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Fresh Start Accounting

12 Months Ended

Dec. 31, 2021

On the Emergence Date, the Company was required to adopt fresh start accounting in accordance with ASC 852 as (i) the holders of existing voting shares of the Predecessor received less than 50% of the voting shares of the Successor and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the Joint Prepackaged Chapter 11 Plan of Reorganization of Oasis Petroleum Inc. and its Debtor Affiliates (the “Plan”) of $2.2 billion was less than the total of post-petition liabilities and allowed claims of $3.2 billion. Refer to Note 2—Emergence from Voluntary Reorganization under Chapter 11 for the terms of the Plan.

Reorganization Value

Under fresh start accounting, reorganization value represents the value of the entity before considering liabilities and is intended to represent the approximate amount a willing buyer would pay for the assets immediately after the restructuring. Upon the adoption of fresh start accounting, the Company allocated the reorganization value to its individual assets and liabilities based on their fair values (except for deferred income taxes) in conformity with Accounting Standards Codification 805, Business Combinations. Deferred income tax amounts were determined in accordance with Accounting Standards Codification 740, Income Taxes (“ASC 740”).

Reorganization value is derived from an estimate of enterprise value, or the fair value of the Company’s interest-bearing debt and stockholders’ equity. As set forth in the Plan and related disclosure statement approved by the Bankruptcy Court, the enterprise value of the Successor was estimated to be between $1.3 billion and $1.7 billion. The enterprise value was prepared using reserve information, development schedules, other financial information and financial projections, and applying standard valuation techniques, including risked net asset value analysis, discounted cash flow analysis, public comparable company analysis and precedent transactions analysis. On the Emergence Date, the Company estimated the enterprise value to be $1.3 billion based on the estimates and assumptions used in determining the enterprise value coupled with consideration of the indicated enterprise value implied by the trading value of the Company’s Notes prior to the Emergence Date, as the reorganized Successor’s equity would be issued to the holders of the Notes under the Plan.

The Company’s principal E&P segment assets are its oil and gas properties, which were valued using primarily an income approach. The fair value of proved oil and natural gas properties was estimated using a discounted cash flow model, which is subject to management’s judgment and expertise and includes, but is not limited to, estimates of proved reserves, future commodity pricing, future production estimates, estimates of operating and development costs and a discount rate. Estimated proved reserves were risked by reserve category and were limited to wells included in the Company's five-year development plan. The underlying future commodity prices used to estimate future cash flows were based on NYMEX forward strip prices as of Emergence Date through 2022, escalating 2% per year thereafter (based on historical average annual consumer price index percentage changes) until reaching $75 per barrel for crude oil and $4.80 per Mcf for natural gas in 2051 after which prices were held flat. These prices were adjusted for transportation fees and quality and geographical differentials. Future operating and development costs were estimated based on the Company's recent actual costs, excluding the cost benefits the Company realizes from consolidating its midstream business segment. The cash flow models also included estimates not typically included in proved reserves, such as general and administrative expenses and income tax expenses, and estimated future cash flows were discounted using a weighted average cost of capital discount rate of 11%. In estimating the fair value of the Company’s unproved acreage, a market approach was used in which a review of recent transactions involving properties in the same geographical location were considered when estimating the fair value of the Company’s acreage.

The Company’s midstream business segment was primarily operated through OMP, which has been classified as a discontinued operation (see Note 6—Discontinued Operations). OMP’s enterprise value as of the Emergence Date was determined using the market approach based on a volume weighted average price calculation for OMP’s outstanding limited partner units. The

Company estimated the fair value of its retained interests as of the Emergence Date in Bobcat DevCo and Beartooth DevCo of 64.7% and 30%, respectively, using an income approach, which was based on the anticipated future cash flows associated with the respective DevCos and discounted using a weighted average cost of capital discount rate of 13%.

The midstream segment’s tangible assets primarily consisted of pipelines, natural gas processing plants, compressor stations, produced water gathering lines and disposal wells, tanks, other facilities and equipment and rights of way. The estimated fair value of these midstream assets was determined using a cost approach, based on current replacement costs of the assets less depreciation based on the estimated useful lives of the assets and ages of the assets. Economic and functional obsolescence were also considered and applied in the form of inutility and excess capital costs. The midstream segment’s identifiable intangible assets included third-party customer contracts and its interest in OMP GP. The Company determined the estimated fair value of customer contracts based on the excess earnings method of the income approach, which consists of estimating the incremental after-tax cash flows attributable to the intangible assets only. The Company estimated the fair value of its interest as of the Emergence Date in OMP GP using a combination of an income approach and market approach.

The excess reorganization value over the fair value of identified tangible and intangible assets was attributable to the midstream segment and recorded as goodwill, which has been classified as held for sale on the Consolidated Balance Sheets as of December 31, 2021 and 2020.

Although the Company believes the assumptions and estimates used to develop enterprise value and reorganization value are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and resulting conclusions. The assumptions used in estimating these values are inherently uncertain and require judgment. See below under “Fresh Start Adjustments” for additional information regarding assumptions used in the measurement of the Company’s various other significant assets and liabilities.

The following table reconciles the Company’s enterprise value to the estimated fair value of the Successor’s stockholders’ equity at the Emergence Date:


	November 19, 2020

	(In thousands)
Enterprise value	$	1,300,000
Plus: Cash(1)	5,615
Less: Fair value of Oasis Credit Facility(2)	(340,000)
Fair value of Oasis share of Successor stockholders’ equity(3)	965,615
Plus: Fair value of non-controlling interests	92,816
Fair value of total Successor stockholders’ equity	$	1,058,431

__________________

(1)Cash excludes $4.5 million of cash attributable to OMP and includes $1.4 million that was initially classified as restricted cash as of November 19, 2020 but subsequently released from escrow and returned to the Successor. A total of $10.4 million of restricted cash as of November 19, 2020 was used to pay professional fees and is not included in the table above.

(2)Enterprise value includes the value of the Company’s interests in OMP and OMP GP, which is net of debt under the OMP Credit Facility, and as such, only the fair value of debt under the Oasis Credit Facility is subtracted in order to determine the value of the Successor’s stockholders’ equity.

(3)Reflects Successor equity issued in accordance with the Plan, including 20,000,000 shares of common stock and 1,621,622 warrants (the “Warrants”).

The following table reconciles the Company’s enterprise value to the estimated reorganization value as of the Emergence Date:


	November 19, 2020

	(In thousands)
Enterprise value	$	1,300,000
Plus: Fair value of OMP Credit Facility held for sale(1)	455,500
Plus: Fair value of non-controlling interests	92,816
Plus: Cash(2)	5,615
Plus: Current liabilities	266,796
Plus: Asset retirement obligations (non-current portion)	45,161
Plus: Other non-current liabilities	28,086
Plus: Current liabilities held for sale	38,796
Plus: Non-current liabilities held for sale	5,221
Reorganization value of Successor assets	$	2,237,991

_________________

(1) Enterprise value includes the value of the Company’s interests in OMP and OMP GP, which is net of debt under the OMP Credit Facility, and as such, the fair value of the OMP Credit Facility is considered in the reconciliation of enterprise value to the reorganization value of the Successor’s assets.

(2) Cash excludes $4.5 million of cash attributable to OMP and includes $1.4 million that was initially classified as restricted cash as of November 19, 2020 but subsequently released from escrow and returned to the Successor. A total of $10.4 million of restricted cash as of November 19, 2020 was used to pay professional fees and is not included in the table above.

Reorganization value and enterprise value were estimated using numerous projections and assumptions that are inherently subject to significant uncertainties and resolution of contingencies that are beyond the Company’s control. Accordingly, the estimates included in this report are not necessarily indicative of actual outcomes, and there can be no assurance that the estimates, projections or assumptions will be realized.

Condensed Consolidated Balance Sheet

The adjustments set forth in the following fresh start Condensed Consolidated Balance Sheet reflect the effect of the transactions contemplated by the Plan (“Reorganization Adjustments”) and the fair value and other required adjustments as a result of applying fresh start accounting (“Fresh Start Adjustments”). The explanatory notes provide additional information with regard to the adjustments recorded, the methods used to determine fair values as well as significant assumptions.


	As of November 19, 2020
	Predecessor		Reorganization Adjustments			Fresh Start Adjustments			Successor

	(In thousands)
ASSETS
Current assets
Cash and cash equivalents	$	69,558	$	(65,317)	(a)	$	—		$	4,241
Restricted cash	—		11,800		(b)	—			11,800
Accounts receivable, net	234,413		—			—			234,413
Inventory	19,867		—			2,102		(q)	21,969
Prepaid expenses	8,085		(4,325)		(c)	—			3,760
Derivative instruments	728		—			—			728
Other current assets	104		—			—			104
Current assets held for sale	62,070		—			—			62,070
Total current assets	394,825		(57,842)			2,102			339,085
Property, plant and equipment
Oil and gas properties (successful efforts method)	9,301,065		—			(8,505,818)		(r)	795,247
Other property and equipment	105,410		—			(60,411)		(r)	44,999


Less: accumulated depreciation, depletion, amortization and impairment	(8,332,534)		—			8,332,534		(r)	—
Total property, plant and equipment, net	1,073,941		—			(233,695)			840,246
Derivative instruments	47		—			—			47
Long-term inventory	12,526		—			(292)		(q)	12,234
Operating right-of-use assets	11,509		—			(797)		(s)	10,712
Other assets	19,876		7,017		(d)	(8,139)		(t)	18,754
Non-current assets held for sale	921,031		—			95,882		(u)	1,016,913
Total assets	$	2,433,755	$	(50,825)		$	(144,939)		$	2,237,991
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable	$	(291)	$	21,809	(e)	$	—		$	21,518
Revenues and production taxes payable	129,031		—			—			129,031
Accrued liabilities	46,561		57,470		(f)	1,885		(v)	105,916
Current maturities of long-term debt	360,640		(360,640)		(g)	—			—
Accrued interest payable	32,538		(32,496)		(h)	—			42
Derivative instruments	4,902		49		(i)	18		(w)	4,969
Advances from joint interest partners	170		2,555		(i)	—			2,725
Current operating lease liabilities	109		924		(i)	(76)		(s)	957
Other current liabilities	(102)		1,774		(i)	(34)		(s)	1,638
Current liabilities held for sale	66,810		(28,014)		(j)	—			38,796
Total current liabilities	640,368		(336,569)			1,793			305,592
Long-term debt	—		340,000		(k)	—			340,000
Deferred income taxes	1,097		9,746		(l)	(6,412)		(x)	4,431
Asset retirement obligations	283		57,306		(i)	(12,428)		(v)	45,161
Derivative instruments	5,316		—			41		(w)	5,357
Operating lease liabilities	72		15,462		(i)	(740)		(s)	14,794
Other liabilities	80		3,456		(i)	(32)		(s)	3,504
Liabilities subject to compromise	2,051,294		(2,051,294)		(m)	—			—
Non-current liabilities held for sale	461,859		—			(1,138)		(y)	460,721
Total liabilities	3,160,369		(1,961,893)			(18,916)			1,179,560
Commitments and contingencies
Stockholders’ equity (deficit)
Predecessor common stock	3,233		(3,233)		(n)	—			—
Successor common stock	—		200		(o)	—			200
Predecessor treasury stock, at cost	(36,637)		36,637		(n)	—			—
Predecessor additional paid-in capital	3,131,446		(3,131,446)		(n)	—			—
Successor additional paid-in capital	—		965,415		(o)	—			965,415
Retained earnings (accumulated deficit)	(3,995,209)		4,034,401		(p)	(39,192)		(z)	—
Oasis share of stockholders’ equity (deficit)	(897,167)		1,901,974			(39,192)			965,615
Non-controlling interests	170,553		9,094		(p)	(86,831)		(z)	92,816
Total stockholders’ equity (deficit)	(726,614)		1,911,068			(126,023)			1,058,431
Total liabilities and stockholders’ equity (deficit)	$	2,433,755	$	(50,825)		$	(144,939)		$	2,237,991

Reorganization Adjustments

(a)The table below reflects the uses of cash on the Emergence Date from the implementation of the Plan:


	(In thousands)




Payment of Oasis Credit Facility principal(1)	$	20,640
Payment pursuant to the Mirada Settlement Agreement	20,000
Funding of the professional fees escrow account	11,800
Payment of Oasis Credit Facility fees	6,900
Payment of professional fees	3,766
Payment of DIP Credit Facility accrued interest and fees	1,375
Payment of Predecessor Credit Facility accrued interest and fees	836
Total uses of cash	$	65,317

_________________

(1)On the Emergence Date, the principal amounts under the Senior Secured Superpriority Debtor-in-Possession Credit Agreement (the “DIP Credit Facility”) and the Amended and Restated Credit Agreement (as amended prior to the Emergence Date, the “Predecessor Credit Facility”) of $300.0 million and $60.6 million, respectively, were converted to principal amounts of revolving loans under the Oasis Credit Facility in accordance with the Plan.

(b)Reflects the funding of an escrow account for professional fees associated with the Chapter 11 Cases, as required by the Plan.

(c)Reflects the remaining unamortized amount of prepaid cash incentives under the 2020 Incentive Compensation Program (as defined in Note 17—Equity-Based Compensation), which vested on the Emergence Date as a result of implementing the Plan, and was recorded in general and administrative expenses.

(d)Represents $7.3 million of fees related to the Oasis Credit Facility paid or accrued on the Emergence Date, which were capitalized as deferred financing costs and are being amortized to interest expense through the maturity date of May 19, 2024, offset by approximately $0.2 million of deferred financing costs related to the Predecessor Credit Facility, which were eliminated with a corresponding charge to reorganization items, net.

(e)Represents the reinstatement of $19.9 million of accounts payable included in liabilities subject to compromise to be satisfied in the ordinary course of business, coupled with a $1.9 million reclassification from accrued liabilities to accounts payable related to certain equity-based compensation awards classified as liabilities that vested on the Emergence Date.

(f)Changes in accrued liabilities include the following:


	(In thousands)
Reinstatement of accrued expenses from liabilities subject to compromise	$	73,778
Accrual for professional fees incurred upon Emergence Date	4,603
Vesting of equity-based compensation awards classified as liabilities	1,142
Payment pursuant to Mirada Settlement Agreement	(20,000)
Reclassification of payable for vested liability awards to accounts payable	(1,913)
Payment of certain professional fees accrued prior to Emergence Date	(140)
Net impact to accrued liabilities	$	57,470

(g)Reflects the refinancing of the borrowings outstanding under the DIP Credit Facility and Predecessor Credit Facility of $300.0 million and $60.6 million, respectively, through the Oasis Credit Facility on the Emergence Date.

(h)Reflects the write-off of Specified Default Interest of $30.3 million which was waived on the Emergence Date, and the payment of accrued interest for the DIP Credit Facility and Predecessor Credit Facility of $1.4 million and $0.8 million, respectively, on the Emergence Date.

(i)Reflects the reinstatement of obligations that were classified as liabilities subject to compromise.

(j)Reflects the write-off of Specified Default Interest of $28.0 million related to the OMP Credit Facility that was waived on the Emergence Date.

(k)Reflects borrowings drawn under the Oasis Credit Facility on the Emergence Date, consisting of principal amounts that were converted from principal amounts under the DIP Credit Facility and the Predecessor Credit Facility of $300.0 million and $60.6 million, respectively, in accordance with the Plan, partially offset by a principal repayment amount of $20.6 million.

(l)Reflects an increase in the deferred tax liability recorded as a result of an ownership change under Section 382 (as defined in Note 17—Income Taxes).

(m)On the Emergence Date, liabilities subject to compromise were settled in accordance with the Plan as follows:


	(In thousands)
Notes	$	1,825,757
Accrued interest on Notes	50,337
Asset retirement obligations	57,306
Accounts payable and accrued liabilities	93,674
Other liabilities	24,220
Total liabilities subject to compromise of the Predecessor	2,051,294
Reinstatement of liabilities for general unsecured claims	(175,200)
Issuance of common stock to Notes holders	(941,810)
Gain on settlement of liabilities subject to compromise	$	934,284

(n)Reflects the cancellation of the Predecessor’s accumulated deficit, common stock and treasury stock and changes in the Predecessor’s additional paid-in capital as follows:


	(In thousands)
Cancellation of accumulated deficit	$	(3,086,292)
Cancellation of common stock	3,233
Cancellation of treasury stock	(36,637)
Equity-based compensation for vesting of awards classified as equity	12,055
Issuance of Warrants to Predecessor common stockholders	(23,805)
Net impact to Predecessor additional paid-in capital	$	(3,131,446)

(o)Reflects the distribution of Successor equity instruments in accordance with the Plan, including the issuance of 20,000,000 shares of common stock at a par value of $0.01 per share and 1,621,622 Warrants. The fair value of the Warrants was estimated at $14.68 per Warrant using a Black-Scholes model.


	(In thousands)
Common stock to Notes holders	$	941,810
Warrants to Predecessor common stockholders	23,805
Total fair value of Successor equity	$	965,615

(p)The table below reflects the cumulative impact of the reorganization adjustments discussed above:


	(In thousands)
Gain on settlement of liabilities subject to compromise	$	934,284
Write-off of Specified Default Interest	30,285
Gain on debt discharge	964,569
Professional fees incurred on the Emergence Date	(7,869)
Write-off of Predecessor Credit Facility deferred financing costs	(243)
Total reorganization items from reorganization adjustments	956,457
Equity-based compensation expense for vesting of awards on Emergence Date	(13,197)
Vesting of prepaid cash incentive compensation	(4,325)
Income from reorganization adjustments from continuing operations before income taxes	938,935
Income tax expense	(9,746)
Net income from reorganization adjustments from continuing operations	$	929,189

Gain on debt discharge from discontinued operations	28,014
Less: Net income from reorganization adjustments attributable to non-controlling interests	(9,094)
Net income from reorganization adjustments from discontinued operations	$	18,920

Net income from reorganization adjustments attributable to Oasis	$	948,109
Cancellation of accumulated deficit	3,086,292
Net impact to Predecessor retained earnings (accumulated deficit)	$	4,034,401

Fresh Start Adjustments

(q)Reflects fair value adjustments to the Company’s crude oil inventory, equipment inventory, and long-term linefill inventory of $1.6 million, $0.5 million and $(0.3) million, respectively, based on market prices as of the Emergence Date. Crude oil prices were estimated using NYMEX West Texas Intermediate crude oil index prices (“NYMEX WTI”) based on the estimated timing of liquidation and adjusted for quality and location differentials.

(r)Reflects adjustments to present the Company's proved oil and gas properties, unproved acreage and other property and equipment at their estimated fair values based on the valuation methodology discussed above as well as the elimination of accumulated depreciation, depletion, amortization and impairment. The following table summarizes the components of property, plant and equipment as of the Emergence Date:


	Fair Value		Historical Book Value

	(In thousands)
Proved oil and gas properties	$	755,247	$	9,126,507
Less: Accumulated depreciation, depletion, amortization and impairment	—		(8,259,334)
Proved oil and gas properties, net	755,247		867,173
Unproved oil and gas properties	40,000		174,558
Other property and equipment	44,999		105,410
Less: Accumulated depreciation and impairment	—		(73,200)
Other property and equipment, net	44,999		32,210
Total property, plant and equipment, net	$	840,246	$	1,073,941

(s)Reflects adjustments required to present operating lease right-of-use assets and operating and finance lease liabilities at fair value. The Company's remaining lease obligations were remeasured using incremental borrowing rates applicable to the Company as of the Emergence Date and commensurate with the Successor's capital structure. The incremental borrowing rates ranged from 3.06% to 6.58% based on the tenor of the leases. Finance lease liabilities are included in other current liabilities and other liabilities on the Company’s Consolidated Balance Sheet.

(t)Reflects adjustments to eliminate certain deferred costs determined to have no fair value, including electrical infrastructure costs of $8.1 million and a $0.1 million adjustment to present finance lease right-of-use assets at fair value.

(u)Reflects the adjustments to non-current assets held for sale as follows:


	(In thousands)
Proved oil and gas properties	$	44,533
Other property and equipment	(312,657)
Accumulated depreciation and impairment	247,162
Goodwill	70,534
Interest in OMP GP	28,000
Customer contracts	15,000
Equipment inventory	705
Deferred financing costs related to the OMP Credit Facility	(1,515)
Non-current assets held for sale from discontinued operations, net	91,762
Non-current assets held for sale from continuing operations	4,120
Total non-current assets held for sale, net	$	95,882

_________________

(1)Represents the adjustment to certain assets from continuing operations held for sale as of the Emergence Date for the sales price agreed upon with the buyer, less estimated costs to sell.

(v)Reflects the adjustment to present the Company's asset retirement obligations (“ARO”) at fair value using assumptions as of the Emergence Date, including an inflation factor of 2% and an estimated 30-year credit-adjusted risk-free rate of 8.5%.

(w)Reflects the fair value adjustment to the Company’s derivative instruments using the Company’s estimated credit-adjusted risk-free rate as of the Emergence Date of 5.12%.

(x)Reflects the adjustment to deferred income taxes to reflect the change in the financial reporting basis of assets as a result of the adoption of fresh start accounting.

(y)Reflects the adjustment to present ARO from discontinued operations at fair value.

(z)The table below reflects the cumulative impact of the fresh start adjustments discussed above:


	(In thousands)
Loss on revaluation adjustments from continuing operations	$	(225,336)
Income tax benefit	6,412
Net loss from fresh start adjustments from continuing operations	$	(218,924)

Gain on revaluation adjustments from discontinued operations	$	92,901
Less: Net loss from fresh start adjustments attributable to non-controlling interests	86,831
Net gain from fresh start adjustments from discontinued operations	$	179,732

Net loss from fresh start adjustments attributable to Oasis	$	(39,192)

Reorganization Items, Net

Any expenses, gains and losses that were realized or incurred between the Petition Date and the Emergence Date and as a direct result of the Chapter 11 Cases and the implementation of the Plan were recorded in reorganization items, net in the Company’s Consolidated Statement of Operations for the period from January 1, 2020 through November 19, 2020 (Predecessor). The

following table summarizes the components of reorganization items, net:


	(In thousands)
Continuing operations:
Gain on debt discharge	$	964,569
Loss on revaluation adjustments	(225,336)
Write-off of unamortized debt discount	(38,373)
Professional fees	(16,352)
Write-off of unamortized deferred financing costs	(12,739)
DIP Credit Facility fees	(5,853)
Total reorganization items from continuing operations, net	$	665,916

Discontinued operations:
Gain on debt discharge	$	28,014
Gain on revaluation adjustments	92,901
Total reorganization items from discontinued operations	$	120,915