CHAPTER 11 PROCEEDINGS AND EMERGENCE

On December 23, 2016, Bonanza Creek Energy, Inc. and its subsidiaries entered into a Restructuring Support Agreement with (i) holders of approximately 51% in aggregate principal amount of the Company's 5.75% Senior Notes due 2023 (“5.75% Senior Notes”) and 6.75% Senior Notes due 2021 (“6.75% Senior Notes”), collectively (the “Senior Notes”) and (ii) NGL Energy Partners, LP and NGL Crude Logistics, LLC (collectively “NGL”).

On January 4, 2017, the Company filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code. The Debtors received bankruptcy court confirmation of their Plan on April 7, 2017, and emerged from bankruptcy on April 28, 2017.

During the bankruptcy proceedings, the Company conducted normal business activities and was authorized to pay and did pay pre-petition liabilities.

In addition, subject to specific exceptions under the Bankruptcy Code, the Chapter 11 filings automatically stayed most judicial or administrative actions against the Company and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. As a result, we did not record interest expense on the Company’s Senior Notes from January 6, 2017, the agreed-upon date, through April 28, 2017. For that period, contractual interest on the Senior Notes totaled $16.0 million.

Reorganization

On the Effective Date, the Senior Notes and existing common shares of the Company (“existing common shares”) were canceled, and the reorganized Company issued: (i) new common stock; (ii) three year warrants (“warrants”); and (iii) rights (the “subscription rights”) to acquire the new common shares offered in connection with the rights offering (the “rights offering”).


•	the Senior Notes aggregate principal amount of $800.0 million, plus $14.9 million of accrued and unpaid pre-petition interest and $51.2 million of prepayment premiums was settled for 46.6% or 9,481,610 shares of the Company's new common stock;


•	the Company issued 803,083 or 3.9% of the new common stock to holders of our existing common stock, of which 1.75% was for the ad hoc equity committee settlement in exchange for $7.5 million, on terms equivalent to the rights offering;


•	the Company issued 10,071,378 shares of new common stock in exchange for $200.0 million relating to the rights offering;


•	the Company issued 1,650,510 of warrants entitling their holders upon exercise thereof, on a pro rata basis, to 7.5% of the total outstanding new common shares at a per share price of $71.23 per warrant; and


•	the Company reserved 2,467,430 shares of the new common stock for issuance under its 2017 Long Term Incentive Plan (“LTIP”).

Pursuant to the terms of the approved Plan the following transactions were completed on the Effective Date;


•	the Company paid Silo Energy, LLC (“Silo”) the contract settlement amount of $7.2 million in full;


•	with respect to the predecessor credit facility, dated March 29, 2011 (the “predecessor credit facility”), principal, accrued interest, and fees of $193.7 million were paid in full;


•	the Company paid $1.6 million for the 2016 Short Term Incentive Plan (“2016 STIP”) to various employees;


•	the Company funded an escrow account in the amount of $17.2 million for professional service fees attributable to its advisers;


•	the Company paid $13.8 million for professional services attributable to advisers of third parties involved in the bankruptcy proceedings;


•	the Company emerged with cash on hand of $70.2 million for operations; and


•	the Company amended its articles of incorporation and bylaws for the authorization of the new common stock.

As confirmed in the Plan, the Company terminated its purchase agreement with Silo on February 1, 2017, and entered into a settlement agreement that allowed Silo to: (i) retain the $5.0 million adequate assurance deposit maintained, (ii) retain the Company's $8.7 million crude oil revenue receivable due to the Company for December 2016 production, and (iii) receive additional cash payment of $7.2 million, which was paid on the Effective Date. The $21.0 million settlement is shown in the contract settlement expense line item in the accompanying statements of operations as of December 31, 2016.

Board of Directors

Upon emergence from bankruptcy the Company's Board of Directors was made up of seven individuals, two of which were existing board members, Richard J. Carty and Jeffrey E. Wojahn, and five new board members consisting of Paul Keglevic, Brian Steck, Thomas B. Tyree, Jr., Jack E. Vaughn, and Scott D. Vogel were appointed.

Executive Departure

On June 11, 2017, Richard J. Carty resigned as a member of the Board of Directors and left his role as President and Chief Executive Officer of the Company. In connection with the departure of Mr. Carty, the Board of Directors appointed R. Seth Bullock, a managing director of Alvarez & Marsal, LLC, interim Chief Executive Officer.

Effective April 11, 2018, the Company appointed Eric T. Greager as the new President and Chief Executive Officer of the Company. Mr. Greager also joined the Company's Board of Directors.

FRESH-START ACCOUNTING

Upon the Company's emergence from Chapter 11 bankruptcy, the Company adopted fresh-start accounting, pursuant to FASB ASC 852, Reorganizations, and applied the provisions thereof to its financial statements. The Company qualified for fresh-start accounting because: (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company; and (ii) the reorganization value of the Company's assets immediately prior to confirmation was less than the post-petition liabilities and allowed claims. The Company applied fresh-start accounting as of April 28, 2017, when it emerged from bankruptcy protection. Adopting fresh-start accounting results in a new reporting entity for financial reporting purposes with no beginning retained earnings or deficit as of the fresh-start reporting date. The cancellation of all existing shares outstanding on the Effective Date and issuance of new shares of the Successor Company caused a related change of control of the Company under ASC 852.

Reorganization Value

Under fresh-start accounting, reorganization value represents the fair value of the Successor Company’s total assets and is intended to approximate the amount a willing buyer would pay for the assets immediately after restructuring. Under application of fresh-start accounting, the Company allocated the reorganization value to its individual assets based on their estimated fair values.

The Company's reorganization value is derived from an estimate of enterprise value. Enterprise value represents the estimated fair value of an entity’s long-term debt, other interest bearing liabilities, and shareholders’ equity, less total cash and cash equivalents. In support of the Plan, the enterprise value of the Successor Company was estimated and approved by the Bankruptcy Court to be in the range of $570.0 million to $680.0 million. Based on the estimates and assumptions used in determining the enterprise value, as further discussed below, the Company estimated the enterprise value to be approximately $643.0 million. This valuation analysis was prepared with the assistance of an independent third-party consultant utilizing reserve information prepared by the Company's internal reserve engineers, internal development plans and schedules, other internal financial information and projections and the application of standard valuation techniques including risked net asset value analysis and comparable public company metrics.

The Company's principal assets are its oil and gas properties. The Company determined the fair value of its oil and gas properties based on the discounted cash flows expected to be generated from these assets segregated into geographic regions. The computations were based on market conditions and reserves in place as of the Effective Date. Discounted cash flow models were generated using the estimated future revenues and development and operating costs for all developed wells and undeveloped locations comprising our proved reserves. The proved locations were limited to wells expected to be drilled in the Company's five year plan. Future cash flows before application of risk factors were estimated by using the New York Mercantile Exchange five year forward prices for West Texas Intermediate oil and Henry Hub natural gas with inflation adjustments applied to periods beyond five years. The prices were further adjusted for typical differentials realized by the Company for the location and product quality. Wattenberg Field oil differential estimates were based on the new NGL purchase agreement that was confirmed as part of the Plan. Development costs were based on recent bids received by the Company and the operating costs were based on actual costs, and both were adjusted by the same inflation rate used for revenues. The discounted cash flow models also included estimates not typically included in proved reserves, such as an industry standard general and administrative expense and income tax expense. Due to the limited drilling plans that we had in place, proved undeveloped locations were risked within industry standards.

The risk-adjusted after-tax cash flows were discounted at a rate of 11.0%. This rate was determined from a weighted-average cost of capital computation, which utilized a blended expected cost of debt and expected returns on equity for similar industry participants.

From this analysis the Company concluded the fair value of its proved, probable, and possible reserves was $397.3 million, $146.8 million, and $31.7 million, respectively, as of the Effective Date. The Company also reviewed its undeveloped leasehold acreage and determined that the fair value of its probable and possible reserves appropriately capture the fair value of its undeveloped leasehold acreage.

The Company performed an analysis of its Rocky Mountain Infrastructure, LLC (“RMI”) assets using a replacement cost method which estimated the assets' replacement cost (for new assets), less any depreciation, physical deterioration, or obsolescence, resulting in a fair value of $103.1 million.

The Company follows the lower of cost or net realizable value when valuing inventory of oilfield equipment. The valuation of the inventory of oilfield equipment as of the Effective Date did not yield a material difference from the Company's carrying value immediately prior to emergence from bankruptcy; as such, there was no valuation adjustment recorded.

The valuation of the Company's other property and equipment as of the Effective Date did not yield a material difference from the Predecessor Company's net book value; as such there was no valuation adjustment recorded.

Our liabilities on the Effective Date include working capital liabilities and asset retirement obligations. Our working capital liabilities are ordinary course obligations, and their carrying amounts approximate their fair values. The asset retirement obligation was reset using a revised credit-adjusted risk-free rate and known attributes as of the Effective Date, resulting in a $29.1 million obligation.

In conjunction with the Company's emergence from bankruptcy, the Company issued 1,650,510 warrants to existing equity holders. The fair value of $4.1 million was estimated using a Black-Scholes pricing model. The model used the following assumptions; an expected volatility of 40%, a risk-free interest rate of 1.44%, a stock price of $34.36, a strike price of $71.23, and an expiration date of 3 years.

The following table reconciles the enterprise value to the estimated fair value of Successor Company's common stock as of the Effective Date (in thousands, except per share amounts):



Enterprise Value	$	642,999
Plus: Cash and cash equivalents	70,183
Less: Interest bearing liabilities	(29,061		)
Less: Fair value of warrants	(4,081		)
Fair value of Successor common stock	$	680,040

Shares outstanding at April 28, 2017	20,356

Per share value	$	33.41

The following table reconciles the enterprise value to the estimated reorganization value as of the Effective Date (in thousands):



Enterprise Value	$	642,999
Plus: Cash and cash equivalents	70,183
Plus: Working capital liabilities	63,871
Plus: Other long-term liabilities	17,919
Reorganization value of Successor assets	$	794,972

Successor Condensed Consolidated Balance Sheet

The adjustments set forth in the following condensed consolidated balance sheet reflect the effect of the consummation of the transactions contemplated by the Plan (reflected in the column “Reorganization Adjustments”) as well as estimated fair value adjustments as a result of the adoption of fresh-start accounting (reflected in the column “Fresh-Start Adjustments”). The explanatory notes highlight methods used to determine estimated fair values or other amounts of assets and liabilities, as well as significant assumptions.



	Predecessor Company			Reorganization Adjustments				Fresh-Start Adjustments				Successor Company
	(in thousands, except share amounts)
ASSETS
Current Assets:
Cash and cash equivalents	$	96,286		$	(26,103	)	(1)	$	—			$	70,183
Accounts receivable:
Oil and gas sales	24,876			—				—				24,876
Joint interest and other	3,028			—				—				3,028
Prepaid expenses and other	4,952			—				—				4,952
Inventory of oilfield equipment	4,218			—				—				4,218
Total current assets	133,360			(26,103		)		—				107,257
Property and equipment (successful efforts method):
Proved properties	2,531,834			—				(2,031,373		)	(6)	500,461
Less: accumulated depreciation, depletion and amortization	(1,720,736		)	—				1,720,736			(6)	—
Total proved properties, net	811,098			—				(310,637		)		500,461
Unproved properties	163,781			—				14,679			(6)	178,460
Wells in progress	18,002			—				(18,002		)	(7)	—
Other property and equipment, net	6,056			—				—				6,056
Total property and equipment, net	998,937			—				(313,960		)		684,977



Other noncurrent assets	2,738			—				—				2,738
Total assets	$	1,135,035		$	(26,103	)		$	(313,960	)		$	794,972

LIABILITIES AND STOCKHOLDERS'S EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	72,635		$	(33,701	)	(2)	$	—			$	38,934
Oil and gas revenue distribution payable	24,937			—				—				24,937
Predecessor credit facility - current portion	191,667			(191,667		)	(3)	—				—
Total current liabilities	289,239			(225,368		)		—				63,871
Long-term liabilities:
Ad valorem taxes	17,919			—				—				17,919
Asset retirement obligations for oil and gas properties	31,660			—				(2,599		)	(8)	29,061
Liabilities subject to compromise	873,292			(873,292		)	(4)	—				—
Total liabilities	$	1,212,110		$	(1,098,660	)		$	(2,599	)		$	110,851
Stockholders' equity:
Predecessor preferred stock	—			—				—				—
Predecessor common stock	49			—				(49		)	(9)	—
Additional paid in capital	816,679			—				(816,679		)	(9)	—
Successor common stock	—			204			(5)	—				204
Successor warrants	—			4,081			(5)	—				4,081
Additional paid-in capital	—			679,836			(5)	—				679,836
Retained deficit	(893,803		)	388,436			(4)	505,367			(10)	—
Total stockholders' equity	(77,075		)	1,072,557				(311,361		)		684,121
Total liabilities and stockholders' equity	$	1,135,035		$	(26,103	)		$	(313,960	)		$	794,972

Reorganization Adjustments

(1) The following table reflects the net cash payments made upon emergence on the Effective Date (in thousands):



Sources:
Proceeds from rights offering	$	200,000
Proceeds from ad hoc equity committee	7,500
Total sources	$	207,500
Uses and transfers:
Payment on predecessor credit facility (principal, interest and fees)	$	(193,729	)
Payment and funding of escrow account related to professional fees	(17,193		)
Payment of professional fees and other	(13,831		)
Payment of Silo contract settlement and other	(7,228		)
Payment of remaining 2016 STIP	(1,622		)
Total uses and transfers	$	(233,603	)

Total net sources, uses and transfers	$	(26,103	)

(2) The following table shows the decrease of accounts payable and accrued liabilities attributable to reorganization items settled or paid upon emergence (in thousands):



Accounts payable and accrued expenses:
Accrued 2016 STIP payment	$	(1,574	)
Escrow account funding	(17,193		)
Professional fees and other	(13,831		)
Accrued unpaid interest on predecessor credit facility	(1,103		)
Total accounts payable and accrued expenses settled	$	(33,701	)

(3) Represents the payment in full of the predecessor credit facility on the Effective Date.

(4) On the Effective Date, the obligations of the Company with respect to the Senior Notes were canceled. Liabilities subject to compromise were settled as follows in accordance with the Plan (in thousands):



Senior Notes	$	800,000
Accrued interest on Senior Notes (pre-petition)	14,879
Make-whole payment on Senior Notes	51,185
Silo contract settlement accrual	7,228
Total liabilities subject to compromise of the predecessor	873,292

Rights offering	200,000
Fair value of equity issued to creditors, excluding equity issued to existing equity holders	(653,212		)
Payment of Silo contract settlement	(7,228		)
Gain on settlement of liabilities subject to compromise	412,852

Payment on predecessor credit facility fees and remaining unaccrued 2016 STIP	(1,007		)

Total reorganization items at emergence	$	411,845

Issuance of warrants to existing shareholders	$	(4,081	)
Proceeds from ad hoc equity committee	7,500
Issuance of shares to existing shareholders	(26,828		)
Total reorganization adjustments to retained deficit	$	388,436

(5) Represents the fair value of 20,356,071 shares of new common stock and 1,650,510 warrants issued upon emergence from bankruptcy on the Effective Date.

Fresh-Start Adjustments

(6) Fair value adjustments to proved and unproved oil and natural gas properties. A combination of the market and income approach were utilized to perform valuations. Included in this line items were adjustments to the fully-owned subsidiary, Rocky Mountain Infrastructure, LLC. Lastly, the accumulated depreciation was reset to zero in accordance with fresh-start accounting.

(7) Represents the reset of wells in progress with fair valuation of the associated reserves in proved property.

(8) Upon application of fresh-start accounting and due to the Company’s emergence with no debt, the Company revalued its asset retirement obligations based upon comparable companies’ credit-adjusted risk-free rates in accordance with ASC 410 - Asset Retirement and Environmental Obligations.

(9) Cancellation of Predecessor Company’s common stock and additional paid-in capital.

(10) Adjustment to reset retained deficit to zero.

Reorganization Items, Net

Reorganization items represent liabilities settled, net of amounts incurred subsequent to the Chapter 11 filing as a direct result of the Plan, and are classified as Reorganization items, net in our statement of operations. The following table summarizes reorganization items recorded in the Current Predecessor Period (in thousands):



Gain on settlement of liabilities subject to compromise	$	412,852
Payment on predecessor credit facility fees and remaining unaccrued 2016 STIP	(1,007		)
Fresh-start valuation adjustments	(311,361		)
Legal and professional fees and expenses	(34,335		)
Write-off of debt issuance and premium costs	(6,156		)
Make-whole payment on Senior Notes	(51,185		)
Total reorganization items, net	$	8,808