The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this Quarterly Report. The
following discussion includes forward-looking statements, including, without
limitation, statements relating to our plans, strategies, objectives,
expectations, intentions and resources. Our actual results could differ
materially from those discussed in these forward-looking statements as a result
of many factors, including those discussed under "Risk Factors" and elsewhere in
this Quarterly Report.



Overview



We are a Permian Basin focused company engaged in the exploration, production,
development, and acquisition of oil, natural gas, and NGLs, with all of our
properties and operations in the Delaware Basin. Our focus is on the production
of "Liquids". In each of the past two years, over 90% of our revenues have been
generated from the sale of Liquids. We have a largely contiguous acreage
position with significant stacked-pay potential, which we believe includes at
least five to seven productive zones and more than 1,000 future drilling
locations.



Our revenue, profitability, and cash flows depend on many factors which are
beyond our control, including oil and gas prices, economic, political and
regulatory developments, the financial condition of our vendors and customers,
competition from other sources of energy, and the other items discussed under
the caption "Risk Factors" in Item 1A of this Quarterly Report on Form 10-Q and
our Annual Report on Form 10-K for the period ended December 31, 2019. Oil and
gas prices historically have been volatile and may fluctuate widely in the
future.



Oil prices declined sharply during the first half of 2020, dropping below $21.00
per Bbl in March 2020 and further dropping below negative $37.00 per Bbl in
April 2020. This dramatic decline in pricing was primarily in response to the
economic effects of the coronavirus ("COVID-19") pandemic on the demand for oil
and natural gas and the increased production by members of the Organization of
Petroleum Exporting Countries and other oil-producing nations, including Russia.
Oil prices began to partially recover in the latter half of the second quarter
from recent historical lows and have remained stable through the third quarter
of 2020. Lower oil, NGL and natural gas prices may not only decrease our
revenues on a per unit basis, but may also reduce the amount of oil and natural
gas that we can produce economically and therefore potentially lower our oil and
gas reserve quantities. Substantial and extended declines in oil, NGL and
natural gas prices have resulted, and may result, in impairments of our proved
oil and gas properties or undeveloped acreage (such as the impairments discussed
below under "Results of Operations") and may materially and adversely affect our
future business, financial condition, cash flows, results of operations,
liquidity, ability to finance planned capital expenditures or ability to emerge
from bankruptcy (as discussed below under "Recent Developments").



In order to improve our liquidity, leverage position and current ratio to meet
the financial covenants under the Revolving Credit Agreement, our board of
directors formed a Special Committee in November 2019 which was tasked with
reviewing and evaluating strategic alternatives that could enhance the value of
the Company, including alternatives that could enable us to access further
sources of liquidity through financing alternatives or deleveraging
transactions. The Special Committee hired financial and legal advisors to advise
the committee on these matters. In the months leading to the commencement of the
Chapter 11 Cases, the Company, with the assistance of its advisors and
spearheaded by the Special Committee, ran an extensive marketing and sale
process and explored various strategic alternatives. On June 16, 2020, our board
of directors revised the original directive and authority of the Special
Committee to include evaluation of restructuring transactions. On June 28, 2020,
following recommendation by the Special Committee, our board of directors
approved the terms of the RSA (as defined below) and the filing of bankruptcy
petitions by the Debtors (as defined below).



As of September 30, 2020, we had $74.9 million of indebtedness outstanding under
our Revolving Credit Facility (as defined below), after giving effect to the
roll-up of $15 million into the DIP Facility. Pursuant to the Forbearance
Agreement (as defined below), the administrative agent and requisite lenders
under our Revolving Credit Agreement agreed to refrain from exercising certain
of their rights and remedies under the Revolving Credit Agreement as a result of
certain specified defaults and events of default, including the Company's
failure to make the borrowing base deficiency on or before June 5, 2020, until
June 26, 2020. The Company did not make the payment.



Recent Developments

Voluntary Petitions under Chapter 11 of the Bankruptcy Code





On June 28, 2020 (the "Petition Date"), Lilis Energy, Inc. and its consolidated
subsidiaries Brushy Resources, Inc., ImPetro Operating LLC, ImPetro Resources,
LLC, Lilis Operating Company, LLC and Hurricane Resources LLC (collectively, the
"Debtors") filed voluntary petitions seeking relief under Chapter 11 of Title 11
of the United States Code (the "Bankruptcy Code") in the United

                                       35

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States Bankruptcy Court for the Southern District of Texas, Houston Division
(the "Bankruptcy Court") commencing cases for relief under Chapter 11 of the
Bankruptcy Code (the "Chapter 11 Cases"). The Chapter 11 Cases are being jointly
administered under the caption In re Lilis Energy, Inc., et al., Case No.
20-33274. We are currently operating our business as "debtors-in-possession"
under the jurisdiction of the Bankruptcy Court, in accordance with the
applicable provisions of the Bankruptcy Code.



To maintain and continue uninterrupted ordinary course operations during the
bankruptcy proceedings, the Debtors filed a variety of "first day" motions
seeking approval from the Bankruptcy Court for various forms of customary relief
designed to minimize the effect of bankruptcy on the Debtors' operations,
customers and employees. On June 29, 2020, the Bankruptcy Court entered orders
approving all requested "first day" relief. As a result, we are able to conduct
normal business activities and pay all associated obligations for the period
following our bankruptcy filing and (subject to caps applicable to payments of
certain pre-petition obligations) certain pre-petition obligations, including,
but not limited to: employee wages and benefits, pre-petition amounts owed to
certain lienholders and critical vendors and funds belonging to third parties,
including royalty interest and working interest holders and partners. During the
pendency of the Chapter 11 Cases, all transactions outside the ordinary course
of our business require the prior approval of the Bankruptcy Court.

On June 28, 2020, the Debtors entered into a restructuring support agreement
(the "RSA") with (i) the lenders under our Revolving Credit Facility (other than
Värde) (each as defined below) (the "Consenting RBL Lenders") and (ii) certain
investment funds and entities affiliated with Värde Partners, Inc.
(collectively, "Värde") which collectively own all of our outstanding preferred
stock and a subordinated participation in that certain Second Amended and
Restated Senior Secured Revolving Credit Agreement dated as of October 10, 2018
(as amended, the "Revolving Credit Agreement" and the loan facility, the
"Revolving Credit Facility"), by and among Lilis Energy, Inc., as borrower, the
other Debtors, as guarantors, BMO Harris Bank, N.A., as administrative agent
(the "Administrative Agent"), and the lenders party thereto ("RBL Lenders"),
which contemplated (a) a dual-track path in the Chapter 11 Cases whereby the
Debtors would simultaneously pursue a plan of reorganization funded, in part, by
a $55 million new money equity commitment (the "Värde Equity Investment") from
Värde in its sole discretion while also preparing for a potential process to
sell substantially all of the Debtors' assets in the event a definitive
agreement and an executed commitment for the Värde Equity Investment could not
be achieved by fifty (50) days after the commencement of the Chapter 11 Cases
(the "Sales Process"), (b) a Senior Secured Super-Priority Debtor-in-Possession
Credit Agreement (the "DIP Credit Agreement") and related super-priority senior
secured debtor-in-possession credit facility (the "DIP Facility"), (c) the terms
of a replacement debtor-in-possession credit agreement and replacement DIP
credit facility and (d) the form of an equity commitment letter contemplating
the Värde Equity Commitment in Värde's sole discretion.

On August 17, 2020, the Company announced that Värde had declined to pursue the
Värde Equity Investment to sponsor a Chapter 11 plan of
reorganization. Immediately thereafter, the Company and the other Debtors began
solely pursuing the Sales Process. In connection with Värde's election to not
pursue the Värde Equity Investment, the Debtors, the Consenting RBL Lenders and
Värde entered into that certain Mutual Termination of the RSA, dated August 21,
2020 (the "Mutual Termination"). Pursuant to the RSA and the Mutual Termination,
certain provisions of the RSA survive the Mutual Termination, including Sections
7.01, 13.05, 15.01 (solely to the extent described by Section 15.01) and 16.22
thereof. In particular, Section 13.05 of the Restructuring Support Agreement
provides for certain commitments and obligations related to the Sales Process
that will remain in full force and effect notwithstanding the Mutual
Termination.

On September 3, 2020 and October 13, 2020, respectively, the Debtors filed a
joint liquidating Chapter 11 plan (as amended from time to time, the "Plan") and
a first amended Plan with the Bankruptcy Court in connection with their pursuit
of the Sales Process. On October 14, the Bankruptcy Court approved the Debtors'
disclosure statement with respect to the Plan (the "Disclosure Statement"),
which authorized the Debtors to commence votes to accept or reject the Plan. On
October 16, the Debtors completed such solicitation. On October 16, 2020, the
Debtors received an initial round of bids from third parties interested in
acquiring substantially all of the Debtors' assets in connection with the Sales
Process. An auction in connection with the Sales Process was held on November 5,
2020, and a hearing before the Bankruptcy Court is scheduled for November 9,
2020, to consider approval of the winning bid(s) from the auction.

On October 12, 2020, the Settlement Parties reached an agreement on the Global
Settlement, which resolves various actual and potential disputes between the
Settlement Parties. On October 12, 2020, the Debtors filed the Settlement Motion
seeking approval of certain aspects of the Global Settlement. On October 22,
2020, the Bankruptcy Court entered an order approving the Settlement Motion.
Certain other aspects of the Global Settlement are being implemented through the
Plan.

There can be no assurance that the Debtors will confirm the Plan with the
Bankruptcy Court and consummate a sale of substantially all of their assets
pursuant to the Sales Process or complete an alternative Chapter 11 plan. For
the duration of our Chapter 11 Cases, our operations and our ability to develop
and execute a business plan are subject to risks and uncertainties associated
with bankruptcy.



                                       36


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DIP Facility



Upon the interim approval of the Bankruptcy Court, the Debtors, as borrower and
guarantors, the Consenting RBL Lenders (in that capacity, "DIP Lenders") and the
Administrative Agent entered into a the DIP Credit Agreement, under which the
DIP Lenders provide the DIP Facility providing for an aggregate principal amount
of (i) $15.0 million of new money revolving commitments, of which up to $5.0
million was available upon entry of the interim order, with the remainder
available upon entry of the final order, plus (ii) a tranche of roll-up term
loans to refinance $15.0 million of the outstanding loans under the Revolving
Credit Facility, including $1.5 million pre-petition bridge loans that the
Non-Affiliate RBL Lenders advanced to the Company on June 17, 2020, of which
$1.5 million of roll-up term loans were incurred upon entry of an interim order,
and the remaining $13.5 million incurred upon entry of the final order. On June
29, 2020, the Bankruptcy Court entered an order (the "Interim DIP Order")
granting interim approval of the DIP Facility, thereby permitting the Company to
incur up to $5.0 million new money loans on an interim basis. The DIP Credit
Agreement was entered into on June 30, 2020. On August 21, 2020, the Bankruptcy
Court entered an order granting final approval of the DIP Facility, thereby
permitting the Company to borrow an additional $10.0 million. Also on August 21,
2020, the Company used $13.5 million in roll-up term loans under the DIP
Facility to refinance $13.5 million of the outstanding loan under the Revolving
Credit Facility. As of September 30, 2020, there was $30.0 million outstanding
under the DIP Credit Agreement.



In connection with the Debtors' transition to a sole pursuit of the Sales
Process, the Debtors, the Administrative Agent and the DIP Facility Lenders
amended the DIP Credit Agreement to extend certain milestones in the DIP
Facility as the Debtors pivoted to the Sales Process on August 17, 2020, August
21, 2020, August 28, 2020, September 8, 2020, September 29, 2020 and October 7,
2020. The proceeds of the DIP Facility are being used to pay fees, expenses and
other expenditures of the Debtors set forth in rolling budgets prepared as part
of the Chapter 11 Cases, which are subject to approval by the DIP Lenders.

Acceleration of Our Existing Debt and Automatic Stay Due to Chapter 11 Filing





As of September 30, 2020, after giving effect to the roll-up of $15 million into
the DIP Facility, we had $74.9 million of indebtedness outstanding under our
Revolving Credit Agreement including $25.7 million of such principal held by an
affiliate of Värde which was subordinated to the indebtedness of the other RBL
Lenders under the Revolving Credit Agreement.



On June 5, 2020, the Debtors, the Administrative Agent and certain lenders
entered into a Limited Forbearance Agreement to the Revolving Credit Agreement
(the "Forbearance Agreement"). Pursuant to the Forbearance Agreement, the
Administrative Agent and the Majority Lenders agreed to refrain from exercising
certain of their rights and remedies under the Revolving Credit Agreement and
related documents arising solely as a result of the occurrence or continuance of
certain specified defaults and events of default under the Revolving Credit
Agreement (the "Specified Defaults") during the Forbearance Period (as defined
below). The Specified Defaults include the Company's failure to make the
borrowing base deficiency payment due June 5, 2020, deliver certain financial
statements when due, failure to comply with requirements related to the status
of trade payables and related liens and failure to maintain the leverage ratio
and asset coverage ratio required by the Revolving Credit Agreement as of the
fiscal quarter ended September 30, 2020. The "Forbearance Period" commenced on
the date of the Forbearance Agreement and expired at 6:00 p.m., Central time, on
June 26, 2020.



The Forbearance Agreement also deferred the scheduled spring redetermination of
the borrowing base under the Revolving Credit Agreement from on or about June 5,
2020 to on or about June 26, 2020. The redetermination did not happen as a
result of the Chapter 11 filing.



The Forbearance Agreement permitted the lenders under the Revolving Credit
Agreement, or the RBL Lenders, in their capacity as counterparties to the
Company's commodity swap agreements to unwind and liquidate such swap
arrangements during the Forbearance Period and to apply any net proceeds to pay
down the outstanding obligations under the Revolving Credit Agreement. The swap
positions of such lenders were liquidated on June 9, 2020 for net proceeds of
approximately $9.3 million, which was applied to reduce the outstanding
obligations of the Company under the Revolving Credit Agreement. On June 17,
2020, certain of the RBL Lenders permitted the Company to borrow $1.5 million
under the Revolving Credit Agreement. As of the filing of the Chapter 11 Cases,
the remaining outstanding principal on our Revolving Credit Agreement was $89.9
million, including $25.7 million of such principal held by an affiliate of Värde
which was subordinated to the indebtedness of the other RBL Lenders under the
Revolving Credit Agreement.



Our remaining derivative contracts were with counterparties that were not our
RBL Lenders are governed by master agreements which generally specify that a
default under any of our indebtedness as well as any bankruptcy filing is an
event of default which may result in early termination of the derivative
contracts. As a result of our debt defaults and our bankruptcy petition, we are
currently in default under these remaining derivative contracts. In July, the
remaining derivative contracts were terminated in conjunction with our
bankruptcy proceedings. Furthermore, since we are in default on our indebtedness
and have a bankruptcy filing, we will no longer be

                                       37

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able to represent that we comply with the credit default or bankruptcy covenants
under our derivative master agreements and thus may not be able to enter into
new hedging transactions.



The commencement of a voluntary proceeding in bankruptcy constitutes an
immediate event of default under the Revolving Credit Agreement, resulting in
the automatic and immediate acceleration of all of the Company's outstanding
debt. The Company has classified its outstanding balance under the Revolving
Credit Agreement as liabilities subject to compromise on its condensed
consolidated balance sheet as of September 30, 2020. Subject to certain
exceptions, under the Bankruptcy Code, the filing of the bankruptcy petitions on
the Petition Date automatically enjoined, or stayed, the continuation of most
judicial or administrative proceedings or the filing of other actions against
the Debtors or their property to recover, collect or secure a claim arising
prior to the Petition Date. Creditors are stayed from taking any actions against
the Debtors as a result of debt defaults, subject to certain limited exceptions
permitted by the Bankruptcy Code.

Ability to Continue as a Going Concern





We have experienced losses and working capital deficiencies, and at times in the
past, negative cash flows from operations. Additionally, our liquidity and
operating forecasts have been negatively impacted by the recent decrease in
commodity prices and resulting temporary shut-in of wells, which has negatively
impacted our ability to comply with debt covenants under our Revolving Credit
Agreement. Commodity price volatility, as well as concerns about the COVID-19
pandemic, which has significantly decreased worldwide demand for oil and natural
gas. These factors have restricted our access to liquidity and lead the company
to seek relief through filing our Chapter 11 cases. As a result, the Company has
concluded these matters raise substantial doubt about the Company's ability to
continue as a going concern for a twelve-month period following the date of
issuance of these consolidated financial statements.



Fluctuations in oil and natural gas prices have a material impact on our
financial position, results of operations, cash flows and quantities of oil,
natural gas and NGL reserves that may be economically produced. Historically,
oil and natural gas prices have been volatile, and may be subject to wide
fluctuations in the future. If continued depressed prices persist, the Company
will continue to experience impairment of oil and natural gas properties,
operating losses, negative cash flows from operating activities, and negative
working capital.



We face uncertainty regarding the adequacy of our liquidity and capital
resources and have extremely limited access to additional financing. The Interim
DIP Order entered by the Bankruptcy Court on June 29, 2020 approved the DIP
Facility on an interim basis, thereby allowing us to borrow up to $5.0 million
under the DIP Facility, which we borrowed on June 30, 2020. On August 21, 2020,
we borrowed the additional $10.0 million new money loans under the DIP Facility
following receipt of a final order by the Bankruptcy Court approving the DIP
Facility and the DIP Credit Agreement. In addition to the cash requirement
necessary to fund ongoing operations, we have incurred significant professional
fees and other costs in connection with preparation for the Chapter 11 Cases and
expect that we will continue to incur significant professional fees, costs and
other expenses throughout our Chapter 11 Cases.



The Company's operations and its ability to develop and execute its 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 subject to a high
degree of uncertainty and is dependent upon factors that are outside of the
Company's control, including actions of the Bankruptcy Court and the Company's
creditors. There can be no assurance that the Debtors will confirm the Plan with
the Bankruptcy Court and consummate a sale of substantially all of their assets
pursuant to the Sales Process or complete an alternative Chapter 11 plan.

2020 Operational and Financial Updates

• Brought additional capital of $24.1 million into the Company through the

sale of certain undeveloped leasehold assets in New Mexico.

• In response to commodity price decreases in March and April 2020, the

Company elected to shut-in 31 wells during April 2020. These wells were

identified as uneconomic after the significant decline in commodity prices


       at that time. Twenty-eight of the shut-in wells have been brought back
       online.

• Implemented well optimization program which includes utilizing chemicals,


       hot oiling, and swabbing; in combination with a proper preventative
       maintenance program to maximize increases in daily production.

• Negotiated lower produced water hauling and disposal rates to decrease

operating costs.

• A portion of the Company's employees were placed on furlough in April. As a

result of continued restricted liquidity due to economic impacts of

COVID-19, the Company laid off its furloughed employees, a 44% reduction in

workforce, in June 2020 to further reduce personnel costs of the Company.






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COVID-19



On January 30, 2020, the World Health Organization ("WHO") announced a global
health emergency due to the COVID-19 outbreak, which originated in Wuhan, China,
and the risks to the international community as the virus spreads globally
beyond its point of origin. In March 2020, the WHO classified the COVID-19
outbreak as a pandemic, based on the rapid increase in exposure globally.



In addition, in March 2020, OPEC+ countries failed to agree on production levels
which has caused increased supply and led to a substantial sharp decrease in oil
prices and an increasingly volatile market. The oil price and production dispute
ended with an agreement among certain OPEC+ countries to cut global petroleum
output but such cuts did not go far enough to offset the impact of COVID-19
pandemic on the worldwide economy reducing worldwide demand and pricing of oil.
If depressed pricing continues for an extended period it may lead to i)
reductions in availability under any reserve-based lending arrangements we may
enter into, ii) reductions in reserves, and (iii) additional impairment of
proved and unproved oil and gas properties.



The substantial decrease and continued suppression in oil prices during 2020 has
resulted in a full-cost ceiling impairment of $62.2 million and $94.9 million,
during the quarter ended September 30, 2020 and nine months ended September 30,
2020, respectively.



During April 2020 the Company elected to shut-in 12 wells which were identified
as uneconomic as a result of the continued decline in commodity prices in 2020
and 19 additional wells were identified for short term shut-in through May and
June. In late May, 16 of the shut-in wells were back on production. Another 12
shut-in wells were back on production in early June. After initially furloughing
a portion of its employees, and as a result of continuing restricted liquidity
further exacerbated by economic impacts of the COVID-19 pandemic, the Company
laid off 44% of its remaining workforce in June 2020 to further reduce general
and administrative costs of the Company.

The economic impact of the COVID-19 pandemic and resulting reduction in oil prices is expected to continue to impact the Company for an indeterminate period.





These matters could have a continued material adverse impact on economic and
market conditions and trigger a period of global economic slowdown, which the
Company expects would further impair the Company's asset values, including
reserve estimates.  Further, consumer demand has decreased since the spread of
the outbreak and new travel restrictions placed by governments in an effort to
curtail the spread of the coronavirus. Although the Company cannot estimate the
length or gravity of the impacts of these events at this time, if the pandemic
and/or decreased oil prices continue, they will have a material adverse effect
on the Company's results of future operations, financial position, and liquidity
in fiscal year 2020.

Coronavirus Aid, Relief, and Economic Security Act





On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief,
and Economic Security Act (the "CARES Act"). The CARES Act, among other things,
includes provisions relating to refundable payroll tax credits, deferment of
employer side social security payments, net operating loss carryback periods,
alternative minimum tax credit refunds, modifications to the net interest
deduction limitations, increased limitations on qualified charitable
contributions, and technical corrections to tax depreciation methods for
qualified improvement property.



It also appropriated funds for the SBA Paycheck Protection Program loans that
are forgivable in certain situations to promote continued employment, as well as
Economic Injury Disaster Loans to provide liquidity to small businesses harmed
by COVID-19. We are not eligible for these funds.

The CARES Act has not had a significant impact on our financial condition, results of operations, or liquidity.

Market Conditions and Commodity Pricing





Our financial results depend on many factors, including the price of oil,
natural gas and NGLs and our ability to market our production on economically
attractive terms. We generate the majority of our revenues from sales of Liquids
and, to a lesser extent, sales of natural gas. The price of these products are
critical factors to our success and volatility in these prices could impact our
results of operations. In addition, our business requires substantial capital to
acquire properties and develop our non-producing properties. The price of oil,
natural gas and NGLs have fallen significantly since the beginning of 2020, due
in part to the impact of the COVID-19 pandemic, which has significantly
decreased worldwide demand for oil and natural gas. This significant decline and
any further declines in the price of oil, natural gas and NGLs have reduced and
may continue to reduce our revenues resulting in lower cash

                                       39

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inflow and impairment on our proved oil and gas properties. Such declines in
oil, natural gas, and NGL prices also adversely affect our ability to obtain
additional funding on favorable terms.

Results of Operations - For the Three and Nine Months Ended September 30, 2020 and 2019





Sales Volumes and Revenues

The following table sets forth selected revenue and sales volume data for the three months ended September 30, 2020 and 2019:





                                                  Three Months Ended September 30,
                                             2020          2019       Variance         %
Net production:
Oil (Bbls)                                  230,113       188,913        41,200          22 %
Natural gas (Mcf)                           666,527       716,197       (49,670 )        (7 )%
NGL (Bbl)                                    65,061        47,225        17,836          38 %
Total (BOE)                                 406,262       355,501        50,761          14 %
Average daily production (BOE/d)              4,416         3,864           552          14 %
Average realized sales price:
Oil (Bbl)                                 $   35.86     $   54.02     $  (18.16 )       (34 )%
Natural gas (Mcf)                         $    1.49     $    0.97     $    0.52          54 %
NGL (Bbl)                                 $   11.40     $   14.76     $   (3.35 )       (23 )%
Total (BOE)                               $   24.58     $   32.62     $   (8.04 )       (25 )%
Oil, natural gas and NGL revenues (in
thousands):
Oil revenue                               $   8,250     $  10,206     $  (1,956 )       (19 )%
Natural gas revenue                             995           694           301          43 %
NGL revenue                                     742           697            45           6 %
Total revenue                             $   9,987     $  11,597     $  (1,610 )       (14 )%


Realized commodity prices were adversely impacted by COVID-19 which resulted in
a decrease of our realized prices for oil and NGL for the quarter, but was
partially offset by an increase in our realized price on natural gas, resulting
in a decrease of 25% in realized price per BOE for the three months ended
September 30, 2020 compared to the three months ended September 30, 2019. Total
revenue decreased $1.6 million to $10.0 million for the three months ended
September 30, 2020, as compared to $11.6 million for the three months ended
September 30, 2019, representing an 14% decrease. Total sales volumes increased
14% to 406,262 BOE during the three months ended September 30, 2020, compared to
355,501 BOE for the 2019 quarter, an increase of 50,761 BOE. Higher total sales
volume for the three months ended September 30, 2020 was primarily the result of
the shut-in of certain wells during the three months ended September 30, 2019
for facilities upgrades as well as sales from 3.0 gross (2.5 net) wells placed
on production after September 30, 2019.

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The following table sets forth selected revenue and sales volume data for the nine months ended September 30, 2020 and 2019:





                                                      Nine Months Ended September 30,
                                             2020            2019          Variance           %
Net production:
Oil (Bbls)                                   705,875         863,758         (157,883 )         (18 )%
Natural gas (Mcf)                          1,240,047       2,558,714       (1,318,667 )         (52 )%
NGL (Bbl)                                    100,072         187,574          (87,502 )         (47 )%
Total (BOE)                                1,012,622       1,477,785         (465,163 )         (31 )%
Average daily production (BOE/d)               3,696           5,413           (1,717 )         (32 )%
Average realized sales price:
Oil (Bbl)                                $     36.72     $     51.97     $     (15.25 )         (29 )%
Natural gas (Mcf)                        $      1.04     $      1.00     $       0.03             3 %
NGL (Bbl)                                $     11.37     $     18.17     $      (6.79 )         (37 )%
Total (BOE)                              $     27.99     $     34.42     $      (6.44 )         (19 )%
Oil, natural gas and NGL revenues (in
thousands):
Oil revenue                              $    25,917     $    44,890     $    (18,973 )         (42 )%
Natural gas revenue                            1,284           2,570           (1,286 )         (50 )%
NGL revenue                                    1,138           3,408           (2,270 )         (67 )%
Total revenue                            $    28,339     $    50,868     $    (22,529 )         (44 )%




Realized commodity prices were adversely impacted by COVID-19, which resulted in
a decrease of our realized prices and was partially offset by recognition of
deferred revenue, resulting in a decrease of 19% in realized price per BOE for
the nine months ended September 30, 2020 compared to the nine months ended
September 30, 2019. Total revenue decreased $22.5 million to $28.3 million for
the nine months ended September 30, 2020, as compared to $50.9 million for the
nine months ended September 30, 2019, representing a 44% decrease. Oil revenue
for the nine months ended September 30, 2020 includes recognition of $2.2
million of deferred revenue upon the termination of the ARM sales
agreement. Total sales volume decreased 31% to 1,012,622 BOE during the nine
months ended September 30, 2020, compared to 1,477,785 BOE for the comparable
2019 period, a decrease of 465,163 BOE. The total sales volume decrease was
primarily the result of our gas purchaser's shut down of its system for seven
days of the first quarter and the April shut-in of 31 of our wells in response
to the sharp decline in commodity prices in March and April 2020. The decrease
was partially offset by sales from 3.0 gross (2.5 net) wells placed on
production after September 30, 2019.



Operating Expenses

The following table shows a comparison of operating expenses for the three months ended September 30, 2020 and 2019:





                                         Three Months Ended September 30,
                                            2020                  2019             Change       % Change
Production Costs per BOE:
Production costs                       $          4.01       $         11.94     $    (7.93 )         (66 )%
Gathering, processing and
transportation                                    2.03                  2.65          (0.62 )         (23 )%
Production taxes                                  1.19                  1.53          (0.34 )         (22 )%
General and administrative                        8.31                 13.65          (5.34 )         (39 )%
Depreciation, depletion,
amortization and accretion                       10.47                 15.25          (4.78 )         (31 )%
Impairment of oil and properties                153.12                 46.64            106           228 %
Total (BOE)                            $        179.13       $         91.66     $    87.47            95 %
Operating Expenses:
Production costs                       $         1,630       $         4,243     $   (2,613 )         (62 )%
Gathering, processing and
transportation                                     824                   942           (118 )         (13 )%
Production taxes                                   482                   543            (61 )         (11 )%
General and administrative                       3,375                 4,852         (1,477 )         (30 )%
Depreciation, depletion,
amortization and accretion                       4,254                 5,420         (1,166 )         (22 )%
Impairment of oil and properties                62,206                16,580         45,626           275 %
Total Operating Expenses               $        72,771       $        16,000     $   56,771           355 %


                                       41


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Production Costs

Production costs decreased by $2.6 million to $1.6 million for the three months
ended September 30, 2020, as a result of cost-cutting measures taken in the
current year partially offset by the addition of 3.0 gross (2.5 net) producing
wells since September 30, 2019. Our production costs on a per BOE basis
decreased by $7.93, or 66%, to $4.01 for the three months ended September 30,
2020, as compared to $11.94 per BOE for the three months ended September 30,
2019. The decrease in production costs per BOE was primarily the result of
cost-cutting measures in the 2020 period as opposed to higher well treatment and
workover costs in the 2019 period.

Gathering, Processing and Transportation



Gathering, processing and transportation costs decreased $0.1 million to $0.8
million for the three months ended September 30, 2020, compared to $0.9 million
for the 2019 quarter. This cost decrease was primarily the result of lower sales
volumes of natural gas. The cost on a per BOE basis decreased from $2.65 for the
three months ended September 30, 2019, to $2.03 for the three months ended
September 30, 2020. The decrease was primarily attributable to a lower
proportion of natural gas and NGLs in the product mix. For the three months
ended September 30, 2020, natural gas and NGLs made up only 43% of total BOE
sales as compared to 47% of total BOE sales for the 2019 quarter.

General and Administrative Expenses ("G&A")





G&A decreased by $1.5 million to $3.4 million for the three months ended
September 30, 2020, as compared to $4.9 million for the three months ended
September 30, 2019. The decrease of $1.5 million in G&A was primarily
attributable to a decrease in personnel costs of $1.2 million, including
directors' fees, a decrease of $0.5 million in professional services and a
decrease in share-based compensation of $0.2 million, offset by an increase of
$0.9 million in bad debt expense. All professional fees incurred after the
filing of the Chapter 11 Cases and directly related to the bankruptcy, are
reported in reorganization items, net in our condensed consolidation statements
of operations.

Depreciation, Depletion, Amortization and Accretion ("DD&A")





DD&A expense was $4.3 million for the three months ended September 30, 2020,
compared to $5.4 million for the three months ended September 30, 2019;
resulting in a decrease of $1.2 million. Our DD&A rate decreased by 31% to
$10.47 per BOE for the three months ended September 30, 2020 from $15.25 per BOE
for the three months ended September 30, 2019. The rate decrease was primarily
the result of lower oil and gas property net book values remaining at September
30, 2020 after the $228.3 million impairment recorded in the last half of 2019
as well as impairment recorded in the second quarter 2020. To a smaller degree,
DD&A expense was lower as a result of a 14% decrease in sales volumes for the
three months ended September 30, 2020 as compared to the 2019 quarter.

Impairment of Oil and Natural Gas Properties

The Company recorded an impairment of oil and gas properties of $62.2 million for the three months ended September 30, 2020. The net book value of the Company's oil and gas properties at September 30, 2020 exceeded the ceiling limitation calculated as required under the full cost method of accounting.

The


impairment was the result of lower discounted future net cash flows as reported
in our September 30, 2020 proved reserves report.  The significant decrease in
discounted future net cash flows for September 30, 2020 as compared to the
discounted future net cash flows for June 30, 2020 was primarily the result of
an approximate 8% decrease in the oil and gas pricing under SEC rules used in
the September 30, 2020 report as compared to June 30, 2020, as well as changes
to the capital budget in the three months ended September 30, 2020. Proved
reserves volumes decreased 49%.



                                       42

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The following table shows a comparison of operating expenses for the nine months ended September 30, 2020 and 2019:





                                      Nine Months Ended September 30,
                                         2020                  2019           Change        % Change
Production Costs per BOE:
Production costs                   $           8.64       $         8.71     $   (0.07 )           -1 %
Gathering, processing and
transportation                                 1.50                 2.27         (0.77 )          (34 )%
Production taxes                               1.24                 1.74         (0.50 )          (29 )%
General and administrative                    15.35                16.18         (0.83 )           (5 )%
Depreciation, depletion,
amortization and accretion                     9.87                15.40         (5.53 )          (36 )%
Impairment of oil and properties              93.72                11.22         82.50            735 %
Total (BOE)                        $         130.32       $        55.52     $   74.80            135 %
Operating Expenses:
Production costs                   $          8,752       $       12,866     $  (4,114 )          (32 )%
Gathering, processing and
transportation                                1,514                3,355        (1,841 )          (55 )%
Production taxes                              1,259                2,568        (1,309 )          (51 )%
General and administrative                   15,541               23,913        (8,372 )          (35 )%
Depreciation, depletion,
amortization and accretion                    9,999               22,762       (12,763 )          (56 )%
Impairment of oil and properties             94,900               16,580        78,320            472 %
Total Operating Expenses           $        131,965       $       65,464     $  66,501            102 %




Production Costs

Production costs decreased by $4.1 million to $8.8 million for the nine months
ended September 30, 2020, as a result of decreased production as well as
cost-cutting measures taken in the current year offset by the addition of 3.0
gross (2.5 net) producing wells since September 30, 2019. Our production costs
on a per BOE basis remained flat between the two periods. Our production costs
include fixed and variable costs, so in periods of lower production volumes, our
per BOE cost is expected to be higher. Our production costs per BOE remained
consistent as a result of our cost savings measures, partially offset by
increased water disposal costs as a result of a suspension of access to water
gathering and disposal system in June.

Gathering, Processing and Transportation



Gathering, processing and transportation costs decreased $1.8 million to $1.5
million for the nine months ended September 30, 2020, compared to $3.4 million
for the 2019 period. This cost decrease was primarily the result of lower sales
volumes of natural gas and NGLs. The cost on a per BOE basis decreased from
$2.27 for the nine months ended September 30, 2019, to $1.50 for the nine months
ended September 30, 2020. The decrease was primarily attributable to a lower
proportion of natural gas and NGLs in the product mix. For the nine months ended
September 30, 2020, natural gas and NGLs made up only 30% of total BOE sales as
compared to 42% of total BOE sales for the 2019 period.

Production Taxes



Production taxes decreased $1.3 million to $1.3 million for the nine months
ended September 30, 2020, compared to $2.6 million for the same period in 2019.
The decrease is consistent with the decrease in revenue for the nine months
ended September 30, 2020. On a per BOE basis, production taxes decreased $0.50
to $1.24 for the nine months ended September 30, 2020, when compared to $1.74
for the nine months ended September 30, 2019, primarily attributed to lower
realized prices and, to a lesser degree, increase in current year oil sales
volume, which is taxed at a lower rate than gas sales, as a percentage of total
sales volume.

General and Administrative Expenses



G&A decreased by $8.4 million to $15.5 million for the nine months ended
September 30, 2020, as compared to $23.9 million for the nine months ended
September 30, 2019. The decrease of $8.4 million in G&A was primarily
attributable to a decrease in stock-based compensation of $5.0 million, a
decrease in personnel costs of $4.7 million including severance costs and
directors' fees, offset by a $1.0 million increase in bad debt expense and $0.5
million increase in professional services. All professional fees incurred after
the filing of the Chapter 11 Cases and directly related to the bankruptcy, are
reported in reorganization items, net in our condensed consolidation statements
of operations.

                                       43


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Depreciation, Depletion, Amortization and Accretion





DD&A expense was $10.0 million for the nine months ended September 30, 2020,
compared to $22.8 million for the nine months ended September 30, 2019;
resulting in a decrease of $12.8 million. Our DD&A rate decreased by 36% to
$9.87 per BOE for the nine months ended September 30, 2020 from $15.40 per BOE
for the nine months ended September 30, 2019. The rate decrease was primarily
the result of lower oil and gas property net book values remaining at September
30, 2020 after the $228.3 million impairment recorded in the last half of 2019
as well as the impairment recorded in the second quarter of 2020. To a smaller
degree, DD&A expense was lower as a result of a 31% decrease in sales volumes
for the nine months ended September 30, 2020 as compared to the 2019 period.

Impairment of Oil and Natural Gas Properties





The Company recorded impairment of oil and gas properties of $94.9 million for
the nine months ended September 30, 2020.  The net book value of the Company's
oil and gas properties at September 30, 2020 exceeded the ceiling limitation
calculated as required under the full cost method of accounting.  The impairment
was the result of lower discounted future net cash flows as reported in our
September 30, 2020 proved reserves report.  The significant decrease in
discounted future net cash flows for September 30, 2020 as compared to the
discounted future net cash flows for June 30, 2020 was primarily the result of
an approximate 8% decrease in the oil and gas pricing under SEC rules used in
the September 30, 2020 report as compared to June 30, 2020, as well as changes
to the capital budget in the three months ended September 30, 2020. Proved
reserves volumes decreased 49%.

Other Income (Expenses)

The following table shows a comparison of other expenses for the three months ended September 30, 2020 and 2019:





                                          Three Months Ended September 30,
                                             2020                2019            Variance         %
                                                   (In Thousands)

Other income (expense): Loss from early extinguishment of debt $ - $ (1,299 ) $ 1,299

           -1

Gain from commodity derivatives, net $ 167 $ 3,943

$   (3,776 )        (96 )%
Interest expenses                              (2,178 )              (2,186 )            8           (0 )%
Reorganization items, net                      (9,526 )                   -         (9,526 )       (100 )%
Other income (expense)                            (82 )                 116           (198 )       (171 )%
Total other income (expenses)             $   (11,619 )     $           574     $  (12,193 )     (2,124 )%

Gain (Loss) on Early Extinguishment of Debt





During the three months ended September 30, 2019, the Company repurchased
certain overriding royalty interests in the acreage previously sold under the
ORRI Agreement (as defined in Note 5 - Acquisitions and Divestitures), resulting
in a $1.3 million loss on extinguishment of a portion of the financing
arrangement.

Gain (Loss) from Commodity Derivatives, net



As a result of the commencement of the Chapter 11 Cases the remaining
outstanding derivative contracts were in default and the remaining
counterparties terminated all remaining outstanding contracts in July resulting
in a realized gain of $0.2 million. During the three months ended September 30,
2019, our net loss from commodity derivatives consisted primarily of net losses
of $1.6 million from settled positions and gain of $4.5 million from
mark-to-market adjustments on unsettled positions.

Reorganization Items, net



ASC 852 requires that the financial statements, for periods subsequent to the
Chapter 11 filing, distinguish transactions and events that are directly
associated with the reorganization from the ongoing operations of the business.
Accordingly, certain expenses, gains and losses that are realized or incurred in
the bankruptcy proceedings are recorded in "reorganization items, net" on our
statements of operations. Reorganization items, net for the three months ended
September 30, 2020 is made up of $8.7 million in professional fees and legal
services and $0.7 million in contract termination costs.

                                       44

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The following table shows a comparison of other expenses for the nine months ended September 30, 2020 and 2019:





                                              Nine Months Ended September 30,
                                                2020                   2019            Variance         %
                                                      (In Thousands)
Other income (expense):
Loss from early extinguishment of debt    $              -       $         (1,299 )   $    1,299           -1
Gain (loss) from commodity derivatives,
net                                                 16,299                 (3,733 )       20,032         (537 )%
Change in fair values of financial
instruments                                          3,238                   (335 )        3,573       (1,067 )%
Interest expenses                                   (7,582 )               (8,859 )        1,277          (14 )%
Reorganization items, net                          (11,883 )                    -        (11,883 )       (100 )%
Other income (expense)                                  (4 )                   31            (35 )       (113 )%

Total other income (expenses)             $             68       $        (14,195 )   $   14,263         (100 )%

Gain (Loss) on Early Extinguishment of Debt





During the three months ended September 30, 2019, the Company repurchased
certain overriding royalty interests in the acreage previously sold under the
ORRI Agreement (as defined in Note 5 - Acquisitions and Divestitures), resulting
in a $1.3 million loss on extinguishment of a portion of the financing
arrangement.

Gain (Loss) from Commodity Derivatives, net





During the nine months ended September 30, 2020, our gain from commodity
derivatives consisted primarily of net gains of $12.7 million from settled
positions and $3.6 million from mark-to-market adjustments on unsettled
positions. During June and July of 2020 all of our commodity derivative
contracts were terminated and liquidated resulting in a gain of $7.9 million.
During the nine months ended September 30, 2019, our net loss from commodity
derivatives consisted primarily of net losses of $3.2 million from settled
positions and $4.5 million from mark-to-market adjustments on unsettled
positions.

Change in Fair Value of Financial Instruments



For the nine months ended September 30, 2020, we recognized a gain of $3.2
million on the change in fair value of the embedded derivative associated with
the ARM sales agreement as result of the cancelation of agreement on May 8,
2020. As of December 31, 2019, we determined the agreement no longer met the
criteria for the "normal purchase normal sales" exception under ASC 815,
"Derivatives and Hedging", as the Company was not meeting the minimum quantities
deliverable under the contract and the net settlement criteria being met (see
Note 19 - Commitments and Contingencies to our condensed consolidated financial
statements). See Note 9 - Derivatives to our condensed consolidated financial
statements for information regarding the recognition of the net settlement
mechanism as an embedded derivative.

As of September 30, 2019, the change in fair value of financial instruments is
attributable to embedded derivatives associated with the conversion feature of
the Second Lien Term Loan (as defined in Note 11 - Indebtedness to our condensed
consolidated financial statements). Prior to extinguishment of the Second Lien
Term Loan in March 2019, changes in our stock price directly affected the fair
value of the embedded derivative. During the period from January 1, 2019 to
March 5, 2019 (the date of extinguishment), we recognized a loss of $0.3 million
on the embedded derivative.

Interest Expense

Interest expense for the nine months ended September 30, 2020 was $7.6 million
compared to $8.9 million for the nine months ended September 30, 2019. For the
nine months ended September 30, 2020, interest expense included $4.0 million
interest expense on principal balances outstanding under the Revolving Credit
Agreement, $2.5 million from financing arrangements and $0.9 million for
amortization debt issuance costs including $0.5 million to recognize excess
deferred issuance costs resulting from the borrowing base reduction under our
Revolving Credit Agreement. For the nine months ended September 30, 2019, we
incurred interest expense of $8.9 million, which included $4.8 million for
interest expense on principal balances outstanding under the Revolving Credit
Agreement, $1.6 million for PIK interest and $1.7 million related to
amortization of debt discount on our Second Lien Term Loan and $0.6 for
amortization of debt issuance costs.

                                       45

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Reorganization Items, net



ASC 852 requires that the financial statements, for periods subsequent to the
Chapter 11 filing, distinguish transactions and events that are directly
associated with the reorganization from the ongoing operations of the business.
Accordingly, certain expenses, gains and losses that are realized or incurred in
the bankruptcy proceedings are recorded in "reorganization items, net" on our
statements of operations. Reorganization items, net for the nine months ended
September 30, 2020 is made up of $9.0 million in professional fees and legal
services, the write off of unamortized deferred financing costs of $2.0 million,
and $0.7 million in contract termination costs.

Going Concern and Liquidity



As of September 30, 2020, we had $74.9 million of indebtedness outstanding under
our Revolving Credit Agreement (as defined in Note 11 - Indebtedness to our
condensed consolidated financial statements), after giving effect to the roll-up
of $15 million into the DIP Facility.

On June 5, 2020, the Company, the Guarantors, the Administrative Agent and
certain lenders entered into the Forbearance Agreement, under which the
Administrative Agent and the Majority Lenders agreed to refrain from exercising
certain of their rights and remedies under the Revolving Credit Agreement and
related documents arising solely as a result of the occurrence or continuance of
the Specified Defaults during the Forbearance Period including, among other
things, our failure to make the borrowing base deficiency payment due June 5,
2020. The "Forbearance Period" commenced on the date of the Forbearance
Agreement and expired on June 26, 2020. The Company did not make the borrowing
base deficiency payment.

The Forbearance Agreement permitted the lenders under the Revolving Credit
Agreement, or the RBL Lenders, in their capacity as counterparties to the
Company's commodity swap agreements to unwind and liquidate such swap
arrangements during the Forbearance Period and to apply any net proceeds to pay
down the outstanding obligations under the Revolving Credit Agreement. The swap
positions of such lenders were liquidated on June 9, 2020 for net proceeds of
approximately $9.3 million, which was applied to reduce the outstanding
obligations of the Company under the Revolving Credit Agreement. On June 17,
2020, certain of the RBL Lenders permitted the Company to borrow $1.5 million
under the Revolving Credit Agreement. As of the filing of the Chapter 11 Cases,
the remaining outstanding principal on our Revolving Credit Agreement was $89.9
million, including $25.7 million of such principal held by an affiliate of Värde
which was subordinated to the indebtedness of the other RBL Lenders under the
Revolving Credit Agreement.

On the Petition Date, the Debtors filed voluntary petitions seeking relief under
the Bankruptcy Code in the Bankruptcy Court commencing cases for relief under
Chapter 11 of the Bankruptcy Code. See Note 2 - Chapter 11 Filing, Liquidity and
Going Concern to our condensed consolidated financial statements for a
description of the terms of the Chapter 11 Cases, and the Plan and the impact of
the Chapter 11 Cases on the outstanding debt under our Revolving Credit
Agreement.

We have experienced losses and working capital deficiencies, and in the past,
significant negative cash flows from operations. Additionally, our liquidity and
operating forecasts have been negatively impacted by the recent decrease in
commodity prices and resulting temporary shut-in of wells, which has negatively
impacted our ability to comply with debt covenants under our Revolving Credit
Agreement. The commodity prices have fallen significantly since the beginning of
2020, due in part to failed OPEC negotiations in the first quarter, which
ultimately were resolved but prices have been slow to recover, as well as
concerns about the COVID-19 pandemic, which has significantly decreased
worldwide demand for oil and natural gas. Pursuant to the Forbearance Agreement,
the Administrative Agent and the requisite lenders under the Revolving Credit
Agreement agreed to refrain from exercising certain of their rights and remedies
under the Revolving Credit Agreement and related documents during the
Forbearance Period that arose solely as a result of the Company's breach of the
Leverage Ratio and Current Ratio covenants, the Company's failure to pay
remaining borrowing base deficiency and certain other defaults or events of
default. As a result, the Company has concluded that management's plans do not
alleviate substantial doubt about the Company's ability to continue as a going
concern within twelve-month period following the date of issuance of these
consolidated financial statements.

                                       46

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Fluctuations in oil and natural gas prices have a material impact on our
financial position, results of operations, cash flows and quantities of oil,
natural gas and NGL reserves that may be economically produced. Historically,
oil and natural gas prices have been volatile, and may be subject to wide
fluctuations in the future. If continued depressed prices persist, the Company
will continue to experience operating losses, negative cash flows from operating
activities, and negative working capital.

We face uncertainty regarding the adequacy of our liquidity and capital
resources and have extremely limited access to additional financing. The Interim
DIP Order entered by the Bankruptcy Court on June 29, 2020 approved the DIP
Facility on an interim basis, thereby allowing us to borrow up to $5.0 million
under the DIP Facility, which we borrowed on June 30, 2020. We borrowed an
additional $10.0 million new money loans under the DIP Facility on August 21,
2020, upon receipt of a final order by the Bankruptcy Court approving the DIP
Facility and the DIP Credit Agreement. In addition to the cash requirement
necessary to fund ongoing operations, we have incurred significant professional
fees and other costs in connection with preparation for the Chapter 11 Cases and
expect that we will continue to incur significant professional fees, costs and
other expenses throughout our Chapter 11 Cases.

The Company's operations and its ability to develop and execute its 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 subject to a high
degree of uncertainty and is dependent upon factors that are outside of the
Company's control, including actions of the Bankruptcy Court and the Company's
creditors. There can be no assurance that the Debtors will confirm the Plan with
the Bankruptcy Court and consummate a sale of substantially all of their assets
pursuant to the Sales Process or complete an alternative Chapter 11 plan.

Information about our cash flows for the nine months ended September 30, 2020 and 2019, are presented in the following table (in thousands):





                                                Nine Months Ended September 30,
                                                  2020                   2019

Cash provided by (used in):


  Operating activities                      $         13,597       $        (42,385 )
  Investing activities                                12,845                (38,717 )
  Financing activities                               (10,851 )               64,304

Net change in cash and cash equivalents $ 15,591 $ (16,798 )






Operating Activities

For the nine months ended September 30, 2020, net cash provided by operating
activities was $13.6 million, compared to net cash used in operating activities
of $42.4 million for the nine months ended September 30, 2019. The $13.6 million
provided by operating activities during the 2020 period was primarily made up
the of net loss of $103.6 million, offset by non-cash adjustments to net loss of
$103.9 million offset by cash provided by a decrease in working capital of $13.3
million. The working capital decrease resulted from payments received on
accounts receivable and an increase in accounts payable and accrued liabilities
at September 30, 2020.

Investing Activities

For the nine months ended September 30, 2020, net cash provided by investing
activities was $12.8 million, compared to a use of $38.7 million for the same
period in 2019. The $12.8 million in cash provided by investing activities
during the nine months ended September 30, 2020, was primarily attributable to
the following:

• approximately $24.1 million in proceeds from the sale of approximately

1,185 undeveloped net acres in Lea County, New Mexico; partially offset by

• cash payments of approximately $11.2 million for capital expenditures on


       oil and gas properties.


                                       47


--------------------------------------------------------------------------------

Capital Expenditure Breakdown



During the nine months ended September 30, 2020, capital costs incurred were
$8.3 million. Incurred costs include $1.6 million related to increases to Lilis'
working interests for two wells due to non-consent elections that reduced
accounts receivable from other working interest partners by that amount. Total
capital costs incurred for the nine months ended September 30, 2020 is as
follows (in thousands):



                   2019 Drilling & Completion Program   $ 2,796
                   Facilities & Other Projects            5,480
                   Total Capital Spending               $ 8,276




Financing Activities

For the nine months ended September 30, 2020, net cash used in financing
activities was $10.9 million compared to cash provided by financing activities
of $64.3 million during the same period in 2019. The $10.9 million of net cash
used in financing activities included repayments totaling $40.1 million under
the Revolving Credit Agreement and $30.0 million in proceeds from the DIP
Facility.

Capital Structure

Revolving Credit Agreement

The Company has entered into the Seventh Amendment through the Fourteenth
Amendment to the Revolving Credit Agreement and the Forbearance Agreement, which
among other things, resulted in the following (see Note 11 - Indebtedness to our
condensed consolidated financial statements for additional information):

• Reduced our borrowing base to $90.0 million;

• Extended the date for the final borrowing base deficiency payment to June


       5, 2020 and further to June 26, 2020, did not happen as a result of the
       Chapter 11 filing;

• Waived compliance with the Leverage and Current Ratio covenants as of

December 31, 2019 and March 31, 2020; and

• Obtained the agreement of the Administrative Agent and the requisite


       lenders to refrain from exercising certain rights and remedies under the
       Revolving Credit Agreement arising as a result of certain defaults and
       events of default, including our failure to make the borrowing base
       deficiency payment on June 5, 2020.


As a result of the filing of the Chapter 11 Cases, all indebtedness under the
Revolving Credit Agreement was automatically accelerated and became due and
payable. As of September 31, 2020, the remaining outstanding principal on our
Revolving Credit Agreement was $74.9 million, including $25.7 million of such
principal held by an affiliate of Värde which was subordinated to the
indebtedness of the other bank lenders under the Revolving Credit Agreement.

Debtor-in-Possession Credit Agreement



On June 30, 2020, Lilis Energy, Inc., as borrower, and the other Debtors, as
guarantors, entered into a Senior Secured Super-Priority Debtor-in-Possession
Credit Agreement, or the DIP Credit Agreement, among the Debtors, the
Non-Affiliate RBL Lenders (also referred to as the DIP Lenders), and the
Administrative Agent. Under the DIP Facility, the DIP Lenders agreed to provide
a super-priority senior secured debtor-in-possession credit facility (also
referred to as the DIP Facility) providing for an aggregate principal amount of
(i) $15.0 million of new money revolving commitments, of which up to $5.0
million became available upon entry of the Interim DIP Order, with the remainder
to become available on a final basis, plus (ii) a tranche of roll-up term loans
to refinance $15.0 million of the outstanding loans under the Revolving Credit
Facility, including $1.5 million pre-petition bridge loans that the
Non-Affiliate RBL Lenders advanced to the Company on June 17, 2020, of which
$1.5 million of roll-up term loans were incurred upon entry of the Interim DIP
Order, with the remaining $13.5 million to be incurred upon entry of a final
order. On June 29, 2020, the Bankruptcy Court entered the Interim DIP Order
granting interim approval of the DIP Facility, thereby permitting the Debtors to
incur up to $5.0 million new money loans on an interim basis. On August 21,
2020, the Bankruptcy Court entered an order granting final approval of the DIP
Facility, thereby permitting the Company to borrow an additional $10.0 million.
Also on August 21, 2020 the Company used $13.5 million in roll-up term loans
under the DIP Facility to refinance $13.5 million of the outstanding loan under
the Revolving Credit Facility.

                                       48

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In connection with the Debtors' transition to a sole pursuit of the Sales
Process, the Debtors, the Administrative Agent and the DIP Facility Lenders
amended the DIP Credit Agreement to extend certain milestones in the DIP
Facility as the Debtors pivoted to the Sales Process. The proceeds of the DIP
Facility are being used to pay fees, expenses and other expenditures of the
Debtors set forth in rolling budgets prepared as part of the Chapter 11 Cases,
which are subject to approval by the DIP Lenders.

Borrowings under the DIP Facility mature on the earliest of (i) November 30,
2020, (ii) the effective date of an approved Chapter 11 plan and (iii) the date
on which the Debtors consummate a sale of all or substantially all of their
assets pursuant to Section 363 of Chapter 11 of the Bankruptcy Code or
otherwise.

The DIP Credit Agreement contains events of default customary for
debtor-in-possession financings, including events related to the Chapter 11
proceedings, the occurrence of which could cause the acceleration of the
Debtors' obligation to repay borrowings outstanding under the DIP Facility. The
Debtors' obligations under the DIP Credit Agreement are secured by a security
interest in, and lien on, substantially all present and after-acquired property
(whether tangible, intangible, real, personal or mixed) of the Debtors,
including a super-priority priming lien on the property of the Debtors that
secure their obligations under the Revolving Credit Facility.

Related Party Transactions



Certain investment funds and entities affiliated with Värde Partners, Inc. were
parties to the RSA. For additional information regarding the RSA, see "Overview
- Voluntary Petitions under Chapter 11 of the Bankruptcy Code" above.

On April 21, 2020, Värde Investment Partners, L.P., an affiliate of Värde
Partners, Inc., became a lender under our Revolving Credit Agreement by
acquiring, from a prior lender, loans and commitments under the Revolving Credit
Agreement in the principal amount of approximately $25.7 million. The loans and
commitments acquired by Värde Investment Partners, L.P. are subject to certain
subordination provisions set forth in the Revolving Credit Agreement, as amended
by the Fourteenth Amendment thereto dated April 21, 2020. For additional
information regarding our Revolving Credit Agreement, as amended, see Note 11 -
Indebtedness to our condensed consolidated financial statements.

Under two agreements entered into with affiliates of Värde in 2019 for the sale
of an overriding royalty interest to Winkler Lea Royalty L.P. ("WLR") and a
non-operated working interest in newly developed assets to Winkler Lea Working
Interest L.P. ("WLWI"). For the three and nine months ended September 30, 2020,
WLR's proportionate share of revenue was $0.2 million and $0.4 million,
respectively. WLWI's net revenue (revenue less production costs) for the three
and nine months ended September 30, 2020 were $0.5 million and $2.1 million,
respectively. Both are included in interest expense on the Company's condensed
consolidated statements of operations.

Common Stock

Under the Plan each outstanding share of the Company's common stock will be canceled for no consideration. The Company believes it is unlikely that the holders of shares of its common stock will receive any consideration for their shares under any plan approved by the Bankruptcy Court.



On June 30, 2020, The Company received notification dated June 29, 2020 from the
NYSE American LLC (the "NYSE American") that the Company's common stock has been
suspended from trading on the NYSE American and that the NYSE American has
determined to commence proceedings to delist the Company's common stock. The
NYSE American determined that the Company was no longer suitable for listing
under Section 1003(c)(iii) of the NYSE American Company Guide after the
Company's June 29, 2020 disclosure that it and certain of its subsidiaries filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code in the U.S. Bankruptcy Court for the Southern District of Texas, Houston
Division. The Company does not presently anticipate exercising its right to
appeal the NYSE American's delisting determination.

The Company's common stock has begun to be quoted on the OTC Pink marketplace on June 30, 2020 under the symbol "LLEXQ".

Effects of Inflation and Pricing



The oil and gas industry is very cyclical and the demand for goods and services
of oil field companies, suppliers and others associated with the industry puts
pressure on the economic stability and pricing structure within the industry.
Typically, as prices for oil and natural gas increase, so do all associated
costs. Material changes in prices impact the current revenue stream, estimates
of future reserves, borrowing base calculations of bank loans and the value of
properties in purchase and sale transactions. Material changes in prices, such
as those experienced to date in 2020, can impact the value of oil and natural
gas companies and their ability to raise capital, borrow money and retain
personnel. We anticipate business costs will vary in accordance with commodity
prices for oil and natural gas, and the associated increase or decrease in
demand for services related to production and exploration.

                                       49

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Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements.

Commitments and Contractual Obligations



On August 2, 2018, the Company executed a five-year agreement with SCM Crude,
LLC, an affiliate of Salt Creek, to secure firm takeaway pipeline capacity and
pricing on a long-haul pipeline to the Gulf Coast region commencing July 1,
2019. On March 11, 2019, the agreement was replaced with a five-year agreement
between the Company and ARM, a related company to Salt Creek. The new agreement
accelerated the start date to March 2019 and guarantees firm takeaway capacity
on a long-haul pipeline to Corpus Christi, Texas, once completed, at a specified
price. The Company received pricing differentials on the crude oil sales
contract subject to minimum quantities of crude oil to be delivered, however,
due to the May 8, 2020 termination of this agreement with ARM, these minimum
quantity commitments no longer existed at September 30, 2020. A table of the
minimum quantities of crude oil under the canceled contract is below:



           Date                             Quantity (Barrels per Day)
           March 2019 - June 2019                        5,000
           July 2019 - December 2019                     4,000
           January 2020 - June 2020                      5,000
           July 2020 - June 2021                         6,000
           July 2021 - December 2024 (1)                 7,500

(1) Extending to the later of December 2024 or 5 years from the EPIC Crude Oil

pipeline in-service date (February 2025).




Further, ARM has agreed to purchase crude from the Company based upon Magellan
East Houston pricing with a fixed "differential basis". As of December 31,
2019, we determined the agreement no longer met the criteria for the "normal
purchase normal sales" exception under ASC 815, "Derivatives and Hedging", as
the Company was not meeting the minimum quantities deliverable under the
contract and the net settlement criteria being met. See Note 9 - Derivatives to
our condensed consolidated financial statements for information regarding the
recognition of the net settlement mechanism as an embedded derivative over the
remainder of the contract. On May 8, 2020, the Company terminated this agreement
with ARM.

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