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Extraction Oil & Gas Second Quarter 2020 Results

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   |    Monday,August 10,2020

Extraction Oil & Gas reported its Q2 2020 results.

Extraction is currently in Chapter 11 bankruptcy, which it filed on June 15, 2020.

Q2 Financials

Oil sales revenues. Crude oil sales revenues decreased by $148.8 million to $36.3 million for the three months ended June 30, 2020 as compared to crude oil sales of $185.1 million for the three months ended June 30, 2019. A decrease in sales volumes between these periods contributed a

$11.7 million negative impact, and a decrease in crude oil prices contributed a $137.1 million negative impact. For the three months ended June 30, 2020, crude oil revenue decreased by approximately $3.9 million due to the impact of the increase in the forecasted deferral balance on one of our revenue contracts. Pursuant to ASC 606, the contract term impacts the amount of consideration that can be included in the transaction price, which reduced oil sales revenue.

For the three months ended June 30, 2020, our crude oil sales averaged 37.6 MBbl/d. Our crude oil sales volume decreased by 231 to 3,419 MBbl for the three months ended June 30, 2020 compared to 3,650 MBbl for the three months ended June 30, 2019. The volume decrease is primarily due to the natural decline of our existing properties, partially offset by an increase in production from the completion of 88 gross wells from July 1, 2019 to June 30, 2020.

The average price we realized on the sale of crude oil was $10.61 per Bbl for the three months ended June 30, 2020 compared to $50.72 per Bbl for the three months ended June 30, 2019, primarily due to changes in market prices for crude oil and the $3.9 million decrease of crude oil revenue explained above.

Natural gas sales revenues. Natural gas sales revenues decreased by $5.7 million to $16.0 million for the three months ended June 30, 2020 as compared to natural gas sales revenues of $21.7 million for the three months ended June 30, 2019. An increase in sales volumes between these periods contributed a $3.6 million positive impact, while a decrease in natural gas prices contributed a $9.3 million negative impact.

For the three months ended June 30, 2020, our natural gas sales averaged 192.8 MMcf/d. Natural gas sales volumes increased by 2,488 to 17,543 MMcf for the three months ended June 30, 2020 as compared to 15,055 MMcf for the three months ended June 30, 2019. The volume increase is primarily due to the completion of 88 gross wells from July 1, 2019 to June 30, 2020, partially offset by the natural decline on existing producing properties.

The average price we realized on the sale of our natural gas was $0.91 per Mcf for the three months ended June 30, 2020 compared to $1.44 per Mcf for the three months ended June 30, 2019, primarily due to a negative commodity price environment due to oversupply and a decrease in demand.

NGL sales revenues. NGL sales revenues decreased by $4.4 million to $10.8 million for the three months ended June 30, 2020 as compared to NGL sales revenues of $15.2 million for the three months ended June 30, 2019. An increase in sales volumes between these periods contributed a $6.5 million positive impact, while a decrease in price contributed a $10.9 million negative impact.

For the three months ended June 30, 2020, our NGL sales averaged 21.7 MBbl/d. NGL sales volumes increased by 599 to 1,979 MBbl for the three months ended June 30, 2020 as compared to 1,380 MBbl for the three months ended June 30, 2019. The volume increase is primarily due to the completion of 88 gross wells from July 1, 2019 to June 30, 2020, partially offset by the natural decline on existing producing properties. Our NGL sales are directly associated with our natural gas sales because our natural gas volumes are processed by third parties for both residue natural gas sales and NGL sales.

The average price we realized on the sale of our NGL was $5.47 per Bbl for the three months ended June 30, 2020 compared to $11.04 per Bbl for the three months ended June 30, 2019, primarily due to a negative commodity price environment due to oversupply and a decrease in demand.

Lease operating expenses. Our LOE decreased by $0.6 million to $23.0 million for the three months ended June 30, 2020, from $23.6 million for the three months ended June 30, 2019. The decrease in LOE was primarily the result of a decrease in producing wells and a decrease in workover repairs, in addition to optimization of our field cost structure during the three months ended June 30, 2020. On a per unit basis, LOE decreased to $2.76 per BOE sold for the three months ended June 30, 2020 from $3.13 per BOE for the three months ended June 30, 2019.

Transportation and gathering ("T&G"). Our T&G expense increased by $14.4 million to $26.3 million for the three months ended June 30, 2020, from $11.9 million for the three months ended June 30, 2019. The increase in T&G was primarily due to an increase of volumes on a certain gathering system during the three months ended June 30, 2020 compared to the three months ended June 30, 2019. On a per unit basis, T&G increased to $3.16 per BOE sold for the three months ended June 30, 2020 compared to $1.57 per BOE sold for the three months ended June 30, 2019.

Production taxes. Our production taxes decreased by $13.9 million to $4.7 million for the three months ended June 30, 2020 as compared to $18.6 million for the three months ended June 30, 2019. The decrease is primarily attributable to decreased revenue as production taxes are calculated as a percentage of sales revenue. Production taxes as a percentage of sales revenue was 7.4% for the three months ended June 30, 2020 as compared to 8.4% for the three months ended June 30, 2019. The consistency in production taxes as a percentage of sales revenue relates to comparatively constant estimated ad valorem and severance tax rates for the three months ended June 30, 2020.

Exploration and abandonment expenses. Our exploration and abandonment expenses were $62.7 million for the three months ended June 30, 2020, of which $62.6 million was lease abandonment expense. Due to the decrease in pricing, property in our core field was abandoned and impaired. For the three months ended June 30, 2019, we recognized $13.3 million in exploration and abandonment expenses.

Depletion, depreciation, amortization and accretion expense. Our DD&A expense decreased $35.8 million to $82.6 million for the three months ended June 30, 2020 as compared to $118.4 million for the three months ended June 30, 2019. On a per unit basis, DD&A expense decreased to $9.93 per BOE for the three months ended June 30, 2020 from $15.70 per BOE for the three months ended June 30, 2019. This decrease is due to an impairment of $1.3 billion of proved oil and gas properties that occurred during the fourth quarter of 2019.

Impairment of long lived assets. For the three months ended June 30, 2020 and 2019, impairment expense was $1.0 million and $3.0 million, respectively, related to impairment of the proved oil and gas properties in our northern field as the fair value did not exceed the carrying amount associated with the properties.

General and administrative expenses ("G&A"). General and administrative expenses decreased by $5.6 million to $25.1 million for the three months ended June 30, 2020 as compared to $30.7 million for the three months ended June 30, 2019. This decrease is primarily due to reductions of workforce during the first and second quarters of 2020, and a decrease in stock-based compensation expense recognized for the three months ended

June 30, 2020 compared to the three months ended June 30, 2019. On a per unit basis, G&A expense decreased to $3.02 per BOE sold for the three months ended June 30, 2020 from $4.08 per BOE sold for the three months ended June 30, 2019.

Our G&A expenses for the three months ended June 30, 2020 includes $0.3 million related to the terms of a separation agreement with a former executive officer. No expenses of this nature were incurred during the three months ended June 30, 2019.

Our G&A expenses include the non-cash expense for stock-based compensation for equity awards granted to our employees and directors. For the three months ended June 30, 2020, there was $2.6 million of stock-based compensation expense. For the three months ended June 30, 2019, stock-based compensation expense was $14.9 million.

Other operating expenses. Other operating expenses were $13.2 million for the three months ended June 30, 2020. This amount is primarily made up of a $9.5 million early termination fee related to the termination of our crude oil marketing contract and $2.4 million incurred in standby rig fees.

Commodity derivative gain (loss). Primarily due to the effects of unwinding certain derivative instruments, partially offset by a decrease in NYMEX crude oil futures prices at June 30, 2020 as compared to December 31, 2019 and change in fair value from the execution of new positions, we incurred a net loss on our commodity derivatives of $69.3 million for the three months ended June 30, 2020. Primarily due to the increase in NYMEX crude oil futures prices at June 30, 2019 as compared to December 31, 2018 and change in fair value from the execution of new positions, we incurred a net gain on our commodity derivatives of $73.5 million for the three months ended June 30, 2019, including the amortization of premiums. These gains and losses are a result of our hedging program, which is used to mitigate our exposure to commodity price fluctuations. The fair value of the open commodity derivative instruments will continue to change in value until the transactions are settled and we will likely add to our hedging program in the future. Therefore, we expect our net income (loss) to reflect the volatility of commodity price forward markets. Our cash flow will only be affected upon settlement of the transactions at the current market prices at that time. During the three months ended June 30, 2020, we settled commodity derivatives totaling $127.4 million. During the three months ended June 30, 2019, we paid settlements of commodity derivatives totaling $14.2 million.

Reorganization items, net. Due to the commencement of the Chapter 11 Cases during the second quarter of 2020, we have incurred and will continue to incur significant costs associated with the reorganization, primarily legal and professional fees. For the three months ended June 30, 2020, we recognized $26.9 million in reorganization items. No reorganization items were recognized during the same period in the preceding year. Please see to Note 5—Reorganization Items, Net in Part I, Item I, Financial Information of this Quarterly Report.

Interest expense. Interest expense consists of interest expense on our long-term debt and amortization of debt issuance costs, net of capitalized interest. For the three months ended June 30, 2020, we recognized interest expense of $20.3 million as compared to $18.6 million for the three months ended June 30, 2019, as a result of borrowings under our DIP Credit Facility, our Credit Facility, our 2024 Senior Notes, our 2026 Senior Notes and the amortization of debt issuance costs.

We incurred interest expense for the three months ended June 30, 2020 of $20.2 million related to our 2024 Senior Notes, 2026 Senior Notes, Credit Facility and DIP Credit Facility. We incurred interest expense for the three months ended June 30, 2019 of approximately $22.2 million related to our Credit Facility, our 2024 Senior Notes, and our 2026 Senior Notes. Also included in interest expense for the three months ended June 30, 2020 and 2019 was the amortization of debt issuance costs of $1.9 million and $1.3 million, respectively. For the three months ended June 30, 2020 and 2019, we capitalized interest expense of $1.9 million and $1.8 million, respectively. Interest expense for the three months ended June 30, 2019 also includes $3.2 million of gain on debt extinguishment upon the repurchase of our 2026 Senior Notes.

Income tax expense. We recorded no income tax expense for the three months ended June 30, 2020 and $15.1 million of income tax expense for the three months ended June 30, 2019. This resulted in an effective tax rate of approximately zero and 25.8% for the three months ended June 30, 2020 and 2019, respectively. Our effective tax rate for the three months ended June 30, 2020 and 2019 differs from the U.S. statutory income tax rates of 21.0% primarily due to the effects of state income taxes, estimated taxable permanent differences, and valuation allowance.

Gathering and facilities segment. Prior to March 31, 2020, we had two operating segments, (i) the exploration, development and production of oil, natural gas and NGL (the "exploration and production segment") and (ii) the construction, operation and support of midstream assets to gather and process crude oil and gas production (the "gathering and facilities segment"). Please see Note 1—Business and Organization — Deconsolidation of Elevation Midstream, LLC in Part I, Item I, Financial Information of this Quarterly Report for further information related to the deconsolidation of Elevation Midstream, LLC. After March 31, 2020, Extraction began reporting as a single reportable segment.

1H20 Results

Oil sales revenues. Crude oil sales revenues decreased by $190.0 million to $160.5 million for the six months ended June 30, 2020 as compared to crude oil sales of $350.5 million for the six months ended June 30, 2019. A decrease in sales volumes between these periods contributed a $15.0 million negative impact, and a decrease in crude oil prices contributed a $175.0 million negative impact. For the six months ended June 30, 2020, crude oil revenue decreased by approximately $12.3 million due to the impact of the increase in the forecasted deferral balance on one of our revenue contracts. Pursuant to ASC 606, the contract term impacts the amount of consideration that can be included in the transaction price, which reduced oil sales revenue.

For the six months ended June 30, 2020, our crude oil sales averaged 38.0 MBbl/d. Our crude oil sales volume decreased by 4% to 6,923 MBbl for the six months ended June 30, 2020 compared to 7,233 MBbl for the six months ended June 30, 2019. The volume decrease is primarily due to the natural decline of our existing properties, partially offset by an increase in production from the completion of 88 gross wells from July 1, 2019 to June 30, 2020.

The average price we realized on the sale of crude oil was $23.18 per Bbl for the six months ended June 30, 2020 compared to $48.46 per Bbl for the six months ended June 30, 2019, primarily due to changes in market prices for crude oil and the $12.3 million decrease of crude oil revenue explained above.

Natural gas sales revenues. Natural gas sales revenues decreased by $19.3 million to $38.3 million for the six months ended June 30, 2020 as compared to natural gas sales revenues of $57.6 million for the six months ended June 30, 2019. An increase in sales volumes between these periods contributed a $14.9 million positive impact, while a decrease in natural gas prices contributed a $34.2 million negative impact.

For the six months ended June 30, 2020, our natural gas sales averaged 200.8 MMcf/d. Natural gas sales volumes increased by 7,531 to 36,546 MMcf for the six months ended June 30, 2020 as compared to 29,015 MMcf for the six months ended June 30, 2019. The volume increase is primarily due to the completion of 88 gross wells from July 1, 2019 to June 30, 2020, partially offset by the natural decline on existing producing properties.

The average price we realized on the sale of our natural gas was $1.05 per Mcf for the six months ended June 30, 2020 compared to $1.98 per Mcf for the six months ended June 30, 2019, primarily due to capacity constraints in transporting the wet gas associated with crude oil production coupled with a negative commodity price environment due to oversupply and a decrease in demand.

NGL sales revenues. NGL sales revenues decreased by $7.8 million to $28.0 million for the six months ended June 30, 2020 as compared to NGL sales revenues of $35.8 million for the six months ended June 30, 2019. An increase in sales volumes between these periods contributed a $15.5 million positive impact, while a decrease in price contributed a $23.3 million negative impact.

For the six months ended June 30, 2020, our NGL sales averaged 21.3 MBbl/d. NGL sales volumes increased by 1,178 to 3,885 MBbl for the six months ended June 30, 2020 as compared to 2,707 MBbl for the six months ended June 30, 2019. The volume increase is primarily due to the completion of 88 gross wells from July 1, 2019 to June 30, 2020, partially offset by the natural decline on existing producing properties. Our NGL sales are directly associated with our natural gas sales because our natural gas volumes are processed by third parties for both residue natural gas sales and NGL sales.

The average price we realized on the sale of our NGL was $7.21 per Bbl for the six months ended June 30, 2020 compared to $13.24 per Bbl for the six months ended June 30, 2019, primarily due to capacity constraints in transporting the wet gas associated with crude oil production coupled with a negative commodity price environment due to oversupply and a decrease in demand.

Lease operating expenses. Our LOE increased by $7.9 million to $53.4 million for the six months ended June 30, 2020, from $45.5 million for the six months ended June 30, 2019. The increase in LOE was primarily the result of an increase in producing wells and an increase in workover repairs, partially offset by optimization of our field cost structure during the six months ended June 30, 2020. On a per unit basis, LOE increased to $3.16 per BOE sold for the six months ended June 30, 2020 from $3.08 per BOE for the six months ended June 30, 2019.

Transportation and gathering ("T&G"). Our T&G expense increased by $26.9 million to $49.1 million for the six months ended June 30, 2020, from $22.2 million for the six months ended June 30, 2019. The increase in T&G was primarily due to an increase of volumes on a certain gathering system during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. On a per unit basis, T&G increased to $2.91 per BOE sold for the six months ended June 30, 2020 compared to $1.50 per BOE sold for the six months ended June 30, 2019.

Production taxes. Our production taxes decreased by $18.6 million to $18.1 million for the six months ended June 30, 2020 as compared to $36.7 million for the six months ended June 30, 2019. The decrease is primarily attributable to decreased revenue as production taxes are calculated as a percentage of sales revenue. Production taxes as a percentage of sales revenue was 7.9% for the six months ended June 30, 2020 as compared to 8.3% for the six months ended June 30, 2019. The consistency in production taxes as a percentage of sales revenue relates to comparatively constant estimated ad valorem and severance tax rates for the six months ended June 30, 2020.

Exploration and abandonment expenses. Our exploration and abandonment expenses were $175.1 million for the six months ended June 30, 2020, of which $169.6 million was lease abandonment expense. Due to the decrease in pricing, all of the unproved property in our northern field was abandoned and impaired in the first quarter of 2020. For the six months ended June 30, 2019, we recognized $19.5 million in exploration and abandonment expenses.

Depletion, depreciation, amortization and accretion expense. Our DD&A expense decreased $78.4 million to $158.7 million for the six months ended June 30, 2020 as compared to $237.1 million for the six months ended June 30, 2019. On a per unit basis, DD&A expense decreased to $9.39 per BOE for the six months ended June 30, 2020 from $16.05 per BOE for the six months ended June 30, 2019. This decrease is due to an impairment of $1.3 billion of proved oil and gas properties that occurred during the fourth quarter of 2019.

Impairment of long lived assets. For the six months ended June 30, 2020 and 2019, impairment expense was $1.7 million and $11.2 million, respectively, related to impairment of the proved oil and gas properties in our northern field as the fair value did not exceed the carrying amount associated with the properties.

General and administrative expenses ("G&A"). General and administrative expenses decreased by $22.7 million to $35.7 million for the six months ended June 30, 2020 as compared to $58.4 million for the six months ended June 30, 2019. This decrease is primarily due to reductions of workforce during the first and second quarters of 2020, and a decrease in stock-based compensation expense recognized for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. On a per unit basis, G&A expense decreased to $2.12 per BOE sold for the six months ended June 30, 2020 from $3.95 per BOE sold for the six months ended June 30, 2019.

Our G&A expenses for the six months ended June 30, 2020 includes $2.5 million related to the terms of separation agreements with two former executive officers. No expenses of this nature were incurred during the six months ended June 30, 2019.

Our G&A expenses include the non-cash expense for stock-based compensation for equity awards granted to our employees and directors. For the six months ended June 30, 2020, there was $2.6 million of stock-based compensation expense. For the six months ended June 30, 2019, stock-based compensation expense was $27.9 million.

Other operating expenses. Other operating expenses were $65.8 million for the six months ended June 30, 2020. This amount is primarily made up of a $46.8 million loss contingency from an alleged breach in contract stemming from a purported failure to complete the pipeline extensions connecting certain wells to the Badger central gathering facility prior to April 1, 2020, and a $9.5 million early termination fee related to the termination of our crude oil marketing contract. Also included in this amount is a $7.1 million charge to income for expenses related to a workforce reduction in February and May 2020.

Commodity derivative gain (loss). Primarily due to the decrease in NYMEX crude oil futures prices at June 30, 2020 as compared to December 31, 2019 and change in fair value from the execution of new positions, we incurred a net gain on our commodity derivatives of $193.7 million for the six months ended June 30, 2020. Primarily due to the increase in NYMEX crude oil futures prices at June 30, 2019 as compared to December 31, 2018 and change in fair value from the execution of new positions, we incurred a net loss on our commodity derivatives of $48.6 million for the six months ended June 30, 2019, including the amortization of premiums. These gains and losses are a result of our hedging program, which is used to mitigate our exposure to commodity price fluctuations. The fair value of the open commodity derivative instruments will continue to change in value until the transactions are settled and we will likely add to our hedging program in the future. Therefore, we expect our net income (loss) to reflect the volatility of commodity price forward markets. Our cash flow will only be affected upon settlement of the transactions at the current market prices at that time. During the six months ended June 30, 2020, we settled commodity derivatives totaling $166.7 million. During the six months ended June 30, 2019, we paid settlements of commodity derivatives totaling $24.5 million.

Loss on deconsolidation of Elevation Midstream, LLC. On March 16, 2020, we deconsolidated Elevation Midstream, LLC. Upon deconsolidation, we elected the fair value option to remeasure the Elevation equity method investment and determined it had no fair value. The Company recorded a $73.1 million loss on deconsolidation of Elevation Midstream, LLC in the condensed consolidated statements of operations for the six months ended June 30, 2020.

Reorganization items, net. Due to the commencement of the Chapter 11 Cases during the second quarter of 2020, we have incurred and will continue to incur significant costs associated with the reorganization, primarily legal and professional fees. For the six months ended June 30, 2020, we recognized $26.9 million in reorganization items. No reorganization items were recognized during the same period in the preceding year. Please see to Note 5—Reorganization Items, Net in Part I, Item I, Financial Information of this Quarterly Report.

Interest expense. Interest expense consists of interest expense on our long-term debt and amortization of debt issuance costs, net of capitalized interest. For the six months ended June 30, 2020, we recognized interest expense of $41.7 million as compared to $31.6 million for the six months ended June 30, 2019, as a result of borrowings under our DIP Credit Facility, our Credit Facility, our 2024 Senior Notes, our 2026 Senior Notes and the amortization of debt issuance costs.

We incurred interest expense for the six months ended June 30, 2020 of $42.5 million related to our 2024 Senior Notes, 2026 Senior Notes, Credit Facility and DIP Credit Facility. We incurred interest expense for the six months ended June 30, 2019 of approximately $43.0 million related to our Credit Facility, our 2024 Senior Notes, and our 2026 Senior Notes. Also included in interest expense for the six months ended June 30, 2020 and 2019 was the amortization of debt issuance costs of $3.2 million and $2.8 million, respectively. For the six months ended June 30, 2020 and 2019, we capitalized interest expense of $4.0 million and $3.8 million, respectively. Interest expense for the six months ended June 30, 2019 also includes $10.5 million of gain on debt extinguishment upon the repurchase of our 2026 Senior Notes.

Income tax (expense) benefit. We recorded income tax expense of $2.2 million for the six months ended June 30, 2020 and income tax benefit of $13.9 million for the six months ended June 30, 2019. This resulted in an effective tax rate of approximately (0.8)% and 21.6% for the six months ended June 30, 2020 and 2019, respectively. Our effective tax rate for the six months ended June 30, 2020 and 2019 differs from the U.S. statutory income tax rates of 21.0% primarily due to the effects of state income taxes, estimated taxable permanent differences, and valuation allowance.

Gathering and facilities segment. Prior to March 31, 2020, we had two operating segments, (i) the exploration, development and production of oil, natural gas and NGL (the "exploration and production segment") and (ii) the construction, operation and support of midstream assets to gather and process crude oil and gas production (the "gathering and facilities segment"). Please see Note 1—Business and Organization — Deconsolidation of Elevation Midstream, LLC in Part I, Item I, Financial Information of this Quarterly Report for further information related to the deconsolidation of Elevation Midstream, LLC.

Liquidity and Capital Resources

On June 14, 2020, we filed for relief under chapter 11 of the Bankruptcy Code. The commencement of a voluntary proceeding in bankruptcy constituted an immediate event of default under the Credit Agreement and the indentures governing our Senior Notes, resulting in the automatic and immediate acceleration of all of our outstanding debt under the Credit Agreement and the Senior Notes. Any efforts to enforce payment obligations related to the acceleration of our debt have been automatically stayed as a result of the filing of the Chapter 11 Cases, and the creditors’ rights of enforcement are subject to the applicable provisions of the Bankruptcy Code. On June 14, 2020, we also entered into the RSA with certain holders of our Senior Notes to support a restructuring in accordance with the terms set forth therein. As more fully disclosed in Note 1—Business and Organization and Note 6—Long-Term Debt in Part I, Item 1. Financial Information of this Quarterly Report, the RSA contemplates a financial restructuring which would provide for the treatment of holders of certain claims and existing equity interests.

We expect to continue operations in the ordinary course for the duration of the Chapter 11 Cases. To ensure ordinary course operations, we have obtained approval from the Bankruptcy Court of the First Day Motions to continue our ordinary course operations after the filing date. In addition, we have obtained a DIP Credit Facility to fund operations during the bankruptcy proceedings. However, for the duration of the Chapter 11 Cases, our operations and our ability to develop and execute our business plan are subject to a high degree of risk and uncertainty associated with the Chapter 11 Cases. The outcome of the Chapter 11 Cases is dependent upon factors that are outside of our control, including actions of the Bankruptcy Court and our creditors. The significant risks and uncertainties related to our liquidity and Chapter 11 Cases described above raise substantial doubt about our ability to continue as a going concern. There can be no assurance that we will confirm and consummate a Restructuring Plan as contemplated by the RSA or complete another plan of reorganization with respect to the Chapter 11 Cases. As a result, we have concluded that management’s plans do not alleviate substantial doubt about our ability to continue as a going concern.

As a result of the Chapter 11 Cases, our total available liquidity as of June 30, 2020 consisted of cash on hand of $62.6 million. We expect to continue using additional cash that will further reduce this liquidity. With the Bankruptcy Court’s authorization of the Final DIP Order on July 20, 2020, we obtained access to an additional $35.0 million under the DIP Credit Facility as is described in Note 6—Long-Term Debt in Part I, Item 1. Financial Information of this Quarterly Report. With cash on hand and DIP Credit Facility availability, we believe that we will have sufficient liquidity, including funds generated from ongoing operations, to fund anticipated cash requirements through the Chapter 11 Cases. As such, we expect to pay vendor and royalty obligations on a go-forward basis according to the terms of our current contracts and consistent with applicable court orders, if any, approving such payments.

Historically, our primary sources of liquidity have been borrowings under our Credit Facility, proceeds from notes offerings and preferred stock offerings, equity provided by investors, including our management team, cash from issuance of preferred stock, and cash flows from divestitures and from the sale of oil, gas and NGL production. Our primary uses of capital have been for the acquisition of oil and gas properties to increase our acreage position, as well as development and exploration of oil and gas properties. As of June 30, 2020, our DIP Credit Facility borrowings were $15.0 million, with $37.5 million total outstanding including amounts that were rolled over from the Credit Facility. Our Credit Facility borrowings were $481.9 million and $470.0 million at June 30, 2020, and December 31, 2019, respectively. We had senior notes totaling $1.1 billion outstanding at June 30, 2020 and December 31, 2019. We also have other contractual commitments, which are described in Note 14—Commitments and Contingencies in Part I, Item 1, Financial Information of this Quarterly Report.

With the Bankruptcy Court’s authorization of the DIP Credit Facility, we believe that we have sufficient liquidity to execute our business plan through the bankruptcy proceedings.

We plan to continue our practice of entering into hedging arrangements to reduce the impact of commodity price volatility on our cash flow from operations. Under this strategy, we intend to enter into commodity derivative contracts at times and on terms desired to maintain a portfolio of commodity derivative contracts covering approximately 50% to 70% of our projected oil and natural gas production over a one to two year period at a given point in time, although we may from time to time hedge more or less than this approximate range.

We had a Stock Repurchase Program that ended in 2019. During the six months ended June 30, 2019, spending under this program was $115.7 million. We also had a Senior Notes Repurchase Program in place. Spending under this program during the six months ended June 30, 2019 was $39.3 million. No common stock or Senior Notes were repurchased during the six months ended June 30, 2020.

Q2 2020 vs. Q2 2019

Net cash provided by operating activities. For the six months ended June 30, 2020 as compared to the six months ended June 30, 2019, our net cash provided by operating activities decreased by $134.5 million primarily due to the decrease in operating revenues net of expenses of $235.8 million primarily as a result of a decrease in commodity prices and a decrease of $18.7 million in cash paid for interest offset by an increase of $80.6 million related to changes in working capital and an increase of $87.4 million in commodity derivative settlement payments.

Net cash used in investing activities. For the six months ended June 30, 2020, net cash used in investing activities decreased by $257.8 million compared to the six months ended June 30, 2019 primarily as a result of $121.6 million less spent on oil and gas property additions, $119.5 million less spent on gathering systems and facilities, $21.8 million less spent on other property and equipment and $4.9 million less spent on our investment in unconsolidated subsidiaries. Proceeds from the sale of assets was $8.8 million less during the first six months of 2020 than during the same period in 2019.

Net cash provided by financing activities. For the six months ended June 30, 2020, net cash provided by financing activities was $113.6 million more than for the six months ended June 30, 2019 primarily as a result of $116.5 million spent to repurchase common stock, $39.3 million spent to repurchase 2026 Senior Notes and $5.4 million spent on Preferred Stock Dividends during the first six months of 2019 which were not spent during first six months of 2020. Also, net borrowings on the Credit Facility and DIP Credit Facility during the first six months of 2020 were $49.5 million less compared to the first six months of 2019.

Working Capital

Our working capital deficit was $322.1 million and $240.8 million at June 30, 2020 and December 31, 2019, respectively. However, as of June 30, 2020, many of our current liabilities were classified as liabilities subject to compromise. Our cash balances totaled $62.6 million and $32.4 million at June 30, 2020 and December 31, 2019, respectively.

Due to the amounts that we incur related to our drilling and completion program and the timing of such expenditures, we may incur working capital deficits in the future. We expect that our pace of development, production volumes, commodity prices and differentials to NYMEX prices for our oil, natural gas and NGL production will be the largest variables affecting our working capital along with reorganization costs pertaining to the bankruptcy. As part of the Chapter 11 Cases, the Company filed a motion to reject its drilling rig contracts. As such, the Company recorded $6.7 million in liabilities subject to compromise on the condensed consolidated balance sheets as of June 30, 2020.