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Alta Mesa Resources facing SEC investigation, possible bankruptcy

Struggling Alta Mesa Resources Inc. has given investors a large helping of bad news as it reported that it is under SEC investigation for potential fraud, is considering bankruptcy and is at risk of being de-listed on the NASDAQ exchange.

In late February, Houston-based Alta Mesa announced in an SEC filing that it had exhibited "ineffective internal control over financial reporting," which led it to overstate the value of its assets. The company said it expected to take an impairment loss of approximately $3.1 billion as a result. It also laid off approximately one-third of its workforce a short time later.

The lack of internal control led to the SEC inquiry, which the company disclosed in a May 17 filing.

"The SEC is conducting a formal investigation into, among other things, the facts involved in the material weakness in our internal controls over financial reporting and the impairment charge disclosed previously and in this annual report," subsidiary Alta Mesa Holdings LP said in its annual report. "If the SEC determines that violations of the federal securities laws have occurred, the agency has a broad range of civil penalties and other remedies available, some of which, if imposed on us, could be material to our business, financial condition or results of operations."

Alta Mesa Resources has been unable to complete its annual report for 2018 or its quarterly report for the first quarter of 2019, which led it to be cited for noncompliance by the Nasdaq. In order to remain listed on the exchange, Alta Mesa must submit a plan to Nasdaq by June 3 on how to rectify the situation, then has 180 days to put the plan into effect.

"The Company continues to make progress in finalizing its Form 10-K as well the first quarter 2019 Forms 10-Q for both Alta Mesa Resources and Alta Mesa Upstream but is unable to estimate the date at which these filings will be completed," the company said in an SEC filing. In a previous update, the company said it anticipates enduring a $13 million loss in the first quarter.

In Alta Mesa Holdings' annual report, the company disclosed that it has approximately $1.08 billion in net debt and could default on some of its loans in the near future.

"Our parent's board of directors and its financial advisors are evaluating the financial alternatives available to it, including, without limitation, seeking amendments or waivers to the covenants or other provisions of our indebtedness, raising new capital from the private or public markets or taking other actions to address our capital structure," the company said. Those other actions, Alta Mesa said, include filing for Chapter 11 bankruptcy.

Alta Mesa, which has been funded largely by private equity, operates in the STACK play of Oklahoma and is led by former Anadarko Petroleum Corp. CEO James Hackett. Since it started trading on the Nasdaq under the stock ticker "AMR" in early April 2018, shares have tumbled from $9.85 per share to 14 cents in mid-afternoon trading May 20. The company's market cap has dropped from an estimated $3.1 billion to under $24 million.