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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2016

OR

o         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: 001-35512

MIDSTATES PETROLEUM COMPANY, INC.

(Exact name of registrant as specified in its charter)

(918) 947-8550

(Registrant’s telephone number, including area code)

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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 o No x

The number of shares outstanding of our common stock at May 9, 2016 is shown below:

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MIDSTATES PETROLEUM COMPANY, INC.

QUARTERLY REPORT ON

FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2016

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GLOSSARY OF OIL AND NATURAL GAS TERMS

Bbl:  One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in reference to oil, condensate or natural gas liquids.

Boe:  Barrels of oil equivalent, with 6,000 cubic feet of natural gas being equivalent to one barrel of oil.

Boe/day:  Barrels of oil equivalent per day.

Completion:  The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.

Dry hole:  A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production do not exceed production expenses and taxes.

Exploratory well:  A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of natural gas or oil in another reservoir.

Mcf: One thousand cubic feet of natural gas.

MMBoe:  One million barrels of oil equivalent.

MMBtu:  One million British thermal units.

Net acres:  The percentage of total acres an owner has out of a particular number of acres, or a specified tract. An owner who has 50% interest in 100 acres owns 50 net acres.

NYMEX:  The New York Mercantile Exchange.

Proved reserves:  Those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. The area of the reservoir considered as proved includes (i) the area identified by drilling and limited by fluid contacts, if any, and (ii) adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data. In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons, as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty. Where direct observation from well penetrations has defined a highest known oil elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty. Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when (i) successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (ii) the project has been approved for development by all necessary parties and entities, including governmental entities. Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price is the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

Reasonable certainty:  A high degree of confidence.

Recompletion:  The process of re-entering an existing wellbore that is either producing or not producing and completing new reservoirs in an attempt to establish or increase existing production.

Reserves:  Estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible as of a given date by application of development projects to known accumulations.

Reservoir:  A porous and permeable underground formation containing a natural accumulation of producible natural gas and/or oil that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

Spud or Spudding:  The commencement of drilling operations of a new well.

Wellbore:  The hole drilled by the bit that is equipped for oil or gas production on a completed well. Also called well or borehole.

Working interest:  The right granted to the lessee of a property to explore for and to produce and own oil, gas, or other minerals. The working interest owners bear the exploration, development, and operating costs on a cash, penalty, or carried basis.

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PART I - FINANCIAL INFORMATION

MIDSTATES PETROLEUM COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts)

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

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MIDSTATES PETROLEUM COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

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

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MIDSTATES PETROLEUM COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIT)

(Unaudited)

(In thousands)

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

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MIDSTATES PETROLEUM COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

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

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MIDSTATES PETROLEUM COMPANY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization and Business

Midstates Petroleum Company, Inc. (“Midstates”), through its wholly owned subsidiary Midstates Petroleum Company LLC, engages in the business of exploring, drilling for, and the production of, oil, natural gas liquids (“NGLs”) and natural gas.  Midstates Petroleum Company, Inc. was incorporated pursuant to the laws of the State of Delaware on October 25, 2011 to become a holding company for Midstates Petroleum Company LLC (“Midstates Sub”), which was previously a wholly owned subsidiary of Midstates Petroleum Holdings LLC (“Holdings LLC”).  The terms “Company,” “we,” “us,” “our,” and similar terms when used in the present tense, prospectively or for historical periods since April 25, 2012, refer to Midstates Petroleum Company, Inc. and Midstates Sub, unless the context indicates otherwise.

The Company conducts oil and gas operations and owns and operates oil and gas properties in Oklahoma, Texas and Louisiana.  The Company operates a significant portion of its oil and natural gas properties and is engaged in the exploration, development and production of oil, NGLs and natural gas.  The Company’s management evaluates performance based on one reportable segment as all its operations are located in the United States and, therefore, it maintains one cost center.

2. Chapter 11 Proceedings, Liquidity and Ability to Continue as a Going Concern

Voluntary Reorganization Under Chapter 11

On April 30, 2016, Midstates and Midstates Sub (collectively, the “Debtors”), filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”).  The Debtors’ Chapter 11 cases (the “Chapter 11 Cases”) are being jointly administered under the case styled In re Midstates Petroleum Company, Inc., et al, No. 16-32237.  The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.  The Company will account for the bankruptcy in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, “Reorganizations”, beginning with the quarterly period ended June 30, 2016.

By certain “first day” motions filed in the Chapter 11 Cases, the Company obtained Bankruptcy Court approval to, among other things and subject to the terms of the orders entered by the Bankruptcy Court, pay employee wages, health benefits and certain other employee obligations, pay certain lienholders or prospective lienholders and forward funds to third parties, including royalty holders and other working interest owners.  As a result, the Company is not only able to conduct normal business activities and pay all associated obligations for the period following its bankruptcy filing, it is also authorized to pay and has paid pre-petition employee wages and benefits, pre-petition amounts owed to certain lienholders or prospective lienholders and funds belonging to third parties.  During the pendency of the Chapter 11 Cases, all transactions outside the ordinary course of business require the prior approval of the Bankruptcy Court.

On April 30, 2016,  and prior to filing the Bankruptcy Petitions, the Debtors entered into a Plan Support Agreement (the “Plan Support Agreement”) with the following parties:

·                  Approximately 80.0% of the lenders (collectively, the “Consenting Credit Facility Lenders”) under the Debtors’ secured revolving first lien credit facility (the “Credit Facility”);

·                  Approximately 74.0% of the holders (collectively, the “Consenting Second Lien Noteholders”) of the Debtors’ 10.0% Second Lien Senior Secured Notes Due 2020 (the “Second Lien Notes”); and

·                  Approximately 77.0% of the holders (collectively, the “Consenting Third Lien Noteholders”, and together with the Consenting Credit Facility Lenders and Consenting Second Lien Noteholders, the “Plan Support Agreement Parties”) of the Debtors’ 12.0% Third Lien Notes due 2020 (the “Third Lien Notes”).

The restructuring transactions contemplated by the Plan Support Agreement will be effectuated through a joint prearranged plan of reorganization (as may be amended, restated, supplemented, or otherwise modified from time to time, the “Plan”) in accordance with the Plan Support Agreement.

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The key terms of the restructuring, as contemplated in the Plan Support Agreement, are as follows:

·                  Substantial Deleveraging of the Balance Sheet:  The Plan Support Agreement contemplates (i) the permanent pay-down of $82.0 million of the Company’s Credit Facility, which will be replaced with a $170.0 million exit facility (the “Exit Facility”) upon emergence, (ii) the pay-down of up to $60.0 million of the Company’s Second Lien Notes in cash, and (iii) the conversion into equity of all of the Company’s remaining debt that is junior to the Credit Facility.

·                  Intercreditor Settlement: Equity distributions among the noteholder classes will be made in accordance with an intercreditor settlement among the Plan Support Agreement Parties (the “Settlement”), which provides for a valuation allocation with respect to the Company’s assets that are encumbered or unencumbered as of the Petition Date, such that the equity of the reorganized Company will be allocated 98.8% on account of prepetition collateral and 1.2% on account of unencumbered assets.

·                  Credit Facility Claims: Holders of allowed claims under the Credit Facility (the “Credit Facility Claims”) will receive their pro rata share of approximately $82.0 million in cash and the Credit Facility will be replaced by the Exit Facility.

·                  Second Lien Notes Claims: Holders of allowed claims under the Second Lien Notes (the “Second Lien Notes Claims”) will receive their pro rata share of (a) 96.3% of the equity of the reorganized Company (subject to increase to 98.8% if the Third Lien Intercreditor Settlement (as defined below) is not approved as part of the Plan) and (b) cash payments equal to the amount of cash the Company holds at emergence, less cash distributions and reserves to be funded under the Plan (including the cash payment to, and a $40.0 million cash collateral account for the benefit of, the Consenting Credit Facility Lenders) and $70.0 million, subject to a maximum cash distribution to Consenting Second Lien Noteholders of $60.0 million.

·                  Third Lien Notes Claims: Holders of allowed claims under the Third Lien Notes (the “Third Lien Notes Claims”) will receive their pro rata share of 2.5% of the equity in the reorganized Company and warrants to acquire 15% of such equity (the “Third Lien Intercreditor Settlement”).  These warrants will carry a strike price based on an equity valuation for the Company of $600.0 million and will expire 42 months after the Company emerges from the Chapter 11 Cases.

·                  Unsecured Claims: Holders (the “Unsecured Noteholders”) of allowed claims under the Debtors’ 10.75% Senior Unsecured Notes due 2020 (the “2020 Notes Claims”), the holders of allowed claims under the 9.25% Senior Unsecured Notes due 2021 (the “2021 Notes Claims,” and together with the 2020 Notes Claims, the “Unsecured Notes Claims”), and the Holders of other unsecured claims will receive their pro rata share of 1.2% of the equity in the reorganized Company (the “Unencumbered Assets Equity Distribution”).

·                  Existing Equity: All existing equity interests of the Company will be extinguished, and existing equity holders would not receive consideration in respect of their equity interests.

·                  Exit Facility: The Exit Facility will have an initial borrowing base of $170.0 million with no borrowing base redeterminations to occur until April 2018 (provided certain conditions are met) and semiannual borrowing base redeterminations thereafter.  The Exit Facility will mature on the earlier of September 30, 2020, or 4 years from the Plan effective date, with interest payable at LIBOR plus 4.50% per annum, subject to a 1.00% LIBOR floor.  The Exit Facility will be secured by first priority mortgages on at least 95.0% of the proved oil and gas reserves and all other oil and gas properties included in the most recently delivered reserve report, pledges of capital stock, a first priority security interest in the cash, cash equivalents, deposit, securities and other similar accounts, and a first-priority perfected security interest in substantially all other tangible and intangible assets (including but not limited to as-extracted collateral, accounts receivable, inventory, equipment, general intangibles, investment property, intellectual property, real property and the proceeds of the foregoing).  The Exit Facility is subject to a variety of other terms and conditions including conditions precedent to funding, financial covenants, and various other covenants and representations and warranties.

·                  Management Incentive Plan: The Plan will provide for the establishment of a management equity incentive plan (the “MIP”) under which 10% of the equity in the reorganized Company (on a fully-diluted/fully-distributed basis) will be reserved for grants made from time to time to the directors, officers, and other members of management of the reorganized Company.  The remainder of compensation will be negotiated in connection with the Plan.

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·                  Releases: The Plan shall provide for release, exculpation, and injunction provisions, including customary carve-outs, to the fullest extent permitted by applicable law and consistent with the terms of the Plan Support Agreement.

·                  Corporate Governance: The corporate governance documents of the reorganized Company shall be subject to the consent of the Consenting Second Lien Noteholders.  If the settlement is approved, the initial board of directors of the reorganized Company shall be appointed by the parties to the Plan Support Agreement who hold, in the aggregate, at least 50.1% in principal amount outstanding of the Second Lien Notes held by all parties to the Plan Support Agreement.

Subject to certain exceptions, under the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the date of the Bankruptcy Petitions.  Accordingly, although the filing of the Bankruptcy Petitions triggered defaults on the Debtors’ debt obligations, creditors are stayed from taking any actions against the Debtors as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code.  Absent an order of the Bankruptcy Court, substantially all of the Debtors’ prepetition liabilities are subject to discharge under the Bankruptcy Code.

Under the priority requirements established by the Bankruptcy Code, unless creditors agree otherwise, pre-petition liabilities to creditors and post-petition liabilities must be satisfied in full before the holders of the Company’s existing common stock are entitled to receive any distribution or retain any property under a plan of reorganization.  The ultimate recovery to creditors and/or stockholders, if any, will not be determined until confirmation and implementation of the Plan or an alternative transaction.  While the Company is seeking to implement the Plan on the terms summarized above, the outcome of the Chapter 11 Cases remains uncertain at this time and, as a result, the Company cannot accurately estimate the amounts or value of distributions that creditors and stockholders may receive. The Plan Support Agreement provides that stockholders will receive no distribution on account of their interests.

For the duration of the Company’s Chapter 11 proceedings, the Company’s operations and ability to develop and execute its business plan are subject to the risks and uncertainties associated with the Chapter 11 process.  As a result of these risks and uncertainties, the number of the Company’s outstanding shares and shareholders, assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 Cases, and the description of the Company’s operations, properties and capital plans included herein may not accurately reflect its operations, properties and capital plans following the Chapter 11 process.

In particular, subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, assign, or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions.  Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors of performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach.  Counterparties to such rejected contracts or leases may assert unsecured claims in the Bankruptcy Court against the applicable Debtors’ estate for such damages.  Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance.  Accordingly, any description of an executory contract or unexpired lease with the Debtors in the interim financial statements, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease with the Debtors is qualified by any overriding rejection rights the Company has under the Bankruptcy Code.  Further, nothing herein is or shall be deemed (i) an admission with respect to any claim amounts or calculations arising from the rejection of any executory contract or unexpired lease and the Debtors expressly preserve all of their rights with respect thereto, (ii) a waiver of any rights, claims, actions or defenses that the Company may have in respect of any given executory contract or unexpired leases or (iii) an affirmation by the Company to assume any given executory contract or unexpired lease.

There can be no assurances regarding the Company’s ability to successfully develop, confirm and consummate the Plan as contemplated by the Plan Support Agreement or any other plans of reorganization or other alternative restructuring transactions.

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Liquidity and Ability to Continue as a Going Concern

The Company’s filing of the Bankruptcy Petitions described above accelerated the Company’s obligations under the Credit Facility, the Second Lien Notes, the Third Lien Notes, the 10.75% Senior Unsecured Notes due 2020 (the “2020 Senior Notes”) and the 9.25% Senior Unsecured Notes due 2021 (the “2021 Senior Notes” together with the 2020 Senior Notes, the Second Lien Notes and the Third Lien Notes, the “Senior Notes”).  The Company classified all debt as current at December 31, 2015 due to the receipt of a going concern explanatory paragraph from the Company’s predecessor independent registered public accounting firm on the Company’s consolidated financial statements for the year ended December 31, 2015 creating an event of default under the Credit Facility that, together with a projected additional debt covenant violation, and a resulting lack of liquidity, raised substantial doubt about its ability to continue as a going concern.  All debt of the Company continued to be classified as current at March 31, 2016.  If the Company cannot continue as a going concern, adjustments to the carrying values and classification of its assets and liabilities and the reported income and expenses could be required and could be material.

In February 2016, the Company borrowed approximately $249.2 million under the Credit Facility, which represented the remaining undrawn amount that was available under the Credit Facility.  As of March 31, 2016, the total outstanding principal amount of the Company’s debt obligations was approximately $2.1 billion, consisting of approximately $249.2 million of borrowings under the Credit Facility (excluding outstanding letters of credit), $293.6 million of 2020 Senior Notes, $347.7 million of 2021 Senior Notes, $625.0 million of Second Lien Notes and $529.7 million of Third Lien Notes.  In addition, as of March 31, 2016, the Company had approximately $2.8 million of outstanding letters of credit under the Credit Facility.  On April 1, 2016, the Company elected to utilize the 30 day grace period provided under the indenture to the 2020 Senior Notes with respect to an interest payment of approximately $15.8 million due on that date.

Additionally, on April 1, 2016, the Company received a notice of the result of a scheduled borrowing base redetermination from the administrative agent and the lenders under the Credit Facility that reduced its borrowing base to $170.0 million.  As of April 1, 2016, the Company had approximately $252.0 million in aggregate outstanding borrowings and letter of credit obligations under the Credit Facility, resulting in a borrowing base deficiency of approximately $82.0 million.  Under the terms of the Credit Facility, the Company was required to cure the borrowing base deficiency within 30 days after receipt of such notice.

The Company’s filing on April 30, 2016 of the Bankruptcy Petitions described herein constitutes an event of default that accelerated the Company’s obligations under the Credit Facility and the Senior Notes.  Additionally, other events of default, including cross-defaults, are present, including the failure to make the April 1, 2016 interest payment on the 2020 Senior Notes within the 30 day grace period, the failure to cure the borrowing base deficiency within the prescribed period and the receipt of a going concern explanatory paragraph from the Company’s predecessor independent registered public accounting firm on the Company’s  consolidated financial statements for the year ended December 31, 2015.  As discussed above, subject to certain limited exceptions, the filing of the Company’s Bankruptcy Petitions automatically enjoined or stayed the Company’s creditors from taking any actions against the Company as a result of such defaults.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business.  The condensed consolidated financial statements do not reflect any adjustments that might result from the outcome of the uncertainties as discussed above.

3. Summary of Significant Accounting Policies

Basis of Presentation

These interim financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain disclosures have been condensed or omitted from these financial statements.  Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements, and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 30, 2016.

All intercompany transactions have been eliminated in consolidation.  In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary to fairly present the financial position as of, and the results of operations for, all periods presented.  In preparing the accompanying condensed consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the condensed consolidated financial statements and disclosures of contingencies.  Actual results may differ from those estimates.  The results for interim periods are not necessarily indicative of annual results.

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Recently Issued Standards Not Yet Adopted

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”).  ASU 2014-09 provides guidance concerning the recognition and measurement of revenue from contracts with customers.  The objective of ASU 2014-09 is to increase the usefulness of information in the financial statements regarding the nature, timing and uncertainty of revenues.  ASU 2014-09 requires an entity to (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation.  ASU 2014-09 will be effective for the Company beginning on January 1, 2018, including interim periods within that reporting period, considering the one year deferral provided by ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.”  The standard permits the use of either the retrospective or cumulative effect transition method and early adoption is permitted.  The Company has not selected a transition method and is evaluating the impact this standard will have on its condensed consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”).   ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  The new standard is effective for the Company beginning on January 1, 2019, including interim periods within those fiscal years.  A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, “Compensation — Stock Compensation (Topic 718)” (“ASU 2016-09”).  ASU 2016-09 simplifies how certain aspects of share-based payments to employees are recorded.  ASU 2016-09 requires that entities recognize the income tax effects of awards in the income statement when the awards vest or are settled, provides guidance on the classification of certain aspects of share-based payments on the statement of cash flows, changes the threshold for awards to qualify for equity classification, and allows an entity to make an accounting policy election to account for forfeitures when they occur.  The new standard is effective for the Company beginning on January 1, 2017.  The Company does not believe the adoption of ASU 2015-09 will have a material impact on its financial position, results of operations or cash flows.

4. Risk Management and Derivative Instruments

Revenue realized by the Company from the sale of its production is exposed to fluctuations in the prices for crude oil, NGLs and natural gas.  The Company has historically utilized various types of derivative financial instruments, including swaps and collars, to reduce fluctuations in cash flows resulting from changes in commodity prices.  These derivative contracts are placed with major financial institutions that the Company believes are minimal credit risks.  The oil, NGLs and natural gas reference prices, upon which the commodity derivative contracts are based, reflect various market indices that management believes have a high degree of historical correlation with actual prices received by the Company for its oil, NGLs and natural gas production.  Although the Company has entered into derivative financial instruments in the past,  the Company currently has no derivatives in place.

Inherent in commodity derivative contracts are certain business risks, including market risk and credit risk.  Market risk is the risk that the price of the commodity will change, either favorably or unfavorably, in response to changing market conditions.  Credit risk is the risk of loss from nonperformance by the Company’s counterparty to a contract.  The Company does not require collateral from its counterparties but does attempt to minimize its credit risk associated with derivative instruments by entering into derivative instruments only with counterparties that are large financial institutions, which management believes present minimal credit risk.  In addition, to mitigate its risk of loss due to default, the Company has historically entered into agreements with its counterparties on its derivative instruments that allow the Company to offset its asset position with its liability position in the event of default by the counterparty.

Commodity Derivative Contracts

As of March 31, 2016 and December 31, 2015, the Company did not have any open commodity derivative contract positions.

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Gains on Commodity Derivative Contracts

Historically, the Company has not designated its commodity derivative contracts as hedging instruments for financial reporting purposes. Accordingly, commodity derivative contracts are marked-to-market each quarter with the change in fair value during the periodic reporting period recognized currently as a gain or loss in “Gains (losses) on commodity derivative contracts - net” within revenues in the unaudited condensed consolidated statements of operations.

The following table presents net cash received  for commodity derivative  contracts and unrealized net losses  recorded by the Company related to the change in the fair value of the derivative instruments in “Gains on commodity derivative contracts — net” for the periods presented:

5. Property and Equipment

Oil and Gas Properties

The Company capitalizes internal costs directly related to exploration and development activities to oil and gas properties. During the three months ended March 31, 2016 and 2015, the Company capitalized the following amounts (in thousands):

(1)         Inclusive of $0.2 million and $0.5 million of qualifying share-based compensation expense for the three months ended March 31, 2016 and 2015, respectively.

The Company accounts for its oil and gas properties under the full cost method.  Under the full cost method, proceeds realized from the sale or disposition of oil and gas properties are accounted for as a reduction to capitalized costs unless a significant portion of the Company’s reserve quantities are sold such that it results in a significant alteration of the relationship between capitalized costs and remaining proved reserves, in which case a gain or loss is generally recognized in income.

The Company performs a full-cost ceiling test on a quarterly basis.  The test establishes a limit (ceiling) on the book value of the Company’s oil and gas properties.  The capitalized costs of oil and gas properties, net of accumulated depreciation, depletion and amortization (DD&A) and the related deferred income taxes, may not exceed this “ceiling.”  The ceiling limitation is equal to the sum of: (i) the present value of estimated future net revenues from the projected production of proved oil and gas reserves, excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet, calculated using the average oil and natural gas sales price received by the Company as of the first trading day of each month over the preceding twelve months (such prices are held constant throughout the life of the properties) and a discount factor of 10%; (ii) the cost of unproved and unevaluated properties excluded from the costs being amortized; (iii) the lower of cost or estimated fair value of unproved properties included in the costs being amortized; and (iv) related income tax effects.  If capitalized costs exceed this ceiling, the excess is charged to expense in the accompanying consolidated statements of operations.

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For the three months ended March 31, 2016 and 2015, capitalized costs exceeded the ceiling and the Company recorded an impairment of oil and gas properties of $127.7 million and $174.7 million, respectively.  These impairments were primarily the result of continued low commodity prices, which resulted in a reduction of the discounted present value of the Company’s proved oil and natural gas reserves.

Depreciation, depletion and amortization is calculated using the units-of-production method (“UOP”).  The UOP calculation multiplies the percentage of estimated proved reserves produced by the cost of these reserves.  The result is to recognize the expense at the same pace that the reservoirs are estimated to be depleting.  The amortization base in the UOP calculation includes the sum of proved property costs net of accumulated depreciation, depletion, amortization  and impairment, estimated future development costs (future costs to access and develop proved reserves) and asset retirement costs that are not already included in oil and gas property, less related salvage value.  The following table presents depletion expense related to oil and gas properties for the three months ended March 31, 2016 and 2015, respectively:

Oil and gas unevaluated properties and properties under development include costs that are not being depleted or amortized. These costs represent investments in unproved properties.  The Company excludes these costs until proved reserves are found, until it is determined that the costs are impaired or until major development projects are placed in service, at which time the costs are moved into oil and natural gas properties subject to amortization.  All unproved property costs are reviewed at least quarterly to determine if impairment has occurred.  During 2015, the Company transferred the remaining unevaluated property balance of $56.6 million to the full cost pool as a result of current pricing, its anticipated future drilling plans and uncertainty regarding its ability to finance its future exploration activities.  As such, the Company had no balances related to unevaluated properties at either March 31, 2016 or December 31, 2015.

Other Property and Equipment

Other property and equipment consists of vehicles, furniture and fixtures, and computer hardware and software and are carried at cost.  Depreciation is calculated principally using the straight-line method over the estimated useful lives of the assets, which range from five to seven years.  Maintenance and repairs are charged to expenses as incurred, while renewals and betterments are capitalized.

6. Other Noncurrent Assets

At March 31, 2016 and December 31, 2015 other noncurrent assets consisted of the following:

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7. Accrued Liabilities

At March 31, 2016 and December 31, 2015 accrued liabilities consisted of the following:

8. Asset Retirement Obligations

Asset Retirement Obligations (“AROs”) represent the estimated future abandonment costs of tangible assets, such as wells, service assets and other facilities. The fair value of the ARO at inception is capitalized as part of the carrying amount of the related long-lived assets.

The following table reflects the changes in the Company’s AROs for the periods indicated:

9. Debt

The Company’s total debt, including debt classified as current, as of March 31, 2016 and December 31, 2015 is as follows:

The Company’s filing of the Bankruptcy Petitions described in Note 2 herein constitutes an event of default that accelerated the Company’s obligations under the Credit Facility and the Senior Notes.  Additionally, other events of default, including cross-defaults, are present, including the failure to make the April 1, 2016 interest payment on the 2020 Senior Notes within the 30 day grace period, the failure to cure the borrowing base deficiency within the prescribed period and the receipt of a going concern explanatory paragraph from the Company’s predecessor independent registered public accounting firm on the Company’s 2015 consolidated financial statements for the year ended December 31, 2015.  As a result of the filing of the Bankruptcy Petitions, subject to certain limited exceptions, the lenders under the Credit Facility and the holders of the Senior Notes are stayed from taking any actions against the Company as a result of these defaults.

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Reserve-based Credit Facility

The Company maintains a $750.0 million Credit Facility which had a borrowing base of $252.0 at March 31, 2016.  In February 2016, the Company borrowed approximately $249.2 million under the Credit Facility, which represented the remaining undrawn availability under the Credit Facility.

The borrowing base under the Credit Facility is subject to semiannual redeterminations in April and October and up to one additional time per six month period following each scheduled borrowing base redetermination, as may be requested by the Company or the administrative agent acting on behalf of lenders under the Credit Facility holding at least two-thirds of the outstanding loans and other obligations.

On April 1, 2016, the Company received a notice of the result of a scheduled borrowing base redetermination (the “Notice”) from the administrative agent (the “Administrative Agent”) and the lenders (the “Lenders”) under the Credit Facility that reduced its borrowing base to $170.0 million (the “Conforming Borrowing Base”).  As of April 1, 2016, the Company had approximately $252.0 million in aggregate outstanding borrowings (the “Effective Amount”) under the Credit Facility, resulting in a borrowing base deficiency of approximately $82.0 million based on the Conforming Borrowing Base set forth in the Notice.  Under the Credit Facility, the Company is required to cure the borrowing base deficiency within 30 days after receipt of the Notice.

The Credit Facility matures on May 31, 2018 and borrowings thereunder are secured by substantially all of the Company’s oil and natural gas properties and bear interest at LIBOR plus an applicable margin, depending upon the Company’s borrowing base utilization, between 2.00% and 3.00% per annum.  The effective interest rate was 4.1% and 3.0% for the quarters ended March 31, 2016 and March 31, 2015, respectively.

In addition to interest expense, the Credit Facility requires the payment of a commitment fee each quarter. The commitment fee is computed at the rate of either 0.375% or 0.500% per annum based on the average daily amount by which the borrowing base exceeds the outstanding borrowings during each quarter.

2020 Senior Notes

On October 1, 2012, the Company issued $600.0 million in aggregate principal amount of 2020 Senior Notes, conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). In October 2013, these notes were exchanged for an equal principal amount of identical registered notes.  In May 2015 and June 2015, a total of $306.4 million aggregate principal amount of 2020 Senior Notes were exchanged for Third Lien Notes.  As a result, $293.6 million of 2020 Senior Notes remain outstanding at March 31, 2016.

The estimated fair value of the 2020 Senior Notes as of March 31, 2016 was $11.7 million (Level 2 in the fair value measurement hierarchy), based on quoted market prices for these same debt securities. The effective interest rate was 10.75% and 11.1%, respectively, for the quarters ended March 31, 2016 and 2015.

On April 1, 2016, the Company elected to forego payment with respect to an approximately $15.8 million interest payment due on the 2020 Notes, which after the expiration of the 30 day grace period resulted in an event of default.

The Company’s filing of the Bankruptcy Petitions described in Note 2 herein constitutes an event of default that accelerated the Company’s obligations under the 2020 Senior Notes.  However, subject to certain limited exceptions, the filing of the Company’s Bankruptcy Petitions automatically enjoined or stayed the Company’s creditors from taking any actions against the Company as a result of such defaults.

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2021 Senior Notes

On May 31, 2013, the Company issued $700.0 million in aggregate principal amount of 2021 Senior Notes. In October 2013, these notes were exchanged for an equal principal amount of identical registered notes.  In May and June 2015, a total of $352.3 million aggregate principal amount of 2021 Senior Notes were exchanged for Third Lien Notes.  As a result, $347.7 million of 2021 Senior Notes remain outstanding at March 31, 2016.

The estimated fair value as of March 31, 2016 of the 2021 Senior Notes was $13.9 million (Level 2 in the fair value measurement hierarchy), based on quoted market prices for these same debt securities. The effective interest rate was 9.25% and 9.6%, respectively, for the quarters ended March 31, 2016 and 2015.

The Company’s filing of the Bankruptcy Petitions described in Note 2 herein constitutes an event of default that accelerated the Company’s obligations under the 2021 Senior Notes.  However, subject to certain limited exceptions, the filing of the Company’s Bankruptcy Petitions automatically enjoined or stayed the Company’s creditors from taking any actions against the Company as a result of such defaults.

Second Lien Notes

On May 21, 2015, the Company and Midstates Sub issued and sold $625.0 million aggregate principal amount of Second Lien Notes, in a private placement conducted pursuant to Rule 144A under the Securities Act. In November 2015, these notes were exchanged for an equal principal amount of identical registered notes.

The estimated fair value of the Second Lien Notes was $232.8 million as of March 31, 2016 (Level 2 in the fair value measurement hierarchy), based on quoted market prices for these same debt securities. The effective interest rate was 10.0% for the quarter ended March 31, 2016.

The Company’s filing of the Bankruptcy Petitions described in Note 2 herein constitutes an event of default that accelerated the Company’s obligations under the Second Lien Notes.  However, subject to certain limited exceptions, the filing of the Company’s Bankruptcy Petitions automatically enjoined or stayed the Company’s creditors from taking any actions against the Company as a result of such defaults.

Third Lien Notes

On May 21, 2015 and June 2, 2015, the Company issued approximately $504.1 million and $20.0 million, respectively, in aggregate principal amount of Third Lien Notes in a private placement and in exchange for an aggregate $306.4 million of the 2020 Senior Notes and $352.3 million of the 2021 Senior Notes. In November 2015, these notes were exchanged for an equal principal amount of identical registered notes.

The estimated fair value of the Third Lien Notes was $37.1 million as of March 31, 2016 (Level 2 in the fair value measurement hierarchy), based on quoted market prices for these same debt securities. The effective interest rate was 12.0% for the quarter ended March 31, 2016.

The Company’s filing of the Bankruptcy Petitions described in Note 2 herein constitutes an event of default that accelerated the Company’s obligations under the Third Lien Notes.  However, subject to certain limited exceptions, the filing of the Company’s Bankruptcy Petitions automatically enjoined or stayed the Company’s creditors from taking any actions against the Company as a result of such defaults.

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10. Equity and Share-Based Compensation

The Company has a significant amount of indebtedness that is senior to its existing common stock in its capital structure.  As a result, the Company believes that it is highly likely that its existing common shares, including shares of its restricted stock, will be cancelled in its Chapter 11 proceedings and entitled to no recovery.  Additionally, significant restrictions have been put in place on trading of the Company’s common stock.

Common Shares

Share Activity

The following table summarizes changes in the number of outstanding shares during the three months ended March 31, 2016:

The Company’s 2012 Long Term Incentive Unit Plan (the “2012 LTIP”) allows for the recipients of restricted stock to surrender a portion of their shares upon vesting to satisfy Federal Income Tax (“FIT”) withholding requirements. The Company then remits to the IRS the cash equivalent of the FIT withholding liability. Shares surrendered to the Company in this fashion have been treated as treasury shares acquired at a cost equivalent to the related tax liability. These shares are available for future issuance by the Company.

Share-based Compensation

2012 Long Term Incentive Plan

The 2012 LTIP provides for the granting of Options (Incentive and other), Restricted Stock Awards, Restricted Stock Units, Stock Appreciation Rights, Dividend Equivalents, Bonus Stock, Other Stock Based Awards, Annual Incentive Awards, Performance Awards, or any combination of the foregoing (the “Awards”). Subject to certain limitations as defined in the 2012 LTIP, the terms of each Award are as determined by the Compensation Committee of the Board of Directors. As of March 31, 2016, a total of 863,843 common share Awards are authorized for issuance and shares of stock subject to an Award that expire, or are canceled, forfeited, exchanged, settled in cash or otherwise terminated, will again be available for future Awards under the 2012 LTIP.

Non-vested Stock Awards

At March 31, 2016, the Company had 126,812 non-vested shares of restricted common stock to directors, management and employees outstanding pursuant to the 2012 LTIP. Shares granted under the LTIP generally vest ratably over a period of three years (one-third on each anniversary of the grant); however, beginning in 2013, any shares granted under the 2012 LTIP to directors are subject to one-year cliff vesting.

The fair value of restricted stock grants is based on the value of the Company’s common stock on the date of grant. Compensation expense is recognized ratably over the requisite service period.

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The following table summarizes the Company’s non-vested share award activity for the three months ended March 31, 2016:

Unrecognized expense, adjusted for estimated forfeitures, as of March 31, 2016 for all outstanding restricted stock awards, was $2.1 million and will be recognized over a weighted average period of 1.4 years.

At March 31, 2016, 248,539 shares remain available for issuance under the terms of the 2012 LTIP.

11. Income Taxes

For the three months ended March 31, 2016, we recorded no income tax expense or benefit.  The significant difference between our effective tax rate and federal statutory income tax rate of 35% is primarily due to the effect of changes in the valuation allowance.  During the three months ended March 31, 2016, the Company recorded $60.8 million in additional valuation allowance in light of the impairment of oil and gas properties and the settlement of certain hedging contracts that existed at December 31, 2015, bringing the total valuation allowance to $755.9 million at March 31, 2016.

A valuation allowance has been recorded as management does not believe that it is more-likely-than-not that its deferred tax assets are realizable except to the extent of future taxable income primarily related to the excess of book carrying value of properties over their respective tax bases. No other sources of future taxable income are considered in this judgment.

The Company expects to incur a tax loss in the current year due to the flexibility in deducting or capitalizing current year intangible drilling costs; thus no current income taxes are anticipated to be paid.

12. Net Loss Per Share

Prior to conversion on September 30, 2015, the Company’s Series A Preferred Stock had the nonforfeitable right to participate on an as converted basis at the conversion rate then in effect in any common stock dividends declared and as such, was considered a participating security. The Company’s nonvested stock awards, which are granted as part of the 2012 LTIP, contain nonforfeitable rights to dividends and as such, are considered to be participating securities and, together with the Series A Preferred Stock, are included in the computation of basic and diluted earnings per share, pursuant to the two class method. In the calculation of basic earnings per share attributable to common shareholders, participating securities are allocated earnings based on actual dividend distributions received plus a proportionate share of undistributed net income attributable to common shareholders, if any, after recognizing distributed earnings. The Company’s participating securities do not participate in undistributed net losses because they are not contractually obligated to do so.

The computation of diluted earnings per share attributable to common shareholders reflects the potential dilution that could occur if securities or other contracts to issue common shares that are dilutive were exercised or converted into common shares (or resulted in the issuance of common shares) and would then share in the earnings of the Company. During the periods in which the Company records a loss from continuing operations attributable to common shareholders, securities would not be dilutive to net loss per share and conversion into common shares is assumed to not occur. Diluted net earnings/(loss) per share attributable to common shareholders is calculated under both the two-class method and the treasury stock method; the more dilutive of the two calculations is presented below.

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The following table (in thousands, except per share amounts) provides a reconciliation of net loss to preferred shareholders, common shareholders, and non-vested restricted shareholders for purposes of computing net loss per share for the three months ended March 31, 2016 and 2015, respectively:

The aggregate number of common shares outstanding at March 31, 2016 was 10,773,468 of which 126,812 were non-vested restricted shares.

13. Commitments and Contingencies

Litigation

The Company is involved in various matters incidental to its operations and business that might give rise to a loss contingency.  These matters may include legal and regulatory proceedings, commercial disputes, claims from royalty, working interest and surface owners, property damage and personal injury claims and environmental authorities or other matters. In addition, the Company may be subject to customary audits by governmental authorities regarding the payment and reporting of various taxes, governmental royalties and fees as well as compliance with unclaimed property (escheatment) requirements and other laws.   Further, other parties with an interest in wells operated by the Company have the ability under various contractual agreements to perform audits of its joint interest billing practices.

The Company vigorously defends itself in these matters.  If the Company determines that an unfavorable outcome or loss of a particular matter is probable and the amount of the loss can be reasonably estimated, it accrues a liability for the contingent obligation.  As new information becomes available or as a result of legal or administrative rulings in similar matters or a change in applicable law, the Company’s conclusions regarding the probability of outcomes and the amount of estimated loss, if any, may change. The impact of subsequent changes to the Company’s accruals could have a material effect on its results of operations.  As of March 31, 2016 and December 31, 2015, the Company’s accrual for all loss contingencies was $1.1 million.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2015, and the related management’s discussion and analysis contained in our annual report on Form 10-K dated and filed with the Securities and Exchange Commission (“SEC”) on March 30, 2016, as well as the unaudited condensed consolidated financial statements and notes thereto included in this quarterly report on Form 10-Q.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in or incorporated by reference into this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, and the plans, beliefs, expectations, intentions and objectives of management are forward-looking statements. When used in this quarterly report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” and similar expressions are intended to identify forward looking statements, although not all forward looking statements contain such identifying words. All forward-looking statements speak only as of the date of this quarterly report. You should not place undue reliance on these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including changes in oil and natural gas prices, the timing of planned capital expenditures, availability of acquisitions, uncertainties in estimating proved reserves and forecasting production results, operational factors affecting the commencement or maintenance of producing wells, the condition of the capital markets generally, as well as our ability to access them, and  uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting our business, as well as those factors discussed below and elsewhere in this report and in the Annual Report on Form 10-K.  Moreover, we operate in a very competitive and rapidly changing environment. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this quarterly report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Forward-looking statements may include statements about our:

·                  business strategy;

·                  estimated future net reserves and present value thereof;

·                  technology;

·                  financial condition, revenues, cash flows and expenses;

·                  levels of indebtedness, liquidity and compliance with debt covenants;

·                  financial strategy, budget, projections and operating results;

·                  oil and natural gas realized prices;

·                  timing and amount of future production of oil and natural gas;

·                  availability of drilling and production equipment;

·                  availability of oilfield labor;

·                  availability of third party natural gas gathering and processing capacity;

·                  the amount, nature and timing of capital expenditures, including future development costs;

·                  availability and terms of capital;

·                  drilling of wells, including our identified drilling locations;

·                  successful results from our identified drilling locations;

·                  marketing of oil and natural gas;

·                  the integration and benefits of asset and property acquisitions or the effects of asset and property acquisitions or dispositions on our cash position and levels of indebtedness;

·                  infrastructure for salt water disposal and electricity;

·                  current and future ability to dispose of salt water;

·                  sources of electricity utilized in operations and the related infrastructures;

·                  costs of developing our properties and conducting other operations;

·                  general economic conditions;

·                  effectiveness of our risk management activities;

·                  environmental liabilities;

·                  counterparty credit risk;

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·                  the outcome of pending and future litigation;

·                  governmental regulation and taxation of the oil and natural gas industry;

·                  developments in oil producing and natural gas producing countries;

·                  uncertainty regarding our future operating results;

·                  plans, objectives, expectations and intentions contained in this quarterly report that are not historical;

·                  inability to maintain relationship with suppliers, customers, employees and other third parties as a result of our Chapter 11 filing; and

·                  the outcome of our Bankruptcy Petitions for reorganization under Chapter 11of the Bankruptcy Code.

All forward-looking statements speak only as of the date of this quarterly report. You should not place undue reliance on these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this quarterly report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Overview

We are an independent exploration and production company focused on the application of modern drilling and completion techniques to oil-prone resources.  Our common stock was listed on the New York Stock Exchange (the “NYSE”) beginning in 2012 under the symbol “MPO”; however, we were delisted by the NYSE on February 3, 2016 and now trade on the over the counter market under the symbol “MPOY”. The terms “Company,” “we,” “us,” “our,” and similar terms refer to us and our subsidiary, unless the context indicates otherwise.

Our financial results depend upon many factors, but are largely driven by the volume of our oil and natural gas production and the price that we realize from the sale of that production. The amount we realize for our production depends predominantly upon commodity prices and our related commodity price hedging activities, if any, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, pipeline capacity constraints, inventory storage levels, basis differentials, and other factors. Accordingly, finding and developing oil and natural gas reserves at economical costs is critical to our long-term success.

Recent Developments

Chapter 11 Filing

On April 30, 2016, we filed Bankruptcy Petitions for reorganization under the Bankruptcy Code in the Bankruptcy Court.  Our Chapter 11 Cases are being jointly administered under the case styled In re Midstates Petroleum Company, Inc., et al, No. 16-32237.  We will continue to operate our businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.  We will account for the bankruptcy in accordance with FASB ASC 852, “Reorganizations”, in the quarterly period ended June 30, 2016.

By certain “first day” motions filed in the Chapter 11 Cases, we obtained Bankruptcy Court approval to, among other things and subject to the terms of the orders entered by the Bankruptcy Court, pay employee wages, health benefits and certain other employee obligations, pay certain lienholders and forward funds to third parties, including royalty holders and other partners.  As a result, we are not only able to conduct normal business activities and pay all associated obligations for the period following our bankruptcy filing, we are also authorized to pay and have paid pre-petition employee wages and benefits, pre-petition amounts owed to certain lienholders and funds belonging to third parties.  During the pendency of the Chapter 11 Cases, all transactions outside the ordinary course of our business require the prior approval of the Bankruptcy Court.

For the duration of our Chapter 11 Cases, our operations and ability to develop and execute our business plan are subject to the risks and uncertainties associated with the Chapter 11 process.  For example, negative events associated with our Chapter 11 Cases could adversely affect our relationships with our suppliers, service providers, customers, and other third parties and our ability to retain employees, which in turn could adversely affect our operations and financial condition.  For a description of these and other risks, please see 1A. “Risk Factors.”  As a result of these risks and uncertainties, the number of our outstanding shares and shareholders, assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 Cases, and the description of our operations, properties and capital plans included in this quarterly report may not accurately reflect our operations, properties and capital plans following the Chapter 11 process.

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Our filing of the Bankruptcy Petitions described herein constitutes an event of default that accelerated our obligations under the Credit Facility and the Senior Notes.  Additionally, other events of default, including cross-defaults, are present, including the failure to make the April 1, 2016 interest payment on the 2020 Senior Notes within the 30 day grace period, the failure to cure the borrowing base deficiency within the prescribed period and the receipt of a going concern explanatory paragraph from our predecessor independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2015. We have classified all debt as current as of March 31, 2016 and December 31, 2015. If we cannot continue as a going concern, adjustments to the carrying values and classification of our assets and liabilities and our reported income and expenses could be required and could be material.

Operations Update

Mississippian Lime

For the three months ended March 31, 2016 and December 31, 2015, our average daily production from the Mississippian Lime area was as follows:

The following table shows our total number of horizontal wells spud and brought into production in the Mississippian Lime area during the first quarter of 2016:

(1)  We had 1 rig drilling in the Mississippian Lime horizontal well program at March 31, 2016. Of the 15 wells spud, 5 were producing, 9 were awaiting completion and 1 was being drilled at quarter-end.

Anadarko Basin

For the three months ended March 31, 2016 and December 31, 2015, our average daily production from our Anadarko Basin area was as follows:

We did not spud any wells in the Anadarko Basin area and did not have any operated drilling rigs in the area during the first quarter of 2016.

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Capital Expenditures

During the three months ended March 31, 2016, we incurred operational capital expenditures of $54.4 million, which consisted of: