified retrospective transition method.  The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s consolidated financials.

In April 2015, the FASB issued ASU 2015-03 to revise the presentation of debt issuance costs.Under ASU 2015-03, entities will present debt issuance costs in their balance sheet as a direct deduction from the related debt liability rather than as an asset.  Amortization of the deferred costs will continue to be included in interest expense. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2015.  Early adoption is permitted for financial statements that have not been previously issued.  The standard will be applied retrospectively to all prior periods.  The Company is currently evaluating provisions of this guidance and assessing its impact on the Company’s consolidated financials.

In August 2015, the FASB issued Accounting Standards Update 2015-15, “Interest — Imputation of Interest:  Presentation and Subsequent Measurement of Debt Issuance Associated with Line-of-Credit Arrangements” (“ASU 2015-15”).  ASU 2015-15 addresses debt issuance costs associated with line-of-credit arrangements by allowing an entity to defer and present such debt issuance costs as an asset regardless of whether there are any outstanding borrowings under the line-of-credit arrangement.  ASU 2015-15 is applied retrospectively and is effective for the Company beginning on January 1, 2016.  The Company does not believe the adoption of ASU 2015-15 will have a material impact on its financial position, results of operations or cash flows.

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2. DEBT

As of the dates indicated, the Company’s long‑term debt consisted of the following (in thousands):

	Venoco, Inc.				Denver Parent Corporation
	December 31,		September 30,		December 31,		September 30,
	2014		2015		2014		2015
Venoco revolving credit agreement due March 2016	$	65,000	$	—	$	65,000	$	—
Venoco 8.875% senior notes due February 2019		500,000		308,222		500,000		308,222
First lien secured 12% notes due February 2019		—		175,000		—		175,000
Second lien secured 8.875% / 12% PIK notes due February 2019(1)		—		133,843		—		133,843
Term loan facility due December 2017(2)		—		74,324		—		74,324
DPC 12.25% / 13.00% senior PIK toggle notes due August 2018(3)		—		—		275,065		304,176
Total long-term debt		565,000		691,389		840,065		995,565

(1) Amounts are net of $25.6  million unamortized discount at September 30, 2015

(2) Amounts are net of $0.7 million unamortized discount at September 30, 2015.

(3) Amounts are net of $4.6 million and $5.4 million unamortized discount at September 30, 2015 and December 31, 2014, respectively.

The Company recently completed a series of financing transactions in response to its indebtedness and liquidity situation.  On April 2, 2015, Venoco entered into agreements relating  to three new debt instruments: (i) first lien senior  secured  notes  with an aggregate  principal  amount  of $175 million (the " first lien secured  notes "), (ii) second  lien senior  secured  notes  with an aggregate  principal  amount  of $150 million (the " second lien secured  notes ") and (iii) a $75 million cash collateralized senior secured credit facility (the “term loan facility”).  The term loan facility was refinanced on June 11, 2015. Approximately $72 million of proceeds from the issuance of the first lien secured notes and the term loan facility were used to repay all amounts outstanding under Venoco’s revolving credit facility, which was then terminated. The second  lien secured  notes  were issued in exchange  for $194 million aggregate  principal  amount  of, and accrued  interest  on, Venoco’s outstanding 8.875% senior  notes  due 2019.The term loan facility was refinanced on June 11, 2015 with a new $75 million secured term loan facility (the “new term loan facility”).  The terms of the new debt instruments are summarized below. These transactions increased the Company’s indebtedness overall, but reduced its near-term cash interest expense and provided it with flexibility and additional liquidity that it intends to use to advance longer term projects. 

The following summarizes the terms of the agreements governing the Company’s debt outstanding as of September 30, 2015.

First lien secured notes. The first lien secured notes bear interest at 12% per annum and mature in February 2019. The indenture governing the first lien secured notes includes covenants customary for instruments of this type, including restrictions on Venoco's ability to incur additional indebtedness, create liens on its properties, pay dividends and make investments, in each case subject to exceptions. The covenants regarding the incurrence of additional indebtedness contain exceptions for, among other things, (i) up to $25 million of additional secured or unsecured indebtedness that may be issued or incurred in connection with certain projects approved by the holders of the notes, (ii) up to $50 million of additional second lien secured notes that may be issued in exchange for Venoco's outstanding 8.875% senior notes due 2019 and (iii) up to $150 million of additional third lien or unsecured indebtedness that may be issued or incurred in exchange for the Venoco's outstanding 8.875% senior notes or to fund acquisitions. The indenture also includes restrictions on capital expenditures and an operational covenant pursuant to which Venoco is generally required to maintain a specified level of production for each quarterly period until maturity. Other covenants are generally similar to those contained in the indenture governing the existing 8.875% senior notes. Venoco's obligations under the first lien secured notes are guaranteed by all of its subsidiaries other than Ellwood Pipeline, Inc. and secured

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by a first priority lien on substantially all of the assets of Venoco and the guarantors other than the cash collateral under the term loan facility. Venoco may redeem the first lien secured notes at a redemption price of 109% of the principal amount beginning on January 1, 2016 and declining to 100% by January 1, 2019.

Second lien secured notes. The second lien secured notes bear interest at 8.875% if paid in cash or 12% if paid in kind. Interest may be paid in cash or in kind, at Venoco's option, for semiannual interest periods commencing within 24 months following issuance. After the initial 24 month period, interest is payable in cash, but may become payable entirely in cash earlier upon the occurrence of certain events. The second lien secured notes mature in February 2019. The indenture governing the second lien secured notes includes covenants, and exceptions thereto, substantially similar to those set forth in the indenture governing the first lien secured notes. Venoco's obligations under the notes are guaranteed by Venoco's subsidiaries that guarantee the first lien secured notes and are secured by a second priority lien on the same assets securing its obligations under the first lien secured notes. Venoco may redeem the second lien secured notes on the same terms as the existing 8.875% senior notes.

Term loan facility. The term loan facility, which was fully drawn at closing, matures in December 2017. Amounts borrowed under the facility will bear interest at LIBOR plus 4.0% per annum. The facility contains representations, warranties and covenants typical for instruments of this type. Venoco's obligations under the term loan facility are secured by a first priority lien on cash collateral, which collateral may be released upon the occurrence of certain events, and are guaranteed by Venoco's subsidiaries that guarantee the first lien secured notes and second lien secured notes. The term facility was incurred under a term loan and security agreement dated as of June 11, 2015 among Venoco, the guarantors and the lenders party thereto.

Venoco 8.875% Senior Notes.  In February 2011, Venoco issued $500 million in 8.875% senior notes due in February 2019 at par. The notes pay interest semi‑annually in arrears on February 15 and August 15 of each year. Beginning February 15, 2015, Venoco may redeem the notes at a redemption price of 104.438% of the principal amount and declining to 100% by February 15, 2017. The notes are senior unsecured obligations and contain operational covenants that, among other things, limit Venoco’s ability to make investments, incur additional indebtedness, issue preferred stock, pay dividends, repurchase its stock, create liens or sell assets.

As part of the April 2, 2015 debt restructuring, $192 million of the 8.875% senior notes were redeemed and $2 million of accrued interest was extinguished. As of September 30, 2015, $308 million 8.875% senior notes are still outstanding.

DPC 12.25% / 13.00% Senior PIK Toggle Notes.  In August 2013, DPC issued $255 million principal amount of 12.25% / 13.00% senior PIK toggle notes due August 2018 at 97.304% of par. Interest on the notes is payable on February 15 and August 15 of each year, commencing February 15, 2014. The initial interest payment on the notes was required to be paid in cash. For  each interest period  after  the initial interest  period  (other  than  for the final interest  period  ending  at the stated maturity,  which will be paid in cash), DPC  will, in certain  circumstances,  be permitted to pay interest on the notes  by increasing  the principal  amount  of the notes  or issuing new notes  (collectively, “PIK interest”). Cash interest on the notes accrues at the rate of 12.25% per annum.  PIK interest on the notes accrues at the rate of  13.00% per annum until the next payment of cash interest.  The August 2014 interest payment was paid 25% in cash and 75% PIK interest, and the February and August 2015 interest payments were paid entirely as PIK interest.  DPC  is a holding  company that  owns no material  assets other  than  stock of Venoco;  accordingly, it will be able to pay cash interest  on its notes  only to the extent  that  it receives cash dividends  or distributions  from Venoco.  The notes are not currently guaranteed by any of DPC’s subsidiaries.  DPC may also redeem all or any part of the notes on and after August 15, 2015 at a redemption price of 106.125% of the principal amount and declining to 100% by August 15, 2017. The notes  are senior unsecured obligations  and contain  operational covenants  that,  among  other  things, limit the Company’s ability to make  investments,  incur additional indebtedness, issue preferred stock, pay dividends,  repurchase stock, create  liens or sell assets.

The Company accounted for the April 2015 second lien secured note debt exchange as a debt extinguishment. The Company recognized a gain of $68 million on the exchange, which is net of the write off of $4.5 million associated with debt issuances costs related to the Venoco’s revolving credit facility and 8.875% notes.  The gain is composed of $44 million related to the extinguishment plus an additional $28 million due to the difference between the carrying value

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and the fair value of the second lien notes on the date of the exchange. The $28 million was accounted for as a discount on the second lien note and will be amortized over the life of the debt through interest expense.  The gain is recorded in ‘Loss (gain) on extinguishment of debt’ in the condensed consolidated statements of operations (unaudited).

The Company was in compliance with all debt covenants at September 30, 2015.

3. HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS

Commodity Derivative Agreements.  The Company utilizes swap and collar agreements in an effort to hedge the effect of commodity price changes on its cash flows. The objective of the Company’s hedging activities and the use of derivative financial instruments is to achieve more predictable cash flows. While the use of these derivative instruments limits the downside risk of adverse price movements, they also may limit future cash flows from favorable price movements.  The Company may, from time to time, opportunistically restructure existing derivative  contracts  or enter  into new transactions to effectively modify the terms  of current  contracts  in order  to improve  the pricing parameters in existing contracts  or realize  the current  value of the Company’s existing positions.  The Company  may use the proceeds  from such transactions to secure  additional  contracts  for periods  in which the Company  believes it has additional  unmitigated commodity  price risk or for other  corporate purposes.

The use of derivatives involves the risk that the counterparties to such instruments will be unable to meet the financial terms of such contracts.  The Company generally has netting arrangements with the counterparties that provide for the offset of payables against receivables from separate derivative arrangements with that counterparty in the event of contract termination. The derivative contracts may be terminated by a non-defaulting party in the event of default by one of the parties to the agreement.

The components of commodity derivative losses (gains) in the condensed consolidated statements of operations are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2015		2014		2015
Realized commodity derivative losses (gains)	$	1,355	$	(16,840)	$	9,410	$	(58,932)
Unrealized commodity derivative losses (gains) for changes in fair value		(31,691)		(4,599)		(22,931)		34,293
Commodity derivative losses (gains), net	$	(30,336)	$	(21,439)	$	(13,521)	$	(24,639)

As of September 30, 2015, the Company had entered into certain swap and collar agreements related to its oil production. The aggregate economic effects of those agreements are summarized below. Location and quality differentials attributable to the Company’s properties are not included in the following prices. The agreements provide for monthly settlement based on the differential between the agreement price and the price per the applicable index, Inter-Continental Exchange Brent (“Brent”).

	Oil (Brent)
		Weighted Avg.
	Barrels/day	Prices per Bbl
January 1 - December 31, 2015:
Swaps	460	$	100.40
Collars	4,135	$	90.00	/	$	100.00
January 1 - December 31, 2016:
Swaps	1,715	$	96.00

In connection with the debt transaction that occurred in April 2015 Venoco unwound its 2016 derivative contract with ABN AMRO which hedged 1,715 bbls of our 2014 oil production.As a result we received $15.6 million in proceeds which contributed to the nine months ended September 30, 2015 realized gain of $58.9million.

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Fair Value of Derivative Instruments.The estimated fair values of derivatives included in the condensed consolidated balance sheets at September 30, 2015 and December 31, 2014 are summarized below. The net fair value of the Company’s derivatives decreased by $34.3 million from a net asset of $78.1 million at December 31, 2014 to a net asset of $43.8 million at September 30, 2015, primarily due to (i) changes in the futures  prices for oil, which are used in the calculation  of the fair value of commodity derivatives, (ii) settlement of commodity  derivative  positions  during  the current  period  and (iii) changes to the Company’s commodity  derivative  portfolio  in 2015. The Company does not offset asset and liability positions with the same counterparties within the financial statements; rather, all contracts are presented at their gross estimated fair value. As of the dates indicated, the Company’s derivative assets and liabilities are presented below (in thousands). These balances represent the estimated fair value of the contracts.  The Company has not designated any of its derivative contracts as cash-flow hedging instruments for accounting purposes.  The main headings represent the balance sheet captions for the contracts presented (in thousands).

	December 31,		September 30,
	2014		2015
Current Assets—Commodity derivatives:
Oil derivative contracts	$	48,298	$	37,240
Noncurrent Assets—Commodity derivatives:
Oil derivative contracts		29,793		6,558
Net derivative asset	$	78,091	$	43,798

4. ASSET RETIREMENT OBLIGATIONS

The following table summarizes the activities for the Company’s asset retirement obligations for the nine months ended September 30, 2014 and 2015 (in thousands):

	Nine Months Ended
	September 30,
	2014		2015
Asset retirement obligations at beginning of period	$	38,182	$	30,851
Revisions of estimated liabilities		(594)		1,789
Liabilities incurred or acquired		221		—
Liabilities settled or disposed		(599)		—
Accretion expense		1,852		1,536
Asset retirement obligations at end of period		39,062		34,176
Less: current asset retirement obligations (classified with accounts payable and accrued liabilities)		(500)		(1,100)
Long-term asset retirement obligations	$	38,562	$	33,076

The difference between the ending balance as of September 30, 2014 and the beginning balance 2015 is a result of the sale of the West Montalvo field.

Discount rates used to calculate the present value vary depending on the estimated timing of the obligation, but typically range between 4% and 9%.

5. SHARE‑BASED PAYMENTS

The Company has granted cash settlement or liability awards to officers, directors and certain employees of the Company including rights‑to‑receive awards (RTR), restricted share unit awards (RSUs), share appreciation rights (SARs) and ESOP restricted share units. The Company measures its liability awards based on the award’s fair value remeasured at each reporting date until the date of settlement. Compensation cost for each period until settlement is based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered at the reporting date). Changes in the fair value of a liability that occur after the end of the requisite service period are compensation cost in the period in which the changes occur. Any difference between the amount for which a liability award is settled and its fair value at the settlement date is an adjustment of compensation cost in the period of settlement.

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6. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. The FASB has established a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

The three levels of the fair value hierarchy are as follows:

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

Level 2—Pricing inputs  are other  than  quoted  prices in active markets  included  in level 1, but are either  directly or indirectly  observable  as of the reported date  and for substantially  the full term of the instrument. Inputs may include quoted prices for similar assets and liabilities. Level 2 includes those financial instruments that are valued using models or other valuation methodologies.

Level 3—Pricing inputs include significant inputs that are generally less observable from objective sources.  These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value of assets and liabilities and their placement within the fair value hierarchy levels. The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of September 30, 2015 (in thousands).

							Fair Value
							as of
							September 30,
	Level 1		Level 2		Level 3		2015
Assets (Liabilities):
Commodity derivative contracts	$	—	$	43,798	$	—	$	43,798
Share-based compensation		—		—		(556)		(556)

Derivative instruments. The Company’s commodity derivative instruments consist primarily of swaps and collars for oil. The Company  values the derivative  contracts  using industry  standard models,  based  on an income  approach, which considers  various assumptions  including  quoted  forward  prices and contractual prices for the underlying  commodities,  time value and volatility factors, as well as other  relevant economic  measures.  Substantially all of the assumptions can be observed throughout the full term of the contracts, can be derived from observable data or are supportable by observable levels at which transactions are executed in the marketplace and are therefore designated as level 2 within the fair value hierarchy.  The discount rates used in the assumptions include a component of non-performance risk. The Company utilizes the relevant counterparty valuations to assess the reasonableness of the calculated fair values.

Share‑based compensation.The Company’s current  share-based compensation liability includes  a liability for restricted  share  unit awards (RSUs),  share  appreciation rights (SARs)  and employee  stock ownership  plan unit awards (ESOP). The fair value of DPC common stock is a significant input for determining the share-based compensation amounts and the liability amounts for these cash settled awards. DPC is a privately held entity for which

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there is no available market price or principal market for DPC common shares.  Inputs for determining the fair market value of this instrument are unobservable and are therefore classified as Level 3 inputs.  The Company utilizes various valuation methods for determining the fair market value of this instrument including a net asset value approach, a comparable company approach, a discounted cash flow approach and a transaction approach. The Company’s estimate  of the value of DPC  shares  is highly dependent on commodity  prices, cost assumptions,  discount  rates,  oil and natural  gas proved  reserves,  overall market  conditions  and the identification of companies  and transactions that  are comparable to the Company’s operations and reserve  characteristics.  While some inputs  to the Company’s calculation  of fair value of DPC  shares  are from published  sources,  others,  such as reserve  values, the discount  rate  and expected  future  cash flows, are derived  from the Company’s own calculations  and estimates.  Significant changes in the unobservable inputs, summarized above, could result in a significantly different fair value estimate.

The grant date fair value of each SAR is estimated using the Black-Scholes valuation model.  The fair market value of DPC common shares is a significant input into the Black-Scholes valuation model. Valuation models require the input of highly subjective assumptions, including the expected volatility of the price of the underlying stock. DPC  shares  have characteristics significantly different  from those  of traded  shares,  and because  changes  in the subjective input  assumptions  can materially  affect the fair value estimate,  it is management’s  opinion  that  the valuations  afforded  by existing models are different from the value that  the shares  would realize  if traded  in the market.

The following table summarizes the changes in fair value of financial assets (liabilities), which represent primarily share-based compensation liabilities, designated as Level 3 in the valuation hierarchy (in thousands):

	Nine Months Ended
	September 30,
	2014		2015
Fair value liability, beginning of period	$	(20,928)	$	(1,038)
Transfers into Level 3(1)		(5,507)		(589)
Transfers out of Level 3(2)		5,555		566
Change in fair value of Level 3		9,322		505
Fair value liability, end of period	$	(11,558)	$	(556)

(1) The transfers into Level 3 liability during the first nine months of 2015 and 2014 relate to RSU, SAR and ESOP grants made by the Company to officers, directors and certain employees, and requisite service period expense.

(2) The transfers out of Level 3 liability during the first nine months of 2015 and 2014 relate to cash settlements of RSU grants, and forfeitures of RSU and SAR grants as a result of employee terminations.

Fair Value of Financial Instruments.The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable and payable, derivatives (discussed above) and long-term debt.  The carrying values of cash equivalents and accounts receivable and payable are representative of their fair values due to their short-term maturities.  The carrying amount of Venoco’s revolving credit facility and the term loan facility approximated fair value because the interest rates of these facilities were variable. The fair value of the Venoco senior notes and the DPC senior PIK toggle notes listed in the table below was derived from available market data (Level 1).  We used available market

16

data and valuation techniques (Level 2) to estimate the fair value of the first lien and second lien notes. This disclosure does not impact our financial position, results of operations or cash flows (in thousands).

	December 31, 2014				September 30, 2015
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Venoco:
Revolving credit agreement	$	65,000	$	65,000	$	—	$	—
Venoco 8.875% senior notes due February 2019		500,000		262,000		308,222		57,021
First lien secured 12% notes due February 2019		—		—		175,000		141,210
Second lien secured 8.875% / 12% PIK notes due February 2019		—		—		133,843		87,072
Term loan facility due December 2017		—		—		74,324		74,324
Denver Parent Corporation:
12.25% / 13.00% senior PIK toggle notes		275,065		120,369		304,176		14,633

Assets and Liabilities Measured on a Non‑recurring Basis.  The Company uses fair value to determine the value of its asset retirement obligations (“ARO”) at the point of inception. The inputs used to determine such fair value under the expected present value technique are primarily based upon internal estimates prepared by reservoir engineers for costs of dismantlement, removal, site reclamation and similar activities associated with the Company’s oil and gas properties and would be classified as Level 3 inputs.

7. CONTINGENCIES

In the ordinary course of our business we are named from time to time as a defendant in various legal proceedings. We maintain liability insurance and believe that our coverage is reasonable in view of the legal risks to which our business is subject.

Delaware Litigation—In August  2011 Timothy  Marquez,  the then-Chairman and CEO  of Venoco, submitted  a nonbinding  proposal  to the board  of directors  of Venoco  to acquire  all of the shares  of Venoco  he did not beneficially own for $12.50 per share  in cash (the “Marquez Proposal”). As a result of that  proposal, five lawsuits were filed in the Delaware  Court  of Chancery  in 2011 against  Venoco and each of its directors  by shareholders alleging that Venoco  and its directors  had breached  their fiduciary duties to the shareholders in connection with the Marquez  Proposal.  On January 16, 2012, Venoco entered into a Merger Agreement with Mr. Marquez and certain of his affiliates pursuant to which Venoco, Mr. Marquez and his affiliates would effect the going private transaction. Following announcement of the Merger Agreement, five additional suits were filed in Delaware and three suits were filed in federal court in Colorado naming as defendants Venoco and each of its directors.  In March 2013 the plaintiffs in Delaware filed a consolidated amended class action complaint in which they requested that  the court  determine among  other  things that  (i) the merger  consideration is inadequate and the Merger  Agreement was entered into in breach  of the fiduciary duties  of the defendants and is therefore unlawful and unenforceable and (ii) the merger  should  be rescinded  or in the alternative, the class should  be awarded  damages  to compensate them  for the loss as a resulting from of the breach  of fiduciary duties  by the defendants. The Colorado actions have been administratively closed pending resolution of the Delaware case. Venoco has reviewed the allegations contained in the amended complaint and believes they are without merit.  Trial is expected to occur in 2016.

Denbury Arbitration—In January  2013 Venoco  and its wholly owned subsidiary, TexCal Energy South  Texas, L.P. (“TexCal”), notified  Denbury  Resources, Inc. through  its subsidiary Denbury Onshore, LLC (“Denbury”) that  it was invoking the arbitration provisions contained in contracts between  TexCal and Denbury  pursuant to which TexCal conveyed its interest  in the Hastings  Complex to Denbury  and retained a reversionary  interest.  Denbury is obligated to convey the reversionary interest to TexCal at “payout” as defined in the contracts.  The dispute involves the calculation of the cost of CO2 delivered to the Hastings Complex which is used in Denbury’s enhanced oil recovery operations. The Company believes that Denbury has materially overcharged the payout account for the cost of CO2 and

17

the cost of transporting it to the Hastings Complex.  In December 2013, the three judge arbitration panel unanimously agreed with Venoco’s position.  In January 2014 Denbury requested that the arbitration panel modify its decision in a way that could increase the cost of CO2. In March 2014 the Arbitration Panel  modified  its original  award consistent  with the Company’s position  and awarded  the Company  approximately  $1.8 million in attorneys’  fees and costs incurred  in the arbitration. In late March 2014 Denbury appealed the arbitration ruling to the District Court for Harris County, Texas asking the court to vacate the arbitration award. On February 11, 2015 the District Court granted Venoco’s motion to confirm the arbitration award. In March 2015, Denbury filed a motion for a new trial with the District Court which was denied. Denbury appealed the case to the Texas Court of Appeals in May 2015.

Other— In addition, Venoco is a party from time to time to other claims and legal actions that arise in the ordinary course of business. Venoco believes that the ultimate impact, if any, of these other claims and legal actions will not have a material effect on its consolidated financial position, results of operations or liquidity.

8. Related Party Transactions

The Company has entered into a non-exclusive aircraft sublease agreement with TimBer, LLC, a company owned by Mr. Marquez and his wife. The Company incurred costs related to the agreement of $0.5 million and $0.5 million in the first nine months of 2014 and 2015, respectively.

9. GUARANTOR FINANCIAL INFORMATION

All subsidiaries of Venoco other than Ellwood Pipeline Inc. (“Guarantors”) have fully and unconditionally guaranteed, on a joint and several basis, Venoco’s obligations under its 8.875% senior notes, 12% senior secured notes and 8.875% senior secured notes. Ellwood Pipeline, Inc. is not a Guarantor (the “Non‑Guarantor Subsidiary”). The condensed consolidating financial information for prior periods has been revised to reflect the guarantor and non‑guarantor status of the Company’s subsidiaries as of September 30, 2015. All Guarantors are 100% owned by Venoco. Presented below are Venoco’s condensed consolidating balance sheets, statements of operations and statements of cash flows as required by Rule 3‑10 of Regulation S‑X of the Securities Exchange Act of 1934. There are currently no guarantors of DPC’s 12.25 %/ 13.00% senior PIK toggle notes.

18

CONDENSED CONSOLIDATING BALANCE SHEETS

AT DECEMBER 31, 2014 (Unaudited)

(in thousands)

					Non-
			Guarantor		Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	15,455	$	—	$	—	$	—	$	15,455
Accounts receivable		14,140		56		716		—		14,912
Inventories		3,370		—		—		—		3,370
Other current assets		4,715		—		—		—		4,715
Commodity derivatives		48,298		—		—		—		48,298
TOTAL CURRENT ASSETS		85,978		56		716		—		86,750
PROPERTY, PLANT & EQUIPMENT, NET		654,549		(184,362)		18,327		—		488,514
COMMODITY DERIVATIVES		29,793		—		—		—		29,793
INVESTMENTS IN AFFILIATES		563,401		—		—		(563,401)		—
OTHER		11,138		59		—		—		11,197
TOTAL ASSETS		1,344,859		(184,247)		19,043		(563,401)		616,254
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		20,535		—		—		—		20,535
Interest payable		17,329		—		—		—		17,329
Share-based compensation		2,236		—		—		—		2,236
TOTAL CURRENT LIABILITIES:		40,100		—		—		—		40,100
LONG-TERM DEBT		565,000		—		—		—		565,000
COMMODITY DERIVATIVES		—		—		—		—		—
ASSET RETIREMENT OBLIGATIONS		27,906		1,652		793		—		30,351
SHARE-BASED COMPENSATION		648		—		—		—		648
INTERCOMPANY PAYABLES (RECEIVABLES)		735,845		(655,326)		(80,555)		36		—
TOTAL LIABILITIES		1,369,499		(653,674)		(79,762)		36		636,099
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		(24,640)		469,427		98,805		(563,437)		(19,845)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	1,344,859	$	(184,247)	$	19,043	$	(563,401)	$	616,254

19

CONDENSED CONSOLIDATING BALANCE SHEETS

AT SEPTEMBER 30,2015 (Unaudited)

(in thousands)

					Non-
			Guarantor		Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	94,708	$	—	$	—	$	—	$	94,708
Restricted funds		79,588		—		—		—		79,588
Accounts receivable		9,451		48		480		—		9,979
Inventories		3,329		—		—		—		3,329
Other current assets		4,088		—		—		—		4,088
Commodity derivatives		37,240		—		—		—		37,240
TOTAL CURRENT ASSETS		228,404		48		480		—		228,932
PROPERTY, PLANT & EQUIPMENT, NET		319,457		(184,441)		17,700		—		152,716
COMMODITY DERIVATIVES		6,558		—		—		—		6,558
INVESTMENTS IN AFFILIATES		563,401		—		—		(563,401)		—
OTHER		15,571		59		—		—		15,630
TOTAL ASSETS		1,133,391		(184,334)		18,180		(563,401)		403,836
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		24,188		—		—		—		24,188
Interest payable		8,814		—		—		—		8,814
Commodity		—		—		—		—		—
Share-based compensation		191		—		—		—		191
TOTAL CURRENT LIABILITIES:		33,193		—		—		—		33,193
LONG-TERM DEBT		691,389		—		—		—		691,389
COMMODITY		—		—		—		—		—
ASSET RETIREMENT OBLIGATIONS		30,566		1,703		807		—		33,076
SHARE-BASED COMPENSATION		463		—		—		—		463
INTERCOMPANY PAYABLES (RECEIVABLES)		744,593		(655,691)		(88,938)		36		—
TOTAL LIABILITIES		1,500,204		(653,988)		(88,131)		36		758,121
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		(366,813)		469,654		106,311		(563,437)		(354,285)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	1,133,391	$	(184,334)	$	18,180	$	(563,401)	$	403,836

20

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30,2014 (Unaudited)

(in thousands)

			Guarantor		Non-‑Guarantor‑
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
REVENUES:
Oil and natural gas sales	$	56,953	$	289	$	—	$	—	$	57,242
Other		119		—		2,058		(1,568)		609
Total revenues		57,072		289		2,058		(1,568)		57,851
EXPENSES:
Lease operating expense		17,430		10		785		—		18,225
Production and property taxes		1,961		2		161		—		2,124
Transportation expense		1,520		4		—		(1,473)		51
Depletion, depreciation and amortization		11,524		27		208		—		11,759
Impairment of oil and gas properties		—		—		—		—		—
Accretion of asset retirement obligations		586		32		11		—		629
General and administrative, net of amounts capitalized		1,294		—		153		(95)		1,352
Total expenses		34,315		75		1,318		(1,568)		34,140
Income from operations		22,757		214		740		—		23,711
FINANCING COSTS AND OTHER:
Interest expense, net		15,168		—		(1,533)		—		13,635
Amortization of deferred loan costs		887		—		—		—		887
Loss on extinguishment of debt		—		—		—		—		—
Commodity derivative losses (gains), net		(30,336)		—		—		—		(30,336)
Total financing costs and other		(14,281)		—		(1,533)		—		(15,814)
Equity in subsidiary income		1,543		—		—		(1,543)		—
Income (loss) before income taxes		38,581		214		2,273		(1,543)		39,525
Income tax provision (benefit)		(944)		82		863		(1)		—
Net income (loss)	$	39,525	$	132	$	1,410	$	(1,542)	$	39,525

21

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30,2015 (Unaudited)

(in thousands)

			Guarantor		Non-‑Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
REVENUES:
Oil and natural gas sales	$	10,491	$	155	$	—	$	—	$	10,646
Other		127		—		1,402		(1,021)		508
Total revenues		10,618		155		1,402		(1,021)		11,154
EXPENSES:
Lease operating expense		12,261		7		687		—		12,955
Production and property taxes		584		1		162		—		747
Transportation expense		966		9		—		(921)		54
Depletion, depreciation and amortization		4,024		26		210		—		4,260
Impairment of oil and gas properties		191,800		—		—		—		191,800
Accretion of asset retirement obligations		487		34		4		—		525
General and administrative, net of amounts capitalized		5,865		—		124		(99)		5,890
Total expenses		215,987		77		1,187		(1,020)		216,231
Income (loss) from operations		(205,369)		78		215		(1)		(205,077)
FINANCING COSTS AND OTHER:
Interest expense, net		20,459		—		(1,748)		—		18,711
Amortization of deferred loan costs		973		—		—		—		973
Loss on extinguishment of debt		—		—		—		—		—
Commodity derivative losses (gains), net		(21,439)		—		—		—		(21,439)
Total financing costs and other		(7)		—		(1,748)		—		(1,755)
Equity in subsidiary income		1,266		—		—		(1,266)		—
Income (loss) before income taxes		(204,096)		78		1,963		(1,267)		(203,322)
Income tax provision (benefit)		(776)		30		746		—		—
Net income (loss)	$	(203,320)	$	48	$	1,217	$	(1,267)	$	(203,322)

22

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30,2014 (Unaudited)

(in thousands)

			Guarantor		Non-Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
REVENUES:
Oil and natural gas sales	$	185,413	$	930	$	—	$	—	$	186,343
Other		359		—		5,758		(4,573)		1,544
Total revenues		185,772		930		5,758		(4,573)		187,887
EXPENSES:
Lease operating expense		53,450		40		2,388		—		55,878
Production and property taxes		5,928		17		185		—		6,130
Transportation expense		4,437		10		—		(4,290)		157
Depletion, depreciation and amortization		34,027		79		623		—		34,729
Impairment of oil and gas properties		817		—		—		—		817
Accretion of asset retirement obligations		1,726		94		32		—		1,852
General and administrative, net of amounts capitalized		18,873		1		413		(283)		19,004
Total expenses		119,258		241		3,641		(4,573)		118,567
Income from operations		66,514		689		2,117		—		69,320
FINANCING COSTS AND OTHER:
Interest expense, net		44,378		—		(4,452)		—		39,926
Amortization of deferred loan costs		2,583		—		—		—		2,583
Loss on extinguishment of debt		—		—		—		—		—
Commodity derivative losses (gains), net		(13,521)		—		—		—		(13,521)
Total financing costs and other		33,440		—		(4,452)		—		28,988
Equity in subsidiary income		4,501		—		—		(4,501)		—
Income (loss) before income taxes		37,575		689		6,569		(4,501)		40,332
Income tax provision (benefit)		(2,757)		262		2,496		(1)		—
Net income (loss)	$	40,332	$	427	$	4,073	$	(4,500)	$	40,332

23

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30,2015 (Unaudited)

(in thousands)

			Guarantor		Non-‑Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
REVENUES:
Oil and natural gas sales	$	49,244	$	468	$	—	$	—	$	49,712
Other		375		—		5,849		(4,494)		1,730
Total revenues		49,619		468		5,849		(4,494)		51,442
EXPENSES:
Lease operating expense		38,874		34		2,185		—		41,093
Production and property taxes		4,672		2		232		—		4,906
Transportation expense		4,321		26		—		(4,200)		147
Depletion, depreciation and amortization		19,609		78		628		—		20,315
Impairment of oil and gas properties		337,830		—		—		—		337,830
Accretion of asset retirement obligations		1,420		102		14		—		1,536
General and administrative, net of amounts capitalized		19,532		—		358		(293)		19,597
Total expenses		426,258		242		3,417		(4,493)		425,424
Income from operations		(376,639)		226		2,432		(1)		(373,982)
FINANCING COSTS AND OTHER:
Interest expense, net		55,121		—		(5,073)		—		50,048
Amortization of deferred loan costs		3,060		—		—		—		3,060
Loss (gain) on extinguishment of debt		(67,515)		—		—		—		(67,515)
Commodity derivative losses (gains), net		(24,639)		—		—		—		(24,639)
Total financing costs and other		(33,973)		—		(5,073)		—		(39,046)
Equity in subsidiary income		4,794		—		—		(4,794)		—
Income (loss) before income taxes		(337,872)		226		7,505		(4,795)		(334,936)
Income tax provision (benefit)		(2,938)		86		2,852		—		—
Net income (loss)	$	(334,934)	$	140	$	4,653	$	(4,795)	$	(334,936)

24

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30,2014 (Unaudited)

(in thousands)

					Non-
			Guarantor		Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities	$	26,172	$	885	$	7,563	$	—	$	34,620
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties		(75,774)		9		(71)		—		(75,836)
Acquisitions of oil and natural gas properties		(38)		—		—		—		(38)
Expenditures for property and equipment and other		(512)		—		—		—		(512)
Proceeds from sale of oil and natural gas properties		—		—		—		—		—
Net cash provided by (used in) investing activities		(76,324)		9		(71)		—		(76,386)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) intercompany borrowings		8,386		(894)		(7,492)		—		—
Proceeds from long-term debt		182,000		—		—		—		182,000
Principal payments on long-term debt		(122,000)		—		—		—		(122,000)
Payments for deferred loan costs		(371)		—		—		—		(371)
Dividend paid to Denver Parent Corporation		(3,905)		—		—		—		(3,905)
Net cash provided by (used in) financing activities		64,110		(894)		(7,492)		—		55,724
Net increase (decrease) in cash and cash equivalents		13,958		—		—		—		13,958
Cash and cash equivalents, beginning of period		828		—		—		—		828
Cash and cash equivalents, end of period	$	14,786	$	—	$	—	$	—	$	14,786

25

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30,2015 (Unaudited)

(in thousands)

					Non-
			Guarantor		Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities	$	(8,053)	$	414	$	8,383	$	—	$	744
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties		(16,076)		(49)		—		—		(16,125)
Acquisitions of oil and natural gas properties		(15)		—		—		—		(15)
Expenditures for property and equipment and other		(169)		—		—		—		(169)
Proceeds from sale of oil and natural gas properties		1,846		—		—		—		1,846
Net cash provided by (used in) investing activities		(14,414)		(49)		—		—		(14,463)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) intercompany borrowings		8,748		(365)		(8,383)		—		—
Proceeds from long-term debt		340,000		—		—		—		340,000
Principal payments on long-term debt		(155,000)		—		—		—		(155,000)
Payments for deferred loan costs		(14)		—		—		—		(14)
Debt Issuance Costs		(12,426)		—		—		—		(12,426)
Increased in restricted cash		(79,588)		—		—		—		(79,588)
Dividend paid to Denver Parent Corporation		—		—		—		—		—
Net cash provided by (used in) financing activities		101,720		(365)		(8,383)		—		92,972
Net increase (decrease) in cash and cash equivalents		79,253		—		—		—		79,253
Cash and cash equivalents, beginning of period		15,455		—		—		—		15,455
Cash and cash equivalents, end of period	$	94,708	$	—	$	—	$	—	$	94,708

26

ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operation

This Quarterly Report on Form 10-Q is a combined report being filed by Denver Parent Corporation (“DPC”) and Venoco, Inc. (“Venoco”), a direct 100% owned subsidiary of DPC. DPC is a holding company formed to acquire all of the common stock of Venoco in a going private transaction that was completed in October 2012. Unless otherwise indicated or the context otherwise requires, (i) references to “DPC” refer only to DPC, (ii) references to the “company,” “we,” “our” and “us” refer, for periods following the going private transaction, to DPC and its subsidiaries, including Venoco and its subsidiaries, and for periods prior to the going private transaction, to Venoco and its subsidiaries and (iii) references to “Venoco” refer to Venoco and its subsidiaries. See “Explanatory Note” immediately preceding Part I of this report. Venoco and DPC are filing this combined report to satisfy reporting requirements under the indentures governing their respective senior notes.

The following discussion and analysis should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the Venoco / DPC Annual Report on Form 10-K for the year ended December 31, 2014 as well as with the financial statements and related notes and the other information appearing elsewhere in this report.

Overview

We are an independent energy company primarily engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties. Our strategy is to grow through exploration, exploitation and development projects we believe to have the potential to add significant reserves on a cost effective basis and through selective acquisitions of underdeveloped properties. In the execution of our strategy, our management is principally focused on economically developing additional reserves and on maximizing production levels through exploration, exploitation and development activities in a manner consistent with preserving adequate liquidity and financial flexibility.

Our financial results depend on many factors, but are largely driven by the volume of our oil production and the price that we receive for that production.  Since the latter half of 2014 there has been a substantial decline in oil prices and our production has been significantly impacted by a shut-down of the third-party common carrier pipeline that transports oil from Platform Holly. 

Material Trends and Uncertainties

On May 19, 2015, the third-party common carrier pipeline that transports oil production from Platform Holly in the South Ellwood field ruptured, resulting in a spill near Refugio Beach State Park.  The affected pipeline, in Santa Barbara County, is currently inoperable due to the spill and related ongoing repairs.  As a result, we have been forced to halt production activities at Platform Holly in response to the incident.  The pipeline operator has stated that until the required metallurgical and root cause analyses are completed, it will be unable to address the timing of returning the pipeline to service.  We are currently in the process of evaluating alternatives that would allow us to return to production prior to the pipeline returning to service. At the time of this filing, we do not anticipate returning Platform Holly to service in 2015.

Production from Platform Holly accounts for approximately half of the Company’s total production and therefore the shut-down has had a significant impact on our operating cash flows.  We have taken measures to reduce the expenses associated with maintaining the platform and the Ellwood on-shore facility while we are not producing, including obtaining permits from the State of California to reduce the number of employees required to operate.  However, there are still significant operating expenses associated with the platform and the on-shore facility that we must incur while production is shut in.

In the third quarter of 2014 our application to adjust the lease line at the South Ellwood field was deemed complete by the California State Lands Commission (“CSLC”). The application is subject to review by the CSLC under the California Environmental Quality Act (“CEQA”). In May 2015 CSLC initiated efforts relating to the environmental impact review (“EIR”) and related report as required by CEQA.  The scope of the EIR includes evaluating major environmental issues associated with the adjustment such as hazardous materials and risk of upset, air quality,

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greenhouse gases and a number of other issues, as well as a number of project alternatives.  We anticipate a draft of the EIR to be issued in the first quarter 2016, but it could be longer. Our application may not be granted on the terms we request or at all.

Operations Update

South Ellwood

As discussed above Platform Holly has been shut-in due to the rupture that occurred on the  third-party common carrier pipeline in May 2015.  In response to the shut-in the Company has tried to take advantage of the downtime by performing the normal annual maintenance which usually requires a three week shut-down of the platform.  The Company also accelerated a number of items that were scheduled to be performed in 2016 in an effort to minimize downtime as much as possible when the pipeline returns to operation.

Capital expenditures at South Ellwood were $0.9 million and $1.6 million, for the three and nine months ended September 2015, respectively.  We have focused our capital spending at South Ellwood primarily on operational improvements, regulatory, health, safety, and environmental compliance, as well as progressing other long-lead time projects.

Sockeye Field

As a result of the financing received in April, the Company decided to proceed with a drilling program at Platform Gail.  Two wells were drilled in to the M2 zone in the first nine months of 2015.  The first well was completed in September and the second well was completed in October.  The Company is continuing to perform a number of additional downhole engineering operations to maximize the productive capabilities of each well.

Capital expenditures at the Sockeye Field were $10.0 million and $11.1 million, for the three and nine months ended September 2015, respectively.  The majority of the capital spending at the field was primarily on drilling and completion costs related to our 2015 drilling program. 

Trends Affecting our Results of Operations

Our revenue, profitability and future growth rate depend substantially on factors beyond our control, such as economic, political and regulatory developments, as well as competition from other sources of energy. Oil and natural gas prices historically have been volatile and may fluctuate widely in the future. Sustained periods of low prices for oil or natural gas could materially and adversely affect our financial position, our results of operations, our cash flows, the quantities of oil and natural gas reserves that we can economically produce and our access to capital.

We generally hedge a portion of our expected future oil and gas production to reduce our exposure to fluctuations in commodity price. By removing a portion of commodity price volatility, we expect to reduce some of the variability in our cash flow from operations. See “Item 3. — Quantitative and Qualitative Disclosures About Market Risk — Commodity Price Exposure” for discussion of our hedging and hedge positions.  We plan to continue our strategy of hedging the risks associated with commodity price volatility; however, given the current low commodity price environment, we may limit the extent of our hedging program in the near-term.

Like all businesses engaged in the exploration and production of oil and natural gas, we face the challenge of natural production declines. As initial reservoir pressures are depleted, oil and natural gas production from any given well is expected to decline. As a result, oil and natural gas exploration and production companies deplete their asset base with each unit of oil or natural gas they produce. We attempt to overcome this natural production decline by developing additional reserves through our drilling operations, acquiring additional reserves and production and implementing secondary recovery techniques. Our future growth will depend on our ability to enhance production levels from our existing reserves and to continue to add reserves in excess of production. We will maintain our focus on the capital investments necessary to produce our reserves as well as to add to our reserves through drilling and acquisitions. Our

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ability to make the necessary capital expenditures is dependent on cash flow from operations as well as our ability to obtain additional debt and equity financing. That ability can be limited by many factors, including the cost and terms of such capital and operational considerations.

Results of Operations

The following table reflects the components of our oil and natural gas production and sales prices, and our operating revenues, costs and expenses, for the periods indicated. No pro forma adjustments have been made for the acquisitions and divestitures of oil and natural gas properties, which will affect the comparability of the data below. The

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information set forth below is not necessarily indicative of future results. Except for the items identified below as being specific to Venoco or DPC, all information shown is for both companies.

	Three Months Ended				Quarter		Nine Months Ended				YTD
	September 30,				Comparison		September 30,				Comparison
Venoco	2014		2015		$ Change		2014		2015		$ Change
REVENUES:
Oil and natural gas sales	$	57,242	$	10,646	$	(46,596)	$	186,343	$	49,712	$	(136,631)
Other		609		508		(101)		1,544		1,730		186
Total revenues		57,851		11,154		(46,697)		187,887		51,442		(136,445)
EXPENSES:
Lease operating expense		18,225		12,955		(5,270)		55,878		41,093		(14,785)
Production and property taxes		2,124		747		(1,377)		6,130		4,906		(1,224)
Transportation expense		51		54		3		157		147		(10)
Depletion, depreciation and amortization		11,759		4,260		(7,499)		34,729		20,315		(14,414)
Impairment		—		191,800		191,800		817		337,830		337,013
Accretion of asset retirement obligations		629		525		(104)		1,852		1,536		(316)
General and administrative, net of  amounts capitalized		1,352		5,890		4,538		19,004		19,597		593
Total expenses		34,140		216,231		182,091		118,567		425,424		306,857
Income (loss) from operations		23,711		(205,077)		(228,788)		69,320		(373,982)		(443,302)
FINANCING COSTS AND OTHER:
Interest expense, net		13,635		18,711		5,076		39,926		50,048		10,122
Amortization of deferred loan costs		887		973		86		2,583		3,060		477
Loss (gain) on extinguishment of debt		—		—		—		—		(67,515)		(67,515)
Commodity derivative losses (gains), net		(30,336)		(21,439)		8,897		(13,521)		(24,639)		(11,118)
Total financing costs and other		(15,814)		(1,755)		14,059		28,988		(39,046)		(68,034)
Net income (loss)	$	39,525	$	(203,322)	$	(242,847)	$	40,332	$	(334,936)	$	(375,268)
DPC
General and administrative, net of  amounts capitalized	$	1,403	$	5,890	$	4,487	$	19,394	$	19,666	$	272
Interest expense, net		22,613		28,885		6,272		65,502		79,158		13,656
Production Volume(1):
Oil (MBbls)		642		250		(392)		1,978		1,161		(817)
Natural gas (MMcf)		202		73		(129)		702		351		(351)
MBOE(2)		676		262		(414)		2,095		1,220		(875)
Daily Average Production Volume:
Oil (Bbls/d)		6,978		2,717		(4,261)		7,245		4,253		(2,992)
Natural gas (Mcf/d)		2,196		793		(1,403)		2,571		1,286		(1,285)
BOE/d(2)		7,344		2,849		(4,495)		7,674		4,467		(3,207)
Oil Price per Bbl Produced (in dollars):
Realized price	$	87.84	$	42.03	$	(45.81)	$	92.74	$	42.86	$	(49.88)
Realized commodity derivative gain (loss)		(2.14)		67.36		69.50		(4.77)		50.76		55.53
Net realized price	$	85.70	$	109.39		23.69	$	87.97	$	93.62		5.65
Natural Gas Price per Mcf Produced (in dollars):
Realized price	$	4.98	$	3.33	$	(1.65)	$	5.51	$	3.17	$	(2.34)
Realized commodity derivative gain (loss)		0.11		—		(0.11)		0.03		—		(0.03)
Net realized price	$	5.09	$	3.33		(1.76)	$	5.54	$	3.17		(2.37)
Expense per BOE:
Lease operating expenses	$	26.96	$	49.45	$	22.49	$	26.67	$	33.68	$	7.01
Production and property taxes		3.14		2.85		(0.29)		2.93		4.02		1.10
Transportation expenses		0.08		0.21		0.13		0.07		0.12		0.05
Depletion, depreciation and amortization		17.39		16.26		(1.14)		16.58		16.65		0.07
Venoco:
General and administrative expense, net(3)	$	2.00	$	22.48	$	20.48	$	9.07	$	16.06	$	6.99
Interest expense, net		20.17		71.42		51.25		19.06		41.02		21.97
Denver Parent Corporation:
General and administrative expense, net(3)	$	2.08	$	22.48	$	20.41	$	9.26	$	16.12	$	6.86
Interest expense, net		33.45		110.25		76.80		31.27		64.88		33.62

(1) Amounts shown are oil production volumes for offshore properties and sales volumes for onshore properties (differences between onshore production and sales volumes are minimal). Revenue accruals are adjusted for actual sales volumes since offshore oil inventories can vary significantly from month to month based on pipeline inventories and oil pipeline sales nominations.

(2) BOE is determined using the ratio of one barrel of oil or natural gas liquids to six Mcf of natural gas.

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(3) Net of amounts capitalized.

Comparison of Quarter Ended September 30, 2015 to Quarter Ended September 30,2014 and Nine Months Ended September 30,2015 to Nine Months Ended September 30,2014

Oil and Natural Gas Sales – Third quarter (“Q3”) 2014 to Q3 2015 decreased 81%, year to date (“YTD”) 2014 vs YTD 2015 decreased 73% due to the:

· Substantial decline in commodity prices; and

· Decline in production due to:

o The sale of West Montalvo in the fourth quarter of 2014.

o Shut-in of Platform Holly since May 2015 due to the rupture of the third-party pipeline.

Other Revenues - Q3 2014 to Q3 2015 decreased 17%, YTD 2014 vs YTD 2015 increased 12% due to the following factors:

· The decrease in the third quarter is a result of a reduction in the pipeline revenue due to the shut-in of Platform Holly.

· The overall increase year to date is due to increased tariff rates for the Carpinteria, Ventura and Las Flores pipelines.

Lease Operating Expenses.Q3 2014 to Q3 2015 decreased 29%, YTD 2014 vs YTD 2015 decreased 26% due to the:

· Cost reduction efforts as a result of the depressed commodity prices.

· Sale of West Montalvo in the fourth quarter of 2014.

· Shut-in of platform Holly since May 2015.  As a result of the shut-in we have been able to reduce our variable costs associated with both the platform and the Ellwood on-shore facility.

Property and Production Taxes.Q3 2014 to Q3 2015 decreased 65%, YTD 2014 vs YTD 2015 decreased 20% due to the sale of the West Montalvo field in the fourth quarter of 2014 and lower production and property assessments at South Ellwood as of January 1, 2015.

Depletion, Depreciation and Amortization (DD&A).Q3 2014 to Q3 2015 decreased 64%, YTD 2014 vs YTD 2015 decreased 42% due to the reduction in the Company’s asset base from the sale of West Montalvo properties in the fourth quarter of 2014 and ceiling test impairments in 2015.

Impairment of oil and gas properties.  We recorded pre-tax impairment expense related to our oil and natural gas properties of $191.8 million and $337.8 million for the three months ended and nine months ended September 30, 2015, respectively, as a result of our full-cost ceiling test. Under the full cost method, we are subject to quarterly calculations of a ceiling or limitation on the amount of costs associated with our oil and natural gas properties that can be capitalized in our condensed consolidated balance sheets. The impairment expense for both the quarter ended and year to date September 30, 2015 was due to a decrease in the value of our proven oil and natural gas reserves as a result of an extended period of low commodity prices.  We will likely be required to recognize additional impairments of oil and gas properties in future periods if we continue to experience an extended period of low commodity prices, which will result in a downward adjustment to our estimated proved reserves and the associated present value of estimated future net revenues, or if we incur actual development costs in excess of the estimated costs used in preparing our reserve reports.

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General and Administrative (G&A).  The following table summarizes the components of Venoco’s general and administrative expense incurred during the periods indicated (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2015		2014		2015
General and administrative costs	$	8,374	$	8,636	$	28,343	$	27,748
Share-based compensation costs		(6,173)		161		(3,055)		(105)
One time general and administrative						3,024		—
General and administrative costs capitalized		(849)		(2,907)		(9,308)		(8,046)
General and administrative expense	$	1,352	$	5,890	$	19,004	$	19,597

Venoco’s Q3 2014 to Q3 2015 G&A expense, net of capitalized amounts increased significantly due to the fees associated with the Company’s ongoing restructuring efforts combined with the reduction of share-based compensation costs in the third quarter of 2014 due to a reduction in the DPC share price.  The share price reduction in the third quarter of 2014 also impacted the amount of general and administrative costs that were capitalized.

Venoco’s YTD 2014 to YTD 2015 G&A expense, net of capitalized amounts increased as a result of the fees associated with the Company’s ongoing restructuring efforts offset by costs savings achieved due to the Q3 2014 reduction in force. As noted above the share-based compensation costs in the third quarter of 2014 were due to a reduction in the DPC share price.  The share price reduction in the third quarter of 2014 also impacted the amount of general and administrative costs that were capitalized.

Interest Expense.  Venoco’s Q3 2014 to Q3 2015 interest expense increased 37%and YTD 2014 vs YTD 2015 increased 25% due to the increase in the total amount of outstanding debt as a result of the April 2015 financing transaction. For DPC, Q3 2014 to Q3 2015 interest expense increased 28% and YTD 2014 vs YTD 2015 increased 21% due to the increase in the total amount of outstanding debt as a result of the PIK interest additions on the DPC’s 12.25% / 13.00% senior PIK toggle notes.

Amortization of Deferred Loan Costs.Q3 2014 to Q3 2015 amortization of deferred loan costs increased 10% and YTD 2014 vs YTD 2015 increased 18% due to the costs associated with the new loan agreements which are amortized over the estimated lives of the agreements.

Commodity Derivative Losses (Gains), Net.  The following table sets forth the components of commodity derivative losses (gains), net in our condensed consolidated statements of operations for the periods indicated (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2015		2014		2015
Realized commodity derivative (gains) losses	$	1,355	$	(16,840)	$	9,410	$	(58,932)
Unrealized commodity derivative (gains) losses for changes in fair value		(31,691)		(4,599)		(22,931)		34,293
Commodity derivative (gains) losses	$	(30,336)	$	(21,439)	$	(13,521)	$	(24,639)

Realized commodity derivative gains or losses represent the difference between the strike prices in the contracts settled during the period and the ultimate settlement prices. The realized commodity derivative gains in the third quarter and year to date 2015 reflect the settlement of contracts at prices below the relevant strike prices. Unrealized commodity derivative (gains) losses represent the change in the fair value of our open derivative contracts from period to period. Derivative premiums are amortized over the term of the underlying derivative contracts.

Income Tax Expense (Benefit).  Due to our valuation allowance, there was no income tax expense (benefit) recorded for the quarter and year to date ended September 30, 2015 or 2014. As long as we continue to conclude that we

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have a need for a full valuation allowance against our net deferred tax assets, we likely will not have any income tax expense or benefit other than for federal alternative minimum tax expense or for state income taxes.

Net Income (Loss).  For Venoco, net loss for the third quarter of 2015 was $203.3 million compared to the net income of $39.5 million for the same period in 2014. For DPC, net loss for the third quarter of 2015 was $214.1 million compared to the net income of $30.2 million for the same period in 2014. The changes between periods are the result of the items discussed above.

Liquidity and Capital Resources

Venoco’s primary sources of liquidity are cash generated from our operations and proceeds from debt transactions. In addition, Venoco has commodity derivative positions with a net asset value of $43.8 million as of September 30, 2015. If unwound, these positions could provide an additional source of liquidity subject to the commodity price environment at the relevant time. Venoco unwound one position on April 2, 2015, which hedged 1,715 barrels per day of our 2016 oil production, receiving proceeds of $15.6 million. DPC’s primary sources of liquidity are distributions from Venoco and the issuance of debt securities.

Cash Flows

	Venoco, Inc.				Denver Parent Corporation
	Nine Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2015		2014		2015
Cash provided by operating activities	$	34,620	$	744	$	14,712	$	674
Cash provided by (used in) investing activities		(76,386)		(14,463)		(76,386)		(14,463)
Cash provided by (used in) financing activities		55,724		92,972		59,504		92,972

Net cash provided by operating activities for Venoco was $0.7 million in the firstnine months of 2015 compared to net cash provided by operating activities of $34.6 million in the 2014 period. Cash flows provided by operating activities in the first nine months of 2015 as compared to cash flows provided by operating activities in the nine months of 2014 were impacted by the lower oil prices, and the effect of shutting in Platform Holly due to the pipeline spill.

Net cash provided by operating activities for DPC was $0.7 million in the first nine months of 2015 compared to $14.7 million provided in the 2014 period. The difference in the amounts between Venoco and DPC relates to additional DPC amortization of bond discounts and deferred loan costs.

Net cash used in investing activities for Venoco and DPC was $14.5 million in the first nine months of 2015 compared to net cash used by investing activities of $76.4 million in the 2014 period. The primary investing activities in the first nine months of 2015 were $16.1 million in capital expenditures on oil properties related to our capital expenditure program, partially offset by $1.8 million received from the final settlement from the sale of Montalvo and certain other assets. The primary investing activities in the first nine months of 2014 were $76.0 million in capital expenditures on oil properties related to our capital expenditure program.

Net cash provided by financing activities for Venoco was $93.0 million in the first nine months of 2015 compared to net cash provided by financing activities of $55.7 million during the 2014 period. The primary financing activities in the first nine months of 2015 were borrowings of $340 million and payments of $155 million. The primary financing activities in the first nine months of 2014 were net borrowings of $60 million on the revolving credit facility and a divided paid to DPC of $3.9 million.

Capital Resources and Requirements

Our current 2015 capital expenditure budget is $33 million. This amount is substantially less than it has been in past years and is reflective of current market and economic conditions. We previously expected our 2015 capital

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expenditures to be devoted primarily to operational improvements, regulatory, health, safety and environmental compliance and progressing other long lead-time projects. However, as a result of the April 2015 financing transactions which, reduced our near-term cash interest expense, and provided us with flexibility and additional liquidity to advance longer term projects, we decided to proceed with drilling two wells in 2015. 

The aggregate levels of capital expenditures in 2015, and the allocation of those expenditures, are dependent on a variety of factors, including changes in commodity prices, permitting matters, the availability of capital resources to fund the expenditures and changes in our business assessments as to where our capital can be most profitably employed. Accordingly, the actual levels of capital expenditures and the allocation of those expenditures may vary materially from our estimates. Our other principal anticipated uses of cash are ongoing operating expenses and interest payments on our indebtedness. Historically, we have used funds from operations and borrowings under our revolving credit facility as our primary sources of liquidity. We project that cash flow from operations and cash on hand resulting from the April 2015 financing transactions will be sufficient to fund our planned capital expenditures and ongoing operations in 2015.

We are currently pursuing a number of actions to improve our balance sheet. We cannot assure you that any initiatives will be successful. Uncertainties relating to our capital resources and requirements include the possibility that one or more of the counterparties to our hedging arrangements may fail to perform under the contracts, the effects of changes in commodity prices and differentials, and the possibility of an unexpected interruption in production.

In addition, Venoco is subject to various legal and contractual limitations on its ability to pay dividends or otherwise make distributions to DPC, and DPC will be able to pay interest on its 12.25% /13.00% senior PIK toggle notes in cash only if it receives cash dividends or distributions from Venoco. Venoco’s agreements permit it to pay dividends to DPC in certain circumstances. We do not expect these criteria to be met in 2015. The February and August 2015 interest payments on DPC’s notes were made 100% in kind, and we expect to continue making interest payments 100% in kind for the foreseeable future.

Because we must dedicate a substantial portion of our cash flow from operations to the payment of amounts due under our debt agreements, that portion of our cash flow is not available for other purposes. Our ability to make scheduled interest payments on our indebtedness, maintain compliance with the covenants in our debt agreements and pursue our capital expenditure plan will depend to a significant extent on our financial and operating performance, which is subject to prevailing economic conditions, commodity prices and a variety of other factors. If our cash flow and other capital resources are insufficient to fund our debt service obligations and our capital expenditure budget while also allowing us to maintain compliance with our debt agreements, we may be forced to reduce or delay scheduled capital projects, sell material assets or operations, seek to restructure our indebtedness, and/or seek additional capital. Needed capital may not be available on acceptable terms or at all. Our ability to raise funds through the incurrence of additional indebtedness and certain other means is limited by covenants in our debt agreements. In addition, pursuant to mandatory prepayment provisions in our debt agreements, our ability to respond to a shortfall in our expected liquidity by selling assets or incurring additional indebtedness would be limited by provisions in the agreements that require us to use some or all of the proceeds of such transactions to reduce amounts outstanding under the agreements in some circumstances. If we are unable to obtain funds when needed and on acceptable terms, we may not be able to complete acquisitions that may be favorable to us, meet our debt obligations or finance the capital expenditures necessary to replace our reserves.

The additional indebtedness we incurred in connection with and after the going private transaction, significant decreases in the price of oil and various operational issues have increased the debt- and liquidity-related risks we face, including the risks that we may default on our obligations under our debt agreements that our ability to replace our reserves and maintain our production may be adversely affected by capital constraints, and the financial covenants under our debt agreements, and that we may be more vulnerable to further adverse changes in commodity prices, and other unfavorable economic conditions. Prior to the termination of Venoco’s revolving credit facility, we were required to obtain numerous amendments to and waivers from the lenders under the facility as a result of anticipated or actual breaches of the covenants in the facility. We may be forced to seek similar amendments or waivers from current or future lenders, and there is no assurance that we will be able to obtain them in a timely manner or at all. We are currently exploring additional deleveraging efforts and have significantly curtailed our planned capital expenditures for 2015 relative to prior years. There can be no assurance that our deleveraging efforts will be successful.

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Off-Balance Sheet Arrangements

At September 30, 2015, we had no existing off-balance sheet arrangements, as defined under SEC rules, that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Adjusted Consolidated Net Tangible Assets

As of September 30, 2015, DPC’s “Adjusted Consolidated Net Tangible Assets,” as that term is defined in the indenture governing its 12.25% / 13.00% senior PIK toggle notes, was $847 million.

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

This section provides information about derivative financial instruments we use to manage commodity price volatility. Due to the historical volatility of crude oil and natural gas prices, we have implemented a hedging strategy aimed at reducing the variability in cash flows resulting from changes in commodity prices. Currently, we purchase puts and enter into other derivative transactions such as collars and fixed price swaps in order to hedge our exposure to changes in commodity prices. All contracts are settled with cash and do not require the delivery of a physical quantity to satisfy settlement. While this hedging strategy may result in us having lower cash flows than we would have if we were unhedged in times of higher oil and natural gas prices, management believes that reducing volatility associated with commodity prices is beneficial. We may, from time to time, opportunistically restructure existing derivative contracts or enter into new transactions to effectively modify the terms of current contracts in order to improve the pricing parameters in existing contracts or realize the current value of our existing positions. We may use the proceeds from such transactions to secure additional contracts for periods in which we believe there is additional unmitigated commodity price risk or for other corporate purposes.

This section also provides information about our interest rate risk. See “—Interest Rate Risk.”

Commodity Derivative Transactions

Commodity Derivative Agreements.  As of September 30, 2015, we had entered into various swap and collar agreements related to our oil production. The aggregate economic effects of those agreements are summarized below. Location and quality differentials attributable to our properties are not included in the following prices. The agreements provide for monthly settlement based on the differential between the agreement price and the price per the applicable index, Inter-Continental Exchange Brent (“Brent”) (oil).

	Oil (BRENT)
		Weighted Avg.
	Barrels/day	Prices per Bbl
January 1 - December 31, 2015
Swaps	460	$ 100.40
Collars	4,135	$90.00/$100.00
January 1 - December 31, 2016
Swaps	1,715	$ 96.00

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Portfolio of Derivative Transactions

Our portfolio of commodity derivative transactions as of September 30, 2015 is summarized below:

Oil

			Quantity	Strike Price
Type of Contract	Counterparty	Basis	(Bbl/d)	($/Bbl)	Term
Collar	Bank of America	Brent	1,000	$90.00/$98.00	Jan 1, 14 - Dec 31, 15
Collar	Bank of America	Brent	1,000	$90.00/$101.25	Jan 1, 14 - Dec 31, 15
Collar	Bank of America	Brent	1,675	$90.00/$98.15	Jan 1, 14 - Dec 31, 15
Collar	Bank of America	Brent	460	$90.00/$108.40	Jan 1, 14 - Dec 31, 15
Swap	Bank of America	Brent	460	$ 100.40	Jan 1, 15 - Dec 31, 15
Swap	Bank of America	Brent	1,715	$ 96.00	Jan 1, 16 - Dec 31, 16

In April 2015, Venoco unwound one position, which hedged 1,715 barrels per day of our 2016 oil production receiving proceeds of $15.6 million.

We enter into derivative contracts, primarily collars, swaps and option contracts, in an effort to mitigate the risk of market price fluctuations. The objective of our hedging activities and the use of derivative financial instruments is to achieve more predictable cash flows. Our hedging activities seek to mitigate our exposure to price declines and allow us more flexibility to continue to execute our capital expenditure plan even if market prices decline. Our collar and swap contracts, however, prevent us from receiving the full advantage of increases in oil prices above the maximum fixed amount specified in the hedge agreement. We do not enter into hedge positions for amounts greater than our expected production levels; however, if actual production is less than the amount we have hedged and the price of oil or natural gas exceeds a fixed price in a hedge contract, we will be required to make payments against which there are no offsetting sales of production. This could impact our liquidity and our ability to fund future capital expenditures.

In addition, the use of derivatives involves the risk that the counterparties to such instruments will be unable to meet the financial terms of such contracts. We generally have netting arrangements with our counterparties that provide for the offset of payables against receivables from separate derivative arrangements with that counterparty in the event of contract termination. The derivative contracts may be terminated by a non-defaulting party in the event of default by one of the parties to the agreement.

We have elected not to apply cash flow hedge accounting to any of our derivative transactions and we therefore recognize mark-to-market gains and losses in earnings currently, rather than deferring such amounts in accumulated other comprehensive income for those commodity derivatives that would qualify as cash flow hedges.

All derivative instruments are recorded on the balance sheet at fair value. Fair value is generally determined based on the difference between the fixed contract price and the underlying market price at the determination date. Changes in the fair value of derivatives are recorded in commodity derivative (gains) losses on the consolidated statement of operations. As of September 30, 2015, the fair value of our commodity derivatives was a net asset of $43.8 million.

Interest Rate Risk

We are subject to interest rate risk with respect to amounts borrowed under the term Loan facility because those amounts bear interest at a variable rate. The interest rates associated with our secured and senior notes are fixed for the term of the notes.

See notes to our consolidated financial statements for a discussion of our long-term debt as of September 30, 2015.

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ITEM 4.  Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of Venoco’s and DPC’s principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2015. Based on the evaluation, those officers believe that:

· our disclosure controls and procedures (including those of both Venoco and DPC) were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

· our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 was accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

On August 1, 2015 Joel Reed and Rick Walker, both members of Venoco’s Audit Committee, resigned their positions with the committee and the board.  Consequently, the Company no longer has any independent directors. We are currently evaluating the effects of their departure on our internal controls over financial reporting.

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PART II—OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

The information set forth in the financial statements included in this report is incorporated by reference herein.

Item 1A.  RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” in the Venoco / DPC Annual Report on Form 10-K for the year ended December 31, 2014, which could materially affect our business, financial condition and/or future results. The risks described in this report and in the Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not Applicable

Item 3.  DEFAULTS UPON SENIOR SECURITIES

Not Applicable

Item 4.  MINE SAFETY DISCLOSURES

Not Applicable

Item 5.  OTHER INFORMATION

Not Applicable

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Item 6.  EXHIBITS

Exhibit Number	Exhibit
3.1	Amended and Restated Certificate of Incorporation of Venoco, Inc.
31.1	Certification of the Chief Executive Officer of Venoco, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer of Venoco, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3	Certification of the Chief Executive Officer of Denver Parent Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.4	Certification of the Chief Financial Officer of Denver Parent Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer and the Chief Financial Officer of Venoco, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Executive Officer and the Chief Financial Officer of Denver Parent Corporation Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
101	The following financial information from the quarterly report on Form 10-Q of Venoco, Inc. and Denver Parent Corporation for the quarter ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements.

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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 thereunto duly authorized.

November 12, 2015

VENOCO, INC.
By:	/s/ MARK A. DEPUY
	Name:	Mark A. DePuy
	Title:	Chief Executive Officer
By:	/s/ SCOTT M. PINSONNAULT
	Name:	Scott M. Pinsonnault
	Title:	Chief Financial Officer

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 thereunto duly authorized.

November 12, 2015

DENVER PARENT CORPORATION
By:	/s/ TIMOTHY M. MARQUEZ
	Name:	Timothy M. Marquez
	Title:	Chief Executive Officer
By:	/s/ SCOTT M. PINSONNAULT
	Name:	Scott M. Pinsonnault
	Title:	Chief Financial Officer

40

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

VENOCO, INC.

The undersigned, acting on behalf of Venoco, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Company”), does hereby certify as follows:

The name of the Company is Venoco, Inc.  The Certificate of Incorporation of the Company was originally filed with the Secretary of State of the State of Delaware on June 9, 1998, was amended on August 15, 2000, was amended and restated on February 10, 2005, and was amended and restated on November 8, 2005 (the “Certificate of Incorporation”).

This Amended and Restated Certificate of Incorporation of the Company as set forth below was duly adopted in accordance with the provisions of Section 242 and 245 of the General Corporation Law of the State of Delaware (the “DGCL”) and by the written consent of its sole shareholder in accordance with Section 228 of the DGCL.

The Certificate of Incorporation of the Company is hereby amended and restated to read in its entirety as follows:

ARTICLE 1

NAME

The name of the Company is Venoco, Inc.

ARTICLE 2

REGISTERED AGENT

The address of the registered office of the Company is the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle. The name of its registered agent at that address is Corporation Trust Company.

ARTICLE 3

PURPOSE

The purpose of the Company is to engage in any lawful act or activity for which a Corporation may be organized under the DGCL.

ARTICLE 4

CAPITAL STOCK

4.1       Common Stock.

(a) The total number of shares of common stock, par value $.01 per share, that the Company is authorized to issue is 200,000,000.

(b) Each holder of common stock shall be entitled to one vote for each share of common stock held on all matters as to which holders of common stock shall be entitled to vote.  Except for and subject to those preferences, rights, and privileges expressly granted to the holders of all classes of stock at the time outstanding having prior rights, and any series of preferred stock which may from time to time come into existence, and except as may be otherwise provided by the laws of the State of Delaware, the holders of common stock shall have exclusively all other rights of stockholders of the Company, including, but not limited to, (i) the right to receive dividends when, as and if declared by the Board of Directors out of assets lawfully available therefor, and (ii) in the event of any distribution of assets upon the dissolution and liquidation of the Company, the right to receive ratably and equally all of the assets of the Company remaining after the payment to the holders and preferred stock of the specific amounts, if any, which they are entitled to receive as may be provided herein or pursuant hereto.

4.2Preferred Stock.

(a) The number of shares of preferred stock, par value $.01 per share, that the Company is authorized to issue 20,000,000.

(b) The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of preferred stock in one or more series, with such voting powers, full or limited, or without voting powers and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, subject to the limitations prescribed by law and in accordance with the provisions hereof, including but not limited to the following:

(1) The designation of the series and the number of shares to constitute the series.

(2) The dividend rate of the series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock and whether such dividends shall be cumulative or noncumulative.

(3) Whether the shares of the series shall be subject to redemption by the corporation and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption.

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(4) The terms and amounts of any sinking fund provided for the purchase or redemption of the shares of the series.

(5) Whether or not the shares of the series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of stock of the corporation, and, if provision be made for conversion or exchange, the times, prices, rates, adjustments and other terms and conditions of such conversion or exchange.

(6) The extent, if any, to which the holders of the shares of the series shall be entitled to vote with respect to the election of directors or otherwise.

(7) The restrictions, if any, on the issue or reissue of any additional preferred stock.

(8) The rights of the holders of the shares of the series upon the dissolution, liquidation, or winding up of the corporation.

ARTICLE 5

DIRECTORS

5.1Authority, Number and Election of Directors.  The affairs of the Company shall be conducted by the Board of Directors.  The number of directors of the Company shall be fixed from time to time in the manner provided in the bylaws of the Company and may be increased or decreased from time to time in the manner provided in the bylaws. Election of directors need not be by written ballot except and to the extent provided in the bylaws.  A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and qualified, subject, however, to such director’s prior death, resignation, retirement, disqualification or removal from office.

In the event the holders of any class or series of preferred stock shall be entitled, by a separate class vote, to elect directors as may be specified pursuant to Article 4, then the provisions of such class or series of stock with respect to their rights shall apply.

5.2       RESERVED.

5.3Quorum. A quorum of the Board of Directors for the transaction of business shall not consist of less than a majority of the total number of directors, except as otherwise may be provided in this Certificate of Incorporation or in the bylaws with respect to filling vacancies.

5.4       Newly Created Directorships and Vacancies. Except as otherwise fixed pursuant to the rights of the holders of any class or series of preferred stock to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, or by a sole remaining director, even though less than a quorum of the Board of Directors.  Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the new directorship which was

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created or in which the vacancy occurred and until such director’s successor shall have been elected and qualified.

ARTICLE 6

BYLAWS

Except as otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, repeal, alter, amend or rescind any or all of the bylaws of the Company.

ARTICLE 7

STOCKHOLDERS

7.1Meetings. Meetings of the stockholders may be held within or without the State of Delaware, as determined by the Board of Directors.  Each meeting of stockholders will be held on the date and at the time and place determined by the Board of Directors.  Except as otherwise required by law and subject to the rights of the holders of any class or series of preferred stock, special meetings of the stockholders may be called only by the chairman of the board, the chief executive officer or, upon the written request of a majority of the Board of Directors, any officer of the Company.

7.2Action by Written Consent.  Action required or permitted to be taken by stockholders at any annual or special meeting of stockholders may be taken only at such a meeting and not by written consent unless the action to be effected by written consent and the taking of such action by written consent have expressly been approved in advance by the Board of Directors.

ARTICLE 8

VOTING REQUIREMENT

Notwithstanding any other provisions of this Certificate of Incorporation or of the bylaws (and notwithstanding the fact that a lesser percentage may be otherwise specified by law, this Certificate of Incorporation or the bylaws), the affirmative vote of the holders or not less than sixty six and two-thirds percent (66-2/3%) of the outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors (considered for this purpose as one class), shall be required to amend or repeal or adopt any provisions inconsistent with Articles 5, 8, 9 or 10 of this Certificate of Incorporation.

ARTICLE 9

LIABILITY OF OFFICERS AND DIRECTORS

9.1General. A Director of the Company shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as currently in effect or as the same may hereafter be amended.

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9.2Amendment.  No amendment, modification or repeal of this Article 9, nor the adoption of any provision of the Company’s Amended and Restated Certificate of Incorporation inconsistent with this Article 9, shall adversely affect any right or protection of a director that exists at the time of such amendment, modification or repeal.

ARTICLE 10

INDEMNIFICATION

10.1General.  The Company shall indemnify to the fullest extent permitted by and in the matter permissible under the DGCL, as amended from time to time (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment), any person made, or threatened to be made, a party to any threatened, pending or completed action, suit, or proceeding, whether criminal, civil, administrative, or investigative, by reason of the fact that such person (a) is or was a director or officer of the Company or any predecessor of the Company or (b) served any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner, trustee, employee or agent at the request of the Company or any predecessor of the Company; provided, however, that except as provided in Section 10.4, the Company shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized in advance by the Board of Directors.

10.2Advancement of Expenses.  The right to indemnification conferred in this Article 10 shall be a contract right and shall include the right to be paid by the Company the expenses incurred in defending any such proceeding in advance of its final disposition, such advances to be paid by the Company within twenty days after the receipt by the Company of a statement or statements from the claimant requesting such advance or advances from time to time; provided, however, that if the DGCL requires, the payment of a such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Company of an undertaking by or behalf of such director or officer to repay all amounts so advanced if it shall ultimately be determined by a final judicial decision from which there is no right of appeal that such director or officer is not entitled to be indemnified under this Article 10 or otherwise.

10.3Procedure for Indemnification.  To obtain indemnification under this Article 10, a claimant shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification.  Upon written request by a claimant for indemnification pursuant to the first sentence of this Section 10.3, a determination, if required by applicable law, with respect to the claimant’s entitlement thereto shall be made as follows: (a) if requested by the claimant or if there are no Disinterested Directors (as hereinafter defined), by Independent Counsel (as hereinafter defined), or (b) by a majority vote of the Disinterested Directors, even though less than a quorum, or by a majority vote of a committee of Disinterested Directors designed by a majority vote of

5

Disinterested Directors, even though less than a quorum.  If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within 10 days after such determination.

10.4Certain Remedies.  If a claim under Section 10.1 is not paid in full by the Company within thirty days after a written claim pursuant to Section 10.3 has been received by the Company, the claimant may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim and, if successful in whole or in party, the claimant shall be entitled to be paid also the reasonable expense of prosecuting such claim.  It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the Company) that the claimant has not met the standard of conduct which makes it permissible under the DGCL for the Company to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Company.  Neither the failure of the Company (including its Board of Directors, Independent Counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Company (including its Board of Directors, Independent Counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

10.5Binding Effect.  If a determination shall have been made pursuant to Section 10.3 that the claimant is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to Section 10.4.

10.6Validity of this Article.  The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to Section 10.4 that the procedures and presumptions of this Article 10 are not valid, binding and enforceable and shall stipulate in such proceeding that the Company is bound by all the provision of this Article 10.

10.7Nonexclusivity, etc.   The right to indemnification and to the advancement of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article 10 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise.  No repeal or modification of this Article 10 shall in any way diminish or adversely affect the rights of any present or former director or officer of the Company or any predecessor thereof hereunder in respect of any occurrence or matter arising prior to any such repeal or modification.

10.8Insurance.  The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the DGCL.

6

10.9Indemnification of Other Persons.  The Company may grant rights to indemnification, and rights to the advancement by the Company of expenses incurred in defending any proceeding in advance of its final disposition, to any present or former employee or agent of the Company or any predecessor of the Company to the fullest extent of the provisions of this Article 10 with respect to the indemnification and advancement of expenses of director s and officers of the Company.

10.10Severability.  If any provision or provisions of this Article 10 shall be held to be invalid, illegal or unenforceable for any reason whatsoever:  (a) the validity, legality and enforceability of the remaining provisions of this Article 10 (including, without limitation, each portion of any paragraph of this Article 10 containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (b) to the fullest extent possible, the provisions of this Article 10 (including, without limitation, each such portion of any paragraph of this Article 10 containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

10.11Certain Definitions. For purposes of this Article 10:

(a) “Disinterested Director” means a director of the Company who is not and was not a party to the matter in respect of which indemnification is sought by the claimant and otherwise has no material interest in the matter as determined by the Board.

(b) “Independent Counsel” means a law firm, a member of a law firm, or an independent practitioner that is experienced in matters of Delaware corporation law and shall include any such person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Company or the claimant in an action to determine the claimant’s rights under this Article 10.  Independent Counsel shall be selected by the Board of Directors.

ARTICLE 11

AMENDMENTS

Subject to Article 8, the Company reserves the right to alter, amend, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights conferred herein are granted subject to this reservation.

7

IN WITNESS WHEREOF, the undersigned, being a duly authorized officer of the Corporation, has executed this Amended and Restated Certificate of Incorporation the 15th day of July 2015.

VENOCO, INC.
By:	/S/ Mark A. DePuy
Name: Mark A. DePuy
Title:  Chief Executive Officer

8

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark A. DePuy, certify that:

1. I have reviewed this report on Form 10-Q of Venoco, Inc. (“Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ MARK A. DEPUY  

Mark A. DePuy

Chief Executive Officer

November 12, 2015

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott M. Pinsonnault, certify that:

1. I have reviewed this report on Form 10-Q of Venoco, Inc. (“Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ SCOTT M. PINSONNAULT

Scott M. Pinsonnault

Chief Financial Officer

November 12, 2015

EX-31.3

EXHIBIT 31.3

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy M. Marquez, certify that:

1. I have reviewed this report on Form 10-Q of Denver Parent Corporation (“Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ TIMOTHY M. MARQUEZ

Timothy M. Marquez

Chief Executive Officer

November 12, 2015

EX-31.4

EXHIBIT 31.4

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott M. Pinsonnault, certify that:

1. I have reviewed this report on Form 10-Q of Denver Parent Corporation (“Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ SCOTT M. PINSONNAULT

Scott M. Pinsonnault

Chief Financial Officer

November 12, 2015

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Venoco, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ MARK A. DEPUY  

Mark A. DePuy

Chief Executive Officer

November 12, 2015

/s/ SCOTT M. PINSONNAULT

Scott M. Pinsonnault

Chief Financial Officer

November 12, 2015

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Denver Parent Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

ob

/s/ TIMOTHY M. MARQUEZ

Timothy M. Marquez

Chief Executive Officer

November 12, 2015

/s/ SCOTT M. PINSONNAULT

Scott M. Pinsonnault

Chief Financial Officer

November 12, 2015

XML

HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS (Details 2) $ in Millions	9 Months Ended
	Sep. 30, 2015 USD ($) bbl / d $ / bbl
Oil Swaps | January 1 - December 31, 2015
HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Nonmonetary notional amount	460
Oil Swaps | January 1 - December 31, 2015 | Weighted Avg.
HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Weighted Avg. Prices (in dollars per bbl/MMBtu) | $ / bbl	100.40
Oil Swaps | January 1 - December 31, 2016
HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Nonmonetary notional amount	1,715
Oil Swaps | January 1 - December 31, 2016 | Weighted Avg.
HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Weighted Avg. Prices (in dollars per bbl/MMBtu) | $ / bbl	96.00
Oil Collars | January 1 - December 31, 2015
HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Nonmonetary notional amount	4,135
Oil Collars | January 1 - December 31, 2015 | Minimum
HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Weighted Avg. Prices (in dollars per bbl/MMBtu) | $ / bbl	90.00
Oil Collars | January 1 - December 31, 2015 | Maximum
HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Weighted Avg. Prices (in dollars per bbl/MMBtu) | $ / bbl	100.00
Derivatives not designated as hedging instruments | Oil Collars | January 1 - December 31, 2016
HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Nonmonetary notional amount	1,715
Realized derivative losses (gains) | $	$ 15.6

XML

HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2015

HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS

HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS

3. HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS

Commodity Derivative Agreements.  The Company utilizes swap and collar agreements in an effort to hedge the effect of commodity price changes on its cash flows. The objective of the Company’s hedging activities and the use of derivative financial instruments is to achieve more predictable cash flows. While the use of these derivative instruments limits the downside risk of adverse price movements, they also may limit future cash flows from favorable price movements.  The Company may, from time to time, opportunistically restructure existing derivative  contracts  or enter  into new transactions to effectively modify the terms  of current  contracts  in order  to improve  the pricing parameters in existing contracts  or realize  the current  value of the Company’s existing positions.  The Company  may use the proceeds  from such transactions to secure  additional  contracts  for periods  in which the Company  believes it has additional  unmitigated commodity  price risk or for other  corporate purposes.

The use of derivatives involves the risk that the counterparties to such instruments will be unable to meet the financial terms of such contracts.  The Company generally has netting arrangements with the counterparties that provide for the offset of payables against receivables from separate derivative arrangements with that counterparty in the event of contract termination. The derivative contracts may be terminated by a non-defaulting party in the event of default by one of the parties to the agreement.

The components of commodity derivative losses (gains) in the condensed consolidated statements of operations are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2015		2014		2015
Realized commodity derivative losses (gains)	$	1,355	$	(16,840)	$	9,410	$	(58,932)
Unrealized commodity derivative losses (gains) for changes in fair value		(31,691)		(4,599)		(22,931)		34,293
Commodity derivative losses (gains), net	$	(30,336)	$	(21,439)	$	(13,521)	$	(24,639)

As of September 30, 2015, the Company had entered into certain swap and collar agreements related to its oil production. The aggregate economic effects of those agreements are summarized below. Location and quality differentials attributable to the Company’s properties are not included in the following prices. The agreements provide for monthly settlement based on the differential between the agreement price and the price per the applicable index, Inter-Continental Exchange Brent (“Brent”).

	Oil (Brent)
		Weighted Avg.
	Barrels/day	Prices per Bbl
January 1 - December 31, 2015:
Swaps	460	$	100.40
Collars	4,135	$	90.00	/	$	100.00
January 1 - December 31, 2016:
Swaps	1,715	$	96.00

In connection with the debt transaction that occurred in April 2015 Venoco unwound its 2016 derivative contract with ABN AMRO which hedged 1,715 bbls of our 2014 oil production. As a result we received $15.6 million in proceeds which contributed to the nine months ended September 30, 2015 realized gain of $58.9 million.

Fair Value of Derivative Instruments.The estimated fair values of derivatives included in the condensed consolidated balance sheets at September 30, 2015 and December 31, 2014 are summarized below. The net fair value of the Company’s derivatives decreased by$34.3 million from a net asset of $78.1 million at December 31, 2014 to a net asset of $43.8million at September 30, 2015, primarily due to (i) changes in the futures  prices for oil, which are used in the calculation  of the fair value of commodity derivatives, (ii) settlement of commodity  derivative  positions  during  the current  period  and (iii) changes to the Company’s commodity  derivative  portfolio  in 2015. The Company does not offset asset and liability positions with the same counterparties within the financial statements; rather, all contracts are presented at their gross estimated fair value. As of the dates indicated, the Company’s derivative assets and liabilities are presented below (in thousands). These balances represent the estimated fair value of the contracts.  The Company has not designated any of its derivative contracts as cash-flow hedging instruments for accounting purposes.  The main headings represent the balance sheet captions for the contracts presented (in thousands).

	December 31,		September 30,
	2014		2015
Current Assets—Commodity derivatives:
Oil derivative contracts	$	48,298	$	37,240
Noncurrent Assets—Commodity derivatives:
Oil derivative contracts		29,793		6,558
Net derivative asset	$	78,091	$	43,798

XML

FAIR VALUE MEASUREMENTS (Details 2) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
First lien secured notes
FAIR VALUE MEASUREMENTS
Interest rate (as a percent)	12.00%
8.875% senior notes
FAIR VALUE MEASUREMENTS
Interest rate (as a percent)	8.875%
12.25% / 13.00% senior PIK toggle notes due 2018
FAIR VALUE MEASUREMENTS
Interest rate (as a percent)	13.00%
12.25% / 13.00% senior PIK toggle notes due 2018 | Minimum
FAIR VALUE MEASUREMENTS
Interest rate (as a percent)	12.25%
12.25% / 13.00% senior PIK toggle notes due 2018 | Maximum
FAIR VALUE MEASUREMENTS
Interest rate (as a percent)	13.00%
Venoco, Inc. | First lien secured notes
FAIR VALUE MEASUREMENTS
Interest rate (as a percent)	12.00%
Venoco, Inc. | 8.875% senior notes
FAIR VALUE MEASUREMENTS
Interest rate (as a percent)	8.875%
Carrying Value | 12.25% / 13.00% senior PIK toggle notes due 2018
FAIR VALUE MEASUREMENTS
Long-term debt	$ 304,176	$ 275,065
Carrying Value | Venoco, Inc. | First lien secured notes
FAIR VALUE MEASUREMENTS
Long-term debt	175,000
Carrying Value | Venoco, Inc. | Second lien secured notes
FAIR VALUE MEASUREMENTS
Long-term debt	133,843
Carrying Value | Venoco, Inc. | Term Loan
FAIR VALUE MEASUREMENTS
Long-term debt	74,324
Carrying Value | Venoco, Inc. | Revolving credit agreement
FAIR VALUE MEASUREMENTS
Long-term debt		65,000
Carrying Value | Venoco, Inc. | Second lien term loan
FAIR VALUE MEASUREMENTS
Long-term debt	308,222	500,000
Fair Value | 12.25% / 13.00% senior PIK toggle notes due 2018
FAIR VALUE MEASUREMENTS
Long-term debt	14,633	120,369
Fair Value | Venoco, Inc. | First lien secured notes
FAIR VALUE MEASUREMENTS
Long-term debt	141,210
Fair Value | Venoco, Inc. | Second lien secured notes
FAIR VALUE MEASUREMENTS
Long-term debt	87,072
Fair Value | Venoco, Inc. | Term Loan
FAIR VALUE MEASUREMENTS
Long-term debt	74,324
Fair Value | Venoco, Inc. | Revolving credit agreement
FAIR VALUE MEASUREMENTS
Long-term debt		65,000
Fair Value | Venoco, Inc. | Second lien term loan
FAIR VALUE MEASUREMENTS
Long-term debt	$ 57,021	$ 262,000

XML

FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
FAIR VALUE MEASUREMENTS
Commodity derivative contracts, assets	$ 43,798
Share-based compensation	(556)
Changes in fair value of financial assets (liabilities) designated as Level 3 in the valuation hierarchy
Fair value liability, beginning of period	(1,038)	$ (20,928)
Transfers into Level 3	(589)	(5,507)
Transfers out of Level 3	566	5,555
Change in fair value of Level 3	505	9,322
Fair value liability, end of period	(556)	$ (11,558)
Level 2
FAIR VALUE MEASUREMENTS
Commodity derivative contracts, assets	43,798
Level 3
FAIR VALUE MEASUREMENTS
Share-based compensation	$ (556)

XML

CONTINGENCIES (Details) $ / shares in Units, $ in Millions		1 Months Ended
	Jan. 16, 2012 lawsuit	Aug. 31, 2011 lawsuit $ / shares	Mar. 31, 2014 USD ($)
Mr. Marquez | Venoco, Inc.
CONTINGENCIES
Price per share offered for shares of common stock proposed to be acquired by related party of which it is not the beneficial owner (in dollars per share) | $ / shares		$ 12.50
Delaware Litigation | Venoco, Inc.
CONTINGENCIES
Number of lawsuits filed	5	5
Denbury Arbitration
CONTINGENCIES
Liability accrued under litigation | $			$ 1.8
Colorado Litigation | Venoco, Inc.
CONTINGENCIES
Number of lawsuits filed	3

XML

RELATED PARTY TRANSACTIONS (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
TimBer, LLC
RELATED PARTY TRANSACTIONS
Cost incurred related to the non-exclusive aircraft sublease agreement	$ 0.5	$ 0.5

XML

DEBT

9 Months Ended

Sep. 30, 2015

DEBT

DEBT

2. DEBT

As of the dates indicated, the Company’s long‑term debt consisted of the following (in thousands):

	Venoco, Inc.				Denver Parent Corporation
	December 31,		September 30,		December 31,		September 30,
	2014		2015		2014		2015
Venoco revolving credit agreement due March 2016	$	65,000	$	—	$	65,000	$	—
Venoco 8.875% senior notes due February 2019		500,000		308,222		500,000		308,222
First lien secured 12% notes due February 2019		—		175,000		—		175,000
Second lien secured 8.875% / 12% PIK notes due February 2019(1)		—		133,843		—		133,843
Term loan facility due December 2017(2)		—		74,324		—		74,324
DPC 12.25% / 13.00% senior PIK toggle notes due August 2018(3)		—		—		275,065		304,176
Total long-term debt		565,000		691,389		840,065		995,565

(1) Amounts are net of $25.6  million unamortized discount at September 30, 2015

(2) Amounts are net of $0.7 million unamortized discount at September 30, 2015.

(3) Amounts are net of $4.6 million and $5.4 million unamortized discount at September 30, 2015 and December 31, 2014, respectively.

The Company recently completed a series of financing transactions in response to its indebtedness and liquidity situation.  On April 2, 2015, Venoco entered into agreements relating  to three new debt instruments: (i) first lien senior  secured  notes  with an aggregate  principal  amount  of $175 million (the " first lien secured  notes "), (ii) second  lien senior  secured  notes  with an aggregate  principal  amount  of $150 million (the " second lien secured  notes ") and (iii) a $75 million cash collateralized senior secured credit facility (the “term loan facility”).  The term loan facility was refinanced on June 11, 2015. Approximately$72 million of proceeds from the issuance of the first lien secured notes and the term loan facility were used to repay all amounts outstanding under Venoco’s revolving credit facility, which was then terminated. The second  lien secured  notes  were issued in exchange  for $194 million aggregate  principal  amount  of, and accrued  interest  on, Venoco’s outstanding 8.875% senior  notes  due 2019.The term loan facility was refinanced on June 11, 2015 with a new $75 million secured term loan facility (the “new term loan facility”).  The terms of the new debt instruments are summarized below. These transactions increased the Company’s indebtedness overall, but reduced its near-term cash interest expense and provided it with flexibility and additional liquidity that it intends to use to advance longer term projects. 

The following summarizes the terms of the agreements governing the Company’s debt outstanding as of September 30, 2015.

First lien secured notes. The first lien secured notes bear interest at 12% per annum and mature in February 2019. The indenture governing the first lien secured notes includes covenants customary for instruments of this type, including restrictions on Venoco's ability to incur additional indebtedness, create liens on its properties, pay dividends and make investments, in each case subject to exceptions. The covenants regarding the incurrence of additional indebtedness contain exceptions for, among other things, (i) up to $25 million of additional secured or unsecured indebtedness that may be issued or incurred in connection with certain projects approved by the holders of the notes, (ii) up to $50 million of additional second lien secured notes that may be issued in exchange for Venoco's outstanding 8.875% senior notes due 2019 and (iii) up to $150 million of additional third lien or unsecured indebtedness that may be issued or incurred in exchange for the Venoco's outstanding 8.875% senior notes or to fund acquisitions. The indenture also includes restrictions on capital expenditures and an operational covenant pursuant to which Venoco is generally required to maintain a specified level of production for each quarterly period until maturity. Other covenants are generally similar to those contained in the indenture governing the existing 8.875% senior notes. Venoco's obligations under the first lien secured notes are guaranteed by all of its subsidiaries other than Ellwood Pipeline, Inc. and secured by a first priority lien on substantially all of the assets of Venoco and the guarantors other than the cash collateral under the term loan facility. Venoco may redeem the first lien secured notes at a redemption price of 109% of the principal amount beginning on January 1, 2016 and declining to 100% by January 1, 2019.

Second lien secured notes. The second lien secured notes bear interest at 8.875% if paid in cash or 12% if paid in kind. Interest may be paid in cash or in kind, at Venoco's option, for semiannual interest periods commencing within 24 months following issuance. After the initial 24 month period, interest is payable in cash, but may become payable entirely in cash earlier upon the occurrence of certain events. The second lien secured notes mature in February 2019. The indenture governing the second lien secured notes includes covenants, and exceptions thereto, substantially similar to those set forth in the indenture governing the first lien secured notes. Venoco's obligations under the notes are guaranteed by Venoco's subsidiaries that guarantee the first lien secured notes and are secured by a second priority lien on the same assets securing its obligations under the first lien secured notes. Venoco may redeem the second lien secured notes on the same terms as the existing 8.875% senior notes.

Term loan facility. The term loan facility, which was fully drawn at closing, matures in December 2017. Amounts borrowed under the facility will bear interest at LIBOR plus 4.0% per annum. The facility contains representations, warranties and covenants typical for instruments of this type. Venoco's obligations under the term loan facility are secured by a first priority lien on cash collateral, which collateral may be released upon the occurrence of certain events, and are guaranteed by Venoco's subsidiaries that guarantee the first lien secured notes and second lien secured notes. The term facility was incurred under a term loan and security agreement dated as of June 11, 2015 among Venoco, the guarantors and the lenders party thereto.

Venoco 8.875% Senior Notes.  In February 2011, Venoco issued$500 million in 8.875% senior notes due in February 2019 at par. The notes pay interest semi‑annually in arrears on February 15 and August 15 of each year. Beginning February 15, 2015, Venoco may redeem the notes at a redemption price of 104.438% of the principal amount and declining to 100% by February 15, 2017. The notes are senior unsecured obligations and contain operational covenants that, among other things, limit Venoco’s ability to make investments, incur additional indebtedness, issue preferred stock, pay dividends, repurchase its stock, create liens or sell assets.

As part of the April 2, 2015 debt restructuring, $192 million of the 8.875% senior notes were redeemed and $2 million of accrued interest was extinguished. As of September 30, 2015, $308 million 8.875% senior notes are still outstanding.

DPC 12.25% / 13.00% Senior PIK Toggle Notes.  In August 2013, DPC issued $255 million principal amount of 12.25% / 13.00% senior PIK toggle notes due August 2018 at 97.304% of par. Interest on the notes is payable on February 15 and August 15 of each year, commencing February 15, 2014. The initial interest payment on the notes was required to be paid in cash. For  each interest period  after  the initial interest  period  (other  than  for the final interest  period  ending  at the stated maturity,  which will be paid in cash), DPC  will, in certain  circumstances,  be permitted to pay interest on the notes  by increasing  the principal  amount  of the notes  or issuing new notes  (collectively, “PIK interest”). Cash interest on the notes accrues at the rate of 12.25% per annum.  PIK interest on the notes accrues at the rate of  13.00% per annum until the next payment of cash interest.  The August 2014 interest payment was paid 25% in cash and 75% PIK interest, and the February and August 2015 interest payments were paid entirely as PIK interest.  DPC  is a holding  company that  owns no material  assets other  than  stock of Venoco;  accordingly, it will be able to pay cash interest  on its notes  only to the extent  that  it receives cash dividends  or distributions  from Venoco.  The notes are not currently guaranteed by any of DPC’s subsidiaries.  DPC may also redeem all or any part of the notes on and after August 15, 2015 at a redemption price of 106.125% of the principal amount and declining to 100% by August 15, 2017. The notes  are senior unsecured obligations  and contain  operational covenants  that,  among  other  things, limit the Company’s ability to make  investments,  incur additional indebtedness, issue preferred stock, pay dividends,  repurchase stock, create  liens or sell assets.

The Company accounted for the April 2015 second lien secured note debt exchange as a debt extinguishment. The Company recognized a gain of $68 million on the exchange, which is net of the write off of $4.5 million associated with debt issuances costs related to the Venoco’s revolving credit facility and 8.875% notes.  The gain is composed of $44 million related to the extinguishment plus an additional $28 million due to the difference between the carrying value and the fair value of the second lien notes on the date of the exchange. The $28 million was accounted for as a discount on the second lien note and will be amortized over the life of the debt through interest expense.  The gain is recorded in ‘Loss (gain) on extinguishment of debt’ in the condensed consolidated statements of operations (unaudited).

The Company was in compliance with all debt covenants at September 30, 2015.

XML

GUARANTOR FINANCIAL INFORMATION (Details)	Sep. 30, 2015 item
GUARANTOR FINANCIAL INFORMATION
Percentage of ownership interest of guarantor subsidiaries	100.00%
First lien secured notes
GUARANTOR FINANCIAL INFORMATION
Interest rate (as a percent)	12.00%
8.875% senior notes
GUARANTOR FINANCIAL INFORMATION
Interest rate (as a percent)	8.875%
12.25% / 13.00% senior PIK toggle notes due 2018
GUARANTOR FINANCIAL INFORMATION
Interest rate (as a percent)	13.00%
Number of guarantors	0
12.25% / 13.00% senior PIK toggle notes due 2018 | Minimum
GUARANTOR FINANCIAL INFORMATION
Interest rate (as a percent)	12.25%
12.25% / 13.00% senior PIK toggle notes due 2018 | Maximum
GUARANTOR FINANCIAL INFORMATION
Interest rate (as a percent)	13.00%
12.25% / 13.00% senior PIK toggle notes due 2018 | Venoco, Inc
GUARANTOR FINANCIAL INFORMATION
Interest rate (as a percent)	12.25%

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
CURRENT ASSETS:
Cash and cash equivalents	$ 94,840	$ 15,656
Restricted funds	79,588
Accounts receivable	9,979	14,912
Inventories	3,329	3,370
Other current assets	4,089	4,721
Commodity derivatives	37,240	48,298
Total current assets	229,065	86,957
Oil and gas properties, full cost method of accounting
Proved	1,888,417	1,866,415
Unproved	8,536	8,360
Accumulated depletion	(1,757,603)	(1,400,738)
Net oil and gas properties	139,350	474,037
Other property and equipment, net of accumulated depreciation and amortization of $14,566 and $14,787 at December 31, 2014 and September 30, 2015, respectively	13,366	14,477
Net property, plant and equipment	152,716	488,514
OTHER ASSETS:
Commodity derivatives	6,558	29,793
Deferred loan costs	14,625	11,614
Other	4,277	4,069
Total other assets	25,460	45,476
TOTAL ASSETS	407,241	620,947
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	24,188	20,535
Interest payable	8,814	17,329
Share-based compensation	191	2,236
Total current liabilities	33,193	40,100
LONG-TERM DEBT	995,565	840,065
ASSET RETIREMENT OBLIGATIONS	33,076	30,351
SHARE-BASED COMPENSATION	463	648
Total liabilities	$ 1,062,297	$ 911,164
COMMITMENTS AND CONTINGENCIES (note 7)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value (200,000,000 shares authorized for Venoco and 100,000,000 shares for DPC; 29,936,378 Venoco shares issued and outstanding at December 31, 2014 and September 30, 2015; 30,150,933 and 30,297,459 DPC shares issued and outstanding at December 31, 2014 and September 30, 2015)	$ 303	$ 303
Additional paid-in capital	74,398	73,902
Retained earnings (accumulated deficit)	(729,757)	(364,422)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)	(655,056)	(290,217)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	407,241	620,947
Venoco, Inc.
CURRENT ASSETS:
Cash and cash equivalents	94,708	15,455
Restricted funds	79,588
Accounts receivable	9,979	14,912
Inventories	3,329	3,370
Other current assets	4,088	4,715
Commodity derivatives	37,240	48,298
Total current assets	228,932	86,750
Oil and gas properties, full cost method of accounting
Proved	1,888,417	1,866,415
Unproved	8,536	8,360
Accumulated depletion	(1,757,603)	(1,400,738)
Net oil and gas properties	139,350	474,037
Other property and equipment, net of accumulated depreciation and amortization of $14,566 and $14,787 at December 31, 2014 and September 30, 2015, respectively	13,366	14,477
Net property, plant and equipment	152,716	488,514
OTHER ASSETS:
Commodity derivatives	6,558	29,793
Deferred loan costs	11,353	7,128
Other	4,277	4,069
Total other assets	22,188	40,990
TOTAL ASSETS	403,836	616,254
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	24,188	20,535
Interest payable	8,814	17,329
Share-based compensation	191	2,236
Total current liabilities	33,193	40,100
LONG-TERM DEBT	691,389	565,000
ASSET RETIREMENT OBLIGATIONS	33,076	30,351
SHARE-BASED COMPENSATION	463	648
Total liabilities	$ 758,121	$ 636,099
COMMITMENTS AND CONTINGENCIES (note 7)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value (200,000,000 shares authorized for Venoco and 100,000,000 shares for DPC; 29,936,378 Venoco shares issued and outstanding at December 31, 2014 and September 30, 2015; 30,150,933 and 30,297,459 DPC shares issued and outstanding at December 31, 2014 and September 30, 2015)	$ 299	$ 299
Additional paid-in capital	285,616	285,120
Retained earnings (accumulated deficit)	(640,200)	(305,264)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)	(354,285)	(19,845)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$ 403,836	$ 616,254

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ (365,335)	$ 13,611
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depletion, depreciation and amortization	20,315	34,729
Impairment	337,830	817
Accretion of asset retirement obligations	1,536	1,852
Share-based compensation	496	1,601
Interest paid-in-kind	36,892	16,916
Amortization of deferred loan costs	4,280	3,338
Loss (gain) on extinguishment of debt	(67,515)
Amortization of bond discounts and other	4,170	809
Unrealized commodity derivative (gains) losses and amortization of premiums	34,293	(22,931)
Changes in operating assets and liabilities:
Accounts receivable	4,933	5,030
Inventories	41	1,317
Other current assets	511	40
Other assets	(208)	1,815
Accounts payable and accrued liabilities	(9,335)	(19,884)
Share-based compensation liabilities	(2,230)	(24,348)
Net cash provided by operating activities	674	14,712
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties	(16,125)	(75,836)
Acquisitions of oil and natural gas properties	(15)	(38)
Expenditures for other property and equipment	(169)	(512)
Proceeds provided by sale of oil and natural gas properties	1,846
Net cash (used in) investing activities	(14,463)	(76,386)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt	340,000	182,000
Principal payments on long-term debt	(155,000)	(122,000)
Payments for deferred loan costs	(14)	(496)
Debt issuance costs	(12,426)
Increase in restricted cash	(79,588)
Net cash provided by (used in) financing activities	92,972	59,504
Net (decrease) increase in cash and cash equivalents	79,183	(2,170)
Cash and cash equivalents, beginning of period	15,656	17,336
Cash and cash equivalents, end of period	94,840	15,166
Supplemental Disclosure of Cash Flow Information-
Cash paid for interest	44,277	70,749
Supplemental Disclosure of Noncash Activities-
(Decrease) increase in accrued capital expenditures	6,096	(3,823)
Excess of share-based compensation expense recognized over payments made	496
Venoco, Inc.
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	(334,936)	40,332
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depletion, depreciation and amortization	20,315	34,729
Impairment	337,830	817
Accretion of asset retirement obligations	1,536	1,852
Share-based compensation	496	1,601
Interest paid-in-kind	9,105
Amortization of deferred loan costs	3,060	2,583
Loss (gain) on extinguishment of debt	(67,515)
Amortization of bond discounts and other	2,848
Unrealized commodity derivative (gains) losses and amortization of premiums	34,293	(22,931)
Changes in operating assets and liabilities:
Accounts receivable	4,933	4,869
Inventories	41	1,317
Other current assets	511	112
Other assets	(208)	1,815
Accounts payable and accrued liabilities	(9,335)	(8,128)
Share-based compensation liabilities	(2,230)	(24,348)
Net cash provided by operating activities	744	34,620
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties	(16,125)	(75,836)
Acquisitions of oil and natural gas properties	(15)	(38)
Expenditures for other property and equipment	(169)	(512)
Proceeds provided by sale of oil and natural gas properties	1,846
Net cash (used in) investing activities	(14,463)	(76,386)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt	340,000	182,000
Principal payments on long-term debt	(155,000)	(122,000)
Payments for deferred loan costs	(14)	(371)
Debt issuance costs	(12,426)
Increase in restricted cash	(79,588)
Dividend to Denver Parent Corporation		(3,905)
Net cash provided by (used in) financing activities	92,972	55,724
Net (decrease) increase in cash and cash equivalents	79,253	13,958
Cash and cash equivalents, beginning of period	15,455	828
Cash and cash equivalents, end of period	94,708	14,786
Supplemental Disclosure of Cash Flow Information-
Cash paid for interest	44,277	51,172
Supplemental Disclosure of Noncash Activities-
(Decrease) increase in accrued capital expenditures	6,096	$ (3,823)
Excess of share-based compensation expense recognized over payments made	$ 496

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GUARANTOR FINANCIAL INFORMATION (Details 4) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities	$ 674	$ 14,712
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties	(16,125)	(75,836)
Acquisitions of oil and natural gas properties	(15)	(38)
Expenditures for property and equipment and other	(169)	(512)
Proceeds provided by sale of oil and natural gas properties	1,846
Net cash (used in) investing activities	(14,463)	(76,386)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt	340,000	182,000
Principal payments on long-term debt	(155,000)	(122,000)
Payments for deferred loan costs	(14)	(496)
Debt issuance costs	(12,426)
Increase in restricted cash	(79,588)
Net cash provided by (used in) financing activities	92,972	59,504
Net (decrease) increase in cash and cash equivalents	79,183	(2,170)
Cash and cash equivalents, beginning of period	15,656	17,336
Cash and cash equivalents, end of period	94,840	15,166
Venoco, Inc.
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities	744	34,620
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties	(16,125)	(75,836)
Acquisitions of oil and natural gas properties	(15)	(38)
Expenditures for property and equipment and other	(169)	(512)
Proceeds provided by sale of oil and natural gas properties	1,846
Net cash (used in) investing activities	(14,463)	(76,386)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt	340,000	182,000
Principal payments on long-term debt	(155,000)	(122,000)
Payments for deferred loan costs	(14)	(371)
Debt issuance costs	(12,426)
Increase in restricted cash	(79,588)
Dividend paid to Denver Parent Corporation		(3,905)
Net cash provided by (used in) financing activities	92,972	55,724
Net (decrease) increase in cash and cash equivalents	79,253	13,958
Cash and cash equivalents, beginning of period	15,455	828
Cash and cash equivalents, end of period	94,708	14,786
Venoco, Inc
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities	(8,053)	26,172
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties	(16,076)	(75,774)
Acquisitions of oil and natural gas properties	(15)	(38)
Expenditures for property and equipment and other	(169)	(512)
Proceeds provided by sale of oil and natural gas properties	1,846
Net cash (used in) investing activities	(14,414)	(76,324)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) intercompany borrowings	8,748	8,386
Proceeds from long-term debt	340,000	182,000
Principal payments on long-term debt	(155,000)	(122,000)
Payments for deferred loan costs	(14)	(371)
Debt issuance costs	(12,426)
Increase in restricted cash	(79,588)
Dividend paid to Denver Parent Corporation		(3,905)
Net cash provided by (used in) financing activities	101,720	64,110
Net (decrease) increase in cash and cash equivalents	79,253	13,958
Cash and cash equivalents, beginning of period	15,455	828
Cash and cash equivalents, end of period	94,708	14,786
Guarantor Subsidiaries
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities	414	885
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties	(49)	9
Net cash (used in) investing activities	(49)	9
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) intercompany borrowings	(365)	(894)
Net cash provided by (used in) financing activities	(365)	(894)
Non-Guarantor Subsidiary
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities	8,383	7,563
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties		(71)
Net cash (used in) investing activities		(71)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) intercompany borrowings	(8,383)	(7,492)
Net cash provided by (used in) financing activities	$ (8,383)	$ (7,492)

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SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	9 Months Ended		12 Months Ended
	Sep. 30, 2015	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014	Dec. 31, 2011
Liquidity
Proceeds provided by sale of oil and natural gas properties		$ 1,846
Income Taxes
Net operating loss carryovers				$ 459,000
Net operating loss carryovers for financial reporting purposes				459,000
Tax deductions for compensation expense for financial reporting purposes				$ 40,000
Period for which net operating loss carryovers may be carried back				2 years
Period for which net operating loss carryovers may be carried forward				20 years
Oil and Natural Gas Properties
Impairment	$ 191,800	$ 337,830	$ 817
Discount Rate for Present Value of Net Revenues from Oil and Gas Reserves		10.00%
Federal
Income Taxes
Net operating loss carryovers				$ 499,000
Venoco, Inc.
Description of Operations
Percentage of common stock held		100.00%
Liquidity
Proceeds provided by sale of oil and natural gas properties		$ 1,846
Income Taxes
Net operating loss carryovers for financial reporting purposes				377,000
Oil and Natural Gas Properties
Impairment	$ 191,800	337,830	$ 817
Venoco, Inc. | Federal
Income Taxes
Net operating loss carryovers				$ 418,000
Venoco, Inc. | Mr. Marquez
Basis of Presentation
Share price (in dollars per share)					$ 12.50
Sale of Sacramento Basin and West Montalvo properties
Liquidity
Proceeds provided by sale of oil and natural gas properties		$ 450,000

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HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Derivative losses (gains), net	$ (21,439)	$ (30,336)	$ (24,639)	$ (13,521)
Commodity derivatives | Derivatives not designated as hedging instruments
HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Realized derivative losses (gains)	(16,840)	1,355	(58,932)	9,410
Unrealized interest rate swap derivative (gains) losses	(4,599)	(31,691)	34,293	(22,931)
Derivative losses (gains), net	$ (21,439)	$ (30,336)	$ (24,639)	$ (13,521)

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SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2015

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES

1. SIGNIFICANT ACCOUNTING POLICIES

Description of Operations  Denver Parent Corporation, a Delaware corporation (“DPC”), was formed in January 2012 for the purpose of acquiring all of the outstanding common stock of Venoco, Inc., a Delaware corporation (“Venoco”), in a transaction referred to as the “going private transaction”. The going private transaction was completed in October 2012. DPC has no operations and no material assets other than 100% of the common stock of Venoco. Venoco is engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties with a focus on properties offshore and onshore in California.

Basis of Presentation  In 2011, Venoco’s board of directors received a proposal from its then‑chairman and chief executive officer, Timothy Marquez, to acquire all of the outstanding shares of common stock of Venoco of which he was not the beneficial owner for $12.50 per share in cash. On October 3, 2012, Mr. Marquez and certain of his affiliates, including DPC, completed the going private transaction and acquired all of the outstanding stock of Venoco. As a result, Venoco’s common stock is no longer publicly traded and Venoco is a wholly owned subsidiary of DPC. DPC is majority‑owned and controlled by Mr. Marquez and his affiliates.

This Quarterly Report on Form 10‑Q is a combined report being filed by DPC and Venoco. Unless otherwise indicated or the context otherwise requires, (i) references to “DPC” refer only to DPC, (ii) references to the “Company,” “we,” “our” and “us” refer, for periods following the going private transaction, to DPC and its subsidiaries, including Venoco and its subsidiaries, and for periods prior to the going private transaction, to Venoco and its subsidiaries and (iii) references to “Venoco” refer to Venoco and its subsidiaries. Each registrant included herein is filing on its own behalf all of the information contained in this report that pertains to such registrant. When appropriate, disclosures specific to DPC and Venoco are identified as such. Each registrant included herein is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information. Where the information provided is substantially the same for both companies, such information has been combined. Where information is not substantially the same for both companies, we have provided separate information. In addition, separate financial statements for each company are included in this report.

The unaudited condensed consolidated financial statements include the accounts of DPC and its subsidiaries, and Venoco and its subsidiaries. All such subsidiaries are wholly owned. The financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all material adjustments considered necessary for a fair presentation of the Company’s interim results have been reflected. All such adjustments are considered to be of a normal recurring nature. The Company has evaluated subsequent events and transactions for matters that may require recognition or disclosure in the financial statements. The Annual Report on Form 10‑K for the year ended December 31, 2014 for Venoco and DPC includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this report. The results for interim periods are not necessarily indicative of annual results.

In the course of preparing the condensed consolidated financial statements, management makes various assumptions, judgments and estimates to determine the reported amount of assets, liabilities, revenue and expenses, and in the disclosures of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts initially established.

Liquidity The additional indebtedness that  the Company  incurred  in connection with and following the going private  transaction has increased  debt-and liquidity-related risks. We have undertaken a variety of measures to reduce our indebtedness, including sales of our Sacramento Basin and West Montalvo properties for an aggregate price of approximately $450 million.  However, our deleveraging efforts have been impacted by various operational issues, including an extended shutdown of the pipeline that transports our South Ellwood field production in 2014 and an additional extended shutdown of the same pipeline resulting from a spill that occurred in the second quarter of 2015. Our deleveraging efforts have also been affected by the dramatic decline in the price of oil that occurred over the second half of 2014 and continuing low prices in 2015. As a result of the debt restructuring transaction in April 2015 (see note 2), Venoco’s revolving credit facility was terminated.  However, prior to that termination, the Company was required to obtain numerous amendments to and waivers from the lenders under the facility as a result of these factors. We may be forced to seek further amendments or waivers from current or future lenders, and there is no assurance that we will be able to obtain them in a timely manner or at all.  The April 2015 debt transactions resulted in an increase in our overall indebtedness, but improved our near term liquidity.  We are currently exploring additional deleveraging efforts and our planned capital expenditures for 2015 are significantly reduced relative to prior years.  However, there can be no assurance that any deleveraging efforts will be successful or that we will be able to maintain adequate liquidity and compliance with our debt and other obligations.

Income Taxes The Company computes its quarterly taxes under the effective tax rate method based on applying an anticipated annual effective rate to its year‑to‑date income or loss, except for discrete items. Income taxes for discrete items are computed and recorded in the period in which the specific transaction occurs.

As of December 31, 2014, DPC  has net operating loss carryovers  ("NOLs") of $499 million for federal  income  tax purposes and $459 million for financial reporting  purposes,  and Venoco  has net NOLs as of December 31, 2014 of $418 million for federal  income  tax purposes  and $377 million for financial reporting  purposes. The difference  between  the federal  income  tax NOLs and the financial reporting  NOLs of $40 million for DPC relates  to tax deductions for compensation expense  for financial reporting  purposes  for which the benefit  will not be recognized  until the related  deductions reduce taxes payable. The net operating loss carryovers may be carried back two years and forward twenty years from the year the net operating loss was generated. The net operating losses may be used to offset taxable income through 2034.

Venoco has incurred losses before income taxes in 2008, 2009, and 2012 as well as tax losses in each of the tax years from 2008 through 2013. DPC has incurred losses before income taxes in 2008, 2009, 2012, 2013 and 2014 as well as taxable losses in each of the tax years from 2008 through 2014. These  losses and expected  future  taxable losses were a key consideration that  led each of Venoco  and DPC  to provide  a full valuation  allowance  against  its net deferred tax assets as of December 31, 2014 and September 30, 2015, since it cannot  conclude  that  it is more  likely than  not that  its net deferred tax assets will be fully realized  on future  income  tax returns.

The ultimate  realization  of deferred tax assets is dependent upon  the generation of future  taxable income  during  the periods  in which those  temporary  differences  become  deductible.  At each reporting period,  management considers  the scheduled  reversal  of deferred tax liabilities, available taxes in carryback  periods,  tax planning  strategies  and projected  future  taxable income  in making this assessment.  Future  events or new evidence  which may lead the Company  to conclude  that  it is more likely than  not that  its net deferred tax assets will be realized  include,  but are not limited  to, cumulative  historical  pre-tax  earnings;  consistent  and sustained  pre-tax  earnings;  sustained  or continued improvements in oil and natural  gas commodity  prices; meaningful  incremental oil production and proved  reserves  from the Company’s development efforts  at its Southern California  legacy properties; consistent,  meaningful  production and proved  reserves  from the Company’s onshore  Monterey  shale project;  meaningful  production and proved  reserves  from the CO2  project  at the Hastings  Complex; and taxable events resulting  from one or more  deleveraging  transactions. The Company will continue to evaluate whether the valuation allowance is needed in future reporting periods.

As long as the Company  concludes  that  it will continue  to have a need  for a full valuation allowance  against  its net deferred tax assets, the Company  likely will not have any income  tax expense or benefit  other  than  for federal  alternative  minimum  tax expense,  a release  of a portion  of the valuation  allowance  for net operating loss carryback  claims or for state  income  taxes.

Oil and Gas Properties The Company performs a full-cost ceiling test on a quarterly basis. The test establishes a limit (ceiling) on the book value of oil and gas properties. The capitalized costs of oil and gas properties, net of accumulated depreciation, depletion and amortization (DD&A) and the related deferred income taxes, may not exceed this "ceiling." The ceiling limitation is equal to the sum of: (i) the present value of estimated future net revenues from the projected production of proved oil and gas reserves, excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet, calculated using the average oil and natural gas sales price received by the Company as of the first trading day of each month over the preceding twelve months (such prices are held constant throughout the life of the properties) and a discount factor of 10%; (ii) the cost of unproved and unevaluated properties excluded from the costs being amortized; (iii) the lower of cost or estimated fair value of unproved properties included in the costs being amortized; and (iv) related income tax effects. If capitalized costs exceed this ceiling, the excess is charged to expense in the accompanying consolidated statements of operations.

At September 30, 2015, capitalized costs exceeded the ceiling and the Company recorded an impairment of oil and gas properties of $192 million for the quarter ended September 30, 2015. During the nine months ended September 30, 2015, the company recorded impairment of $338 million.  The impairment was primarily due to continued low commodity prices, which resulted in a reduction of the discounted present value of the Company's proved oil and natural gas reserves.  We will likely be required to recognize additional impairments of oil and gas properties in future periods if we continue to experience an extended period of low commodity prices, which will result in a downward adjustment to our estimated proved reserves and the associated present value of estimated future net revenues, or if we incur actual development costs in excess of the estimated costs used in preparing our reserve reports.

Reclassifications  Certain amounts in prior years footnotes to the financials statements have been reclassified to the 2015 presentation. Reclassified amounts were not material to the financial presentation.

Recently Issued Accounting Standards  In May 2014, the FASB issued new authoritative accounting guidance related to the recognition of revenue.  This authoritative accounting  guidance  is effective for the annual  period  beginning  after  December 15, 2017, including  interim  periods  within that  reporting period,  and is to be applied  using one of two acceptable  methods.  The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s consolidated financial statements and disclosures.

In August  2014, the FASB issued ASU No. 2014-15, Presentation of Financial  Statements—Going Concern,  which requires  management to evaluate  whether  there  is substantial  doubt  about  an entity’s ability to continue  as a going concern  and provide  related  footnote  disclosures.  The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The standard allows for either a full retrospective or modified retrospective transition method.  The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s consolidated financials.

In April 2015, the FASB issued ASU 2015-03 to revise the presentation of debt issuance costs.Under ASU 2015-03, entities will present debt issuance costs in their balance sheet as a direct deduction from the related debt liability rather than as an asset.  Amortization of the deferred costs will continue to be included in interest expense. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2015.  Early adoption is permitted for financial statements that have not been previously issued.  The standard will be applied retrospectively to all prior periods.  The Company is currently evaluating provisions of this guidance and assessing its impact on the Company’s consolidated financials.

In August 2015, the FASB issued Accounting Standards Update 2015-15, “Interest — Imputation of Interest:  Presentation and Subsequent Measurement of Debt Issuance Associated with Line-of-Credit Arrangements” (“ASU 2015-15”).  ASU 2015-15 addresses debt issuance costs associated with line-of-credit arrangements by allowing an entity to defer and present such debt issuance costs as an asset regardless of whether there are any outstanding borrowings under the line-of-credit arrangement.  ASU 2015-15 is applied retrospectively and is effective for the Company beginning on January 1, 2016.  The Company does not believe the adoption of ASU 2015-15 will have a material impact on its financial position, results of operations or cash flows.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Other property and equipment, accumulated depreciation and amortization (in dollars)	$ 14,787	$ 14,566
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	30,297,459	30,297,459
Common stock, shares outstanding	30,297,459	30,297,459
Venoco, Inc.
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	29,936,378	29,936,378
Common stock, shares outstanding	29,936,378	29,936,378

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DEBT (Tables)

9 Months Ended

Sep. 30, 2015

DEBT

Schedule of long-term debt

As of the dates indicated, the Company’s long‑term debt consisted of the following (in thousands):

	Venoco, Inc.				Denver Parent Corporation
	December 31,		September 30,		December 31,		September 30,
	2014		2015		2014		2015
Venoco revolving credit agreement due March 2016	$	65,000	$	—	$	65,000	$	—
Venoco 8.875% senior notes due February 2019		500,000		308,222		500,000		308,222
First lien secured 12% notes due February 2019		—		175,000		—		175,000
Second lien secured 8.875% / 12% PIK notes due February 2019(1)		—		133,843		—		133,843
Term loan facility due December 2017(2)		—		74,324		—		74,324
DPC 12.25% / 13.00% senior PIK toggle notes due August 2018(3)		—		—		275,065		304,176
Total long-term debt		565,000		691,389		840,065		995,565

(1) Amounts are net of $25.6  million unamortized discount at September 30, 2015

(2) Amounts are net of $0.7 million unamortized discount at September 30, 2015.

(3) Amounts are net of $4.6 million and $5.4 million unamortized discount at September 30, 2015 and December 31, 2014, respectively.

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2015	Nov. 12, 2015
Document and Entity Information
Entity Registrant Name	Denver Parent Corporation
Entity Central Index Key	0001588242
Document Type	10-Q
Document Period End Date	Sep. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	No
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		30,297,459
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3

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HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2015

HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS

Schedule of oil derivatives

	Oil (Brent)
		Weighted Avg.
	Barrels/day	Prices per Bbl
January 1 - December 31, 2015:
Swaps	460	$	100.40
Collars	4,135	$	90.00	/	$	100.00
January 1 - December 31, 2016:
Swaps	1,715	$	96.00

Schedule of estimated fair values of derivatives included in the condensed consolidated balance sheets

The main headings represent the balance sheet captions for the contracts presented (in thousands).

	December 31,		September 30,
	2014		2015
Current Assets—Commodity derivatives:
Oil derivative contracts	$	48,298	$	37,240
Noncurrent Assets—Commodity derivatives:
Oil derivative contracts		29,793		6,558
Net derivative asset	$	78,091	$	43,798

Commodity derivatives

HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS

Schedule of components of derivative losses (gains) in the condensed consolidated statements of operations

The components of commodity derivative losses (gains) in the condensed consolidated statements of operations are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2015		2014		2015
Realized commodity derivative losses (gains)	$	1,355	$	(16,840)	$	9,410	$	(58,932)
Unrealized commodity derivative losses (gains) for changes in fair value		(31,691)		(4,599)		(22,931)		34,293
Commodity derivative losses (gains), net	$	(30,336)	$	(21,439)	$	(13,521)	$	(24,639)

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
REVENUES:
Oil and natural gas sales	$ 10,646	$ 57,242	$ 49,712	$ 186,343
Other	508	609	1,730	1,544
Total revenues	11,154	57,851	51,442	187,887
EXPENSES:
Lease operating expense	12,955	18,225	41,093	55,878
Property and production taxes	747	2,124	4,906	6,130
Transportation expense	54	51	147	157
Depletion, depreciation and amortization	4,260	11,759	20,315	34,729
Impairment	191,800		337,830	817
Accretion of asset retirement obligations	525	629	1,536	1,852
General and administrative, net of amounts capitalized	5,890	1,403	19,666	19,394
Total expenses	216,231	34,191	425,493	118,957
Income (loss) from operations	(205,077)	23,660	(374,051)	68,930
FINANCING COSTS AND OTHER:
Interest expense, net	28,885	22,613	79,158	65,502
Amortization of deferred loan costs	1,656	1,151	4,280	3,338
Loss (gain) on extinguishment of debt			(67,515)
Commodity derivative losses (gains), net	(21,439)	(30,336)	(24,639)	(13,521)
Total financing costs and other	9,102	(6,572)	(8,716)	55,319
Income (loss) before income taxes	(214,179)	30,232	(365,335)	13,611
Net income (loss)	(214,179)	30,232	(365,335)	13,611
Venoco, Inc.
REVENUES:
Oil and natural gas sales	10,646	57,242	49,712	186,343
Other	508	609	1,730	1,544
Total revenues	11,154	57,851	51,442	187,887
EXPENSES:
Lease operating expense	12,955	18,225	41,093	55,878
Property and production taxes	747	2,124	4,906	6,130
Transportation expense	54	51	147	157
Depletion, depreciation and amortization	4,260	11,759	20,315	34,729
Impairment	191,800		337,830	817
Accretion of asset retirement obligations	525	629	1,536	1,852
General and administrative, net of amounts capitalized	5,890	1,352	19,597	19,004
Total expenses	216,231	34,140	425,424	118,567
Income (loss) from operations	(205,077)	23,711	(373,982)	69,320
FINANCING COSTS AND OTHER:
Interest expense, net	18,711	13,635	50,048	39,926
Amortization of deferred loan costs	973	887	3,060	2,583
Loss (gain) on extinguishment of debt			(67,515)
Commodity derivative losses (gains), net	(21,439)	(30,336)	(24,639)	(13,521)
Total financing costs and other	(1,755)	(15,814)	(39,046)	28,988
Income (loss) before income taxes	(203,322)	39,525	(334,936)	40,332
Net income (loss)	$ (203,322)	$ 39,525	$ (334,936)	$ 40,332

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2015

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

6. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. The FASB has established a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

The three levels of the fair value hierarchy are as follows:

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

Level 2—Pricing inputs  are other  than  quoted  prices in active markets  included  in level 1, but are either  directly or indirectly  observable  as of the reported date  and for substantially  the full term of the instrument. Inputs may include quoted prices for similar assets and liabilities. Level 2 includes those financial instruments that are valued using models or other valuation methodologies.

Level 3—Pricing inputs include significant inputs that are generally less observable from objective sources.  These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value of assets and liabilities and their placement within the fair value hierarchy levels. The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of September 30, 2015 (in thousands).

							Fair Value
							as of
							September 30,
	Level 1		Level 2		Level 3		2015
Assets (Liabilities):
Commodity derivative contracts	$	—	$	43,798	$	—	$	43,798
Share-based compensation		—		—		(556)		(556)

Derivative instruments. The Company’s commodity derivative instruments consist primarily of swaps and collars for oil. The Company  values the derivative  contracts  using industry  standard models,  based  on an income  approach, which considers  various assumptions  including  quoted  forward  prices and contractual prices for the underlying  commodities,  time value and volatility factors, as well as other  relevant economic  measures.  Substantially all of the assumptions can be observed throughout the full term of the contracts, can be derived from observable data or are supportable by observable levels at which transactions are executed in the marketplace and are therefore designated as level 2 within the fair value hierarchy.  The discount rates used in the assumptions include a component of non-performance risk. The Company utilizes the relevant counterparty valuations to assess the reasonableness of the calculated fair values.

Share‑based compensation.The Company’s current  share-based compensation liability includes  a liability for restricted  share  unit awards (RSUs),  share  appreciation rights (SARs)  and employee  stock ownership  plan unit awards (ESOP). The fair value of DPC common stock is a significant input for determining the share-based compensation amounts and the liability amounts for these cash settled awards. DPC is a privately held entity for which there is no available market price or principal market for DPC common shares.  Inputs for determining the fair market value of this instrument are unobservable and are therefore classified as Level 3 inputs.  The Company utilizes various valuation methods for determining the fair market value of this instrument including a net asset value approach, a comparable company approach, a discounted cash flow approach and a transaction approach. The Company’s estimate  of the value of DPC  shares  is highly dependent on commodity  prices, cost assumptions,  discount  rates,  oil and natural  gas proved  reserves,  overall market  conditions  and the identification of companies  and transactions that  are comparable to the Company’s operations and reserve  characteristics.  While some inputs  to the Company’s calculation  of fair value of DPC  shares  are from published  sources,  others,  such as reserve  values, the discount  rate  and expected  future  cash flows, are derived  from the Company’s own calculations  and estimates.  Significant changes in the unobservable inputs, summarized above, could result in a significantly different fair value estimate.

The grant date fair value of each SAR is estimated using the Black-Scholes valuation model.  The fair market value of DPC common shares is a significant input into the Black-Scholes valuation model. Valuation models require the input of highly subjective assumptions, including the expected volatility of the price of the underlying stock. DPC  shares  have characteristics significantly different  from those  of traded  shares,  and because  changes  in the subjective input  assumptions  can materially  affect the fair value estimate,  it is management’s  opinion  that  the valuations  afforded  by existing models are different from the value that  the shares  would realize  if traded  in the market.

The following table summarizes the changes in fair value of financial assets (liabilities), which represent primarily share-based compensation liabilities, designated as Level 3 in the valuation hierarchy (in thousands):

	Nine Months Ended
	September 30,
	2014		2015
Fair value liability, beginning of period	$	(20,928)	$	(1,038)
Transfers into Level 3(1)		(5,507)		(589)
Transfers out of Level 3(2)		5,555		566
Change in fair value of Level 3		9,322		505
Fair value liability, end of period	$	(11,558)	$	(556)

(1) The transfers into Level 3 liability during the first nine months of 2015 and 2014 relate to RSU, SAR and ESOP grants made by the Company to officers, directors and certain employees, and requisite service period expense.

(2) The transfers out of Level 3 liability during the first nine months of 2015 and 2014 relate to cash settlements of RSU grants, and forfeitures of RSU and SAR grants as a result of employee terminations.

Fair Value of Financial Instruments.The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable and payable, derivatives (discussed above) and long-term debt.  The carrying values of cash equivalents and accounts receivable and payable are representative of their fair values due to their short-term maturities.  The carrying amount of Venoco’s revolving credit facility and the term loan facility approximated fair value because the interest rates of these facilities were variable. The fair value of the Venoco senior notes and the DPC senior PIK toggle notes listed in the table below was derived from available market data (Level 1).  We used available market data and valuation techniques (Level 2) to estimate the fair value of the first lien and second lien notes. This disclosure does not impact our financial position, results of operations or cash flows (in thousands).

	December 31, 2014				September 30, 2015
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Venoco:
Revolving credit agreement	$	65,000	$	65,000	$	—	$	—
Venoco 8.875% senior notes due February 2019		500,000		262,000		308,222		57,021
First lien secured 12% notes due February 2019		—		—		175,000		141,210
Second lien secured 8.875% / 12% PIK notes due February 2019		—		—		133,843		87,072
Term loan facility due December 2017		—		—		74,324		74,324
Denver Parent Corporation:
12.25% / 13.00% senior PIK toggle notes		275,065		120,369		304,176		14,633

Assets and Liabilities Measured on a Non‑recurring Basis.  The Company uses fair value to determine the value of its asset retirement obligations (“ARO”) at the point of inception. The inputs used to determine such fair value under the expected present value technique are primarily based upon internal estimates prepared by reservoir engineers for costs of dismantlement, removal, site reclamation and similar activities associated with the Company’s oil and gas properties and would be classified as Level 3 inputs.

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SHARE-BASED PAYMENTS

9 Months Ended

Sep. 30, 2015

SHARE-BASED PAYMENTS

SHARE-BASED PAYMENTS

5. SHARE‑BASED PAYMENTS

The Company has granted cash settlement or liability awards to officers, directors and certain employees of the Company including rights‑to‑receive awards (RTR), restricted share unit awards (RSUs), share appreciation rights (SARs) and ESOP restricted share units. The Company measures its liability awards based on the award’s fair value remeasured at each reporting date until the date of settlement. Compensation cost for each period until settlement is based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered at the reporting date). Changes in the fair value of a liability that occur after the end of the requisite service period are compensation cost in the period in which the changes occur. Any difference between the amount for which a liability award is settled and its fair value at the settlement date is an adjustment of compensation cost in the period of settlement.

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DEBT (Details) $ in Thousands		1 Months Ended		9 Months Ended
	Apr. 02, 2015 USD ($) item	Aug. 31, 2014	Aug. 31, 2013 USD ($)	Sep. 30, 2015 USD ($)	Dec. 31, 2014 USD ($)	Feb. 28, 2011 USD ($)
LONG-TERM DEBT
Total long-term debt				$ 995,565	$ 840,065
Long-term debt, net of current portion				995,565	840,065
Net gain on extinguishment of debt				67,515
Amortization of debt issuance costs and discounts and premiums				4,500
Venoco, Inc.
LONG-TERM DEBT
Number of debt instruments | item	3
Total long-term debt				691,389	565,000
Long-term debt, net of current portion				691,389	565,000
Net gain on extinguishment of debt				$ 67,515
First lien secured notes
LONG-TERM DEBT
Interest rate (as a percent)				12.00%
Total long-term debt				$ 175,000
First lien secured notes | Venoco, Inc.
LONG-TERM DEBT
Interest rate (as a percent)				12.00%
Total long-term debt				$ 175,000
First lien secured notes | First redemption | Venoco, Inc.
LONG-TERM DEBT
Redemption price as a percentage of principal amount				109.00%
First lien secured notes | Final redemption | Venoco, Inc.
LONG-TERM DEBT
Redemption price as a percentage of principal amount				100.00%
Additional secured or unsecured debt | Maximum | Venoco, Inc.
LONG-TERM DEBT
Face value				$ 25,000
Second lien secured notes
LONG-TERM DEBT
Discount on notes				25,600
Additional second lien secured notes | Maximum | Venoco, Inc.
LONG-TERM DEBT
Face value				50,000
Additional third lien or unsecured debt | Maximum | Venoco, Inc.
LONG-TERM DEBT
Face value				150,000
Term Loan
LONG-TERM DEBT
Total long-term debt				74,324
Discount on notes				700
Term Loan | Venoco, Inc.
LONG-TERM DEBT
Face value	$ 75,000
Total long-term debt				$ 74,324
Term Loan | LIBOR
LONG-TERM DEBT
Applicable margin (as a percent)				4.00%
Senior Notes | First lien secured notes | Venoco, Inc.
LONG-TERM DEBT
Face value	$ 175,000
Senior Notes | Second lien secured notes | Venoco, Inc.
LONG-TERM DEBT
Cash interest rate (as a percent)	8.875%
Paid in kind interest rate (as a percent)	12.00%
Face value	$ 150,000
Maximum Period For Commencing Interest Payment At Option Of Subsidiary	24 months
Revolving credit agreement
LONG-TERM DEBT
Total long-term debt					65,000
Revolving credit agreement | Venoco, Inc.
LONG-TERM DEBT
Proceeds from issuance used for repayments of debt	$ 72,000
Total long-term debt					65,000
8.875% senior notes
LONG-TERM DEBT
Interest rate (as a percent)				8.875%
Total long-term debt				$ 308,222	500,000
Gross gain on extinguishment of debt				$ 44,000
8.875% senior notes | Venoco, Inc.
LONG-TERM DEBT
Interest rate (as a percent)				8.875%
Face value				$ 500,000
Proceeds from issuance used for repayments of debt	194,000
Total long-term debt				$ 308,222	500,000	$ 500,000
Face value of debt redeemed	192,000
Extinguishment of accrued interest	$ 2,000
8.875% senior notes | Two year period beginning on February 15, 2015 | Venoco, Inc.
LONG-TERM DEBT
Redemption price as a percentage of principal amount				104.438%
8.875% senior notes | Two year period beginning on February 15, 2017 | Venoco, Inc.
LONG-TERM DEBT
Redemption price as a percentage of principal amount				100.00%
8.875% senior notes | Second lien secured notes
LONG-TERM DEBT
Total long-term debt				$ 133,843
Gross gain on extinguishment of debt				28,000
8.875% senior notes | Second lien secured notes | Venoco, Inc.
LONG-TERM DEBT
Total long-term debt				$ 133,843
12.25% / 13.00% senior PIK toggle notes due 2018
LONG-TERM DEBT
Interest rate (as a percent)				13.00%
Cash interest rate (as a percent)				12.25%
Paid in kind interest rate (as a percent)				13.00%
Face value			$ 255,000
Total long-term debt				$ 304,176	275,065
Discount on notes				$ 4,600	$ 5,400
Percentage of interest paid in cash		25.00%
Percentage of interest paid in PIK		75.00%
Issuance price as a percentage of par value			97.304%
12.25% / 13.00% senior PIK toggle notes due 2018 | Three year period beginning on and after August 15, 2015
LONG-TERM DEBT
Redemption price as a percentage of principal amount				106.125%
12.25% / 13.00% senior PIK toggle notes due 2018 | Twelve month period beginning on August 15, 2017
LONG-TERM DEBT
Redemption price as a percentage of principal amount				100.00%
12.25% / 13.00% senior PIK toggle notes due 2018 | Minimum
LONG-TERM DEBT
Interest rate (as a percent)				12.25%
Cash interest rate (as a percent)				12.25%
12.25% / 13.00% senior PIK toggle notes due 2018 | Maximum
LONG-TERM DEBT
Interest rate (as a percent)				13.00%
Paid in kind interest rate (as a percent)				13.00%

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ASSET RETIREMENT OBLIGATIONS (Tables)

9 Months Ended

Sep. 30, 2015

ASSET RETIREMENT OBLIGATIONS

Schedule of the activities for the Company's asset retirement obligations

The following table summarizes the activities for the Company’s asset retirement obligations for the nine months ended September 30, 2014 and 2015 (in thousands):

	Nine Months Ended
	September 30,
	2014		2015
Asset retirement obligations at beginning of period	$	38,182	$	30,851
Revisions of estimated liabilities		(594)		1,789
Liabilities incurred or acquired		221		—
Liabilities settled or disposed		(599)		—
Accretion expense		1,852		1,536
Asset retirement obligations at end of period		39,062		34,176
Less: current asset retirement obligations (classified with accounts payable and accrued liabilities)		(500)		(1,100)
Long-term asset retirement obligations	$	38,562	$	33,076

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GUARANTOR FINANCIAL INFORMATION

9 Months Ended

Sep. 30, 2015

GUARANTOR FINANCIAL INFORMATION

GUARANTOR FINANCIAL INFORMATION

9. GUARANTOR FINANCIAL INFORMATION

All subsidiaries of Venoco other than Ellwood Pipeline Inc. (“Guarantors”) have fully and unconditionally guaranteed, on a joint and several basis, Venoco’s obligations under its 8.875% senior notes, 12% senior secured notes and 8.875% senior secured notes. Ellwood Pipeline, Inc. is not a Guarantor (the “Non‑Guarantor Subsidiary”). The condensed consolidating financial information for prior periods has been revised to reflect the guarantor and non‑guarantor status of the Company’s subsidiaries as of September 30, 2015. All Guarantors are 100% owned by Venoco. Presented below are Venoco’s condensed consolidating balance sheets, statements of operations and statements of cash flows as required by Rule 3‑10 of Regulation S‑X of the Securities Exchange Act of 1934. There are currently no guarantors of DPC’s 12.25 %/ 13.00% senior PIK toggle notes.

CONDENSED CONSOLIDATING BALANCE SHEETS

AT DECEMBER 31, 2014 (Unaudited)

(in thousands)

					Non-
			Guarantor		Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	15,455	$	—	$	—	$	—	$	15,455
Accounts receivable		14,140		56		716		—		14,912
Inventories		3,370		—		—		—		3,370
Other current assets		4,715		—		—		—		4,715
Commodity derivatives		48,298		—		—		—		48,298
TOTAL CURRENT ASSETS		85,978		56		716		—		86,750
PROPERTY, PLANT & EQUIPMENT, NET		654,549		(184,362)		18,327		—		488,514
COMMODITY DERIVATIVES		29,793		—		—		—		29,793
INVESTMENTS IN AFFILIATES		563,401		—		—		(563,401)		—
OTHER		11,138		59		—		—		11,197
TOTAL ASSETS		1,344,859		(184,247)		19,043		(563,401)		616,254
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		20,535		—		—		—		20,535
Interest payable		17,329		—		—		—		17,329
Share-based compensation		2,236		—		—		—		2,236
TOTAL CURRENT LIABILITIES:		40,100		—		—		—		40,100
LONG-TERM DEBT		565,000		—		—		—		565,000
COMMODITY DERIVATIVES		—		—		—		—		—
ASSET RETIREMENT OBLIGATIONS		27,906		1,652		793		—		30,351
SHARE-BASED COMPENSATION		648		—		—		—		648
INTERCOMPANY PAYABLES (RECEIVABLES)		735,845		(655,326)		(80,555)		36		—
TOTAL LIABILITIES		1,369,499		(653,674)		(79,762)		36		636,099
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		(24,640)		469,427		98,805		(563,437)		(19,845)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	1,344,859	$	(184,247)	$	19,043	$	(563,401)	$	616,254

CONDENSED CONSOLIDATING BALANCE SHEETS

AT SEPTEMBER 30,2015 (Unaudited)

(in thousands)

					Non-
			Guarantor		Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	94,708	$	—	$	—	$	—	$	94,708
Restricted funds		79,588		—		—		—		79,588
Accounts receivable		9,451		48		480		—		9,979
Inventories		3,329		—		—		—		3,329
Other current assets		4,088		—		—		—		4,088
Commodity derivatives		37,240		—		—		—		37,240
TOTAL CURRENT ASSETS		228,404		48		480		—		228,932
PROPERTY, PLANT & EQUIPMENT, NET		319,457		(184,441)		17,700		—		152,716
COMMODITY DERIVATIVES		6,558		—		—		—		6,558
INVESTMENTS IN AFFILIATES		563,401		—		—		(563,401)		—
OTHER		15,571		59		—		—		15,630
TOTAL ASSETS		1,133,391		(184,334)		18,180		(563,401)		403,836
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		24,188		—		—		—		24,188
Interest payable		8,814		—		—		—		8,814
Commodity		—		—		—		—		—
Share-based compensation		191		—		—		—		191
TOTAL CURRENT LIABILITIES:		33,193		—		—		—		33,193
LONG-TERM DEBT		691,389		—		—		—		691,389
COMMODITY		—		—		—		—		—
ASSET RETIREMENT OBLIGATIONS		30,566		1,703		807		—		33,076
SHARE-BASED COMPENSATION		463		—		—		—		463
INTERCOMPANY PAYABLES (RECEIVABLES)		744,593		(655,691)		(88,938)		36		—
TOTAL LIABILITIES		1,500,204		(653,988)		(88,131)		36		758,121
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		(366,813)		469,654		106,311		(563,437)		(354,285)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	1,133,391	$	(184,334)	$	18,180	$	(563,401)	$	403,836

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30,2014 (Unaudited)

(in thousands)

			Guarantor		Non-‑Guarantor‑
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
REVENUES:
Oil and natural gas sales	$	56,953	$	289	$	—	$	—	$	57,242
Other		119		—		2,058		(1,568)		609
Total revenues		57,072		289		2,058		(1,568)		57,851
EXPENSES:
Lease operating expense		17,430		10		785		—		18,225
Production and property taxes		1,961		2		161		—		2,124
Transportation expense		1,520		4		—		(1,473)		51
Depletion, depreciation and amortization		11,524		27		208		—		11,759
Impairment of oil and gas properties		—		—		—		—		—
Accretion of asset retirement obligations		586		32		11		—		629
General and administrative, net of amounts capitalized		1,294		—		153		(95)		1,352
Total expenses		34,315		75		1,318		(1,568)		34,140
Income from operations		22,757		214		740		—		23,711
FINANCING COSTS AND OTHER:
Interest expense, net		15,168		—		(1,533)		—		13,635
Amortization of deferred loan costs		887		—		—		—		887
Loss on extinguishment of debt		—		—		—		—		—
Commodity derivative losses (gains), net		(30,336)		—		—		—		(30,336)
Total financing costs and other		(14,281)		—		(1,533)		—		(15,814)
Equity in subsidiary income		1,543		—		—		(1,543)		—
Income (loss) before income taxes		38,581		214		2,273		(1,543)		39,525
Income tax provision (benefit)		(944)		82		863		(1)		—
Net income (loss)	$	39,525	$	132	$	1,410	$	(1,542)	$	39,525

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30,2015 (Unaudited)

(in thousands)

			Guarantor		Non-‑Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
REVENUES:
Oil and natural gas sales	$	10,491	$	155	$	—	$	—	$	10,646
Other		127		—		1,402		(1,021)		508
Total revenues		10,618		155		1,402		(1,021)		11,154
EXPENSES:
Lease operating expense		12,261		7		687		—		12,955
Production and property taxes		584		1		162		—		747
Transportation expense		966		9		—		(921)		54
Depletion, depreciation and amortization		4,024		26		210		—		4,260
Impairment of oil and gas properties		191,800		—		—		—		191,800
Accretion of asset retirement obligations		487		34		4		—		525
General and administrative, net of amounts capitalized		5,865		—		124		(99)		5,890
Total expenses		215,987		77		1,187		(1,020)		216,231
Income (loss) from operations		(205,369)		78		215		(1)		(205,077)
FINANCING COSTS AND OTHER:
Interest expense, net		20,459		—		(1,748)		—		18,711
Amortization of deferred loan costs		973		—		—		—		973
Loss on extinguishment of debt		—		—		—		—		—
Commodity derivative losses (gains), net		(21,439)		—		—		—		(21,439)
Total financing costs and other		(7)		—		(1,748)		—		(1,755)
Equity in subsidiary income		1,266		—		—		(1,266)		—
Income (loss) before income taxes		(204,096)		78		1,963		(1,267)		(203,322)
Income tax provision (benefit)		(776)		30		746		—		—
Net income (loss)	$	(203,320)	$	48	$	1,217	$	(1,267)	$	(203,322)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30,2014 (Unaudited)

(in thousands)

			Guarantor		Non-Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
REVENUES:
Oil and natural gas sales	$	185,413	$	930	$	—	$	—	$	186,343
Other		359		—		5,758		(4,573)		1,544
Total revenues		185,772		930		5,758		(4,573)		187,887
EXPENSES:
Lease operating expense		53,450		40		2,388		—		55,878
Production and property taxes		5,928		17		185		—		6,130
Transportation expense		4,437		10		—		(4,290)		157
Depletion, depreciation and amortization		34,027		79		623		—		34,729
Impairment of oil and gas properties		817		—		—		—		817
Accretion of asset retirement obligations		1,726		94		32		—		1,852
General and administrative, net of amounts capitalized		18,873		1		413		(283)		19,004
Total expenses		119,258		241		3,641		(4,573)		118,567
Income from operations		66,514		689		2,117		—		69,320
FINANCING COSTS AND OTHER:
Interest expense, net		44,378		—		(4,452)		—		39,926
Amortization of deferred loan costs		2,583		—		—		—		2,583
Loss on extinguishment of debt		—		—		—		—		—
Commodity derivative losses (gains), net		(13,521)		—		—		—		(13,521)
Total financing costs and other		33,440		—		(4,452)		—		28,988
Equity in subsidiary income		4,501		—		—		(4,501)		—
Income (loss) before income taxes		37,575		689		6,569		(4,501)		40,332
Income tax provision (benefit)		(2,757)		262		2,496		(1)		—
Net income (loss)	$	40,332	$	427	$	4,073	$	(4,500)	$	40,332

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30,2015 (Unaudited)

(in thousands)

			Guarantor		Non-‑Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
REVENUES:
Oil and natural gas sales	$	49,244	$	468	$	—	$	—	$	49,712
Other		375		—		5,849		(4,494)		1,730
Total revenues		49,619		468		5,849		(4,494)		51,442
EXPENSES:
Lease operating expense		38,874		34		2,185		—		41,093
Production and property taxes		4,672		2		232		—		4,906
Transportation expense		4,321		26		—		(4,200)		147
Depletion, depreciation and amortization		19,609		78		628		—		20,315
Impairment of oil and gas properties		337,830		—		—		—		337,830
Accretion of asset retirement obligations		1,420		102		14		—		1,536
General and administrative, net of amounts capitalized		19,532		—		358		(293)		19,597
Total expenses		426,258		242		3,417		(4,493)		425,424
Income from operations		(376,639)		226		2,432		(1)		(373,982)
FINANCING COSTS AND OTHER:
Interest expense, net		55,121		—		(5,073)		—		50,048
Amortization of deferred loan costs		3,060		—		—		—		3,060
Loss (gain) on extinguishment of debt		(67,515)		—		—		—		(67,515)
Commodity derivative losses (gains), net		(24,639)		—		—		—		(24,639)
Total financing costs and other		(33,973)		—		(5,073)		—		(39,046)
Equity in subsidiary income		4,794		—		—		(4,794)		—
Income (loss) before income taxes		(337,872)		226		7,505		(4,795)		(334,936)
Income tax provision (benefit)		(2,938)		86		2,852		—		—
Net income (loss)	$	(334,934)	$	140	$	4,653	$	(4,795)	$	(334,936)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30,2014 (Unaudited)

(in thousands)

					Non-
			Guarantor		Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities	$	26,172	$	885	$	7,563	$	—	$	34,620
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties		(75,774)		9		(71)		—		(75,836)
Acquisitions of oil and natural gas properties		(38)		—		—		—		(38)
Expenditures for property and equipment and other		(512)		—		—		—		(512)
Proceeds from sale of oil and natural gas properties		—		—		—		—		—
Net cash provided by (used in) investing activities		(76,324)		9		(71)		—		(76,386)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) intercompany borrowings		8,386		(894)		(7,492)		—		—
Proceeds from long-term debt		182,000		—		—		—		182,000
Principal payments on long-term debt		(122,000)		—		—		—		(122,000)
Payments for deferred loan costs		(371)		—		—		—		(371)
Dividend paid to Denver Parent Corporation		(3,905)		—		—		—		(3,905)
Net cash provided by (used in) financing activities		64,110		(894)		(7,492)		—		55,724
Net increase (decrease) in cash and cash equivalents		13,958		—		—		—		13,958
Cash and cash equivalents, beginning of period		828		—		—		—		828
Cash and cash equivalents, end of period	$	14,786	$	—	$	—	$	—	$	14,786

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30,2015 (Unaudited)

(in thousands)

					Non-
			Guarantor		Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities	$	(8,053)	$	414	$	8,383	$	—	$	744
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties		(16,076)		(49)		—		—		(16,125)
Acquisitions of oil and natural gas properties		(15)		—		—		—		(15)
Expenditures for property and equipment and other		(169)		—		—		—		(169)
Proceeds from sale of oil and natural gas properties		1,846		—		—		—		1,846
Net cash provided by (used in) investing activities		(14,414)		(49)		—		—		(14,463)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) intercompany borrowings		8,748		(365)		(8,383)		—		—
Proceeds from long-term debt		340,000		—		—		—		340,000
Principal payments on long-term debt		(155,000)		—		—		—		(155,000)
Payments for deferred loan costs		(14)		—		—		—		(14)
Debt Issuance Costs		(12,426)		—		—		—		(12,426)
Increased in restricted cash		(79,588)		—		—		—		(79,588)
Dividend paid to Denver Parent Corporation		—		—		—		—		—
Net cash provided by (used in) financing activities		101,720		(365)		(8,383)		—		92,972
Net increase (decrease) in cash and cash equivalents		79,253		—		—		—		79,253
Cash and cash equivalents, beginning of period		15,455		—		—		—		15,455
Cash and cash equivalents, end of period	$	94,708	$	—	$	—	$	—	$	94,708

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CONTINGENCIES

9 Months Ended

Sep. 30, 2015

CONTINGENCIES

CONTINGENCIES

7. CONTINGENCIES

In the ordinary course of our business we are named from time to time as a defendant in various legal proceedings. We maintain liability insurance and believe that our coverage is reasonable in view of the legal risks to which our business is subject.

Delaware Litigation—In August  2011 Timothy  Marquez,  the then-Chairman and CEO  of Venoco, submitted  a nonbinding  proposal  to the board  of directors  of Venoco  to acquire  all of the shares  of Venoco  he did not beneficially own for $12.50 per share  in cash (the “Marquez Proposal”). As a result of that  proposal, five lawsuits were filed in the Delaware  Court  of Chancery  in 2011 against  Venoco and each of its directors  by shareholders alleging that Venoco  and its directors  had breached  their fiduciary duties to the shareholders in connection with the Marquez  Proposal.  On January 16, 2012, Venoco entered into a Merger Agreement with Mr. Marquez and certain of his affiliates pursuant to which Venoco, Mr. Marquez and his affiliates would effect the going private transaction. Following announcement of the Merger Agreement, five additional suits were filed in Delaware and three suits were filed in federal court in Colorado naming as defendants Venoco and each of its directors.  In March 2013 the plaintiffs in Delaware filed a consolidated amended class action complaint in which they requested that  the court  determine among  other  things that  (i) the merger  consideration is inadequate and the Merger  Agreement was entered into in breach  of the fiduciary duties  of the defendants and is therefore unlawful and unenforceable and (ii) the merger  should  be rescinded  or in the alternative, the class should  be awarded  damages  to compensate them  for the loss as a resulting from of the breach  of fiduciary duties  by the defendants. The Colorado actions have been administratively closed pending resolution of the Delaware case. Venoco has reviewed the allegations contained in the amended complaint and believes they are without merit.  Trial is expected to occur in 2016.

Denbury Arbitration—In January  2013 Venoco  and its wholly owned subsidiary, TexCal Energy South  Texas, L.P. (“TexCal”), notified  Denbury  Resources, Inc. through  its subsidiary Denbury Onshore, LLC (“Denbury”) that  it was invoking the arbitration provisions contained in contracts between  TexCal and Denbury  pursuant to which TexCal conveyed its interest  in the Hastings  Complex to Denbury  and retained a reversionary  interest.  Denbury is obligated to convey the reversionary interest to TexCal at “payout” as defined in the contracts.  The dispute involves the calculation of the cost of CO2 delivered to the Hastings Complex which is used in Denbury’s enhanced oil recovery operations. The Company believes that Denbury has materially overcharged the payout account for the cost of CO2 and the cost of transporting it to the Hastings Complex.  In December 2013, the three judge arbitration panel unanimously agreed with Venoco’s position.  In January 2014 Denbury requested that the arbitration panel modify its decision in a way that could increase the cost of CO2. In March 2014 the Arbitration Panel  modified  its original  award consistent  with the Company’s position  and awarded  the Company  approximately  $1.8 million in attorneys’  fees and costs incurred  in the arbitration. In late March 2014 Denbury appealed the arbitration ruling to the District Court for Harris County, Texas asking the court to vacate the arbitration award. On February 11, 2015 the District Court granted Venoco’s motion to confirm the arbitration award. In March 2015, Denbury filed a motion for a new trial with the District Court which was denied. Denbury appealed the case to the Texas Court of Appeals in May 2015.

Other— In addition, Venoco is a party from time to time to other claims and legal actions that arise in the ordinary course of business. Venoco believes that the ultimate impact, if any, of these other claims and legal actions will not have a material effect on its consolidated financial position, results of operations or liquidity.

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RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2015

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

8. Related Party Transactions

The Company has entered into a non-exclusive aircraft sublease agreement with TimBer, LLC, a company owned by Mr. Marquez and his wife. The Company incurred costs related to the agreement of $0.5 million and $0.5 million in the first nine months of 2014 and 2015, respectively.

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2015

SIGNIFICANT ACCOUNTING POLICIES

Description of Operations

Description of Operations  Denver Parent Corporation, a Delaware corporation (“DPC”), was formed in January 2012 for the purpose of acquiring all of the outstanding common stock of Venoco, Inc., a Delaware corporation (“Venoco”), in a transaction referred to as the “going private transaction”. The going private transaction was completed in October 2012. DPC has no operations and no material assets other than 100% of the common stock of Venoco. Venoco is engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties with a focus on properties offshore and onshore in California.

Basis of Presentation

Basis of Presentation  In 2011, Venoco’s board of directors received a proposal from its then‑chairman and chief executive officer, Timothy Marquez, to acquire all of the outstanding shares of common stock of Venoco of which he was not the beneficial owner for $12.50 per share in cash. On October 3, 2012, Mr. Marquez and certain of his affiliates, including DPC, completed the going private transaction and acquired all of the outstanding stock of Venoco. As a result, Venoco’s common stock is no longer publicly traded and Venoco is a wholly owned subsidiary of DPC. DPC is majority‑owned and controlled by Mr. Marquez and his affiliates.

This Quarterly Report on Form 10‑Q is a combined report being filed by DPC and Venoco. Unless otherwise indicated or the context otherwise requires, (i) references to “DPC” refer only to DPC, (ii) references to the “Company,” “we,” “our” and “us” refer, for periods following the going private transaction, to DPC and its subsidiaries, including Venoco and its subsidiaries, and for periods prior to the going private transaction, to Venoco and its subsidiaries and (iii) references to “Venoco” refer to Venoco and its subsidiaries. Each registrant included herein is filing on its own behalf all of the information contained in this report that pertains to such registrant. When appropriate, disclosures specific to DPC and Venoco are identified as such. Each registrant included herein is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information. Where the information provided is substantially the same for both companies, such information has been combined. Where information is not substantially the same for both companies, we have provided separate information. In addition, separate financial statements for each company are included in this report.

The unaudited condensed consolidated financial statements include the accounts of DPC and its subsidiaries, and Venoco and its subsidiaries. All such subsidiaries are wholly owned. The financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all material adjustments considered necessary for a fair presentation of the Company’s interim results have been reflected. All such adjustments are considered to be of a normal recurring nature. The Company has evaluated subsequent events and transactions for matters that may require recognition or disclosure in the financial statements. The Annual Report on Form 10‑K for the year ended December 31, 2014 for Venoco and DPC includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this report. The results for interim periods are not necessarily indicative of annual results.

In the course of preparing the condensed consolidated financial statements, management makes various assumptions, judgments and estimates to determine the reported amount of assets, liabilities, revenue and expenses, and in the disclosures of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts initially established.

Liquidity

Liquidity The additional indebtedness that  the Company  incurred  in connection with and following the going private  transaction has increased  debt-and liquidity-related risks. We have undertaken a variety of measures to reduce our indebtedness, including sales of our Sacramento Basin and West Montalvo properties for an aggregate price of approximately $450 million.  However, our deleveraging efforts have been impacted by various operational issues, including an extended shutdown of the pipeline that transports our South Ellwood field production in 2014 and an additional extended shutdown of the same pipeline resulting from a spill that occurred in the second quarter of 2015. Our deleveraging efforts have also been affected by the dramatic decline in the price of oil that occurred over the second half of 2014 and continuing low prices in 2015. As a result of the debt restructuring transaction in April 2015 (see note 2), Venoco’s revolving credit facility was terminated.  However, prior to that termination, the Company was required to obtain numerous amendments to and waivers from the lenders under the facility as a result of these factors. We may be forced to seek further amendments or waivers from current or future lenders, and there is no assurance that we will be able to obtain them in a timely manner or at all.  The April 2015 debt transactions resulted in an increase in our overall indebtedness, but improved our near term liquidity.  We are currently exploring additional deleveraging efforts and our planned capital expenditures for 2015 are significantly reduced relative to prior years.  However, there can be no assurance that any deleveraging efforts will be successful or that we will be able to maintain adequate liquidity and compliance with our debt and other obligations.

Income Taxes

Income Taxes The Company computes its quarterly taxes under the effective tax rate method based on applying an anticipated annual effective rate to its year‑to‑date income or loss, except for discrete items. Income taxes for discrete items are computed and recorded in the period in which the specific transaction occurs.

As of December 31, 2014, DPC  has net operating loss carryovers  ("NOLs") of $499 million for federal  income  tax purposes and $459 million for financial reporting  purposes,  and Venoco  has net NOLs as of December 31, 2014 of $418 million for federal  income  tax purposes  and $377 million for financial reporting  purposes. The difference  between  the federal  income  tax NOLs and the financial reporting  NOLs of $40 million for DPC relates  to tax deductions for compensation expense  for financial reporting  purposes  for which the benefit  will not be recognized  until the related  deductions reduce taxes payable. The net operating loss carryovers may be carried back two years and forward twenty years from the year the net operating loss was generated. The net operating losses may be used to offset taxable income through 2034.

Venoco has incurred losses before income taxes in 2008, 2009, and 2012 as well as tax losses in each of the tax years from 2008 through 2013. DPC has incurred losses before income taxes in 2008, 2009, 2012, 2013 and 2014 as well as taxable losses in each of the tax years from 2008 through 2014. These  losses and expected  future  taxable losses were a key consideration that  led each of Venoco  and DPC  to provide  a full valuation  allowance  against  its net deferred tax assets as of December 31, 2014 and September 30, 2015, since it cannot  conclude  that  it is more  likely than  not that  its net deferred tax assets will be fully realized  on future  income  tax returns.

The ultimate  realization  of deferred tax assets is dependent upon  the generation of future  taxable income  during  the periods  in which those  temporary  differences  become  deductible.  At each reporting period,  management considers  the scheduled  reversal  of deferred tax liabilities, available taxes in carryback  periods,  tax planning  strategies  and projected  future  taxable income  in making this assessment.  Future  events or new evidence  which may lead the Company  to conclude  that  it is more likely than  not that  its net deferred tax assets will be realized  include,  but are not limited  to, cumulative  historical  pre-tax  earnings;  consistent  and sustained  pre-tax  earnings;  sustained  or continued improvements in oil and natural  gas commodity  prices; meaningful  incremental oil production and proved  reserves  from the Company’s development efforts  at its Southern California  legacy properties; consistent,  meaningful  production and proved  reserves  from the Company’s onshore  Monterey  shale project;  meaningful  production and proved  reserves  from the CO2  project  at the Hastings  Complex; and taxable events resulting  from one or more  deleveraging  transactions. The Company will continue to evaluate whether the valuation allowance is needed in future reporting periods.

As long as the Company  concludes  that  it will continue  to have a need  for a full valuation allowance  against  its net deferred tax assets, the Company  likely will not have any income  tax expense or benefit  other  than  for federal  alternative  minimum  tax expense,  a release  of a portion  of the valuation  allowance  for net operating loss carryback  claims or for state  income  taxes.

Oil and Natural Gas Properties

Oil and Gas Properties The Company performs a full-cost ceiling test on a quarterly basis. The test establishes a limit (ceiling) on the book value of oil and gas properties. The capitalized costs of oil and gas properties, net of accumulated depreciation, depletion and amortization (DD&A) and the related deferred income taxes, may not exceed this "ceiling." The ceiling limitation is equal to the sum of: (i) the present value of estimated future net revenues from the projected production of proved oil and gas reserves, excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet, calculated using the average oil and natural gas sales price received by the Company as of the first trading day of each month over the preceding twelve months (such prices are held constant throughout the life of the properties) and a discount factor of 10%; (ii) the cost of unproved and unevaluated properties excluded from the costs being amortized; (iii) the lower of cost or estimated fair value of unproved properties included in the costs being amortized; and (iv) related income tax effects. If capitalized costs exceed this ceiling, the excess is charged to expense in the accompanying consolidated statements of operations.

At September 30, 2015, capitalized costs exceeded the ceiling and the Company recorded an impairment of oil and gas properties of $192 million for the quarter ended September 30, 2015. During the nine months ended September 30, 2015, the company recorded impairment of $338 million.  The impairment was primarily due to continued low commodity prices, which resulted in a reduction of the discounted present value of the Company's proved oil and natural gas reserves.  We will likely be required to recognize additional impairments of oil and gas properties in future periods if we continue to experience an extended period of low commodity prices, which will result in a downward adjustment to our estimated proved reserves and the associated present value of estimated future net revenues, or if we incur actual development costs in excess of the estimated costs used in preparing our reserve reports.

Reclassifications

Reclassifications  Certain amounts in prior years footnotes to the financials statements have been reclassified to the 2015 presentation. Reclassified amounts were not material to the financial presentation.

Recently Issued Accounting Standards

Recently Issued Accounting Standards  In May 2014, the FASB issued new authoritative accounting guidance related to the recognition of revenue.  This authoritative accounting  guidance  is effective for the annual  period  beginning  after  December 15, 2017, including  interim  periods  within that  reporting period,  and is to be applied  using one of two acceptable  methods.  The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s consolidated financial statements and disclosures.

In August  2014, the FASB issued ASU No. 2014-15, Presentation of Financial  Statements—Going Concern,  which requires  management to evaluate  whether  there  is substantial  doubt  about  an entity’s ability to continue  as a going concern  and provide  related  footnote  disclosures.  The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The standard allows for either a full retrospective or modified retrospective transition method.  The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s consolidated financials.

In April 2015, the FASB issued ASU 2015-03 to revise the presentation of debt issuance costs.Under ASU 2015-03, entities will present debt issuance costs in their balance sheet as a direct deduction from the related debt liability rather than as an asset.  Amortization of the deferred costs will continue to be included in interest expense. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2015.  Early adoption is permitted for financial statements that have not been previously issued.  The standard will be applied retrospectively to all prior periods.  The Company is currently evaluating provisions of this guidance and assessing its impact on the Company’s consolidated financials.

In August 2015, the FASB issued Accounting Standards Update 2015-15, “Interest — Imputation of Interest:  Presentation and Subsequent Measurement of Debt Issuance Associated with Line-of-Credit Arrangements” (“ASU 2015-15”).  ASU 2015-15 addresses debt issuance costs associated with line-of-credit arrangements by allowing an entity to defer and present such debt issuance costs as an asset regardless of whether there are any outstanding borrowings under the line-of-credit arrangement.  ASU 2015-15 is applied retrospectively and is effective for the Company beginning on January 1, 2016.  The Company does not believe the adoption of ASU 2015-15 will have a material impact on its financial position, results of operations or cash flows

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GUARANTOR FINANCIAL INFORMATION (Details 3) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
REVENUES:
Oil and natural gas sales	$ 10,646	$ 57,242	$ 49,712	$ 186,343
Other	508	609	1,730	1,544
Total revenues	11,154	57,851	51,442	187,887
EXPENSES:
Lease operating expense	12,955	18,225	41,093	55,878
Production and property taxes	747	2,124	4,906	6,130
Transportation expense	54	51	147	157
Depletion, depreciation and amortization	4,260	11,759	20,315	34,729
Impairment	191,800		337,830	817
Accretion of asset retirement obligations	525	629	1,536	1,852
General and administrative, net of amounts capitalized	5,890	1,403	19,666	19,394
Total expenses	216,231	34,191	425,493	118,957
Income (loss) from operations	(205,077)	23,660	(374,051)	68,930
FINANCING COSTS AND OTHER:
Interest expense, net	28,885	22,613	79,158	65,502
Amortization of deferred loan costs	1,656	1,151	4,280	3,338
Loss (gain) on extinguishment of debt			(67,515)
Commodity derivative losses (gains), net	(21,439)	(30,336)	(24,639)	(13,521)
Total financing costs and other	9,102	(6,572)	(8,716)	55,319
Income (loss) before income taxes	(214,179)	30,232	(365,335)	13,611
Net income (loss)	(214,179)	30,232	(365,335)	13,611
Eliminations
REVENUES:
Other	(1,021)	(1,568)	(4,494)	(4,573)
Total revenues	(1,021)	(1,568)	(4,494)	(4,573)
EXPENSES:
Transportation expense	(921)	(1,473)	(4,200)	(4,290)
General and administrative, net of amounts capitalized	(99)	(95)	(293)	(283)
Total expenses	(1,020)	(1,568)	(4,493)	(4,573)
Income (loss) from operations	(1)		(1)
FINANCING COSTS AND OTHER:
Equity in subsidiary income	(1,266)	(1,543)	(4,794)	(4,501)
Income (loss) before income taxes	(1,267)	(1,543)	(4,795)	(4,501)
INCOME TAX PROVISION (BENEFIT)		(1)		(1)
Net income (loss)	(1,267)	(1,542)	(4,795)	(4,500)
Venoco, Inc.
REVENUES:
Oil and natural gas sales	10,646	57,242	49,712	186,343
Other	508	609	1,730	1,544
Total revenues	11,154	57,851	51,442	187,887
EXPENSES:
Lease operating expense	12,955	18,225	41,093	55,878
Production and property taxes	747	2,124	4,906	6,130
Transportation expense	54	51	147	157
Depletion, depreciation and amortization	4,260	11,759	20,315	34,729
Impairment	191,800		337,830	817
Accretion of asset retirement obligations	525	629	1,536	1,852
General and administrative, net of amounts capitalized	5,890	1,352	19,597	19,004
Total expenses	216,231	34,140	425,424	118,567
Income (loss) from operations	(205,077)	23,711	(373,982)	69,320
FINANCING COSTS AND OTHER:
Interest expense, net	18,711	13,635	50,048	39,926
Amortization of deferred loan costs	973	887	3,060	2,583
Loss (gain) on extinguishment of debt			(67,515)
Commodity derivative losses (gains), net	(21,439)	(30,336)	(24,639)	(13,521)
Total financing costs and other	(1,755)	(15,814)	(39,046)	28,988
Income (loss) before income taxes	(203,322)	39,525	(334,936)	40,332
Net income (loss)	(203,322)	39,525	(334,936)	40,332
Venoco, Inc
REVENUES:
Oil and natural gas sales	10,491	56,953	49,244	185,413
Other	127	119	375	359
Total revenues	10,618	57,072	49,619	185,772
EXPENSES:
Lease operating expense	12,261	17,430	38,874	53,450
Production and property taxes	584	1,961	4,672	5,928
Transportation expense	966	1,520	4,321	4,437
Depletion, depreciation and amortization	4,024	11,524	19,609	34,027
Impairment	191,800		337,830	817
Accretion of asset retirement obligations	487	586	1,420	1,726
General and administrative, net of amounts capitalized	5,865	1,294	19,532	18,873
Total expenses	215,987	34,315	426,258	119,258
Income (loss) from operations	(205,369)	22,757	(376,639)	66,514
FINANCING COSTS AND OTHER:
Interest expense, net	20,459	15,168	55,121	44,378
Amortization of deferred loan costs	973	887	3,060	2,583
Loss (gain) on extinguishment of debt			(67,515)
Commodity derivative losses (gains), net	(21,439)	(30,336)	(24,639)	(13,521)
Total financing costs and other	(7)	(14,281)	(33,973)	33,440
Equity in subsidiary income	1,266	1,543	4,794	4,501
Income (loss) before income taxes	(204,096)	38,581	(337,872)	37,575
INCOME TAX PROVISION (BENEFIT)	(776)	(944)	(2,938)	(2,757)
Net income (loss)	(203,320)	39,525	(334,934)	40,332
Guarantor Subsidiaries
REVENUES:
Oil and natural gas sales	155	289	468	930
Total revenues	155	289	468	930
EXPENSES:
Lease operating expense	7	10	34	40
Production and property taxes	1	2	2	17
Transportation expense	9	4	26	10
Depletion, depreciation and amortization	26	27	78	79
Accretion of asset retirement obligations	34	32	102	94
General and administrative, net of amounts capitalized				1
Total expenses	77	75	242	241
Income (loss) from operations	78	214	226	689
FINANCING COSTS AND OTHER:
Income (loss) before income taxes	78	214	226	689
INCOME TAX PROVISION (BENEFIT)	30	82	86	262
Net income (loss)	48	132	140	427
Non-Guarantor Subsidiary
REVENUES:
Other	1,402	2,058	5,849	5,758
Total revenues	1,402	2,058	5,849	5,758
EXPENSES:
Lease operating expense	687	785	2,185	2,388
Production and property taxes	162	161	232	185
Depletion, depreciation and amortization	210	208	628	623
Accretion of asset retirement obligations	4	11	14	32
General and administrative, net of amounts capitalized	124	153	358	413
Total expenses	1,187	1,318	3,417	3,641
Income (loss) from operations	215	740	2,432	2,117
FINANCING COSTS AND OTHER:
Interest expense, net	(1,748)	(1,533)	(5,073)	(4,452)
Total financing costs and other	(1,748)	(1,533)	(5,073)	(4,452)
Income (loss) before income taxes	1,963	2,273	7,505	6,569
INCOME TAX PROVISION (BENEFIT)	746	863	2,852	2,496
Net income (loss)	$ 1,217	$ 1,410	$ 4,653	$ 4,073

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GUARANTOR FINANCIAL INFORMATION (Tables)

9 Months Ended

Sep. 30, 2015

GUARANTOR FINANCIAL INFORMATION

Schedule of condensed consolidating balance sheets

CONDENSED CONSOLIDATING BALANCE SHEETS

AT DECEMBER 31, 2014 (Unaudited)

(in thousands)

					Non-
			Guarantor		Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	15,455	$	—	$	—	$	—	$	15,455
Accounts receivable		14,140		56		716		—		14,912
Inventories		3,370		—		—		—		3,370
Other current assets		4,715		—		—		—		4,715
Commodity derivatives		48,298		—		—		—		48,298
TOTAL CURRENT ASSETS		85,978		56		716		—		86,750
PROPERTY, PLANT & EQUIPMENT, NET		654,549		(184,362)		18,327		—		488,514
COMMODITY DERIVATIVES		29,793		—		—		—		29,793
INVESTMENTS IN AFFILIATES		563,401		—		—		(563,401)		—
OTHER		11,138		59		—		—		11,197
TOTAL ASSETS		1,344,859		(184,247)		19,043		(563,401)		616,254
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		20,535		—		—		—		20,535
Interest payable		17,329		—		—		—		17,329
Share-based compensation		2,236		—		—		—		2,236
TOTAL CURRENT LIABILITIES:		40,100		—		—		—		40,100
LONG-TERM DEBT		565,000		—		—		—		565,000
COMMODITY DERIVATIVES		—		—		—		—		—
ASSET RETIREMENT OBLIGATIONS		27,906		1,652		793		—		30,351
SHARE-BASED COMPENSATION		648		—		—		—		648
INTERCOMPANY PAYABLES (RECEIVABLES)		735,845		(655,326)		(80,555)		36		—
TOTAL LIABILITIES		1,369,499		(653,674)		(79,762)		36		636,099
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		(24,640)		469,427		98,805		(563,437)		(19,845)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	1,344,859	$	(184,247)	$	19,043	$	(563,401)	$	616,254

CONDENSED CONSOLIDATING BALANCE SHEETS

AT SEPTEMBER 30,2015 (Unaudited)

(in thousands)

					Non-
			Guarantor		Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	94,708	$	—	$	—	$	—	$	94,708
Restricted funds		79,588		—		—		—		79,588
Accounts receivable		9,451		48		480		—		9,979
Inventories		3,329		—		—		—		3,329
Other current assets		4,088		—		—		—		4,088
Commodity derivatives		37,240		—		—		—		37,240
TOTAL CURRENT ASSETS		228,404		48		480		—		228,932
PROPERTY, PLANT & EQUIPMENT, NET		319,457		(184,441)		17,700		—		152,716
COMMODITY DERIVATIVES		6,558		—		—		—		6,558
INVESTMENTS IN AFFILIATES		563,401		—		—		(563,401)		—
OTHER		15,571		59		—		—		15,630
TOTAL ASSETS		1,133,391		(184,334)		18,180		(563,401)		403,836
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		24,188		—		—		—		24,188
Interest payable		8,814		—		—		—		8,814
Commodity		—		—		—		—		—
Share-based compensation		191		—		—		—		191
TOTAL CURRENT LIABILITIES:		33,193		—		—		—		33,193
LONG-TERM DEBT		691,389		—		—		—		691,389
COMMODITY		—		—		—		—		—
ASSET RETIREMENT OBLIGATIONS		30,566		1,703		807		—		33,076
SHARE-BASED COMPENSATION		463		—		—		—		463
INTERCOMPANY PAYABLES (RECEIVABLES)		744,593		(655,691)		(88,938)		36		—
TOTAL LIABILITIES		1,500,204		(653,988)		(88,131)		36		758,121
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		(366,813)		469,654		106,311		(563,437)		(354,285)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	1,133,391	$	(184,334)	$	18,180	$	(563,401)	$	403,836

Schedule of condensed consolidating statements of operations

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30,2014 (Unaudited)

(in thousands)

			Guarantor		Non-‑Guarantor‑
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
REVENUES:
Oil and natural gas sales	$	56,953	$	289	$	—	$	—	$	57,242
Other		119		—		2,058		(1,568)		609
Total revenues		57,072		289		2,058		(1,568)		57,851
EXPENSES:
Lease operating expense		17,430		10		785		—		18,225
Production and property taxes		1,961		2		161		—		2,124
Transportation expense		1,520		4		—		(1,473)		51
Depletion, depreciation and amortization		11,524		27		208		—		11,759
Impairment of oil and gas properties		—		—		—		—		—
Accretion of asset retirement obligations		586		32		11		—		629
General and administrative, net of amounts capitalized		1,294		—		153		(95)		1,352
Total expenses		34,315		75		1,318		(1,568)		34,140
Income from operations		22,757		214		740		—		23,711
FINANCING COSTS AND OTHER:
Interest expense, net		15,168		—		(1,533)		—		13,635
Amortization of deferred loan costs		887		—		—		—		887
Loss on extinguishment of debt		—		—		—		—		—
Commodity derivative losses (gains), net		(30,336)		—		—		—		(30,336)
Total financing costs and other		(14,281)		—		(1,533)		—		(15,814)
Equity in subsidiary income		1,543		—		—		(1,543)		—
Income (loss) before income taxes		38,581		214		2,273		(1,543)		39,525
Income tax provision (benefit)		(944)		82		863		(1)		—
Net income (loss)	$	39,525	$	132	$	1,410	$	(1,542)	$	39,525

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30,2015 (Unaudited)

(in thousands)

			Guarantor		Non-‑Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
REVENUES:
Oil and natural gas sales	$	10,491	$	155	$	—	$	—	$	10,646
Other		127		—		1,402		(1,021)		508
Total revenues		10,618		155		1,402		(1,021)		11,154
EXPENSES:
Lease operating expense		12,261		7		687		—		12,955
Production and property taxes		584		1		162		—		747
Transportation expense		966		9		—		(921)		54
Depletion, depreciation and amortization		4,024		26		210		—		4,260
Impairment of oil and gas properties		191,800		—		—		—		191,800
Accretion of asset retirement obligations		487		34		4		—		525
General and administrative, net of amounts capitalized		5,865		—		124		(99)		5,890
Total expenses		215,987		77		1,187		(1,020)		216,231
Income (loss) from operations		(205,369)		78		215		(1)		(205,077)
FINANCING COSTS AND OTHER:
Interest expense, net		20,459		—		(1,748)		—		18,711
Amortization of deferred loan costs		973		—		—		—		973
Loss on extinguishment of debt		—		—		—		—		—
Commodity derivative losses (gains), net		(21,439)		—		—		—		(21,439)
Total financing costs and other		(7)		—		(1,748)		—		(1,755)
Equity in subsidiary income		1,266		—		—		(1,266)		—
Income (loss) before income taxes		(204,096)		78		1,963		(1,267)		(203,322)
Income tax provision (benefit)		(776)		30		746		—		—
Net income (loss)	$	(203,320)	$	48	$	1,217	$	(1,267)	$	(203,322)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30,2014 (Unaudited)

(in thousands)

			Guarantor		Non-Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
REVENUES:
Oil and natural gas sales	$	185,413	$	930	$	—	$	—	$	186,343
Other		359		—		5,758		(4,573)		1,544
Total revenues		185,772		930		5,758		(4,573)		187,887
EXPENSES:
Lease operating expense		53,450		40		2,388		—		55,878
Production and property taxes		5,928		17		185		—		6,130
Transportation expense		4,437		10		—		(4,290)		157
Depletion, depreciation and amortization		34,027		79		623		—		34,729
Impairment of oil and gas properties		817		—		—		—		817
Accretion of asset retirement obligations		1,726		94		32		—		1,852
General and administrative, net of amounts capitalized		18,873		1		413		(283)		19,004
Total expenses		119,258		241		3,641		(4,573)		118,567
Income from operations		66,514		689		2,117		—		69,320
FINANCING COSTS AND OTHER:
Interest expense, net		44,378		—		(4,452)		—		39,926
Amortization of deferred loan costs		2,583		—		—		—		2,583
Loss on extinguishment of debt		—		—		—		—		—
Commodity derivative losses (gains), net		(13,521)		—		—		—		(13,521)
Total financing costs and other		33,440		—		(4,452)		—		28,988
Equity in subsidiary income		4,501		—		—		(4,501)		—
Income (loss) before income taxes		37,575		689		6,569		(4,501)		40,332
Income tax provision (benefit)		(2,757)		262		2,496		(1)		—
Net income (loss)	$	40,332	$	427	$	4,073	$	(4,500)	$	40,332

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30,2015 (Unaudited)

(in thousands)

			Guarantor		Non-‑Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
REVENUES:
Oil and natural gas sales	$	49,244	$	468	$	—	$	—	$	49,712
Other		375		—		5,849		(4,494)		1,730
Total revenues		49,619		468		5,849		(4,494)		51,442
EXPENSES:
Lease operating expense		38,874		34		2,185		—		41,093
Production and property taxes		4,672		2		232		—		4,906
Transportation expense		4,321		26		—		(4,200)		147
Depletion, depreciation and amortization		19,609		78		628		—		20,315
Impairment of oil and gas properties		337,830		—		—		—		337,830
Accretion of asset retirement obligations		1,420		102		14		—		1,536
General and administrative, net of amounts capitalized		19,532		—		358		(293)		19,597
Total expenses		426,258		242		3,417		(4,493)		425,424
Income from operations		(376,639)		226		2,432		(1)		(373,982)
FINANCING COSTS AND OTHER:
Interest expense, net		55,121		—		(5,073)		—		50,048
Amortization of deferred loan costs		3,060		—		—		—		3,060
Loss (gain) on extinguishment of debt		(67,515)		—		—		—		(67,515)
Commodity derivative losses (gains), net		(24,639)		—		—		—		(24,639)
Total financing costs and other		(33,973)		—		(5,073)		—		(39,046)
Equity in subsidiary income		4,794		—		—		(4,794)		—
Income (loss) before income taxes		(337,872)		226		7,505		(4,795)		(334,936)
Income tax provision (benefit)		(2,938)		86		2,852		—		—
Net income (loss)	$	(334,934)	$	140	$	4,653	$	(4,795)	$	(334,936)

Schedule of condensed consolidating statement of cash flows

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30,2014 (Unaudited)

(in thousands)

					Non-
			Guarantor		Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities	$	26,172	$	885	$	7,563	$	—	$	34,620
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties		(75,774)		9		(71)		—		(75,836)
Acquisitions of oil and natural gas properties		(38)		—		—		—		(38)
Expenditures for property and equipment and other		(512)		—		—		—		(512)
Proceeds from sale of oil and natural gas properties		—		—		—		—		—
Net cash provided by (used in) investing activities		(76,324)		9		(71)		—		(76,386)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) intercompany borrowings		8,386		(894)		(7,492)		—		—
Proceeds from long-term debt		182,000		—		—		—		182,000
Principal payments on long-term debt		(122,000)		—		—		—		(122,000)
Payments for deferred loan costs		(371)		—		—		—		(371)
Dividend paid to Denver Parent Corporation		(3,905)		—		—		—		(3,905)
Net cash provided by (used in) financing activities		64,110		(894)		(7,492)		—		55,724
Net increase (decrease) in cash and cash equivalents		13,958		—		—		—		13,958
Cash and cash equivalents, beginning of period		828		—		—		—		828
Cash and cash equivalents, end of period	$	14,786	$	—	$	—	$	—	$	14,786

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30,2015 (Unaudited)

(in thousands)

					Non-
			Guarantor		Guarantor
	Venoco, Inc.		Subsidiaries		Subsidiary		Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities	$	(8,053)	$	414	$	8,383	$	—	$	744
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and natural gas properties		(16,076)		(49)		—		—		(16,125)
Acquisitions of oil and natural gas properties		(15)		—		—		—		(15)
Expenditures for property and equipment and other		(169)		—		—		—		(169)
Proceeds from sale of oil and natural gas properties		1,846		—		—		—		1,846
Net cash provided by (used in) investing activities		(14,414)		(49)		—		—		(14,463)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) intercompany borrowings		8,748		(365)		(8,383)		—		—
Proceeds from long-term debt		340,000		—		—		—		340,000
Principal payments on long-term debt		(155,000)		—		—		—		(155,000)
Payments for deferred loan costs		(14)		—		—		—		(14)
Debt Issuance Costs		(12,426)		—		—		—		(12,426)
Increased in restricted cash		(79,588)		—		—		—		(79,588)
Dividend paid to Denver Parent Corporation		—		—		—		—		—
Net cash provided by (used in) financing activities		101,720		(365)		(8,383)		—		92,972
Net increase (decrease) in cash and cash equivalents		79,253		—		—		—		79,253
Cash and cash equivalents, beginning of period		15,455		—		—		—		15,455
Cash and cash equivalents, end of period	$	94,708	$	—	$	—	$	—	$	94,708

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HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS (Details 3) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Current Assets Commodity derivatives:	$ 37,240	$ 48,298
Non current Assets Commodity derivatives:	6,558	29,793
Change in net fair value of the derivatives	34,300
Derivatives not designated as hedging instruments
HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Net derivative asset (liability)	43,798	78,091
Derivatives not designated as hedging instruments | Oil derivative contracts
HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS
Current Assets Commodity derivatives:	37,240	48,298
Non current Assets Commodity derivatives:	$ 6,558	$ 29,793

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - 9 months ended Sep. 30, 2015 - USD ($) $ in Thousands	Common Stock Venoco, Inc.	Common Stock	Additional Paid-in Capital Venoco, Inc.	Additional Paid-in Capital	Retained Earnings (Accumulated Deficit) Venoco, Inc.	Retained Earnings (Accumulated Deficit)	Venoco, Inc.	Total
BALANCE at Dec. 31, 2014	$ 299	$ 303	$ 285,120	$ 73,902	$ (305,264)	$ (364,422)	$ (19,845)	$ (290,217)
BALANCE (in shares) at Dec. 31, 2014	29,936	30,297					29,936,378	30,297,459
Increase (Decrease) in Stockholders' Equity
Excess of share-based compensation expense recognized over payments made			496	496			$ 496	$ 496
Net income (loss)					(334,936)	(365,335)	(334,936)	(365,335)
BALANCE at Sep. 30, 2015	$ 299	$ 303	$ 285,616	$ 74,398	$ (640,200)	$ (729,757)	$ (354,285)	$ (655,056)
BALANCE (in shares) at Sep. 30, 2015	29,936	30,297					29,936,378	30,297,459

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ASSET RETIREMENT OBLIGATIONS

9 Months Ended

Sep. 30, 2015

ASSET RETIREMENT OBLIGATIONS

ASSET RETIREMENT OBLIGATIONS

4. ASSET RETIREMENT OBLIGATIONS

The following table summarizes the activities for the Company’s asset retirement obligations for the nine months ended September 30, 2014 and 2015 (in thousands):

	Nine Months Ended
	September 30,
	2014		2015
Asset retirement obligations at beginning of period	$	38,182	$	30,851
Revisions of estimated liabilities		(594)		1,789
Liabilities incurred or acquired		221		—
Liabilities settled or disposed		(599)		—
Accretion expense		1,852		1,536
Asset retirement obligations at end of period		39,062		34,176
Less: current asset retirement obligations (classified with accounts payable and accrued liabilities)		(500)		(1,100)
Long-term asset retirement obligations	$	38,562	$	33,076

The difference between the ending balance as of September 30, 2014 and the beginning balance 2015 is a result of the sale of the West Montalvo field.

Discount rates used to calculate the present value vary depending on the estimated timing of the obligation, but typically range between 4% and 9%.  

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ASSET RETIREMENT OBLIGATIONS (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Activities for the Company's asset retirement obligations
Asset retirement obligations at beginning of period			$ 30,851	$ 38,182
Revisions of estimated liabilities			1,789	(594)
Liabilities incurred or acquired				221
Liabilities settled				(599)
Accretion expense	$ 525	$ 629	1,536	1,852
Asset Retirement Obligation at end of period	34,176	39,062	$ 30,851	$ 38,182	$ 30,851
Less: current asset retirement obligations (classified with accounts payable and accrued liabilities)	(1,100)	(500)
Long-term asset retirement obligations	$ 33,076	$ 38,562			$ 30,351
Minimum
Activities for the Company's asset retirement obligations
Discount rates used to calculate the present value of asset retirement obligations (as a percent)			4.00%
Maximum
Activities for the Company's asset retirement obligations
Discount rates used to calculate the present value of asset retirement obligations (as a percent)			9.00%

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2015

FAIR VALUE MEASUREMENTS

Schedule of financial assets and liabilities accounted for at fair value

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of September 30, 2015 (in thousands).

							Fair Value
							as of
							September 30,
	Level 1		Level 2		Level 3		2015
Assets (Liabilities):
Commodity derivative contracts	$	—	$	43,798	$	—	$	43,798
Share-based compensation		—		—		(556)		(556)

Summary of changes in fair value of financial assets (liabilities), which represent primarily share-based compensation liabilities, designated as Level 3 in the valuation hierarchy

The following table summarizes the changes in fair value of financial assets (liabilities), which represent primarily share-based compensation liabilities, designated as Level 3 in the valuation hierarchy (in thousands):

	Nine Months Ended
	September 30,
	2014		2015
Fair value liability, beginning of period	$	(20,928)	$	(1,038)
Transfers into Level 3(1)		(5,507)		(589)
Transfers out of Level 3(2)		5,555		566
Change in fair value of Level 3		9,322		505
Fair value liability, end of period	$	(11,558)	$	(556)

(1) The transfers into Level 3 liability during the first nine months of 2015 and 2014 relate to RSU, SAR and ESOP grants made by the Company to officers, directors and certain employees, and requisite service period expense.

(2) The transfers out of Level 3 liability during the first nine months of 2015 and 2014 relate to cash settlements of RSU grants, and forfeitures of RSU and SAR grants as a result of employee terminations.

Schedule of fair value of financial instruments

This disclosure does not impact our financial position, results of operations or cash flows (in thousands).

	December 31, 2014				September 30, 2015
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Venoco:
Revolving credit agreement	$	65,000	$	65,000	$	—	$	—
Venoco 8.875% senior notes due February 2019		500,000		262,000		308,222		57,021
First lien secured 12% notes due February 2019		—		—		175,000		141,210
Second lien secured 8.875% / 12% PIK notes due February 2019		—		—		133,843		87,072
Term loan facility due December 2017		—		—		74,324		74,324
Denver Parent Corporation:
12.25% / 13.00% senior PIK toggle notes		275,065		120,369		304,176		14,633