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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June~~September 30, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number: 333-225927

Riviera Resources, Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

82-5121920

(I.R.S. Employer Identification No.)

717 Texas Avenue, Suite 2000

Houston, Texas

(Address of principal executive offices)

77002

(Zip Code)

(281) 840-4000

(Registrant’s telephone number, including area code)

600 Travis Street, Suite 1700, Houston, Texas 77002

(Former address of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbols(s)		Name of exchange on which registered
None		None		None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of ~~July~~October 31, 2020, there were 57,907,609 shares of common stock, par value $0.01 per share, outstanding.

TABLE OF CONTENTS

		Page
	Glossary of Terms	1
	Part I – Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2931
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5153
Item 4.	Controls and Procedures	5254
	Part II – Other Information
Item 1.	Legal Proceedings	5456
Item 1A.	Risk Factors	5456
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5558
Item 3.	Defaults Upon Senior Securities	5558
Item 4.	Mine Safety Disclosures	5559
Item 5.	Other Information	5559
Item 6.	Exhibits	5660
	Signatures	5761

Table of Contents

GLOSSARY OF TERMS

As commonly used in the oil and natural gas industry and as used in this Quarterly Report on Form 10-Q, the following terms have the following meanings:

Bbl. One stock tank barrel or 42 United States gallons liquid volume.

Btu. One British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 degrees to 59.5 degrees Fahrenheit.

MBbls. One thousand barrels of oil or other liquid hydrocarbons.

MBbls/d. MBbls per day.

Mcf. One thousand cubic feet.

Mcfe. One thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.

MMBbls. One million barrels of oil or other liquid hydrocarbons.

MMBtu. One million British thermal units.

MMcf. One million cubic feet.

MMcf/d. MMcf per day.

MMcfe. One million cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.

MMcfe/d. MMcfe per day.

MMMBtu. One billion British thermal units.

NGL. Natural gas liquids, which are the hydrocarbon liquids contained within natural gas.

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PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

RIVIERA RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2020			December 31, 2019
	September 30, 2020			December 31, 2019
	(in thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	5594,~~641~~548		$	116,237
Accounts receivable – trade, net		22,~~551~~194			51,355
Derivative instruments		~~7,059~~375			7,283
Restricted cash		24,~~139~~887			32,932
Other current assets		1311,~~057~~925			12,853
Assets held for sale		—			104,773
Total current assets		~~122~~153,~~447~~929			325,433
Noncurrent assets:
Oil and natural gas properties (successful efforts method)		~~173~~125,~~899~~389			180,307
Less accumulated depletion and amortization		(~~136~~111,~~566~~480	)		(35,603	)
		37,333			144,704
		13,909			144,704
Other property and equipment		~~397~~396,~~057~~449			388,851
Less accumulated depreciation		(72292,~~872~~416	)		(50,381	)
		324,185			338,470
		104,033			338,470
Other noncurrent assets		54,~~555~~690			7,652
		5,555			7,652
		4,690			7,652
Total noncurrent assets		~~367~~122,~~073~~632			490,826
Total assets	$	~~489~~276,~~520~~561		$	816,259
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	3634,~~294~~907		$	80,579
Derivative instruments		~~766~~1,795			1,087
Other accrued liabilities		931,~~490~~776			26,728
Liabilities held for sale		—			35,177
Total current liabilities		4668,~~550~~478			143,571
Noncurrent liabilities:
Credit facilities		7580,~~400~~000			69,800
Asset retirement obligations and other noncurrent liabilities		1916,~~317~~209			29,337
Total noncurrent liabilities		9496,~~717~~209			99,137
Commitments and contingencies (Note 10)
Equity:
Preferred Stock ($0.01 par value, 30,000,000 shares authorized; no shares issued at June 30, 2020, or December 31, 2019)		—			—
Preferred Stock ($0.01 par value, 30,000,000 shares authorized; no shares issued at September 30, 2020, or December 31, 2019)		—			—
Common Stock ($0.01 par value, 270,000,000 shares authorized; 57,907,609 shares and 58,168,756 shares issued and outstanding at June 30, 2020, and December 31, 2019, respectively)		579			581
Common Stock ($0.01 par value, 270,000,000 shares authorized; 57,907,609 shares and 58,168,756 shares issued and outstanding at September 30, 2020, and December 31, 2019, respectively)		579			581
Additional paid-in capital		759,186			861,764
Accumulated deficit		(~~411~~647,~~512~~891	)		(288,794	)
Total equity		~~348~~111,~~253~~874			573,551
Total liabilities and equity	$	~~489~~276,~~520~~561		$	816,259

The accompanying notes are an integral part of these condensed consolidated financial statements.

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RIVIERA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(in thousands, except per share amounts)
Revenues and other:
Oil, natural gas and natural gas liquids sales	$	107,~~934~~340		$	6651,~~757~~029		$	2533,~~732~~072		$	~~143~~194,~~102~~131
Gains (losses) on commodity derivatives		(12,~~358~~948	)		205,~~249~~665			63,~~721~~773			712,~~008~~673
Marketing revenues		2129,~~864~~054			5345,~~394~~828			5584,~~786~~840			~~120~~166,~~741~~569
Other revenues		929			5,~~150~~532			4069			1116,~~153~~685
		31,449			145,550			88,279			282,004
		33,475			108,054			121,754			390,058
Expenses:
Lease operating expenses		2,~~894~~367			2318,~~845~~307			710,~~845~~212			4766,~~897~~204
Transportation expenses		~~1,209~~818			1816,~~053~~275			34,~~383~~201			3753,~~203~~478
Marketing expenses		1620,~~828~~284			4137,~~811~~688			3858,~~147~~431			95132,~~200~~888
General and administrative expenses		1116,~~219~~871			1316,~~489~~954			2137,~~123~~994			3249,~~480~~434
Exploration costs		—413			~~969~~1,947			—413			24,~~207~~154
Depreciation, depletion and amortization		43,~~793~~915			2320,~~181~~060			1519,~~112~~027			4465,~~953~~013
Impairment of assets held for sale and long-lived assets		14219,~~874~~606			1895,~~390~~080			~~121~~341,~~658~~264			18113,~~390~~470
Taxes, other than income taxes		~~1,375~~846			25,~~599~~111			23,~~590~~436			814,~~899~~010
(Gains) losses on sale of assets and other, net		(23,~~491~~515	)		9(7,~~885~~587	)		(21,~~031~~484	)		(1724,~~380~~967	)
		50,701			152,222			207,827			269,849
		268,635			203,835			476,462			473,684
Operating (loss) income		(19,252	)		(6,672	)		(119,548	)		12,155
Operating loss		(235,160	)		(95,781	)		(354,708	)		(83,626	)
Other income and (expenses):
Interest expense, net of amounts capitalized		(~~739~~700	)		(2,~~103~~329	)		(12,~~668~~368	)		(35,~~074~~403	)
Other, net		(~~948~~309	)		~~476~~(595	)		(1,~~008~~317	)		(~~113~~708	)
		(1,687	)		(1,627	)		(2,676	)		(3,187	)
		(1,009	)		(2,924	)		(3,685	)		(6,111	)
Reorganization items, net		(~~273~~210	)		(~~424~~284	)		(~~494~~704	)		(~~472~~756	)
(Loss) income before income taxes		(21,212	)		(8,723	)		(122,718	)		8,496
Loss before income taxes		(236,379	)		(98,989	)		(359,097	)		(90,493	)
Income tax (benefit) expense		—			(2,047	)		—			2,446
Income tax expense		—			126,646			—			129,092
Net (loss) income	$	(21,212	)	$	(6,676	)	$	(122,718	)	$	6,050
Net loss	$	(236,379	)	$	(225,635	)	$	(359,097	)	$	(219,585	)
(Loss) income per share:
Loss per share:
Basic	$	(0.37	)	$	(0.10	)	$	(2.11	)	$	0.09
Basic and diluted	$	(4.07	)	$	(3.76	)	$	(6.18	)	$	(3.40	)
Diluted	$	(0.37	)	$	(0.10	)	$	(2.11	)	$	0.09
Weighted average shares outstanding ‒ basic and diluted		58,044			60,004			58,080			64,576
Weighted average shares outstanding ‒ basic		58,041			65,005			58,098			66,900
Distributions declared per share	$	—		$	—		$	1.75		$	—
Weighted average shares outstanding ‒ diluted		58,041			65,089			58,098			67,079
Distributions declared per share	$	0.75		$	—		$	1.75		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

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RIVIERA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

	Common Stock						Additional Paid in Capital			Accumulated Earnings (Deficit)			Total Equity
	Shares			Amount
	(in thousands)
December 31, 2019		58,169		$	581		$	861,764		$	(288,794	)	$	573,551
Net loss					—			—			(101,506	)		(101,506	)
Repurchases of common stock		(323	)		(3	)		(2,063	)		—			(2,066	)
Issuance of common stock		62			1			823			—			824
Distributions to shareholders					—			(57,908	)		—			(57,908	)
March 31, 2020		57,908			579			802,616			(390,300	)		412,895
Net loss					—			—			(21,212	)		(21,212	)
Distributions to shareholders					—			(43,430	)		—			(43,430	)
June 30, 2020		57,908		$	579		$	759,186		$	(411,512	)	$	348,253
Net loss					—			—			(236,379	)		(236,379	)
September 30, 2020		57,908		$	579		$	759,186		$	(647,891	)	$	111,874
December 31, 2018		69,197		$	692		$	1,256,730		$	4,952		$	1,262,374
Net income					—			—			12,726			12,726
Repurchases of common stock		(2,488	)		(25	)		(34,412	)		—			(34,437	)
Issuance of common stock		82			1			1,485			—			1,486
March 31, 2019		66,791			668			1,223,803			17,678			1,242,149
Net loss					—			—			(6,676	)		(6,676	)
Repurchases of common stock		(3,170	)		(32	)		(43,275	)		—			(43,307	)
June 30, 2019		63,621		$	636		$	1,180,528		$	11,002		$	1,192,166
Net loss					—			—			(225,635	)		(225,635	)
Repurchases of common stock		(4,989	)		(50	)		(65,303	)		—			(65,353	)
Other					—			258			—			258
September 30, 2019		58,632		$	586		$	1,115,483		$	(214,633	)	$	901,436

The accompanying notes are an integral part of these condensed consolidated financial statements.

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RIVIERA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2020			2019
	(in thousands)
Cash flow from operating activities:
Net (loss) income	$	(122,718	)	$	6,050
Net loss	$	(359,097	)	$	(219,585	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation, depletion and amortization		1519,~~112~~027			4465,~~953~~013
Impairment of assets held for sale and long-lived assets		~~121~~341,~~658~~264			18113,~~390~~470
Deferred income taxes		—			2129,~~446~~092
Gains on derivatives, net		(63,~~721~~773	)		(26,~~047~~386	)
Cash settlements on derivatives		611,~~843~~389			(25,~~169~~740	)
Share-based compensation expenses		(3,~~901~~381	)		710,~~885~~624
(Gains) losses on sale of assets and other, net		~~103~~1,510			(1927,~~631~~366	)
Other		~~(379~~2,602	)		48,~~220~~897
Changes in assets and liabilities:
Decrease in accounts receivable – trade, net		2723,~~210~~416			2837,~~361~~305
Decrease in other assets		12,~~566~~666			105,~~901~~367
Decrease in accounts payable and accrued expenses		(3734,~~295~~824	)		(3229,~~120~~997	)
Decrease in other liabilities		(135,~~763~~885	)		(84,~~438~~331	)
Net cash (used in) provided by operating activities		(125,~~285~~086	)		5887,~~801~~843
Cash flow from investing activities:
Development of oil and natural gas properties		—			(56,078	)
Acquisition of property, plant and equipment		—			(3,380	)
Purchases of other property and equipment		(25,628	)		(48,597	)
Development of oil and natural gas properties		(292	)		(67,864	)
Proceeds from sale of properties and equipment and other		66,915			95,291
Purchases of other property and equipment		(31,242	)		(82,232	)
Net cash provided by (used in) investing activities		41,287			(9,384	)
Proceeds from sale of properties and equipment and other		100,677			177,907
Net cash provided by investing activities		69,143			24,431
Cash flow from financing activities:
Repurchases of shares		(2,653	)		(77143,~~744~~097	)
Proceeds from borrowings		511,~~600~~200			~~115~~142,~~225~~825
Repayments of debt		—(1,000	)		(2629,~~949~~615	)
Debt issuance costs paid		—			(3,~~040~~246	)
Distributions to shareholders		(101,338	)		—
Net cash (used in) provided by financing activities		(98,391	)		7,492
Net cash used in financing activities		(93,791	)		(33,133	)
Net (decrease) increase in cash, cash equivalents and restricted cash		(6929,~~389~~734	)		5679,~~909~~141
Cash, cash equivalents and restricted cash:
Beginning		149,169			49,777
Ending	$	79119,~~780~~435		$	~~106~~128,~~686~~918

The accompanying notes are an integral part of these condensed consolidated financial statements.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation

Unless otherwise indicated or the context otherwise requires, references herein to the “Company” refer to Riviera Resources, Inc. (“Riviera”) and its consolidated subsidiaries. Unless otherwise indicated or the context otherwise requires, references herein to “LINN Energy” refer to Linn Energy, Inc. and its consolidated subsidiaries.

Nature of Business

~~Riviera~~The Company is anincorporated ~~independent~~under Delaware law and its headquarters are in Houston, Texas. Prior to the recent sales of interests in oil and natural gas ~~company~~properties ~~quoted~~and ~~for~~the ~~trading~~sale onof ~~the~~its ~~OTCQX~~wholly ~~Market~~owned ~~under~~subsidiary ~~the~~Blue ~~ticker~~Mountain Midstream LLC (“~~RVRA.~~Blue Mountain Midstream”), discussed below, Riviera was an independent oil and natural gas company. The Company ~~has~~had two reporting segments:, upstream and Blue Mountain. The ~~Company’s~~ upstream reporting segment ~~properties~~was ~~are~~engaged ~~located~~ in ~~two~~the ~~operating~~exploration, ~~regions~~development, production, and sale of oil, natural gas, and natural gas liquids (“NGL”) and its properties were all located in the United States (“U.S.”)~~: the Mid-Continent and North Louisiana~~. The Blue Mountain reporting segment ~~consists~~consisted of a cryogenic natural gas processing facility, a network of gathering pipelines and compressors and produced water services and a crude oil gathering system located in the Merge/SCOOP/STACK play~~, each of which is owned by Blue Mountain Midstream LLC (“Blue Mountain Midstream”), a wholly owned subsidiary of the Company~~. During the first half of 2020, the Company divested all of its properties located in the Uinta Basin and East Texas operating regions. During 2019, the Company divested all of its properties located in the Hugoton Basin and Michigan/Illinois operating regions. See Note 3 for additional information.

Recent Developments ~~and Outlook~~

~~The~~Section ~~Company~~271 and the oil and gas industry has been adversely impacted by recent events, including the initial dramatic increase in output from the Organization of Petroleum Exporting Countries and other oil producing nations (“OPEC+”) in the first quarter of 2020 and the destruction of demand resulting from the unprecedented global health and economic crisis sparked by the novel coronavirus disease (“COVID-19”) global pandemic. While OPEC+ has agreed to cut production, downward pressure on commodity prices has continued. In order to reduce expenses, in April 2020, the Board of Directors of the Company made the decision to consolidate the management of Blue Mountain Midstream within the Company’s existing executive management team. The Company plans to further reduce expenses by integration of the operations of the two companies wherever practical. The Company incurred severance expenses of approximately $4 million and $5 million for the three months and six months ended June 30, 2020, respectively, in connection with these activities.Sale

AsIn ~~described~~July ~~further below~~2020, the Company ~~recorded~~signed ~~impairments~~definitive onagreements ~~oil~~to ~~and~~sell ~~natural~~substantially ~~gas~~all ~~properties~~of ~~and~~its ~~property,~~interests ~~plant~~located ~~and~~in ~~equipment~~its ~~for~~two ~~the~~upstream ~~three~~operating ~~months~~regions, ~~and~~North ~~six~~Louisiana ~~months~~and ~~ended~~the ~~June 30~~Mid-Continent, and in August 2020, ~~due~~signed a definitive agreement to ~~declines~~sell inBlue ~~commodity~~Mountain ~~prices~~Midstream ~~and~~(the ~~expected~~“Blue ~~future~~Mountain ~~volumes~~Divestiture”). The ~~COVID-19~~Blue ~~pandemic~~Mountain isDivestiture, ~~still~~together ~~evolving~~with ~~and~~the ~~identification~~sales of ~~all~~interests ~~trends,~~in ~~events~~properties located in North Louisiana and ~~uncertainties~~the Mid-Continent (collectively, ~~including~~the “271 Sale”), constituted a ~~possible~~sale ~~widespread~~of ~~resurgence~~substantially inall ~~COVID-19~~of ~~infections~~the inconsolidated assets of the ~~second~~Company ~~half~~for purposes of ~~2020~~Section 271(a) ~~without~~of the ~~availability~~Delaware ofGeneral ~~generally~~Corporate ~~effective~~Law, ~~therapeutics~~as oramended. Therefore, aon ~~vaccine~~August 23, ~~for~~2020, the ~~disease,~~Company ~~that~~elected ~~may~~to ~~impact~~obtain shareholder approval and authorization of the 271 Sale. Holders of a majority of the Company’s ~~financial~~issued ~~condition~~ and ~~results~~outstanding shares of ~~operations~~common ~~are~~stock ~~unknown~~(the at“Majority ~~this~~Stockholders”) ~~time,~~executed ~~therefore~~and delivered to the Company’s ~~results~~a written consent in lieu of ~~operations~~a ~~for~~special meeting. The written consent delivered by the ~~three~~Majority ~~months~~Stockholders authorized and ~~six~~approved ~~months~~the ~~ended~~271 Sale. On ~~June~~September 301, 2020, ~~may~~and ~~not~~October 1, be2020, ~~indicative~~the Company completed the sales of its ~~future~~interests ~~results. If~~in ~~the~~properties ~~pandemic~~located ~~and~~in ~~low~~North ~~commodity~~Louisiana ~~price~~and ~~environment~~the ~~continues~~Mid-Continent, itrespectively. In ~~may~~addition, ~~have~~on aOctober 8, ~~material~~2020, ~~adverse~~the ~~effect~~Company oncompleted the ~~Company’s~~Blue ~~operating~~Mountain ~~cash~~Divestiture. See ~~flows,~~Note 3 ~~liquidity,~~for ~~and~~additional ~~future~~information ~~development~~about ~~plans~~divestitures.

~~Principles~~Plan of ~~Consolidation and Reporting~~Liquidation

~~The~~On ~~information~~August 24, ~~reported~~2020, ~~herein~~following ~~reflects~~approval ~~all~~of ~~normal~~the ~~recurring~~271 Sale, ~~adjustments~~the Company announced that ~~are,~~it inwas evaluating the ~~opinion~~process of ~~management,~~winding-up ~~necessary~~and ~~for~~of returning the ~~fair~~majority ~~presentation~~ of ~~the~~its ~~results~~remaining ~~for~~capital ~~the~~to ~~interim~~its ~~periods~~shareholders. ~~Certain~~On ~~information~~October 12, ~~and~~2020, ~~note~~the ~~disclosures~~Board ~~normally~~of ~~included~~Directors inof ~~annual~~the ~~financial~~Company ~~statements~~(the ~~prepared~~“Board”), inapproved ~~accordance~~the ~~with~~dissolution, ~~U.S.~~winding ~~generally~~up ~~accepted~~and ~~accounting~~liquidation ~~principles~~of the Company (the “~~GAAP~~Plan of Liquidation”) ~~have~~and ~~been~~adopted ~~condensed~~the orPlan ~~omitted~~of ~~under~~Liquidation. Also, ~~Securities~~on ~~and~~October 12, ~~Exchange~~2020, ~~Commission~~the ~~rules~~required ~~and~~percentage ~~regulations;~~of asthe ~~such,~~Company’s ~~this~~shareholders ~~report~~approved, ~~should~~through bewritten ~~read~~consent in ~~conjunction~~accordance with the ~~consolidated~~bylaws ~~financial~~of ~~statements~~the ~~and~~Company, ~~notes~~the inPlan ~~the~~of ~~Company’s~~Liquidation. The ~~Annual~~Plan ~~Report~~of onLiquidation ~~Form 10‑K~~contemplates ~~for~~the orderly sale of the ~~year~~Company’s ~~ended~~remaining ~~December 31,~~assets ~~2019. The~~and ~~results~~the ~~reported~~discharge inof ~~these~~all ~~unaudited~~outstanding ~~condensed~~liabilities ~~consolidated~~to ~~financial~~third ~~statements~~parties ~~should~~and, ~~not~~after ~~necessarily~~the beestablishment ~~taken~~of asappropriate ~~indicative~~reserves, the distribution of ~~results~~any ~~that~~remaining ~~may~~cash beto ~~expected~~shareholders. See Note 18 for ~~the~~more ~~entire year~~information.

~~The~~Other ~~condensed~~Recent consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. Investments in noncontrolled entities over which the Company exercises significant influence are accounted for under the equity method.Developments

The Company and the oil and gas industry have been adversely impacted by certain events, including the initial dramatic increase in output from the Organization of Petroleum Exporting Countries and other oil producing nations (“OPEC+”) in the first quarter of 2020 and the destruction of demand resulting from the unprecedented global health and economic crisis sparked by the novel coronavirus disease (“COVID-19”) global pandemic. While OPEC+ has agreed to cut production, downward pressure on commodity prices has continued. In order to reduce expenses, in April 2020, the Board made the decision to consolidate the management of Blue Mountain Midstream within the Company’s existing executive management team and further reduced expenses by integration of the operations of the two companies wherever practical. The Company incurred severance expenses of approximately $10 million and $15 million for the three months and nine months ended September 30, 2020, respectively, in connection with integration activities, divestitures and the Plan of Liquidation.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

~~There~~As ~~have~~described ~~been~~further nobelow, ~~material~~the ~~changes~~Company inrecorded ~~critical~~impairments ~~accounting~~on ~~policies~~oil ~~during~~and natural gas properties and property, plant and equipment for the ~~six~~nine months ended ~~June~~September 30, 2020. The impairment charges recorded in the three months ended September 30, as2020, ~~compared~~were primarily due to the ~~critical~~Company’s ~~accounting~~exit ~~policies~~from ~~described~~the midstream business. The impairment charges recorded in ~~Item 8~~the first quarter and second quarter of 2020 were primarily due to declines in commodity prices and declines in expected future volumes. The COVID-19 pandemic continues to evolve and identification of all trends, events and uncertainties, including a possible widespread resurgence in COVID-19 infections in the remainder of 2020 without the availability of generally effective therapeutics or a vaccine for the disease, that may impact the Company’s ~~Annual~~financial ~~Report~~condition onand ~~Form~~results ~~10-K~~of operations are unknown at this time. Due to the adoption of the Plan of Liquidation, the Company’s results of operations for the ~~year~~three months and nine months ended ~~December~~September 3130, ~~2019~~2020, are not indicative of its future results.

Principles of Consolidation and Reporting

The information reported herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the results for the interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted under Securities and Exchange Commission rules and regulations; as such, this report should be read in conjunction with the consolidated financial statements and notes in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019. The results reported in these unaudited condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year.

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. Investments in noncontrolled entities over which the Company exercises significant influence are accounted for under the equity method.

There have been no material changes in critical accounting policies during the nine months ended September 30, 2020, as compared to the critical accounting policies described in Item 8. “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Based on the approval of the Plan of Liquidation in October 2020, discussed above, the Company plans to adopt the liquidation basis of accounting in the fourth quarter of 2020. See Note 18.

Use of Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amount of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. The estimates that are particularly significant to the financial statements include impairment evaluations, estimates of the Company’s reserves of oil, natural gas and ~~natural gas liquids (“~~NGL”), future cash flows from oil and natural gas properties, depreciation, depletion and amortization, asset retirement obligations, certain revenues and operating expenses, and fair values of commodity derivatives.

As fair value is a market-based measurement, it is determined based on the assumptions that market participants would use. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates. Any changes in estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.

Fair Value of Financial Instruments

The carrying values of the Company’s receivables, payables and credit facilities are estimated to be substantially the same as their fair values at ~~June~~September 30, 2020, and December 31, 2019. See Note 8 for details about the fair value of the Company’s derivative financial instruments.

Recently Issued Accounting Standards

The London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. At the end of 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be discontinued. At the present time, the Blue Mountain Credit Facility (see Note 6) has terms that extend beyond 2021. In March 2020, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) which provides optional guidance to ease the transition from LIBOR to an alternative reference rate. The ASU intends to address certain concerns relating to accounting for contract modifications and hedge accounting. These optional expedients and exceptions to applying GAAP, assuming certain criteria are met, are allowed through December 31, 2022. The Company is currently evaluating the provisions of the ASU and does not expect the transition to an alternative rate to have a material impact on its results of operations or financial position.

Recently Adopted Accounting Standard

In June 2016, the FASB issued an ASU that is intended to change the impairment model for trade receivables, net investments in leases, debt securities, loans and certain other instruments. The Company adopted this ASU effective January 1, 2020, using the modified retrospective effective date method. The Company’s trade receivables due in one year or less represent substantially all the items that are within the scope of the new standard. The adoption of this ASU did not have a material impact on the Company’s results of operations or financial position.

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses, current receivables aging, and existing industry and national economic data. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential recovery is remote. The balance in the Company’s allowance for doubtful accounts related to trade accounts receivable was approximately $1 million at both June 30, 2020, and December 31, 2019.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Recently Adopted Accounting Standard

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses, current receivables aging, and existing industry and national economic data. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential recovery is remote. The balance in the Company’s allowance for doubtful accounts related to trade accounts receivable was approximately $4 million and $1 million at September 30, 2020, and December 31, 2019, respectively.

Impairment of Assets Held for Sale and Long-Lived Assets

Proved Oil and Natural Gas Properties

The Company evaluates the impairment of its proved oil and natural gas properties on a field-by-field basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying values of proved properties are reduced to fair value when the expected undiscounted future cash flows of proved and risk-adjusted probable and possible reserves are less than net book value or there are alternative indications of impairment. The fair values of proved properties are measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount, or the Company takes into consideration contract prices from executed definitive agreements. Significant inputs used to determine the fair values of proved properties include estimates of: (i) reserves; (ii) future operating and development costs; (iii) future commodity prices; and (iv) a market-based weighted average cost of capital rate. These assumptions represent Level 3 inputs. These inputs require assumptions by the Company’s management at the time of the valuation and are the most sensitive and subject to change. The underlying commodity prices embedded in the Company’s estimated cash flows are the product of a process that begins with New York Mercantile Exchange (“NYMEX”) forward curve pricing, adjusted for estimated location and quality differentials, as well as other factors that Company management believes will impact realizable prices.

Based on the analysis described above, during the ~~three~~nine months ended ~~June~~September 30, 2020, the Company recorded noncash impairment charges of approximately $14101 million associated with proved oil and natural gas properties. Of this, approximately $1285 million related to ~~properties to be~~ divested properties located in ~~North~~Oklahoma, ~~Louisiana and~~ approximately $212 million ~~related~~ to divested properties located in ~~East~~North ~~Texas. During the six months ended June 30~~Louisiana, ~~2020, the Company recorded noncash impairment charges of approximately $101 million associated with proved oil~~ and ~~natural gas properties. Of this,~~ approximately $854 million ~~related~~ to ~~properties~~divested ~~located in Oklahoma, approximately $12 million related to~~ properties located in ~~North~~East ~~Louisiana,~~Texas. There ~~and~~was ~~approximately~~no $4such ~~million~~charge ~~related~~during tothe ~~properties~~three ~~located~~months inended ~~East~~September 30, ~~Texas~~2020. During the three months and ~~six~~nine months ended ~~June~~September 30, 2019, the Company recorded a noncash impairment ~~charge~~charges of approximately $1895 million and $113 million, respectively, associated with ~~Michigan~~divested proved oil and ~~natural~~ gas properties ~~held~~located ~~for~~in ~~sale~~the atHugoton ~~June 30,~~Basin ~~2019~~and Michigan. The impairment charges in both periods were primarily due to a decline in commodity prices. The carrying values of the impaired proved properties were reduced to fair value, estimated using inputs characteristic of a Level 3 fair value measurement. The ~~impairment~~ charges are associated with the upstream reporting segment and are included in “impairment of assets held for sale and long-lived assets” on the condensed consolidated statements of operations. See Note 3 for additional information about divestitures.

Unproved Oil and Natural Gas Properties

The Company evaluates the impairment of its unproved oil and natural gas properties whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying values of unproved properties are reduced to fair value based on management’s experience in similar situations and other factors such as the lease terms of the properties and the relative proportion of such properties on which proved reserves have been found in the past.

Based on the analysis described above, during the six months ended June 30, 2020, the Company recorded a noncash impairment charge of approximately $3 million associated with unproved oil and natural gas properties located in Oklahoma. There was no such charge during the three months ended June 30, 2020. The impairment was primarily due to a decline in commodity prices. The impairment charge is associated with the upstream reporting segment and is included in “impairment of assets held for sale and long-lived assets” on the condensed consolidated statement of operations.

Other Property and Equipment

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Based on the analysis described above, during the ~~three~~nine months ~~and six months~~ ended ~~June~~September 30, 2020, the Company recorded a noncash impairment ~~charges~~charge of approximately $13 million ~~and $18 million, respectively,~~ associated with ~~its~~unproved ~~crude~~ oil ~~gathering~~and ~~system~~natural ~~assets. The~~gas ~~impairments~~properties ~~were~~located ~~primarily~~in ~~due~~Oklahoma. There towas ano ~~decline~~such incharge ~~expected~~during ~~future volumes in~~ the ~~crude~~three ~~gathering~~months ~~business~~ended September 30, ~~related~~2020. The toimpairment ~~the~~was ~~economics~~primarily ofdue ~~customers~~to ~~drilling~~a decline in ~~the~~commodity ~~area~~prices. The ~~impairment~~charge ~~charges~~is ~~are~~ associated with the ~~Blue~~upstream ~~Mountain~~ reporting segment and is included in “impairment of assets held for sale and long-lived assets” on the condensed consolidated ~~statements~~statement of operations.

Other Property and Equipment and Other Assets

The Company evaluates the impairment of its other property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying values of other property and equipment are reduced to fair value when the expected undiscounted future cash flows are less than net book value or there are alternative indications of impairment. The fair values of other property and equipment are measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount, or the Company takes into consideration contract prices from executed definitive agreements. Significant inputs used to determine the fair values of other property and equipment and other assets include estimates of future operating costs, future volumes and future commodity prices. These inputs require assumptions by the Company’s management at the time of the valuation and are the most sensitive and subject to change.

At September 30, 2020, because of the Blue Mountain Divestiture, the Company performed an impairment evaluation of Blue Mountain Midstream’s other property and equipment and other assets. Based on the analysis described above, during the three months and nine months ended September 30, 2020, the Company recorded impairment charges of approximately $220 million and $237 million, respectively, to reduce the carrying value of Blue Mountain Midstream’s assets to fair value less cost to sell using Level 3 inputs. The impairment charges recorded in the three months ended September 30, 2020, were primarily triggered by the Company’s exit from the midstream business, with the fair value being predominantly driven by the contract price of the Blue Mountain Divestiture. The impairment charges recorded in the first quarter and second quarter of 2020 were primarily due to a decline in expected future volumes in the crude gathering business, related to the economics of customers drilling in the area. The charges are primarily associated with the Blue Mountain reporting segment, with $1 million of the charges associated with the upstream reporting segment and are included in “impairment of assets held for sale and long-lived assets” on the condensed consolidated statements of operations.

Note 2 – Revenues

Disaggregation of Revenue

~~The~~Substantially ~~following~~all ~~tables~~of ~~present~~the revenues reported on the Company’s ~~disaggregated~~unaudited ~~revenues~~condensed byconsolidated ~~source~~statements of operations included herein relates to properties that were divested either prior or subsequent to September 30, 2020. See Note 1, Note 3 and ~~geographic~~Note 18 ~~area:~~for information about divestitures.

	Three Months Ended June 30, 2020
	Natural Gas			Oil		NGL		Oil, Natural Gas and NGL Sales			Marketing Revenues		Other Revenues			Total
	(in thousands)
Mid-Continent	$	3,521		$	4,030	$	1,008	$	8,559		$	—	$	10		$	8,569
East Texas (1)		(308	)		30		234		(44	)		655		—			611
North Louisiana		2,188			148		43		2,379			187		(1	)		2,565
Uinta Basin (1)		2			2		—		4			—		—			4
Other divested properties		36			—		—		36			—		—			36
Blue Mountain		—			—		—		—			21,022		—			21,022
Total	$	5,439		$	4,210	$	1,285	$	10,934		$	21,864	$	9		$	32,807

(1) During 2020, the Company divested all of its properties located in these operating regions.

	Three Months Ended June 30, 2019
	Natural Gas		Oil		NGL		Oil, Natural Gas and NGL Sales		Marketing Revenues		Other Revenues		Total
	(in thousands)
Hugoton Basin (1)	$	15,037	$	417	$	7,312	$	22,766	$	9,460	$	5,104	$	37,330
Mid-Continent		4,033		7,153		1,884		13,070		—		13		13,083
East Texas		9,363		945		405		10,713		808		2		11,523
North Louisiana		9,017		961		306		10,284		482		1		10,767
Uinta Basin		3,102		—		—		3,102		—		—		3,102
Michigan/Illinois (1)		6,052		746		24		6,822		—		30		6,852
Blue Mountain		—		—		—		—		42,644		—		42,644
Total	$	46,604	$	10,222	$	9,931	$	66,757	$	53,394	$	5,150	$	125,301

(1) During 2019, the Company divested all of its properties located in these operating regions.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

	Six Months Ended June 30, 2020
	Natural Gas		Oil		NGL			Oil, Natural Gas and NGL Sales		Marketing Revenues		Other Revenues			Total
	(in thousands)
Mid-Continent	$	6,129	$	7,712	$	1,657		$	15,498	$	—	$	57		$	15,555
East Texas (1)		2,521		328		444			3,293		2,282		2			5,577
North Louisiana		5,328		513		181			6,022		412		1			6,435
Uinta Basin (1)		919		—		(8	)		911		—		—			911
Other divested properties		2		27		(21	)		8		4		(20	)		(8	)
Blue Mountain		—		—		—			—		53,088		—			53,088
Total	$	14,899	$	8,580	$	2,253		$	25,732	$	55,786	$	40		$	81,558

The following tables present the Company’s disaggregated revenues by source and geographic area:

(1) During 2020, the Company divested all of its properties located in these operating regions.

	Three Months Ended September 30, 2020
	Natural Gas			Oil		NGL		Oil, Natural Gas and NGL Sales			Marketing Revenues		Other Revenues			Total
	(in thousands)

Mid-Continent	$	2,140		$	2,657	$	645	$	5,442		$	—	$	30		$	5,472
East Texas		(11	)		—		—		(11	)		—		—			(11	)
North Louisiana		1,675			187		53		1,915			113		—			2,028
Uinta Basin		(13	)		—		—		(13	)		—		—			(13	)
Other divested properties		5			—		2		7			—		(1	)		6
Blue Mountain		—			—		—		—			28,941		—			28,941
Total	$	3,796		$	2,844	$	700	$	7,340		$	29,054	$	29		$	36,423

	Six Months Ended June 30, 2019
	Three Months Ended September 30, 2019
	Natural Gas		Oil		NGL		Oil, Natural Gas and NGL Sales		Marketing Revenues		Other Revenues		Total
	(in thousands)
Hugoton Basin (1)	$	37,936	$	793	$	17,282	$	56,011	$	33,152	$	11,072	$	100,235
Hugoton Basin	$	12,057	$	405	$	5,561	$	18,023	$	9,810	$	5,413	$	33,246
Mid-Continent		83,~~769~~870		108,~~120~~387		41,~~322~~171		2313,~~211~~428		—		2478		2313,~~235~~506
East Texas		207,~~849~~379		~~1,797~~812		~~1,008~~492		238,~~654~~683		~~1,897~~843		42		259,~~555~~528
North Louisiana		136,~~503~~849		~~1,758~~467		~~760~~141		167,~~021~~457		~~720~~442		32		167,~~744~~901
Uinta Basin		92,~~543~~845		86—		5—		92,~~634~~845		—		—1		92,~~634~~846
Michigan/Illinois (1)		13,141		1,396		34		14,571		—		50		14,621
Michigan/Illinois		82		504		7		593		—		36		629
Blue Mountain		—		—		—		—		8434,~~972~~733		—		8434,~~972~~733
Total	$	~~103~~33,~~741~~082	$	1510,~~950~~575	$	237,~~411~~372	$	~~143~~51,~~102~~029	$	~~120~~45,~~741~~828	$	115,~~153~~532	$	~~274~~102,~~996~~389

~~(1) During 2019, the Company divested all of its properties located in these operating regions.~~10

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

	Nine Months Ended September 30, 2020
	Natural Gas		Oil		NGL			Oil, Natural Gas and NGL Sales		Marketing Revenues		Other Revenues			Total
	(in thousands)

Mid-Continent	$	8,269	$	10,369	$	2,302		$	20,940	$	—	$	87		$	21,027
East Texas		2,510		328		444			3,282		2,282		2			5,566
North Louisiana		7,003		700		234			7,937		525		1			8,463
Uinta Basin		906		—		(8	)		898		—		—			898
Other divested properties		7		27		(19	)		15		4		(21	)		(2	)
Blue Mountain		—		—		—			—		82,029		—			82,029
Total	$	18,695	$	11,424	$	2,953		$	33,072	$	84,840	$	69		$	117,981

	Nine Months Ended September 30, 2019
	Natural Gas		Oil		NGL		Oil, Natural Gas and NGL Sales		Marketing Revenues		Other Revenues		Total
	(in thousands)

Hugoton Basin	$	49,993	$	1,198	$	22,843	$	74,034	$	42,962	$	16,485	$	133,481
Mid-Continent		12,639		18,507		5,493		36,639		—		102		36,741
East Texas		28,228		2,609		1,500		32,337		2,740		6		35,083
North Louisiana		20,352		2,225		901		23,478		1,162		5		24,645
Uinta Basin		12,388		86		5		12,479		—		1		12,480
Michigan/Illinois		13,223		1,900		41		15,164		—		86		15,250
Blue Mountain		—		—		—		—		119,705		—		119,705
Total	$	136,823	$	26,525	$	30,783	$	194,131	$	166,569	$	16,685	$	377,385

Contract Balances

Under the Company’s product sales contracts, customers are invoiced once the Company’s performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s product sales contracts do not give rise to material contract assets or contract liabilities.

The Company had trade accounts receivable related to revenue from contracts with customers of approximately $1816 million and $43 million as of ~~June~~September 30, 2020, and December 31, 2019, respectively.

Performance Obligations

A majority of the Company’s sales are short-term in nature with a contract term of one year or less. For those contracts, the Company utilized the practical expedient in ASC 606-10-50-14 that exempts the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

~~price~~performance obligations if the variable consideration is allocated entirely to ~~remaining~~a wholly unsatisfied performance ~~obligations~~obligation. Under ifthese contracts, future revenue from the ~~performance~~sale ~~obligation~~of products and services is ~~part~~dependent ofon afuture ~~contract~~production or variable customer volume and variable commodity prices for that ~~has~~volume; antherefore, ~~original~~future ~~expected~~volumes ~~duration~~are wholly unsatisfied, and disclosure of ~~one~~the ~~year~~transaction orprice ~~less~~allocated to remaining performance obligations is not required.

For the Company’s product sales that have a contract term greater than one year, the Company utilized the practical expedient in ASC 606-10-50-14(A), which states the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these contracts, future revenue from the sale of products and services is dependent on future production or variable customer volume and variable commodity prices for that volume; therefore, future volumes are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required.

Note 3 – Divestitures

Divestitures – 2020

On January 15, 2020, the Company completed the sale of its interest in non-operated properties located in the Drunkards Wash field in the Uinta Basin. Cash proceeds from the sale of these properties were approximately $4 million (including a deposit of approximately $450,000 received in 2019), and the Company recorded a net gain of approximately $1 million.

On January 31, 2020, the Company completed the sale of its interest in properties located in the Overton field in East Texas. Cash proceeds from the sale of these properties were approximately $17 million (including a deposit of approximately $2 million received in 2019).

On February 14, 2020, the Company completed the sale of its interest in properties located in the Personville field in East Texas. Cash proceeds from the sale of these properties were approximately $28 million (including a deposit of approximately $3 million received in 2019).

On February 28, 2020, the Company completed the sale of its office building located in Oklahoma City, Oklahoma. Cash proceeds from the sale were approximately $21 million.

On April 2, 2020, the Company completed the sale of its remaining interest in properties located in East Texas. Cash proceeds from the sale of these properties were approximately $392,000.

On September 1, 2020, the Company completed the sale of its interest in substantially all of its properties located in North Louisiana (the “North Louisiana Assets”). Cash proceeds from the sale of these properties were approximately $23 million and the Company recorded a net loss of approximately $1 million. The Company recorded a noncash impairment charge of approximately $12 million to reduce the carrying value of these assets to fair value in the second quarter of 2020.

Divestitures – Subsequent Events

On ~~July~~October 271, 2020, the Company ~~signed~~completed athe ~~definitive~~sale ~~agreement~~of ~~to sell~~ its interest in ~~properties~~substantially ~~located~~all inof ~~North~~its ~~Louisiana~~Mid-Continent ~~for~~properties alocated ~~contract~~in ~~price~~Oklahoma of(the ~~approximately~~“Mid-Continent ~~$27 million~~Assets”). ~~The~~Cash ~~transaction~~proceeds isfrom ~~expected to close in~~ the ~~third~~sale ~~quarter~~ of ~~2020,~~these ~~subject~~properties towere ~~satisfactory~~approximately ~~completion~~$13 ofmillion ~~due~~(including ~~diligence~~a ~~and~~deposit ~~the~~of ~~satisfaction~~approximately of$2 ~~closing~~million ~~conditions. During~~received in the ~~three~~third ~~months~~quarter ~~ended~~of ~~June 30,~~ 2020,) and the Company ~~recorded~~expects ato ~~noncash~~record ~~impairment~~a ~~charge~~net gain of approximately $1216 million toin ~~reduce~~ the ~~carrying~~fourth ~~value~~quarter of ~~these~~2020. See ~~assets~~Note 18 for pro forma financial information related to ~~fair~~divestiture ~~value~~of the Mid-Continent Assets.

On August 4, 2020, the Company signed a definitive agreement to sell its interest in properties located in the Anadarko Basin in Oklahoma for a contract price of approximately $16 million. The transaction is expected to close in the fourth quarter of 2020, subject to satisfactory completion of due diligence and the satisfaction of closing conditions.12

Divestitures – 2019

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

~~approximately~~The $1following ~~million~~are ~~and~~summarized ~~pre-tax~~results ~~income~~ of ~~approximately~~operations ~~$9 million for the three months~~ and ~~six~~balance ~~months~~sheet ~~ended~~information ~~June 30,~~for ~~2019, respectively, from~~ the ~~Hugoton~~Mid-Continent ~~Basin.~~Assets:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020		2019			2020			2019
	(in thousands)

Revenues and other	$	6,558	$	9,763		$	18,231		$	33,373
Expenses		3,977		8,195			104,337			25,865
Income (loss) before income taxes		2,581		1,568			(86,106	)		7,508
Income tax expense		—		24,560			—			33,275
Net income (loss)	$	2,581	$	(22,992	)	$	(86,106	)	$	(25,767	)

	September 30, 2020
	(in thousands)
Assets:
Current assets	$	7,859
Oil and natural gas properties, net		11,325
Other property and equipment, net		1,825
	$	21,009
Liabilities:
Current liabilities	$	5,003
Asset retirement obligations		14,487
	$	19,490

On October 8, 2020, the Company completed the Blue Mountain Divestiture. Cash proceeds from the sale were approximately $114 million (including a deposit of approximately $11 million received in the third quarter of 2020). The Company repaid approximately $80 million, representing total borrowings under the Blue Mountain Credit Facility, as defined in Note 6, with a portion of the proceeds. The Company recorded impairment charges of approximately $220 million and $237 million, primarily to reduce the carrying value of assets to fair value in the three months and nine months ended September 30, 2020, respectively. See Note 18 for pro forma financial information related to the Blue Mountain Divestiture.

The following are summarized results of operations and balance sheet information for the Blue Mountain Divestiture:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(in thousands)

Revenues and other	$	28,941		$	34,407		$	82,495		$	119,548
Expenses		20,703			30,383			59,655			99,346
Other income (expenses)		(226,737	)		(7,243	)		(254,284	)		(25,858	)
Loss before income taxes		(218,499	)		(3,219	)		(231,444	)		(5,656	)
Income tax benefit		—			(28,204	)		—			(27,775	)
Net (loss) income	$	(218,499	)	$	24,985		$	(231,444	)	$	22,119

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

	September 30, 2020
	(in thousands)
Assets:
Current assets	$	21,777
Other property and equipment, net		101,683
Other noncurrent assets		3,628
	$	127,088
Liabilities:
Current liabilities	$	10,227
Credit facility		80,000
Asset retirement obligations		716
Other noncurrent liabilities		936
	$	91,879

Divestitures – 2019

On November 22, 2019, the Company completed the sale of its interest in properties located in the Hugoton Basin (the “Hugoton Basin Assets Sale”). Cash proceeds from the sale of these properties were approximately $286 million. In connection with the Hugoton Basin Assets Sale, the buyer also acquired the Company’s interest in Mayzure, LLC, a wholly owned subsidiary of the Company, which was the counterparty to the volumetric production payment agreements based on helium produced from certain oil and natural gas properties in the Hugoton Basin. The Company recorded a noncash impairment charge of approximately $95 million to reduce the carrying value of these assets to fair value. The Company recognized pre-tax loss of approximately $98 million and $89 million for the three months and nine months ended September 30, 2019, respectively, from the Hugoton Basin.

On September 5, 2019, the Company completed the sale of its interest in properties located in Illinois. Cash proceeds from the sale of these properties were approximately $4 million and the Company recorded a net gain of approximately $4 million.

On August 30, 2019, the Company completed the sale of its interest in non-core assets located in North Louisiana. Cash proceeds from the sale were approximately $2 million and the Company recorded a net gain of approximately $376,000.

On July 3, 2019, the Company completed the sale of its interest in properties located in Michigan. Cash proceeds from the sale of these properties were approximately $39 million. The Company recorded a noncash impairment charge of approximately $18 million to reduce the carrying value of these assets to fair value ~~of approximately $18 million~~.

On May 31, 2019, the Company completed the sale of its interest in non-operated properties located in the Hugoton Basin in Kansas. Cash proceeds from the sale of these properties were approximately $29 million and the Company recorded a net loss of approximately $10 million.

On January 17, 2019, the Company completed the sale of its interest in properties located in the Arkoma Basin in Oklahoma. Cash proceeds from the sale of these properties were approximately $64 million (including a deposit of approximately $5 million received in 2018), and the Company recorded a net gain of approximately $28 million.

The ~~2020~~Blue ~~and~~Mountain ~~2019~~Divestiture ~~divestitures~~and ~~discussed~~the ~~above~~Mid-Continent Assets are not presented as discontinued operations ~~because~~as ~~they~~of doand ~~not~~for ~~represent~~the aperiod ~~strategic~~ended ~~shift~~September 30, ~~that~~2020, ~~will~~as ~~have~~the aassociated ~~major~~activity ~~effect~~represents onsubstantially all of the Company’s results of operations and ~~financial~~remaining ~~results~~net assets. Therefore, they do not meet the definition of a component of an entity because they are not clearly distinguishable from the rest of the entity. Other divestitures of oil and natural gas properties during 2019 and 2020 are not presented as discontinued operations because they did not represent a strategic shift. The gains and losses on ~~these~~ divestitures are included in “(gains) losses on sale of assets and other, net” on the condensed consolidated statements of ~~operations and are included in the upstream reporting segment.~~

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(Unaudited)

operations, in the upstream reporting segment for oil and natural gas properties, and in the Blue Mountain reporting segment for the Blue Mountain Divestiture.

The following table presents carrying amounts of the assets and liabilities of the Company’s properties classified as held for sale on the condensed consolidated balance sheet:

	~~December 31, 2019~~	December 31, 2019
	~~(in thousands)~~	(in thousands)
Assets:
Oil and natural gas properties	$	17,732
Oil and natural gas properties, net		$	17,732
Other property and equipment		85,798
Other property and equipment, net			85,798
Other		~~1,243~~	1,243
Total assets held for sale	$	~~104,773~~$	104,773
Liabilities:
Asset retirement obligations	$	~~33,542~~$	33,542
Other		~~1,635~~	1,635
Total liabilities held for sale	$	~~35,177~~$	35,177

Other assets primarily include inventories and other liabilities primarily include accounts payable.

Note 4 – Equity (Deficit)

Share Repurchase Program

On July 18, 2019, the Board ~~of Directors of the Company~~ authorized the repurchase of up to $150 million of the Company’s outstanding shares of common stock. During the ~~six~~nine months ended ~~June~~September 30, 2020, the Company repurchased an aggregate of 282,742 shares of common stock at an average price of $7.31 per share for a total cost of approximately $2 million. AtFuture share repurchases are not provided for under the Company’s Plan of Liquidation.

12Cash Distributions

On March 9, 2020, the Board declared a cash distribution of $1.00 per share. A cash distribution totaling approximately $58 million was paid on April 22, 2020, to shareholders of record as of the close of business on April 8, 2020. On April 23, 2020, the Board declared a cash distribution of $0.75 per share. The distribution totaling approximately $43 million was paid on May 11, 2020, to shareholders of record as of the close of business on May 7, 2020. In addition, approximately $1 million and $11 million for potential future distributions related to nonvested share-based compensation awards was voluntarily recorded in restricted cash at September 30, 2020, and December 31, 2019, respectively.

Cash Distributions – Subsequent Event

On October 12, 2020, the Board declared a cash distribution of $1.35 per share. A cash distribution totaling approximately $78 million was paid on October 28, 2020, to shareholders of record as of the close of business on October 23, 2020.

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July 31, 2020, approximately $22 million was available for share repurchases under the program. Any share repurchases are subject to restrictions in the Riviera Credit Facility (as defined in Note 6).

Dividends

Although the Company paid cash distributions in 2019 and 2020, the Company is not paying a regular cash dividend. The Board of Directors periodically reviews the Company’s liquidity position to evaluate whether or not to pay a cash dividend. Any future payment of cash dividends would be subject to the restrictions in the Riviera Credit Facility (as defined in Note 6).

Cash Distributions

On March 9, 2020, the Board of Directors of the Company declared a cash distribution of $1.00 per share. A cash distribution totaling approximately $58 million was paid on April 22, 2020, to shareholders of record as of the close of business on April 8, 2020. On April 23, 2020, the Board of Directors of the Company declared a cash distribution of $0.75 per share. The distribution totaling approximately $43 million was paid on May 11, 2020, to shareholders of record as of the close of business on May 7, 2020. In addition, approximately $13 million and $11 million for potential future distributions related to nonvested share-based compensation awards was voluntarily recorded in restricted cash at June 30, 2020, and December 31, 2019, respectively. At June 30, 2020, and December 31, 2019, distributions payable, based on the vesting schedule of awards, of approximately $819,000 and $2 million, respectively, related to outstanding share-based compensation awards was also recorded. These amounts are included in “other accrued liabilities” and “asset retirement obligations and other noncurrent liabilities” on the condensed consolidated balance sheets.

Note 5 – Oil and Natural Gas Properties

Aggregate capitalized costs related to oil, natural gas and NGL production activities with applicable accumulated depletion and amortization are presented below:

	June 30, 2020			December 31, 2019
	September 30, 2020			December 31, 2019
	(in thousands)
Proved properties	$	~~168~~122,~~478~~307		$	174,845
Unproved properties		53,~~421~~082			5,462
		173,899			180,307
		125,389			180,307
Less accumulated depletion and amortization		(~~136~~111,~~566~~480	)		(35,603	)
	$	3713,~~333~~909		$	144,704

As discussed in Note 1 and Note 3, substantially all of the Company’s remaining oil and natural gas properties were sold subsequent to September 30, 2020.

Note 6 – Debt

Fair Value

The Company’s debt is recorded at the carrying amount on the condensed consolidated balance sheets. The carrying amounts of the credit facilities approximate fair value because the interest rates are variable and reflective of market rates.

Riviera Credit Facility

As of September 30, 2020, Riviera’s credit agreement ~~provides~~provided for a senior secured reserve-based revolving loan facility (the “Riviera Credit Facility”) with a borrowing base and borrowing commitments of $307 million ~~at June 30, 2020~~. As of ~~June~~September 30, 2020, there were no borrowings outstanding under the Riviera Credit Facility and there was approximately $296 million of available borrowing capacity (which includes a reduction of approximately $~~701,000~~1 million for outstanding letters of credit). The maturity date is August 4, 2021.

13Redetermination of the borrowing base under the Riviera Credit Facility, based primarily on reserve reports using lender commodity price expectations at such time, occurs semi-annually, in April and October. On June 1, 2020, the Company entered into a Fifth Amendment (the “Fifth Amendment”) to the Riviera Credit Facility. Pursuant to the Fifth Amendment, the borrowing base was reduced from $90 million to $30 million and the applicable margin for interest on borrowings was increased by 0.25%. On September 2, 2020, the Company elected to reduce the aggregate maximum credit amount under the Riviera Credit Facility from $30 million to $7 million. On October 27, 2020, the Company entered into a Sixth Amendment (the “Sixth Amendment”) to the Riviera Credit Facility. Pursuant to the Sixth Amendment, the borrowing base was reduced to $540,000, the lenders obligations to make any loans were eliminated, and the Company’s ability to make any borrowing requests was removed. In addition, the Company is required to maintain a cash deposit of at least $540,000 with a lender bank related to letter of credit commitments. The Company anticipates the Riviera Credit Facility will be terminated in the fourth quarter of 2020 as a result of the Company’s Plan of Liquidation. See Note 18.

During the nine months ended September 30, 2020, the Company recorded a finance fee expense of approximately $468,000 related to the write-off of a portion of unamortized deferred financing fees due to a reduction of the Riviera Credit Facility borrowing base. During the three months and nine months ended September 30, 2019, the Company recorded a finance fee expense of approximately $700,000 related to the write-off of a portion of unamortized deferred financing fees due to a reduction of the Riviera Credit Facility borrowing base.

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~~Redetermination~~applicable margin ranging from 1.25% to 2.25% per annum, depending on utilization of the borrowing base. Interest ~~under~~is ~~the~~generally ~~Riviera~~payable ~~Credit~~in ~~Facility,~~arrears ~~based~~quarterly ~~primarily~~for onloans ~~reserve~~bearing ~~reports~~interest ~~using~~based ~~lender~~at ~~commodity~~the ~~price~~ABR ~~expectations~~and at ~~such~~the ~~time,~~end ~~occurs~~of ~~semi-annually,~~the inapplicable ~~April~~interest ~~and~~period ~~October. On~~for ~~June 1,~~loans ~~2020,~~bearing interest at the ~~Company~~LIBOR, ~~entered~~or ~~into~~if asuch ~~Fifth~~interest ~~Amendment~~period (is longer than six months, at the ~~“Amendment”)~~end toof the ~~Riviera~~three-month ~~Credit~~intervals ~~Facility~~during such interest period. ~~Pursuant~~The Company is required to pay a commitment fee to the ~~Amendment,~~lenders under the ~~borrowing~~Riviera ~~base~~Credit ~~was~~Facility, ~~reduced~~which ~~from~~accrues ~~$90~~at ~~million~~a torate ~~$30~~per ~~million~~annum ~~and~~of 0.50% on the ~~applicable~~average ~~margin~~daily ~~for~~unused ~~interest~~amount onof ~~borrowings~~the ~~was~~available ~~increased~~revolving byloan 0commitments of the lenders.~~25%.~~

During the three months and six months ended June 30, 2020, the Company recorded a finance fee expense of approximately $468,000 related to the write-off of a portion of unamortized deferred financing fees due to the reduction of the Riviera Credit Facility borrowing base.

At the Company’s election, interest on borrowings under the Riviera Credit Facility is determined by reference to either the LIBOR plus an applicable margin ranging from 2.25% to 3.25% per annum or the alternate base rate (“ABR”) plus an applicable margin ranging from 1.25% to 2.25% per annum, depending on utilization of the borrowing base. Interest is generally payable in arrears quarterly for loans bearing interest based at the ABR and at the end of the applicable interest period for loans bearing interest at the LIBOR, or if such interest period is longer than six months, at the end of the three-month intervals during such interest period. The Company is required to pay a commitment fee to the lenders under the Riviera Credit Facility, which accrues at a rate per annum of 0.50% on the average daily unused amount of the available revolving loan commitments of the lenders.

The obligations under the Riviera Credit Facility are secured by mortgages covering approximately 85% of the total value of the proved reserves of the oil and natural gas properties of the Company and certain of its subsidiaries, along with liens on substantially all personal property of the Company and certain of its subsidiaries excluding Blue Mountain Midstream, and are guaranteed by the Company and certain of its subsidiaries, subject to customary exceptions. Under the Riviera Credit Facility, the Company is required to maintain (i) a maximum total net debt to last twelve months EBITDA ratio of 3.5 to 1.0, and (ii) a minimum adjusted current ratio of 1.0 to 1.0.

The Riviera Credit Facility also contains affirmative and negative covenants, including compliance with laws (including environmental laws, ERISA and anti-corruption laws), maintenance of required insurance, delivery of quarterly and annual financial statements, oil and gas engineering reports and budgets, maintenance and operation of property (including oil and gas properties), restrictions on the incurrence of liens and indebtedness, mergers, consolidations and sales of assets, paying dividends or other distributions in respect of, or repurchasing or redeeming, the Company’s capital stock, making certain investments and transactions with affiliates.

The Riviera Credit Facility contains events of default and remedies customary for credit facilities of this nature. Failure to comply with the financial and other covenants in the Riviera Credit Facility would allow the lenders, subject to customary cure rights, to require immediate payment of all amounts outstanding under the Riviera Credit Facility. As of ~~June~~September 30, 2020, the Company was in compliance with all financial and other covenants of the Riviera Credit Facility. A reduction to the borrowing base, in whole or in part, is expected should the Company close the sale of its interests in properties in North Louisiana and Oklahoma as currently anticipated. See Note 3.

Blue Mountain Midstream Credit Facility

~~Blue~~On ~~Mountain~~October 8, ~~Midstream’s~~2020, ~~credit~~the ~~agreement~~Company ~~provides~~repaid ~~for~~approximately a$80 ~~senior~~million, ~~secured~~representing ~~revolving~~total ~~loan~~borrowings ~~facility~~under (the “Blue Mountain Credit Facility”), as defined below, with a ~~borrowing~~portion ~~base~~of ~~and~~the ~~borrowing~~net ~~commitments~~proceeds offrom ~~$200~~the ~~million~~Blue atMountain ~~June 30, 2020~~Divestiture. ~~The~~Subsequently, the Blue Mountain Credit Facility ~~together~~was ~~with~~terminated ~~the~~effective ~~Riviera Credit Facility~~October 8, ~~are~~2020. See ~~referred~~Note 3 tofor asinformation about the ~~“Credit~~Blue ~~Facilities”)~~Mountain Divestiture.

~~The~~As ~~Blue Mountain Credit Facility provides for the ability to increase the aggregate commitments~~ of ~~the lenders to up to $400 million~~September 30, ~~subject to obtaining commitments for any such increase~~2020, ~~which may result in an increase in~~ Blue Mountain Midstream’s ~~available~~credit ~~borrowing~~agreement ~~capacity. As~~provided offor ~~June 30,~~a ~~2020,~~senior ~~total~~secured ~~borrowings~~revolving ~~outstanding~~loan ~~under~~facility (the “Blue Mountain Credit Facility”), ~~were~~with ~~approximately~~a ~~$75~~borrowing ~~million~~base and ~~there was approximately $115 million of available~~ borrowing ~~capacity~~commitments ~~(which includes a reduction~~ of ~~approximately~~ $10200 million ~~for~~at ~~outstanding letters of credit)~~September 30, ~~subject~~2020. The ~~to covenant restrictions in the~~ Blue Mountain Credit Facility~~. As~~ oftogether ~~July 31,~~with ~~2020, total borrowings outstanding under~~ the ~~Blue~~Riviera ~~Mountain~~ Credit Facility, ~~were~~are ~~approximately~~referred ~~$76~~to ~~million~~as ~~and~~the ~~there~~“Credit ~~was approximately $114 million of available capacity (which includes a reduction~~ Facilities”).

14As of September 30, 2020, total borrowings outstanding under the Blue Mountain Credit Facility were approximately $80 million and there was approximately $110 million of available borrowing capacity (which included a reduction of approximately $10 million for outstanding letters of credit), subject to covenant restrictions in the Blue Mountain Credit Facility.

Note 7 – Derivatives

Commodity Derivatives

As of September 30, 2020, the Company had no derivative positions. During the three months ended September 30, 2020, the Company unwound all of its natural gas fixed price swaps, oil fixed price swaps, and Panhandle Eastern Pipeline basis swaps for 2020 and 2021, for a cost of approximately $356,000. During the nine months ended September 30, 2020, the Company recognized an immaterial net gain for the unwinding of swaps. During the nine months ended September 30, 2019, the Company entered into commodity derivative contracts consisting of natural gas fixed price swaps and NGL fixed price swaps for 2019 and oil fixed price swaps and natural gas basis swaps for 2020. In addition, in July 2019, in connection with the sale of interest in properties located in Michigan, the Company canceled its MichCon natural gas basis swaps for 2019 and 2020.

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(Unaudited)

of approximately $10 million reduction for outstanding letters of credit), subject to covenant restrictions in the Blue Mountain Credit Facility. The maturity date is August 10, 2023.

At Blue Mountain Midstream’s election, interest on borrowings under the Blue Mountain Credit Facility is determined by reference to either the LIBOR plus an applicable margin ranging from 2.00% to 3.00% per annum or the ABR plus an applicable margin ranging from 1.00% to 2.00% per annum, both depending on Blue Mountain Midstream’s consolidated total leverage ratio. Interest is generally payable in arrears on the last day of March, June, September and December for loans bearing interest based at the ABR and at the end of the applicable interest period for loans bearing interest at the LIBOR, or if such interest period is longer than six months, at the end of three-month intervals during such interest period.

Blue Mountain Midstream is required under the Blue Mountain Credit Facility to pay a commitment fee to the lenders, which accrues at a rate per annum of 0.375% or 0.50% (depending on Blue Mountain Midstream’s consolidated total leverage ratio) on the average daily unused amount of the available revolving loan commitments of the lenders.

The Blue Mountain Credit Facility is secured by a first priority lien on substantially all the assets of Blue Mountain Midstream. Under the Blue Mountain Credit Facility, Blue Mountain Midstream is required to maintain (i) a ratio of consolidated EBITDA to consolidated interest expense no less than 2.50 to 1.00, (ii) a ratio of consolidated net debt to consolidated EBITDA (the “consolidated total leverage ratio”) no greater than 4.50 to 1.00 or 5.00 to 1.00, as applicable, and (iii) in case certain other kinds of indebtedness are outstanding, a ratio of consolidated net debt secured by a lien on property of Blue Mountain Midstream to consolidated EBITDA no greater than 3.00 to 1.00.

The Blue Mountain Credit Facility also contains affirmative and negative covenants customary for credit facilities of this nature, including compliance with laws (including environmental laws, ERISA and anti-corruption laws), maintenance of required insurance, delivery of quarterly and annual financial statements, budgets, maintenance and operation of property, restrictions on the incurrence of liens and indebtedness, mergers, consolidations and sales of assets and transactions with affiliates.

The Blue Mountain Credit Facility contains events of default and remedies customary for credit facilities of this nature. If Blue Mountain Midstream does not comply with the covenants in the Blue Mountain Credit Facility, the lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the Blue Mountain Credit Facility. As of June 30, 2020, the Company was in compliance with all financial and other covenants of the Blue Mountain Credit Facility.

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(Unaudited)

Note 7 – Derivatives

Commodity Derivatives

The following table presents derivative positions for the periods indicated as of June 30, 2020:

	2020			2021
Natural gas positions:
Fixed price swaps (NYMEX Henry Hub):
Hedged volume (MMMBtu)		5,520			3,650
Average price ($/MMBtu)	$	2.82		$	2.44
Oil positions:
Fixed price swaps (NYMEX WTI):
Hedged volume (MBbls)		92			—
Average price ($/Bbl)	$	64.63		$	—
Natural gas basis differential positions: (1)
PEPL basis swaps:
Hedged volume (MMMBtu)		3,680			—
Hedge differential	$	(0.45	)	$	—

(1) Settled or to be settled, as applicable, on the indicated pricing index to hedge basis differential to the NYMEX Henry Hub natural gas price.

During the six months ended June 30, 2020, the Company entered into commodity derivative contracts consisting of natural gas fixed price swaps for 2021. In addition, the Company unwound certain of its oil fixed price swaps associated with Blue Mountain Midstream for 2020 and received proceeds of approximately $377,000. During the six months ended June 30, 2019, the Company entered into commodity derivative contracts consisting of natural gas fixed price swaps and NGL fixed price swaps for 2019 and natural gas basis swaps for 2020.

The natural gas derivatives are settled based on the closing price of NYMEX Henry Hub natural gas on the last trading day for the delivery month, which occurs on the third business day preceding the delivery month, or the relevant index prices of natural gas published in Inside Federal Energy Regulatory Commission’s Gas Market Report on the first business day of the delivery month. The oil derivatives are settled based on the average closing price of NYMEX WTI crude oil for each day of the delivery month. The NGL derivatives are settled based on the average effective price of natural gas liquids for each day of the delivery month, published in the issue of Oil Price Information Service.

Balance Sheet Presentation

The Company’s commodity derivatives are presented on a net basis in “derivative instruments” and “asset retirement obligations and other noncurrent liabilities” on the condensed consolidated balance sheets. See Note 8 for fair value disclosures about commodity derivatives. The following table summarizes the fair value of derivatives outstanding on a gross basis:

	June 30, 2020		December 31, 2019
	September 30, 2020		December 31, 2019
	(in thousands)
Assets:
Commodity derivatives	$	~~7,252~~375	$	7,439
Liabilities:
Commodity derivatives	$	1,~~178~~795	$	1,243

16By using derivative instruments to economically hedge exposures to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. A majority of the Company’s counterparties are participants in its Credit Facilities. The Credit Facilities are secured by certain of the Company’s and its subsidiaries’ oil, natural gas and NGL reserves and personal property. The Company is not required to post any collateral. The Company does not receive collateral from its counterparties.

The maximum amount of loss due to credit risk that the Company would incur if its counterparties failed completely to perform according to the terms of the contracts, based on the gross fair value of financial instruments, was approximately $375,000 at September 30, 2020. The Company minimizes the credit risk in derivative instruments by: (i) limiting its exposure to any single counterparty; (ii) entering into derivative instruments only with counterparties that meet the Company’s minimum credit quality standard or have a guarantee from an affiliate that meets the Company’s minimum credit quality standard; and (iii) monitoring the creditworthiness of the Company’s counterparties on an ongoing basis. In accordance with the Company’s standard practice, its commodity derivatives are subject to counterparty netting under agreements governing such derivatives and therefore the risk of loss due to counterparty nonperformance is somewhat mitigated.

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(Unaudited)

By using derivative instruments to economically hedge exposures to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. A majority of the Company’s counterparties are participants in its Credit Facilities. The Credit Facilities are secured by certain of the Company’s and its subsidiaries’ oil, natural gas and NGL reserves and personal property. The Company is not required to post any collateral. The Company does not receive collateral from its counterparties.

The maximum amount of loss due to credit risk that the Company would incur if its counterparties failed completely to perform according to the terms of the contracts, based on the gross fair value of financial instruments, was approximately $7 million at June 30, 2020. The Company minimizes the credit risk in derivative instruments by: (i) limiting its exposure to any single counterparty; (ii) entering into derivative instruments only with counterparties that meet the Company’s minimum credit quality standard or have a guarantee from an affiliate that meets the Company’s minimum credit quality standard; and (iii) monitoring the creditworthiness of the Company’s counterparties on an ongoing basis. In accordance with the Company’s standard practice, its commodity derivatives are subject to counterparty netting under agreements governing such derivatives and therefore the risk of loss due to counterparty nonperformance is somewhat mitigated.

Gains and Losses on Derivatives

A summary of gains and losses on derivatives included on the condensed consolidated statements of operations is presented below:

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020		2019
	(in thousands)
Gains (losses) on commodity derivatives	$	(12,~~358~~948	)	$	205,~~249~~665		$	63,~~721~~773	$	712,~~008~~673
Marketing expenses		—			(21,~~781~~326	)		—		(46,~~961~~287	)
Gains (losses) on commodity derivatives	$	(12,~~358~~948	)	$	174,~~468~~339		$	63,~~721~~773	$	26,~~047~~386

The Company received net cash settlements of approximately $5 million and $711 million for the three months and ~~six~~nine months ended ~~June~~September 30, 2020, respectively. The Company received net cash settlements of approximately $38 million ~~for the three months ended June 30, 2019,~~ and ~~paid net cash settlements of approximately~~ $26 million for the ~~six~~three months and nine months ended ~~June~~September 30, 2019, respectively.

Note 8 – Fair Value Measurements

Fair Value Measurements on a Recurring Basis

The Company accounts for its commodity derivatives at fair value (see Note 7) on a recurring basis. The Company determines the fair value of its commodity derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. Inputs to the pricing models include publicly available prices and forward price curves generated from a compilation of data gathered from third parties. Company management validates the data provided by third parties by understanding the pricing models used, obtaining market values from other pricing sources, analyzing pricing data in certain situations and confirming that those instruments trade in active markets. Assumed credit risk adjustments, based on published credit ratings and public bond yield spreads, are applied to the Company’s commodity derivatives.

In accordance with applicable accounting standards, the Company has categorized its financial instruments into a three-level fair value hierarchy based on the priority of inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

17The following presents the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:

	September 30, 2020
	Level 2		Netting ⁽¹⁾		Total
			(in thousands)
Assets:
Commodity derivatives	$	375	$	—	$	375
Liabilities:
Commodity derivatives	$	1,795	$	—	$	1,795

⁽¹⁾	Represents counterparty netting under agreements governing such derivatives.

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(Unaudited)

The following presents the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:

	June 30, 2020
	Level 2		Netting (1)			Total
			(in thousands)
Assets:
Commodity derivatives	$	7,252	$	(193	)	$	7,059
Liabilities:
Commodity derivatives	$	1,178	$	(193	)	$	985

(1) Represents counterparty netting under agreements governing such derivatives.

	December 31, 2019
	Level 2		Netting ⁽¹⁾			Total
	(in thousands)
Assets:
Commodity derivatives	$	7,439	$	(156	)	$	7,283
Liabilities:
Commodity derivatives	$	1,243	$	(156	)	$	1,087

⁽¹⁾	Represents counterparty netting under agreements governing such derivatives.

Fair Value Measurements on a Nonrecurring Basis

Non-financial assets and liabilities that are initially measured at fair value include asset retirement obligations (see Note 9) and impairments (see Note 1).

Note 9 – Asset Retirement Obligations

The Company has the obligation to plug and abandon oil and natural gas wells and related equipment at the end of production operations. Estimated asset retirement costs are recognized as liabilities with an increase to the carrying amounts of the related long-lived assets when the obligation is incurred. The liabilities are included in “other accrued liabilities” and “asset retirement obligations and other noncurrent liabilities” on the condensed consolidated balance sheets. Accretion expense is included in “depreciation, depletion and amortization” on the condensed consolidated statements of operations. The fair value of additions to the asset retirement obligations is estimated using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation include estimates of: (i) plug and abandon costs per well based on existing regulatory requirements; (ii) remaining life per well; (iii) future inflation factors; and (iv) a credit-adjusted risk-free interest rate. These assumptions represent Level 3 inputs. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation and are the most sensitive and subject to change.

In addition, there is insufficient information to reasonably determine the timing and/or method of settlement for purposes of estimating the fair value of the asset retirement obligation of the majority of Blue Mountain Midstream’s assets. In such cases, asset retirement obligation cost is considered indeterminate because there is no data or information that can be derived from past practice, industry practice, management’s experience, or the asset’s estimated economic life. Indeterminate asset retirement obligation costs associated with Blue Mountain Midstream will be recognized in the period in which sufficient information exists to reasonably estimate potential settlement dates and methods.

18The following table presents a reconciliation of the Company’s asset retirement obligations (in thousands):

Asset retirement obligations at December 31, 2019	$	21,497
Liabilities added from drilling		209
Liabilities associated with assets divested		(5,628	)
Current year accretion expense		854
Settlements		(1,008	)
Revision of estimates		299
Asset retirement obligations at September 30, 2020	$	16,223

Substantially all of the Company’s asset retirement obligations at September 30, 2020, relate to properties divested subsequent to September 30, 2020. See Note 1 and Note 3.

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(Unaudited)

The following table presents a reconciliation of the Company’s asset retirement obligations (in thousands):

Asset retirement obligations at December 31, 2019	$	21,497
Liabilities added from drilling		209
Liabilities associated with assets divested		(3,586	)
Current year accretion expense		601
Settlements		(964	)
Revision of estimates		299
Asset retirement obligations at June 30, 2020	$	18,056

Note 10 – Commitments and Contingencies

The close of the Blue Mountain Divestiture on October 8, 2020, in combination with the divestitures of upstream assets, constituted a Change of Control under the Riviera Resources, Inc. 2018 Omnibus Incentive Plan (the “Riviera Omnibus Incentive Plan”) and the Blue Mountain Midstream LLC 2018 Omnibus Incentive Plan, as amended (the “BMM Incentive Plan”). Effective with the Change of Control, outstanding vested and unvested share-based compensation awards, excluding those issued to certain executive officers and directors, were cancelled and converted into the right to receive an amount in cash, without interest, equal to fair value. In addition, the Company has an employment contract with one executive officer and an ongoing severance plan for employees that provide for payments as a multiple of base salary and various other benefits in the event of termination without cause following a Change of Control. The Company expects to incur expenses of approximately $2 million in the fourth quarter of 2020 for share-based compensation and severance termination benefits. See Note 3 for information about divestitures, Note 12 for information about share-based compensation and Note 18 for information about the Company’s Plan of Liquidation.

In 2016, Linn Energy, LLC, certain of its direct and indirect subsidiaries, and LinnCo, LLC (collectively, the “LINN Debtors”) filed Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code. The LINN Debtors emerged from bankruptcy in 2017. In 2018, LINN Energy completed the spin-off of Riviera from LINN Energy. On May 11, 2016, the LINN Debtors and Berry Petroleum Company, LLC (“Berry” and collectively with the LINN Debtors, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Debtors’ Chapter 11 cases were administered jointly under the caption In re Linn Energy, LLC, et al., Case No. 16‑60040. On January 27, 2017, the Bankruptcy Court entered an order approving and confirming the plan (the “Plan”) of reorganization of the Debtors (the “Confirmation Order”). Consummation of the Plan was subject to certain conditions set forth in the Plan. On February 28, 2017, all of the conditions were satisfied or waived and the Plan became effective and was implemented in accordance with its terms. On September 27, 2018, the Bankruptcy Court closed the LINN Debtors’ Chapter 11 cases, but retained jurisdiction as provided in the Confirmation Order.

The commencement of the Chapter 11 proceedings automatically stayed certain actions against the Company, including actions to collect prepetition liabilities or to exercise control over the property of the Company’s bankruptcy estates. However, the Company is, and will continue to be until the final resolution of all claims, subject to certain contested matters and adversary proceedings stemming from the Chapter 11 proceedings, which are not affected by the closure of the LINN Debtors’ Chapter 11 cases.

The Company is not currently a party to any litigation or pending claims that it believes would have a material adverse effect on its overall business, financial position, results of operations or liquidity; however, cash flow could be significantly impacted in the reporting periods in which such matters are resolved.

Note 11 – Operating Leases

Lessee

The Company leases office space and other property and equipment under lease agreements expiring on various dates through 2022. During the three months and ~~six~~nine months ended ~~June~~September 30, 2020, the Company recorded lease expenses of approximately $1 million and $23 million, respectively. During the three months and ~~six~~nine months ended ~~June~~September 30, 2019, the Company recorded lease expenses of approximately $1 million and $23 million, respectively.

As of ~~June~~September 30, 2020, undiscounted future minimum lease payments were as follows (in thousands):

2020	$	~~1,292~~626
2021		2,333
2022		1,296
	$	4,~~921~~255

1921

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

The weighted-average remaining lease term is two years. The future minimum lease payments above include an office building under a two-year lease with the option to cancel the lease after one year. If the Company exercises its option to cancel the lease after year one, total future minimum lease payments will be reduced by approximately $734,000. Of the Company’s total future minimum lease payments, approximately $3 million relates to Blue Mountain Midstream.

Lessor

The Company previously leased a building located in Oklahoma to third parties under lease agreements. The Company sold the building in the first quarter of 2020, and the leases were terminated effective with the close of the sale. Lease income for ~~both~~ the three months and ~~six~~nine months ended ~~June~~September 30, 2019, was approximately $1 million and $2 million, respectively. The Company has no other lease agreements for which it is the lessor. It determines if an arrangement is a lease at inception.

Note 12 – Share-Based Compensation

Riviera Omnibus Incentive Plan

~~Under~~Effective with the ~~Riviera~~close ~~Resources~~of the Blue Mountain Divestiture on October 8, ~~Inc.~~2020, ~~2018~~which, ~~Omnibus~~in ~~Incentive~~combination ~~Plan~~with (the “divestitures of upstream assets, constituted a Change of Control under the Riviera Omnibus Incentive Plan~~”) employees~~, ~~consultants~~outstanding vested and ~~non-employee~~unvested awards, excluding those issued to certain executive officers and directors, ofunder the ~~Company~~Riviera Omnibus Incentive Plan were cancelled and ~~its~~converted ~~affiliates~~into ~~are~~the ~~eligible~~right to receive ~~stock~~an ~~options,~~amount ~~restricted~~in ~~stock~~cash, ~~dividend~~without ~~equivalents~~interest, ~~performance~~equal ~~awards,~~to ~~other~~fair ~~stock-based~~value. The Company expects to incur expenses of approximately $1 million in the fourth quarter of 2020 for awards outstanding under the Riviera Omnibus Incentive Plan. See Note 3 for information about the Blue Mountain Divestiture and ~~other~~Note 18 ~~cash-based~~for ~~awards~~information about the Company’s Plan of Liquidation.

As of ~~June~~September 30, 2020, 21,~~135~~995,~~918~~853 shares were issuable under the Riviera Omnibus Incentive Plan pursuant to outstanding Riviera RSUs, including (i) the Riviera Legacy RSUs, (ii) ~~286~~146,~~006~~260 restricted stock units of the Company granted to certain employees of the Company (the “Restricted Shares” and together with Riviera Legacy RSUs, the “Riviera RSUs”), (iii) 1,847,950 restricted stock units of the Company granted as performance units to certain employees of the Company (the “Riviera Performance Shares”) that, in the case of the Riviera Performance Shares, vest, if at all, based on the achievement of certain performance conditions specified in the award agreements.

The Committee (as defined in the Riviera Omnibus Incentive Plan) has broad authority under the Riviera Omnibus Incentive Plan to, among other things: (i) select participants; (ii) determine the types of awards that participants receive and the number of shares that are subject to such awards; and (iii) establish the terms and conditions of awards, including the price (if any) to be paid for the shares or the award. As of ~~June~~September 30, 2020, up to 1451,~~819,910~~757 shares of common stock were available for issuance under the Riviera Omnibus Incentive Plan within the share reserve established under the Riviera Omnibus Incentive Plan, ~~222~~361,~~053~~799 of which the Committee has designated for issuance as Restricted Shares and 89,958 of which the Committee has designated for issuance as Riviera Performance Shares. IfAs ~~any~~noted ~~stock option or other stock-based award granted under the Riviera Omnibus Incentive Plan expires~~above, ~~terminates~~effective ~~or is canceled for any reason without having been exercised in full~~October 8, ~~the number of shares of common stock underlying any unexercised award shall again be available for the purpose of awards under the Riviera Omnibus Incentive Plan. If any shares of restricted stock~~2020, ~~performance~~all ~~awards~~outstanding orvested ~~other~~and ~~stock-based~~unvested awards ~~denominated~~issued ~~in shares of common stock awarded~~ under the Riviera Omnibus Incentive Plan ~~are~~were ~~forfeited for any reason, the number of forfeited shares shall again be available for purposes of awards under the Riviera Omnibus Incentive Plan~~cancelled. ~~Any award under the Riviera Omnibus Incentive Plan settled in cash shall not be counted against the maximum share limitation.~~

As is customary in incentive plans of this nature, each share limit and the number and kind of shares available under the Riviera Omnibus Incentive Plan and any outstanding awards, as well as the exercise or purchase prices of awards, and performance targets under certain types of performance-based awards, are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends or other similar events that change the number or kind of shares outstanding, and extraordinary dividends or distributions of property to the Company’s shareholders.

Blue Mountain Midstream Omnibus Incentive Plan

Effective with the close of the Blue Mountain ~~Midstream~~Divestiture, ison ~~governed~~October 8, by2020, ~~its~~which ~~Second~~constituted ~~Amended~~a ~~and~~Change ~~Restated~~of ~~Limited~~Control ~~Liability~~under ~~Operating~~the ~~Agreement~~BMM ~~(as~~Incentive ~~amended~~Plan, all outstanding vested and unvested awards issued under the “BMM ~~LLC~~Incentive ~~Agreement”),~~Plan ~~which~~were ~~provides~~cancelled ~~for~~and ~~two~~converted ~~classes~~into ofthe ~~membership~~right ~~units:~~to receive an amount in cash, without interest, equal to the Class AB ~~Units,~~Unit value. The Company expects to incur expenses of ~~which~~an ~~100%~~immaterial amount in the fourth quarter of 2020 for awards outstanding under the BMM Incentive Plan. See Note 3 for information about the Blue Mountain Divestiture and Note 18 for information about the Company’s Plan of Liquidation.

20The Blue Mountain Midstream Second Amended and Restated Limited Liability Operating Agreement (as amended, the “BMM LLC Agreement”), provides for two classes of membership units under the BMM Incentive Plan: Class A Units, of which 100% are held by Linn Holdco II (a wholly owned subsidiary of Riviera) and Class B Units. Pursuant to the BMM

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

~~are held by Linn Holdco II (a wholly owned subsidiary of Riviera) and Class B Units. Pursuant to the BMM~~ LLC Agreement, Blue Mountain Midstream has the authority to issue an unlimited number of Class A Units and up to 58,750 Class B Units. As of ~~June~~September 30, 2020, Blue Mountain Midstream ~~has~~had issued 738,213 Class A Units and no Class B Units. As of September 30, 2020, under the BMM Incentive Plan, Blue Mountain Midstream had granted awards that could result in the issuance of 45,272 Class B Units or an equivalent value in cash, at the Board’s discretion. The issued awards included 9,010 restricted security units and 18,131 performance stock units (“BMM PSUs”) (36,262 at 200% of target). As noted above, effective October 8, 2020, all outstanding vested and unvested awards issued under the BMM Incentive Plan were cancelled.

Under the Blue Mountain Midstream LLC 2018 Omnibus Incentive Plan (as amended, the “BMM Incentive Plan”) employees and consultants of Blue Mountain Midstream and its affiliates are eligible to receive unit options, restricted units, dividend equivalents, performance awards, other unit-based awards and other cash-based awards. The Committee (as defined in the BMM Incentive Plan) has broad authority under the BMM Incentive Plan to, among other things: (i) select participants; (ii) determine the types of awards that participants receive and the number of units that are subject to such awards; and (iii) establish the terms and conditions of awards, including the price (if any) to be paid for the units or the award. The aggregate number of units available for issuance under the BMM Incentive Plan matches the maximum number of Class B Units issuable by Blue Mountain Midstream.

As of June 30, 2020, under the BMM Incentive Plan, Blue Mountain Midstream had granted awards that could result in the issuance of 45,335 Class B Units or an equivalent value in cash, at the Board’s discretion. The issued awards include 9,023 restricted security units (“BMM RSUs”) and 18,156 performance stock units (“BMM PSUs”) (36,312 at 200% of target). The BMM RSUs can be paid, at the Board’s discretion, in cash or an equivalent number of Class B Units. Payment for the BMM PSUs only occurs upon the achievement by Blue Mountain Midstream of a certain equity value (subject to certain adjustments) specified in the award agreements. If such equity value is achieved, the recipient of the BMM PSU will receive a number of Class B Units (or an equivalent value in cash, at the Board’s discretion) equal to 50% to 200% of the target number of BMM PSUs held by such individual, as specified in the award agreements.

If any unit option or other unit-based award granted under the BMM Incentive Plan expires, terminates or is canceled for any reason without having been exercised in full, the number of units underlying any unexercised award shall again be available for the purpose of awards under the BMM Incentive Plan. If any restricted units, performance awards or other unit-based awards denominated in units awarded under the BMM Incentive Plan are forfeited for any reason, the number of forfeited units shall again be available for purposes of awards under the BMM Incentive Plan. Any award under the BMM Incentive Plan settled in cash shall not be counted against the maximum unit limitation.

As is customary in incentive plans of this nature, each unit limit and the number and kind of units available under the BMM Incentive Plan and any outstanding awards, as well as the exercise or purchase prices of awards, and performance targets under certain types of performance-based awards, are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, unit dividends or other similar events that change the number or kind of units outstanding, and extraordinary dividends or distributions of property to Blue Mountain Midstream’s unitholders.

Accounting for Share-Based Compensation

The condensed consolidated financial statements include 100% of employee-related expenses. Compensation cost related to the grant of share-based awards has been recorded at the subsidiary level with a corresponding credit to liability or equity.

As a result of the Company’s history of cash settling awards, all unvested share-based compensation awards are liability classified. The Company recorded a liability of approximately $1 million and $10 million at ~~June~~September 30, 2020, and December 31, 2019, respectively, related to unvested share-based compensation awards included in “other accrued liabilities” and “asset retirement obligations and other noncurrent liabilities” on the condensed consolidated balance sheets. All cash settlements of liability classified awards are classified as operating activities on the condensed consolidated statements of cash flows.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

A summary of share-based compensation expenses included on the condensed consolidated statements of operations is presented below:

	Three Months Ended June 30,					Six Months Ended June 30,
	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020			2019
	(in thousands)
Marketing expenses	$	(2—	)	$	5554	$	(127	)	$	~~162~~216
General and administrative expenses		~~(323~~392	)		32,~~625~~778		(32,~~223~~831	)		912,~~825~~603
Total share-based compensation expenses	$	~~(325~~392	)	$	32,~~680~~832	$	(32,~~350~~958	)	$	912,~~987~~819
Income tax benefit	$	—		$	~~639~~—	$	—		$	~~1,684~~—

Riviera Restricted Stock Units

During the ~~six~~nine months ended ~~June~~September 30, 2020, upon vesting of Riviera RSUs and at the election of participants, the Company repurchased 96100,~~212~~956 Riviera RSUs for a total cost of approximately $~~697~~706,000. In addition, 61,645 shares of common stock were issued to participants (net of statutory tax withholdings) upon vesting of Riviera RSUs. During the ~~six~~nine months ended ~~June~~September 30, 2020, the Company granted 15,357 RSUs with a fair value of approximately $125,000. As noted above, ~~that~~effective ~~vest~~October 8, ~~ratably~~2020, inall ~~two~~outstanding ~~tranches~~vested ~~over~~and ~~approximately~~unvested ~~two~~awards ~~years~~issued under the Riviera Omnibus Incentive Plan were cancelled.

During the nine months ended September 30, 2019, upon vesting of Riviera RSUs and at the election of participants, the Company repurchased 132,632 Riviera RSUs for a total cost of approximately $2 million. In addition, 81,923 shares of common stock were issued to participants (net of statutory tax withholdings) upon vesting of Riviera RSUs.

Performance Shares

As of ~~June~~September 30, 2020, there were 1,847,950 Riviera Performance Shares outstanding at 200% of target~~. The~~ ~~fair~~and ~~value~~36,262 BMM PSUs outstanding at 200% of target. The Riviera Performance Shares ~~was~~and ~~not~~the ~~material~~BMM PSUs had no fair value as of ~~June~~September 30, 2020. ~~The~~As ~~vesting~~noted ofabove, ~~these~~effective ~~awards~~October 8, is2020, ~~determined~~all ~~based~~outstanding onvested ~~the~~and ~~Company’s~~unvested ~~equity~~awards ~~value~~issued ~~(subject~~under tothe ~~adjustment~~Riviera ~~for~~Omnibus ~~distributions~~Incentive toPlan ~~shareholders~~ and ~~certain~~the ~~other~~BMM ~~items)~~Incentive atPlan awere ~~specified time~~cancelled.

As of June 30, 2020, there were 36,312 BMM PSUs outstanding at 200% of target. The fair value of BMM PSUs was not material as of June 30, 2020. The vesting of these awards is determined based on Blue Mountain Midstream’s equity value (subject to certain adjustments) at a specified time.23

Note 13 – (Loss) Earnings Per Share

Basic (loss) earnings per share is computed by dividing net (loss) income by the weighted average number of shares outstanding during the period. Diluted (loss) earnings per share is computed by adjusting the average number of shares outstanding for the dilutive effect, if any, of potential common shares.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

~~The~~Note ~~following~~13 ~~tables~~– ~~provide~~Loss aPer ~~reconciliation of the numerators and denominators of the basic and diluted per share computations for net (loss) income:~~Share

	Three Months Ended June 30,
	2020			2019
	(in thousands, except per share amounts)
Net loss	$	(21,212	)	$	(6,676	)
Loss per share:
Basic	$	(0.37	)	$	(0.10	)
Diluted	$	(0.37	)	$	(0.10	)
Weighted average shares outstanding ‒ basic		58,041			65,005
Dilutive effect of unit equivalents		—			84
Weighted average shares outstanding ‒ diluted		58,041			65,089

Basic loss per share is computed by dividing net loss by the weighted average number of shares outstanding during the period. Diluted loss per share is computed by adjusting the average number of shares outstanding for the dilutive effect, if any, of potential common shares. There was no dilutive effect for three months and nine months ended September 30, 2020, or September 30, 2019, therefore, basic and diluted loss per share is the same for these periods.

	Six Months Ended June 30,
	2020			2019
	(in thousands, except per share amounts)
Net (loss) income	$	(122,718	)	$	6,050
(Loss) income per share:
Basic	$	(2.11	)	$	0.09
Diluted	$	(2.11	)	$	0.09
Weighted average shares outstanding ‒ basic		58,098			66,900
Dilutive effect of unit equivalents		—			179
Weighted average shares outstanding ‒ diluted		58,098			67,079

The diluted loss per share calculation excludes the Riviera Performance Shares for the three months and nine months ended September 30, 2020, and September 30, 2019, because no performance targets have been met. The diluted loss per share calculation excludes approximately 489,000 and 318,000 restricted stock units that were anti-dilutive for the three months ended September 30, 2020, and September 30, 2019, respectively, and excludes approximately 152,000 and 199,000 restricted stock units that were anti-dilutive for the nine months ended September 30, 2020, and September 30, 2019, respectively.

The diluted (loss) earnings per share calculation excludes the Riviera Performance Shares for the three months and six months ended June 30, 2020, and June 30, 2019, because no performance targets have been met and excludes approximately 206,000 and 9,000 restricted stock units that were anti-dilutive for the three months and six months ended June 30, 2020, respectively.

Note 14 – Income Taxes

Amounts recognized as income taxes are included in “income tax expense” on the condensed consolidated statements of operations. The Company recognized no income tax expense during the three months and ~~six~~nine months ended ~~June~~September 30, 2020, because of the full valuation allowance recorded in 2019. The Company’s effective income tax rate was approximately 0% for both the three months and ~~six~~nine months ended ~~June~~September 30, 2020. The Company’s federal and state statutory rate net of the federal tax benefit was approximately 25% for both the three months and ~~six~~nine months ended ~~June~~September 30, 2020. The Company’s effective income tax rate was approximately 23(128)% and 29(143)% for the three months and ~~six~~nine months ended ~~June~~September 30, 2019, respectively.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. During the third quarter of 2019, and for the first time since Riviera’s inception, the Company’s earnings were a cumulative loss, primarily due to losses generated during 2019. Based on the cumulative loss and projections of future taxable loss for the periods in which the deferred tax assets are deductible, the Company recorded a valuation allowance of approximately $259 million and $171 million against all of its deferred tax assets as of September 30, 2020, and December 31, 2019, respectively. The Company intends to continue maintaining a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. The amount of deferred tax assets considered realizable could materially increase in the future, and the amount of valuation allowance recorded could materially decrease, if estimates of future taxable income are increased.

23As of December 31, 2019, the Company had approximately $246 million of indefinite lived net operating loss (“NOL”) carryforwards for U.S. federal income tax purposes. Based on activity through September 30, 2020, the Company estimates that a significant amount of additional NOLs will be generated through December 31, 2020. As discussed above, the Company maintains a full valuation allowance against all of its deferred tax assets which includes deferred tax assets associated with NOLs.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) that was enacted March 27, 2020, includes income tax provisions that allow NOLs to be carried back, allows interest expense to be deducted up to a higher percentage of adjusted taxable income, and modifies tax depreciation of qualified improvement property, among other provisions. These provisions have no material impact on the Company.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. During the third quarter of 2019, and for the first time since Riviera’s inception, the Company’s earnings were a cumulative loss which is primarily due to losses generated during 2019. Based on the cumulative loss and projections of future taxable income for the periods in which the deferred tax assets are deductible, the Company recorded a valuation allowance of approximately $200 million and $171 million against all of its deferred tax assets as of June 30, 2020, and December 31, 2019, respectively. The Company intends to continue maintaining a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. The amount of deferred tax assets considered realizable could materially increase in the future, and the amount of valuation allowance recorded could materially decrease, if estimates of future taxable income are increased.

As of December 31, 2019, the Company had approximately $246 million of indefinite lived net operating loss (“NOL”) carryforwards for U.S. federal income tax purposes. Based on activity through June 30, 2020, the Company estimates that a significant amount of additional NOLs will be generated through December 31, 2020. As discussed above, the Company maintains a full valuation allowance against all of its deferred tax assets which includes deferred tax assets associated with NOLs.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act that was enacted March 27, 2020, includes income tax provisions that allow NOLs to be carried back, allows interest expense to be deducted up to a higher percentage of adjusted taxable income, and modifies tax depreciation of qualified improvement property, among other provisions. These provisions have no material impact on the Company.

Note 15 – Supplemental Disclosures to the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows

“Other current assets” reported on the condensed consolidated balance sheets include the following:

	June 30, 2020		December 31, 2019
	September 30, 2020		December 31, 2019
	(in thousands)
Prepaids	$	54,~~389~~570	$	9,152
Inventories		76,~~197~~777		1,116
Other receivables		471		2,585
Receivables and other		578		2,585
Other current assets	$	1311,~~057~~925	$	12,853

“Accounts payable and accrued expenses” reported on the condensed consolidated balance sheets include the following:

	June 30, 2020		December 31, 2019
	September 30, 2020		December 31, 2019
	(in thousands)
Accounts payable	$	2627,~~207~~040	$	50,601
Accrued operating expenses		4,~~848~~191		16,828
Accrued capital expenditures		~~2,115~~711		10,087
Accrued general and administrative expenses		12,~~389~~214		2,448
Other accrued expenses		~~1,735~~751		615
Accounts payable and accrued expenses	$	3634,~~294~~907	$	80,579

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

“Other accrued liabilities” reported on the condensed consolidated balance sheets include the following:

	June 30, 2020		December 31, 2019
	September 30, 2020		December 31, 2019
	(in thousands)
Accrued compensation	$	716,~~006~~743	$	11,314
Asset retirement obligations (current portion)		1,184		1,184
Deposits		113,~~086~~765		6,111
Other		~~214~~84		8,119
Other accrued liabilities	$	931,~~490~~776	$	26,728

The following table provides a reconciliation of “cash and cash equivalents” reported on the condensed consolidated balance sheets to “cash, cash equivalents and restricted cash” reported on the condensed consolidated statement of cash flows:

	June 30, 2020		December 31, 2019
	September 30, 2020		December 31, 2019
	(in thousands)
Cash and cash equivalents	$	5594,~~641~~548	$	116,237
Restricted cash		24,~~139~~887		32,932
Cash, cash equivalents and restricted cash	$	79119,~~780~~435	$	149,169

Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:

	Six Months Ended June 30,
	2020		2019
	(in thousands)
Cash payments for interest, net of amounts capitalized	$	1,174	$	1,471
Cash payments for income taxes	$	—	$	—
Cash payments for reorganization items, net	$	494	$	472
Noncash investing activities:
Accrued capital expenditures	$	2,115	$	11,140

For purposes of the condensed consolidated statements of cash flows, the Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. At June 30, 2020, “restricted cash” on the condensed consolidated balance sheet consisted of approximately $10 million that will be used to settle certain claims in accordance with the Plan (which is the remainder of approximately $80 million transferred to restricted cash in February 2017 to fund such items), approximately $1 million related to deposits and approximately $13 million related to potential future distributions for nonvested share-based compensation awards. At December 31, 2019, “restricted cash” on the condensed consolidated balance sheet consisted of approximately $16 million that will be used to settle certain claims in accordance with the Plan, approximately $6 million related to deposits and approximately $11 million related to potential future distributions for nonvested share-based compensation awards.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:

	Nine Months Ended September 30,
	2020		2019
	(in thousands)

Cash payments for interest, net of amounts capitalized	$	1,670	$	2,941
Cash payments for income taxes	$	—	$	—
Cash payments for reorganization items, net	$	721	$	756

Noncash investing activities:
Accrued capital expenditures	$	711	$	6,593

For purposes of the condensed consolidated statements of cash flows, the Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. At September 30, 2020, “restricted cash” on the condensed consolidated balance sheet consisted of approximately $10 million that will be used to settle certain claims in accordance with the Plan (which is the remainder of approximately $80 million transferred to restricted cash in February 2017 to fund such items), approximately $14 million related to deposits and approximately $1 million related to potential future distributions for nonvested share-based compensation awards. At December 31, 2019, “restricted cash” on the condensed consolidated balance sheet consisted of approximately $16 million that will be used to settle certain claims in accordance with the Plan, approximately $6 million related to deposits and approximately $11 million related to potential future distributions for nonvested share-based compensation awards.

Note 16 – Related Party Transactions

Roan Resources LLC

During 2019, through December 6, 2019, certain members of the Board ~~of Directors of the Company~~ were also members of the board of directors of Roan Resources, Inc. Additionally, certain of the Company’s principal stockholders were also significant stockholders of Roan Resources, Inc.

For ~~both~~ the three months and ~~six~~nine months ended ~~June~~September 30, 2019, the Company recorded revenue from Roan Resources LLC of approximately $89 million and $17 million, respectively, included in “marketing revenues” on the condensed consolidated statements of operations. For the three months and ~~six~~nine months ended ~~June~~September 30, 2019, the Company made natural gas purchases from Roan Resources LLC of approximately $2519 million and $5978 million, respectively, included in “marketing expenses” on the condensed consolidated statements of operations.

Note 17 – Segments

~~The~~As of September 30, 2020, the Company ~~has~~had two reporting segments: upstream and Blue Mountain. The upstream reporting segment isoil ~~engaged in the exploration, development, production,~~ and ~~sale of oil,~~ natural gas, ~~and NGLs. The Company’s upstream reporting segment~~ properties ~~are~~were all located in ~~two operating regions in~~ the U.S.~~: the Mid-Continent and North Louisiana.~~ The Blue Mountain reporting segment ~~consists~~consisted of a cryogenic natural gas processing facility, a network of gathering pipelines and compressors and produced water services and a crude oil gathering system located in the Merge/SCOOP/STACK play. ~~During~~To ~~2020~~assess the performance of the reporting segments, the Company’s ~~divested~~Chief ~~all~~Operating ofDecision ~~its~~Maker ~~properties~~(“CODM”) ~~located~~analyzes infield ~~the~~level ~~Uinta~~cash ~~Basin~~flow, ~~and~~a ~~East~~non-GAAP ~~Texas~~financial metric. The Company defines field level cash flow as revenues less direct operating ~~regions~~expenses. ~~During~~Other ~~2019~~indirect income (expenses) include “general and administrative expenses,” ~~the~~“exploration ~~Company~~costs,” ~~divested~~“depreciation, ~~all~~depletion and amortization,” “(gains) on sale of ~~its~~assets ~~properties~~and ~~located~~other, innet,” ~~the~~“impairment ~~Hugoton~~of ~~Basin~~long-lived assets,” “other income and ~~Michigan/Illinois~~(expenses)” ~~operating~~and ~~regions~~“reorganization items, net.” ~~See~~Information ~~Note 3~~regarding ~~for~~total ~~additional~~assets ~~information~~by ~~about~~reporting ~~divestitures~~segment is not presented because it is not reviewed by the CODM.

To assess the performance of the Company’s reporting segments, the Company’s Chief Operating Decision Maker (“CODM”) analyzes field level cash flow, a non-GAAP financial metric. The Company defines field level cash flow as revenues less direct operating expenses. Other indirect income (expenses) include “general and administrative expenses,” “exploration costs,” “depreciation, depletion and amortization,” “(gains) on sale of assets and other, net,” “impairment of long-lived assets,” “other income and (expenses)” and “reorganization items, net.” Information regarding total assets by reporting segment is not presented because it is not reviewed by the CODM.

During the first quarter of 2020, the definition of field level cash flow analyzed by the Company’s CODM was revised to report within segment results, expenses previously reported as unallocated to segments. Information presented for the prior period has been recast to conform to current presentation.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

During the first quarter of 2020, the definition of field level cash flow analyzed by the Company’s CODM was revised to report within segment results, expenses previously reported as unallocated to segment results. Information presented for the prior period has been recast to conform to current presentation.

The following tables present the Company’s financial information by reporting segment:

	Three Months Ended June 30, 2020
	Three Months Ended September 30, 2020
	Upstream			Blue Mountain			Consolidated
	(in thousands)
Oil, natural gas and natural gas liquids sales	$	107,~~934~~340		$	—		$	107,~~934~~340
Marketing revenues		~~842~~113			2128,~~022~~941			2129,~~864~~054
Other revenues		929			—			929
		11,785			21,022			32,807
		7,482			28,941			36,423
Lease operating expenses		2,~~894~~367			—			2,~~894~~367
Transportation expenses		~~1,209~~818			—			~~1,209~~818
Marketing expenses		106			1620,~~818~~278			1620,~~828~~284
Taxes other than income taxes		~~1,097~~421			~~278~~425			~~1,375~~846
Total direct operating expenses		53,~~210~~612			1720,~~096~~703			2224,~~306~~315
Field level cash flow		63,~~575~~870			38,~~926~~238			1012,~~501~~108
Losses on commodity derivatives		(12,~~358~~948	)		—			(12,~~358~~948	)
Other indirect income (expenses), net		(2319,~~776~~602	)		(6225,~~579~~937	)		(30245,~~355~~539	)
Loss before income taxes	$	(18,~~559~~680	)	$	(2217,~~653~~699	)	$	(21236,~~212~~379	)

	Three Months Ended June 30, 2019
	Three Months Ended September 30, 2019
	Upstream			Blue Mountain			Consolidated
	(in thousands)
Oil, natural gas and natural gas liquids sales	$	6651,~~757~~029		$	—		$	6651,~~757~~029
Marketing revenues		1011,~~750~~095			4234,~~644~~733			5345,~~394~~828
Other revenues		5,~~150~~532			—			5,~~150~~532
		82,657			42,644			125,301
		67,656			34,733			102,389
Lease operating expenses		2318,~~845~~307			—			2318,~~845~~307
Transportation expenses		1816,~~053~~275			—			1816,~~053~~275
Marketing expenses		7,~~836~~948			3329,~~975~~740			4137,~~811~~688
Taxes other than income taxes		14,~~891~~468			~~708~~643			25,~~599~~111
Total direct operating expenses		5146,~~625~~998			3430,~~683~~383			8677,~~308~~381
Field level cash flow		3120,~~032~~658			74,~~961~~350			3825,~~993~~008
Gains on commodity derivatives		19,284			965			20,249
Gains (losses) on commodity derivatives		5,991			(326	)		5,665
Other indirect income (expenses), net		(59122,~~670~~419	)		(87,~~295~~243	)		(67129,~~965~~662	)
(Loss) income before income taxes	$	(9,354	)	$	631		$	(8,723	)
Loss before income taxes	$	(95,770	)	$	(3,219	)	$	(98,989	)

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

	Six Months Ended June 30, 2020
	Nine Months Ended September 30, 2020
	Upstream			Blue Mountain			Consolidated
	(in thousands)
Oil, natural gas and natural gas liquids sales	$	2533,~~732~~072		$	—		$	2533,~~732~~072
Marketing revenues		2,~~698~~811			5382,~~088~~029			5584,~~786~~840
Other revenues		4069			—			4069
		28,470			53,088			81,558
		35,952			82,029			117,981
Lease operating expenses		710,~~845~~212			—			710,~~845~~212
Transportation expenses		34,~~383~~201			—			34,~~383~~201
Marketing expenses		6470			3858,~~083~~361			3858,~~147~~431
Taxes other than income taxes		12,~~721~~142			~~869~~1,294			23,~~590~~436
Total direct operating expenses		1316,~~013~~625			3859,~~952~~655			5176,~~965~~280
Field level cash flow		1519,~~457~~327			1422,~~136~~374			2941,~~593~~701
Gains on commodity derivatives		63,~~255~~307			466			63,~~721~~773
Other indirect income (expenses), net		(~~131~~151,~~485~~087	)		(27253,~~547~~484	)		(~~159~~404,~~032~~571	)
Loss before income taxes	$	(~~109~~128,~~773~~453	)	$	(12230,~~945~~644	)	$	(~~122~~359,~~718~~097	)

	Six Months Ended June 30, 2019
	Nine Months Ended September 30, 2019
	Upstream			Blue Mountain			Consolidated
	(in thousands)
Oil, natural gas and natural gas liquids sales	$	~~143~~194,~~102~~131		$	—		$	~~143~~194,~~102~~131
Marketing revenues		3546,~~769~~864			84119,~~972~~705			~~120~~166,~~741~~569
Other revenues		1116,~~153~~685			—			1116,~~153~~685
		190,024			84,972			274,996
		257,680			119,705			377,385
Lease operating expenses		4766,~~897~~204			—			4766,~~897~~204
Transportation expenses		3753,~~203~~478			—			3753,~~203~~478
Marketing expenses		2735,~~620~~568			6797,~~580~~320			95132,~~200~~888
Taxes other than income taxes		711,~~516~~984			12,~~383~~026			814,~~899~~010
Total direct operating expenses		~~120~~167,~~236~~234			6899,~~963~~346			~~189~~266,~~199~~580
Field level cash flow		6990,~~788~~446			1620,~~009~~359			85110,~~797~~805
Gains on commodity derivatives		6,839			169			7,008
Gains (losses) on commodity derivatives		12,830			(157	)		12,673
Other indirect income (expenses), net		(65188,~~694~~113	)		(1825,~~615~~858	)		(84213,~~309~~971	)
(Loss) income before income taxes	$	10,933		$	(2,437	)	$	8,496
Loss before income taxes	$	(84,837	)	$	(5,656	)	$	(90,493	)

Note 18 – Plan of Liquidation, Winding Up and Dissolution

Plan of Liquidation

The Company’s Plan of Liquidation, approved by shareholders on October 12, 2020, contemplates the orderly sale of the Company’s remaining assets and the discharge of all outstanding liabilities to third parties and, after the establishment of appropriate reserves, the distribution of any remaining cash to shareholders.

Pursuant to the Plan of Liquidation, the Company will (i) pay or provide for all claims and obligations known to it, (ii) provide for any claim which is the subject of a pending action, suit or proceeding to which it is a party, (iii) provide for claims that have not been known to it but are likely to arise within ten years after the date of dissolution, (iv) after providing

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

for (i) through (iii), distribute the remaining assets, to the extent owed, to the Company’s existing creditors, and (v) after providing for (iv), distribute any remaining assets, which the Company currently expects to be between $0 and $40 million, to the Company stockholders in accordance with the Company’s Certificate of Incorporation, as amended. This estimate is preliminary and subject to adjustment.

The Plan of Liquidation also provides that the Company will make applicable filings and take such other actions as are found to be appropriate to carry out the Plan of Liquidation. The Company intends to file a certificate of dissolution with the State of Delaware, at which time the Company’s transfer books and records will be closed and the Company’s common stock will cease trading on the OTCQX Market, no later than the close of business on December 31, 2020. After such time, the Company intends to file with the U.S. Securities and Exchange Commission a Certification on Form 15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requesting the suspension of the Company’s reporting obligations under Sections 13 and 15(d) of the Exchange Act.

Based on the approval of the Plan of Liquidation in October 2020, discussed above, the Company plans to adopt the liquidation basis of accounting in the fourth quarter of 2020. Under the liquidation basis of accounting, all the Company’s assets will be stated at estimated net realizable value, or liquidation value, which represents the estimated amount of cash that the Company will collect on the disposal of assets as it carries out the Plan of Liquidation. The asset liquidation values will be based on current contracts, estimates and other indications of sales value, predicated on current values. All liabilities of the Company, including estimated costs associated with implementing the Plan of Liquidation, will be stated at estimated settlement amounts.

Uncertainties as to the precise net value of non-cash assets and the ultimate amount of liabilities make it impracticable to predict with certainty the aggregate net value that may ultimately be distributable to shareholders. Claims, liabilities and future expenses for operations will continue to be incurred with execution of the Plan of Liquidation. These costs will reduce the amount of net assets available for ultimate distribution to shareholders. Although the Company cannot currently make a precise estimate of these expenses, the Company believes that available cash is adequate to provide for obligations, liabilities, operating costs and claims, and to make cash distributions to shareholders.

Pro Forma Financial Information

Substantially all of the revenues reported on the Company’s unaudited condensed consolidated statements of operations included herein relates to properties that were divested either prior or subsequent to September 30, 2020. The following unaudited pro forma condensed consolidated financial statements are derived from historical consolidated financial statements of the Company. The unaudited pro forma condensed consolidated financial statements are for informational and illustrative purposes only and are not necessarily indicative of the financial results that would have occurred if the transactions reflected therein had occurred on the dates indicated, nor are such financial statements indicative of the results of operations in future periods.

As noted above, the Company plans to adopt the liquidation basis of accounting in the fourth quarter of 2020. Under the liquidation basis of accounting, all the Company’s net assets will be stated at estimated net realizable value, or liquidation value. The unaudited pro forma condensed consolidated financial statements are prepared on a going concern basis, not a liquidation basis, and as such are not representative of the Company’s future financial position or results of operations anticipated during the Company’s liquidation, winding up and dissolution process.

The preparation of the unaudited pro forma condensed consolidated financial information is based on financial statements prepared in accordance with GAAP. These principles require the use of estimates that effect the reported amounts of revenues and expenses. Actual results could differ from those estimates. However, the pro forma adjustments reflected in the accompanying unaudited pro forma condensed financial information reflect estimates and assumptions that Company management believes to be reasonable. During 2019 and 2020, the Company completed divestitures for which the related activity is not required to be reflected in the adjustments to the unaudited pro forma condensed consolidated financial information. See Note 3 for information about divestitures not removed from the pro forma information.

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RIVIERA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

The following unaudited pro forma financial information presents a summary of the Company’s condensed consolidated balance sheet as of September 30, 2020, giving effect to the Blue Mountain Divestiture and divestiture of Mid-Continent Assets as if they had been completed as of September 30, 2020, and condensed consolidated results of operations for the three months and nine months ended September 30, 2020, and 2019, giving effect to the Blue Mountain Divestiture and divestiture of Mid-Continent Assets as if they had been completed as of January 1, 2019:

Pro Forma Condensed Consolidated Balance Sheet (Unaudited)

	September 30, 2020
	(in thousands)
Assets:
Current assets	$	161,343
Oil and natural gas properties, net		2,584
Other property and equipment, net		525
Other noncurrent assets		1,062
	$	165,514
Liabilities:
Current liabilities	$	52,117
Asset retirement obligations and other noncurrent liabilities		1,201
	$	53,318

Pro Forma Condensed Consolidated Statements of Operations (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(in thousands)

Revenues and other	$	(2,024	)	$	158,806		$	21,028		$	237,137
Expenses		18,077			232,370			60,736			324,490
Other income (expenses)		(360	)		(3,487	)		(1,839	)		(4,992	)
Loss from continuing operations before income taxes		(20,461	)		(77,051	)		(41,547	)		(92,345	)
Income tax expense		—			125,639			—			123,592
Loss from continuing operations	$	(20,461	)	$	(202,690	)	$	(41,547	)	$	(215,937	)

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019. The following discussion contains forward-looking statements based on expectations, estimates and assumptions. Actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, volatility of oil, natural gas and natural gas liquids (“NGL”) prices or a prolonged period of low oil, natural gas or NGL prices and the effects of actions by, or disputes among or between, members of the Organization of Petroleum Exporting Countries and other oil producing nations (“OPEC+”), such as Saudi Arabia, and other oil and natural gas producing countries, such as Russia, with respect to production levels or other matters related to the price of oil, the effects of excess supply of oil and natural gas resulting from the reduced demand caused by the novel coronavirus disease (“COVID-19”) global pandemic and the actions by certain oil and natural gas producing countries, market prices for oil, natural gas and NGLs, production volumes, estimates of proved reserves, capital expenditures, the capacity and utilization of midstream facilities, economic and competitive conditions, credit and capital market conditions, regulatory changes and other uncertainties, as well as those factors set forth in “Cautionary Statement Regarding Forward-Looking Statements” below and in Item 1A. “Risk Factors” in this Quarterly Report on Form 10‑Q and in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019, and elsewhere in the Annual Report.

The reference to a “Note” herein refers to the accompanying Notes to Condensed Consolidated Financial Statements contained in Item 1. “Financial Statements.”

Riviera is an independent oil and natural gas company quoted for trading on the OTCQX Market under the ticker “RVRA.”

Executive Overview

Prior to the recent sales of interests in oil and natural gas properties and the sale of its wholly owned subsidiary Blue Mountain Midstream LLC (“Blue Mountain Midstream”), discussed below, Riviera was an independent oil and natural gas company. The Company ~~has~~had two reporting segments:, upstream and Blue Mountain. The ~~Company’s~~ upstream reporting segment ~~properties~~was ~~are~~engaged ~~located~~ in ~~two~~the ~~operating~~exploration, ~~regions~~development, production, and sale of oil, natural gas, and NGLs and its properties were all located in the United States (“U.S.”):. The Blue Mountain reporting segment consisted of a cryogenic natural gas processing facility, a network of gathering pipelines and compressors and produced water services and a crude oil gathering system located in the Merge/SCOOP/STACK play.

•On ~~Mid-Continent~~September 1, ~~which~~2020 ~~includes~~and ~~properties~~October 1, in2020, the ~~Northwest~~Company ~~STACK~~completed the sales of interests in ~~northwestern~~properties ~~Oklahoma~~located ~~and~~in ~~various~~its ~~other~~two ~~oil~~upstream operating regions, North Louisiana and ~~natural~~the ~~gas~~Mid-Continent, ~~producing~~respectively. In ~~properties~~addition, ~~and~~on ~~mineral~~October 8, ~~acreage~~2020, ~~throughout~~the ~~Oklahoma;~~Company ~~and~~completed the sale of Blue Mountain Midstream (the “Blue Mountain Divestiture”). See Note 3 for additional information about divestitures.

•On ~~North~~October 12, ~~Louisiana~~2020, ~~which~~the ~~includes~~Board ~~oil~~of Directors of the Company (the “Board”), approved the dissolution, winding up and ~~natural~~liquidation ~~gas~~of ~~properties~~the ~~producing~~Company ~~primarily~~(the ~~from~~“Plan of Liquidation”) and adopted the ~~Hosston~~Plan of Liquidation. Also, ~~Cotton~~on ~~Valley~~October 12, ~~Bossier~~2020, the required percentage of the Company’s shareholders approved, through written consent in accordance with the bylaws of the Company, the Plan of Liquidation. The Plan of Liquidation contemplates the orderly sale of the Company’s remaining assets and ~~Smackover~~the ~~formations~~discharge of all outstanding liabilities to third parties and, after the establishment of appropriate reserves, the distribution of any remaining cash to shareholders. The Company intends to file a certificate of dissolution with the State of Delaware, at which time the Company’s transfer books and records will be closed and the Company’s common stock will cease trading on the OTCQX Market, no later than the close of business on December 31, 2020. The Company does not anticipate that it will be required to file an Annual Report on Form 10-K for the year ended December 31, 2020. See Note 18 for more information.

During the first half of 2020, the Company divested all of its properties located in the Uinta Basin and East Texas operating regions and is pursuing divestiture of its remaining oil and natural gas properties by the end of 2020. During 2019, the Company divested all of its properties located in the Hugoton Basin and Michigan/Illinois operating regions. See Note 3 for additional information.31

The Blue Mountain reporting segment consists of a state of the art cryogenic natural gas processing facility, a network of gathering pipelines and compressors and produced water services and a crude oil gathering system located in the Merge/SCOOP/STACK play, each of which is owned by Blue Mountain Midstream LLC (“Blue Mountain Midstream”), a wholly owned subsidiary of the Company. In addition to the upstream divestiture activity noted above, the Company is working with an investment bank to explore a potential sale or merger of Blue Mountain Midstream.

For the three months ended June 30, 2020, the Company’s results included the following:

• oil, natural gas and NGL sales of approximately $11 million compared to $67 million for the three months ended June 30, 2019;

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued

•Results ~~average daily production~~ of ~~approximately 52 MMcfe/d compared to 286 MMcfe/d for the three months ended June 30, 2019;~~Operations

•Substantially ~~net~~all ~~loss~~of the revenues reported on the Company’s unaudited condensed consolidated statements of ~~approximately~~operations ~~$21~~included ~~million~~herein ~~compared~~relates to $7properties ~~million~~that were divested either prior or subsequent to September 30, 2020. See Note 3 for information about divestitures. Due to the adoption of the Plan of Liquidation, the Company’s results of operations for the three months ~~ended~~and ~~June~~nine months ended September 30, ~~2019;~~2020, are not indicative of its future results. See Note 18 for information about the Company’s Plan of Liquidation.

•For ~~noncash~~the ~~impairment~~three ~~charges~~months ofended ~~approximately~~September 30, ~~$15~~2020, ~~million~~the ~~compared~~Company’s toresults ~~$18~~included ~~million for~~ the ~~three months ended June 30, 2019;~~following:

• nooil, ~~capital~~natural ~~expenditures~~gas and NGL sales of approximately $7 million compared to $4151 million for the three months ended ~~June~~September 30, 2019; ~~and~~

• noaverage ~~wells~~daily ~~drilled~~production ~~compared~~of toapproximately 2235 ~~wells~~MMcfe/d ~~drilled~~compared ~~(all~~to ~~successful)~~242 MMcfe/d for the three months ended ~~June~~September 30, 2019.;

~~For~~• ~~the~~net ~~six~~loss ~~months~~of ~~ended~~approximately ~~June 30,~~$236 ~~2020,~~million ~~the~~compared ~~Company’s~~to ~~results~~$226 ~~included~~million for the ~~following:~~three months ended September 30, 2019;

• ~~oil,~~impairment ~~natural~~charges ~~gas and NGL sales~~ of approximately $26220 million compared to $~~143~~95 million for the ~~six~~three months ended ~~June~~September 30, 2019;

• ~~average~~capital ~~daily~~expenditures ~~production~~ of approximately 62$5 ~~MMcfe/d~~million compared to ~~275~~$39 ~~MMcfe/d~~million for the ~~six~~three months ended ~~June~~September 30, 2019; and

• ~~net~~no ~~loss~~wells ofdrilled ~~approximately $123 million~~ compared to ~~net~~14 ~~income~~wells ofdrilled $6(all ~~million~~successful) for the ~~six~~three months ended ~~June~~September 30, 2019;.

•For ~~noncash~~the ~~impairment~~nine ~~charges~~months ofended ~~approximately~~September 30, ~~$122~~2020, ~~million~~the ~~compared~~Company’s toresults ~~$18~~included ~~million for~~ the ~~six months ended June 30, 2019;~~following:

• ~~capital~~oil, ~~expenditures~~natural gas and NGL sales of approximately $1433 million compared to $~~102~~194 million for the ~~six~~nine months ended ~~June~~September 30, 2019; ~~and~~

• 11average ~~wells~~daily ~~drilled~~production ~~(all~~of ~~successful)~~approximately 53 MMcfe/d compared to 35264 ~~wells~~MMcfe/d ~~drilled (all successful)~~ for the ~~six~~nine months ended ~~June~~September 30, 2019.;

•

net loss of approximately $359 million compared to $220 million for the nine months ended September 30, 2019;

•

impairment charges of approximately $341 million compared to $113 million for the nine months ended September 30, 2019;

•

capital expenditures of approximately $19 million compared to $141 million for the nine months ended September 30, 2019; and

•

11 wells drilled (10 successful) compared to 49 wells drilled (all successful) for the nine months ended September 30, 2019.

Divestitures – 2020

On January 15, 2020, the Company completed the sale of its interest in non-operated properties located in the Drunkards Wash field in the Uinta Basin (the “Drunkards Wash Asset Sale”). Cash proceeds from the sale of these properties were approximately $4 million (including a deposit of approximately $450,000 received in 2019), and the Company recorded a net gain of approximately $1 million.

On January 31, 2020, the Company completed the sale of its interest in properties located in the Overton field in East Texas (the “Overton Assets Sale”). Cash proceeds from the sale of these properties were approximately $17 million (including a deposit of approximately $2 million received in 2019).

On February 14, 2020, the Company completed the sale of its interest in properties located in the Personville field in East Texas (the “Personville Assets Sale”). Cash proceeds from the sale of these properties were approximately $28 million (including a deposit of approximately $3 million received in 2019).

On February 28, 2020, the Company completed the sale of its office building located in Oklahoma City, Oklahoma. Cash proceeds from the sale were approximately $21 million.

On April 2, 2020, the Company completed the sale of its remaining interest in properties located in East Texas. Cash proceeds from the sale of these properties were approximately $392,000.

~~Divestitures – Subsequent Events~~32

On July 27, 2020, the Company signed a definitive agreement to sell its interest in properties located in North Louisiana for a contract price of approximately $27 million. The transaction is expected to close in the third quarter of 2020, subject to satisfactory completion of due diligence and the satisfaction of closing conditions. During the three months ended June 30, 2020, the Company recorded a noncash impairment charge of approximately $12 million to reduce the carrying value of these assets to fair value.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued

Divestitures – Subsequent Events

On October 1, 2020, the Company completed the sale of its interest in substantially all of its Mid-Continent properties located in Oklahoma (the “Mid-Continent Assets”). Cash proceeds from the sale of these properties were approximately $13 million (including a deposit of approximately $2 million received in the third quarter of 2020) and the Company expects to record a net gain of approximately $16 million in the fourth quarter of 2020. The Company recognized pre-tax income of approximately $3 million and pre-tax loss of $86 million for the three months and nine months ended September 30, 2020, respectively, and pre-tax income of approximately $2 million and $8 million for the three months and nine months ended September 30, 2019, respectively, from the Mid-Continent Assets.

On October 8, 2020, the Company completed the Blue Mountain Divestiture. Cash proceeds from the sale were approximately $114 million (including a deposit of approximately $11 million received in the third quarter of 2020). The Company repaid approximately $80 million, representing total borrowings under the Blue Mountain Midstream senior secured revolving loan facility (the “Blue Mountain Credit Facility”), with a portion of the proceeds. The Company recorded impairment charges of approximately $220 million and $237 million, primarily to reduce the carrying value of assets to fair value, in the three months and nine months ended September 30, 2020, respectively. The Company recognized pre-tax loss of approximately $218 million and $231 million for the three months and nine months ended September 30, 2020, respectively, and pre-tax loss of approximately $3 million and $6 million for the three months and nine months ended September 30, 2019, respectively, from Blue Mountain Midstream.

The Blue Mountain Divestiture and the Mid-Continent Assets are not presented as discontinued operations as of and for the period ended September 30, 2020, the associated activity represents substantially all of the Company’s results of operations and remaining net assets. Therefore, they do not meet the definition of a component of an entity because they are not clearly distinguishable from the rest of the entity.

Divestitures – 2019

On November 22, 2019, the Company completed the sale of its interest in properties located in the Hugoton Basin (the “Hugoton Basin Assets Sale”). Cash proceeds from the sale of these properties were approximately $286 million. In connection with the Hugoton Basin Assets Sale, the buyer also acquired the Company’s interest in Mayzure, LLC (“Mayzure”), a wholly owned subsidiary of the Company, which was the counterparty to the volumetric production payment agreements based on helium produced from certain oil and natural gas properties in the Hugoton Basin. The Company ~~recognized~~recorded ~~pre-tax~~a ~~loss~~noncash impairment charge of approximately $195 million ~~and~~to reduce the carrying value of these assets to fair value. The Company recognized pre-tax ~~income~~loss of approximately $998 million and $89 million for the three months and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, from the Hugoton Basin.

On January 17, 2019, the Company completed the sale of its interest in properties located in the Arkoma Basin in Oklahoma (the “Arkoma Assets Sale”). Cash proceeds from the sale of these properties were approximately $64 million (including a deposit of approximately $5 million received in 2018), and the Company recorded a net gain of approximately $28 million.33

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued

Impact of Decline in Commodity Prices

The Company and the oil and gas industry ~~has~~have been adversely impacted by ~~recent~~certain events, including the initial dramatic increase in output from OPEC+ in the first quarter of 2020 and the destruction of demand resulting from the unprecedented global health and economic crisis sparked by the COVID-19 global pandemic. In order to reduce expenses, in April 2020, the Board ~~of Directors of the Company~~ made the decision to consolidate the management of Blue Mountain Midstream within the Company’s existing executive management team~~. The~~ ~~Company~~and ~~plans to~~ further ~~reduce~~reduced expenses by integration of the operations of the two companies wherever practical. The Company incurred severance expenses of approximately $410 million and $515 million for the three months and ~~six~~nine months ended ~~June~~September 30, 2020, respectively, in connection with ~~these~~integration activities, divestitures and the Plan of Liquidation. The Company expects to incur expenses of approximately $2 million in the fourth quarter of 2020 for share-based compensation and severance termination benefits. See Note 3 for information about divestitures, Note 12 for information about share-based compensation and Note 18 for information about the Company’s Plan of Liquidation.

Impairment of Assets Held for Sale and Long-Lived Assets

During the ~~six~~three months and nine months ended ~~June~~September 30, 2020, the Company recorded ~~noncash~~ impairment charges of approximately $~~122~~220 million~~. Of~~ ~~this,~~and ~~approximately~~ $88341 million, ~~related~~respectively. The toimpairment ~~proved~~charges ~~and~~recorded ~~unproved~~in ~~oil~~the ~~and~~three ~~natural~~months ~~gas~~ended ~~properties~~September 30, ~~located~~2020, inwere ~~Oklahoma,~~primarily ~~approximately~~triggered ~~$12~~by ~~million~~the ~~related~~Company’s toexit ~~properties~~from tothe bemidstream ~~divested~~business, ~~located~~with inthe ~~North~~fair ~~Louisiana,~~value ~~and~~being ~~approximately~~predominantly $4driven ~~million~~by ~~related~~the tocontract ~~divested~~price ~~properties~~of ~~located~~the inBlue ~~East~~Mountain ~~Texas~~Divestiture. InThe ~~addition,~~impairment ~~approximately~~charges ~~$18~~recorded ~~million~~in ~~related~~the tofirst ~~Blue~~quarter ~~Mountain~~and ~~Midstream’s~~second ~~crude~~quarter ~~oil~~of ~~gathering~~2020 ~~system assets. The impairment charges~~ were primarily due to adeclines ~~decline~~ in commodity prices and adeclines ~~decline~~ in expected future volumes. See Note 1 for additional information about impairment.

2020 Oil and Natural Gas and Midstream Capital Budget

For 2020, the Company estimates its total capital expenditures, excluding acquisitions, will be approximately $2219 million, including approximately $32 million related to its oil and natural gas capital program and approximately $1917 million related to Blue Mountain Midstream. ~~This~~Future ~~estimate~~capital isexpenditures ~~under~~are ~~continuous~~expected ~~review~~to ~~and~~be ~~subject~~minimal due to ~~ongoing~~the ~~adjustments~~Company’s Plan of Liquidation.

Impact of COVID-19 Pandemic

Certain remote work arrangements implemented by the Company in response to the COVID-19 pandemic have not adversely affected its ability to maintain operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures. However, the COVID-19 pandemic iscontinues ~~still~~to ~~evolving~~evolve and identification of all trends, events and uncertainties, including a possible widespread resurgence in COVID-19 infections in the remainder of 2020 without the availability of generally effective therapeutics or a vaccine for the disease, that may impact the Company’s financial condition and results of operations are unknown at this time. Due to the adoption of the Plan of Liquidation, the Company’s results of operations for the three months and nine months ended September 30, 2020, are not indicative of its future results.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

events and uncertainties, including a possible widespread resurgence in COVID-19 infections in the second half of 2020 without the availability of generally effective therapeutics or a vaccine for the disease, that may impact the Company’s financial condition and results of operations are unknown at this time, therefore the Company’s results of operations for the three months and six months ended June 30, 2020, may not be indicative of its future results. If the pandemic and low commodity price environment continues, it may have a material adverse effect on the Company’s operating cash flows, liquidity, and future development plans.

Financing Activities

CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) that was enacted March 27, 2020, includes measures to assist companies. The Company has not received any funding under the CARES Act or other federal programs to support operations and does not anticipate that it will.

Riviera Credit Facility

As of September 30, 2020, Riviera’s credit agreement ~~provides~~provided for a senior secured reserve-based revolving loan facility (the “Riviera Credit Facility”) with a borrowing base and borrowing commitments of $307 million. During atthe ~~June 30,~~nine ~~2020. On~~months ~~June~~ended September 130, 2020, the Company ~~entered~~recorded ~~into~~ a ~~Fifth~~finance ~~Amendment~~fee ~~(the~~expense ~~“Amendment”)~~of toapproximately ~~the~~$468,000 ~~Riviera~~related ~~Credit Facility. Pursuant~~ to the ~~Amendment,~~write-off ~~the~~of ~~borrowing~~a ~~base~~portion ~~was~~of ~~reduced~~unamortized ~~from~~deferred ~~$90~~financing ~~million~~fees due to ~~$30~~a ~~million~~reduction ~~and~~of the ~~applicable~~Riviera ~~margin~~Credit ~~for~~Facility ~~interest~~borrowing ~~on borrowings was increased by 0~~base.~~25%.~~ AOn ~~reduction to the borrowing base~~October 27, ~~in whole or in part~~2020, ~~is expected should~~ the Company ~~close~~entered ~~the~~into ~~sale~~a ofSixth ~~its~~Amendment ~~interests~~(the in“Sixth ~~properties~~Amendment”) into ~~North~~the ~~Louisiana~~Riviera ~~and~~Credit ~~Oklahoma as currently anticipated~~Facility. ~~See~~Pursuant ~~Note 3. During~~to the ~~three~~Sixth ~~months and six months ended June 30~~Amendment, ~~2020,~~ the ~~Company~~borrowing ~~recorded~~base awas ~~finance~~reduced ~~fee~~to ~~expense of approximately~~ $~~468~~540,000, ~~related to~~ the ~~write-off~~lenders ofobligations ~~a portion of unamortized deferred financing fees due~~ to ~~the~~make ~~reduction~~any ofloans, ~~the Riviera Credit Facility borrowing base.~~

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued

were eliminated and the Company’s ability to make any borrowing requests was removed. In addition, the Company is required to maintain a cash deposit of at least $540,000 with a lender bank related to letter of credit commitments. The Company anticipates the Riviera Credit Facility will be terminated in the fourth quarter of 2020. See Note 6.

Blue Mountain Midstream Credit Facility

~~Blue~~As ~~Mountain~~of ~~Midstream’s~~September 30, ~~credit~~2020, ~~agreement provides for a senior secured revolving loan facility (~~the “Blue Mountain Credit Facility~~”),~~ ~~with~~had a borrowing base and borrowing commitments of $200 million ~~at June 30, 2020~~. The Blue Mountain Credit Facility together with the Riviera Credit Facility, are referred to as the “Credit Facilities”). On October 8, 2020, the Company repaid approximately $80 million, representing total borrowings under the Blue Mountain Credit Facility, with a portion of the net proceeds from the Blue Mountain Divestiture. Subsequently, the Blue Mountain Credit Facility was terminated effective October 8, 2020. See Note 6.

Share Repurchase Program

On July 18, 2019, the Board ~~of Directors of the Company~~ authorized the repurchase of up to $150 million of the Company’s outstanding shares of common stock. During the ~~six~~nine months ended ~~June~~September 30, 2020, the Company repurchased an aggregate of 282,742 shares of common stock at an average price of $7.31 per share for a total cost of approximately $2 million. AtFuture ~~July 31, 2020, approximately $22 million was available for~~ share repurchases ~~under the program. Any share repurchases~~ are ~~subject~~not toprovided ~~restrictions~~for inunder the ~~Riviera~~Company’s ~~Credit~~Plan ~~Facility~~of Liquidation.

Dividends

Cash Distributions

On March 9, 2020, the Board ~~of Directors of the Company~~ declared a cash distribution of $1.00 per share. A cash distribution totaling approximately $58 million was paid on April 22, 2020, to shareholders of record as of the close of business on April 8, 2020. On April 23, 2020, the Board ~~of Directors of the Company~~ declared a cash distribution of $0.75 per share. The distribution totaling approximately $43 million was paid on May 11, 2020, to shareholders of record as of the close of business on May 7, 2020. In addition, approximately $131 million and $11 million for potential future distributions related to nonvested share-based compensation awards was voluntarily recorded in restricted cash at ~~June~~September 30, 2020, and December 31, 2019, respectively. At June 30, 2020, and December 31, 2019, distributions payable, based on the vesting schedule of awards, of approximately $819,000 and $2 million, respectively, related to outstanding share-based compensation awards was also recorded. These amounts are included in “other accrued liabilities” and “asset retirement obligations and other noncurrent liabilities” on the condensed consolidated balance sheets.

Cash Distributions – Subsequent Event

Commodity Derivatives

During the ~~six~~three months ended ~~June~~September 30, 2020, the Company ~~entered~~unwound ~~into~~all ~~commodity derivative contracts consisting~~ of its natural gas fixed price swaps ~~for 2021. In addition~~, ~~the Company unwound certain of its~~ oil fixed price swaps, ~~associated~~and ~~with~~Panhandle ~~Blue~~Eastern ~~Mountain~~Pipeline ~~Midstream~~(“PEPL”) basis swaps for 2020 and ~~received~~2021, ~~proceeds~~for a cost of approximately $~~377~~356,000.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Field Level Cash Flow

To assess the performance of the Company’s reporting segments, the Company’s Chief Operating Decision Maker (“CODM”) analyzes field level cash flow, a non-generally accepted accounting principles financial metric. The Company defines field level cash flow as revenues less direct operating expenses. Other indirect income (expenses) include “general and administrative expenses,” “exploration costs,” “depreciation, depletion and amortization,” “(gains) on sale of assets and other, net,” “impairment of long-lived assets,” “other income and (expenses)” and “reorganization items, net.” Field level cash flow is disclosed herein to provide financial information about the Company’s reporting segments in alignment with the information reviewed by its CODM. Information regarding total assets by reporting segment is not presented because it is not reviewed by the CODM.

During the first quarter of 2020, the definition of field level cash flow analyzed by the Company’s CODM was revised to report within segment results, expenses previously reported as unallocated to ~~segments~~segment results. Information presented for the prior period has been recast to conform to current presentation.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued

Results of Operations

Three Months Ended ~~June~~September 30, 2020, Compared to Three Months Ended ~~June~~September 30, 2019

	Three Months Ended June 30,
	Three Months Ended September 30,
	2020			2019			Variance
	(in thousands)
Revenues and other:
Natural gas sales	$	53,~~439~~796		$	4633,~~604~~082		$	(4129,~~165~~286	)
Oil sales		42,~~210~~844			10,~~222~~575			(67,~~012~~731	)
NGL sales		~~1,285~~700			97,~~931~~372			(86,~~646~~672	)
Total oil, natural gas and NGL sales		107,~~934~~340			6651,~~757~~029			(5543,~~823~~689	)
Gains (losses) on commodity derivatives		(12,~~358~~948	)		205,~~249~~665			(218,~~607~~613	)
Marketing and other revenues		2129,~~873~~083			5851,~~544~~360			(3622,~~671~~277	)
		31,449			145,550			(114,101	)
		33,475			108,054			(74,579	)
Expenses:
Lease operating expenses		2,~~894~~367			2318,~~845~~307			(2015,~~951~~940	)
Transportation expenses		~~1,209~~818			1816,~~053~~275			(1615,~~844~~457	)
Marketing expenses		1620,~~828~~284			4137,~~811~~688			(2417,~~983~~404	)
General and administrative expenses (1)		1116,~~219~~871			1316,~~489~~954			(~~2,270~~83	)
Exploration costs		—413			~~969~~1,947			(~~969~~1,534	)
Depreciation, depletion and amortization		43,~~793~~915			2320,~~181~~060			(1816,~~388~~145	)
Impairment of assets held for sale and long-lived assets		14219,~~874~~606			1895,~~390~~080			(3124,~~516~~526	)
Taxes, other than income taxes		~~1,375~~846			25,~~599~~111			(14,~~224~~265	)
(Gains) losses on sale of assets and other, net		(23,~~491~~515	)		9(7,~~885~~587	)		~~(12~~11,~~376~~102	)
		50,701			152,222			(101,521	)
		268,635			203,835			64,800
Other income and (expenses)		(1,~~687~~009	)		(12,~~627~~924	)		~~(60~~1,915	)
Reorganization items, net		(~~273~~210	)		(~~424~~284	)		~~151~~74
Loss before income taxes		(21236,~~212~~379	)		(898,~~723~~989	)		(12137,~~489~~390	)
Income tax benefit		—			(2,047	)		2,047
Income tax expense		—			126,646			(126,646	)
Net loss	$	(21236,~~212~~379	)	$	(6225,~~676~~635	)	$	(1410,~~536~~744	)

(1) General and administrative expenses for the three months ended ~~June~~September 30, 2020, and ~~June~~September 30, 2019, include approximately $~~(323~~392,000) and $43 million, respectively, of share-based compensation expenses. In addition, general and administrative expenses for the three months ended September 30, 2020, and September 30, 2019, include approximately $10 million and $2 million, respectively, of severance costs.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued

	Three Months Ended June 30,
	Three Months Ended September 30,
	2020		2019		Variance
Average daily production:
Natural gas (MMcf/d)		3726		~~236~~194		(8487	%)
Oil (MBbls/d)		10.38		12.91		(3262	%)
NGL (MBbls/d)		10.18		6.40		(8387	%)
Total (MMcfe/d)		5235		~~286~~242		(8286	%)
Weighted average prices: (1)
Natural gas (Mcf)	$	1.6059	$	21.1786		(2615	%)
Oil (Bbl)	$	3439.5349	$	5855.1113		(4128	%)
NGL (Bbl)	$	129.3643	$	1713.1540		(2830	%)
Average NYMEX prices:
Natural gas (MMBtu)	$	1.7298	$	2.6423		(3511	%)
Oil (Bbl)	$	2740.8593	$	5955.8145		(5326	%)
Costs per Mcfe of production:
Lease operating expenses	$	0.6173	$	0.9282		(3411	%)
Transportation expenses	$	0.25	$	0.6973		(6466	%)
General and administrative expenses (2)	$	25.3517	$	0.5276		~~352~~580	%
Depreciation, depletion and amortization	$	1.0120	$	0.8990		1333	%
Taxes, other than income taxes	$	0.2926	$	0.1023		~~190~~13	%

⁽¹⁾	Does not include the effect of gains (losses) on derivatives.

(2) General and administrative expenses for the three months ended ~~June~~September 30, 2020, and ~~June~~September 30, 2019, include approximately $~~(323~~392,000) and $43 million, respectively, of share-based compensation expenses. In addition, general and administrative expenses for the three months ended September 30, 2020, and September 30, 2019, include approximately $10 million and $2 million, respectively, of severance costs.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued

Upstream Reporting Segment

	Three Months Ended June 30,
	Three Months Ended September 30,
	2020		2019		Variance
	(in thousands)
Oil, natural gas and NGL sales	$	107,~~934~~340	$	6651,~~757~~029	$	(5543,~~823~~689	)
Marketing and other revenues		~~851~~142		1516,~~900~~627		(1516,~~049~~485	)
		11,785		82,657		(70,872	)
		7,482		67,656		(60,174	)
Lease operating expenses		2,~~894~~367		2318,~~845~~307		(2015,~~951~~940	)
Transportation expenses		~~1,209~~818		1816,~~053~~275		(1615,~~844~~457	)
Marketing expenses		106		7,~~836~~948		(7,~~826~~942	)
Taxes, other than income taxes		~~1,097~~421		14,~~891~~468		(~~794~~4,047	)
Total direct operating expenses		53,~~210~~612		5146,~~625~~998		(4643,~~415~~386	)
Field level cash flow (1)	$	63,~~575~~870	$	3120,~~032~~658	$	(2416,~~457~~788	)

(1) Refer to Note 17 for a reconciliation of field level cash flow to (loss) ~~income~~ before income taxes.

Oil, Natural Gas and NGL Sales

Oil, natural gas and NGL sales decreased by approximately $5644 million or 8486% to approximately $117 million for the three months ended ~~June~~September 30, 2020, from approximately $6751 million for the three months ended ~~June~~September 30, 2019, primarily due to lower natural gas and NGL volumes as a result of divestitures completed in 2019 and 2020 and lower commodity prices. Lower natural gas and oil prices resulted in a decrease in revenues of approximately $21 million and $31 million, respectively.

Average daily production volumes decreased to approximately 5235 MMcfe/d for the three months ended ~~June~~September 30, 2020, from ~~286~~242 MMcfe/d for the three months ended ~~June~~September 30, 2019. Lower natural gas, NGL and oil production volumes resulted in a decrease in revenues of approximately $4029 million, $86 million and $37 million, respectively.

The following table sets forth average daily production by region:

	Three Months Ended June 30,
	Three Months Ended September 30,
	2020		2019		Variance
Average daily production (MMcfe/d):
Hugoton Basin		—		~~114~~106		(~~114~~106	)	(100	%)
Mid-Continent		3624		4042		(418	)	(1043	%)
East Texas		—		4340		(4340	)	(100	%)
North Louisiana		1611		4335		(2724	)	(6369	%)
Uinta Basin		—		1817		(1817	)	(100	%)
Michigan/Illinois		—		282		(282	)	(100	%)
		52		286		(234	)	(82	%)
		35		242		(207	)	(86	%)

~~Production volumes in the Mid-Continent were consistent with the comparable period of the prior year.~~ The decrease in average daily production in ~~North~~the ~~Louisiana~~Mid-Continent operating region primarily reflects a reduction in production due to reduced development drilling and natural decline of 2019 drilling programs. The decrease in average daily production in North Louisiana primarily reflects those same characteristics, coupled with plant downtime, and the Company’s divestiture of ~~non-core~~interests ~~assets~~in properties in ~~2019. The~~this ~~Company~~region ~~completed~~during the ~~divestiture~~third quarter of ~~all~~2020. The ofdecrease ~~its~~in ~~properties~~average ~~located~~daily production volumes in the ~~East~~Uinta ~~Texas~~Basin and ~~Uinta~~East ~~Basin~~Texas operating regions inprimarily reflect lower production volumes as a result of divestitures completed during 2020. In addition, the Company completed the divestiture of all of its interests in properties located in the Hugoton Basin and Michigan/Illinois operating regions induring 2019. See Note 3 for additional information about divestitures.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued

Marketing and Other Revenues

	Three Months Ended June 30,
	Three Months Ended September 30,
	2020		2019		Variance
	(in thousands)
Jayhawk plant and helium	$	—1	$	14,~~141~~751	$	(14,~~141~~750	)
Other		~~851~~141		1,~~759~~876		(~~908~~1,735	)
	$	~~851~~142	$	1516,~~900~~627	$	(1516,~~049~~485	)

Marketing and other revenues decreased by approximately $1517 million or 9599% to approximately $1142,000 ~~million~~ for the three months ended ~~June~~September 30, 2020, from approximately $1617 million for the three months ended ~~June~~September 30, 2019. The decrease was primarily due to the Hugoton Basin Assets Sale, which included sale of the Jayhawk plant. Other primarily includes revenues from other midstream systems in the East Texas and North Louisiana operating regions~~. The~~, ~~Company~~which ~~completed~~were ~~the~~divested ~~divestiture of all of its properties located~~ in ~~the East Texas region in~~ 2020.

Lease Operating Expenses

Lease operating expenses include expenses such as labor, field office, vehicle, supervision, maintenance, tools and supplies, and workover expenses. Lease operating expenses decreased by approximately $2116 million or 8887% to approximately $32 million for the three months ended ~~June~~September 30, 2020, from approximately $2418 million for the three months ended ~~June~~September 30, 2019. The decrease was primarily due to divestitures completed in 2019 and 2020 and lower service costs. Lease operating expenses per Mcfe decreased to $0.6173 per Mcfe for the three months ended ~~June~~September 30, 2020, from $0.9282 per Mcfe for the three months ended ~~June~~September 30, 2019, primarily driven by changes in the Company’s asset base as a result of divestitures.

Transportation Expenses

Transportation expenses decreased by approximately $1715 million or 9395% to approximately $1 million for the three months ended ~~June~~September 30, 2020, from approximately $1816 million for the three months ended ~~June~~September 30, 2019. The decrease was primarily due to divestitures completed in 2019 and 2020. Transportation expenses per Mcfe decreased to $0.25 per Mcfe for the three months ended ~~June~~September 30, 2020, from $0.6973 per Mcfe for the three months ended ~~June~~September 30, 2019, primarily driven by changes in the Company’s asset base as a result of divestitures.

Marketing Expenses

	Three Months Ended June 30,
	Three Months Ended September 30,
	2020		2019		Variance
	(in thousands)
Jayhawk plant	$	—	$	7,~~171~~255	$	(7,~~171~~255	)
Other		106		~~665~~693		(~~655~~687	)
	$	106	$	7,~~836~~948	$	(7,~~826~~942	)

Marketing expenses represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing expenses decreased by approximately $8 million or 100% to approximately $106,000 for the three months ended ~~June~~September 30, 2020, from approximately $8 million for the three months ended ~~June~~September 30, 2019. The decrease was primarily due to the Hugoton Basin Assets Sale, which included sale of the Jayhawk plant.

~~Taxes, Other Than Income Taxes~~39

	Three Months Ended June 30,
	2020		2019			Variance
	(in thousands)
Severance taxes	$	827	$	2,484		$	(1,657	)
Ad valorem taxes		66		3,662			(3,596	)
Other taxes		204		(4,255	)		4,459
	$	1,097	$	1,891		$	(794	)

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued

~~Severance taxes~~Taxes, which are a function of revenues generated from production, decreased primarily due to lower production volumes due to divestitures completed in 2019 and 2020. Ad valorem taxes, which are based on the value of reserves and production equipment and vary by location, decreased primarily due to divestitures completed in 2019 and 2020. Other ~~taxes~~Than ~~include~~Income ~~a sales tax refund of approximately $4 million during the three months ended June 30, 2019.~~Taxes

	Three Months Ended September 30,
	2020		2019		Variance
	(in thousands)

Severance taxes	$	335	$	1,475	$	(1,140	)
Ad valorem taxes		40		2,938		(2,898	)
Other taxes		46		55		(9	)
	$	421	$	4,468	$	(4,047	)

Severance taxes, which are a function of revenues generated from production, decreased primarily due to lower production volumes due to divestitures completed in 2019 and 2020. Ad valorem taxes, which are based on the value of reserves and production equipment and vary by location, decreased primarily due to divestitures completed in 2019 and 2020.

Field Level Cash Flow

Field level cash flow decreased by approximately $2417 million or 7981% to approximately $74 million for the three months ended ~~June~~September 30, 2020, from approximately $3121 million for the three months ended ~~June~~September 30, 2019. The decrease was primarily due to divestitures completed in 2019 and 2020 and lower commodity prices.

Blue Mountain Reporting Segment

Three Months Ended June 30,

Three Months Ended September 30,

2020

2019

Variance

(in thousands)

Marketing revenues

2128,~~022~~941

4234,~~644~~733

(215,~~622~~792

)

Marketing expenses

1620,~~818~~278

3329,~~975~~740

(179,~~157~~462

)

Taxes, other than income taxes

~~278~~425

~~708~~643

(~~430~~218

)

Total direct operating expenses

1720,~~096~~703

3430,~~683~~383

(179,~~587~~680

)

Field level cash flow (1)

38,~~926~~238

74,~~961~~350

(43,~~035~~888

)

(1) Refer to Note 17 for a reconciliation of field level cash flow to (loss) ~~income~~ before income taxes.

Marketing Revenues

Marketing revenues decreased by approximately $226 million or 5117% to approximately $2129 million for the three months ended ~~June~~September 30, 2020, from approximately $4335 million for the three months ended ~~June~~September 30, 2019. The decrease was primarily due to lower commodity prices, ~~lower volumes, production curtailments~~ and ~~contract~~lower ~~disputes during 2020~~volumes. Average daily throughput volumes decreased to approximately 97105 MMcf/d for the three months ended ~~June~~September 30, 2020, from ~~120~~114 MMcf/d for the three months ended ~~June~~September 30, 2019.

Marketing Expenses

Marketing expenses decreased by approximately $1710 million or 5032% to approximately $1720 million for the three months ended ~~June~~September 30, 2020, from approximately $3430 million for the three months ended ~~June~~September 30, 2019. The decrease was primarily due to lower commodity prices ~~during~~and ~~2020. The~~lower ~~decrease was partially offset by higher marketing expenses due to discounts on gathering fees offered to producers in the second quarter of 2020~~volumes.

Field Level Cash Flow

Field level cash flow ~~decreased~~increased by approximately $4 million or 5189% to approximately $48 million for the three months ended ~~June~~September 30, 2020, from approximately $84 million for the three months ended ~~June~~September 30, 2019, primarily due to lower ~~revenues~~expenses.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued

Indirect Income and Expenses

Gains (Losses) on Commodity Derivatives

Losses on commodity derivatives were approximately $13 million for the three months ended ~~June~~September 30, 2020, compared to gains of approximately $206 million for the three months ended ~~June~~September 30, 2019. Gains and losses on commodity derivatives were primarily due to changes in fair value of the derivative contracts. The fair value on unsettled derivative contracts changes as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increase compared to the contract prices on the derivatives, losses are recognized; and if the expected future commodity prices decrease compared to the contract prices on the derivatives, gains are recognized. During the three months ended September 30, 2020, the Company unwound all of its natural gas fixed price swaps, oil fixed price swaps, and Panhandle Eastern Pipeline basis swaps for 2020 and 2021, for a cost of approximately $356,000. As of September 30, 2020, the Company had no derivative positions.

The Company determines the fair value of its commodity derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. See Item 3. “Quantitative and Qualitative Disclosures About Market Risk” and

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Note 7 and Note 8 for additional details about the Company’s commodity derivatives. For information about the Company’s credit risk related to derivative contracts, see “Counterparty Credit Risk” under “Liquidity and Capital Resources” below.

General and Administrative Expenses

General and administrative expenses are costs not directly associated with field operations and reflect the costs of employees including executive officers, related benefits, office leases and professional fees. General and administrative expenses ~~decreased~~were by approximately $~~2 million or~~ 17% ~~to approximately $11~~ million for both the three months ended ~~June~~September 30, 2020, ~~from~~and ~~approximately $13 million for the three months ended June~~September 30, 2019. ~~The~~Increased ~~decrease~~severance ~~was~~expenses ~~primarily~~were ~~due~~offset toprimarily by lower share-based compensation expenses and lower salaries and benefits related expenses resulting from lower headcount. ~~Share-based~~Severance ~~compensation~~ expenses were ~~a negative expense of~~ approximately $~~323,000~~10 million for the three months ended ~~June~~September 30, 2020, ~~based~~compared onto $2 million for the ~~fair~~three ~~value~~months ofended ~~outstanding~~September 30, ~~awards~~2019. General and administrative expenses per Mcfe increased to $25.3517 per Mcfe for the three months ended ~~June~~September 30, 2020, from $0.5276 per Mcfe for the three months ended ~~June~~September 30, 2019, due to lower production volumes associated with divestitures and increased severance expenses. ~~Severance expenses were approximately $4 million for the three months ended June 30, 2020, compared to none for the three months ended June 30, 2019.~~

Exploration Costs

NoExploration ~~exploration~~ costs were ~~incurred~~approximately ~~during~~$413,000 for the three months ended ~~June~~September 30, 2020~~. Exploration~~, ~~costs~~compared ~~were~~to ~~approximately~~ $12 million for the three months ended ~~June~~September 30, 2019.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization decreased by approximately $1816 million or 7980% to approximately $54 million for the three months ended ~~June~~September 30, 2020, from approximately $2320 million for the three months ended ~~June~~September 30, 2019. Depreciation, depletion and amortization per Mcfe increased to $1.0120 per Mcfe for the three months ended ~~June~~September 30, 2020, from $0.8990 per Mcfe for the three months ended ~~June~~September 30, 2019.

Impairment of Assets Held for Sale and Long-Lived Assets

During the three months ended ~~June~~ September 30, 2020, the Company recorded ~~noncash~~ impairment charges of approximately $15220 million~~. Of this~~, ~~approximately~~primarily ~~$12 million related~~ to ~~oil~~reduce ~~and~~the ~~natural~~carrying ~~gas~~value ~~properties~~of toBlue beMountain ~~divested~~Midstream’s ~~located~~assets ~~in North Louisiana and approximately $2 million related~~ to ~~divested~~fair ~~properties located in East Texas~~value. InThe ~~addition,~~impairment ~~approximately~~charges $1were ~~million~~primarily ~~related~~triggered toby ~~Blue~~the ~~Mountain Midstream~~Company’s ~~crude~~exit ~~oil~~from ~~gathering~~the ~~system~~midstream ~~assets. The~~business, ~~impairment~~with ~~charges~~the ~~were~~fair ~~primarily~~value ~~due~~being topredominantly adriven ~~decline~~by inthe ~~commodity~~contract ~~prices~~price ~~and~~of athe ~~decline~~Blue inMountain ~~expected future volumes~~Divestiture. During the three months ended ~~June~~September 30, 2019, the Company recorded a noncash impairment charge of approximately $1895 million ~~associated~~related ~~with~~to ~~Michigan~~divested ~~proved~~ oil and natural gas properties ~~held~~located ~~for~~in ~~sale~~the atHugoton ~~June 30, 2019~~Basin. The impairment charge was primarily due to a decline in commodity prices. See Note 1 for additional information about impairment and Note 3 for information about divestitures.

(Gains) Losses on Sale of Assets and Other, Net

During the three months ended ~~June~~September 30, 2020, the Company recorded a net ~~gain~~loss of approximately $24 million, ~~primarily~~including ~~related~~bad todebt ~~divestitures,~~expense ~~partially~~of ~~offset~~approximately by$2 million, a net loss of approximately $1 million on ~~disposal~~the sale of ~~furniture~~North Louisiana Assets and ~~equipment~~net losses from other divestitures. During the three months ended ~~June~~September 30, 2019, the Company recorded a net ~~loss~~gain of approximately $108 million, primarily related to ~~a net loss of approximately $9 million on the sale of its interest in non-operated properties located in the Hugoton Basin~~divestitures. See Note 3 for information about divestitures.

~~Other Income and (Expenses)~~41

	Three Months Ended June 30,
	2020			2019			Variance
	(in thousands)
Interest expense, net of amounts capitalized	$	(739	)	$	(2,103	)	$	1,364
Other, net		(948	)		476			(1,424	)
	$	(1,687	)	$	(1,627	)	$	(60	)

Interest expense decreased primarily due to lower outstanding debt during the three months ended June 30, 2020, compared to the same period of the prior year. For the three months ended June 30, 2020, “other, net” is primarily related to the write-off of a portion of unamortized deferred financing fees of approximately $468,000 and commitment fees for the undrawn

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued

~~portion~~Other ofIncome ~~the Credit Facilities. For the three months ended June 30, 2019, “other, net” is primarily related to interest~~ and ~~rental income, partially offset by commitment fees for the undrawn portion of the Credit Facilities. See “Debt” under “Liquidity and Capital Resources” below for additional details.~~(Expenses)

	Three Months Ended September 30,
	2020			2019			Variance
	(in thousands)

Interest expense, net of amounts capitalized	$	(700	)	$	(2,329	)	$	1,629
Other, net		(309	)		(595	)		286
	$	(1,009	)	$	(2,924	)	$	1,915

Interest expense decreased primarily due to lower outstanding debt during the three months ended September 30, 2020, compared to the same period of the prior year. For the three months ended September 30, 2020, “other, net” is primarily related to commitment fees for the undrawn portion of the Credit Facilities. For the three months ended September 30, 2019, “other, net” is primarily related to write off of a portion of unamortized deferred financing fees of approximately $700,000 and commitment fees for the undrawn portion of the Credit Facilities, partially offset by interest and rental income. See “Debt” under “Liquidity and Capital Resources” below for additional details.

Reorganization Items, Net

Reorganization items represent costs directly associated with Chapter 11 proceedings since the petition date. During the three months ended ~~June~~September 30, 2020, and ~~June~~September 30, 2019, reorganization items were approximately $~~273~~210,000 and $~~424~~284,000, respectively, primarily related to legal and other professional fees.

Income Tax ~~Benefit~~Expense

The Company recognized no income tax expense for the three months ended ~~June~~September 30, 2020, because of a full valuation allowance recorded in the third quarter of 2019, compared to an income tax ~~benefit~~expense of approximately $2127 million for the three months ended ~~June~~September 30, 2019. During the third quarter of 2019, and for the first time since Riviera’s inception, the Company’s earnings were a cumulative loss, primarily due to losses generated during 2019. Based on the cumulative loss and projections of future taxable loss for the periods in which deferred tax assets are deductible, the Company recorded a full valuation allowance against all of its deferred tax assets.

Net Loss

A net loss of approximately $21236 million was incurred for the three months ended ~~June~~September 30, 2020, compared to approximately $7226 million for the three months ended ~~June~~September 30, 2019. See discussion above for explanations of variances.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued

Results of Operations

~~Six~~Nine Months Ended ~~June~~September 30, 2020, Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2019

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2020			2019			Variance
	(in thousands)
Revenues and other:
Natural gas sales	$	1418,~~899~~695		$	~~103~~136,~~741~~823		$	(88118,~~842~~128	)
Oil sales		811,~~580~~424			1526,~~950~~525			(715,~~370~~101	)
NGL sales		2,~~253~~953			2330,~~411~~783			(2127,~~158~~830	)
Total oil, natural gas and NGL sales		2533,~~732~~072			~~143~~194,~~102~~131			(~~117~~161,~~370~~059	)
Gains on commodity derivatives		63,~~721~~773			712,~~008~~673			(~~287~~8,900	)
Marketing and other revenues		5584,~~826~~909			~~131~~183,~~894~~254			(7698,~~068~~345	)
		88,279			282,004			(193,725	)
		121,754			390,058			(268,304	)
Expenses:
Lease operating expenses		710,~~845~~212			4766,~~897~~204			(4055,~~052~~992	)
Transportation expenses		34,~~383~~201			3753,~~203~~478			(3349,~~820~~277	)
Marketing expenses		3858,~~147~~431			95132,~~200~~888			(5774,~~053~~457	)
General and administrative expenses (1)		2137,~~123~~994			3249,~~480~~434			(11,~~357~~440	)
Exploration costs		—413			24,~~207~~154			(23,~~207~~741	)
Depreciation, depletion and amortization		1519,~~112~~027			4465,~~953~~013			(2945,~~841~~986	)
Impairment of assets held for sale and long-lived assets		~~121~~341,~~658~~264			18113,~~390~~470			~~103~~227,~~268~~794
Taxes, other than income taxes		23,~~590~~436			814,~~899~~010			(610,~~309~~574	)
(Gains) losses on sale of assets and other, net		(21,~~031~~484	)		(1724,~~380~~967	)		1526,~~349~~451
		207,827			269,849			(62,022	)
		476,462			473,684			2,778
Other income and (expenses)		(23,~~676~~685	)		(36,~~187~~111	)		~~511~~2,426
Reorganization items, net		(~~494~~704	)		(~~472~~756	)		~~(22~~52	)
(Loss) income before income taxes		(122,718	)		8,496			(131,214	)
Loss before income taxes		(359,097	)		(90,493	)		(268,604	)
Income tax expense		—			2129,~~446~~092			(2129,~~446~~092	)
Net (loss) income	$	(122,718	)	$	6,050		$	(128,768	)
Net loss	$	(359,097	)	$	(219,585	)	$	(139,512	)

(1) General and administrative expenses for the ~~six~~nine months ended ~~June~~September 30, 2020, and ~~June~~September 30, 2019, include approximately $(3) million and $1013 million, respectively, of share-based compensation expenses. In addition, general and administrative expenses for the nine months ended September 30, 2020, and September 30, 2019, include approximately $15 million and $2 million, respectively, of severance costs.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2020		2019		Variance
Average daily production:
Natural gas (MMcf/d)		4941		~~226~~215		(7881	%)
Oil (MBbls/d)		1.21		1.67		(2535	%)
NGL (MBbls/d)		1.0		6.74		(8584	%)
Total (MMcfe/d)		6253		~~275~~264		(7780	%)
Weighted average prices: (1)
Natural gas (Mcf)	$	1.6866	$	2.5433		(3429	%)
Oil (Bbl)	$	39.4244	$	5655.2580		(3029	%)
NGL (Bbl)	$	11.9625	$	1917.4455		(3836	%)
Average NYMEX prices:
Natural gas (MMBtu)	$	1.8388	$	2.8967		(3730	%)
Oil (Bbl)	$	3738.0132	$	5756.3672		(3532	%)
Costs per Mcfe of production:
Lease operating expenses	$	0.6970	$	0.9692		(2824	%)
Transportation expenses	$	0.3029	$	0.7574		(6061	%)
General and administrative expenses (2)	$	12.8761	$	0.6569		~~188~~278	%
Depreciation, depletion and amortization	$	1.3431	$	0.90		4946	%
Taxes, other than income taxes	$	0.2324	$	0.1819		2826	%

⁽¹⁾	Does not include the effect of gains (losses) on derivatives.

(2) General and administrative expenses for the ~~six~~nine months ended ~~June~~September 30, 2020, and ~~June~~September 30, 2019, include approximately $(3) million and $1013 million, respectively, of share-based compensation expenses. In addition, general and administrative expenses for the nine months ended September 30, 2020, and September 30, 2019, include approximately $15 million and $2 million, respectively, of severance costs.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued

Upstream Reporting Segment

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2020		2019		Variance
	(in thousands)
Oil, natural gas and NGL sales	$	2533,~~732~~072	$	~~143~~194,~~102~~131	$	(~~117~~161,~~370~~059	)
Marketing and other revenues		2,~~738~~880		4663,~~922~~549		(4460,~~184~~669	)
		28,470		190,024		(161,554	)
		35,952		257,680		(221,728	)
Lease operating expenses		710,~~845~~212		4766,~~897~~204		(4055,~~052~~992	)
Transportation expenses		34,~~383~~201		3753,~~203~~478		(3349,~~820~~277	)
Marketing expenses		6470		2735,~~620~~568		(2735,~~556~~498	)
Taxes, other than income taxes		12,~~721~~142		711,~~516~~984		(59,~~795~~842	)
Total direct operating expenses		1316,~~013~~625		~~120~~167,~~236~~234		(~~107~~150,~~223~~609	)
Field level cash flow (1)	$	1519,~~457~~327	$	6990,~~788~~446	$	(5471,~~331~~119	)

(1) Refer to Note 17 for a reconciliation of field level cash flow to ~~income (~~loss) before income taxes.

Oil, Natural Gas and NGL Sales

Oil, natural gas and NGL sales decreased by approximately $~~117~~161 million or 8283% to approximately $2633 million for the ~~six~~nine months ended ~~June~~September 30, 2020, from approximately $~~143~~194 million for the ~~six~~nine months ended ~~June~~September 30, 2019, primarily due to lower production volumes as a result of divestitures completed in 2019 and 2020 and lower commodity prices. Lower natural gas, NGL and oil prices resulted in a decrease in revenues of approximately $7 million, $12 million and $45 million, respectively.

Average daily production volumes decreased to approximately 6253 MMcfe/d for the ~~six~~nine months ended ~~June~~September 30, 2020, from ~~275~~264 MMcfe/d for the ~~six~~nine months ended ~~June~~September 30, 2019. Lower natural gas, NGL and oil production volumes resulted in a decrease in revenues of approximately $81111 million, $2026 million and $410 million, respectively.

The following table sets forth average daily production by region:

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2020		2019		Variance
Average daily production (MMcfe/d):
Hugoton Basin		—		~~119~~114		(~~119~~114	)	(100	%)
Mid-Continent		3330		3638		(38	)	(821	%)
East Texas		86		4443		(3637	)	(8286	%)
North Louisiana		1916		3132		(1216	)	(3950	%)
Uinta Basin		21		1718		(1517	)	(8894	%)
Michigan/Illinois		—		2819		(2819	)	(100	%)
		62		275		(213	)	(77	%)
		53		264		(211	)	(80	%)

Production volumes in the Mid-Continent were consistent with the comparable period of the prior year. The decrease in average daily production in North Louisiana primarily reflects a reduction in production due to reduced development drilling and natural decline of 2019 drilling programs, plant downtime, and the Company’s divestiture of ~~non-core~~interests ~~assets~~in properties in this region during 2020 and 2019. The decreases in average daily production volumes in the Uinta Basin and East Texas operating regions primarily reflect lower production volumes as a result of divestitures completed induring 2020. In addition, the Company completed the divestiture of all of its interests in properties located in the Hugoton Basin and Michigan/Illinois operating regions induring 2019. See Note 3 for additional information about divestitures.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued

Marketing and Other Revenues

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2020		2019		Variance
	(in thousands)
Jayhawk plant and helium	$	1617	$	4358,~~310~~061	$	(4358,~~294~~044	)
Other		2,~~722~~863		35,~~612~~488		(~~890~~2,625	)
	$	2,~~738~~880	$	4663,~~922~~549	$	(4460,~~184~~669	)

Marketing and other revenues decreased by approximately $4461 million or 9495% to approximately $3 million for the ~~six~~nine months ended ~~June~~September 30, 2020, from approximately $4764 million for the ~~six~~nine months ended ~~June~~September 30, 2019. The decrease was primarily due to the Hugoton Basin Assets Sale, which included sale of the Jayhawk plant. Other primarily includes revenues from other midstream systems in the East Texas and North Louisiana operating regions, which were divested in 2020.

Lease Operating Expenses

Lease operating expenses include expenses such as labor, field office, vehicle, supervision, maintenance, tools and supplies, and workover expenses. Lease operating expenses decreased by approximately $4056 million or 8485% to approximately $810 million for the ~~six~~nine months ended ~~June~~September 30, 2020, from approximately $4866 million for the ~~six~~nine months ended ~~June~~September 30, 2019. The decrease was primarily due to divestitures completed in 2019 and 2020 and lower service costs. Lease operating expenses per Mcfe decreased to $0.6970 per Mcfe for the ~~six~~nine months ended ~~June~~September 30, 2020, from $0.9692 per Mcfe for the ~~six~~nine months ended ~~June~~September 30, 2019.

Transportation Expenses

Transportation expenses decreased by approximately $3449 million or 9192% to approximately $34 million for the ~~six~~nine months ended ~~June~~September 30, 2020, from approximately $3753 million for the ~~six~~nine months ended ~~June~~September 30, 2019. Transportation expenses per Mcfe decreased to $0.3029 per Mcfe for the ~~six~~nine months ended ~~June~~September 30, 2020, from $0.7574 per Mcfe for the

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